10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2003
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission file number: 1-12079

Calpine Corporation

(A Delaware Corporation)

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

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

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

Yes x    No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x    No o

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

     383,045,514 shares of Common Stock, par value $.001 per share, outstanding on August 8, 2003

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements.
		CONSOLIDATED CONDENSED BALANCE SHEETS
		CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
		CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations.
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K.
EXHIBIT INDEX
SIGNATURES
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT 4.3
EXHIBIT 4.4
EXHIBIT 10.15
EXHIBIT 10.16
EXHIBIT 10.17
EXHIBIT 10.18
EXHIBIT 10.19
EXHIBIT 10.20
EXHIBIT 10.21
EXHIBIT 10.22
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 10.32
EXHIBIT 10.33
EXHIBIT 10.34
EXHIBIT 10.35
EXHIBIT 10.36
EXHIBIT 10.37
EXHIBIT 10.38
EXHIBIT 10.39
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

CALPINE CORPORATION AND SUBSIDIARIES
REPORT ON FORM 10-Q
For the Quarter Ended June 30, 2003

INDEX

		Page No.
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets June 30, 2003 and December 31, 2002		3
	Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002 (Restated)		5
	Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002 (Restated)		7
	Notes to Consolidated Condensed Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		64
Item 4.	Controls and Procedures		64
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		64
Item 4.	Submission of Matters to a Vote of Security Holders		66
Item 6.	Exhibits and Reports on Form 8-K		67
Signatures			72

2

PART I — FINANCIAL INFORMATION

Item 1.   Financial Statements.

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 2003 and December 31, 2002
(in thousands, except share and per share amounts)

			June 30,		December 31,
			2003		2002
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	417,954	$	579,467
	Accounts receivable, net			943,972		745,312
	Margin deposits and other prepaid expense			374,889		152,413
	Inventories			132,524		106,536
	Restricted cash			284,856		176,716
	Current derivative assets			758,161		330,244
	Other current assets			50,534		145,608
		Total current assets		2,962,890		2,236,296
Restricted cash, net of current portion				23,687		9,203
Notes receivable, net of current portion				201,192		195,398
Project development costs				133,865		116,795
Investments in power projects				402,724		421,402
Deferred financing costs				284,482		185,026
Prepaid lease, net of current portion				351,626		301,603
Property, plant and equipment, net				19,867,039		18,846,580
Goodwill				32,720		29,166
Other intangible assets, net				96,282		93,065
Long-term derivative assets				1,370,389		496,028
Other assets				290,446		296,430
		Total assets	$	26,017,342	$	23,226,992
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	1,178,876	$	1,238,192
	Accrued payroll and related expense			61,047		48,322
	Accrued interest payable			203,146		189,336
	Income taxes payable			4,598		3,640
	Notes payable and borrowings under lines of credit, current portion			62,746		340,703
	Capital lease obligation, current portion			3,852		3,454
	Construction/project financing, current portion			345,743		1,307,291
	Current derivative liabilities			700,179		189,356
	Other current liabilities			315,017		246,837
		Total current liabilities		2,875,204		3,567,131
Term loan				949,565		949,565
Notes payable and borrowings under lines of credit, net of current portion				1,284,321		8,249
Capital lease obligation, net of current portion				196,486		197,653
Construction/project financing, net of current portion				4,106,585		3,212,022
Convertible Senior Notes Due 2006				1,200,000		1,200,000
Senior notes				6,920,214		6,894,801
Deferred income taxes, net				1,189,429		1,123,729
Deferred lease incentive				51,980		53,732
Deferred revenue				123,788		154,969
Long-term derivative liabilities				1,356,361		528,400
Other liabilities				220,587		175,655
		Total liabilities		20,474,520		18,065,906
Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trusts				1,124,498		1,123,969
Minority interests				421,597		185,203

3

			June 30,			December 31,
			2003			2002
			(unaudited)
Stockholders’ equity:
	Preferred stock, $.001 par value per share; authorized 10,000,000 shares; issued and outstanding one share in 2003 and 2002			—			—
	Common stock, $.001 par value per share; authorized 1,000,000,000 shares; issued and outstanding 381,260,990 shares in 2003 and 380,816,132 shares in 2002			381			381
	Additional paid-in capital			2,813,490			2,802,503
	Retained earnings			1,211,105			1,286,487
	Accumulated other comprehensive loss			(28,249	)		(237,457	)
		Total stockholders’ equity	$	3,996,727		$	3,851,914
		Total liabilities and stockholders’ equity	$	26,017,342		$	23,226,992

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

4

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2003 and 2002

					Three Months Ended						Six Months Ended
					June 30,						June 30,
					2003			2002			2003			2002
								Restated(1)						Restated(1)
					(In thousands, except per share amounts)
					(Unaudited)
Revenue:
	Electric generation and marketing revenue
		Electricity and steam revenue			$	1,072,636		$	707,312		$	2,194,674		$	1,329,712
		Sales of purchased power for hedging and optimization				744,805			718,157			1,426,089			1,238,208
			Total electric generation and marketing revenue			1,817,441			1,425,469			3,620,763			2,567,920
	Oil and gas production and marketing revenue
		Oil and gas sales				29,490			16,128			55,479			69,204
		Sales of purchased gas for hedging and optimization				328,478			309,352			655,946			432,756
			Total oil and gas production and marketing revenue			357,968			325,480			711,425			501,960
	Trading revenue, net
		Realized revenue on power and gas trading transactions, net				9,060			2,202			30,274			8,431
		Unrealized mark-to-market gain (loss) on power and gas transactions, net				(7,221	)		1,974			(7,992	)		4,791
			Total trading revenue, net			1,839			4,176			22,282			13,222
	Other revenue					8,808			3,247			16,100			5,978
				Total revenue		2,186,056			1,758,372			4,370,570			3,089,080
Cost of revenue:
	Electric generation and marketing expense
		Plant operating expense				164,448			118,415			329,428			234,889
		Royalty expense				6,461			4,194			11,818			8,349
		Purchased power expense for hedging and optimization				738,719			550,879			1,418,668			980,114
			Total electric generation and marketing expense			909,628			673,488			1,759,914			1,223,352
	Oil and gas operating and marketing expense
		Oil and gas operating expense				29,082			22,788			54,773			44,427
		Purchased gas expense for hedging and optimization				331,122			331,392			648,070			452,753
			Total oil and gas operating and marketing expense			360,204			354,180			702,843			497,180
	Fuel expense					555,368			350,298			1,205,604			682,832
	Depreciation, depletion and amortization expense					140,187			103,674			274,897			198,643
	Operating lease expense					28,168			28,239			55,860			56,380
	Other expense					6,870			1,146			12,121			3,098
			Total cost of revenue			2,000,425			1,511,025			4,011,239			2,661,485
				Gross profit		185,631			247,347			359,331			427,595
Loss (income) from unconsolidated investments in power projects						(59,352	)		1,111			(64,475	)		(386	)
Equipment cancellation and impairment charge						19,222			14,200			19,309			182,671
Project development expense						6,072			10,513			11,158			21,851
General and administrative expense						63,820			52,422			117,520			110,248
	Income from operations					155,869			169,101			275,819			113,211
Interest expense						148,879			79,117			291,840			152,822
Distributions on trust preferred securities						15,656			15,655			31,313			31,309
Interest income						(9,002	)		(9,762	)		(17,039	)		(21,938	)
Minority interest expense						5,333			681			7,612			411
Other expense (income)						13,702			(3,718	)		48,293			(16,301	)
	Income (loss) before provision (benefit) for income taxes					(18,699	)		87,128			(86,200	)		(33,092	)
Provision (benefit) for income taxes						(3,881	)		27,767			(20,433	)		(14,801	)
	Income (loss) before discontinued operations and cumulative effect of a change in accounting principle					(14,818	)		59,361			(65,767	)		(18,291	)
Discontinued operations, net of tax provision (benefit) of $(5,330), $4,771, $(6,439) and $5,768						(8,548	)		8,960			(10,144	)		10,939
Cumulative effect of a change in accounting principle, net of tax provision of $—, $—, $450 and $—						—			—			529			—

5

		Three Months Ended					Six Months Ended
		June 30,					June 30,
		2003			2002		2003			2002
					Restated(1)					Restated(1)
		(In thousands, except per share amounts)
		(Unaudited)
	Net income (loss)	$	(23,366	)	$	68,321	$	(75,382	)	$	(7,352	)
Basic earnings (loss) per common share:
	Weighted average shares of common stock outstanding		381,219			356,158		381,089			331,745
	Income (loss) before discontinued operations and cumulative effect of a change in accounting principle	$	(0.04	)	$	0.17	$	(0.17	)	$	(0.06	)
	Discontinued operations, net of tax	$	(0.02	)	$	0.02	$	(0.03	)	$	0.04
	Cumulative affect of a change in accounting principle, net of tax	$	—		$	—	$	—		$	—
	Net income (loss)	$	(0.06	)	$	0.19	$	(0.20	)	$	(0.02	)
Diluted earnings (loss) per common share:
	Weighted average shares of common stock outstanding before dilutive effect of certain convertible securities		381,219			365,606		381,089			331,745
	Income (loss) before dilutive effect of certain convertible securities, discontinued operations and cumulative effect of a change in accounting principle	$	(0.04	)	$	0.16	$	(0.17	)	$	(0.06	)
	Dilutive effect of certain convertible securities	$	—		$	—	$	—		$	—
	Income (loss) before discontinued operations and cumulative effect of a change in accounting principle	$	(0.04	)	$	0.16	$	(0.17	)	$	(0.06	)
	Discontinued operations, net of tax	$	(0.02	)	$	0.02	$	(0.03	)	$	0.04
	Cumulative effect of a change in accounting principle, net of tax	$	—		$	—	$	—		$	—
	Net income (loss)	$	(0.06	)	$	0.18	$	(0.20	)	$	(0.02	)

(1) See Note 2 to Consolidated Condensed Financial Statements regarding the restatement of financial statements.

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

6

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2003 and 2002
(in thousands)
(unaudited)

					Six Months
					Ended
					June 30,
					2003			2002
								Restated(1)
Cash flows from operating activities:
	Net loss				$	(75,382	)	$	(7,352	)
		Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation, depletion and amortization				325,112			243,887
		Equipment cancellation and impairment cost				17,179			182,671
		Deferred income taxes, net				101,802			109,486
		Loss (gain) on sale of assets and development cost write-offs, net				9,367			(3,413	)
		Foreign currency translation loss				44,304			—
		Income from unconsolidated investments in power projects				(64,475	)		(386	)
		Distributions from unconsolidated investments in power projects				121,015			18
		Stock compensation expense				8,423			—
		Gain on repurchase of debt				(6,763	)		(4,773	)
		Other				7,935			(948	)
		Change in operating assets and liabilities, net of effects of acquisitions:
			Accounts receivable			(191,717	)		(33,361	)
			Change in net derivative liability			33,099			(244,088	)
			Other current assets			(145,349	)		167,075
			Other assets			(58,536	)		(4,664	)
			Accounts payable and accrued expense			(34,659	)		(34,295	)
			Other liabilities			21,949			62,738
				Net cash provided by operating activities		113,304			432,595
Cash flows from investing activities:
	Purchases of property, plant and equipment					(1,135,549	)		(2,510,141	)
	Acquisitions, net of cash acquired					(6,818	)		—
	Disposals of property, plant and equipment					13,681			49,822
	Advances to joint ventures					(49,683	)		(43,823	)
	Decrease (increase) in notes receivable					(5,794	)		1,401
	Maturities of collateral securities					3,702			3,325
	Project development costs					(20,513	)		(63,654	)
	Decrease (increase) in restricted cash					(122,623	)		1,041
	Cash flows from derivatives not designated as hedges					30,274			8,431
	Other					(4,480	)		2,164
		Net cash used in investing activities				(1,297,803	)		(2,551,434	)
Cash flows from financing activities:
	Repurchase of Zero-Coupon Convertible Debentures Due 2021					—			(873,227	)
	Repurchases of senior notes					(16,100	)		—
	Borrowings from notes payable and lines of credit					1,013,384			1,077,453
	Repayments of notes payable and lines of credit					(15,269	)		(87,465	)
	Borrowings from project financing					77,013			280,248
	Repayments of project financing					(143,998	)		(92,198	)
	Proceeds from issuance of Convertible Senior Notes Due 2006					—			100,000
	Proceeds from income trust secondary offering					126,462			—
	Proceeds from issuance of common stock					—			751,175
	Proceeds from King City financing transaction					82,000			—
	Financing costs					(134,443	)		(40,024	)
	Other					28,265			562
Net cash provided by financing activities						1,017,314			1,116,524
Effect of exchange rate changes on cash and cash equivalents						5,672			3,958
Net decrease in cash and cash equivalents						(161,513	)		(998,357	)

7

		Six Months
		Ended
		June 30,
		2003		2002
				Restated(1)
Cash and cash equivalents, beginning of period			579,467		1,594,144
Cash and cash equivalents, end of period		$	417,954	$	595,787
Cash paid during the period for:
	Interest, net of amounts capitalized	$	217,543	$	96,260
	Income taxes	$	10,761	$	12,853

(1) See Note 2 to Consolidated Condensed Financial Statements regarding the restatement of financial statements.

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

8

CALPINE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2003
(unaudited)

1. Organization and Operation of the Company

     Calpine Corporation (“Calpine”), a Delaware corporation, and subsidiaries (collectively, the “Company”) is engaged in the generation of electricity in the United States of America, Canada and the United Kingdom. The Company is involved in the development, construction, ownership and operation of power generation facilities and the sale of electricity and its by-product, thermal energy, primarily in the form of steam. The Company has ownership interests in, and operates, gas-fired power generation and cogeneration facilities, gas fields, gathering systems and gas pipelines, geothermal steam fields and geothermal power generation facilities in the United States of America. In Canada, the Company owns oil and gas operations and has ownership interests in, and operates, power facilities. In the United Kingdom, the Company owns and operates a gas-fired power cogeneration facility. Each of the generation facilities produces and markets electricity for sale to utilities and other third party purchasers. Thermal energy produced by the gas-fired power cogeneration facilities is primarily sold to industrial users. Gas produced, and not physically delivered to the Company’s generating plants, is sold to third parties.

2. Summary of Significant Accounting Policies

     Restatement of Prior Period Financial Statements — The accompanying financial statements reflect certain restatements of first and second quarter 2002 amounts, which were included in and described in the Company’s Annual Report on Form 10-K (“Annual Report” or “Form 10-K”) for the year ended December 31, 2002. Subsequent to the issuance of the Company’s Consolidated Condensed Financial Statements as of June 30, 2002, the Company determined that the sale/leaseback transactions for its Pasadena and Broad River facilities should have been accounted for as financing transactions, rather than as sales with operating leases as had been the accounting previously afforded such transactions. Accordingly, these two transactions were restated as financing transactions and the proceeds were classified as debt and the operating lease payments were recharacterized as debt service payments in the accompanying Consolidated Condensed Financial Statements. The Company is therefore now accounting for the assets as if they had not been sold. The assets were added back to the Company’s property, plant and equipment, and depreciation has been recorded thereon.

     In addition the Company has reclassified certain amounts in the accompanying Consolidated Condensed Financial Statements for the three and six months ended June 30, 2002, to reflect the adoption of new accounting standards. The reclassifications include (a) treatment as discontinued operations pursuant to Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) of the 2002 sales of certain oil and gas properties, the Company’s specialty engineering unit and the DePere Energy Center, (b) the reclassification of revenues and costs associated with certain energy trading contracts to trading revenues, net, pursuant to Emerging Issues Task Force (“EITF”) Issue No. 02-3, “Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities” and (c) the adoption of SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” to reclassify gains or losses from extinguishment of debt from extraordinary gain or loss to other income or loss.

     In October 2002 the EITF released EITF Issue No. 02-3, which precludes mark-to-market accounting for all energy trading contracts not within the scope of SFAS No. 133 and mandates that gains and losses on derivative instruments within the scope of SFAS No. 133 should be shown net in the income statement if the derivative instruments are held for trading purposes. EITF Issue No. 02-3 has had no impact on the Company’s net income but did affect the presentation of the prior period Consolidated Financial Statements. Accordingly, the Company reclassified certain prior period revenue amounts and cost of revenue in its Consolidated Statements of Operations. The reclassification of the financial information in accordance with SFAS No. 144, SFAS No. 145 and EITF Issue No. 02-3 discussed above relates exclusively to the presentation and classification of such amounts and has no effect on net income.

     To properly account for the two sale/leaseback transactions as financing transactions, to record certain other adjustments, and to reflect the adoption of new accounting standards as described above, the accompanying Consolidated Condensed Financial Statements for the three and six months ended June 30, 2002, have been restated and differ from amounts previously reported in the Company’s Quarterly Report on Form 10Q for the quarter ended June 30, 2002.

9

     A summary of the significant effects of restatement, along with certain reclassification adjustments, to the consolidated condensed statement of operations for the three and six months ended June 30, 2002 is as follows:

	As Previously
Three months ended June 30, 2002	Reported		As Restated
Sales of purchased power	$	868,606	$	718,157
Oil and gas sales		52,163		16,128
Sales of purchased gas		302,044		309,352
Total revenue		1,941,806		1,758,372
Purchased power expense		698,176		550,879
Purchased gas expense		333,724		331,392
Depreciation, depletion and amortization expense		110,122		103,674
Operating lease expense		36,263		28,239
Gross profit		256,306		247,347
Interest expense		67,058		79,117
Income before discontinued operations and extraordinary items		72,516		59,361
Net income		72,516		68,321
Income per share — basic		0.20		0.19
Income per share — diluted		0.19		0.18

	As Previously
Six months ended June 30, 2002	Reported			As Restated
Sales of purchased power	$	1,776,907		$	1,238,208
Oil and gas sales		119,651			69,204
Sales of purchased gas		434,202			432,756
Total revenue		3,680,153			3,089,080
Purchased power expense		1,513,481			980,114
Purchased gas expense		457,418			452,753
Depreciation, depletion and amortization expense		213,995			198,643
Operating lease expense		72,397			56,380
Gross profit		434,270			427,595
Interest expense		128,369			152,822
Loss before discontinued operations and extraordinary items		(3,881	)		(18,291	)
Net loss		(1,751	)		(7,352	)
Loss per share — basic and diluted		(0.01	)		(0.02	)

     For further information on prior period restatement items, please see Note 2 to the Consolidated Financial Statements included in the Company’s Annual report on Form 10-K for the year ended December 31, 2002.

     Basis of Interim Presentation — The accompanying unaudited interim Consolidated Condensed Financial Statements of the Company have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the Consolidated Condensed Financial Statements include the adjustments necessary to present fairly the information required to be set forth therein. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, these financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended December 31, 2002, included in the Company’s Annual Report on Form 10-K. The results for interim periods are not necessarily indicative of the results for the entire year.

     Use of Estimates in Preparation of Financial Statements — The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. The most significant estimates with regard to these financial statements relate to useful lives and carrying values of assets (including the carrying value of projects in development, construction and operation), provision for income taxes, fair value calculations of

10

derivative instruments and associated reserves, capitalization of interest and depletion, depreciation and impairment of natural gas and petroleum property and equipment.

New Accounting Pronouncements

     In June 2001 the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 applies to fiscal years beginning after June 15, 2002, and amends SFAS No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies.” This standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the assets and requires that a liability for an asset retirement obligation be recognized when incurred, recorded at fair value and classified as a liability in the balance sheet. When the liability is initially recorded, the entity will capitalize the cost and increase the carrying value of the related long-lived asset. Asset retirement obligations represent future liabilities, and, as a result, accretion expense will be accrued on this liability until the obligation is satisfied. At the same time, the capitalized cost will be depreciated over the estimated useful life of the related asset. At the settlement date, the entity will settle the obligation for its recorded amount or recognize a gain or loss upon settlement.

     The Company adopted the new rules on asset retirement obligations on January 1, 2003. As required by the new rules, the Company recorded liabilities equal to the present value of expected future asset retirement obligations at January 1, 2003. The Company identified obligations related to operating gas-fired power plants, geothermal power plants and oil and gas properties. The liabilities are partially offset by increases in net assets, net of accumulated depreciation, recorded as if the provisions of SFAS 143 had been in effect at the date the obligation was incurred, which for power plants is generally the start of commercial operations for the facility.

     Based on current information and assumptions, the Company recorded, as of January 1, 2003, an additional long-term liability of $25.9 million, an additional asset within property, plant and equipment, net of accumulated depreciation, of $26.9 million, and a pre-tax gain to income due to the cumulative effect of a change in accounting principle of $1.0 million. These entries include the effects of the reversal of site dismantlement and restoration costs previously expensed in accordance with SFAS No. 19.

     In June 2002 the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” The Company has adopted, effective January 1, 2003, the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. SFAS No. 146 has not had a material impact on the Company’s Consolidated Condensed Financial Statements.

     In November 2002 the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”).” This Interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, the Interpretation clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations that the guarantor has undertaken in issuing the guarantee. The Company adopted the disclosure requirements of FIN 45 for the fiscal year ended December 31, 2002, and the recognition provisions on January 1, 2003. Adoption of this Interpretation did not have a material impact on the Company’s Consolidated Condensed Financial Statements.

     On January 1, 2003, the Company prospectively adopted the fair value method of accounting for stock-based employee compensation pursuant to SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for companies that voluntarily change their accounting for stock-based compensation from the less preferred intrinsic value based method to the more preferred fair value based method. Prior to its amendment, SFAS No. 123 required that companies enacting a voluntary change in accounting principle from the intrinsic value methodology provided by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” could only do so on a prospective basis; no adoption or transition provisions were established to allow for a restatement of prior period financial statements. SFAS No. 148 provides two additional transition options to report the change in accounting principle — the modified prospective method and the retroactive restatement method. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation

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and the effect of the method used on reported results. The Company has elected to adopt the provisions of SFAS No. 123 on a prospective basis; consequently, the Company is required to provide a pro-forma disclosure of net income and earnings per share as if SFAS No. 123 accounting had been applied to all prior periods presented within its financial statements. As shown below, the adoption of SFAS No. 123 has had a material impact on the Company’s financial statements. The table below reflects the pro forma impact of stock-based compensation on the Company’s net income and earnings per share for the three and six months ended June 30, 2003 and 2002, had the Company applied the accounting provisions of SFAS No. 123 to its prior years’ financial statements.

			Three Months Ended					Six Months Ended
			June 30,					June 30,
			2003			2002		2003			2002
Net income (loss)
	As reported		$	(23,366	)	$	68,321	$	(75,382	)	$	(7,352	)
	Pro Forma			(26,860	)		61,059		(83,657	)		(27,784	)
Earnings per share data:
	Basic earnings (loss) per share
		As reported	$	(0.06	)	$	0.19	$	(0.20	)	$	(0.02	)
		Pro Forma		(0.07	)		0.17		(0.22	)		(0.08	)
	Diluted earnings (loss) per share
		As reported	$	(0.06	)	$	0.18	$	(0.20	)	$	(0.02	)
		Pro Forma		(0.07	)		0.16		(0.22	)		(0.08	)
Stock-based compensation cost, net of tax, included in net income, as reported			$	2,909		$	—	$	6,276		$	—
Stock-based compensation cost, net of tax, included in net income, pro forma				6,403			7,262		14,551			20,432

     The range of fair values of the Company’s stock options granted for the three months ended June 30, 2003 and 2002, respectively, was as follows, based on varying historical stock option exercise patterns by different levels of Calpine employees: $2.52-$4.38 in 2003, $4.86-$6.98 in 2002, on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected dividend yields of 0%, expected volatility of 70.82%-84.93% and 61.20%-68.72% for the three months ended June 30, 2003 and 2002, respectively, risk-free interest rates of 2.47%-3.40% and 3.73%-4.86% for the three months ended June 30, 2003 and 2002, respectively, and expected option terms of 4-9 1/2 years and 4-9 1/2 years for the three months ended June 30, 2003 and 2002, respectively.

     The range of fair values of the Company’s stock options granted for the six months ended June 30, 2003 and 2002, respectively, was as follows, based on varying historical stock option exercise patterns by different levels of Calpine employees: $2.43-$3.41 in 2003, $4.05-$13.83 in 2002, on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected dividend yields of 0%, expected volatility of 70.44%-112.99% and 59.30%-68.72% for the six months ended June 30, 2003 and 2002, respectively, risk-free interest rates of 1.39%-4.04% and 3.73%-5.42% for the six months ended June 30, 2003 and 2002, respectively, and expected option terms of 2 1/2-9 1/2 years and 4-9 1/2 years for the six months ended June 30, 2003 and 2002, respectively.

     In January 2003 the FASB issued FIN 46, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51.” FIN 46 establishes accounting, reporting and disclosure requirements for companies that currently hold investments in Variable Interest Entities (“VIEs”). FIN 46 defines VIEs as entities that meet one or both of two criteria: 1. the entity’s total equity at risk is deemed to be insufficient to finance its ongoing business activities without additional subordinated financial support from other parties, and/or, 2. as a collective group, the entity’s owners do not have a controlling financial interest in the entity, which effectively occurs if the voting rights to, or the entitlement to future returns or risk of future losses from the investment for each of the entity’s owners is inconsistent with the ownership percentages assigned to each owner within the underlying partnership agreement. If an investment is determined to be a VIE, further analysis must be performed to determine which of the VIE’s owners qualifies as the primary beneficiary. The primary beneficiary is the owner of the VIE that is entitled or at risk to earn or absorb the majority of the entity’s expected future returns or losses. An owner that is determined to be the primary beneficiary of a VIE is required to consolidate the VIE into its financial statements, as well as to provide certain disclosures regarding the size and nature of the VIE, the purpose for the investment, and information about the assets being held as collateral on behalf of the VIE. Additionally, the remaining owners of a VIE that do not qualify as the primary beneficiary must determine whether or not they hold significant variable interests within the VIE. An owner with a significant variable interest in a VIE that is not the primary beneficiary is not required to consolidate the VIE but must provide certain disclosures regarding the size and nature of the VIE, the purpose for the investment, its potential exposure to the VIE’s losses,

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and the date it first acquired ownership in the VIE. FIN 46 applies immediately to VIEs created or acquired after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs that were previously created or acquired before February 1, 2003. FIN 46 has not had a material impact on the Company’s Consolidated Condensed Financial Statements, relative to VIEs created after January 31, 2003. One possible consequence of FIN 46 is that certain investments accounted for under the equity method might have to be consolidated. However, based on the Company’s preliminary assessment, and subject to further analysis, the Company does not believe that FIN 46 will require any of the Company’s pre-February 1, 2003 equity method investments to be consolidated.

     In April 2003 the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component, amends the definition of an underlying to conform it to language used in FIN 45, and amends certain other existing pronouncements. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively, with the exception of certain SFAS No. 133 implementation issues that were effective for all fiscal quarters prior to June 15, 2003. Any such implementation issues should continue to be applied in accordance with their respective effective dates. The Company does not believe that SFAS No. 149 will have a material impact on its financial statements.

     In May 2003 the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has not completed its assessment of the impact of SFAS No. 150. However, the Company believes that adoption of SFAS No. 150 might require the Company to reclassify its $1.1 billion trust preferred securities (“HIGH TIDES”) which are shown on the balance sheet as “Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trusts,” as debt. Similarly, the Company may be required to reclassify some portion of its $422 million of “Minority interests” on the balance sheet as debt. These reclassifications would not affect net income or total stockholders equity but would impact the Company’s debt-to-equity and debt-to-capitalization ratios.

     In June 2003, the FASB issued Derivatives Implementation Group (“DIG”) Issue No. C20, “Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature.” DIG Issue No. C20 superseded DIG Issue No. C11 “Interpretation of Clearly and Closely Related in Contracts That Qualify for the Normal Purchases and Normal Sales Exception,” and specified additional circumstances in which a price adjustment feature in a derivative contract would not be an impediment to qualifying for the normal purchases and normal sales scope exception under SFAS No. 133. DIG Issue No. C20 is effective as of the first day of the fiscal quarter beginning after July 10, 2003, (i.e. October 1, 2003, for the Company) with early application permitted. It should be applied prospectively for all existing contracts as of the effective date and for all future transactions. In conjunction with initially applying the implementation guidance, DIG Issue No. C20 requires the recognition of a special transition adjustment for certain contracts containing a price adjustment feature based on a broad market index for which the normal purchases and normal sales scope exception had been previously elected. In those circumstances, the derivative contract should be recognized at fair value as of the date of the initial application with a corresponding adjustment of net income as the cumulative effect of a change in accounting principle.

     Certain of the Company’s power sales contracts, which meet the definition of a derivative and for which it previously elected the normal purchases and normal sales scope exception, use a CPI or similar index to escalate the O&M charges. Accordingly, DIG Issue No. C20 will require the Company to record a special transition accounting adjustment upon adoption of the new guidance to record these contracts at fair value with a corresponding adjustment to net income as the effect of a change in accounting principle. The fair value of these contracts will be based in large part on the nature and extent of the key price adjustment features of the contracts and market conditions on the date of adoption, such as the forward price of power and natural gas and the expected future rate of inflation. Although the final amount of the adjustment, if any, will not be known until actual adoption of DIG Issue No. C20, based upon contracts currently identified as potentially being subject to DIG Issue No. C20 and market prices as of August 4, 2003, the Company estimates that it will recognize net derivative assets between $237 million and $356 million and a cumulative effect adjustment to net income between $147 million and $221 million, net of tax. Assuming the contracts meet the new conditions for qualifying for the normal purchases and normal sales exception and the Company makes that election, the recorded balance for these contracts would reverse through charges to income

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over the life of the long term contracts, which extend out as far as the year 2020, as deliveries of power are made. To the extent any contract fails to meet the new requirements in DIG Issue No. C20 or the Company does not elect the scope exception, it would be required to recognize subsequent changes in the fair value of those contracts in earnings each period. The Company anticipates that it will adopt DIG Issue No. C20 on October 1, 2003. Upon adoption of DIG Issue No. C20, the Company expects, subject to further analysis, that most of its structured power sales contracts will meet the criteria for the normal purchases and sales exception under SFAS No. 133 and that it will make that election.

     Reclassifications — Prior period amounts in the Consolidated Condensed Financial Statements have been reclassified where necessary to conform to the 2003 presentation.

3. Property, Plant and Equipment, Net; Capitalized Interest; Project Development Costs; and Equipment for Future Use in Other Assets

     Property, plant and equipment, net, consisted of the following (in thousands):

	June 30,			December 31,
	2003			2002
Buildings, machinery, and equipment	$	13,139,352		$	10,290,250
Oil and gas properties, including pipelines		2,247,005			2,031,026
Geothermal properties		407,912			402,643
Other		222,566			183,580
		16,016,835			12,907,499
Less: accumulated depreciation, depletion and amortization		(1,563,061	)		(1,220,094	)
		14,453,774			11,687,405
Land		86,993			82,158
Construction in progress		5,326,272			7,077,017
Property, plant and equipment, net	$	19,867,039		$	18,846,580

     Construction in Progress — Construction in progress (“CIP”) is primarily attributable to gas-fired power projects under construction including prepayments on gas and steam turbine generators and other long lead-time items of equipment for certain development projects not yet in construction. Upon commencement of plant operation, these costs are transferred to the applicable property category, generally buildings, machinery and equipment. Further detail of CIP is presented below under Capital Spending — Development and Construction.

     Capitalized Interest — The Company capitalizes interest on capital invested in projects during the advanced stages of development and the construction period in accordance with SFAS No. 34, “Capitalization of Interest Cost,” as amended by SFAS No. 58, “Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method (an Amendment of FASB Statement No. 34).” The Company’s qualifying assets include construction in progress, certain oil and gas properties under development, construction costs related to unconsolidated investments in power projects under construction, and advanced stage development costs. For the three months ended June 30, 2003 and 2002, the total amount of interest capitalized was $116.5 million and $171.0 million, respectively, including $18.8 million and $37.0 million, respectively, of interest incurred on funds borrowed for specific construction projects and $97.7 million and $134.0 million, respectively, of interest incurred on general corporate funds used for construction. For the six months ended June 30, 2003 and 2002, the total amount of interest capitalized was $235.0 million and $334.1 million, respectively, including $38.4 million and $72.1 million, respectively, of interest incurred on funds borrowed for specific construction projects and $196.6 million and $262.0 million, respectively, of interest incurred on general corporate funds used for construction. Upon commencement of plant operation, capitalized interest, as a component of the total cost of the plant, is amortized over the estimated useful life of the plant. The decrease in the amount of interest capitalized during the three months ended June 30, 2003 reflects the completion of construction for several power plants and the result of the current suspension of certain of the Company’s development projects.

     In accordance with SFAS No. 34, the Company determines which debt instruments best represent a reasonable measure of the cost of financing construction assets in terms of interest cost incurred that otherwise could have been avoided. These debt instruments and associated interest cost are included in the calculation of the weighted average interest rate used for capitalizing interest on general funds. The primary debt instruments included in the rate calculation of interest incurred on general corporate funds are the Company’s Senior Notes, the Company’s term loan facility and the secured working capital revolving credit facilities.

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Capital Spending — Development and Construction

     Construction and development costs consisted of the following at June 30, 2003 (in thousands):

						Equipment		Project		Equipment for
		# of				Included in		Development		Future Use in
		Projects		CIP		CIP		Costs		Other Assets
Projects in active construction			13	$	3,888,748	$	1,470,038	$	—	$	—
Projects in advanced development			11		732,498		646,380		112,940		—
Projects in suspended development			6		598,014		326,577		12,767		—
Projects in early development			3		3,800		—		8,158		—
Other capital projects		NA			103,212		—		—		—
Unassigned turbines		NA			—		—		—		133,447
	Total construction and development costs			$	5,326,272	$	2,442,995	$	133,865	$	133,447

     Projects in Active Construction — The 13 projects in active construction are estimated to come on line from November 2003 to June 2005. These projects will bring on line approximately 6,485 and 7,558 MW of base load and base load with peaking capacity, respectively. Interest and other costs related to the construction activities necessary to bring these projects to their intended use are being capitalized. The estimated cost to complete these projects, net of expected project financing proceeds, is approximately $1.1 billion.

     Projects in Advanced Development — There are 11 projects in advanced development. Of the total amount capitalized approximately $646.4 million relates to equipment, primarily turbine progress payments. These projects will bring on line approximately 6,011 and 7,209 MW of base load and base load with peaking capacity, respectively. Interest and other costs related to the development activities necessary to bring these projects to their intended use are being capitalized. However, the capitalization of interest has been suspended on one project for which development activities are complete but construction will not commence until a power purchase agreement and financing are obtained. The estimated cost to complete these projects is approximately $3.6 billion. The Company’s current plan is to project finance these costs as power purchase agreements are arranged.

     Suspended Development Projects — Due to current electric market conditions, the Company has ceased capitalization of additional development costs and interest expense on certain development projects on which work has been suspended. Capitalization of costs may recommence as work on these projects resumes, if certain milestones and criteria are met indicating that it is again highly probable that the costs will be recovered through future operations. As is true for all projects, the suspended projects are reviewed for impairment whenever there is an indication of potential reduction in a project’s fair value. Further, if it is determined that it is no longer probable that the projects will be completed and all capitalized costs recovered through future operations, the carrying values of the projects would be written down to the recoverable value. These projects would bring on line approximately 2,938 and 3,418 MW of base load and base load with peaking capacity, respectively. The estimated cost to complete these projects is approximately $1.5 billion. Of the amount capitalized approximately $326.6 million relates to equipment cost, primarily turbine progress payments.

     Projects in Early Development — Costs for projects that are in early stages of development are capitalized only when it is highly probable that such costs are ultimately recoverable and significant project milestones are achieved. Until then all costs, including interest costs are expensed. The projects in early development with capitalized costs relate to three projects and include geothermal drilling costs and equipment purchases.

     Other Capital Projects — Other capital projects primarily consist of enhancements to operating power plants, oil and gas and geothermal resource and facilities development as well as software developed for internal use.

     Unassigned Equipment — As of June 30, 2003, the Company had made progress payments on 7 turbines, 14 heat recovery steam generators, and other equipment with an aggregate carrying value of $110.4 million classified on the balance sheet as other assets, that are not assigned to specific development and construction projects and which the Company is holding for potential use on future projects. It is possible that some of this unassigned equipment may eventually be sold, potentially in combination with the Company’s engineering and construction services. For equipment that is not assigned to development or construction projects, interest is not capitalized. The Company has $23.1 million, net of impairment in other current assets relating to turbines that the Company considers held for sale. SFAS No. 144 requires long-lived assets classified as held for sale to be written down to their fair market value, less disposal costs. During the quarter ended June 30, 2003, the Company recorded an impairment of $17.2 million on the turbines classified as held for sale. The Company reviews its other unassigned equipment for potential impairment based on probability-weighted alternatives of utilizing it for future projects versus selling it. Utilizing this methodology, the Company does not believe that the equipment not committed to

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sale is impaired. However, during the second quarter of 2003, the Company recorded approximately $17.2 million in losses in connection with the sale of two turbines, and it may incur further losses should it decide to sell more equipment in the future.

     Impairment Evaluation — All active, construction and development projects, including unassigned turbines are reviewed for impairment whenever there is an indication of potential reduction in a project’s fair value. Equipment assigned to such projects is not evaluated for impairment separately, as it is integral to the assumed future operations of the project to which it is assigned. If it is determined that it is no longer probable that the projects will be completed and all capitalized costs recovered through future operations, the carrying values of the projects would be written down to the recoverable value in accordance with the provisions of SFAS No. 144.

4. Goodwill and Other Intangible Assets

     Recorded goodwill was $32.7 million and $29.2 million as of June 30, 2003, and December 31, 2002, respectively, and is included in the corporate and other reporting unit.

     The increase in goodwill during 2003 is due to a $3.5 million accrual in anticipation of certain contingent payments that the Company will pay in December 2003 related to performance incentives under the terms of the PSM purchase agreement.

     The Company also reassessed the useful lives and the classification of its identifiable intangible assets and determined that they continue to be appropriate. The components of the amortizable intangible assets consist of the following (in thousands):

		Weighted
		Average		As of June 30, 2003					As of December 31, 2002
		Useful
		Life/Contract		Carrying		Accumulated			Carrying		Accumulated
		Life		Amount		Amortization			Amount		Amortization
Patents			5	$	485	$	(279	)	$	485	$	(231	)
Power sales agreements			14		156,814		(108,394	)		156,814		(106,227	)
Fuel supply and fuel management contracts			26		22,198		(4,549	)		22,198		(4,105	)
Geothermal lease rights			20		19,518		(400	)		19,518		(350	)
Steam purchase agreement			14		5,340		(687	)		5,201		(486	)
Other			8		6,386		(150	)		319		(71	)
	Total			$	210,741	$	(114,459	)	$	204,535	$	(111,470	)

     Amortization expense of other intangible assets was $1.2 million and $6.0 million in the three months ended June 30, 2003 and 2002, respectively, and $3.0 million and $12.1 million in the six months ended June 30, 2003 and 2002, respectively. Assuming no future impairments of these assets or additions as the result of acquisitions, amortization expense for the twelve months ended December 31 will be $5.5 million in 2003, $5.0 million in 2004, $5.0 million in 2005, $4.9 million in 2006 and $4.9 million in 2007.

5. Financing

     As of June 30, 2003, $930.1 million outstanding under the Company’s $1.0 billion construction revolving credit facility, $453.4 million outstanding under the Company’s working capital revolving credit facility and $949.6 million outstanding under the term facility were classified as long-term debt in the accompanying consolidated condensed balance sheet as the Company has since replaced (or will imminently replace) the debt with other long-term debt instruments, as disclosed in Note 15. Comparable reclassifications were made to the accompanying consolidated condensed balance sheet as of December 31, 2002.

     On April 29, 2003, the Company sold a preferred interest in a subsidiary that leases and operates the 115-megawatt (“MW”) King City Power Plant to GE Structured Finance for $82 million. The preferred interest holder will receive approximately 60% of future cash flow distributions based on current projections. Due to its beneficial interest, the Company will continue to fully consolidate the entity and will continue to provide O&M services.

     On May 15, 2003, the Company’s wholly owned subsidiary, Calpine Northbrook Energy Marketing, LLC (“CNEM”), completed the $82.8 million monetization of an existing power sales agreement with the Bonneville Power Administration (“BPA”). Under the existing 100-MW fixed-price contract, CNEM delivers baseload power to BPA through December 31, 2006. As a part of the monetization transaction, CNEM entered into a contract with a third party to purchase power based on spot prices and a fixed-price

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swap agreement with an affiliate of Deutsche Bank to lock in the price of the purchased power. The terms of both agreements are through December 31, 2006. To complete the monetization, CNEM then entered into an agreement with an affiliate of Deutsche Bank and borrowed $82.8 million secured by the spread between the BPA contract and the fixed power purchases. Proceeds from the borrowing will be used to pay transaction expenses for plant construction and general corporate purposes, as well as fees and expenses associated with the monetization. CNEM will make quarterly principal and interest payments on the loan that matures on December 31, 2006. CNEM has been established as a bankruptcy-remote entity and the $82.8 million loan is recourse only to CNEM’s assets and is not guaranteed by the Company.

     On June 2, 2003, Standard & Poor’s (“S&P”) downgraded Calpine’s corporate credit rating to B from BB. The ratings on the Company’s senior unsecured debt, convertible preferred securities, secured corporate revolver and secured term loan were also lowered. The S&P downgrade does not trigger any defaults under the Company’s credit agreements, and the Company continues to conduct its business with its usual creditworthy counterparties.

     On June 13, 2003, Power Contract Financing, L.L.C. (“PCF”), a wholly owned stand-alone subsidiary of CES, completed an offering of approximately $340 million of 5.2% Senior Secured Notes Due 2006 and approximately $462 million of 6.256% Senior Secured Notes Due 2010. The two tranches of Senior Secured Notes, totaling approximately $802 million of gross proceeds, are secured by fixed cash flows from one of CES’s fixed-priced, long-term power sales agreements with the State of California Department of Water Resources and a new fixed-priced, long-term power purchase agreement with a third party and are non-recourse to the Company’s other consolidated subsidiaries. The two tranches of Senior Secured Notes have been rated Baa2 by Moody’s Investor Service, Inc. and BBB (with a negative outlook) by S&P.

     In June 2003 the Company repurchased Pound Sterling 14.0 million (US$23.3 million) in aggregate outstanding principal amount of its 8 7/8% Senior Notes Due 2011 at a redemption price of Pound Sterling 9.7 million (US$16.1 million) plus accrued interest to the redemption date. The Company recorded a pre-tax gain on these transactions in the amount of $6.8 million.

     One of the Company’s wholly-owned subsidiaries, South Point Energy Center, LLC, leases the 530-MW South Point power facility located in Arizona, pursuant to certain facility lease agreements. The Company has recently become aware that a technical default has occurred under such facility lease agreements as a result of an inadvertent pledge of the ownership interests in such subsidiary granted pursuant to certain separate loan facilities entered into by the Company. The Company is currently working with the lenders of such loan facilities to release the inadvertent pledge. The South Point facility lease was entered into as part of a larger transaction, which also involved the lease by two other subsidiaries of the Company of the following two power facilities: the 850-MW Broad River power facility located in South Carolina, and the 520-MW RockGen power facility located in Wisconsin. As all three lease transactions were part of the same overall transaction, the facility lease agreements for Broad River and RockGen contain cross-default provisions to the South Point facility lease agreements and, therefore, a technical default also exists under the Broad River and RockGen facility lease agreements. However, upon the anticipated release of the inadvertent South Point pledge, the default under the Broad River and RockGen facility lease agreements will also be cured. The Company believes that this release will occur and the default will be cured and, therefore, will not have a material adverse effect on the Company.

6. Investments in Power Projects

     The Company’s investments in power projects are integral to its operations. In accordance with APB Opinion No. 18, “The Equity Method of Accounting For Investments in Common Stock” and FASB Interpretation No. 35, “Criteria for Applying the Equity Method of Accounting for Investments in Common Stock (An Interpretation of APB Opinion No. 18),” they are accounted for under the equity method, and are as follows (in thousands):

		Ownership			Investment Balance at
		Interest as of			June 30,
		June 30,
		2003			2003		2002
Acadia Power Plant			50.0	%	$	228,888	$	261,233
Grays Ferry Power Plant			40.0	%		39,361		29,791
Aries Power Plant			50.0	%		56,446		29,708
Gordonsville Power Plant			50.0	%		22,347		24,865
Androscoggin Power Plant			32.3	%		10,849		12,493
Whitby Cogeneration			20.8	%		43,810		45,383
Other			—			1,023		17,929
	Total investments in power projects				$	402,724	$	421,402

     The debt on the books of the unconsolidated power projects is not reflected on the Company’s balance sheet. At June 30, 2003, based on the Company’s pro rata ownership share of each of the investments, the Company’s share of the combined debt balance of $543.5 million would be approximately $195.7 million. However, all such debt is non-recourse to the Company.

     One of the Company’s unconsolidated equity method investees, Androscoggin Energy LLC (“AELLC”), which owns the 160-MW Androscoggin Energy Center located in Maine, in which the Company owns a 32.3% interest, has construction debt with $63 million outstanding as of June 30, 2003, that is non-recourse to Calpine Corporation (the “AELLC Non-Recourse Financing”). On June 30, 2003, the Company’s investment balance was $10.8 million and its notes receivable balance due from AELLC was $7.4 million. On August 8, 2003, AELLC received a letter from the lenders claiming that certain events of default have occurred under the credit agreement for the AELLC Non-Recourse Financing, including, among other things, that the project has been and remains in

17

default under its debt agreement because the lending syndication has declined to extend the dates for the conversion of the construction loan by a certain date. AELLC is currently discussing with the banks a forbearance arrangement until an agreement is reached concerning the extension, conversion or repayment of the debt; however, the outcome is uncertain at this point. Also, the steam host for the AELLC project, International Paper Company (“IP”), filed a complaint against AELLC in October 2000, which is disclosed in Note 12. IP’s complaint has been a complicating factor in converting the construction debt to long term financing.

     Another of the Company’s unconsolidated equity method investees, Merchant Energy Partners Pleasant Hill, LLC (“Aries”), which owns the 591-MW Aries Power Project located in Pleasant Hill, Missouri, in which the Company owns a 50% interest, has $195 million of debt as of June 30, 2003, that was due on June 26, 2003. Due to the default, the partners were required to contribute their proportionate share of $75 million in additional equity. During the quarter, the Company drew down $37.5 million under its working capital revolver to fund its equity contribution. The management of Aries is in negotiation with the lenders to extend the debt while it continues to negotiate a term loan for the project. The project is technically in default of its debt agreement until the extension is signed. The Company believes that the project will be able to obtain long-term project financing at commercially reasonable terms. As a result of this event, the Company has reviewed its $56.5 million investment in the Aries project and believes that the investment is not impaired.

     The following details the Company’s income and distributions from investments in unconsolidated power projects (in thousands):

					Income						Distributions
		Ownership
		Interest			For the Six Months Ended June 30,
					2003			2002			2003		2002
Acadia Power Plant (1)			50.0	%	$	66,057		$	—		$	119,950	$	—
Gordonsville Power Plant			50.0	%		3,210			3,184			1,050		—
Lockport Power Plant (2)			—	%		—			1,570			—		—
Whitby Power Plant			20.8	%		1,231			370			—		—
Aries Power Plant			50.0	%		(599	)		571			—		—
Androscoggin Power Plant			32.3	%		(3,690	)		(1,039	)		—		—
Grays Ferry Power Plant			40.0	%		(1,929	)		(2,191	)		—		—
Other			—			195			(2,079	)		15		18
	Total				$	64,475		$	386		$	121,015	$	18

     The Company provides for deferred taxes to the extent that distributions exceed earnings.

(1)

On May 12, 2003, the Company completed the restructuring of its interest in Acadia Power Partners, LLC (“Acadia”), a 50/50 joint venture between Calpine and Cleco Corporation (“Cleco”). As part of the transaction, the partnership terminated its 580-MW, 20-year tolling arrangement with a subsidiary of Aquila in return for a cash payment of $105.5 million. Acadia recorded a gain of $105.5 million and then made a $105.5 million distribution to Calpine. Subsequently, CES, a wholly owned subsidiary of Calpine, entered into a new 20-year, 580-MW tolling contract with Acadia. CES will now market all of the output from the Acadia Power Project under the terms of this new contract and an existing 20-year tolling agreement. Cleco will receive priority cash distributions as its consideration for the restructuring. As a result of this transaction, the Company recorded, as its share of the termination payment from the Aquila subsidiary, a $52.8 million gain which was recorded within income from unconsolidated investments in power projects.

(2)

On March 29, 2002, the Company sold its 11.4% interest in the Lockport Power Plant in exchange for a $27.3 million note receivable, which was subsequently paid in full, from Fortistar Tuscarora LLC, a wholly owned subsidiary of Fortistar LLC, the project’s managing general partner. This transaction resulted in a pre-tax gain of $9.7 million recorded in other income.

7. Discontinued Operations

     As a result of the significant contraction in the availability of capital for participants in the energy sector, the Company has adopted a strategy of conserving its core strategic assets and selectively disposing of certain less strategically important assets, which serves primarily to raise cash for general corporate purposes and strengthen the Company’s balance sheet through repayment of debt. Set forth below are all of the Company’s asset disposals by reportable segment that impacted the Company’s Consolidated Condensed Financial Statements for the six months ended June 30, 2003:

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Corporate and Other

     In June 2003 the Company agreed to the divestiture of its specialty data center engineering business and estimated and recorded a pre-tax loss on the sale of $3.3 million. The Company subsequently completed the transaction on July 31, 2003.

Oil and Gas Production and Marketing

     On August 29, 2002, the Company completed the sale of certain oil and gas properties (“Medicine River properties”) located in central Alberta to NAL Oil and Gas Trust and another institutional investor for Cdn$125.0 million (US$80.1 million). As a result of the sale, the Company recorded a pre-tax gain of $21.9 million in the third quarter 2002.

     On October 1, 2002, the Company completed the sale of substantially all of its British Columbia oil and gas properties to Calgary, Alberta-based Pengrowth Corporation for gross proceeds of approximately Cdn$387.5 million (US$244.3 million). Of the total consideration, the Company received US$155.9 million in cash. The remaining US$88.4 million of consideration was paid by Pengrowth Corporation’s purchase in the open market of US$203.2 million in aggregate principal amount of the Company’s debt securities. As a result of the transaction, the Company recorded a US$37.4 million pre-tax gain on the sale of the properties and a gain on the extinguishment of debt of US$114.8 million in the third quarter 2002. The Company used approximately US$50.4 million of cash proceeds to repay amounts outstanding under its US$1.0 billion term loan.

     On October 31, 2002, the Company sold all of its oil and gas properties in Drake Bay Field located in Plaquemines Parish, Louisiana for approximately $3 million to Goldking Energy Corporation. As a result of the sale, the Company recognized a pre-tax loss of $0.02 million in the third quarter 2002.

Electric Generation and Marketing

     On December 16, 2002, the Company completed the sale of the 180-MW DePere Energy Center in DePere, Wisconsin. The facility was sold to Wisconsin Public Service for $120.4 million, which included $72.0 million in cash at closing and a $48.4 million payment due in December 2003. As a result of the sale, the Company recognized a pre-tax gain of $35.8 million. On December 17, 2002, the Company sold its right to the December 2003 payment to a third party for $46.3 million, and recognized a pre-tax loss of $2.1 million.

Summary

     The table below presents significant components of the Company’s income from discontinued operations for the three and six months ended June 30, 2003 and 2002, respectively (in thousands):

	Three Months Ended June 30, 2003
	Electric		Oil and Gas		Corporate
	Generation		Production		and
	and Marketing		and Marketing		Other			Total
Total revenue	$	—	$	—	$	1,985		$	1,985
Loss on disposal before taxes	$	—	$	—	$	(3,294	)	$	(3,294	)
Operating loss from discontinued operations before taxes		—		—		(10,584	)		(10,584	)
Loss from discontinued operations, before taxes	$	—	$	—	$	(13,878	)	$	(13,878	)
Loss on disposal, net of tax	$	—	$	—	$	(2,042	)	$	(2,042	)
Operating loss from discontinued operations, net of tax		—		—		(6,506	)		(6,506	)
Loss from discontinued operations, net of tax	$	—	$	—	$	(8,548	)	$	(8,548	)

	Six Months Ended June 30, 2003
	Electric		Oil and Gas		Corporate
	Generation		Production		and
	and Marketing		and Marketing		Other			Total
Total revenue	$	—	$	—	$	3,748		$	3,748
Loss on disposal before taxes	$	—	$	—	$	(3,294	)	$	(3,294	)

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	Six Months Ended June 30, 2003
	Electric		Oil and Gas		Corporate
	Generation		Production		and
	and Marketing		and Marketing		Other			Total
Operating loss from discontinued operations before taxes		—		—		(13,289	)		(13,289	)
Loss from discontinued operations, before taxes	$	—	$	—	$	(16,583	)	$	(16,583	)
Loss on disposal, net of tax	$	—	$	—	$	(2,042	)	$	(2,042	)
Operating loss from discontinued operations, net of tax		—		—		(8,102	)		(8,102	)
Loss from discontinued operations, net of tax	$	—	$	—	$	(10,144	)	$	(10,144	)

	Three Months Ended June 30, 2002
	Electric		Oil and Gas		Corporate
	Generation		Production		and
	and Marketing		and Marketing		Other		Total
Total revenue	$	4,469	$	29,439	$	2,002	$	35,909
Loss on disposal before taxes	$	—	$	—	$	—	$	—
Operating income from discontinued operations before taxes		1,347		12,263		121		13,731
Income from discontinued operations, before taxes	$	1,347	$	12,263	$	121	$	13,731
Loss on disposal, net of tax	$	—	$	—	$	—	$	—
Operating income from discontinued operations, net of tax		915		7,971		74		8,960
Income from discontinued operations, net of tax	$	915	$	7,971	$	74	$	8,960

	Six Months Ended June 30, 2002
	Electric		Oil and Gas		Corporate
	Generation		Production		and
	and Marketing		and Marketing		Other		Total
Total revenue	$	6,962	$	47,563	$	3,829	$	58,353
Loss on disposal before taxes	$	—	$	—	$	—	$	—
Operating income from discontinued operations before taxes		2,581		14,114		13		16,707
Income from discontinued operations, before taxes	$	2,581	$	14,114	$	13	$	16,707
Loss on disposal, net of tax	$	—	$	—	$	—	$	—
Operating income from discontinued operations, net of tax		1,757		9,174		8		10,939
Income from discontinued operations, net of tax	$	1,757	$	9,174	$	8	$	10,939

     The Company allocates interest expense associated with consolidated non-specific debt to its discontinued operations based on a ratio of the net assets of its discontinued operations to the Company’s total consolidated net assets, in accordance with EITF Issue No. 87-24, “Allocation of Interest to Discontinued Operations” (“EITF Issue No. 87-24”). Also in accordance with EITF Issue No. 87-24, the Company allocated interest expense to its British Columbia oil and gas properties for approximately $50.4 million of debt the Company was required to repay under the terms of its $1.0 billion term loan. For the three and six months ended June 30, 2002, the Company allocated interest expense of $1.9 million and $3.0 million, respectively, to its discontinued operations. No interest expense was allocated to discontinued operations in 2003.

8. Derivative Instruments

Commodity Derivative Instruments

     As an independent power producer primarily focused on generation of electricity using gas-fired turbines, the Company’s natural physical commodity position is “short” fuel (i.e., natural gas consumer) and “long” power (i.e., electricity seller). To manage forward exposure to price fluctuation in these and (to a lesser extent) other commodities, the Company enters into derivative commodity instruments. The Company enters into commodity instruments to convert floating or indexed electricity and gas (and to a lesser extent oil and refined product) prices to fixed prices in order to lessen its vulnerability to reductions in electric prices for the electricity it generates and to increases in gas prices for the fuel it consumes in its power plants. The Company seeks to “self-hedge” its gas consumption exposure to an extent with its own gas production position. Any hedging, balancing, or optimization activities that the Company engages in are directly related to the Company’s asset-based business model of owning and operating gas-fired electric power plants and are designed to protect the Company’s “spark spread” (the difference between the Company’s fuel cost and the revenue it receives for its electric generation). The Company hedges exposures that arise from the ownership and operation of power

20

plants and related sales of electricity and purchases of natural gas, and the Company utilizes derivatives to optimize the returns it is able to achieve from these assets. From time to time the Company has entered into contracts considered energy trading contracts under EITF Issue No. 02-3. However, the Company’s traders have low capital at risk and value at risk limits for energy trading, and its risk management policy limits, at any given time, its net sales of power to its generation capacity and limits its net purchases of gas to its fuel consumption requirements on a total portfolio basis. This model is markedly different from that of companies that engage in significant commodity trading operations that are unrelated to underlying physical assets. Derivative commodity instruments are accounted for under the requirements of SFAS No. 133.

     The Company also routinely enters into physical commodity contracts for sales of its generated electricity and purchases of natural gas ensure favorable utilization of generation and production assets. Such contracts often meet the criteria of SFAS No. 133 as derivatives but are generally eligible for the normal purchases and sales exception. Some of those contracts that are not deemed normal purchases and sales can be designated as hedges of the underlying consumption of gas or production of electricity.

Interest Rate and Currency Derivative Instruments

     The Company also enters into various interest rate swap agreements to hedge against changes in floating interest rates on certain of its financing facilities. The interest rate swap agreements effectively convert floating rates into fixed rates so that the Company can predict with greater assurance what its future interest costs will be and protect itself against increases in floating rates.

     In conjunction with its capital markets activities, the Company enters into various forward interest rate agreements to hedge against interest rate fluctuations that may occur after the Company has decided to issue long-term fixed rate debt but before the debt is actually issued. The forward interest rate agreements effectively prevent the interest rates on anticipated future long-term debt from increasing beyond a certain level, allowing the Company to predict with greater assurance what its future interest costs on fixed rate long-term debt will be.

     The Company enters into various foreign currency swap agreements to hedge against changes in exchange rates on certain of its senior notes denominated in currencies other than the U.S. dollar. The foreign currency swaps effectively convert floating exchange rates into fixed exchange rates so that the Company can predict with greater assurance what its U.S. dollar cost will be for purchasing foreign currencies to satisfy the interest and principal payments on these senior notes.

     The table below reflects the amounts (in thousands) that are recorded as assets and liabilities at June 30, 2003, for the Company’s derivative instruments:

		Interest			Commodity
		Rate			Derivative			Total
		Derivative			Instruments			Derivative
		Instruments			Net			Instruments
Current derivative assets		$	—		$	758,161		$	758,161
Long-term derivative assets			—			1,370,389			1,370,389
	Total assets	$	—		$	2,128,550		$	2,128,550
Current derivative liabilities		$	(15,088	)	$	(685,091	)	$	(700,179	)
Long-term derivative liabilities			(32,204	)		(1,324,157	)		(1,356,361	)
	Total liabilities	$	(47,292	)	$	(2,009,248	)	$	(2,056,540	)
Net derivative assets (liabilities)		$	(47,292	)	$	119,302		$	72,010

     At any point in time, it is highly unlikely that total net derivative assets and liabilities will equal accumulated OCI, net of tax from derivatives, for three primary reasons:

• Tax effect of OCI — When the values and subsequent changes in values of derivatives that qualify as effective hedges are recorded into OCI, they are initially offset by a derivative asset or liability. Once in OCI, however, these values are tax effected against a deferred tax liability, thereby creating an imbalance between net OCI and net derivative assets and liabilities.

• Derivatives not designated as cash flow hedges and hedge ineffectiveness — Only derivatives that qualify as effective cash flow hedges will have an offsetting amount recorded in OCI. Derivatives not designated as cash flow hedges and the

21

ineffective portion of derivatives designated as cash flow hedges will be recorded into earnings instead of OCI, creating a difference between net derivative assets and liabilities and pre-tax OCI from derivatives.

•

Termination of effective cash flow hedges prior to maturity — Following the termination of a cash flow hedge, changes in the derivative asset or liability are no longer recorded to OCI. At this point, an accumulated OCI balance remains that is not recognized in earnings until the forecasted initially hedged transactions occur. As a result, there will be a temporary difference between OCI and derivative assets and liabilities on the books until the remaining OCI balance is recognized in earnings.

     Below is a reconciliation from the Company’s net derivative assets to its accumulated other comprehensive loss, net of tax from derivative instruments at June 30, 2003 (in thousands):

Net derivative assets	$	72,010
Derivatives not designated as cash flow hedges and recognized hedge ineffectiveness		(160,460	)
Cash flow hedges terminated prior to maturity		(177,963	)
Deferred tax asset attributable to accumulated other comprehensive loss on cash flow hedges		105,578
Accumulated OCI from unconsolidated investees		(1,967	)
Other reconciling items		40
Accumulated other comprehensive loss from derivative instruments, net of tax (1)	$	(162,762	)

(1) Amount represents one portion of the Company’s total accumulated OCI balance. See Note 9 — “Comprehensive Income (Loss)” for further information.

     The asset and liability balances for the Company’s commodity derivative instruments represent the net totals after offsetting certain assets against certain liabilities under the criteria of FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts (an Interpretation of APB Opinion No. 10 and FASB Statement No. 105)” (“FIN 39”). For a given contract, FIN 39 will allow the offsetting of assets against liabilities so long as four criteria are met: (1) each of the two parties under contract owes the other determinable amounts; (2) the party reporting under the offset method has the right to set off the amount it owes against the amount owed to it by the other party; (3) the party reporting under the offset method intends to exercise its right to set off; and; (4) the right of set-off is enforceable by law. The table below reflects both the amounts (in thousands) recorded as assets and liabilities by the Company and the amounts that would have been recorded had the Company’s commodity derivative instrument contracts not qualified for offsetting as of June 30, 2003.

		June 30, 2003
		Gross			Net
Current derivative assets		$	1,774,801		$	758,161
Long-term derivative assets			1,617,994			1,370,389
	Total derivative assets	$	3,392,795		$	2,128,550
Current derivative liabilities		$	(1,701,732	)	$	(685,091	)
Long-term derivative liabilities			(1,571,761	)		(1,324,157	)
	Total derivative liabilities	$	(3,273,493	)	$	(2,009,248	)
	Net commodity derivative assets	$	119,302		$	119,302

     The table above excludes the value of interest rate and currency derivative instruments.

     The table below reflects the impact of the Company’s derivative instruments on its pre-tax earnings, both from cash flow hedge ineffectiveness and from unrealized mark-to-market activity of derivatives not designated as hedges of cash flows, for the three and six months ended June 30, 2003 and 2002, respectively (in thousands):

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		Three Months Ended June 30,
		2003									2002
		Hedge			Undesignated						Hedge			Undesignated
		Ineffectiveness			Derivatives			Total			Ineffectiveness			Derivatives			Total
Natural gas derivatives (1)		$	2,067		$	3,556		$	5,623		$	279		$	(4,194	)	$	(3,915	)
Power derivatives (1)			(1,612	)		(11,232	)		(12,844	)		(1,002	)		6,891			5,889
Interest rate derivatives (2)			(275	)		—			(275	)		(188	)		—			(188	)
	Total	$	180		$	(7,676	)	$	(7,496	)	$	(911	)	$	2,698		$	1,787

		Six Months Ended June 30,
		2003									2002
		Hedge			Undesignated						Hedge			Undesignated
		Ineffectiveness			Derivatives			Total			Ineffectiveness			Derivatives			Total
Natural gas derivatives (1)		$	8,180		$	1,579		$	9,759		$	5,764		$	(11,029	)	$	(5,265	)
Power derivatives (1)			(4,638	)		(13,113	)		(17,751	)		(1,224	)		11,280			10,056
Interest rate derivatives (2)			(484	)		—			(484	)		(340	)		—			(340	)
	Total	$	3,058		$	(11,534	)	$	(8,476	)	$	4,200		$	252		$	4,452

(1)	Recorded within unrealized mark-to-market gain (loss) on power and gas transactions, net
(2)	Recorded within Other Income

     The table below reflects the contribution of the Company’s cash flow hedge activity to pre-tax earnings based on the reclassification adjustment from OCI to earnings for the three and six months ended June 30, 2003 and 2002, respectively (in thousands):

		Three Months Ended June 30,
		2003			2002
Natural gas and crude oil derivatives		$	(2,998	)	$	(39,277	)
Power derivatives			(4,223	)		75,313
Interest rate derivatives			(3,451	)		(2,550	)
Foreign currency derivatives			(729	)		15,439
	Total derivatives	$	(11,401	)	$	48,925

		Six Months Ended June 30,
		2003			2002
Natural gas and crude oil derivatives		$	32,164		$	(75,043	)
Power derivatives			(55,549	)		161,780
Interest rate derivatives			(14,093	)		(4,474	)
Foreign currency derivatives			11,828			15,152
	Total derivatives	$	(25,650	)	$	97,415

     As of June 30, 2003, the maximum length of time over which the Company was hedging its exposure to the variability in future cash flows for forecasted transactions was 8 1/2 and 11 1/2 years, for commodity and interest rate derivative instruments, respectively. The Company estimates that pre-tax losses of $85.9 million would be reclassified from accumulated OCI into earnings during the twelve months ended June 30, 2004, as the hedged transactions affect earnings assuming constant gas and power prices, interest rates, and exchange rates over time; however, the actual amounts that will be reclassified will likely vary based on the probability that gas and power prices as well as interest rates and exchange rates will, in fact, change. Therefore, management is unable to predict what the actual reclassification from OCI to earnings (positive or negative) will be for the next twelve months.

     The table below presents (in thousands) the pre-tax gains (losses) currently held in OCI that will be recognized annually into earnings, assuming constant gas and power prices, interest rates, and exchange rates over time.

																2008
	2003			2004			2005			2006			2007			& After		Total
Crude oil OCI	$	(1,135	)	$	—		$	—		$	—		$	—		$	—	$	(1,135	)
Gas OCI		47,575			20,982			(36,691	)		16,162			1,413			4,960		54,401
Power OCI		(51,622	)		(69,054	)		(43,190	)		(27,686	)		(1,441	)		361		(192,632	)

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																	2008
		2003			2004			2005			2006			2007			& After			Total
Interest rates OCI			(13,196	)		(23,298	)		(18,505	)		(14,079	)		(10,641	)		(40,376	)		(120,095	)
Foreign currency OCI			(974	)		(1,984	)		(2,020	)		(2,048	)		(1,678	)		(175	)		(8,879	)
	Total OCI	$	(19,352	)	$	(73,354	)	$	(100,406	)	$	(27,651	)	$	(12,347	)	$	(35,230	)	$	(268,340	)

9. Comprehensive Income (Loss)

     Comprehensive income (loss) is the total of net income (loss) and all other non-owner changes in equity. Comprehensive income (loss) includes net income (loss) and unrealized gains and losses from derivative instruments that qualify as hedges. The Company reports accumulated other comprehensive loss in its Consolidated Condensed Balance Sheets. The tables below detail the changes in the Company’s accumulated OCI balance and the components of the Company’s comprehensive income (loss) (in thousands):

									Total			Comprehensive
									Accumulated			Income (Loss)
									Other			for the Three
						Foreign			Comprehensive			Months Ended
			Cash Flow			Currency			Income			March 31, 2003
			Hedges			Translation			(Loss)			and June 30, 2003
Accumulated other comprehensive loss at January 1, 2003			$	(224,414	)	$	(13,043	)	$	(237,457	)
Net loss for the three months ended March 31, 2003												$	(52,016	)
	Cash flow hedges:
		Comprehensive pre-tax gain on cash flow hedges before reclassification adjustment during the three months ended March 31, 2003		27,827
		Reclassification adjustment for loss included in net loss for the three months ended March 31, 2003		14,249
		Income tax provision for the three months ended March 31, 2003		(10,927	)
				31,149						31,149			31,149
		Foreign currency translation gain for the three months ended March 31, 2003		—			84,062			84,062			84,062
Total comprehensive income for the three months ended March 31, 2003												$	63,195
Accumulated other comprehensive loss at March 31, 2003			$	(193,265	)	$	71,019		$	(122,246	)
Net loss for the three months ended June 30, 2003												$	(23,366	)
	Cash flow hedges:
		Comprehensive pre-tax gain on cash flow hedges before reclassification adjustment during the three months ended June 30, 2003	$	47,892
		Reclassification adjustment for loss included in net loss for the three months ended June 30, 2003		11,401
		Income tax provision for the three months ended June 30, 2003		(28,790	)
				30,503						30,503			30,503
		Foreign currency translation gain for the three months ended June 30, 2003					63,494			63,494			63,494
Total comprehensive income for the three months ended June 30, 2003												$	70,631
Total comprehensive income for the six months ended June 30, 2003												$	133,826
Accumulated other comprehensive loss at June 30, 2003			$	(162,762	)	$	134,513		$	(28,249	)

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									Total			Comprehensive
									Accumulated			Income (Loss)
									Other			for the Three
						Foreign			Comprehensive			Months Ended
			Cash Flow			Currency			Income			March 31, 2002
			Hedges			Translation			(Loss)			and June 30, 2002
Accumulated other comprehensive loss at January 1, 2002			$	(180,819	)	$	(60,061	)	$	(240,880	)
Net loss for the three months ended March 31, 2002												$	(75,673	)
	Cash flow hedges:
		Comprehensive pre-tax gain on cash flow hedges before reclassification adjustment during the three months ended March 31, 2002		130,436
		Reclassification adjustment for gain included in net loss for the three months ended March 31, 2002		(48,490	)
		Income tax provision for the three months ended March 31, 2002		(32,034	)
				49,912						49,912			49,912
		Foreign currency translation loss for the three months ended March 31, 2002		—			(25,171	)		(25,171	)		(25,171	)
Total comprehensive loss for the three months ended March 31, 2002												$	(50,932	)
Accumulated other comprehensive loss at March 31, 2002			$	(130,907	)	$	(85,232	)	$	(216,139	)
Net income for the three months ended June 30, 2002												$	68,321
	Cash flow hedges:
		Comprehensive pre-tax gain on cash flow hedges before reclassification adjustment during the three months ended June 30, 2002	$	49,035
		Reclassification adjustment for gain included in net income for the three months ended June 30, 2002		(48,925	)
		Income tax benefit for the three months ended June 30, 2002		9,490
				9,600						9,600			9,600
		Foreign currency translation gain for the three months ended June 30, 2002					78,776			78,776			78,776
Total comprehensive income for the three months ended June 30, 2002												$	156,697
Total comprehensive income for the six months ended June 30, 2002												$	105,765
Accumulated other comprehensive loss at June 30, 2002			$	(121,307	)	$	(6,456	)	$	(127,763	)

10. Counterparties

     The Company’s customer and supplier base is concentrated within the energy industry. As a result, the Company has exposure to trends within the energy industry, including declines in the creditworthiness of its risk management transactional counterparties. Currently, multiple companies within the energy industry are in bankruptcy or have below investment grade credit ratings. The Company has exposure to two counterparties, NRG Power Marketing, Inc. (“NRG”) and Americas Energy Marketing, L.P. (“Mirant”), which have filed for bankruptcy. Additionally, the Company has exposure to Aquila, Inc. and its affiliate, Aquila Merchant Services, Inc. (collectively “Aquila”) and Williams Energy Marketing & Trading Company (“Williams”), which are rated less than investment grade by the credit rating agencies. The Company believes that its credit exposure to other companies in the energy industry is not significant either by individual company or in the aggregate. The table below shows our exposure to the two bankrupt companies, NRG and Mirant, as well as the two largest exposures to below investment grade companies, Aquila and Williams, at June 30, 2003 (in thousands):

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				Net Accounts
	Net			Receivable
	Derivative			and						Letters of Credit,
	Assets and			Accounts						Margin or Other			Net
	Liabilities			Payable			Reserve			Offsets			Exposure
NRG	$	(1,799	)	$	13,133		$	(2,354	)	$	—		$	8,980
Mirant	$	(926	)	$	1,833		$	—		$	—		$	907
Aquila	$	75,028		$	3,309		$	(2,948	)	$	(65,660	)(1)	$	9,729
Williams	$	29,560		$	(9,266	)	$	(416	)	$	2,300	(2)	$	22,178

(1)	$37.6 million margin deposit held by the Company on its balance sheet classified as other current liabilities plus $28.1 million of fair value of contractual commitments, which the Company has not recognized in its balance sheet because they are accounted for as normal purchases and sales.
(2)	Margin deposits held by Williams.

     On May 14, 2003, NRG Energy, Inc. (“NRG”) and several affiliates filed chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the Southern District of New York. Calpine has filed proofs of claim in the NRG bankruptcy for certain contingent, unliquidated amounts, and pre-bankruptcy petition and post-bankruptcy petition delivery of electric energy by Calpine to NRG for April and the first half of May 2003. At June 30, 2003, the Company had approximately $9.0 million in net exposure.

     At June 30, 2003, the Company had approximately $0.9 million in net exposure to Mirant. On July 14, 2003, Mirant Americas Energy Marketing, L.P. (“Mirant”) and several affiliates filed chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the Northern District of Texas. As of June 30, 2003, the Company’s exposure to Mirant is subject to defenses, counterclaims, rights of setoff, recoupment and other mitigating factors, under an existing Master Power Purchase and Sale Agreement between the parties (the “Master Agreement”). Pursuant to an order entered by the bankruptcy court on July 15, 2003, Mirant has timely made all payments under the Master Agreement, on both pre- and post-petition obligations. The Company has also executed a post-petition assurance agreement with Mirant, covering continued performance of Mirant’s post-petition obligations on its contracts with Calpine. If Mirant’s motion for approval of the assumption of the Master Agreement is granted by the bankruptcy court, Mirant will be required to continue to timely pay all post-petition obligations under the Master Agreement. Additionally, the post-petition assurance agreement provides certain other protections to Calpine.

11. Earnings (Loss) per Share

     Basic earnings (loss) per common share (“EPS”) were computed by dividing net loss by the weighted average number of common shares outstanding for the period. The dilutive effect of the potential exercise of outstanding options to purchase shares of common stock is calculated using the treasury stock method. The dilutive effect of the assumed conversion of certain convertible securities into the Company’s common stock is based on the dilutive common share equivalents and the after tax interest expense and distribution expense avoided upon conversion. The reconciliation of basic loss per common share to diluted loss per share is shown in the following table (in thousands, except per share data).

	Periods Ended June 30,
	2003								2002
	Net			Weighted					Net		Weighted
	Income			Average					Income		Average
	(Loss)			Shares		EPS			(Loss)		Shares		EPS
THREE MONTHS:
Basic earnings (loss) per common share:
Income (loss) before discontinued operations	$	(14,818	)		381,219	$	(0.04	)	$	59,361		356,158	$	0.17
Discontinued operations, net of tax		(8,548	)		—		(0.02	)		8,960		—		0.02
Net income (loss)	$	(23,366	)		381,219	$	(0.06	)	$	68,321		356,158	$	0.19
Diluted earnings (loss) per common share:
Common shares issuable upon exercise of stock options using treasury stock method					—							9,448

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	Periods Ended June 30,
	2003								2002
	Net			Weighted					Net		Weighted
	Income			Average					Income		Average
	(Loss)			Shares		EPS			(Loss)		Shares		EPS
Income (loss) before dilutive effect of certain convertible securities, discontinued operations and cumulative effect of a change in accounting principle	$	(14,818	)		381,219	$	(0.04	)	$	59,361		365,606	$	0.16
Dilutive effect of certain convertible securities		—			—		—			11,306		85,320		—
Income (loss) before discontinued operations and cumulative effect of a change in accounting principle		(14,818	)		381,219		(0.04	)		70,667		450,926		0.16
Discontinued operations, net of tax		(8,548	)		—		(0.02	)		8,960				0.02
Cumulative effect of a change in accounting principle, net of tax		—			—		—							—
Net income (loss)	$	(23,366	)		381,219	$	(0.06	)	$	79,627		450,926	$	0.18

	Periods Ended June 30,
	2003								2002
	Net			Weighted					Net			Weighted
	Income			Average					Income			Average
	(Loss)			Shares		EPS			(Loss)			Shares		EPS
SIX MONTHS:
Basic and diluted loss per common share:
Loss before discontinued operations and cumulative effect of a change in accounting principle	$	(65,767	)		381,089	$	(0.17	)	$	(18,291	)		331,745	$	(0.06	)
Discontinued operations, net of tax		(10,144	)				(0.03	)		10,939					0.04
Cumulative effect of a change in accounting principle, net of tax		529			—		—			—			—		—
Net loss	$	(75,382	)		381,089	$	(0.20	)	$	(7,352	)		331,745	$	(0.02	)

     Because of the Company’s losses for the three months ended June 30, 2003, and the six months ended June 30, 2003 and 2002, basic shares were used in the calculations of fully diluted loss per share, under the guidelines of SFAS No. 128, “Earnings per Share,” as using the basic shares produced the more dilutive effect on the loss per share. Potentially convertible securities and unexercised employee stock options to purchase 118,701,972 and 148,183,384 shares of the Company’s common stock were not included in the computation of diluted shares outstanding during the six months ended June 30, 2003 and 2002, respectively, because such inclusion would be anti-dilutive.

12. Commitments and Contingencies

     Capital Expenditures – On February 11, 2003, the Company announced a significant restructuring of its turbine agreements which has enabled the Company to cancel up to 131 steam and gas turbines. The Company recorded a pre-tax charge of $207.4 million in the quarter ending December 31, 2002, in connection with fees paid to vendors to restructure these contracts. To date 39 of these turbines have been cancelled, leaving the disposition of 92 turbines still to be determined.

     In July 2003 the Company completed a restructuring of its existing agreements for 20 gas and 2 steam turbines. The new agreement provides for later payment dates, which are in line with the Company’s construction program. The table below sets forth future turbine payments for construction and development projects, as well as for unassigned turbines. It includes previously delivered turbines, payments and delivery year for the remaining 10 turbines to be delivered as well as payment required for the potential cancellation costs of the remaining 92 gas and steam turbines. The table does not include payments that would result if the Company were to release for manufacturing any of these remaining 92 turbines.

Year	Total (in thousands)		Units To Be Delivered
2003	$	83,573		2
2004		158,673		8
2005		19,597		—
Total	$	261,843		10

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     Litigation — The Company is party to various litigation matters arising out of the normal course of business, the more significant of which are summarized below. The ultimate outcome of each of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated. The liability the Company may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters and, as a result, these matters may potentially be material to the Company’s Consolidated Condensed Financial Statements.

     Securities Class Action Lawsuits. Since March 11, 2002, fourteen shareholder lawsuits have been filed against Calpine and certain of its officers in the United States District Court, Northern District of California. The actions captioned Weisz vs. Calpine Corp., et al., filed March 11, 2002, and Labyrinth Technologies, Inc. v. Calpine Corp., et al., filed March 28, 2002, are purported class actions on behalf of purchasers of Calpine stock between March 15, 2001 and December 13, 2001. Gustaferro v. Calpine Corp., filed April 18, 2002, is a purported class action on behalf of purchasers of Calpine stock between February 6, 2001 and December 13, 2001. The eleven other actions, captioned Local 144 Nursing Home Pension Fund vs. Calpine Corp., Lukowski vs. Calpine Corp., Hart vs. Calpine Corp., Atchison vs. Calpine Corp., Laborers Local 1298 v. Calpine Corp., Bell v. Calpine Corp., Nowicki v. Calpine Corp. Pallotta v. Calpine Corp., Knepell v. Calpine Corp., Staub v. Calpine Corp, and Rose v. Calpine Corp. were filed between March 18, 2002 and April 23, 2002. The complaints in these eleven actions are virtually identical – they are filed by three law firms, in conjunction with other law firms as co-counsel. All eleven lawsuits are purported class actions on behalf of purchasers of Calpine’s securities between January 5, 2001 and December 13, 2001.

     The complaints in these fourteen actions allege that, during the purported class periods, certain Calpine executives issued false and misleading statements about Calpine’s financial condition in violation of Sections 10(b) and 20(1) of the Securities Exchange Act of 1934, as well as Rule 10b-5. These actions seek an unspecified amount of damages, in addition to other forms of relief.

     In addition, a fifteenth securities class action, Ser v. Calpine, et al., was filed on May 13, 2002. The underlying allegations in the Ser action are substantially the same as those in the above-referenced actions. However, the Ser action is brought on behalf of a purported class of purchasers of Calpine’s 8.5% Senior Notes due February 15, 2011 (“2011 Notes”) and the alleged class period is October 15, 2001 through December 13, 2001. The Ser complaint alleges that, in violation of Sections 11 and 15 of the Securities Act of 1933, the Supplemental Prospectus for the 2011 Notes contained false and misleading statements regarding Calpine’s financial condition. This action names Calpine, certain of its officers and directors, and the underwriters of the 2011 Notes offering as defendants, and seeks an unspecified amount of damages, in addition to other forms of relief.

     All fifteen of these securities class action lawsuits were consolidated in the U.S. District Court Northern District Court of California. The plaintiffs filed a first amended complaint in October 2002. The amended complaint does not include the 1933 Act complaints raised in the bondholders’ complaint, and the number of defendants named was reduced. On January 16, 2003, before our response was due to this amended complaint, the plaintiffs filed a further amended complaint. This further amended complaint added a few additional Calpine executives as defendants and addressed a few more issues. We filed a motion to dismiss this consolidated action in early April 2003. A hearing on this motion was scheduled for July 29, 2003. However, the court took the motions to dismiss and the plaintiffs’ motion in opposition under submission without a hearing. A ruling on these motions is expected in the fall. We consider the lawsuit to be without merit and we intend to defend vigorously against these allegations.

     Hawaii Structural Ironworkers Pension Fund v. Calpine, et al. A securities class action, Hawaii Structural Ironworkers Pension Fund v. Calpine, et al., was filed on March 11, 2003, against Calpine, its directors and certain investment banks in the California Superior Court, San Diego County. The underlying allegations in the Hawaii Structural Ironworkers Pension Fund action (“Hawaii action”) are substantially the same as the federal securities class actions described above. However, the Hawaii action is brought on behalf of a purported class of purchasers of the Company’s equity securities sold to public investors in its April 2002 equity offering. The Hawaii action alleges that the Registration Statement and Prospectus filed by Calpine which became effective on April 24, 2002, contained false and misleading statements regarding the Company’s financial condition in violation of Sections 11, 12 and 15 of the Securities Act of 1933. The Hawaii action relies in part on the Company’s restatement of certain past financial results, announced on March 3, 2003, to support its allegations. The Hawaii action seeks an unspecified amount of damages, in addition to other forms of relief. The Company removed the Hawaii action to federal court in April 2003 and filed a motion to transfer the case for consolidation with the other securities class action lawsuits in the U.S. District Court Northern District Court of California in May 2003. The plaintiff has sought to have the action remanded to state court. As of the date of this periodic filing, we are awaiting the court’s ruling with respect to the motion to remand. The Company considers this lawsuit to be without merit and intends to defend vigorously against it.

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     Phelps v. Calpine Corporation, et al. On April 17, 2003, a participant in the Calpine Corporation Retirement Savings Plan (the “401(k) Plan”) filed a class action lawsuit in the Northern District Court of California. The underlying allegations in this action (“Phelps action”) are substantially the same as those in the securities class actions described above. However, the Phelps action is brought on behalf of a purported class of participants in the 401(k) Plan. The Phelps action alleges that various filings and statements made by Calpine during the class period were materially false and misleading, and that the defendants failed to fulfill their fiduciary obligations as fiduciaries of the 401(k) Plan by allowing the 401(k) Plan to invest in Calpine common stock. The Phelps action seeks an unspecified amount of damages, in addition to other forms of Shareholder relief. In May 2003 Lennette Poor-Herena, another participant in the 401(k) Plan, filed a substantially similar class action lawsuit as the Phelps action also in the Northern District of California. Plaintiffs’ counsel is the same in both of these actions, and they have agreed to consolidate these two cases and to coordinate them with the consolidated federal securities class actions described above. The Company considers these lawsuits to be without merit and intends to vigorously defend against them.

     Johnson v. Peter Cartwright, et al. On December 17, 2001, a shareholder filed a derivative lawsuit on behalf of the Company against its directors and one if its senior officers. This lawsuit is captioned Johnson v. Cartwright, et al. and is pending in the California Superior Court, Santa Clara County. The Company is a nominal defendant in this lawsuit, which alleges claims relating to purportedly misleading statements about Calpine and stock sales by certain of the director defendants and the officer defendant. In December 2002 the court dismissed the complaint with respect to certain of the director defendants for lack of personal jurisdiction, though the plaintiff may appeal this ruling. In early February 2003 the plaintiff filed an amended complaint. In March 2003 the Company and the individual defendants filed demurrers and motions to stay this proceeding in favor of the federal securities class actions described above. In July 2003 the Court granted the motions to stay this proceeding in favor of the federal securities class actions. The Company considers this lawsuit to be without merit and intends to vigorously defend against it.

     Calpine Corporation v. Automated Credit Exchange. On March 5, 2002, the Company sued Automated Credit Exchange (“ACE”) in the Superior Court of the State of California for the County of Alameda for negligence and breach of contract to recover reclaim trading credits, a form of emission reduction credits that should have been held in the Company’s account with U.S. Trust Company (“US Trust”). Calpine wrote off $17.7 million in December 2001 related to losses that it alleged were caused by ACE. Calpine and ACE entered into a settlement agreement on March 29, 2002, pursuant to which ACE made a payment to the Company of $7 million and transferred to the Company the rights to the emission reduction credits to be held by ACE. The Company recognized the $7 million in the second quarter of 2002. In June 2002 a complaint was filed by InterGen North America, L.P. (“InterGen”) against Anne M. Sholtz, the owner of ACE, and EonXchange, another Sholtz-controlled entity, which filed for bankruptcy protection on May 6, 2002. InterGen alleges it suffered a loss of emission reduction credits from EonXchange in a manner similar to the Company’s loss from ACE. InterGen’s complaint alleges that Anne Sholtz co-mingled assets among ACE, EonXchange and other Sholtz entities and that ACE and other Sholtz entities should be deemed to be one economic enterprise and all retroactively included in the EonXchange bankruptcy filing as of May 6, 2002. Ann Sholtz recently stipulated to agree to the consolidation of Anne Sholtz, ACE and other Sholtz entities in the EonXchange bankruptcy proceeding. On July 10, 2003, Howard Grobstein, the Trustee in the EonXchange bankruptcy, filed a complaint for avoidance against Calpine, seeking recovery of the $7 million (plus interest and costs) paid to Calpine in the March 29, 2002 Settlement Agreement. The complaint claims that the $7 million received by Calpine in the Settlement Agreement was transferred within 90 days of the filing of bankruptcy and therefore should be avoided and preserved for the benefit of the bankruptcy estate. Calpine believes that it has valid defenses to this claim and will vigorously defend against this complaint.

     International Paper Company v. Androscoggin Energy LLC. In October 2000 International Paper Company (“IP”) filed a complaint in the Federal District Court for the Northern District of Illinois against Androscoggin Energy LLC (“AELLC”) alleging that AELLC breached certain contractual representations and warranties by failing to disclose facts surrounding the termination, effective May 8, 1998, of one of AELLC’s fixed-cost gas supply agreements. The Company had acquired a 32.3% interest in AELLC as part of the SkyGen transaction which closed in October 2000. AELLC filed a counterclaim against IP that has been referred to arbitration. AELLC may commence the arbitration counterclaim after discovery has progressed further. On November 7, 2002, the court issued an opinion on the parties’ cross motions for summary judgment finding in AELLC’s favor on certain matters though granting summary judgment to IP on the liability aspect of a particular claim against AELLC. The Court also denied a motion submitted by IP for preliminary injunction to permit IP to make payment of funds into escrow (not directly to AELLC) and require AELLC to post a significant bond. The Court has a set schedule for disclosure of expert witness and depositions thereof and has tentatively scheduled the case for trial in the first quarter of 2004.

     In mid-April of 2003 IP unilaterally availed itself to self-help in withholding amounts in excess of $2.0 million as a set-off for litigation expenses and fees incurred to date as well as an estimated portion of a rate fund to AELLC. AELLC has submitted an amended complaint and request for immediate injunctive relief against such actions. The Court heard the motion on April 24, 2003, and ordered that IP must pay the approximate $1.2 million withheld as attorneys’ fees related to the litigation as any such perceived

29

entitlement was premature, but deferred to provide injunctive relief on the incomplete record concerning the offset of $799,000 as an estimated pass-through of the rate fund. IP complied with the order on April 29, 2003, and tendered payment to AELLC of the approximate $1.2 million. On June 26, 2003, the court entered an order dismissing AELLC’s Amended Counterclaim without prejudice to AELLC refilling the claims as breach of contract claims in a separate lawsuit. On June 30, 2003, AELLC filed a motion to reconsider the order dismissing AELLC’s Amended Counterclaim. The Company believes it has adequately reserved for the possible loss, if any, it may ultimately incur as a result of this matter.

     On July 22, 2003, Pacific Gas and Electric Company (“PG&E”) filed with the California Public Utilities Commission (“CPUC”) a Compliant of PG&E and Request for Immediate Issuance of an Order to Show Cause (“Complaint”) against Calpine Corporation, CPN Pipeline Company, Calpine Energy Services, L.P., Calpine Natural Gas Company, Lodi Gas Storage, LLC (“LGS”) and Doe Defendants 1-10. The complaint requests the CPUC to issue an order requiring the defendants to show cause why they should not be ordered to cease and desist from using any direct interconnections between the facilities of CPN Pipeline and those of LGS unless LGS and Calpine first seek and obtain regulatory approval from the CPUC. The Complaint also seeks an order directing defendants to pay to PG&E any underpayments of PG&E’s tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS’ direct interconnections to any entity other than PG&E. The Complaint also alleges that various natural gas consumers, including Company-affiliated generation projects within California, are engaged with defendants in the acts complained of, and that the defendants unlawfully bypass PG&E’s system and operate as an unregulated local distribution company within PG&E’s service territory. The Company believes this Complaint to be without merit and intends to vigorously defend its position at the CPUC. The Company is contractually obligated to indemnify LGS for certain damages it may suffer as a result of the Complaint.

13. Operating Segments

     The Company is first and foremost an electric generating company. In pursuing this single business strategy, it is the Company’s objective to produce at a level of approximately 25% of its fuel consumption requirements from its own natural gas reserves (“equity gas”). Since the Company’s oil and gas production and marketing activity has reached the quantitative criteria to be considered a reportable segment under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the following represents reportable segments and their defining criteria. The Company’s segments are electric generation and marketing; oil and gas production and marketing; and corporate and other activities. Electric generation and marketing includes the development, acquisition, ownership and operation of power production facilities, hedging, balancing, optimization, and trading activity transacted on behalf of the Company’s power generation facilities. Oil and gas production includes the ownership and operation of gas fields, gathering systems and gas pipelines for internal gas consumption, third party sales and hedging, balancing, optimization, and trading activity transacted on behalf of the Company’s oil and gas operations. Corporate activities and other consists primarily of financing activities and general and administrative costs. Certain costs related to company-wide functions are allocated to each segment, such as interest expense, distributions on HIGH TIDES, and interest income, which are allocated based on a ratio of segment assets to total assets.

     The Company evaluates performance based upon several criteria including profits before tax. The financial results for the Company’s operating segments have been prepared on a basis consistent with the manner in which the Company’s management internally disaggregates financial information for the purposes of assisting in making internal operating decisions.

     Due to the integrated nature of the business segments, estimates and judgments have been made in allocating certain revenue and expense items, and reclassifications have been made to prior periods to present the allocation consistently.

		Electric				Oil and Gas
		Generation				Production
		and Marketing				and Marketing					Corporate and Other						Total
		2003		2002		2003		2002			2003			2002			2003			2002
		(In thousands)
For the three months ended June 30,
	Revenue from external customers	$	2,153,382	$	1,769,413	$	23,323	$	(9,120	)	$	9,351		$	(1,921	)	$	2,186,056		$	1,758,372
	Intersegment Revenue		—		—		102,495		52,313			—			—			102,495			52,313
	Segment profit (loss)		3,381		140,968		25,901		1,553			(47,981	)		(55,393	)		(18,699	)		87,128
	Equipment cancellation cost		19,222		14,200		—		—			—			—			19,222			14,200

		Electric					Oil and Gas
		Generation					Production
		and Marketing					and Marketing				Corporate and Other						Total
		2003			2002		2003		2002		2003			2002			2003			2002
		(In thousands)
For the six months ended June 30,
	Revenue from external customers	$	4,309,852		$	3,042,973	$	49,436	$	45,721	$	11,282		$	386		$	4,370,570		$	3,089,080
	Intersegment Revenue		—			—		227,708		69,954		—			—			227,708			69,954
	Segment profit (loss)		(44,052	)		74,412		69,519		2,996		(111,667	)		(110,500	)		(86,200	)		(33,092	)
	Equipment cancellation cost		19,309			182,671		—		—		—						19,309			182,671

		Electric		Oil and Gas		Corporate, Other
		Generation		Production		and
		and Marketing		and Marketing		Eliminations		Total
		(In thousands)
Total assets:
	June 30, 2003	$	23,780,506	$	1,703,952	$	532,884	$	26,017,342
	December 31, 2002	$	18,587,342	$	1,713,085	$	2,926,565	$	23,226,992

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     Intersegment revenues primarily relate to the use of internally procured gas for the Company’s power plants. These intersegment revenues have been eliminated in the oil and gas production and marketing segment revenue, but have been included in the segment’s measure of income before taxes.

14. California Power Market

     California Refund Proceeding — On August 2, 2000, the California Refund Proceeding was initiated by a complaint made at FERC by San Diego Gas & Electric Company and under Section 206 of the Federal Power Act alleging, among other things, that the markets operated by the California Independent System Operator (“CAISO”) and the California Power Exchange (“CalPX”) were dysfunctional. In addition to commencing an inquiry regarding the market structure, FERC established a refund effective period of October 2, 2000, to June 19, 2001, for sales made into those markets.

     On December 12, 2002, the Administrative Law Judge issued a Certification of Proposed Finding on California Refund Liability (“December 12 Certification”) making an initial determination of refund liability. On March 26, 2003, FERC also issued an order adopting many of the ALJ’s findings set forth in the December 12 Certification (the “March 26 Order”). In addition, as a result of certain findings by the FERC staff concerning the unreliability or misreporting of certain reported indices for gas prices in California during the refund period, FERC ordered that the basis for calculating a party’s potential refund liability be modified by substituting a gas proxy price based upon gas prices in the producing areas plus the tariff transportation rate for the California gas price indices previously adopted in the refund proceeding. The Company believes, based on the available information, that any refund liability that may be attributable to it will increase modestly, from approximately $6.2 million to $8.4 million, after taking the appropriate set-offs for outstanding receivables owed by the CalPX and CAISO to Calpine. The Company has fully reserved the amount of refund liability that by its analysis would potentially be owed under the refund calculation clarification in the March 26 order. The final determination of the refund liability is subject to further Commission proceedings to ascertain the allocation of payment obligations among the numerous buyers and sellers in the California markets. At this time, the Company is unable to predict the timing of the completion of these proceedings or the final refund liability. The final outcome of this proceeding and the impact on the Company’s business is uncertain at this time.

     FERC Investigation into Western Markets — On February 13, 2002, FERC initiated an investigation of potential manipulation of electric and natural gas prices in the western United States. This investigation was initiated as a result of allegations that Enron and others used their market position to distort electric and natural gas markets in the West. The scope of the investigation is to consider whether, as a result of any manipulation in the short-term markets for electric energy or natural gas or other undue influence on the wholesale markets by any party since January 1, 2000, the rates of the long-term contracts subsequently entered into in the West are potentially unjust and unreasonable. FERC has stated that it may use the information gathered in connection with the investigation to determine how to proceed on any existing or future complaint brought under Section 206 of the Federal Power Act involving long-term power contracts entered into in the West since January 1, 2000, or to initiate a Federal Power Act Section 206 or Natural Gas Act Section 5 proceeding on its own initiative. On August 13, 2002, the FERC staff issued the Initial Report on Company-Specific Separate Proceedings and Generic Reevaluations; Published Natural Gas Price Data; and Enron Trading Strategies (the “Initial Report”) summarizing its initial findings in this investigation. There were no findings or allegations of wrongdoing by Calpine set forth or described in the Initial Report. On March 26, 2003, the FERC staff issued a final report in this investigation (the “Final Report”). The FERC staff recommended that FERC issue a show cause order to a number of companies, including Calpine, regarding certain power scheduling practices that may potentially be in violation of the CAISO’s or CalPX’ tariff. The Final Report also recommended that FERC modify the basis for determining potential liability in the California Refund Proceeding discussed above. Calpine believes that it did not violate these tariffs and that, to the extent that such a finding could be made, any potential liability would not be material. On June 25, 2003, FERC rejected various complaints to invalidate certain long-term energy supply.

     Also, on June 25, 2003, FERC issued a number of orders associated with these investigations, including the issuance of two show cause orders to certain industry participants. FERC did not subject Calpine to either of the show cause orders. FERC also issued an order directing the FERC Office of Markets and Investigations to investigate further whether market participants who bid a price in excess of $250 per megawatt hour into markets operated by either the CAISO or the CalPX during the period of May 1, 2000, to October 2, 2000, may have violated CAISO and CalPX tariff prohibitions. No individual market participant was identified. The Company believes that it did not violate the CAISO and CalPX tariff prohibitions referred to by FERC in this order; however, we are unable to predict at this time the final outcome of this proceeding or its impact on Calpine.

15. Subsequent Events

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     On July 10, 2003, the Company renegotiated its financing agreement with Siemens Westinghouse Power Corporation to extend the monthly payment due dates through January 28, 2005. At June 30, 2003, there was $214.8 million in borrowings outstanding under this agreement. The Company repaid $35.6 million of the outstanding balance in July 2003.

     On July 16, 2003, the Company closed its $3.3 billion term loan and second-priority senior secured notes offering. The term loan and senior notes are secured by substantially all of the assets owned directly by Calpine Corporation, including natural gas and power plant assets and the stock of Calpine Energy Services and other subsidiaries. The offering was comprised of two tranches of floating rate securities and two tranches of fixed rate securities. The floating rate securities included a $750 million, four-year term loan priced at LIBOR plus 575 basis points and $500 million of Second-Priority Senior Secured Floating Rate Notes due 2007 also priced at LIBOR plus 575 basis points. The fixed rate securities included $1.15 billion of 8.5% Second Priority Senior Secured Notes due 2010, and $900 million of 8.75% Second Priority Senior Secured Notes due 2013.

     On July 16, 2003, the Company entered into agreements for a new $500 million working capital facility. The new first-priority senior secured facility will consist of a two-year, $300 million working capital revolver and a four-year, $200 million term loan that together will provide up to $500 million in combined cash borrowing and letter of credit capacity. The new facility replaces the Company’s existing working capital facilities. It will be secured by a first-priority lien on the same assets that collateralize the Company’s recently completed $3.3 billion term loan and second-priority senior secured notes offering.

     On July 24, 2003, the Company announced that Gilroy Energy Center, LLC (“GEC”), a wholly owned, stand-alone subsidiary of the Calpine subsidiary GEC Holdings, LLC, intends to sell, under Rule 144A, approximately $270 million of Senior Secured Notes Due 2011. The senior secured notes will be secured by GEC’s and its subsidiaries’ 11 peaking units, located at nine power generating sites in northern California. The notes will also be secured by a long-term power sales agreement for 495 megawatts of peaking capacity with the State of California Department of Water Resources, which is being served by the 11 peaking units. The noteholders’ recourse will be limited to the assets of GEC and its subsidiaries. Calpine will not provide a guarantee of the Senior Secured Notes Due 2011 or any other form of credit support.

     In connection with this offering, GEC is negotiating with a third party on a preferred equity investment in GEC, totaling approximately $74 million, which the Company does not expect to complete by the closing of the Senior Secured Notes Due 2011. Therefore, the net proceeds of the senior notes offering will be held in an escrow account, pending completion of this preferred equity investment. If the preferred equity investment is not completed, GEC will offer to repurchase the Senior Secured Notes Due 2011 at a price of 101%, plus accrued interest.

     Debt securities repurchased by the Company subsequent to June 30, 2003, were approximately $1,185.7 million in aggregate outstanding aggregate outstanding principal amount at a redemption price of approximately $987.5 million plus accrued interest to the redemption dates. The Company expects to record a pre-tax gain on these transactions in the amount of $184.0 million, net of write-offs of unamortized deferred financing costs and the associated unamortized premiums or discounts associated with the issuance of these Senior Notes. Repurchases in 2003 prior to June 30, 2003, are discussed in Note 5. The following table summarizes the total debt securities repurchased by the Company from July 1, 2003, through August 8, 2003 (in millions):

	Principal		Redemption
Debt Security	Amount		Amount
Convertible Senior Notes Due 2006	$	112.0	$	100.5
8-1/4% Senior Notes Due 2005		25.0		24.5
10-1/2% Senior Notes Due 2006		5.2		5.1
7-5/8% Senior Notes Due 2006		35.3		32.5
8-3/4% Senior Notes Due 2007		48.9		45.0
7-7/8% Senior Notes Due 2008		52.4		41.1
8-1/2% Senior Notes Due 2008		48.3		42.3
8-3/8% Senior Notes Due 2008		56.2		44.5
7-3/4% Senior Notes Due 2009		77.0		61.1
8-5/8% Senior Notes Due 2010		159.9		133.9
8-1/2% Senior Notes Due 2011		437.6		361.1
8-7/8% Senior Notes Due 2011		127.9		95.8
	$	1,185.7	$	987.5

     On August 4, 2003, the Company announced plans to sell its unconsolidated, 50-percent interest in the 240-MW Gordonsville Power Plant to Dominion Virginia Power, an affiliate of Dominion. Under the terms of the transaction, the Company will receive a $31.5 million cash payment, which includes a $26 million payment from Dominion and a separate $5.5 million payment from the

32

project for return of a debt service reserve. The Company’s 50-percent share of the project’s non-recourse debt at closing was approximately $44 million. The company expects to complete the transaction in the fourth quarter of 2003, pending regulatory and other third-party approvals.

     On August 7, 2003, the Company’s wholly owned subsidiary, Calpine Construction Finance Company, L.P. (“CCFC I”), priced its $750 million institutional term loans and secured notes offering. The offering includes $385 million of First Priority Secured Institutional Term Loans Due 2009 offered at 99% of par and priced at LIBOR plus 600 basis points, with a LIBOR floor of 150 basis points and $365 million of Second Priority Senior Secured Floating Rate Notes Due 2011 offered at 98.01% of par and priced at LIBOR plus 850 basis points, with a LIBOR floor of 125 basis points. The noteholders’ recourse will be limited to seven of CCFC’s natural gas-fired electric generating facilities located in various power markets in the United States, and related assets and contracts. The transaction is expected to close on August 14, 2003. In anticipation of the financing, S&P assigned a B corporate credit rating to CCFC I. S&P also assigned a B+ rating (with a negative outlook) to the First Priority Secured Institutional Term Loans Due 2009 and a B- rating (with a negative outlook) to the Second Priority Secured Floating Rate Notes Due 2011. Net proceeds will be used to refinance the majority of the amount currently outstanding under the CCFCI project financing. The remainder of the facility will be repaid from cash proceeds from the $3.3 billion term loan and second-priority senior secured notes offering.

     Enron Corporation, and a number of its subsidiaries and affiliates (including Enron North America (“ENA”) and Enron Power Marketing (“EPM”))(collectively “Enron Bankrupt Entities”) filed for Chapter 11 bankruptcy protection on December 2, 2001. At the time of the filing, CES was a party to various open energy derivatives, swaps, and forward power and gas transactions stemming from agreements with ENA and EPM. On November 14, 2001, CES, ENA, and EPM entered into a Master Netting Agreement, which granted the parties a contractual right to setoff amounts owed between them pursuant to the above agreements. The above agreements were terminated by CES on December 10, 2001. The Master Netting Agreement however remained in place. In October 2002, Calpine and various affiliates filed proofs of claim against the Enron Bankrupt Entities.

     Final settlement of this matter has been reached with Enron and was approved by the bankruptcy court on August 7, 2003, subject to a 10-day appeal period, expiring on August 18, 2003. The Company will provide information on the terms of the settlement at that time and does not expect any adverse consequences to its financial results or operations as a result of settling this matter.

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     Item 2. Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations.

     In addition to historical information, this report contains forward-looking statements. Such statements include those concerning Calpine Corporation’s (“the Company’s”) expected financial performance and its strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements such as, but not limited to, (i) the timing and extent of deregulation of energy markets and the rules and regulations adopted on a transitional basis with respect thereto, (ii) the timing and extent of changes in commodity prices for energy, particularly natural gas and electricity, and the impact of related derivatives transactions, (iii) unscheduled outages of operating plants, (iv) unseasonable weather patterns that produce reduced demand for power, (v) systemic economic slowdowns, which can adversely affect consumption of power by businesses and consumers, (vi) commercial operations of new plants that may be delayed or prevented because of various development and construction risks, such as a failure to obtain the necessary permits to operate, failure of third-party contractors to perform their contractual obligations or failure to obtain project financing on acceptable terms, (vii) cost estimates are preliminary and actual costs may be higher than estimated, (viii) a competitor’s development of lower-cost power plants or of a lower cost means of operating a fleet of power plants, (ix) risks associated with marketing and selling power from power plants in the evolving energy market, (x) the successful exploitation of an oil or gas resource that ultimately depends upon the geology of the resource, the total amount and costs to develop recoverable reserves, and legal title, regulatory, gas administration, marketing and operational factors relating to the extraction of natural gas, (xi) our estimates of oil and gas reserves many not be accurate, (xii) the effects on the Company’s business resulting from reduced liquidity in the trading and power industry, (xiii) the Company’s ability to access the capital markets on attractive terms or at all, (xiv) sources and uses of cash are estimates based on current expectations; actual sources may be lower and actual uses may be higher than estimated, (xv) the direct or indirect effects on the Company’s business of a lowering of its credit rating (or actions it may take in response to changing credit rating criteria), including, increased collateral requirements, refusal by the Company’s current or potential counterparties to enter into transactions with it and its inability to obtain credit or capital in desired amounts or on favorable terms, (xvi) possible future claims, litigation and enforcement actions pertaining to the foregoing or (xvii) other risks as identified herein. Current information set forth in this filing has been updated to August 8, 2003, and Calpine undertakes no duty to update this information. All other information in this filing is presented as of the specific date noted and has not been updated since that time. Readers should carefully review the “Risk Factors” section below.

     We file annual, quarterly and periodic reports, proxy statements and other information with the SEC. You may obtain and copy any document we file with the SEC at the SEC’s public reference rooms in Washington, D.C., Chicago, Illinois and New York, New York. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549-1004. Our SEC filings are also accessible through the Internet at the SEC’s website at http://www.sec.gov.

     Our reports on Forms 10-K, 10-Q and 8-K are available for download, free of charge, as soon as reasonably practicable, at our website at www.calpine.com. The content of our website is not a part of this report. You may request a copy of our SEC filings, at no cost to you, by writing or telephoning us at: Calpine Corporation, 50 West San Fernando Street, San Jose, California 95113, attention: Lisa M. Bodensteiner, Assistant Secretary, telephone: (408) 995-5115. We will not send exhibits to the documents, unless the exhibits are specifically requested and you pay our fee for duplication and delivery.

     The information contained in this MD&A section reflects the restatements of the first and second quarter 2002 financial results as discussed in Note 2 of the Notes to the Consolidated Condensed Financial Statements.

Selected Operating Information

     Set forth below is certain selected operating information for our power plants for which results are consolidated in our Statements of Operations. Electricity revenue is composed of capacity revenues, which are not related to production, and variable energy payments, which are related to production. Capacity revenues include, other revenues such as Reliability Must Run and Ancillary Service revenues. The information set forth under thermal and other revenue consists of host steam sales and other thermal revenue.

34

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2003		2002		2003		2002
				Restated (1)				Restated (1)
		(In thousands, except
		production and pricing data)
Power Plants:
Electricity and steam (“E&S”) revenues:
	Energy	$	730,298	$	544,660	$	1,560,655	$	1,058,896
	Capacity		224,650		120,422		385,280		196,901
	Thermal and other		117,688		42,230		248,739		73,915
	Subtotal	$	1,072,636	$	707,312	$	2,194,674	$	1,329,712
Spread on sales of purchased power (2)			6,086		167,278		7,421		258,094
Adjusted E&S revenues (non-GAAP)		$	1,078,722	$	874,590	$	2,202,095	$	1,587,806
Megawatt hours produced			17,909,325		15,681,706		37,331,224		30,390,521
All-in electricity price per megawatt hour generated		$	60.23	$	55.77	$	58.99	$	52.25

(1)	See Note 2 of the Notes to Consolidated Condensed Financial Statements regarding the restatement of financial statements.
(2)	From hedging, balancing and optimization activities related to our generating assets.

     Set forth below is a table summarizing the dollar amounts and percentages of our total revenue for the three and six months ended June 30, 2003 and 2002, that represent purchased power and purchased gas sales and the costs we incurred to purchase the power and gas that we resold during these periods (in thousands, except percentage data):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
				Restated (1)						Restated (1)
Total revenue	$	2,186,056		$	1,758,372		$	4,370,570		$	3,089,080
Sales of purchased power		744,805			718,157			1,426,089			1,238,208
As a percentage of total revenue		34.1	%		40.8	%		32.6	%		40.1	%
Sale of purchased gas		328,478			309,352			655,946			432,756
As a percentage of total revenue		15	%		17.6	%		15.0	%		14.0	%
Total cost of revenue (“COR”)		2,000,425			1,511,025			4,011,239			2,661,485
Purchased power expense		738,719			550,879			1,418,668			980,114
As a percentage of total COR		36.9	%		36.5	%		35.4	%		36.8	%
Purchased gas expense		331,122			331,392			648,070			452,753
As a percentage of total COR		16.6	%		21.9	%		16.2	%		17.0	%

(1) See Note 2 of the Notes to Consolidated Condensed Financial Statements regarding the restatement of financial statements.

     The primary reasons for the size of these sales and costs of revenue items include: (a) the significant level of Calpine Energy Services’ (“CES’s”) hedging, balancing and optimization activities; (b) volatile markets for electricity and natural gas, which prompted us to frequently adjust our hedge positions by buying power and gas and reselling it; (c) the accounting requirements under Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” and Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Asset”, which require us to show most of our hedging contracts on a gross basis (as opposed to netting sales and cost of revenue); and (d) rules in effect associated with the NEPOOL market in New England, which require that all power generated in NEPOOL be sold directly to the Independent System Operator (“ISO”) in that market; we then buy from the ISO to serve our customer contracts. Generally accepted accounting principles require us to account for this activity, which applies to three of our merchant generating facilities, as the aggregate of two distinct sales and one purchase. This gross basis presentation increases revenues but not gross profit. The table below details the financial extent of our transactions with NEPOOL for the period indicated.

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		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2003		2002		2003		2002
				Restated (1)				Restated (1)
		(In thousands)
Sales to NEPOOL from power we generated		$	75,642	$	63,455	$	152,540	$	114,036
Sales to NEPOOL from hedging and other activity			22,952		20,148		105,963		44,805
	Total sales to NEPOOL	$	98,594	$	83,603	$	258,503	$	158,841
	Total purchases from NEPOOL	$	76,697	$	85,344	$	210,865	$	161,178

(1) See Note 2 of the Notes to Consolidated Condensed Financial Statements regarding the restatement of financial statements.

Results of Operations

Three Months Ended June 30, 2003, Compared to Three Months Ended June 30, 2002 (in millions, except for unit pricing information, MW volumes and percentage data).

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Total revenue	$	2,186.1	$	1,758.4	$	427.7		24.3	%

     The increase in total revenue is explained by category below.

		Three Months Ended
		June 30,
		2003		2002		$ Change		% Change
				Restated (1)
Electricity and steam revenue		$	1,072.6	$	707.3	$	365.3		51.6	%
Sales of purchased power for hedging and optimization			744.8		718.2		26.6		3.7	%
	Total electric generation and marketing revenue	$	1,817.4	$	1,425.5	$	391.9		27.5	%

     Electricity and steam revenue increased as we completed construction and brought into operation 5 new baseload power plants, 2 new peaker facilities and 3 expansion projects completed subsequent to June 30, 2002. Average megawatts in operation of our consolidated plants increased by 55% to 19,455 MW while generation increased by 14%. The increase in generation lagged behind the increase in average MW in operation as our baseload capacity factor dropped to 49% in the three months ended June 30, 2003, from 66% in the three months ended June 30, 2002, primarily due to the increased occurrence of unattractive off-peak market spark spreads in certain areas, and to a lesser extent due to unscheduled outages caused by equipment problems at certain of our plants. Average realized electric price, before the effects of hedging, balancing and optimization, increased from $44.99/MWh in 2002 to $59.89/MWh in 2003.

     Sales of purchased power for hedging and optimization increased in the three months ended June 30, 2003, due primarily to higher electricity pricing in 2003.

		Three Months Ended
		June 30,
		2003		2002		$ Change		% Change
				Restated (1)
Oil and gas sales		$	29.5	$	16.1	$	13.4		83.2	%
Sales of purchased gas for hedging and optimization			328.5		309.4		19.1		6.2	%
	Total oil and gas production and marketing revenue	$	358.0	$	325.5	$	32.5		10.0	%

     Oil and gas sales are net of internal consumption, which is eliminated in consolidation. Internal consumption increased by $50.2 to $102.5 in 2003. Before intercompany eliminations, oil and gas sales increased by $63.6 to $132.0 in 2003 from $68.4 in 2002 due primarily to 81% higher average realized natural gas pricing in 2003.

     Sales of purchased gas for hedging and optimization increased during 2003 as we brought into operation new generation and the related level of physical gas optimization and balancing activity increased to support the new generation, and due to a higher price environment.

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		Three Months Ended
		June 30,
		2003			2002		$ Change			% Change
					Restated (1)
Realized revenue on power and gas trading transactions, net		$	9.0		$	2.2	$	6.8			309.1	%
Unrealized mark-to-market gain (loss) on power and gas transactions, net			(7.2	)		2.0		(9.2	)		(460.0	)%
	Total trading revenue, net	$	1.8		$	4.2	$	(2.4	)		(57.1	)%

     Total trading revenue, which is shown on a net basis, results from general market price movements against our open commodity positions accounted for as trading under EITF Issue No. 02-3, “Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities” (“EITF Issue No. 02-3”). These commodity positions represent a small portion of our overall commodity contract position. Realized revenue represents the portion of contracts actually settled, while unrealized revenue represents changes in the fair value of open contracts, the ineffective portion of cash flow hedges, and the effects of settling previously open positions.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Other revenue	$	8.8	$	3.2	$	5.6		175.0	%

     Other revenue increased during the three months ended June 30, 2003, primarily due to a $7.0 revenue contribution from Thomassen Turbine Systems (“TTS”), which we acquired in February 2003. This was partially offset by a decline in third party revenue recorded by Power Systems Mfg. LLC (“PSM”), our subsidiary that designs and manufactures certain spare parts for gas turbines, as more of PSM’s activity was related to intercompany orders with our power generation segment.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Cost of revenue	$	2,000.4	$	1,511.0	$	489.4		32.4	%

     The increase in total cost of revenue is explained by category below.

		Three Months Ended
		June 30,
		2003		2002		$ Change		% Change
				Restated (1)
Plant operating expense		$	164.4	$	118.4	$	46.0		38.9	%
Royalty expense			6.5		4.2		2.3		54.8	%
Purchased power expense for hedging and optimization			738.7		550.9		187.8		34.1	%
	Total electric generation and marketing expense	$	909.6	$	673.5	$	236.1		35.1	%

     Plant operating expense increased due to 5 new baseload power plants, 2 new peaker facilities and 3 expansion projects completed subsequent to June 30, 2002. This was partially offset by reducing reserves by $10.3 for generator and turbine combustor equipment repairs, based on reaching an agreement with a vendor relating thereto.

     Royalty expense increased due to an increase in electric revenues at The Geysers geothermal plants.

     The increase in purchased power expense for hedging and optimization was due primarily to higher electricity prices in 2003.

		Three Months Ended
		June 30,
		2003		2002		$ Change		% Change
				Restated (1)
Oil and gas production expense		$	22.6	$	21.2	$	1.4		6.6	%
Oil and gas exploration expense			6.5		1.6		4.9		306.3	%
	Oil and gas operating expense		29.1		22.8		6.3		27.6	%

37

	Three Months Ended
	June 30,
	2003		2002		$ Change			% Change
			Restated (1)
Purchased gas expense for hedging and optimization		331.1		331.4		(0.3	)		(0.1	)%
Total oil and gas operating and marketing expense	$	360.2	$	354.2	$	6.0			1.7	%

     Oil and gas production expense increased primarily as a result of an increase in the Canadian foreign exchange rate.

     Oil and gas exploration expense increased primarily as a result of expensing $4.3 of dry hole drilling costs during the three months ended June 30, 2003.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Fuel expense	$	555.4	$	350.3	$	205.1		58.5	%

     Fuel expense increased for the three months ended June 30, 2003, due to a 15% increase in gas-fired megawatt hours generated and 42% higher gas prices excluding the effects of hedging, balancing and optimization. This was partially offset by increased usage of internally produced gas, which is eliminated in consolidation, and a 3% improved average heat rate for our generation portfolio in 2003.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Depreciation, depletion and amortization expense	$	140.2	$	103.7	$	36.5		35.2	%

     Depreciation, depletion and amortization expense increased primarily due to the additional power facilities in consolidated operations subsequent to June 30, 2002.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Other expense	$	6.9	$	1.1	$	5.8		527.3	%

     The increase is primarily due to $4.8 of TTS expense. TTS was acquired in February 2003.

	Three Months Ended
	June 30,
	2003			2002		$ Change			% Change
				Restated (1)
Loss (income) from unconsolidated investments in power projects	$	(59.4	)	$	1.1	$	(60.5	)		(5500	)%

     The increase in income is due primarily to a $52.8 gain recognized on the termination of the tolling arrangement with Aquila Merchant Services, Inc.

     (“AMS”) on the Acadia Energy Center (see Note 6 of the Notes to Consolidated Condensed Financial Statements) and due to $5.6 in earnings generated by this facility. The Aries Power project contributed $1.6 in earnings during the second quarter of 2003. These two projects were not operational in the second quarter of 2002.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Equipment cancellation and impairment cost	$	19.2	$	14.2	$	5.0		35.2	%

     The pre-tax equipment cancellation and impairment charge in the three months ended June 30, 2003, was primarily a result of a loss of $17.2 in connection with the sale of two turbines and also commitment cancellation costs and storage and suspension costs for unassigned equipment. The 2002 charge of $14.2 was due to turbine impairment write-downs.

38

	Three Months Ended
	June 30,
	2003		2002		$ Change			% Change
			Restated (1)
Project development expense	$	6.1	$	10.5	$	(4.4	)		(41.9	)%

     Project development expense decreased as we placed certain existing development projects on hold and scaled back new development activity. Additionally, impairment write-offs of capitalized project costs decreased to $3.4 in the three months ended June 30, 2003, from $5.7 in the prior year period.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
General and administrative expense	$	63.8	$	52.4	$	11.4		21.8	%

     General and administrative expense increased due primarily to $3.9 of stock-based compensation expense associated with the Company’s adoption of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No, 123”) effective January 1, 2003, on a prospective basis and due to higher outside consulting expense, and higher cash-based employee compensation costs.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Interest expense	$	148.9	$	79.1	$	69.8		88.2	%

     Interest expense increased primarily due to the new plants entering commercial operations (at which point capitalization of interest expense ceases). Interest capitalized decreased from $171.0 for the three months ended June 30, 2002, to $116.5 for the three months ended June 30, 2003. We expect that interest expense will continue to increase and the amount of interest capitalized will decrease in future periods as our plants in construction are completed, and, to a lesser extent, as a result of suspension of certain of our development projects and suspension of capitalization of interest thereon. The remaining increase relates to an increase in average indebtedness and an increase in the amortization of terminated interest rate swaps.

	Three Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Minority interest expense	$	5.3	$	0.7	$	4.6		657.1	%

     The increase is primarily due to $4.5 associated with the Canadian Power Income Fund and $1.7 related to the King City Power Plant in which we sold a preferred interest on April 29, 2003. See Note 5 of the Notes to Consolidated Condensed Financial Statements for more information.

	Three Months Ended
	June 30,
	2003		2002			$ Change		% Change
			Restated (1)
Other expense (income)	$	13.7	$	(3.7	)	$	17.4		470.3	%

     The other expense in the three months ended June 30, 2003, is comprised primarily of foreign exchange translation losses of $19.1 due to the strong Canadian dollar and letter of credit fees of $3.2. These losses were offset by a gain of $6.8 recorded in connection with the redemption of Senior Notes at a discount. In 2002 we recorded $7.0 of recovery from Automated Credit Exchange for losses incurred on reclaim trading credit transactions, and additionally, we recognized gains from asset sales of $7.6 million. These gains were partially offset by letter of credit fees of $6.2, foreign exchange translation losses of $2.0, and $3.6 for cost of a forfeited deposit on an asset purchase that did not close in 2002.

39

	Three Months Ended
	June 30,
	2003			2002		$ Change			% Change
				Restated (1)
Provision (benefit) for income taxes	$	(3.9	)	$	27.8	$	(31.7	)		(114.0	)%

     The provision (benefit) for income taxes increased primarily due to the decrease in income from continuing operations in 2003 compared to 2002 and from a reduction in the estimated annual effective tax rate for continuing operations from 32% to 21%. This effective rate variance is due to the inclusion of significant permanent items in the calculation of the effective rate, which are fixed in amount but have the effect of producing different overall effective rates when such items become more material to net income.

	Three Months Ended
	June 30,
	2003			2002		$ Change			% Change
				Restated (1)
Discontinued operations, net of tax	$	(8.5	)	$	9.0	$	(17.5	)		(194.4	)%

     During the three months ended June 30, 2003, we decided to sell our specialty engineering unit, reflecting the soft market for data centers for the foreseeable future. The 2002 activity represents the results of our discontinued operations, which included the engineering unit, the DePere Energy Center and Drakes Bay Field, British Columbia and Medicine River oil and gas assets. With the exception of the engineering unit, the sales of these assets were completed by December 31, 2002, so their operations are not included in the 2003 activity.

	Three Months Ended
	June 30,
	2003			2002		$ Change			% Change
				Restated (1)
Net income (loss)	$	(23.4	)	$	68.3	$	(91.7	)		(134.3	)%

     Our growing portfolio of operating generation facilities contributed to a 14% increase in electric generation production for the three months ended June 30, 2003, compared to the same period in 2002, allowing us to achieve approximately $2.2 billion of revenue for the second quarter of 2003, compared to approximately $1.8 billion for the second quarter of 2002. Electric generation and marketing revenues increased 27% for the three months ended June 30, 2003, as a result of this new production and as a result of hedging and optimization activity, compared with the same period in 2002. Operating results for the three months ended June 30, 2003, reflect an increase in realized electricity prices. However, we experienced a decrease in average spark spreads per megawatt-hour compared with the same period in 2002, reflecting proportionately higher fuel expense.

     Plant operating expense, interest expense and depreciation were higher due to the additional plants in operation. This was partially mitigated by an increase in oil and gas production margins compared to the prior period due to higher realized oil and gas pricing. In the second quarter of 2003, financial results were affected by a $17.2 loss in connection with the sale of two turbines. In addition, we recorded $19.1 in foreign exchange translation losses relating to intercompany transactions due mainly to a strong Canadian dollar in the quarter. We also recorded in income from unconsolidated investments, a $52.8 gain on the termination of the tolling arrangement on the Acadia facility and an $8.5 after-tax charge to discontinued operations as we decided to sell our specialty engineering unit. As a result of the above, gross profit for the three months ended June 30, 2003, decreased approximately 25%, respectively, compared to the same period in 2002.

     (1)  See Note 2 of the Notes to Consolidated Condensed Financial Statements regarding the restatement of financial statements.

Six Months Ended June 30, 2003, Compared to Six Months Ended June 30, 2002 (in millions, except for unit pricing information, MW volumes and percentage data).

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Total revenue	$	4,370.6	$	3,089.1	$	1,281.5		41.5	%

     The increase in total revenue is explained by category below.

40

		Six Months Ended
		June 30,
		2003		2002		$ Change		% Change
				Restated (1)
Electricity and steam revenue		$	2,194.7	$	1,329.7	$	865.0		65.1	%
Sales of purchased power for hedging and optimization			1,426.1		1,238.2		187.9		15.2	%
	Total electric generation and marketing revenue	$	3,620.8	$	2,567.9	$	1,052.9		41.0	%

     Electricity and steam revenue increased as we completed construction and brought into operation 5 new baseload power plants, 7 new peaker facilities and 3 expansion projects completed subsequent to June 30, 2002. Average megawatts in operation of our consolidated plants increased by 60% to 19,019 MW while generation increased by 23%. The increase in generation lagged behind the increase in average MW in operation as our baseload capacity factor dropped to 51% in the six months ended June 30, 2003 from 68% in the six months ended June 30, 2002, primarily due to the increased occurrence of unattractive off-peak market spark spreads in certain areas, and to a lesser extent due to unscheduled outages caused by equipment problems at certain of our plants. Average realized electric price, before the effects of hedging, balancing and optimization, increased from $43.69/MWh in 2002 to $58.79/MWh in 2003.

     Sales of purchased power for hedging and optimization increased in the six months ended June 30, 2003, due primarily to higher electricity pricing in 2003.

		Six Months Ended
		June 30,
		2003		2002		$ Change			% Change
				Restated (1)
Oil and gas sales		$	55.5	$	69.2	$	(13.7	)		(19.8	)%
Sales of purchased gas for hedging and optimization			655.9		432.8		223.1			51.5	%
	Total oil and gas production and marketing revenue	$	711.4	$	502.0	$	209.4			41.7	%

     Oil and gas sales are net of internal consumption, which is eliminated in consolidation. Internal consumption increased by $157.8 to $227.7 in 2003. Before intercompany eliminations, oil and gas sales increased by $144.0 to $283.2 in 2003 from $139.2 in 2002 due primarily to 107% higher average realized natural gas pricing in 2003.

     Sales of purchased gas for hedging and optimization increased during 2003 as we brought into operation new generation and the related level of physical gas optimization and balancing activity increased to support the new generation, and due to a higher price environment.

		Six Months Ended
		June 30,
		2003			2002		$ Change			% Change
					Restated (1)
Realized revenue on power and gas trading transactions, net		$	30.3		$	8.4	$	21.9			260.7	%
Unrealized mark-to-market gain (loss) on power and gas transactions, net			(8.0	)		4.8		(12.8	)		(266.7	)%
	Total trading revenue, net	$	22.3		$	13.2	$	9.1			68.9	%

     Total trading revenue, which is shown on a net basis, results from general market price movements against our open commodity positions accounted for as trading under EITF Issue No. 02-3. These commodity positions represent a small portion of our overall commodity contract position. It increased due to favorable power and gas price movements. Realized revenue represents the portion of contracts actually settled, while unrealized revenue represents changes in the fair value of open contracts, the ineffective portion of cash flow hedges, and the effects of settling previously open positions.

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Other revenue	$	16.1	$	6.0	$	10.1		168.3	%

     Other revenue increased during the six months ended June 30, 2003, primarily due to $9.1 of revenue from Thomassen Turbine Systems, (“TTS”), which we acquired in February 2003. Additionally our recently formed power and operating services unit contributed revenues of $3.2 in 2003.

41

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Cost of revenue	$	4,011.2	$	2,661.5	$	1,349.7		50.7	%

     The increase in total cost of revenue is explained by category below.

		Six Months Ended
		June 30,
		2003		2002		$ Change		% Change
				Restated (1)
Plant operating expense		$	329.4	$	234.9	$	94.5		40.2	%
Royalty expense			11.8		8.4		3.4		40.5	%
Purchased power expense for hedging and optimization			1,418.7		980.1		438.6		44.8	%
	Total electric generation and marketing expense	$	1,759.9	$	1,223.4	$	536.5		43.9	%

     Plant operating expense increased due to 5 new baseload power plants, 7 new peaker facilities and 3 expansion projects completed subsequent to June 30, 2002. In addition, during the six months ended June 30, 2003, we recorded reserves of $6.6 for generator and turbine combustor equipment repairs after reaching agreement with a vendor, which accepted responsibility for most of the total costs incurred.

     Royalty expense increased due to an increase in electric revenues at The Geysers geothermal plants.

     The increase in purchased power expense for hedging and optimization was due primarily to higher electricity prices in 2003.

			Six Months Ended
			June 30,
			2003		2002		$ Change		% Change
					Restated (1)
Oil and gas production expense			$	45.9	$	39.5	$	6.4		16.2	%
Oil and gas exploration expense				8.9		4.9		4.0		81.6	%
	Oil and gas operating expense			54.8		44.4		10.4		23.4	%
Purchased gas expense for hedging and optimization				648.0		452.8		195.2		43.1	%
		Total oil and gas operating and marketing expense	$	702.8	$	497.2	$	205.6		41.4	%

     Oil and gas production expense increased primarily due to higher production taxes, and treating and transportation costs which were primarily the result of higher oil and gas revenues and an increase in the Canadian foreign exchange rate in the six months ended June 30, 2003.

     Oil and gas exploration expense increased primarily as a result of expensing $4.3 of dry hole drilling costs during the six months ended June 30, 2003.

     Purchased gas expense for hedging and optimization increased in the six months ended June 30, 2003, as we brought into operation new generation, and the related level of physical gas optimization and balancing activity increased to support the new generation, combined with a higher price environment.

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Fuel expense	$	1,205.6	$	682.8	$	522.8		76.6	%

     Fuel expense increased for the six months ended June 30, 2003 due to a 25% increase in gas-fired megawatt hours generated and 54% higher gas prices excluding the effects of hedging, balancing and optimization, which was partially offset by increased usage of internally produced gas, which is eliminated in consolidation, and a 3% improved average heat rate for our generation portfolio in 2003.

42

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Depreciation, depletion and amortization expense	$	274.9	$	198.6	$	76.3		38.4	%

     Depreciation, depletion and amortization expense increased primarily due to the additional power facilities in consolidated operations subsequent to June 30, 2002.

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Other expense	$	12.1	$	3.1	$	9.0		290.3	%

     The increase is primarily due to $6.2 of TTS expense. TTS was acquired in February 2003.

	Six Months Ended
	June 30,
	2003			2002			$ Change			% Change
				Restated (1)
(Income) from unconsolidated investments in power projects	$	(64.5	)	$	(0.4	)	$	(64.1	)		16,025.0	%

     The increase is primarily due to a $52.8 gain recognized on the termination of the tolling arrangement with AMS on the Acadia Energy Center (see Note 6 of the Notes to Consolidated Condensed Financial Statements) and due to $13.3 in earnings contributed by this facility. This facility was not operational in the six months ended June 30, 2002.

	Six Months Ended
	June 30,
	2003		2002		$ Change			% Change
			Restated (1)
Equipment cancellation and impairment charge	$	19.3	$	182.7	$	(163.4	)		(89.4	)%

     In the six months ended June 30, 2002, the pre-tax equipment cancellation and impairment charge was primarily a result of a loss of $17.2 in connection with the sale of two turbines and also commitment cancellation costs and storage and suspension costs for unassigned equipment. The pre-tax equipment cancellation and impairment charge of $182.7 in the six months ended June 30, 2002, was primarily a result of the 35 steam and gas turbine order cancellations and the cancellation of certain other equipment based primarily on forfeited prepayments made in prior periods.

	Six Months Ended
	June 30,
	2003		2002		$ Change			% Change
			Restated (1)
Project development expense	$	11.2	$	21.9	$	(10.7	)		(48.9	)%

     Project development expense decreased as we placed certain existing development projects on hold and scaled back new development activity. Additionally, impairment write-offs of capitalized project costs decreased to $3.4 in the six months ended June 30, 2003, from $6.2 in the prior year.

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
General and administrative expense	$	117.5	$	110.2	$	7.3		6.6	%

     The increase is due primarily to $8.4 of stock-based compensation expense associated with the Company’s adoption of SFAS No. 123 prospectively effective January 1, 2003.

43

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Interest expense	$	291.8	$	152.8	$	139.0		91.0	%

     Interest expense increased primarily due to the new plants entering commercial operations (at which point capitalization of interest expense ceases). Interest capitalized decreased from $334.1 for the six months ended June 30, 2002, to $235.0 for the six months ended June 30, 2003. We expect that interest expense will continue to increase and the amount of interest capitalized will decrease in future periods as our plants in construction are completed, and, to a lesser extent, as a result of suspension of certain of our development projects and suspension of capitalization of interest thereon. The remaining increase relates to an increase in average indebtedness and an increase in the amortization of terminated interest rate swaps.

	Six Months Ended
	June 30,
	2003			2002			$ Change		% Change
				Restated (1)
Interest (income)	$	(17.0	)	$	(21.9	)	$	4.9		(22.4	)%

     The decrease is primarily due to lower cash balances and lower interest rates in 2003.

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Minority interest expense	$	7.6	$	0.4	$	7.2		1,800	%

     The increase is primarily due to $6.7 associated with the Canadian Power Income Fund.

	Six Months Ended
	June 30,
	2003		2002			$ Change		% Change
			Restated (1)
Other expense (income)	$	48.3	$	(16.3	)	$	64.6		(396.3	)%

     The other expense in the six months ended June 30, 2003, is comprised primarily of $44.3 of foreign exchange translation losses, and $7.6 of letter of credit fees. The foreign exchange translation losses recognized into income were mainly due to a strong Canadian dollar in the six-month period. These losses were partially offset by a gain of $6.8 recorded in connection with the redemption of Senior Notes at a discount in 2003. In 2002 we recorded a $9.7 gain from the sale of our interest in the Lockport facility, $7.0 of recovery from Automated Credit Exchange for losses incurred on reclaim trading credit transactions, gains from asset sales of $9.1 million and a gain of $3.5 from the repurchase of our Zero-Coupon Convertible Debentures Due 2021 at a discount. These gains were partially offset by letter of credit fees of $6.2, foreign exchange translation losses of $2.2, and $3.6 for cost of a forfeited deposit on an asset purchase that did not close in 2002.

	Six Months Ended
	June 30,
	2003			2002			$ Change			% Change
				Restated (1)
Benefit for income taxes	$	(20.4	)	$	(14.8	)	$	(5.6	)		37.8	%

     The benefit for income taxes increased primarily due to the decrease in income from continuing operations in 2003 compared to 2002 and from a reduction in the estimated annual effective tax rate for continuing operations from 45% to 24%. This effective rate is due to the inclusion of significant permanent items, which are fixed in amount but have the effect of producing different overall effective rates when such items become more material to net income.

44

	Six Months Ended
	June 30,
	2003			2002		$ Change			% Change
				Restated (1)
Discontinued operations, net of tax	$	(10.1	)	$	10.9	$	(21.0	)		(192.7	)%

     During the six months ended June 30, 2003, we decided to sell our specialty engineering unit, reflecting the soft market for data centers for the foreseeable future. The 2002 discontinued operations activity included the engineering unit, the DePere Energy Center as well as the Drakes Bay Field, British Columbia and Medicine River oil and gas assets. With the exception of the engineering unit, the sales of these assets were completed by December 31, 2002; therefore, their results are not included in the 2003 activity.

	Six Months Ended
	June 30,
	2003		2002		$ Change		% Change
			Restated (1)
Cumulative effect of a change in accounting principle, net of tax	$	0.5	$	—	$	0.5		—	%

     The cumulative effect of a change in accounting principle represents a gain, net of tax effect from adopting SFAS No. 143, “Accounting for Asset Retirement Obligations.”

	Six Months Ended
	June 30,
	2003			2002			$ Change			% Change
				Restated (1)
Net loss	$	(75.4	)	$	(7.4	)	$	(68.0	)		918.9	%

     Our growing portfolio of operating generation facilities contributed to a 23% increase in electric generation production for the six months ended June 30, 2003, compared to the same period in 2002, allowing us to achieve approximately $4.4 billion of revenue for the six months ended June 30, 2003, compared to approximately $3.1 billion for the six months ended June 30, 2002. Electric generation and marketing revenues increased 41% for the six months ended June 30, 2003, as a result of this new production and as a result of hedging and optimization activity, compared with the same period in 2002. Operating results for the six months ended June 30, 2003, reflect an increase in realized electricity prices. However, we experienced a decrease in average spark spreads per megawatt-hour compared with the same period in 2002, reflecting proportionately higher fuel expense.

     Plant operating expenses, interest expense and depreciation were higher due to the additional plants in operation. This was partially mitigated by an increase in oil and gas production margins compared to the prior period due to higher realized oil and gas pricing. Financial results for the six months ended June 30, 2003, were affected by a $52.8 gain on the termination of the tolling arrangement on the Acadia facility, foreign exchange translation losses of $44.3 and a loss in connection with the sale of two turbines of $17.2. In addition, results were affected by a $10.1 after-tax charge to discontinued operations and unscheduled outages and charges, including reserves for equipment repairs of $6.6. As a result of the above, gross profit for the six months ended June 30, 2003, decreased approximately 16%, compared to the same period in 2002.

     (1)  See Note 2 of the Notes to Consolidated Condensed Financial Statements regarding the restatement of financial statements.

Liquidity and Capital Resources

     General — Beginning in the latter half of 2001, and continuing through 2002 and 2003 to date, there has been a significant contraction in the availability of capital for participants in the energy sector, although a more favorable climate for refinancings has been observed in 2003. This contraction has been due to a range of factors, including uncertainty arising from the collapse of Enron Corp. and a perceived near-term surplus supply of electric generating capacity. Contracting credit markets and decreased spark spreads have adversely impacted our liquidity and earnings. While we have been able to access the capital and bank credit markets, it has been on significantly different terms than in the past. We recognize that terms of financing available to us in the future may not be attractive. To protect against this possibility and due to current market conditions, we scaled back our capital expenditure program for 2002 and 2003 to enable us to conserve our available capital resources. Upon completion by Calpine Construction Finance Company, L.P. of the institutional term loan and secured note offering described below, we will have refinanced all of our debt facilities of significance coming due in 2003 and the first half of 2004. The obligations coming due in the second half of 2004 and our plan for refinancing or extending them are discussed below.

     To date, we have obtained cash from our operations; borrowings under our term loan and revolving credit facilities; issuance of debt, equity, trust preferred securities and convertible debentures; proceeds from sale/ leaseback transactions, sale or partial sale of certain assets, contract monetizations and project financing. We have utilized this cash to fund our operations, service or prepay debt

45

obligations, fund acquisitions, develop and construct power generation facilities, finance capital expenditures, support our hedging, balancing, optimization and trading activities at CES, and meet our other cash and liquidity needs. Our business is capital intensive. Our ability to capitalize on growth opportunities is dependent on the availability of capital on attractive terms. The availability of such capital in today’s environment is uncertain. Our strategy is also to reinvest our cash from operations into our business development and construction program or use it to reduce debt, rather than to pay cash dividends. As discussed below, we have a liquidity-enhancing program underway to fund the completion of our current construction portfolio, for refinancing and for general corporate purposes.

     In May and June 2003 our $950 million in secured working capital revolving credit facilities matured and were extended, ultimately to July 16, 2003. At June 30, 2003, we had $453.4 million in funded borrowings under these revolving credit facilities. On July 16, 2003, the Company closed a $3.3 billion term loan and second-priority senior secured notes offering and repaid the outstanding balance on the revolving credit facilities. We also repaid the $949.6 million in funded borrowings outstanding under our $1.0 billion secured term credit facility which was to mature in May 2004. Additionally, as indicated below, we have retired nearly $1.2 billion under various senior note issuances since June 30, 2003 with proceeds of the $3.3 billion term loan and second-priority senior secured notes offering.

     In November 2003 and 2004 our $1.0 billion and $2.5 billion secured revolving construction financing facilities will mature, requiring us to refinance this indebtedness. At June 30, 2003, there was $930.1 million and $2,390.3 million outstanding, respectively, under these facilities. On August 7, 2003, our Calpine Construction Finance Company, L.P. (“CCFC I”) subsidiary had priced $750 million of institutional term loans and secured notes in a transaction expected to close on August 14, 2003. The net proceeds of this offering will, together with proceeds from the $3.3 billion term loan and second-priority senior secured notes offering, be used to repay the outstanding balance on the $1.0 billion secured revolving construction financing facility.

     We intend to refinance or extend the $2.5 billion secured revolving construction facility sometime in 2004, prior to its expiration in November 2004. Since this facility bears a very low interest rate, it is not economical to refinance it too far in advance of its expiration.

     Our ability to refinance this indebtedness will depend, in part, on events beyond our control, including the significant contraction in the availability of capital for participants in the energy sector, and actions taken by rating agencies. If we are unable to refinance this indebtedness, we may be required to further delay our construction program, sell assets or obtain additional financing.

     The holders of our $1.2 billion 4% Convertible Senior Notes Due 2006 (“convertibles”) have a right to require us to repurchase them at 100% of their principal amount plus any accrued and unpaid interest on December 25, 2004. We can effect such a repurchase with cash, shares of Calpine stock or a combination of the two. To date we have repurchased in the open market approximately $112 million of the outstanding principal amount with proceeds of the $3.3 billion term loan and second-priority senior secured notes offering discussed above.

     In addition, $268.7 million of our outstanding Remarketable Term Income Deferrable Equity Securities (“HIGH TIDES”) are scheduled to be remarketed no later than November 1, 2004, $351.6 million of our HIGH TIDES are scheduled to be remarketed no later than February 1, 2005 and $504.0 million of our HIGH TIDES are scheduled to be remarketed no later than August 1, 2005. In the event of a failed remarketing, the relevant HIGH TIDES will remain outstanding as convertible securities at a term rate equal to the treasury rate plus 6% per annum and with a term conversion price equal to 105% of the average closing price of our common stock for the five consecutive trading days after the applicable final failed remarketing termination date. While a failed remarketing of our HIGH TIDES would not have an effect on our liquidity position, it would impact our calculation of diluted earnings per share.

     We expect to have sufficient liquidity from cash flow from operations, borrowings available under lines of credit, access to sale/leaseback and project financing markets, sale of certain assets and cash balances to satisfy all obligations under our other outstanding indebtedness, and to fund anticipated capital expenditures and working capital requirements for the next twelve months.

     Cash Flow Activities The following table summarizes our cash flow activities for the periods indicated:

	Six Months Ended
	June 30,
	2003		2002
			Restated (1)
	(In thousands)
Beginning cash and cash equivalents	$	579,467	$	1,594,144

46

		Six Months Ended
		June 30,
		2003			2002
					Restated (1)
		(In thousands)
Net cash provided by (used in):
	Operating activities		113,304			432,595
	Investing activities		(1,297,803	)		(2,551,434	)
	Financing activities		1,017,314			1,116,524
	Effect of exchange rates changes on cash and cash equivalents		5,672			3,958
	Net increase (decrease) in cash and cash equivalents		(161,513	)		(998,357	)
Ending cash and cash equivalents		$	417,954		$	595,787

(1) See Note 2 of the Notes to Consolidated Condensed Financial Statements regarding the restatement of financial statements.

     Operating activities for the six months ended June 30, 2003, provided net cash of $113.3 million, compared to $432.6 million for the same period in 2002. The decrease in operating cash flow between periods is primarily due to the working capital funding requirements. During the six months ended June 30, 2003, working capital used approximately $375.2 million, as compared to $86.6 million in the same period last year. The growth in short term assets such as margin deposits and accounts receivable accounted for the majority of this difference, which is the result of hedging activities, the overall growth in our revenues, and the timing of receivables collections. For example, the collection from escrow of approximately $222.3 million in 2002 for the PG&E past due pre-petition receivables that were sold to a third party in December 2001 augmented operating cash flow in 2002 when compared to 2003. Excluding the effects of working capital reflected as “Changes in operating assets and liabilities, net of effects of acquisitions,” our operating cash flow decreased by approximately $30.7 million. Although average spark spreads were lower in 2003 than in 2002, increased electrical generation resulted in higher revenues, and subsequently, higher receivables balances. Similarly, natural gas price increases benefited our oil and gas operating results on similar production. Additionally, in 2003, we received $105.5 million from the restructuring of our interest in our Acadia joint venture. See Note 6 of the Notes to Consolidated Condensed Financial Statements for further discussion.

     Investing activities for the six months ended June 30, 2003, consumed net cash of $1,297.8 million, as compared to $2,551.4 million in the same period of 2002. In both periods, capital expenditures represent the majority of investing cash outflows. The decrease between periods is due to the completion of construction on several facilities during 2002, and due to our revised capital expenditure program, which reduces capital investments.

     Financing activities for the six months ended June 30, 2003, provided $1,017.3 million, compared to $1,116.5 million in the prior year. Current year cash inflows are primarily the result of several financing transactions, including $802.2 million from the Power Contract Financing, L.L.C. (“PCF”) financing transaction, $126.5 million from secondary trust unit offerings from our Canadian Income Trust, $82.8 million from the monetization of one of our power sales agreements, $82.0 million from the sale of a preferred interest in the cash flows of our King City facility and additional borrowings under our revolvers. This was partially offset by financing costs and $175.4 million in debt repayments and repurchases. We expect that the significant financing transactions will allow us to continue to retire short term debt and will also enable us to make further repurchases of other long term securities. In the same period of 2002, financing inflows were comprised of $751.2 million from the issuance of common stock, and $1,457.7 million in debt financing, partially offset by the use of $873.2 million used to repay our Zero Coupon Convertible Debentures Due 2021, in addition to other repayments of project financing.

     Counterparties — As of June 30, 2003, we had collection exposures after established reserves from certain of our counterparties as follows: approximately $9.0 million with NRG Power Marketing, Inc. (“NRG”); approximately $9.7 million with Aquila Merchant Services, Inc. and Aquila; approximately $22.2 million with Williams and approximately $0.9 million with Mirant. While we cannot predict the likelihood of default by our customers, we are continuing to closely monitor our positions and will adjust the values of the reserves as conditions dictate. See Note 10 of the Notes to Consolidated Condensed Financial Statements for more information.

     Enron Corporation, and a number of its subsidiaries and affiliates (including Enron North America (“ENA”) and Enron Power Marketing (“EPM”) (collectively “Enron Bankrupt Entities”) filed for Chapter 11 bankruptcy protection on December 2, 2001. At the time of the filing, CES was a party to various open energy derivatives, swaps, and forward power and gas transactions stemming from agreements with ENA and EPM. On November 14, 2001, CES, ENA, and EPM entered into a Master Netting Agreement, which granted the parties a contractual right to setoff amounts owed between them pursuant to the above agreements. The above agreements were terminated by CES on December 10, 2001. The Master Netting Agreement however remained in place. In October 2002 Calpine and various affiliates filed proofs of claim against the Enron Bankrupt Entities.

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     Final settlement of this matter has been reached with Enron and was approved by the bankruptcy court on August 7, 2003, subject to a 10-day appeal period, which expires on August 18, 2003. We will provide information on the terms of the settlement at that time and we do not expect any adverse consequences to our financial results or operations as a result of settling this matter.

     We have a $160.6 million note receivable from Pacific Gas and Electric Company (“PG&E”) and are receiving our monthly note repayments of approximately $1.7 million as scheduled per the contract, as well as current payments on our trade receivables. See Note 10 of the Notes to Consolidated Financial Statements in our 2002 Form 10-K for more information on our contract activity with PG&E.

     Letter of Credit Facilities — At June 30, 2003 and December 31, 2002, we had approximately $548.7 million and $685.6 million, respectively, in letters of credit outstanding under various credit facilities to support CES risk management, and other operational and construction activities. Of the total letters of credit outstanding, $436.5 million and $573.9 million, respectively, were issued under the corporate revolving credit facilities at June 30, 2003 and December 31, 2002.

     CES Margin Deposits and Other Credit Support — As of June 30, 2003 and December 31, 2002, CES had deposited net amounts of $171.7 million and $25.2 million, respectively, in cash as margin deposits with third parties and had letters of credit outstanding of $18.6 million and $106.1 million, respectively. CES uses these margin deposits and letters of credit as credit support for the gas procurement as well as risk management activities it conducts on the Company’s behalf. The amount of credit support required to support CES’s operations is a function primarily of the changes in fair value of commodity contracts that CES has entered into and our credit rating.

     Contractual Obligations — Our contractual obligations as of June 30, 2003, are as follows (in thousands):

		July
		Through
		December
Contractual Obligations		2003		2004		2005		2006		2007		Thereafter		Total
Notes payable and borrowings under lines of credit and term loan (1)		$	8,343	$	138,517	$	175,011	$	179,505	$	134,291	$	257,998	$	893,665
Notes payable and borrowings under lines of credit and term loan (2)			453,402		949,565		—		—		—		—		1,402,967
Capital lease obligation (1)			2,938		3,687		4,406		5,468		5,980		177,859		200,338
Construction/project financing (1)			1,305,628		2,413,970		19,192		22,202		34,152		657,184		4,452,328
Convertible Senior Notes Due 2006 (2)			—		—		—		1,200,000		—		—		1,200,000
Senior Notes (2)			—		—		249,531		421,646		421,920		5,827,117		6,920,214
Total operating lease			141,466		226,914		209,909		196,069		193,491		1,927,825		2,895,674
Turbine commitments			83,573		158,673		19,597		—		—		—		261,843
HIGH TIDES			—		—		—		—		—		1,153,500		1,153,500
	Total	$	1,995,350	$	3,891,326	$	677,646	$	2,024,890	$	789,834	$	10,001,483	$	19,380,529

(1)	Structured as an obligation(s) of certain subsidiaries of Calpine Corporation without recourse to Calpine Corporation. However, default on these instruments could potentially trigger cross-default provisions in the Company’s recourse financings.
(2)	An obligation of or with recourse to Calpine Corporation.

     As of June 30, 2003, $930.1 outstanding under our $1.0 billion construction revolving credit facility, $453.4 outstanding under our working capital revolving credit facility and $949.6 million outstanding under our term facility were classified as long-term debt in the consolidated condensed balance sheet as we have since replaced (or will imminently replace) the debt with other long-term debt instruments, as disclosed in Note 15 of the Notes to Consolidated Condensed Financial Statements. Comparable reclassifications were made to the accompanying consolidated condensed balance sheet as of December 31, 2002. The above table reflects the maturity dates of the debt instruments prior to refinancing.

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     In June 2003 we repurchased Pound Sterling 14.0 million (US$23.3 million) in aggregate outstanding principal amount of our 8 7/8% Senior Notes Due 2011 at a redemption price of Pound Sterling 9.7 million (US$16.1 million) plus accrued interest to the redemption date. We recorded a pre-tax gain on these transactions in the amount of $6.8 million.

     The table below sets forth our contractual obligations, giving effect to the refinancing transactions and debt repurchases subsequent to June 30, 2003, as described above:

		July
		Through
		December
Contractual Obligations		2003		2004		2005		2006		2007		Thereafter		Total
Notes payable and borrowings under lines of credit and term loan (1)		$	8,343	$	138,517	$	175,011	$	179,505	$	134,291	$	257,998	$	893,665
Notes payable and borrowings under lines of credit and term loan (2)			2,375		9,500		9,500		9,500		919,125		—		950,000
Capital lease obligation (1)			2,938		3,687		4,406		5,468		5,980		177,859		200,338
Construction/project financing (1)			325,518		2,417,820		23,042		26,052		38,002		1,391,784		4,222,218
Convertible Senior Notes Due 2006 (2)			—		—		—		1,087,996		—		—		1,087,996
Senior Notes (2)			—		—		224,484		381,134		373,032		4,866,017		5,844,667
Second Secured Senior Notes (2)			—		—		—		—		500,000		2,050,000		2,550,000
Total operating lease			141,466		226,914		209,909		196,069		193,491		1,927,825		2,895,674
Turbine commitments			83,573		158,673		19,597		—		—		—		261,843
HIGH TIDES			—		—		—		—		—		1,153,500		1,153,500
	Total	$	564,213	$	2,955,111	$	665,949	$	1,885,724	$	2,163,921	$	11,824,983	$	20,059,901

(1)	Structured as an obligation(s) of certain subsidiaries of Calpine Corporation without recourse to Calpine Corporation. However, default on these instruments could potentially trigger cross-default provisions in our recourse financings.
(2)	An obligation of or with recourse to Calpine Corporation.

     Debt securities that we repurchased subsequent to June 30, 2003, were approximately $1,185.7 million in aggregate outstanding principal amount at a redemption price of approximately $987.5 million plus accrued interest to the redemption dates. We expect to record a pre-tax gain on these transactions in the amount of $184.0 million in the third quarter of 2003. For a summary of our debt securities repurchased through August 8, 2003, see Note 15 of the Notes to Consolidated Condensed Financial Statements.

     Our senior notes indentures and our credit facilities contain financial and other restrictive covenants with which we are required to comply. Any failure to comply could give holders of debt under the relevant instrument the right to accelerate the maturity of all debt outstanding thereunder if the default was not cured or waived. In addition, holders of debt under other instruments typically would have cross-acceleration provisions, which would permit them also to elect to accelerate the maturity of their debt if another debt instrument was accelerated upon the occurrence of such an uncured event of default.

     In July 2003 we completed a restructuring of our agreements for 20 gas and 2 steam turbines. The new agreement provides for later payment dates, which are in line with our construction program. The table above sets forth future turbine payments for construction and development projects, as well as for unassigned turbines. It includes previously delivered turbines, payments and delivery year for the remaining 10 turbines to be delivered as well as payment required for the potential cancellation costs of the remaining 92 gas and steam turbines. The table above does not include payments that would result if we were to release for manufacturing any of these remaining 92 turbines.

     On July 10, 2003, we renegotiated our financing agreement with Siemens Westinghouse Power Corporation to extend the monthly payment due dates through January 28, 2005. At June 30, 2003, there was $214.8 million in borrowings outstanding under this agreement. We repaid $35.6 million of the outstanding balance in July 2003.

     One of our wholly-owned subsidiaries, South Point Energy Center, LLC, leases the 530-MW South Point power facility located in Arizona, pursuant to certain facility lease agreements. We have recently become aware that a technical default has occurred under such facility lease agreements as a result of an inadvertent pledge of the ownership interests in such subsidiary granted pursuant to certain separate loan facilities entered into by us. We are currently working with the lenders of such loan facilities to release the inadvertent pledge. The South Point facility lease was entered into as part of a larger transaction, which also involved the lease by two of our other subsidiaries of the following two power facilities: the 850-MW Broad River power facility located in South Carolina, and the 520-MW RockGen power facility located in Wisconsin. As all three lease transactions were part of the same overall transaction, the facility lease agreements for Broad River and RockGen contain cross-default provisions to the South Point facility lease agreements and, therefore, a technical default also exists under the Broad River and RockGen facility lease agreements. However, upon the anticipated release of the inadvertent South Point pledge, the default under the Broad River and RockGen facility lease agreements will also be cured. We believe that this release will occur and the default will be cured and, therefore, will not have a material adverse effect on us.

     One of our unconsolidated equity method investees, Androscoggin Energy LLC (“AELLC”), which owns the 160-megawatt Androscoggin Energy Center located in Maine, in which we own a 32.3% interest, has construction debt with $63 million outstanding as of June 30, 2003, that is non-recourse to Calpine Corporation (the “AELLC Non-Recourse Financing”). On June 30, 2003, our investment balance was $10.8 million and our notes receivable balance due from AELLC was $7.4 million. On August 8, 2003, AELLC received a letter from the lenders claiming that certain events of default have occurred under the credit agreement for the AELLC Non-Recourse Financing, including, among other things, that the project has been and remains in default under its debt agreement because the lending syndication has declined to extend the dates for the conversion of the construction loan by a certain date. AELLC is currently discussing with the banks a forbearance arrangement until an agreement is reached concerning the extension, conversion or repayment of the debt; however, the outcome is uncertain at this point. Also, the steam host for the AELLC project, International Paper Company (“IP”), filed a complaint against AELLC in October 2000, which is disclosed in Note 12 in the

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Notes to Consolidated Condensed Financial Statements. IP’s complaint has been a complicating factor in converting the construction debt to long term financing.

     Another of our unconsolidated equity method investees, Merchant Energy Partners Pleasant Hill, LLC (“Aries”), which owns the 591-MW Aries Power Project located in Pleasant Hill, Missouri, in which we own a 50% interest, has $195 million of debt as of June 30, 2003, that was due on June 26, 2003. Due to the default, the partners were required to contribute their proportionate share of $75 million in additional equity. During the quarter, we drew down $37.5 million under our working capital revolver to fund our equity contribution. The management of Aries is in negotiation with the lenders to extend the debt while it continues to negotiate a term loan for the project. The project is technically in default of its debt agreement until the extension is signed. We believe that the project will be able to obtain long-term project financing at commercially reasonable terms. As a result of this event, we have reviewed our $56.5 million investment in the Aries project and believe that the investment is not impaired.

Capital Spending — Development and Construction

     Construction and development costs consisted of the following at June 30, 2003 (dollars in thousands):

						Equipment		Project
		# of				Included in		Development		Equipment for
		Projects		CIP		CIP		Costs		Future Use
Projects in active construction			13	$	3,888,748	$	1,470,038	$	—	$	—
Projects in advanced development			11		732,498		646,380		112,940		—
Projects in suspended development			6		598,014		326,577		12,767		—
Projects in early development			3		3,800		—		8,158		—
Other capital projects		NA			103,212		—		—		—
Unassigned turbines		NA			—		—		—		133,447
	Total construction and development costs			$	5,326,272	$	2,442,995	$	133,865	$	133,447

     Projects in Active Construction — The 13 projects in active construction are estimated to come on line from November 2003 to June 2005. These projects will bring on line approximately 6,485 and 7,558 MW of base load and base load with peaking capacity, respectively. Interest and other costs related to the construction activities necessary to bring these projects to their intended use are being capitalized. The estimated cost to complete these projects, net of expected project financing proceeds, is approximately $1.1 billion. We plan to spend $0.5 billion, $0.5 billion and $0.1 billion in 2003, 2004 and 2005, respectively.

     Projects in Advanced Development — There are 11 projects in advanced development. Of the total amount capitalized approximately $646.4 million relates to equipment, primarily turbine progress payments. These projects will bring on line approximately 6,011 and 7,209 MW of base load and base load with peaking capacity, respectively. Interest and other costs related to the development activities necessary to bring these projects to their intended use are being capitalized. However, the capitalization of interest has been suspended on one project for which development activities are complete but construction will not commence until a power purchase agreement and financing are obtained. The estimated cost to complete these projects is approximately $3.6 billion. Our current plan is to project finance these costs as power purchase agreements are arranged.

     Suspended Development Projects — Due to current electric market conditions, we have ceased capitalization of additional development costs and interest expense on certain development projects on which work has been suspended. Capitalization of costs may recommence as work on these projects resumes, if certain milestones and criteria are met indicating that it is again highly probable that the costs will be recovered through future operations. As is true for all projects, the suspended projects are reviewed for impairment whenever there is an indication of potential reduction in a project’s fair value. Further, if it is determined that it is no longer probable that the projects will be completed and all capitalized costs recovered through future operations, the carrying values of the projects would be written down to the recoverable value. These projects would bring on line approximately 2,938 and 3,418 MW of base load and base load with peaking capacity, respectively. The estimated cost to complete these projects is approximately $1.5 billion. Of the amount capitalized approximately $326.6 million relates to equipment cost, primarily turbine progress payments.

     Projects in Early Development — Costs for projects that are in early stages of development are capitalized only when it is highly probable that such costs are ultimately recoverable and significant project milestones are achieved. Until then, all costs, including interest costs are expensed. The projects in early development with capitalized costs relate to three projects and include geothermal drilling costs and equipment purchases.

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     Other Capital Projects — Other capital projects primarily consist of enhancements to operating power plants, oil and gas and geothermal resource and facilities development as well as software developed for internal use.

     Unassigned Equipment — As of June 30, 2003, we had made progress payments on 7 turbines, 14 heat recovery steam generators, and other equipment with an aggregate carrying value of $110.4 million classified on the balance sheet as other assets, that are not assigned to specific development and construction projects and which we are holding for potential use on future projects. It is possible that some of this unassigned equipment may eventually be sold, potentially in combination with our engineering and construction services. For equipment that is not assigned to development or construction projects, interest is not capitalized. We have $23.1 million, net of impairment in other current assets relating to turbines that we consider held for sale. SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of” (“SFAS No. 144”) requires long-lived assets classified as held for sale to be written down to their fair market value, less disposal costs. During the quarter ended June 30, 2003, we recorded an impairment of $17.2 million on the turbines classified as held for sale. We review our other unassigned the equipment for potential impairment based on probability-weighted alternatives of utilizing it for future projects versus selling it. Utilizing this methodology, we do not believe that the equipment not committed to sale is impaired. However, during the second quarter of 2003, we recorded approximately $17.2 million in losses in connection with the sale of two turbines, and we may incur further losses should we decide to sell more equipment in the future.

     Impairment Evaluation — All active, construction and development projects, including unassigned turbines are reviewed for impairment whenever there is an indication of potential reduction in a project’s fair value. Equipment assigned to such projects is not evaluated for impairment separately, as it is integral to the assumed future operations of the project to which it is assigned. If it is determined that it is no longer probable that the projects will be completed and all capitalized costs recovered through future operations, the carrying values of the projects would be written down to the recoverable value in accordance with the provisions of FASB 144 “Accounting for Impairment or Disposal of Long-Lived Assets.”

     Capital Availability and Liquidity-Enhancing Program — Access to capital for many in the energy sector, including us, has been restricted since late 2001. While we were able in the first half of 2002 and again in the first half of 2003 to access the capital and bank credit markets, in this new environment, it was on significantly different terms than in the past. In particular, our senior working capital facility as well as our debt issuances have been secured by certain of our assets and equity interests. The terms of financing available to us now and in the future may not be attractive to us and the timing of the availability of capital is uncertain and is dependent, in part, on market conditions that are difficult to predict and are outside of our control.

     The company has completed or announced more than $1.6 billion of liquidity-enhancing transactions since the beginning of the year. Over the past few months Calpine has:

• Sold a preferred interest in a subsidiary that leases and operates the 115-megawatt King City Power Plant to GE Structured Finance for $82 million. The preferred interest holder will receive approximately 60% of future cash flow distributions based on current projection.

• Monetized one of its long-term power sales contracts with the California Department of Water Resources through an $802 million senior secured notes offering by Power Contract Financing, L.L.C. (“PCF”), a Calpine stand-alone subsidiary. As part of the PCF financing transaction, PCF issued two tranches of Senior Secured Notes totaling $802.2 million in aggregate. The two tranches of Senior Secured Notes have been rated Baa2 by Moody’s Investors Service, Inc. and BBB (with a negative outlook) by S&P.

• Received $105.5 million for a contract monetization and a restructuring of its 50-percent interest in a partnership that owns and operates the 1,160-megawatt Acadia Power Project in Louisiana.

• Completed an $82.8 million monetization of its 100-megawatt power sales agreement with the Bonneville Power Administration.

• Announced plans for its stand-alone subsidiary Gilroy Energy Center, LLC (GEC) to sell approximately $270 million of senior secured notes, net proceeds of which will be used to reimburse costs incurred in connection with Calpine’s 11 northern California peaking units. Calpine also announced negotiations for a $74 million third-party equity investment in GEC.

• Agreed to sell its unconsolidated, 50-percent interest in the 240-megawatt Gordonsville Power Plant. As a result of the transaction, Calpine will receive a $31.5 million cash payment, which includes a $5.5 million payment from the project for return of a debt service reserve.

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• Announced that our CCFC I subsidiary had priced $750 million of institutional term loans and secured notes under a transaction expected to close on August 14, 2003. The offering includes $385 million of First Priority Secured Institutional Term Loans Due 2009 offered at 99% of par and priced at LIBOR plus 600 basis points, with a LIBOR floor of 150 basis points and $365 million of Second Priority Senior Secured Floating Rate Notes Due 2011 offered at 98.01% of par and priced at LIBOR plus 850 basis points, with a LIBOR floor of 125 basis points. In anticipation of the financing, S&P assigned a B corporate credit rating to CCFC I. S&P also assigned a B+ rating (with a negative outlook) to the First Priority Secured Institutional Term Loans Due 2009 and a B– rating (with a negative outlook) to the Second Priority Secured Floating Rate Notes Due 2011.

     The company continues to make progress on the remaining liquidity transactions, including additional asset sales, the construction financing for the Riverside and Rocky Mountain projects and the receipt of the balance due from warrants issued as part of the Calpine Power Income Fund secondary offering. All of these transactions are scheduled to be completed during the second half of 2003.

     Credit Considerations — On June 2, 2003, Standard & Poor’s (“S&P”) downgraded our corporate credit rating to B from BB. The ratings on our senior unsecured debt, convertible preferred securities, secured corporate revolver and secured term loan were also lowered. The S&P downgrade does not trigger any defaults under our credit agreements, and we continue to conduct our business with our usual creditworthy counterparties.

Performance Metrics

     We believe that certain non-GAAP financial measures and other performance metrics are particularly important in understanding our business. These are described below, beginning with the non-GAAP financial measures:

• Average gross profit margin based on non-GAAP revenue and non-GAAP cost of revenue. A high percentage of our revenue consists of CES hedging, balancing and optimization activity undertaken primarily to enhance the value of our generating assets. CES’s hedging, balancing and optimization activity is primarily accomplished by buying and selling electric power and buying and selling natural gas or by entering into gas financial instruments such as exchange-traded swaps or forward contracts. Under SAB No. 101 and EITF No. 99-19, we must show the purchases and sales of electricity and gas for hedging, balancing and optimization activities (non-trading activities) on a gross basis in our statement of operations when we act as a principal, take title to the electricity and gas we purchase for resale, and enjoy the risks and rewards of ownership. This is notwithstanding the fact that the net gain or loss on certain financial hedging instruments, such as exchange-traded natural gas price swaps, is shown as a net item in our GAAP financials and that pursuant to EITF No. 02-3, trading activity is now shown net in our Statements of Operations under trading revenue, net, for all periods presented. Because of the inflating effect on revenue of much of our hedging, balancing and optimization activity, we believe that revenue levels and trends do not reflect our performance as accurately as gross profit, and that it is analytically useful for investors to look at our results on a non-GAAP basis with all hedging, balancing and optimization activity netted. This analytical approach nets the sales of purchased power for hedging and optimization with purchased power expense for hedging and optimization and includes that net amount as an adjustment to E&S revenue for our generation assets. Similarly, we believe that it is analytically useful for investors to net the sales of purchased gas for hedging and optimization with purchased gas expense for hedging and optimization and include that net amount as an adjustment to fuel expense. This allows us to look at all hedging, balancing and optimization activity consistently (net presentation) and better understand our performance trends. It should be noted that in this non-GAAP analytical approach, total gross profit does not change from the GAAP presentation, but the gross profit margins as a percent of revenue do differ from corresponding GAAP amounts because the inflating effects on our GAAP revenue of hedging, balancing and optimization activities are removed.

     Other performance metrics are described below and are important to understanding the degree to which our generating assets are productively employed, how efficiently they operate, and how market forces in the electricity and gas markets and our risk management activities affect our profitability. We elaborate below on why each of these metrics is useful in understanding our business.

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• Average availability and average baseload capacity factor or operating rate. Availability represents the percent of total hours during the period that our plants were available to run after taking into account the downtime associated with both scheduled and unscheduled outages. The baseload capacity factor, sometimes called operating rate, is calculated by dividing (a) total baseload megawatt hours generated by our power plants (excluding pure peaker facilities (“peakers”)) by the product of multiplying (b) the weighted average baseload megawatts in operation during the period by (c) the total hours in the period. The baseload capacity factor is thus a measure of total actual baseload generation as a percent of total potential baseload generation. If we elect not to generate during periods when electricity pricing is too low or gas prices too high to operate profitably, the baseload capacity factor will reflect that decision as well as both scheduled and unscheduled outages due to maintenance and repair requirements. Peakers are designed to operate infrequently, generally only during periods of high demand, and so are excluded from the calculation of baseload capacity factor.

• Average heat rate for gas-fired fleet of power plants expressed in British Thermal Units (“Btu”) of fuel consumed per KWh generated. We calculate the average heat rate for our gas-fired power plants (excluding peakers) by dividing (a) fuel consumed in Btu’s by (b) KWh generated. The resultant heat rate is a measure of fuel efficiency, so the lower the heat rate, the better. We also calculate a “steam-adjusted” heat rate, in which we adjust the fuel consumption in Btu’s down by the equivalent heat content in steam or other thermal energy exported to a third party, such as to steam hosts for our cogeneration facilities. Our goal is to have the lowest average heat rate in the industry.

• Average all-in realized electric price expressed in dollars per MWh generated. Our risk management and optimization activities are integral to our power generation business and directly impact our total realized revenues from generation. Accordingly, we calculate the all-in realized electric price per MWh generated by dividing (a) adjusted electricity and steam revenue, which includes capacity revenues, energy revenues, thermal revenues and the spread on sales of purchased electricity for hedging, balancing, and optimization activity, by (b) total generated MWh in the period.

• Average cost of natural gas expressed in dollars per millions of Btu’s of fuel consumed. Our risk management and optimization activities related to fuel procurement directly impact our total fuel expense. The fuel costs for our gas-fired power plants are a function of the price we pay for fuel purchased and the results of the fuel hedging, balancing, and optimization activities by CES. Accordingly, we calculate the cost of natural gas per millions of Btu’s of fuel consumed in our power plants by dividing (a) adjusted fuel expense which includes the cost of fuel consumed by our plants (adding back cost of intercompany “equity” gas from Calpine Natural Gas, which is eliminated in consolidation), and the spread on sales of purchased gas for hedging, balancing, and optimization activity by (b) the heat content in millions of Btu’s of the fuel we consumed in our power plants for the period.

• Average spark spread expressed in dollars per MWh generated. Our risk management activities focus on managing the spark spread for our portfolio of power plants, the spread between the sales price for electricity generated and the cost of fuel. We calculate the spark spread per MWh generated by subtracting (a) adjusted fuel expense from (b) adjusted E&S revenue and dividing the difference by (c) total generated MWh in the period. We also calculate average spark spread per MWh as adjusted for the margin on equity gas production. We calculate the margin on equity gas production by adding (a) oil and gas sales plus (b) the value of equity gas eliminated from fuel expense in consolidation and subtracting from this sum both (c) oil and gas production expense and (d) the depreciation, depletion and amortization expense attributable to oil and gas production. This amount is divided by (e) total generated MWh in the period and the resultant value per MWh is added to average spark spread. Because of our strategy of partially hedging our fuel expense exposure for electric generation with our equity gas production, we believe that this equity-gas-adjusted spark spread value is the more meaningful measure of spark spread in evaluating our performance.

     The table below presents, side-by-side, both our GAAP and non-GAAP netted revenue, costs of revenue and gross profit showing the purchases and sales of electricity and gas for hedging, balancing and optimization activity on a net basis. It also shows the other performance metrics discussed above.

53

										Non-GAAP Netted
				GAAP Presentation						Presentation
				Three Months Ended						Three Months Ended
				June 30,						June 30,
				2003			2002			2003			2002
							Restated (1)
				(In thousands)
Revenue, Cost of Revenue and Gross Profit
Revenue:
	Electric generation and marketing revenue
		Electricity and steam revenue (3)		$	1,072,636		$	707,312		$	1,078,722		$	874,590
		Sales of purchased power for hedging and optimization (3)			744,805			718,157			—			—
	Total electric generation and marketing revenue				1,817,441			1,425,469			1,078,722			874,590
	Oil and gas production and marketing revenue
		Oil and gas production sales			29,490			16,128			29,490			16,128
		Sales of purchased gas for hedging and optimization (3)			328,478			309,352			—			—
	Total oil and gas production and marketing revenue				357,968			325,480			29,490			16,128
	Trading revenue, net
		Realized net revenue on power and gas trading, net			9,060			2,202			9,060			2,202
		Unrealized mark-to-market gain (loss) on power and gas transactions, net			(7,221	)		1,974			(7,221	)		1,974
	Total trading revenue, net				1,839			4,176			1,839			4,176
	Other revenue				8,808			3,247			8,808			3,247
			Total revenue		2,186,056			1,758,372			1,118,859			898,141
Cost of revenue:
	Electric generation and marketing expense
		Plant operating expense			164,448			118,415			164,448			118,415
		Royalty expense			6,461			4,194			6,461			4,194
		Purchased power expense (2)			738,719			550,879			—			—
	Total electric generation and marketing expense				909,628			673,488			170,909			122,609
	Oil and gas production and marketing expense
		Oil and gas production expense			29,082			22,788			29,082			22,788
		Purchased gas expense (2)			331,122			331,392			—			—
	Total oil and gas production and marketing expense				360,204			354,180			29,082			22,788
	Total fuel expense				555,368			350,298			558,012			372,338
	Depreciation, depletion and amortization expense				140,187			103,674			140,187			103,674
	Operating lease expense				28,168			28,239			28,168			28,239
	Other expense				6,870			1,146			6,870			1,146
			Total cost of revenue		2,000,425			1,511,025			933,228			650,794
		Gross profit		$	185,631		$	247,347		$	185,631		$	247,347
		Gross profit margin			8	%		14	%		17	%		28	%

			GAAP Presentation				Presentation
			Six Months Ended				Six Months Ended
			June 30,				June 30,
			2003		2002		2003		2002
					Restated (1)
			(In thousands)
Revenue, Cost of Revenue and Gross Profit
Revenue:
	Electric generation and marketing revenue
		Electricity and steam revenue (3)	$	2,194,674	$	1,329,712	$	2,202,095	$	1,587,806
		Sales of purchased power for hedging and optimization (3)		1,426,089		1,238,208		—		—
	Total electric generation and marketing revenue			3,620,763		2,567,920		2,202,095		1,587,806
	Oil and gas production and marketing revenue
		Oil and gas production sales		55,479		69,204		55,479		69,204
		Sales of purchased gas for hedging and optimization (3)		655,946		432,756		—		—
	Total oil and gas production and marketing revenue			711,425		501,960		55,479		69,204
	Trading revenue, net
		Realized net revenue on power and gas trading, net		30,274		8,431		30,274		8,431

54

				GAAP Presentation						Presentation
				Six Months Ended						Six Months Ended
				June 30,						June 30,
				2003			2002			2003			2002
							Restated (1)
				(In thousands)
		Unrealized mark-to-market gain (loss) on power and gas transactions, net			(7,992	)		4,791			(7,992	)		4,791
	Total trading revenue, net				22,282			13,222			22,282			13,222
	Other revenue				16,100			5,978			16,100			5,978
			Total revenue		4,370,570			3,089,080			2,295,956			1,676,210
Cost of revenue:
	Electric generation and marketing expense
		Plant operating expense			329,428			234,889			329,428			234,889
		Royalty expense			11,818			8,349			11,818			8,349
		Purchased power expense (3)			1,418,668			980,114			—			—
	Total electric generation and marketing expense				1,759,914			1,223,352			341,246			243,238
	Oil and gas production and marketing expense
		Oil and gas production expense			54,773			44,427			54,773			44,427
		Purchased gas expense (3)			648,070			452,753			—			—
	Total oil and gas production and marketing expense				702,843			497,180			54,773			44,427
	Total fuel expense				1,205,604			682,832			1,197,728			702,829
	Depreciation, depletion and amortization expense				274,897			198,643			274,897			198,643
	Operating lease expense				55,860			56,380			55,860			56,380
	Other expense				12,121			3,098			12,121			3,098
			Total cost of revenue		4,011,239			2,661,485			1,936,625			1,248,615
		Gross profit		$	359,331		$	427,595		$	359,331		$	427,595
		Gross profit margin			8	%		14	%		16	%		26	%

		Non-GAAP Netted						Non-GAAP Netted
		Presentation						Presentation
		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2003			2002			2003			2002
		(In thousands)
Other Non-GAAP Performance Metrics
Average availability and baseload capacity factor:
	Average availability		87	%		93	%		87	%		91	%
	Average baseload capacity factor:
	Average total MW in operation		19,455			12,557			19,019			11,877
	Less: Average MW of pure peakers		2,685			1,760			2,453			1,679
	Average baseload MW in operation		16,770			10,797			16,566			10,198
	Hours in the period		2,184			2,184			4,344			4,344
	Potential baseload generation		36,626			23,581			71,963			44,300
	Actual total generation		17,909			15,682			37,331			30,391
	Less: Actual pure peakers’ generation		140			217			311			283
	Actual baseload generation		17,769			15,465			37,020			30,108
	Average baseload capacity factor		49	%		66	%		51	%		68	%
Average heat rate for gas-fired power plants (excluding peakers) (Btu’s/kWh):
	Not steam adjusted		7,997			8,158			7,975			8,165
	Steam adjusted		7,232			7,455			7,230			7,416
Average all-in realized electric price:
	Adjusted electricity and steam revenue (in thousands)	$	1,078,722		$	874,590		$	2,202,095		$	1,587,806
	MWh generated (in thousands)		17,909			15,682			37,331			30,391
	Average all-in realized electric price per MWh	$	60.23		$	55.77		$	58.99		$	52.25
Average cost of natural gas:
	Cost of oil and natural gas burned by power plants (in thousands)	$	558,012		$	372,338		$	1,197,728		$	702,829
	Fuel cost elimination		96,461			52,313			206,795			69,954
	Adjusted fuel expense	$	654,473		$	424,651		$	1,404,523		$	772,783
	Million Btu’s (“MMBtu”) of fuel consumed by generating plants (in thousands)		125,209			112,153			250,534			218,617

55

			Non-GAAP Netted				Non-GAAP Netted
			Presentation				Presentation
			Three Months Ended				Six Months Ended
			June 30,				June 30,
			2003		2002		2003		2002
			(In thousands)
	Average cost of natural gas per MMBtu		$	5.23	$	3.79	$	5.61	$	3.53
	MWh generated (in thousands)			17,909		15,682		37,331		30,391
	Average cost of oil and natural gas burned by power plants per MWh		$	36.54	$	27.08	$	37.62	$	25.43
Equity gas contribution margin:
	Oil and gas production sales			29,490		16,128		55,479		69,204
	Add: Fuel cost eliminated in consolidation			96,461		52,313		206,795		69,954
		Subtotal		125,951		68,441		262,274		139,158
	Less: Oil and gas production expense			29,082		22,788		54,773		44,427
	Less: Depletion, depreciation and amortization			38,769		37,292		78,095		72,928
	Equity gas contribution margin			58,100		8,361		129,406		21,803
	MWh generated (in thousands)			17,909		15,682		37,331		30,391
	Equity gas contribution margin per MWh			3.24		0.53		3.47		0.72
Average spark spread:
	Adjusted electricity and steam revenue (in thousands)		$	1,078,722	$	874,590	$	2,202,095	$	1,587,806
	Less: Adjusted fuel expense (in thousands)		$	654,473	$	424,651	$	1,404,523	$	772,783
		Spark spread (in thousands)	$	424,249	$	449,939	$	797,572	$	815,023
	MWh generated (in thousands)			17,909		15,682		37,331		30,391
	Average spark spread per MWh		$	23.69	$	28.69	$	21.36	$	26.82
	Add: Equity gas contribution			58,100		8,361		129,406		21,803
	Spark spread with equity gas benefits (in thousands)			482,349		458,300		926,978		836,826
	Average spark spread with equity gas benefits per MWh			26.93		29.22		24.83		27.54

     The non-GAAP presentation above also facilitates a look at the total “trading” activity impact on gross profit. For the three and six months ended June 30, 2003 and 2002, trading revenue, net consisted of (dollars in thousands):

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2003			2002			2003			2002
					Restated (1)						Restated (1)
ELECTRICITY
Realized gain (loss) Realized revenue on power trading transactions, net		$	9,826		$	819		$	24,662		$	976
Unrealized Unrealized mark-to-market gain (loss) on power transactions, net			(12,844	)		5,889			(17,751	)		10,056
	Total	$	(3,018	)	$	6,708		$	6,911		$	11,032
GAS
Realized gain (loss) Realized revenue on gas trading transactions, net		$	(766	)	$	1,383		$	5,612		$	7,455
Unrealized Unrealized mark-to-market gain (loss) on gas transactions, net			5,623			(3,915	)		9,759			(5,265	)
	Total	$	4,857		$	(2,532	)	$	15,371		$	2,190

	Three Months						Three Months
	Ended						Ended
	June 30,			Percent of			June 30,		Percent of
	2003			Gross Profit			2002		Gross Profit
							Restated (1)
Total trading activity gain (loss)	$	1,839			1	%	$	4,176		2	%
Realized gain	$	9,060			5	%	$	2,202		1	%
Unrealized (mark-to-market) gains (loss)(2)	$	(7,221	)		(4	)%	$	1,974		1	%

	Six Months						Six Months
	Ended						Ended
	June 30,			Percent of			June 30,		Percent of
	2003			Gross Profit			2002		Gross Profit
							Restated (1)
Total trading activity gain (loss)	$	22,282			6	%	$	13,222		3	%
Realized gain	$	30,274			8	%	$	8,431		2	%
Unrealized (mark-to-market) gains (loss)(2)	$	(7,992	)		(2	)%	$	4,791		1	%

56

(1)	See Note 2 of the Notes to Consolidated Condensed Financial Statements regarding the restatement of financial statements.
(2)	For the three and six months ended June 30, 2003 and 2002, the mark-to-market gains shown above as “trading” activity include hedge ineffectiveness as discussed in Note 8 of the Notes to Consolidated Condensed Financial Statements.
(3)	Following is a reconciliation of GAAP to non-GAAP presentation further to the narrative set forth under this Performance Metrics section: ($ in thousands)

			To Net
			Hedging,
			Balancing &			Netted
	GAAP		Optimization			Non-GAAP
	Balance		Activity			Balance
Three months ended June 30, 2003
Electricity and steam revenue	$	1,072,636	$	6,086		$	1,078,722
Sales of purchased power		744,805		(744,805	)		—
Sales of purchased gas		328,478		(328,478	)		—
Purchased power expense		738,719		(738,719	)		—
Purchased gas expense		331,122		(331,122	)		—
Fuel expense		555,368		2,644			558,012
Three months ended June 30, 2002, Restated (1)
Electricity and steam revenue	$	707,312	$	167,278		$	874,590
Sales of purchased power		718,157		(718,157	)		—
Sales of purchased gas		309,352		(309,352	)		—
Purchased power expense		550,879		(550,879	)		—
Purchased gas expense		331,392		(331,392	)		—
Fuel expense		350,298		22,040			372,338

			To Net
			Hedging,
			Balancing &			Netted
	GAAP		Optimization			Non-GAAP
	Balance		Activity			Balance
Six months ended June 30, 2003
Electricity and steam revenue	$	2,194,674	$	7,421		$	2,202,095
Sales of purchased power		1,426,089		(1,426,089	)		—
Sales of purchased gas		655,946		(655,946	)		—
Purchased power expense		1,418,668		(1,418,668	)		—
Purchased gas expense		648,070		(648,070	)		—
Fuel expense		1,205,604		(7,876	)		1,197,728
Six months ended June 30, 2002, Restated (1)
Electricity and steam revenue	$	1,329,712	$	258,094		$	1,587,806
Sales of purchased power		1,238,208		(1,238,208	)		—
Sales of purchased gas		432,756		(432,756	)		—
Purchased power expense		980,114		(980,114	)		—
Purchased gas expense		452,753		(452,753	)		—
Fuel expense		682,832		19,997			702,829

(1) See Note 2 of the Notes to Consolidated Condensed Financial Statements regarding the restatement of financial statements.

Overview

Summary of Key Activities

57

     Power Plant Development and Construction:

Date	Project	Description
4/03	Blue Spruce Energy Center	Commercial Operation
4/03	Calgary Energy Centre	Commercial Operation
5/03	Riverview Energy Center	Commercial Operation
6/03	Carville Energy Center	Commercial Operation
6/03	Santa Rosa Energy Center	Commercial Operation
6/03	Oneta Energy Center, Phase II	Commercial Operation
6/03	Deer Park Energy Center, Phases I and IA	Commercial Operation
6/03	Decatur Energy Center, Phase II	Commercial Operation
6/03	Morgan Energy Center, Units 2 and 3	Commercial Operation
6/03	Zion Energy Center Expansion, Unit 3	Commercial Operation

Finance

Date	Amount	Description
6/03	$802 million	Power Contract Financing, L.L.C., a wholly owned stand-alone subsidiary of CES, completed an offering of approximately $340 million of 5.2% Senior Secured Notes Due 2006 and approximately $462 million of 6.256% Senior Secured Notes Due 2010 in a private placement under Rule 144A.
6/03	Pound Sterling 14.0 million (US$23.3 million)	We repurchased Pound Sterling 14.0 million (US$23.3 million) in aggregate outstanding principal amount of our 8 7/8% Senior Notes Due 2011 at a redemption price of Pound Sterling 9.7 million (US$16.1 million) plus accrued interest to the redemption date. We recorded a pre-tax gain on these transactions in the amount of $6.8 million.

     Other:

Date	Description
April 29,2003	Completed the sale for $82.0 million to GE Structured Finance of a preferred interest, which approximates 60% based on projected cash flow distributions, in a subsidiary that leases and operates the 115-megawatt King City Power Plant.
May 12, 2003	Completed the contract monetization and a restructuring of our interest in Acadia, a 50/50 joint venture between us and Cleco. See Note 6 of the Notes to Consolidated Condensed Financial Statements for additional information regarding this monetization.
May 15, 2003	Our wholly owned subsidiary, Calpine Northbrook Energy Marketing, LLC, completed the $82.8 million monetization of an existing power sales agreement with the Bonneville Power Administration.
June 2, 2003	Standard & Poor’s downgraded our corporate credit rating to B from BB.

California Power Market — See Note 14 of the Notes to Consolidated Condensed Financial Statements regarding the California Power Market.

58

Financial Market Risks

     Because we are primarily focused on generation of electricity using gas-fired turbines, our natural physical commodity position is “short” fuel (i.e., natural gas consumer) and “long” power (i.e., electricity seller). To manage forward exposure to price fluctuation in these and (to a lesser extent) other commodities, we enter into derivative commodity instruments.

     The change in fair value of outstanding commodity derivative instruments from January 1, 2003 through June 30, 2003, is summarized in the table below (in thousands):

Fair value of contracts outstanding at January 1, 2003	$	150,627
Gains recognized or otherwise settled during the period (1)		(85,890	)
Changes in fair value attributable to changes in valuation techniques and assumptions		—
Changes in fair value attributable to new contracts		3,351
Changes in fair value attributable to price movements		105,852
Terminated derivatives (2)		(55,120	)
Other changes in fair value		482
Fair value of contracts outstanding at June 30, 2003 (3)	$	119,302

(1)	Recognized gains from commodity cash flow hedges of $55.6 million (represents realized value of cash flow hedge activity of $(23.4) million as disclosed in Note 8 of the Notes to Consolidated Condensed Financial Statements, net of terminated derivatives of $(79.0) million) and $30.3 million realized gain on trading activity is reported in the Statement of Operations under trading revenue, net.
(2)	Includes the value of derivatives terminated or settled before their scheduled maturity and the value of commodity financial instruments that ceased to qualify as derivative instruments.
(3)	Net commodity derivative assets reported in Note 8 of the Notes to Consolidated Condensed Financial Statements

     The fair value of outstanding derivative commodity instruments at June 30, 2003, based on price source and the period during which the instruments will mature, are summarized in the table below (in thousands):

Fair Value Source	2003			2004-2005			2006-2007		After 2007			Total
Prices actively quoted	$	131,974		$	52,853		$	—	$	—		$	184,827
Prices provided by other external sources		(33,745	)		1,679			14,765		—			(17,301	)
Prices based on models and other valuation methods		—			(7,094	)		7,441		(48,571	)		(48,224	)
Total fair value	$	98,229		$	47,438		$	22,206	$	(48,571	)	$	119,302

     Our risk managers maintain fair value price information derived from various sources in our risk management systems. The propriety of that information is validated by our Risk Control group. Prices actively quoted include validation with prices sourced from commodities exchanges (e.g., New York Mercantile Exchange). Prices provided by other external sources include quotes from commodity brokers and electronic trading platforms. Prices based on models and other valuation methods are validated using quantitative methods.

     The counterparty credit quality associated with the fair value of outstanding derivative commodity instruments at June 30, 2003, and the period during which the instruments will mature are summarized in the table below (in thousands):

Credit Quality
(based on June 30, 2003, ratings)	2003			2004-2005			2006-2007			After 2007			Total
Investment grade	$	63,578		$	7,088		$	16,334		$	(56,974	)	$	30,026
Non-investment grade		41,907			45,010			6,512			8,403			101,832
No external ratings		(7,256	)		(4,660	)		(640	)		—			(12,556	)
Total fair value	$	98,229		$	47,438		$	22,206		$	(48,571	)	$	119,302

59

     The fair value of outstanding derivative commodity instruments and the fair value that would be expected after a ten percent adverse price change are shown in the table below (in thousands):

						Fair Value
						After 10%
						Adverse
			Fair Value			Price Change
At June 30, 2003:
	Crude oil		$	(1,649	)	$	(2,077	)
	Electricity			(85,872	)		(205,245	)
	Natural gas			206,823			93,892
		Total	$	119,302		$	(113,430	)

     Derivative commodity instruments included in the table are those included in Note 8 of the Notes to Consolidated Condensed Financial Statements. The fair value of derivative commodity instruments included in the table is based on present value adjusted quoted market prices of comparable contracts. The fair value of electricity derivative commodity instruments after a 10% adverse price change includes the effect of increased power prices versus our derivative forward commitments. Conversely, the fair value of the natural gas derivatives after a 10% adverse price change reflects a general decline in gas prices versus our derivative forward commitments. Derivative commodity instruments offset the price risk exposure of our physical assets. None of the offsetting physical positions are included in the table above.

     Price changes were calculated by assuming an across-the-board ten percent adverse price change regardless of term or historical relationship between the contract price of an instrument and the underlying commodity price. In the event of an actual ten percent change in prices, the fair value of our derivative portfolio would typically change by more than ten percent for earlier forward months and less than ten percent for later forward months because of the higher volatilities in the near term and the effects of discounting expected future cash flows.

     The primary factors affecting the fair value of our derivatives at any point in time are (1) the volume of open derivative positions (MMBtu and MWh), and (2) changing commodity market prices, principally for electricity and natural gas. The total volume of open gas derivative positions decreased 20% from December 31, 2002, to June 30, 2003, and the total volume of open power derivative positions increased 21% for the same period. In that prices for electricity and natural gas are among the most volatile of all commodity prices, there may be material changes in the fair value of our derivatives over time, driven both by price volatility and the changes in volume of open derivative transactions. Under SFAS No. 133, the change since the last balance sheet date in the total value of the derivatives (both assets and liabilities) is reflected either in Other Comprehensive Income (“OCI”), net of tax, or in the statement of operations as an item (gain or loss) of current earnings. As of June 30, 2003, the majority of the balance in accumulated OCI represented the unrealized net loss associated with commodity cash flow hedging transactions. As noted above, there is a substantial amount of volatility inherent in accounting for the fair value of these derivatives, and our results during the six months ended June 30, 2003, have reflected this. See Notes 8 and 9 of the Notes to Consolidated Condensed Financial Statements for additional information on derivative activity and OCI.

     Collateral Debt Securities — The King City operating lease commitment is supported by collateral debt securities that mature serially in amounts equal to a portion of the semi-annual lease payment. We have the ability and intent to hold these securities to maturity, and as a result, we do not expect a sudden change in market interest rates to have a material affect on the value of the securities at the maturity date. The securities are recorded at an amortized cost of $82.4 million at June 30, 2003. The following tables present our different classes of collateral debt securities by face value expected maturity date and also by fair market value as of June 30, 2003, (dollars in thousands):

		Weighted
		Average
		Interest Rate			2003		2004		2005		2006		2007		Thereafter		Total
Corporate Debt Securities			7.3	%	$	—	$	6,050	$	7,825	$	—	$	—	$	—	$	13,875
U.S. Treasury Notes			6.5	%		—		—		1,975		—		—		—		1,975
U.S. Treasury Securities (non- interest bearing)			—			2,065		—		—		9,700		9,100		96,150		117,015
	Total				$	2,065	$	6,050	$	9,800	$	9,700	$	9,100	$	96,150	$	132,865

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		Fair Market Value
Corporate Debt Securities		$	14,806
U.S. Treasury Notes			2,189
U.S. Treasury Securities (non-interest bearing)			86,251
	Total	$	103,246

     Interest Rate Swaps and Cross Currency Swaps — From time to time, we use interest rate swap agreements to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments. We do not use interest rate swap agreements for speculative or trading purposes. The following tables summarize the fair market values of our existing interest rate swap agreements as of June 30, 2003, (dollars in thousands):

		Weighted Average		Weighted Average
		Notional		Interest Rate
Maturity Date		Principal Amount		(Pay)			Interest Rate (Receive)			Fair Market Value
2008		$	106,294		4.2	%		(1	)	$	(7,026	)
2011			45,338		6.9	%	3-month US$ LIBOR				(8,037	)
2012			113,526		6.5	%	3-month US$ LIBOR				(21,359	)
2014			63,451		6.7	%	3-month US$ LIBOR				(10,870	)
	Total	$	328,609		5.9	%				$	(47,292	)

(1) 1-month US$ LIBOR until July 2003. 3-month US$ LIBOR thereafter.

     Debt financing — Because of the significant capital requirements within our industry, debt financing is often needed to fund our growth. Certain debt instruments may affect us adversely because of changes in market conditions. We have used two primary forms of debt which are subject to market risk: (1) Variable rate construction/project financing; (2) Other variable-rate instruments. Significant LIBOR increases could have a negative impact on our future interest expense. Our variable-rate construction/project financing is primarily through two separate credit agreements, Calpine Construction Finance Company L.P. and Calpine Construction Finance Company II, LLC. Borrowings under these credit agreements are used exclusively to fund the construction of our power plants. Other variable-rate instruments consist primarily of our revolving credit and term loan facilities which are used for general corporate purposes. Both our variable-rate construction/project financing and other variable-rate instruments are indexed to different LIBOR rates.

     The following table summarizes our variable-rate debt exposed to interest rate risk as of June 30, 2003 (dollars in thousands):

			Outstanding		Weighted Average	Fair Market
			Balance		Interest Rate	Value
Variable-rate construction/project financing and other variable-rate instruments:
Short-term
	Siemens Westinghouse Power Corporation		$	214,781	6-month US$LIBOR	$	214,781
		Total short-term	$	214,781		$	214,781
Long-term
	Blue Spruce Energy Center Project financing		$	97,715	1-month US$ LIBOR	$	97,715
	Calpine Construction Finance Company L.P. (“CCFC I”)			930,110	1-month US$ LIBOR		930,110
	Corporate revolving line of credit			453,402	1-month US$ LIBOR		453,402
	Term loan due			949,565	3-month US$ LIBOR		949,565
	Calpine Construction Finance Company II, LLC (“CCFC II”)			2,390,270	1-month US$ LIBOR		2,390,270
		Total long-term	$	4,821,062		$	4,821,062
Total variable-rate construction/project financing and other variable-rate instruments			$	5,035,843		$	5,035,843

     Construction/project financing facilities — In November 2003 and November 2004, respectively, our $1.0 billion and $2.5 billion, secured construction financing revolving facilities will mature, requiring us to refinance or extend this indebtedness. On August 7, 2003, our wholly owned subsidiary, Calpine Construction Finance Company, L.P. (“CCFC I”), priced its $750 million institutional term loans and secured notes offering. The offering includes $385 million of First Priority Secured Institutional Term Loans Due 2009 offered at 99% of par and priced at LIBOR plus 600 basis points, with a LIBOR floor of 150 basis points and $365 million of Second Priority Senior Secured Floating Rate Notes Due 2011 offered at 98.01% of par and priced at LIBOR plus 850 basis

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points, with a LIBOR floor of 125 basis points. In anticipation of the financing, S&P assigned a B corporate credit rating to CCFCI. S&P also assigned a B+ rating (with a negative outlook) to the First Priority Secured Institutional Term Loans Due 2009 and a B- ratios (with a negative outlook) to the Second Priority Secured Floating Rate Notes Due 2011. The noteholders’ recourse will be limited to seven of CCFC’s natural gas-fired electric generating facilities located in various power markets in the United States, and related assets and contracts. The transaction is expected to close on August 14, 2003. Net proceeds will be used to refinance the majority of the amount currently outstanding under the CCFCI project financing. The remainder of the facility will be repaid from proceeds from the $3.3 billion term loan and second-priority senior secured notes offering.

     Revolving credit and term loan facilities — At June 30, 2003, we had $949.6 million in funded borrowings outstanding under the term loan, which matures in May 2004. Additionally we had $453.4 million in funded borrowings outstanding and $436.5 million in outstanding letters of credit under the revolving credit facilities, of which $148.4 million of the letters of credit were issued in support of financial arrangements either reflected on the balance sheet or associated with leased assets or obligations of partially-owned subsidiaries. On July 16, 2003, we closed our $3.3 billion term loan and second-priority senior secured notes offering. The term loan and senior notes are secured by substantially all of the assets owned directly by Calpine Corporation, including natural gas and power plant assets and the stock of Calpine Energy Services and other subsidiaries. The offering was comprised of two tranches of floating rate securities and two tranches of fixed rate securities. The floating rate securities included a $750 million, four-year term loan and a $500 million of Second-Priority Senior Secured Floating Rate Notes due 2007. The fixed rate securities included $1.15 billion of 8.5% Second Priority Senior Secured Notes due 2010 and $900 million of 8.75% Second Priority Senior Secured Notes due 2013. We extended the termination date of our letters of credit under the $570 million secured revolving credit facility from May 2003 through dates up to May 2004.

     Concurrent with the $3.3 billion term loan and second-priority senior secured notes offering, on July 16, 2003, we entered into agreements for a new $500 million working capital facility. The new first-priority senior secured facility will consist of a two-year, $300 million working capital revolver and a four-year, $200 million term loan that together will provide up to $500 million in combined cash borrowing and letter of credit capacity. The new facility replaces our existing working capital facilities. It will be secured by a first-priority lien on the same assets that collateralize our recently completed $3.3 billion term loan and second-priority senior secured notes offering.

New Accounting Pronouncements

     In June 2001 the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations.” SFAS No. 143 applies to fiscal years beginning after June 15, 2002, and amends SFAS No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies.” This standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the assets and requires that a liability for an asset retirement obligation be recognized when incurred, recorded at fair value and classified as a liability in the balance sheet. When the liability is initially recorded, the entity will capitalize the cost and increase the carrying value of the related long-lived asset. Asset retirement obligations represent future liabilities, and, as a result, accretion expense will be accrued on this liability until the obligation is satisfied. At the same time, the capitalized cost will be depreciated over the estimated useful life of the related asset. At the settlement date, the entity will settle the obligation for its recorded amount or recognize a gain or loss upon settlement.

     We adopted the new rules on asset retirement obligations on January 1, 2003. As required by the new rules, we recorded liabilities equal to the present value of expected future asset retirement obligations at January 1, 2003. We identified obligations related to operating gas-fired power plants, geothermal power plants and oil and gas properties. The liabilities are partially offset by increases in net assets, net of accumulated depreciation, recorded as if the provisions of the Statement had been in effect at the date the obligation was incurred, which for power plants is generally the start of commercial operations for the facility.

     Based on current information and assumptions we recorded an additional long-term liability of $25.9 million, an additional asset within property, plant and equipment, net of accumulated depreciation, of $26.9 million, and a pre-tax gain to income due to the cumulative effect of a change in accounting principle of $1.0 million. These entries include the effects of the reversal of site dismantlement and restoration costs previously expensed in accordance with SFAS No. 19.

     In June 2002 the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” We have adopted, effective January 1, 2003, the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. SFAS No. 146 has not had a material impact on our Consolidated Condensed Financial Statements.

     In November 2002 the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). This Interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, the Interpretation clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations that the guarantor has undertaken in issuing the guarantee. We adopted the disclosure requirements of FIN 45 for the fiscal

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year ended December 31, 2002, and the recognition provisions on January 1, 2003. Adoption of this Interpretation did not have a material impact on our Consolidated Condensed Financial Statements.

     On January 1, 2003, we prospectively adopted the fair value method of accounting for stock-based employee compensation pursuant to SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for companies that voluntarily change their accounting for stock-based compensation from the less preferred intrinsic value based method to the more preferred fair value based method. Prior to its amendment, SFAS No. 123 required that companies enacting a voluntary change in accounting principle from the intrinsic value methodology provided by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) could only do so on a prospective basis; no adoption or transition provisions were established to allow for a restatement of prior period financial statements. SFAS No. 148 provides two additional transition options to report the change in accounting principle — the modified prospective method and the retroactive restatement method. Additionally, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We have elected to adopt the provisions of SFAS No. 123 on a prospective basis; consequently, we are required to provide a pro-forma disclosure of net income and earnings per share as if SFAS No. 123 accounting had been applied to all prior periods presented within its financial statements. Adoption of SFAS No. 123 has had a material impact on our financial statements. See Note 2 of the Notes to Consolidated Condensed Financial Statements for more information.

     In January 2003 the FASB issued FIN 46, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51.” FIN 46 establishes accounting reporting and disclosure requirements for companies that currently hold unconsolidated investments in Variable Interest Entities (“VIEs”). FIN 46 defines VIEs as entities that meet one or both of two criteria: 1. the entity’s total equity at risk is deemed to be insufficient to finance its ongoing business activities without additional subordinated financial support from other parties, and/or, 2. as a collective group, the entity’s owners do not have a controlling financial interest in the entity, which effectively occurs if the voting rights to, or the entitlement to future returns or risk of future losses from the investment for each of the entity’s owners is inconsistent with the ownership percentages assigned to each owner within the underlying partnership agreement. If an investment is determined to be a VIE, further analysis must be performed to determine which of the VIE’s owners qualifies as the primary beneficiary. The primary beneficiary is the owner of the VIE that is entitled or at risk to earn or absorb the majority of the entity’s expected future returns or losses. An owner that is determined to be the primary beneficiary of a VIE is required to consolidate the VIE into its financial statements, as well as to provide certain disclosures regarding the size and nature of the VIE, the purpose for the investment, and information about the assets being held as collateral on behalf of the VIE. Additionally, the remaining owners of a VIE that do not qualify as the primary beneficiary must determine whether or not they hold significant variable interests within the VIE. An owner with a significant variable interest in a VIE that is not the primary beneficiary is not required to consolidate the VIE but must provide certain disclosures regarding the size and nature of the VIE, the purpose for the investment, its potential exposure to the VIE’s losses, and the date it first acquired ownership in the VIE. FIN 46 applies immediately to VIEs created or acquired after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs that were previously created or acquired before February 1, 2003. FIN 46 has not had a material impact on our Consolidated Condensed Financial Statements relative to VIEs created after January 31, 2003. One possible consequence of FIN 46 is that certain investments accounted for under the equity method might have to be consolidated. However, based on our preliminary assessment, and subject to further analysis, we do not think that FIN 46 will require any of our pre-February 1, 2003 equity method investments to be consolidated.

     In April 2003 the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component, amends the definition of an underlying to conform it to language used in FIN 45, and amends certain other existing pronouncements. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively, with the exception of certain SFAS No. 133 implementation issues that were effective for all fiscal quarters prior to June 15, 2003. Any such implementation issues should continue to be applied in accordance with their respective effective dates. We do not believe that SFAS No. 149 will have a material impact on our financial statements.

     In May 2003 the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity

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section, rather than as liabilities. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We have not completed our assessment of the impact of SFAS No. 150. However, we believe that adoption of SFAS No. 150 might require us to reclassify our $1.1 billion trust preferred securities (“HIGH TIDES”) which are shown on the balance sheet as “Company-obligated mandatorily redeemable convertible preferred securities of subsidiary trusts,” as debt. Similarly, we may be required to reclassify some portion of our $422 million of “Minority interests” on the balance sheet as debt. These reclassifications would not affect net income or total stockholders equity but would impact our debt-to-equity and debt-to-capitalization ratios.

     In June 2003, the FASB issued Derivatives Implementation Group (“DIG”) Issue No. C20, “Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature.” DIG Issue No. C20 superseded DIG Issue No. C11 “Interpretation of Clearly and Closely Related in Contracts That Qualify for the Normal Purchases an Normal Sales Exception” and specified additional circumstances in which a price adjustment feature in a derivative contract would not be an impediment to qualifying for the normal purchases and normal sales scope exception under SFAS No. 133. DIG Issue No. C20 is effective as of the first day of the fiscal quarter beginning after July 10, 2003, (i.e. October 1, 2003, for Calpine) with early application permitted. It should be applied prospectively for all existing contracts as of the effective date and for all future transactions. In conjunction with initially applying the implementation guidance, DIG Issue No. C20 requires the recognition of a special transition adjustment for certain contracts containing a price adjustment feature based on a broad market index for which the normal purchases and normal sales scope exception had been previously elected. In those circumstances, the derivative contract should be recognized at fair value as of the date of the initial application with a corresponding adjustment of net income as the cumulative effect of a change in accounting principle.

     Certain of our power sales contracts, which meet the definition of a derivative and for which we previously elected the normal purchases and normal sales scope exception, use a CPI or similar index to escalate the O&M charges. Accordingly, DIG Issue No. C20 will require us to record a special transition accounting adjustment upon adoption of the new guidance to record these contracts at fair value with a corresponding adjustment to net income as the effect of a change in accounting principle. The fair value of these contracts will be based in large part on the nature and extent of the key price adjustment features of the contracts and market conditions on date of adoption, such as the forward price of power and natural gas and the expected future rate of inflation. Although the final amount of the adjustment, if any, will not be known until actual adoption of DIG Issue No. C20, based upon contracts currently identified as being subject to DIG Issue No. C20 and market prices as of August 4, 2003, we estimate that we will recognize net derivative assets between $237 million and $356 million, and cumulative effect adjustment to net income between $147 million and $221 million, net of tax. Assuming the contracts meet the new conditions for qualifying for the normal purchases and normal sales exception and we make that election, the recorded balance for these contracts would reverse through charges to income over the life of the long term contracts, which extend out as far as the year 2020, as deliveries of power are made. To the extent any contract fails to meet the new requirements in DIG Issue No. C20 or we do not elect the scope exception, we would be required to recognize subsequent changes in the fair value of those contracts in earnings each period. We anticipate that we will adopt DIG Issue No. C20 on October 1, 2003. Upon adoption of DIG Issue No. C20, we expect, subject to further analysis, that most of our structured power sales contracts will meet the criteria for the normal purchases and sales exception under SFAS No. 133 and that we will make that election.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     See “Financial Market Risks” in Item 2.

Item 4. Controls and Procedures

     The Company’s senior management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based upon this evaluation, the Company’s Chairman, President and Chief Executive Officer along with the Company’s Executive Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The certificates required by this item are filed as a Exhibit 31 to this Form 10-Q.

PART II — OTHER INFORMATION

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Item 1.   Legal Proceedings.

     The Company is party to various litigation matters arising out of the normal course of business, the more significant of which are summarized below. The ultimate outcome of each of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated. The liability the Company may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters and, as a result, these matters may potentially be material to the Company’s Consolidated Condensed Financial Statements.

     Securities Class Action Lawsuits. Since March 11, 2002, fourteen shareholder lawsuits have been filed against Calpine and certain of its officers in the United States District Court, Northern District of California. The actions captioned Weisz vs. Calpine Corp., et al., filed March 11, 2002, and Labyrinth Technologies, Inc. v. Calpine Corp., et al., filed March 28, 2002, are purported class actions on behalf of purchasers of Calpine stock between March 15, 2001 and December 13, 2001. Gustaferro v. Calpine Corp., filed April 18, 2002, is a purported class action on behalf of purchasers of Calpine stock between February 6, 2001 and December 13, 2001. The eleven other actions, captioned Local 144 Nursing Home Pension Fund vs. Calpine Corp., Lukowski vs. Calpine Corp., Hart vs. Calpine Corp., Atchison vs. Calpine Corp., Laborers Local 1298 v. Calpine Corp., Bell v. Calpine Corp., Nowicki v. Calpine Corp. Pallotta v. Calpine Corp., Knepell v. Calpine Corp., Staub v. Calpine Corp, and Rose v. Calpine Corp. were filed between March 18, 2002 and April 23, 2002. The complaints in these eleven actions are virtually identical – they are filed by three law firms, in conjunction with other law firms as co-counsel. All eleven lawsuits are purported class actions on behalf of purchasers of Calpine’s securities between January 5, 2001 and December 13, 2001.

     The complaints in these fourteen actions allege that, during the purported class periods, certain Calpine executives issued false and misleading statements about Calpine’s financial condition in violation of Sections 10(b) and 20(1) of the Securities Exchange Act of 1934, as well as Rule 10b-5. These actions seek an unspecified amount of damages, in addition to other forms of relief.

     In addition, a fifteenth securities class action, Ser v. Calpine, et al., was filed on May 13, 2002. The underlying allegations in the Ser action are substantially the same as those in the above-referenced actions. However, the Ser action is brought on behalf of a purported class of purchasers of Calpine’s 8.5% Senior Notes due February 15, 2011 (“2011 Notes”) and the alleged class period is October 15, 2001 through December 13, 2001. The Ser complaint alleges that, in violation of Sections 11 and 15 of the Securities Act of 1933, the Supplemental Prospectus for the 2011 Notes contained false and misleading statements regarding Calpine’s financial condition. This action names Calpine, certain of its officers and directors, and the underwriters of the 2011 Notes offering as defendants, and seeks an unspecified amount of damages, in addition to other forms of relief.

     All fifteen of these securities class action lawsuits were consolidated in the U.S. District Court Northern District Court of California. The plaintiffs filed a first amended complaint in October 2002. The amended complaint does not include the 1933 Act complaints raised in the bondholders’ complaint, and the number of defendants named was reduced. On January 16, 2003, before our response was due to this amended complaint, the plaintiffs filed a further amended complaint. This further amended complaint added a few additional Calpine executives as defendants and addressed a few more issues. We filed a motion to dismiss this consolidated action in early April 2003. A hearing on this motion was scheduled for July 29, 2003. However, the court took the motions to dismiss and the plaintiffs’ motion in opposition under submission without a hearing. A ruling on these motions is expected in the fall. We consider the lawsuit to be without merit and we intend to defend vigorously against these allegations.

     Hawaii Structural Ironworkers Pension Fund v. Calpine, et al. A securities class action, Hawaii Structural Ironworkers Pension Fund v. Calpine, et al., was filed on March 11, 2003, against Calpine, its directors and certain investment banks in the California Superior Court, San Diego County. The underlying allegations in the Hawaii Structural Ironworkers Pension Fund action (“Hawaii action”) are substantially the same as the federal securities class actions described above. However, the Hawaii action is brought on behalf of a purported class of purchasers of the Company’s equity securities sold to public investors in its April 2002 equity offering. The Hawaii action alleges that the Registration Statement and Prospectus filed by Calpine which became effective on April 24, 2002, contained false and misleading statements regarding the Company’s financial condition in violation of Sections 11, 12 and 15 of the Securities Act of 1933. The Hawaii action relies in part on the Company’s restatement of certain past financial results, announced on March 3, 2003, to support its allegations. The Hawaii action seeks an unspecified amount of damages, in addition to other forms of relief. The Company removed the Hawaii action to federal court in April 2003 and filed a motion to transfer the case for consolidation with the other securities class action lawsuits in the U.S. District Court Northern District Court of California in May 2003. The plaintiff has sought to have the action remanded to state court. As of the date of this periodic filing, we are awaiting the court’s ruling with respect to the motion to remand. The Company considers this lawsuit to be without merit and intends to defend vigorously against it.

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     Phelps v. Calpine Corporation, et al. On April 17, 2003, a participant in the Calpine Corporation Retirement Savings Plan (the “401(k) Plan”) filed a class action lawsuit in the Northern District Court of California. The underlying allegations in this action (“Phelps action”) are substantially the same as those in the securities class actions described above. However, the Phelps action is brought on behalf of a purported class of participants in the 401(k) Plan. The Phelps action alleges that various filings and statements made by Calpine during the class period were materially false and misleading, and that the defendants failed to fulfill their fiduciary obligations as fiduciaries of the 401(k) Plan by allowing the 401(k) Plan to invest in Calpine common stock. The Phelps action seeks an unspecified amount of damages, in addition to other forms of Shareholder relief. In May 2003 Lennette Poor-Herena, another participant in the 401(k) Plan, filed a substantially similar class action lawsuit as the Phelps action also in the Northern District of California. Plaintiffs’ counsel is the same in both of these actions, and they have agreed to consolidate these two cases and to coordinate them with the consolidated federal securities class actions described above. The Company considers these lawsuits to be without merit and intends to vigorously defend against them.

     Johnson v. Peter Cartwright, et al. On December 17, 2001, a shareholder filed a derivative lawsuit on behalf of the Company against its directors and one if its senior officers. This lawsuit is captioned Johnson v. Cartwright, et al. and is pending in the California Superior Court, Santa Clara County. The Company is a nominal defendant in this lawsuit, which alleges claims relating to purportedly misleading statements about Calpine and stock sales by certain of the director defendants and the officer defendant. In December 2002 the court dismissed the complaint with respect to certain of the director defendants for lack of personal jurisdiction, though the plaintiff may appeal this ruling. In early February 2003 the plaintiff filed an amended complaint. In March 2003 the Company and the individual defendants filed demurrers and motions to stay this proceeding in favor of the federal securities class actions described above. In July 2003 the Court granted the motions to stay this proceeding in favor of the federal securities class actions. The Company considers this lawsuit to be without merit and intends to vigorously defend against it.

     Calpine Corporation v. Automated Credit Exchange. On March 5, 2002, the Company sued Automated Credit Exchange (“ACE”) in the Superior Court of the State of California for the County of Alameda for negligence and breach of contract to recover reclaim trading credits, a form of emission reduction credits that should have been held in the Company’s account with U.S. Trust Company (“US Trust”). Calpine wrote off $17.7 million in December 2001 related to losses that it alleged were caused by ACE. Calpine and ACE entered into a settlement agreement on March 29, 2002, pursuant to which ACE made a payment to the Company of $7 million and transferred to the Company the rights to the emission reduction credits to be held by ACE. The Company recognized the $7 million in the second quarter of 2002. In June 2002 a complaint was filed by InterGen North America, L.P. (“InterGen”) against Anne M. Sholtz, the owner of ACE, and EonXchange, another Sholtz-controlled entity, which filed for bankruptcy protection on May 6, 2002. InterGen alleges it suffered a loss of emission reduction credits from EonXchange in a manner similar to the Company’s loss from ACE. InterGen’s complaint alleges that Anne Sholtz co-mingled assets among ACE, EonXchange and other Sholtz entities and that ACE and other Sholtz entities should be deemed to be one economic enterprise and all retroactively included in the EonXchange bankruptcy filing as of May 6, 2002. Ann Sholtz recently stipulated to agree to the consolidation of Anne Sholtz, ACE and other Sholtz entities in the EonXchange bankruptcy proceeding. On July 10, 2003, Howard Grobstein, the Trustee in the EonXchange bankruptcy, filed a complaint for avoidance against Calpine, seeking recovery of the $7 million (plus interest and costs) paid to Calpine in the March 29, 2002 Settlement Agreement. The complaint claims that the $7 million received by Calpine in the Settlement Agreement was transferred within 90 days of the filing of bankruptcy and therefore should be avoided and preserved for the benefit of the bankruptcy estate. Calpine believes that it has valid defenses to this claim and will vigorously defend against this complaint.

     International Paper Company v. Androscoggin Energy LLC. In October 2000 International Paper Company (“IP”) filed a complaint in the Federal District Court for the Northern District of Illinois against Androscoggin Energy LLC (“AELLC”) alleging that AELLC breached certain contractual representations and warranties by failing to disclose facts surrounding the termination, effective May 8, 1998, of one of AELLC’s fixed-cost gas supply agreements. The Company had acquired a 32.3% interest in AELLC as part of the SkyGen transaction which closed in October 2000. AELLC filed a counterclaim against IP that has been referred to arbitration. AELLC may commence the arbitration counterclaim after discovery has progressed further. On November 7, 2002, the Court issued an opinion on the parties’ cross motions for summary judgment finding in AELLC’s favor on certain matters though granting summary judgment to IP on the liability aspect of a particular claim against AELLC. The Court also denied a motion submitted by IP for preliminary injunction to permit IP to make payment of funds into escrow (not directly to AELLC) and require AELLC to post a significant bond. The Court has a set schedule for disclosure of expert witness and depositions thereof and has tentatively scheduled the case for trial in the first quarter of 2004.

     In mid-April of 2003 IP unilaterally availed itself to self-help in withholding amounts in excess of $2.0 million as a set-off for litigation expenses and fees incurred to date as well as an estimated portion of a rate fund to AELLC. AELLC has submitted an amended complaint and request for immediate injunctive relief against such actions. The Court heard the motion on April 24, 2003,

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and ordered that IP must pay the approximate $1.2 million withheld as attorneys’ fees related to the litigation as any such perceived entitlement was premature, but deferred to provide injunctive relief on the incomplete record concerning the offset of $799,000 as an estimated pass-through of the rate fund. IP complied with the order on April 29, 2003, and tendered payment to AELLC of the approximate $1.2 million. On June 26, 2003, the court entered an order dismissing AELLC’s Amended Counterclaim without prejudice to AELLC refilling the claims as breach of contract claims in separate lawsuit. On June 30, 2003, AELLC filed a motion to reconsider the order dismissing AELLC’s Amended Counterclaim. The Company believes it has adequately reserved for the possible loss, if any, it may ultimately incur as a result of this matter.

Pacific Gas and Electric Company v. Calpine Corporation, et. al.

On July 22, 2003, Pacific Gas and Electric Company (“PG&E”) filed with the California Public Utilities Commission (“CPUC”) a Complaint of PG&E and Request for Immediate Issuance of an Order to Show Cause (“Complaint”) against Calpine Corporation, CPN Pipeline Company, Calpine Energy Services, L.P., Calpine Natural Gas Company, Lodi Gas Storage, LLC (“LGS”) and Doe Defendants 1-10. The complaint requests the CPUC to issue an order requiring the defendants to show cause why they should not be ordered to cease and desist from using any direct interconnections between the facilities of CPN Pipeline and those of LGS unless LGS and Calpine first seek and obtain regulatory approval from the CPUC. The Complaint also seeks an order directing defendants to pay to PG&E any underpayments of PG&E’s tariffed transportation rates and to make restitution for any profits earned from any business activity related to LGS’ direct interconnections to any entity other than PG&E. The Complaint also alleges that various natural gas consumers, including Company-affiliated generation projects within California, are engaged with defendants in the acts complained of, and that the defendants unlawfully bypass PG&E’s system and operate as an unregulated local distribution company within PG&E’s service territory. The Company believes this Complaint to be without merit and intends to vigorously defend its position at the CPUC. The Company is contractually obligated to indemnify LGS for certain damages it may suffer as a result of the Complaint.

Item 4.   Submission of Matters to a Vote of Security Holders

     Our Annual Meeting of Stockholders was held on May 28, 2003 (the “Annual Meeting”), in Aptos, California. At the Annual Meeting, the stockholders voted on the following matters: (i) the proposal to elect three Class I Directors to the Board of Directors for a term of three years expiring in 2006, (ii) two stockholder proposals regarding (a) the Company’s stockholder rights plan and (b) the classified status of the Board of Directors, and (iii) the proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent accountants for the Company for the fiscal year ending December 31, 2003. The stockholders elected management’s nominees as the Class I Directors in an uncontested election, approved the stockholder proposal requesting that the Board of Directors redeem the stockholders right plan unless such plan is approved by a majority vote of the stockholders to be held as soon as may be practicable, approved the stockholder proposal that the Board of Directors take the necessary steps to declassify the Board of Directors for the purpose of establishing elections for directors, and ratified the appointment of independent accountants by the following votes, respectively:

(i)	Election of Jeffrey E. Garten as Class I Director for a three-year term expiring 2006: 342,194,260 FOR and 12,394,554 ABSTAIN;
	Election of George J. Stathakis as Class I Director for a three-year term expiring 2006: 342,503,334 FOR and 12,085,480 ABSTAIN;
	Election of John O. Wilson as Class I Director for a three-year term expiring 2006: 342,299,478 FOR and 12,289,337 ABSTAIN;
(ii)	Proposal that the Board of Directors be requested to redeem the stockholders right plan unless such plan is approved by a majority vote of the stockholders to be held as soon as may be practicable: 114,024,314 FOR, 52,519,839 AGAINST, 5,427,930 ABSTAIN, and 182,616,732 Broker non-votes;
(iii)	Proposal that the Board of Directors take the necessary steps to declassify the Board of Directors for the purpose of establishing elections for directors: 107,998,279 FOR, 58,400,060 AGAINST, 5,573,744 ABSTAIN, and 182,616,732 Broker non-votes.
(iv)	Ratification of the appointment of PricewaterhouseCoopers LLP as independent accountants for the fiscal year ending December 31, 2003: 345,740,875 FOR, 5,993,176 AGAINST, and 2,854,762 ABSTAIN.

     The three-year terms of Class II and Class III Directors continued after the Annual Meeting and will expire in 2004 and 2005, respectively. The Class II Directors are Ann B. Curtis, Kenneth T. Derr and Gerald Greenwald. The Class III Directors are Susan C. Schwab and Peter Cartwright.

Item 6.   Exhibits and Reports on Form 8-K.

     (a)  Exhibits

     The following exhibits are filed herewith unless otherwise indicated:

67

EXHIBIT INDEX

Exhibit
Number	Description
*3.1	Amended and Restated Certificate of Incorporation of Calpine Corporation (a)
*3.2	Certificate of Correction of Calpine Corporation (b)
*3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Calpine Corporation (c)
*3.4	Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation (b)
*3.5	Amended Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation (b)
*3.6	Amended Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation (c)
*3.7	Certificate of Designation of Special Voting Preferred Stock of Calpine Corporation (d)
*3.8	Certificate of Ownership and Merger Merging Calpine Natural Gas GP, Inc. into Calpine Corporation (e)
*3.9	Certificate of Ownership and Merger Merging Calpine Natural Gas Company into Calpine Corporation (e)
*3.10	Amended and Restated By-laws of Calpine Corporation (f)
+4.1	Indenture dated as of July 16, 2003, between Calpine Corporation and Wilmington Trust Company, as Trustee, including form of Notes
+4.2	Indenture dated as of July 16, 2003, between Calpine Corporation and Wilmington Trust Company, as Trustee, including form of Notes
+4.3	Indenture dated as of July 16, 2003, between Calpine Corporation and Wilmington Trust Company, as Trustee, including form of Notes
+4.4	Indenture dated as of June 13, 2003, between Power Contract Financing, L.L.C. and Wilmington Trust Company, as Trustee, Accounts Agent, Paying Agent and Registrar, including form of Notes
*10.1	Second Amended and Restated Credit Agreement (“Second Amended and Restated Credit Agreement”) dated as of May 23, 2000, among Calpine Corporation, Bayerische Landesbank, as Co-Arranger and Syndication Agent, The Bank of Nova Scotia, as Lead Arranger and Administrative Agent, and the Lenders named therein (g)
*10.2	First Amendment and Waiver to Second Amended and Restated Credit Agreement, dated as of April 19, 2001, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (f)
*10.3	Second Amendment to Second Amended and Restated Credit Agreement, dated as of March 8, 2002, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (f)
*10.4	Third Amendment to Second Amended and Restated Credit Agreement, dated as of May 9, 2002, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (e)
*10.5	Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of September 26, 2002, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (h)
*10.6	Fifth Amendment to Second Amended and Restated Credit Agreement, dated as of March 12, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (i)
*10.7	Sixth Amendment to Second Amended and Restated Credit Agreement, dated as of May 23, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (j)
*10.8	Seventh Amendment to Second Amended and Restated Credit Agreement, dated as of June 16, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (j)
*10.9	Credit Agreement, dated as of March 8, 2002, among Calpine Corporation, the Lenders named therein, The Bank of Nova Scotia and Bayerische Landesbank Girozentrale, as lead arrangers and bookrunners, Salomon Smith Barney Inc. and Deutsche Banc Alex. Brown Inc., as lead arrangers and bookrunners, Bank of America, National Association, and Credit Suisse First Boston, Cayman Islands Branch, as lead arrangers and syndication agents, TD Securities (USA) Inc., as lead arranger, The Bank of Nova Scotia, as joint administrative agent and funding agent, and Citicorp USA, Inc., as joint administrative agent (f)
*10.10	First Amendment to Credit Agreement, dated as of May 9, 2002, among Calpine Corporation, The Bank of Nova Scotia, as Joint Administrative Agent and Funding Agent, Citicorp USA, Inc., as Joint Administrative Agent, and the Lenders named therein (e)
*10.11	Increase in Term B Loan Commitment Amount Notice, effective as of May 31, 2002, by The Bank of Nova Scotia and Citicorp USA, Inc., as Administrative Agents (k)
*10.12	Second Amendment to Credit Agreement, dated as of May 23, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Joint Administrative Agent and Funding Agent, Citicorp USA, Inc., as Joint Administrative Agent, and the Lenders named therein (j)
*10.13	Third Amendment to Credit Agreement, dated as of June 16, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Joint Administrative Agent and Funding Agent, Citicorp USA, Inc., as Joint Administrative Agent, and the Lenders named therein (j)

68

CTB Comments — Exhibits

Exhibit
Number	Description
10.14	[intentionally omitted]
+10.15	Amended and Restated Credit Agreement, dated as of July 16, 2003 (“Amended and Restated Credit Agreement”), among Calpine Corporation, the Lenders named therein, The Bank of Nova Scotia, as Administrative Agent, Funding Agent, Lead Arranger and Bookrunner, Bayerische Landesbank, Cayman Islands Branch, as Lead Arranger, Co-Bookrunner and Documentation Agent, and ING Capital LLC and Toronto Dominion (Texas) Inc., as Lead Arrangers, Co-Bookrunners and Co-Syndication Agents
+10.16	First Amendment to Amended and Restated Credit Agreement, dated as of August 7, 2003, among Calpine Corporation, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent
+10.17	Credit Agreement, dated as of July 16, 2003, among Calpine Corporation, the Lenders named therein, Goldman Sachs Credit Partners L.P., as Sole Lead Arranger, Sole Bookrunner and Administrative Agent, The Bank of Nova Scotia, as Arranger and Syndication Agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank Hessen-Thuringen, as Co-Arrangers and Credit Lyonnais New York Branch and Union Bank of California, N.A., as Managing Agents
+10.18	Letter of Credit Agreement, dated as of July 16, 2003, among Calpine Corporation, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent
+10.19	Guarantee and Collateral Agreement, dated as of July 16, 2003, made by Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., and Quintana Canada Holdings LLC, in favor of The Bank of New York, as Collateral Trustee
+10.20	First Amendment Pledge Agreement, dated as of July 16, 2003, made by JOQ Canada, Inc., Quintana Minerals (USA) Inc., and Quintana Canada Holdings LLC in favor of The Bank of New York, as Collateral Trustee
+10.21	First Amendment Assignment and Security Agreement, dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.22	Second Amendment Pledge Agreement (Stock Interests), dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.23	Second Amendment Pledge Agreement (Membership Interests), dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.24	First Amendment Note Pledge Agreement, dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.25	Collateral Trust Agreement, dated as of July 16, 2003, among Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., Quintana Canada Holdings LLC, Wilmington Trust Company, as Trustee, The Bank of Nova Scotia, as Agent, Goldman Sachs Credit Partners L.P., as Administrative Agent, and The Bank of New York, as Collateral Trustee
+10.26	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multistate), dated as of July 16, 2003, from Calpine Corporation to Messrs. Denis O’Meara and James Trimble, as Trustees, and The Bank of New York, as Collateral Trustee
+10.27	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multistate), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee
+10.28	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Colorado), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee
+10.29	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (New Mexico), dated as of July 16, 2003, from Calpine Corporation to Messrs. Denis O’Meara and James Trimble, as Trustees, and The Bank of New York, as Collateral Trustee
+10.30	Form of Amended and Restated Mortgage, Assignment, Security Agreement and Financing Statement (Louisiana), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee
+10.31	Form of Amended and Restated Deed of Trust with Power of Sale, Assignment of Production, Security Agreement, Financing Statement and Fixture Filings (California), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, as Trustee, and The Bank of New York, as Collateral Trustee
+10.32	Form of Deed to Secure Debt, Assignment of Rents and Security Agreement (Georgia), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee
+10.33	Form of Mortgage, Assignment of Rents and Security Agreement (Florida), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee
+10.34	Form of Deed of Trust, Assignment of Rents and Security Agreement and Fixture Filing (Texas), dated as of July 16, 2003, from Calpine Corporation to Malcolm S. Morris, as Trustee, in favor of The Bank of New York, as Collateral Trustee

69

Exhibit
Number	Description
+10.35	Form of Deed of Trust, Assignment of Rents and Security Agreement (Washington), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, in favor of The Bank of New York, as Collateral Trustee
+10.36	Form of Deed of Trust, Assignment of Rents, and Security Agreement (California), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, in favor of The Bank of New York, as Collateral Trustee
+10.37	Form of Mortgage, Collateral Assignment of Leases and Rents, Security Agreement and Financing Statement (Louisiana), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee
+10.38	Amended and Restated Hazardous Materials Undertaking and Indemnity (Multistate), dated as of July 16, 2003, by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.39	Amended and Restated Hazardous Materials Undertaking and Indemnity (California), dated as of July 16, 2003, by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+31.1	Certification of the Chairman, President and Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
+31.2	Certification of the Executive Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
+32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Incorporated by reference.
+	Filed herewith.
(a)	Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-40652), filed with the SEC on June 30, 2000.
(b)	Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000, filed with the SEC on March 15, 2001.
(c)	Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-66078), filed with the SEC on July 27, 2001.
(d)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2001, filed with the SEC on May 15, 2001.
(e)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2002, filed with the SEC on May 15, 2002.
(f)	Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001, filed with the SEC on March 29, 2002.
(g)	Incorporated by reference to Calpine Corporation’s Current Report on Form 8-K dated July 25, 2000, filed with the SEC on August 9, 2000.
(h)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated September 30, 2002, filed with the SEC on November 14, 2002.
(i)	Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002, filed with the SEC on March 31, 2003.
(j)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2003, filed with the SEC on July 1, 2003.
(k)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated June 30, 2002, filed with the SEC on August 12, 2002.

     (b)  Reports on Form 8-K

     The registrant filed or furnished the following reports on Form 8-K during the quarter ended June 30, 2003:

	Date Filed
Date of Report	or Furnished		Item Reported
4/10/03		4/17/03		4,7
5/6/03		5/7/03		12
5/13/03		5/13/03		5,7
5/13/03		5/14/03		12
5/19/03		5/20/03		5
5/23/03		5/27/03		5
6/2/03		6/3/03		5
6/5/03		6/5/03		5

70

	Date Filed
Date of Report	or Furnished		Item Reported
6/12/03		6/13/03		5
6/17/03		6/18/03		5
6/23/03		6/24/03		5
6/25/03		6/26/03		5
6/26/03		6/26/03		5

71

SIGNATURES

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

	Calpine Corporation
	By:	/s/ ROBERT D. KELLY
		Robert D. Kelly
		Executive Vice President and Chief Financial
		Officer (Principal Financial Officer)
Date: August 14, 2003
	By:	/s/ CHARLES B. CLARK, JR.
		Charles B. Clark, Jr.
		Senior Vice President and Corporate
		Controller (Principal Accounting Officer)
Date: August 14, 2003

72

The following exhibits are filed herewith unless otherwise indicated:

EXHIBIT INDEX

Exhibit
Number	Description
*3.1	Amended and Restated Certificate of Incorporation of Calpine Corporation (a)
*3.2	Certificate of Correction of Calpine Corporation (b)
*3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Calpine Corporation (c)
*3.4	Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation (b)
*3.5	Amended Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation (b)
*3.6	Amended Certificate of Designation of Series A Participating Preferred Stock of Calpine Corporation (c)
*3.7	Certificate of Designation of Special Voting Preferred Stock of Calpine Corporation (d)
*3.8	Certificate of Ownership and Merger Merging Calpine Natural Gas GP, Inc. into Calpine Corporation (e)
*3.9	Certificate of Ownership and Merger Merging Calpine Natural Gas Company into Calpine Corporation (e)
*3.10	Amended and Restated By-laws of Calpine Corporation (f)
+4.1	Indenture dated as of July 16, 2003, between Calpine Corporation and Wilmington Trust Company, as Trustee, including form of Notes
+4.2	Indenture dated as of July 16, 2003, between Calpine Corporation and Wilmington Trust Company, as Trustee, including form of Notes
+4.3	Indenture dated as of July 16, 2003, between Calpine Corporation and Wilmington Trust Company, as Trustee, including form of Notes
+4.4	Indenture dated as of June 13, 2003, between Power Contract Financing, L.L.C. and Wilmington Trust Company, as Trustee, Accounts Agent, Paying Agent and Registrar, including form of Notes
*10.1	Second Amended and Restated Credit Agreement (“Second Amended and Restated Credit Agreement”) dated as of May 23, 2000, among Calpine Corporation, Bayerische Landesbank, as Co-Arranger and Syndication Agent, The Bank of Nova Scotia, as Lead Arranger and Administrative Agent, and the Lenders named therein (g)
*10.2	First Amendment and Waiver to Second Amended and Restated Credit Agreement, dated as of April 19, 2001, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (f)
*10.3	Second Amendment to Second Amended and Restated Credit Agreement, dated as of March 8, 2002, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (f)
*10.4	Third Amendment to Second Amended and Restated Credit Agreement, dated as of May 9, 2002, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (e)
*10.5	Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of September 26, 2002, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (h)
*10.6	Fifth Amendment to Second Amended and Restated Credit Agreement, dated as of March 12, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (i)
*10.7	Sixth Amendment to Second Amended and Restated Credit Agreement, dated as of May 23, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (j)
*10.8	Seventh Amendment to Second Amended and Restated Credit Agreement, dated as of June 16, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Administrative Agent, and the Lenders named therein (j)
*10.9	Credit Agreement, dated as of March 8, 2002, among Calpine Corporation, the Lenders named therein, The Bank of Nova Scotia and Bayerische Landesbank Girozentrale, as lead arrangers and bookrunners, Salomon Smith Barney Inc. and Deutsche Banc Alex. Brown Inc., as lead arrangers and bookrunners, Bank of America, National Association, and Credit Suisse First Boston, Cayman Islands Branch, as lead arrangers and syndication agents, TD Securities (USA) Inc., as lead arranger, The Bank of Nova Scotia, as joint administrative agent and funding agent, and Citicorp USA, Inc., as joint administrative agent (f)
*10.10	First Amendment to Credit Agreement, dated as of May 9, 2002, among Calpine Corporation, The Bank of Nova Scotia, as Joint Administrative Agent and Funding Agent, Citicorp USA, Inc., as Joint Administrative Agent, and the Lenders named therein (e)
*10.11	Increase in Term B Loan Commitment Amount Notice, effective as of May 31, 2002, by The Bank of Nova Scotia and Citicorp USA, Inc., as Administrative Agents (k)
*10.12	Second Amendment to Credit Agreement, dated as of May 23, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Joint Administrative Agent and Funding Agent, Citicorp USA, Inc., as Joint Administrative Agent, and the Lenders named therein (j)

73

Exhibit
Number	Description
*10.13	Third Amendment to Credit Agreement, dated as of June 16, 2003, among Calpine Corporation, The Bank of Nova Scotia, as Joint Administrative Agent and Funding Agent, Citicorp USA, Inc., as Joint Administrative Agent, and the Lenders named therein (j)
10.14	[intentionally omitted]
+10.15	Amended and Restated Credit Agreement, dated as of July 16, 2003 (“Amended and Restated Credit Agreement”), among Calpine Corporation, the Lenders named therein, The Bank of Nova Scotia, as Administrative Agent, Funding Agent, Lead Arranger and Bookrunner, Bayerische Landesbank, Cayman Islands Branch, as Lead Arranger, Co-Bookrunner and Documentation Agent and ING Capital LLC and Toronto Dominion (Texas) Inc., as Lead Arrangers, Co-Bookrunners and Co-Syndication Agents
+10.16	First Amendment to Amended and Restated Credit Agreement, dated as of August 7, 2003, among Calpine Corporation, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent and Funding Agent
+10.17	Credit Agreement, dated as of July 16, 2003, among Calpine Corporation, the Lenders named therein, Goldman Sachs Credit Partners L.P., as Sole Lead Arranger, Sole Bookrunner and Administrative Agent, The Bank of Nova Scotia, as Arranger and Syndication Agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank Hessen-Thuringen, as Co-Arrangers and Credit Lyonnais New York Branch and Union Bank of California, N.A., as Managing Agents
+10.18	Letter of Credit Agreement, dated as of July 16, 2003, among Calpine Corporation, the Lenders named therein, and The Bank of Nova Scotia, as Administrative Agent
+10.19	Guarantee and Collateral Agreement, dated as of July 16, 2003, made by Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., and Quintana Canada Holdings LLC, in favor of The Bank of New York, as Collateral Trustee
+10.20	First Amendment Pledge Agreement, dated as of July 16, 2003, made by JOQ Canada, Inc., Quintana Minerals (USA) Inc., and Quintana Canada Holdings LLC in favor of The Bank of New York, as Collateral Trustee
+10.21	First Amendment Assignment and Security Agreement, dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.22	Second Amendment Pledge Agreement (Stock Interests), dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.23	Second Amendment Pledge Agreement (Membership Interests), dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.24	First Amendment Note Pledge Agreement, dated as of July 16, 2003, made by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.25	Collateral Trust Agreement, dated as of July 16, 2003, among Calpine Corporation, JOQ Canada, Inc., Quintana Minerals (USA) Inc., Quintana Canada Holdings LLC, Wilmington Trust Company, as Trustee, The Bank of Nova Scotia, as Agent, Goldman Sachs Credit Partners L.P., as Administrative Agent, and The Bank of New York, as Collateral Trustee
+10.26	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multistate), dated as of July 16, 2003, from Calpine Corporation to Messrs. Denis O’Meara and James Trimble, as Trustees, and The Bank of New York, as Collateral Trustee
+10.27	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multistate), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee
+10.28	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Colorado), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee
+10.29	Form of Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (New Mexico), dated as of July 16, 2003, from Calpine Corporation to Messrs. Kemp Leonard and John Quick, as Trustees, and The Bank of New York, as Collateral Trustee
+10.30	Form of Amended and Restated Mortgage, Assignment, Security Agreement and Financing Statement (Louisiana), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee
+10.31	Form of Amended and Restated Deed of Trust with Power of Sale, Assignment of Production, Security Agreement, Financing Statement and Fixture Filings (California), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, as Trustee, and The Bank of New York, as Collateral Trustee
+10.32	Form of Deed to Secure Debt, Assignment of Rents and Security Agreement (Georgia), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee
+10.33	Form of Mortgage, Assignment of Rents and Security Agreement (Florida), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee

74

Exhibit
Number	Description
+10.34	Form of Deed of Trust, Assignment of Rents and Security Agreement and Fixture Filing (Texas), dated as of July 16, 2003, from Calpine Corporation to Malcolm S. Morris, as Trustee, in favor of The Bank of New York, as Collateral Trustee
+10.35	Form of Deed of Trust, Assignment of Rents and Security Agreement (Washington), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, in favor of The Bank of New York, as Collateral Trustee
+10.36	Form of Deed of Trust, Assignment of Rents, and Security Agreement (California), dated as of July 16, 2003, from Calpine Corporation to Chicago Title Insurance Company, in favor of The Bank of New York, as Collateral Trustee
+10.37	Form of Mortgage, Collateral Assignment of Leases and Rents, Security Agreement and Financing Statement (Louisiana), dated as of July 16, 2003, from Calpine Corporation to The Bank of New York, as Collateral Trustee
+10.38	Amended and Restated Hazardous Materials Undertaking and Indemnity (Multistate), dated as of July 16, 2003, by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+10.39	Amended and Restated Hazardous Materials Undertaking and Indemnity (California), dated as of July 16, 2003, by Calpine Corporation in favor of The Bank of New York, as Collateral Trustee
+31.1	Certification of the Chairman, President and Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
+31.2	Certification of the Executive Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
+32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Incorporated by reference.
+	Filed herewith.
(a)	Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-40652), filed with the SEC on June 30, 2000.
(b)	Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000, filed with the SEC on March 15, 2001.
(c)	Incorporated by reference to Calpine Corporation’s Registration Statement on Form S-3 (Registration No. 333-66078), filed with the SEC on July 27, 2001.
(d)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2001, filed with the SEC on May 15, 2001.
(e)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2002, filed with the SEC on May 15, 2002.
(f)	Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001, filed with the SEC on March 29, 2002.
(g)	Incorporated by reference to Calpine Corporation’s Current Report on Form 8-K dated July 25, 2000, filed with the SEC on August 9, 2000.
(h)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated September 30, 2002, filed with the SEC on November 14, 2002.
(i)	Incorporated by reference to Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002, filed with the SEC on March 31, 2003.
(j)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated March 31, 2003, filed with the SEC on July 1, 2003.
(k)	Incorporated by reference to Calpine Corporation’s Quarterly Report on Form 10-Q dated June 30, 2002, filed with the SEC on August 12, 2002.

75 EX-4.1 3 f92357exv4w1.txt EXHIBIT 4.1 Exhibit 4.1 ================================================================================ ------------------------------------------------- CALPINE CORPORATION SECOND PRIORITY SENIOR SECURED FLOATING RATE NOTES DUE 2007 --------------------------- INDENTURE Dated as of July 16, 2003 --------------------------- --------------------------- WILMINGTON TRUST COMPANY Trustee --------------------------- ================================================================================ CROSS-REFERENCE TABLE*

Trust Indenture Act Section Indenture Section 310(a)(1)................................................................. 7.10 (a)(2)................................................................. 7.10 (a)(3)................................................................. N.A. (a)(4)................................................................. N.A. (a)(5)................................................................. 7.10 (b).................................................................... 7.10 (c).................................................................... N.A. 311(a).................................................................... 7.11 (b).................................................................... 7.11 (c).................................................................... N.A. 312(a).................................................................... 2.05 313(a).................................................................... 7.06 (b)(1)................................................................. 10.03 (b)(2)................................................................. 7.06; 7.07 (c).................................................................... 7.06 (d).................................................................... 7.06 314(a).................................................................... 4.03 (a)(4)................................................................. 12.05 (b).................................................................... N.A. (c)(3)................................................................. N.A. (e).................................................................... 12.05 (f).................................................................... N.A. 315(a).................................................................... 7.01 (b).................................................................... 7.05 (c).................................................................... 7.01 (d).................................................................... 7.01 (e).................................................................... 6.11 316(a) (last sentence).................................................... 2.09 (a)(1)(A).............................................................. 6.05 (a)(1)(B).............................................................. 6.04 (a)(2)................................................................. N.A. (b).................................................................... 6.07 (c).................................................................... 2.12 317(a)(1)................................................................. 6.08 (a)(2)................................................................. 6.09 (b).................................................................... 2.04 318(a).................................................................... N.A. (b).................................................................... 12.03 (c).................................................................... 12.01; 12.02; 12.03

N.A. means not applicable. * This Cross Reference Table is not part of this Indenture. TABLE OF CONTENTS

Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions.................................................................................... 1 Section 1.02 Other Definitions.............................................................................. 28 Section 1.03 Incorporation by Reference of Trust Indenture Act.............................................. 29 Section 1.04 Rules of Construction.......................................................................... 29 ARTICLE 2. THE NOTES Section 2.01 Form and Dating................................................................................ 31 Section 2.02 Execution and Authentication................................................................... 31 Section 2.03 Registrar and Paying Agent..................................................................... 32 Section 2.04 Paying Agent to Hold Money in Trust............................................................ 32 Section 2.05 Holder Lists................................................................................... 32 Section 2.06 Transfer and Exchange.......................................................................... 32 Section 2.07 Replacement Notes.............................................................................. 39 Section 2.08 Outstanding Notes.............................................................................. 39 Section 2.09 Treasury Notes................................................................................. 39 Section 2.10 Temporary Notes................................................................................ 39 Section 2.11 Cancellation................................................................................... 40 Section 2.12 Defaulted Interest............................................................................. 40 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee............................................................................. 40 Section 3.02 Selection of Notes to Be Redeemed or Purchased................................................. 40 Section 3.03 Notice of Redemption........................................................................... 41 Section 3.04 Effect of Notice of Redemption................................................................. 42 Section 3.05 Deposit of Redemption or Purchase Price........................................................ 42 Section 3.06 Notes Redeemed or Purchased in Part............................................................ 42 Section 3.07 Optional Redemption............................................................................ 42 Section 3.08 Mandatory Redemption........................................................................... 43 Section 3.09 Offer to Purchase by Application of Excess Proceeds............................................ 43 ARTICLE 4. COVENANTS Section 4.01 Payment of Notes............................................................................... 45 Section 4.02 Maintenance of Office or Agency................................................................ 45 Section 4.03 Reports........................................................................................ 45 Section 4.04 Compliance Certificate......................................................................... 46 Section 4.05 Taxes.......................................................................................... 47 Section 4.06 Stay, Extension and Usury Laws................................................................. 47 Section 4.07 Restricted Payments............................................................................ 47 Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries................................. 50 Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock..................................... 51 Section 4.10 Asset Sales.................................................................................... 53

i Section 4.11 Transactions with Affiliates................................................................... 56 Section 4.12 Liens.......................................................................................... 57 Section 4.13 Limitation on Changes in the Nature of Business................................................ 57 Section 4.14 Corporate Existence............................................................................ 57 Section 4.15 Offer to Repurchase Upon Change of Control..................................................... 58 Section 4.16 Limitation on Sale and Leaseback Transactions.................................................. 59 Section 4.17 Limitation on Issuances of Guarantees of Indebtedness.......................................... 59 Section 4.18 Payments for Consent........................................................................... 59 Section 4.19 Designation of Restricted and Unrestricted Subsidiaries........................................ 60 Section 4.20 Changes in Covenant When Notes Rated Investment Grade.......................................... 60 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets....................................................... 61 Section 5.02 Successor Corporation Substituted.............................................................. 62 ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default.............................................................................. 62 Section 6.02 Acceleration................................................................................... 64 Section 6.03 Other Remedies................................................................................. 65 Section 6.04 Waiver of Past Defaults........................................................................ 65 Section 6.05 Control by Majority............................................................................ 65 Section 6.06 Limitation on Suits............................................................................ 65 Section 6.07 Rights of Holders of Notes to Receive Payment.................................................. 66 Section 6.08 Collection Suit by Trustee..................................................................... 66 Section 6.09 Trustee May File Proofs of Claim............................................................... 66 Section 6.10 Priorities..................................................................................... 66 Section 6.11 Undertaking for Costs.......................................................................... 67 ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee.............................................................................. 67 Section 7.02 Rights of Trustee.............................................................................. 68 Section 7.03 Individual Rights of Trustee................................................................... 69 Section 7.04 Trustee's Disclaimer........................................................................... 69 Section 7.05 Notice of Defaults............................................................................. 69 Section 7.06 Reports by Trustee to Holders of the Notes..................................................... 69 Section 7.07 Compensation and Indemnity..................................................................... 70 Section 7.08 Replacement of Trustee......................................................................... 70 Section 7.09 Successor Trustee by Merger, etc............................................................... 71 Section 7.10 Eligibility; Disqualification.................................................................. 71 Section 7.11 Preferential Collection of Claims Against Company.............................................. 71 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance....................................... 72 Section 8.02 Legal Defeasance and Discharge................................................................. 72 Section 8.03 Covenant Defeasance............................................................................ 72 Section 8.04 Conditions to Legal or Covenant Defeasance..................................................... 73 ii Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.. 74 Section 8.06 Repayment to Company........................................................................... 74 Section 8.07 Reinstatement.................................................................................. 75 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes............................................................ 75 Section 9.02 With Consent of Holders of Notes............................................................... 76 Section 9.03 Compliance with Trust Indenture Act............................................................ 77 Section 9.04 Revocation and Effect of Consents.............................................................. 77 Section 9.05 Notation on or Exchange of Notes............................................................... 78 Section 9.06 Trustee to Sign Amendments, etc................................................................ 78 ARTICLE 10. COLLATERAL AND SECURITY Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation... 78 Section 10.02 Ranking of Note Liens.......................................................................... 79 Section 10.03 Release of Security Interest in Respect of Notes............................................... 79 ARTICLE 11. SATISFACTION AND DISCHARGE Section 11.01 Satisfaction and Discharge..................................................................... 80 Section 11.02 Application of Trust Money..................................................................... 81 ARTICLE 12. MISCELLANEOUS Section 12.01 Trust Indenture Act Controls................................................................... 81 Section 12.02 Notices........................................................................................ 81 Section 12.03 Communication by Holders of Notes with Other Holders of Notes.................................. 82 Section 12.04 Certificate and Opinion as to Conditions Precedent............................................. 82 Section 12.05 Statements Required in Certificate or Opinion.................................................. 83 Section 12.06 Rules by Trustee and Agents.................................................................... 83 Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders....................... 83 Section 12.08 Governing Law.................................................................................. 83 Section 12.09 No Adverse Interpretation of Other Agreements.................................................. 83 Section 12.10 Successors..................................................................................... 83 Section 12.11 Severability................................................................................... 84 Section 12.12 Counterpart Originals.......................................................................... 84 Section 12.13 Table of Contents, Headings, etc............................................................... 84 EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR iii INDENTURE dated as of July 16, 2003 between Calpine Corporation, a Delaware corporation and Wilmington Trust Company (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the Second Priority Senior Secured Floating Rate Notes due 2007 (the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions. "144A Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. Acquired Debt shall be deemed to be incurred on the date the acquired Person becomes a Restricted Subsidiary. "Additional Notes" means Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. For purposes of Section 4.11 herein, "Affiliate" shall also mean any Person of which the Company owns 10% or more of any class of Capital Stock or rights to acquire 10% or more of any class of Capital Stock and any Person who would be an Affiliate of any such Person pursuant to the first sentence hereof. "Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent. "Applicable Eurodollar Rate" means, for each quarterly period during which any floating rate note is outstanding subsequent to the initial quarterly period, 575 basis points over the rate determined by the Company (written notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars for a period of three months as reported by any generally recognized financial information 1 service as of 11:00 a.m. (London time) two business days prior to the first day of such quarterly period; provided that, if no such British Bankers' Association LIBOR rate is available to the Company, the Applicable Eurodollar Rate for the relevant quarterly period shall instead be the rate at which Goldman Sachs Credit Partners L.P. or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market for a period of three months at approximately 11:00 a.m. (London time) two business days prior to the first day of such quarterly period, in amounts equal to $1.0 million. Notwithstanding the foregoing, the Applicable Eurodollar Rate for the initial quarterly period ending October 15, 2003, shall be 6.860% per annum. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole shall be governed by Section 4.15 of this Indenture and/or Section 5.01 and not by Section 4.10; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, none of the following items shall be deemed to be an Asset Sale: (1) (A) any single transaction or series of related transactions that involves the sale of uninstalled turbines and related equipment, and (B) any single transaction or series of related transactions that involves other assets having a Fair Market Value of less than $50.0 million, it being understood that, in connection with any sale, lease, conveyance or other disposition of any Designated Assets or rights relating thereto in connection with a farm-out transaction, such transaction shall be valued as at the time of execution and delivery of binding contractual arrangements relating thereto; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries, (3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to a Restricted Subsidiary of the Company; (4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment that does not violate Section 4.07 herein or a Permitted Investment; and (7) the sale or other disposition of all or any part of the Company's right to amounts that have or are to become due and payable by Pacific Gas & Electric Company under that certain Agreement dated as of July 1, 1999, as amended, between Pacific Gas & Electric Company and Calpine Gilroy L.P., a California limited partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P. by the Company pursuant to the Purchase Agreement dated as of March 8, 2002, as amended, between Calpine Gilroy Cogen L.P. and the Company. 2 "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby shall be determined in accordance with the definition of "Capital Lease Obligation." "Bankruptcy Case" means any case under Title 11 of the United States Code or any successor bankruptcy law commenced voluntarily or involuntarily against the Company or any other Obligor. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the Board of Directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. "Business Day" means any day other than a Legal Holiday. "Canadian Gas Assets" means Designated Assets owned by a direct or indirect Restricted Subsidiary of one or more Canadian Guarantors. "Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana Canada Holdings LLC, a Delaware limited liability company, and any successor to any of the foregoing. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. 3 "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. "Cash Equivalents" means: (1) the lawful currency of any country where the Company owns or operates a Facility; (2) securities issued or directly and fully guaranteed or insured by the United States government or any state thereof (or any agency or instrumentality thereof), by the Canadian government (or any agency or instrumentality thereof), or by the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch or successor rating agency rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest ratings obtainable from Moody's or S&P and maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited liability company that is wholly-owned by the Canadian Guarantors. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the 4 properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act); (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; (4) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance); or (5) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Clearstream" means Clearstream Banking, S.A. "Collateral" means all properties and assets at any time owned or acquired by the Company, except the Excluded Assets, and the Canadian Guarantors' ownership interest in 65% of the aggregate outstanding voting stock of CCEC. "Collateral Trust Agreement" means that certain Collateral Trust Agreement dated as of July 16, 2003, among the Company, the Canadian Guarantors, the Credit Agreement Agent, the Trustee and the Bank of New York. "Collateral Trustee" means The Bank of New York in its capacity as collateral trustee under the Collateral Trust Agreement, together with its successors and assigns in such capacity. "Company" means Calpine Corporation, a Delaware Corporation and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus 5 (4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business; in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Current Liabilities," as of the date of determination, means the aggregate amount of liabilities of the Company and its Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), after eliminating (i) all inter-company items between the Company and any consolidated Subsidiary and (ii) all current maturities of long-term Indebtedness, all as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; and (3) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: 6 (1) was a member of such Board of Directors on the date of this Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors then still in office or with the approval of a majority of Directors whose election was previously so approved from time to time. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreement" means that certain Amended and Restated Credit Agreement, dated as of July 16, 2003, by and among the Company and The Bank of Nova Scotia and Bayerische Landesbank, as lead arrangers and bookrunners, providing for up to $500.0 million of revolving credit and term loan borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Credit Agreement Agent" means, at any time, the Person serving at such time as the "Agent" or "Administrative Agent" under the Credit Agreement or any other representative of the Lenders then most recently designated by a majority of the Lenders, in a written notice delivered to each Parity Debt Representative and the Collateral Trustee, as the Credit Agreement Agent for the purposes of the Parity Lien Debt Documents. "Credit Facilities" means one or more debt facilities (including the Credit Agreement) with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Assets" means all geothermal energy assets (including any related extraction, processing or similar equipment and geothermal power plants) and all natural gas assets (including any related extraction, processing or similar equipment, other than natural gas power plants) owned by the Company or any of its Restricted Subsidiaries from time to time, including the equity interests of any 7 Restricted Subsidiary owning any Designated Assets, but excluding (i) any geothermal energy assets that are both unproven and undeveloped and (ii) contracts for the purchase or sale of natural gas and natural gas supplied under such contracts. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes issued pursuant to this Indenture mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Indenture shall be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Assets" means: (1) any lease of property other than (i) a lease of a geothermal energy or natural gas interest or property, (ii) a lease of real estate underlying a power generation property or (iii) a capital lease; (2) all deposit accounts (as defined in Article 9 of the Uniform Commercial Code of any relevant jurisdiction) and deposits therein to the extent not exceeding $50.0 million in the aggregate, except for the Designated Assets Sale Proceeds Account and any deposit account and deposits therein holding amounts referred to in clause (7) of this definition; (3) the fixtures and equipment relating to any pipeline if, to the extent that and for so long as (i) the ownership or operation of such pipeline is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (a) such fixtures and equipment shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (3) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (b) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by 8 the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (4) all easements, rights-of-way, licenses and other real property interests for or pertaining to the construction, operation, use or maintenance of any pipeline over, upon or under land owned by another Person; (5) with respect to personal property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (a) such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (5) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (b) the proceeds of any sale, lease or other disposition of any such lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (6) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein (i) requires a third party consent which has not been obtained or (ii) constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for as long as the conditions set forth in clause (i) or (ii) of this clause (6) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents immediately and automatically at such time as such conditions cease to exist except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (7) any cash proceeds (including any earnings thereon) of Priority Lien Debt that are pledged to cash collateralize letters of credit; (8) any turbines which serve as collateral pursuant to that certain General Agreement dated as of January 31, 2002 among the Company, various Subsidiaries of the Company and Siemens Westinghouse Power Corporation relating to various purchase contracts and letters of intent for gas turbine generators, steam turbine generators and related accessories; 9 (9) proved oil and gas reserves located in Oklahoma and undeveloped reserves and unproven acreage located in California, Texas, Wyoming, Montana, Colorado, New Mexico and offshore Louisiana; provided that such reserves and acreage has a Fair Market Value not exceeding $20.0 million in the aggregate; (10) Capital Stock of Subsidiaries designated by the Company, but only for so long as (i) the Capital Stock of such Subsidiaries is not pledged to any Person (other than the Collateral Trustee on behalf of all holders of all Secured Debt) and (ii) such Subsidiaries collectively own less than 5.0% of the Company's total consolidated assets and collectively account for less than 5.0% of the Company's Consolidated Cash Flow; and (11) any other property in which a security interest cannot be perfected by the filing of a financing statement under the Uniform Commercial Code of the relevant jurisdiction; provided that such property has a Fair Market Value not exceeding $25.0 million in the aggregate. "Existing Guarantees" means the Guarantees of the Term Loans, the Notes and certain obligations under the Credit Agreement that exist on the date of this Indenture. "Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid. "Facility" means a power generation facility or energy producing facility, including any related fuel reserves. "Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company (unless otherwise provided in this Indenture). "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation, or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect (in accordance with Regulation 10 S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded; (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges shall not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; (4) any Person that is a Restricted Subsidiary on the Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on such Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, except interest on Indebtedness incurred to finance the development or construction of a Facility; plus (3) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon, but excluding any such Guarantee or Lien in effect on the date of this Indenture unless the same is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the effective 11 combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Foreign Asset Sale" means an Asset Sale in respect of the Capital Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described in Section 936 of the Internal Revenue Code of 1986, as amended, to the extent that the proceeds of such Asset Sale are received by a Person subject in respect of such proceeds to the tax laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia. "Foreign Subsidiary" means a Subsidiary that is incorporated in a jurisdiction other than the United States of America or a State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect and, to the extent optional, adopted by the Company, on the applicable date of determination. "Global Notes" means, individually and collectively, each of the Restricted Global Notes, substantially in the form of Exhibit A hereto issued in accordance with Section 2.01 or 2.06(b)(3) hereof. "Global Note Legend" means the legend set forth in Section 2.06(e)(2), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise). "Guarantor" means each Subsidiary of Calpine that Guarantees the Notes. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices. "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and 12 registered in the name of the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (A) the Fair Market Value of such asset at such date of determination, and (B) the amount of the Indebtedness of such other Person. Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation. 13 "Indenture" means this indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means the first $500,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof. "Initial Purchasers" means Credit Lyonnais (USA) Inc., Goldman, Sachs & Co., ING Financial Markets LLC, Scotia Capital (USA) Inc. and TD Securities (USA) Inc. "Insolvency Proceeding" means: (1) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Company or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Company or any other Obligor or any similar case or proceeding relative to the Company or any other Obligor or its creditors, as such, in each case whether or not voluntary; (2) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Company or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or (3) any other proceeding of any type or nature in which substantially all claims of creditors of the Company or any other Obligor are determined and any payment or distribution is or may be made on account of such claims. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 4.07(b). Except as otherwise provided in this Indenture, the amount of an Investment shall be determined at the time the Investment is made and without giving effect to subsequent changes in value. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. 14 "Lenders" means, at any time, the parties to the Credit Agreement then holding (or committed to provide) loans, letters of credit or other extensions of credit that constitute (or when provided shall constitute) Priority Lien Debt outstanding under the Credit Agreement. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Magic Valley Generating Assets" means the Magic Valley Generating Station, a natural gas fired power plant in commercial operation in Edinburg, Texas. "Material Designated Assets" means Designated Assets having a Fair Market Value in the aggregate in excess of $50.0 million. "Moody's" means Moody's Investors Service, Inc. (or, if such entity ceases to rate the applicable notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, without duplication: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary that is incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or any Restricted Subsidiary; provided that such Indebtedness is without recourse to the Company (except as permitted by clause (8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any property or assets of the Company or any 15 Restricted Subsidiary other than property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of the definition of Permitted Liens or property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (19) of the definition of Permitted Liens. "Note Documents" means this Indenture, the Notes, the 2010 Notes and the indenture governing such notes, the 2013 Notes and the indenture governing such notes, each Sharing Confirmation and the Security Documents. "Note Obligations" means the Notes (including any Additional Notes issued under the this Indenture) and all other Obligations of any Obligor under this Indenture, the Notes (including any Additional Notes issued under this Indenture) and the Security Documents. "Notes" has the meaning assigned to it in the preamble to this Indenture. The Initial Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness (including the Notes and this Indenture). "Obligor" means the Company and each Restricted Subsidiary of the Company (if any) that at any time guarantees or provides collateral security or credit support for any Secured Obligations. "Offering Circular" means that certain offering circular dated as of July 10, 2003, with respect to the $2.55 billion in aggregate principal amount offering of the Notes, the 2010 Notes and the 2013 Notes, collectively. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by one Officer of the Company that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Parity Debt Representative" means: (1) in the case of the Notes, the 2010 Notes or the 2013 Notes, the applicable trustee thereof; (2) in the case of the Term Loans, the Term Loan Administrative Agent; or (3) in the case of any other Series of Parity Debt, the trustee, agent or representative of the holders of such Series of Parity Lien Debt who maintains the transfer register for such Series of Parity Lien Debt and is appointed as a Parity Debt Representative (for purposes related to the administration of the Security Documents) pursuant to this Indenture or other agreement governing such Series of Parity Lien Debt. 16 "Parity Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Parity Lien Obligations. "Parity Lien Debt" means: (1) the Notes; (2) the Term Loans; and (3) any other Indebtedness (including additional notes and Term Loans) that: (A) is permitted to be incurred under Section 4.09 herein; and (B) is permitted to be secured by Parity Liens by clause (2) of the definition of Permitted Liens; provided, in the case of each issue or series of Indebtedness referred to in this clause (3), that: (i) on or before the date on which such Indebtedness was incurred by the Company such Indebtedness is designated by the Company, in an officers' certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Parity Lien Debt for the purposes of this Indenture and the Collateral Trust Agreement, (ii) such Indebtedness is governed by an indenture or other agreement that includes a Sharing Confirmation and (iii) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Trustee's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements and the other provisions of this clause (3) shall be conclusively established, for purposes of entitling the holders of such Indebtedness to share equally and ratably with the other holders of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's Liens on the Collateral, if the Company delivers to the Collateral Trustee an officers' certificate in the form required pursuant to the Collateral Trust Agreement stating that such requirements and other provisions have been satisfied and that such Indebtedness is Parity Lien Debt, together with an opinion of counsel stating that such officers' certificate has been duly authorized by the Board of Directors of the Company and has been duly executed and delivered, and the holders of such Indebtedness and Obligations in respect thereof shall be entitled to rely conclusively thereon). "Parity Lien Debt Documents" means, collectively, the Term Loan Documents, the Note Documents, and the indenture or agreement governing each other Series of Parity Lien Debt and all agreements binding on any Obligor related thereto. "Parity Lien Obligations" means Parity Lien Debt and all other Obligations in respect thereof. "Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream). 17 "Permitted Business" means the business of acquiring, constructing, managing, developing, improving, owning and operating Facilities, as well as any other activities reasonably related to the foregoing activities (including acquiring and holding reserves), including investing in Facilities. "Permitted Investments" means: (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 herein; (5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates; (7) Investments represented by Hedging Obligations; (8) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary in an aggregate principal amount not to exceed $5.0 million at any one time outstanding; (9) repurchases of the Notes; and (10) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) that are at the time outstanding not to exceed $100.0 million; provided that Designated Assets held by the Company may not be invested in, leased to or otherwise transferred to any Restricted Subsidiary; provided, however, that the Company may transfer proven undeveloped gas reserves to its Restricted Subsidiaries in the ordinary course of business for consumption in the power generating business of such Restricted Subsidiaries during the 12-month period following transfer. "Permitted Liens" means: 18 (1) Liens on assets of the Company or any Canadian Guarantor securing Obligations of the Company or such Canadian Guarantor under one or more Credit Facilities in an aggregate amount not exceeding the Priority Lien Cap; (2) Liens held by the Collateral Trustee equally and ratably securing the Notes and the Term Loans to be issued on the date of this Indenture and all future Parity Lien Debt and other Parity Lien Obligations; provided that the Collateral Trustee's Liens may secure Parity Lien Debt incurred after the date of this Indenture or Obligations in respect thereof only if, on the date of the incurrence of such Parity Lien Debt, after giving pro forma effect to the incurrence thereof and the application of the proceeds therefrom, the Secured Leverage Ratio is not greater than 2.75:1.0; (3) Liens in favor of the Company; (4) Pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or leases to which such Person is a party, and Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (5) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the definition of Permitted Debt covering only the assets acquired, designed, constructed, installed or improved with or financed by such Indebtedness; (6) Liens existing on the date of this Indenture; (7) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Restricted Subsidiary; (8) (A) Liens on assets or property of a Restricted Subsidiary (other than Material Designated Assets) incurred by any Restricted Subsidiary to secure Indebtedness of such Restricted Subsidiary incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or such Restricted Subsidiary, which Liens may include Liens on the Capital Stock of such Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a direct Subsidiary of the Company or (ii) owns, directly or indirectly, Material Designated Assets), (B) Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary that does not own, directly or indirectly, at the time of original incurrence of such a Lien under this clause (B) any Material Designated Assets or any operating properties or assets, securing Indebtedness incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of any Restricted Subsidiary that does not, directly or indirectly, own any operating properties or assets at the time of the original incurrence of such Lien, which Liens contemplated by this clause (8) may include Liens on the Capital Stock of one or more Restricted Subsidiaries that (i) are not direct Subsidiaries of the Company and (ii) do not, directly or indirectly, own any Material Designated Assets or operating properties or assets at the time of original incurrence of such Lien; or (C) without duplication, Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary (which Liens may include Liens on Capital Stock of such Restricted Subsidiary so long as the Capital Stock of such Restricted Subsidiary is not pledged as Collateral) that owns as of the date of this Indenture all or part of one or more of the peaking power plants (and no other significant unrelated assets) 19 constructed for the purpose of providing peaking capacity and energy to the California Department of Water Resources; provided, that the Indebtedness secured by any such Lien contemplated by this clause (8) may not be issued more than 365 days (or, in the case of clause (C) above, two years) after the later of the exploration, drilling, development, completion of construction, purchase, repair, improvement, addition or commencement of full commercial operation of the property or asset being so financed; (9) Liens on property or shares of Capital Stock of a Subsidiary at the time such Person becomes a Subsidiary; provided that any such Lien may not extend to any other property owned by the Company; (10) Liens on property at the time a Subsidiary acquires the property, including any acquisition by means of a merger or consolidation with or into the Subsidiary; provided that such Liens are not incurred in connection with, or in contemplation of, such merger or consolidation; and provided, further, that the Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (11) Liens incurred by a Person other than the Company or any Subsidiary on assets that are the subject of a Capitalized Lease Obligation to which the Company or a Subsidiary is a party; provided that any such Lien may not secure Indebtedness of the Company or any Subsidiary (except Indebtedness secured by a Lien on any property or assets of the Company or such Subsidiary incurred in connection with Indebtedness of another Person), with the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured) and may not extend to any other property owned by the Company or any Restricted Subsidiary; (12) Liens on assets of the Company Construction Finance Company, L.P. (and/or any other Restricted Subsidiary that subsequently owns any such assets) relating to the Magic Valley Generating Station; (13) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to leases incurred in the ordinary course of business and not otherwise prohibited by this Indenture; (14) Liens not in respect of Indebtedness consisting of the interest of the lessor under any lease entered into in the ordinary course of business and not otherwise prohibited by this Indenture; and Liens on shares of Capital Stock of a subsidiary that does not own any significant assets other than a lessee's interest in a Facility or on the Capital Stock of a subsidiary whose only significant asset is its direct or indirect interest in such lessee subsidiary; provided that in no event shall this clause (14) allow a lien on any Capital Stock constituting Collateral; (15) Liens which constitute banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract; (16) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; 20 (17) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens, in each case, arising in the ordinary course of business and with respect to amounts not yet due or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be diligently prosecuting appeal or other proceedings for review; (18) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of the Company or any Restricted Subsidiary or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of the Company or any Restricted Subsidiary; (19) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6), (8), (9) and (10); provided that (A) such new Lien shall be limited to all or part of the same property or assets that secured the original Lien (plus repairs, improvements and additions to such property or assets and Liens on the stock or other ownership interest in one or more Restricted Subsidiaries beneficially owning such property or assets) and (B) the amount of the Indebtedness secured by such Lien at such time (or, if the amount that may be realized in respect of such Lien is limited, by contract or otherwise, such limited lesser amount) is not increased (other than by an amount necessary to pay fees and expenses, including premiums, related to the refinancing, refunding, extension, renewal or replacement of such Indebtedness); (20) Liens on assets of Restricted Subsidiaries to secure letters of credit issued pursuant to clause (14) of the definition of Permitted Debt; provided if and to the extent such letters of credit are drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit and Liens to secure letters of credit incurred pursuant to clause (15) of the definition of Permitted Debt on cash collateral constituting the proceeds of Priority Lien Debt; (21) Liens (A) on cash and short-term investments of Restricted Subsidiaries to secure obligations with respect to (i) contracts for commercial and trading activities in the ordinary course of business and contracts (including physical delivery, option (whether cash or financial), exchange, swap and futures contracts) for the purchase, transmission, distribution, sale, lease or hedge of any energy-related commodity or service or (ii) interest rate, commodity price, or currency rate management contracts or derivatives and (B) encumbering assets of a Restricted Subsidiary, other than (i) Material Designated Assets or (ii) accounts or receivables, which Liens arise out of contracts or agreements relating to the generation, distribution or transmission or sale of energy and/or fuel; provided that all such agreements or contracts are entered into in the ordinary course of business; and (22) other Liens to secure Indebtedness in an aggregate amount not to exceed $50.0 million at any time outstanding. "Permitted Prior Liens" means (a) Liens securing Priority Lien Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses (5), (6), (10) or (11) of the definition of "Permitted 21 Liens" and (c) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued or accumulated interest on the Indebtedness and the amount of all fees, costs, expenses and premiums, including swap breakage and defeasance costs, incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that such Permitted Refinancing Indebtedness may have such shorter final maturity date and Weighted Average Life to Maturity as is equal to or greater than the latest maturity date of any Notes issued under this Indenture; and (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that Permitted Refinancing Indebtedness shall not include (A) Indebtedness of the Company incurred to refinance Non-Recourse Debt of a Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the Company that refinances Indebtedness of the Company or (C) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Pledged Power Project" means the power generation property and related equipment at each of the following locations: (1) the Goldendale Energy Center in Goldendale, Washington; (2) the Otay Mesa Energy Center near San Diego, California; (3) the Metcalf Energy Center near San Jose, California; (4) the Santa Rosa Energy Center in Santa Rosa County, Florida; (5) the Washington Parish Energy Center near Bogalusa, Louisiana; (6) the Deer Park Energy Center in Deer Park, Texas; and 22 (7) the Augusta Energy Center in Augusta, Georgia. "Priority Foreclosure Event" means the failure to pay at maturity or upon acceleration of maturity all outstanding Priority Lien Debt at any time when no Bankruptcy Case or Insolvency Proceeding is pending. "Priority Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Priority Lien Obligations not exceeding the Priority Lien Cap. "Priority Lien Agent" means the Credit Agreement Agent or any other agent for holders of Priority Lien Debt. "Priority Lien Cap" means an amount equal to (a) the Indebtedness outstanding under the Credit Agreement or any other Credit Facility in an aggregate principal amount not exceeding the greater of (1) $500.0 million, less the amount of any Net Proceeds of a Sale of Designated Assets applied to repay Priority Lien Debt and/or cash collateralize letters of credit that constitute Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available, plus (b) any interest (including any interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), penalties, premiums, fees, costs, expenses or other Obligations in respect of such Indebtedness. For purposes of this definition of Priority Lien Cap, all letters of credit shall be valued at face amount, whether or not drawn, and all letters of credit denominated in a currency other than U.S. dollars shall be valued at all times at the Equivalent Amount (as defined in the Credit Agreement) thereof on the date of issue thereof. "Priority Lien Debt" means Indebtedness under (a) the Credit Agreement or (b) any other Credit Facility that is secured by a Priority Lien that was permitted to be incurred under clause (1) of the definition of "Permitted Liens" but only if on or before the day on which such Indebtedness under a Credit Facility described in clause (b) above is incurred by the Company such Indebtedness is designated by the Company, in an officers' certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt Documents and the Collateral Trust Agreement. "Priority Lien Documents" means the Credit Agreement or any other Credit Facility pursuant to which any Priority Lien Debt is incurred and all other agreements governing, securing or relating to any Priority Lien Obligations. "Priority Lien Obligations" means the Priority Lien Debt and all other Obligations in respect of Priority Lien Debt. "Private Placement Legend" means the legend set forth in Section 2.06(e)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Public Equity Offering" means an underwritten primary public offering of the Company's equity securities pursuant to an effective registration statement under the Securities Act. 23 "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Global Note bearing the Private Placement Legend and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Required Parity Debtholders" means, at any time in respect of any action or matter, holders of a majority in aggregate outstanding principal amount of all Parity Lien Debt then outstanding, voting together as a single class. For this purpose, Parity Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding. "Required Priority Debtholders" means, at any time in respect of any action or matter, (1) holders of the outstanding principal amount of, or commitments with respect to, the applicable Priority Lien Debt then outstanding required pursuant to the terms of the applicable Credit Facility, voting as a single class, to approve such action or matter or (2) the Priority Lien Agent acting upon the authorization or consent of the holders referred to in the immediately preceding clause (1). For this purpose, Priority Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding. "Responsible Officer," means, with respect to the Collateral Trustee, any officer within the corporate trust department of the Collateral Trustee including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Collateral Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of the Collateral Trust Agreement. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day distribution compliance period as defined in Regulation S.903(B)(3) "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. 24 "S&P" means Standard & Poor's Ratings Group (or, if such entity ceases to rate the Notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Sale of Designated Assets" means any Asset Sale involving a sale or other disposition of Designated Assets. "SEC" means the Securities and Exchange Commission. "Secured Debt" means Parity Lien Debt and Priority Lien Debt. "Secured Debt Documents" means the Parity Lien Debt Documents and the Priority Lien Documents. "Secured Debt Representative" means each Parity Debt Representative and the Priority Lien Agent. "Secured Leverage Ratio" means, on any date, the ratio of: (1) the aggregate principal amount of Secured Debt outstanding on such date (and, for this purpose, letters of credit shall be deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) to (2) the aggregate amount of the Company's Consolidated Cash Flow for the most recent four-quarter period for which financial information is available. In addition, for purposes of calculating the Secured Leverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the date on which the event for which the calculation of the Secured Leverage Ratio is made (the "Leverage Calculation Date") shall be given pro forma effect in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Leverage Calculation Date, shall be excluded; (3) any Person that is a Restricted Subsidiary on the Leverage Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on the Leverage Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and 25 (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Leverage Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Secured Obligations" means the Parity Lien Obligations and the Priority Lien Obligations. "Securities Act" means the Securities Act of 1933, as amended. "Security Documents" means the Collateral Trust Agreement and one or more security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, deeds of trust or other grants or transfers for security executed and delivered by the Company or any other Obligor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Trustee, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms. "Series of Parity Lien Debt" means, severally, each series of the Notes, the 2010 Notes, the 2013 Notes, the Term Loans and each other issue or series of Parity Lien Debt for which a single transfer register is maintained. "Series of Secured Debt" means, severally, each series of the Notes, the 2010 Notes, the 2013 Notes, the Term Loans, each other issue or series of Parity Lien Debt for which a single transfer register is maintained and each issue or series of Priority Lien Debt for which a single register is maintained. "Sharing Confirmation" means, as to any Series of Parity Lien Debt, the written agreement of the holders of such Series of Parity Lien Debt, as set forth in the indenture or agreement governing such Series of Parity Lien Debt, for the enforceable benefit of all holders of each other existing and future Series of Parity Lien Debt and each existing and future Parity Debt Representative, that all Parity Lien Obligations shall be and are secured equally and ratably by all Liens at any time granted by the Company or any other Obligor to secure any Obligations in respect of such Series of Parity Lien Debt, whether or not upon property otherwise constituting Collateral, that all such Liens shall be enforceable by the Collateral Trustee for the benefit of all holders of Parity Lien Obligations equally and ratably, and that the holders of Obligations in respect of such Series of Parity Lien Debt are bound by the provisions in the Collateral Trust Agreement relating to the order of application of proceeds from enforcement of the Collateral Trustee's Liens upon the Collateral, and consent to and direct the Collateral Trustee to perform its obligations under the Collateral Trust Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of this Indenture, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, as applied to any Person, any corporation, limited or general partnership, trust, association or other business entity of which an aggregate of at least 50% of the outstanding Voting 26 Shares, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. "Term Loan Administrative Agent" means Goldman Sachs Credit Partners L.P., as administrative agent under the Term Loan Agreement, together with its successors in such capacity. "Term Loan Agreement" means that certain Term Loan Agreement dated the date of this Indenture between the Company and the Term Loan Administrative Agent, relating to $750.0 million in aggregate principal amount of Term Loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, increased, renewed, restated or replaced, in whole or in part, from time to time. "Term Loan Documents" means the Term Loan Agreement, each Sharing Confirmation and the Security Documents. "Term Loan Obligations" means the Term Loans (including additional Term Loans) and all other Obligations under the Term Loan Agreement and the Security Documents. "Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the Term Loan Agreement. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 of this Indenture. "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "2010 Notes" means the $1.15 billion in aggregate principal amount of the Company's 8 1/2% notes due 2010. "2013 Notes" means the $900.0 million in aggregate principal amount of the Company's 8 3/4% notes due 2013. "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary (and any subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed after the date of this Indenture, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Indebtedness that is non-recourse to the Company and its Restricted Subsidiaries; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or 27 (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that a corporation with no significant assets created for the sole purpose of serving as a co-obligor to facilitate a financing by a partnership of a limited liability company may be designated as an Unrestricted Subsidiary. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 herein, regarding Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 herein, the Company shall be in default of such Section 4.09. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under Section 4.09 herein, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years or portion thereof obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that shall elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. 28 Section 1.02 Other Definitions.

Defined in Term Section - ---- ------- "Affiliate Transaction"............................................................. 4.11 "Asset Sale Offer".................................................................. 3.09 "Authentication Order".............................................................. 2.02 "Change of Control Offer"........................................................... 4.15 "Change of Control Payment"......................................................... 4.15 "Change of Control Payment Date".................................................... 4.15 "Covenant Defeasance"............................................................... 8.03 "DTC"............................................................................... 2.03 "Event of Default".................................................................. 6.01 "Excess Proceeds"................................................................... 4.10 "incur"............................................................................. 4.09 "Legal Defeasance".................................................................. 8.02 "Offer Amount"...................................................................... 3.09 "Offer Period"...................................................................... 3.09 "Paying Agent"...................................................................... 2.03 "Permitted Debt".................................................................... 4.09 "Purchase Date"..................................................................... 3.09 "Registrar"......................................................................... 2.03 "Restricted Payments"............................................................... 4.07

Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; 29 (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) "shall" shall be interpreted to express a command; (6) provisions apply to successive events and transactions; and (7) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. 30 ARTICLE 2. THE NOTES Section 2.01 Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream shall be applicable to transfers of beneficial interests in the Global Notes that are held by Participants through Euroclear or Clearsteam. Section 2.02 Execution and Authentication. One Officer must sign the Notes for the Company by manual or facsimile signature. If the Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee will, upon receipt of a written order of the Company signed by one Officer (an "Authentication Order"), authenticate (i) Initial Notes in an aggregate principal amount up to $1.15 billion on the date of this Indenture and (ii) Additional Notes from time to time as permitted under this Indenture. 31 The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03 Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04 Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). Section 2.06 Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the 32 Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes shall be exchanged by the Company for Definitive Notes if: (1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; or (2) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee. Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated by the Trustee pursuant to an Authentication Order and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1). (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar both: (A) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and (B) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase. 33 (3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following: (A) if the transferee shall take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee shall take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee shall take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable. (4) Transfer and Exchange of Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or 34 (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the Company shall execute and the Trustee shall authenticate, upon receipt of an Authentication Order, and deliver to the Person designated in such Authentication Order a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (c) Transfer and Exchange of Definitive Notes for Beneficial Interests. (1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or 35 (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (d) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(d), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(d). (1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer shall be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer shall be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer shall be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (e) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (1) Private Placement Legend. (A) Each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 36 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS." (2) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to 37 a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (g) General Provisions Relating to Transfers and Exchanges. (1) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request. (2) No service charge shall be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (3) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (5) The Company shall not be required: (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (7) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. 38 Section 2.07 Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements hereunder are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge the applicable Holder for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08 Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10 Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall, upon receipt of an Authentication Order, authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. 39 Section 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes in accordance with its customary practices (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth: (1) the clause of this Indenture pursuant to which the redemption shall occur; (2) the redemption date; (3) the principal amount of Notes to be redeemed; and (4) the redemption price. Section 3.02 Selection of Notes to Be Redeemed or Purchased. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select Notes for redemption or purchase as follows: (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. 40 In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase. Section 3.03 Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 11, respectively, of this Indenture. The notice shall identify the Notes to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 41 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05 Deposit of Redemption or Purchase Price. Not less than one Business Day prior to the redemption or purchase price date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest on, all Notes to be redeemed or purchased. If the Company complies with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06 Notes Redeemed or Purchased in Part. Upon surrender of a Note that is redeemed or purchased in part, the Company shall issue and, upon receipt of an Authentication Order, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered. Section 3.07 Optional Redemption. (a) At any time prior to July 15, 2005, the Company may on one or more occasions upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture (without regard to the reduction of the aggregate principal amount of the Notes outstanding due to any scheduled principal payments) at a redemption price equal to par plus the applicable Eurodollar Rate then in effect, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of Notes originally issued under this Indenture (without regard to the reduction of the aggregate principal amount of the Notes then outstanding due to any scheduled principal payments) remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and 42 (2) the redemption must occur within 45 days of the date of the closing of such Public Equity Offering. (b) After July 15, 2005 the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below, subject to the rights of noteholders on the relevant record date to receive interest on the relevant interest payment date:

Year Percentage - ---- ---------- 2005............................................................................. 103.000% 2006 and thereafter.............................................................. 100.000%

(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08 Mandatory Redemption. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09 Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company is required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales and assets. The Asset Sale Offer shall remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than three Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall apply all Excess Proceeds (the "Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The written notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The written notice, which shall govern the terms of the Asset Sale Offer, shall state: (1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; 43 (2) the Offer Amount, the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment shall continue to accrue interest; (4) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (7) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (9) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, either directly or through the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company and receipt of an Authentication Order shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. 44 ARTICLE 4. COVENANTS Section 4.01 Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. Section 4.03 Reports. (a) Whether or not required by the Commission's rules and regulations, so long as any Notes are outstanding, the Company shall furnish to the holders of Notes, within the time periods specified in the Commission's rules and regulations: (1) all quarterly and annual reports that would be required to be filed with the Commission on Forms 10-Q and 10-K if the Company were required to file such reports; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. 45 (b) All such reports shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K shall include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, the Company shall file a copy of each of the reports referred to in clauses (1) and (2) in Section 4.03(a) above with the Commission for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the Commission shall not accept such a filing) and make such information available to securities analysts and prospective investors upon request. (c) If, at any time, the Company is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Company shall nevertheless continue filing the reports specified in Section 4.03(a) with the Commission within the time periods specified above unless the Commission shall not accept such a filing. The Company agrees that it shall not take any action for the purpose of causing the Commission not to accept any such filings. If, notwithstanding the foregoing, the Commission shall not accept the Company's filings for any reason, the Company shall post the reports referred to in Section 4.03(a) on its website within the time periods that would apply if the Company were required to file those reports with the Commission. (d) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by Section 4.03(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. (e) In addition, the Company agrees that, for so long as any Notes remain outstanding, at any time it is not required to file the reports required by Section 4.03(a) with the Commission, it shall furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Section 4.04 Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate prescribed by the TIA stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the Security Documents, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the Security Documents and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or the Security Documents (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for 46 certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Notes are outstanding, the Company shall deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05 Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07 Restricted Payments. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company that is contractually subordinated to the Notes (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries and excluding the purchase, repurchase or other acquisition of such subordinated Indebtedness purchased in anticipation of satisfying a sinking 47 fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); (2) the Company would, after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) herein; and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since the date of this Indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), and (9) of the next succeeding paragraph), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (c) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) to the extent that any Unrestricted Subsidiary of the Company designated as such after the date of this Indenture is redesignated as a Restricted Subsidiary after the date of this Indenture, the Fair Market Value of the Company's Investment in such Subsidiary as of the date of such redesignation, plus (e) 100% of any payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets received by the Company or a Restricted Subsidiary of the Company after the date of this Indenture from an Unrestricted Subsidiary of the Company, to the extent that such payments, dividends, repayments or transfers were not otherwise included in Consolidated Net Income of the Company for such period, plus 48 (f) $628.3 million. The preceding provisions shall not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of this Indenture; (2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock) or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment shall be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of Indebtedness of the Company that is contractually subordinated to the Notes with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness, so long as no Default has occurred and is continuing or would be caused thereby; (4) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of the Company to the holders of any class or series of such Restricted Subsidiary's Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former officer, direct or employee of the Company (or any of its Restricted Subsidiaries) pursuant to any equity subscription agreement, stock option agreement, shareholders' agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any twelve-month period, so long as no Default has occurred and is continuing or would be caused thereby; (6) the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the extent such Equity Interests represent a portion of the exercise price of those stock options; (7) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company or any Restricted Subsidiary of the Company issued on or after the date of this Indenture in accordance with the Fixed Charge Coverage test described under Section 4.09 herein; provided that no Default has occurred and is continuing or would be caused thereby (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and (8) any purchase, redemption, defeasance or other acquisition or retirement for value of subordinated Indebtedness upon a Change of Control or an Asset Sale to the extent required by this Indenture or other agreement pursuant to which such subordinated Indebtedness was issued, but only if the Company (a) in the case of a Change of Control, has made an offer to repurchase the Notes as described under Section 4.15 herein or (b) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with the provisions described under Section 4.10 herein, so long as no Default has occurred and is continuing or would be caused thereby. 49 (b) The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the preceding restrictions shall not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of this Indenture; (2) this Indenture, the Notes, the 2010 Notes and the indenture governing such notes, the 2013 Notes and the indenture governing such notes and the Term Loan Agreement or any other indenture governing letters of credit, loans or debt securities issued by or on behalf of the Company that are no more restrictive, taken as a whole, with respect to such dividend, distribution or other payment restrictions and loan or investment restrictions than those contained in this Indenture, the Notes, the 2010 Notes and the indenture governing such notes, the 2013 Notes and the indenture governing such notes and the Term Loan Agreement as in effect on the date of this Indenture; (3) applicable law, rule, regulation or order; (4) customary non-assignment provisions in leases, contracts and licenses entered into in the ordinary course of business and consistent with past practices; (5) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of Section 4.08(a); (6) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition; 50 (7) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (8) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 4.12 herein that limit the right of the debtor to dispose of the assets subject to such Liens; (9) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements; (10) any encumbrance or restriction imposed pursuant to the terms of any Non-Recourse Debt incurred pursuant to clause (6) of the definition of Permitted Debt or any preferred stock issued pursuant to clause (7) of the definition of Permitted Debt; provided that such encumbrance or restriction, in the written opinion of the President, Vice Chairman, Chief Operating Officer or Chief Financial Officer of the Company, (x) is required in order to obtain such financing or to place such preferred stock, (y) is customary for such financings or placements and (z) applies only to the assets or revenues of the applicable Restricted Subsidiary; (11) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Acquired Debt incurred pursuant to clause (10) of the definition of Permitted Debt; provided that such encumbrance or restriction was not incurred in connection with or in contemplation of such Restricted Subsidiary becoming a Restricted Subsidiary; and (12) restrictions on cash or other deposits or net worth imposed by customers or suppliers under contracts entered into in the ordinary course of business. Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) Section 4.09(a) shall not prohibit the incurrence of any of the following items (collectively, "Permitted Debt"): (1) the incurrence by the Company and the Guarantee by the Canadian Guarantors of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal 51 amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) not to exceed on any date of incurrence the greater of (A) $500.0 million or (B) the dollar amount that is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company and the Canadian Guarantors of Indebtedness represented by the Notes, the 2010 Notes, the 2013 Notes and the Term Loans to be issued on the date of this Indenture, and in each case the related Guarantees; (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Company or any of its Restricted Subsidiaries, in an aggregate principal amount (or accreted value, as applicable), including all Permitted Refinancing Indebtedness incurred to extend, refund, refinance, renew, replace or defease any Indebtedness incurred pursuant to this clause (4), not to exceed $100.0 million at any one time outstanding; (5) Indebtedness of the Company which is owed to and owned by a Restricted Subsidiary and Indebtedness of a Restricted Subsidiary that is owed to and owned by the Company or a Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the Company or by a Restricted Subsidiary, as the case may be; (6) the incurrence of Non-Recourse Debt by any Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets); (7) the issuance of preferred stock by a Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets), the net proceeds of which are applied to finance the exploration, drilling, development, construction or purchase of or by, or repairs or improvements or additions to, property or assets of the Company or any Restricted Subsidiary; (8) the incurrence by the Company of Guarantees of Indebtedness of Restricted Subsidiaries which, but for such Guarantees, would be permitted to be incurred pursuant to clause (6) of Section 4.09 (b); provided that the aggregate principal amount of Indebtedness incurred pursuant to this clause (8) does not exceed $100.0 million at any one time outstanding; (9) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance, replace, defease or discharge Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under Section 4.09(a) or clauses (2), (3), (4), (5), (6), (8) or (10) of this Section 4.09(b) or this clause (9); 52 (10) the incurrence of Acquired Debt by any Restricted Subsidiary of the Company at the time such Restricted Subsidiary becomes a Restricted Subsidiary of the Company so long as such Acquired Debt was not incurred in connection with or in contemplation of such Person becoming a Restricted Subsidiary of the Company; provided that the Company would have been able to incur such Indebtedness at the time of incurrence thereof by the Restricted Subsidiary pursuant to Section 4.09 (a); (11) the incurrence of Indebtedness pursuant to Hedging Obligations incurred in the ordinary course of business and not for speculative purposes; (12) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances and performance and surety bonds in the ordinary course of business; (13) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five business days; (14) the incurrence by any Restricted Subsidiary of Indebtedness represented by letters of credit (or Guarantees thereof) entered into in the ordinary course of business to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit; provided that such letters of credit shall not constitute Permitted Debt pursuant to this clause (14) if they are issued in support of Indebtedness; (15) the incurrence of Indebtedness by the Company represented by letters of credit cash collateralized with the proceeds of Priority Lien Debt; and (16) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to extend, refinance, renew, replace, defease or refund any Indebtedness incurred pursuant to this clause (16), not to exceed $100.0 million. The Company shall not incur and shall not permit any Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes (and the Applicable Guarantee) and the Term Loans on substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured or by virtue of being secured on a junior basis. Section 4.10 Asset Sales. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale (including a Sale of Designated Assets) unless: 53 (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following shall be deemed to be cash: (A) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Company or such Restricted Subsidiary from further liability; (B) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and (C) except in the case of a Sale of Designated Assets, any stock or assets of the kind referred to in clauses (4) or (6) of Section 4.10(b); and (3) in the case of a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary, as the case may be) shall deposit the Net Proceeds as cash collateral in a segregated account (a "Designated Asset Sale Proceeds Account") held by the Collateral Trustee or its agent to secure the Secured Obligations; provided, that for so long as the terms of any of the Company's senior unsecured notes that were issued prior to August 10, 2000 would prevent such a pledge by a Restricted Subsidiary, the Company shall deposit with the Collateral Trustee or its agent an amount of cash equal to the Net Proceeds as cash collateral to secure the Secured Obligations, and the applicable Restricted Subsidiary shall not be obligated to do so. (b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, other than a Sale of Designated Assets that are not Canadian Gas Assets, the Company (or the applicable Restricted Subsidiary, as the case may be) may apply those Net Proceeds: (1) to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt; (2) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of Calpine Canada Energy Finance ULC and/or Calpine Canada Energy Finance II ULC existing on the date of this Indenture; (3) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of any Restricted Subsidiary and, if such Indebtedness is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (4) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of the Company; 54 (5) to make a capital expenditure; or (6) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business. (c) Within 180 days after the receipt of any Net Proceeds from an Asset Sale that constitutes a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary that disposed of those Designated Assets, as the case may be) may apply those Net Proceeds to purchase other assets that would constitute Designated Assets or to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt and, if such Priority Lien Debt is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto. (d) Any Net Proceeds from Asset Sales (including Sales of Designated Assets) that are not applied or invested as provided in the preceding clauses of this Section 4.10 shall constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all holders of the Notes and all holders of other Indebtedness that is pari passu with the Notes and equally and ratably secured with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets, including the 2010 Notes, the 2013 Notes, the Term Loans and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable (an "Asset Sale Offer"), to purchase or redeem the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased or redeemed out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. (e) Notwithstanding the foregoing, to the extent that any or all of the Net Proceeds of any Foreign Asset Sale is prohibited or delayed by applicable local law from being repatriated to the United States, the portion of such Net Proceeds so affected shall not be required to be applied at the time provided above, but may be retained by the applicable Restricted Subsidiary so long, but only so long, as the applicable local law shall not permit repatriation to the United States. The Company shall promptly take or cause the applicable Restricted Subsidiary to promptly take all actions required by the applicable local law to permit such repatriation. Once such repatriation of any of the affected Net Proceeds is permitted under the applicable local law, the repatriation shall be immediately effected and the repatriated Net Proceeds shall be applied in the manner set forth in this Section 4.10 as if the Asset Sale had occurred on the date of such repatriation. (f) Notwithstanding the foregoing, to the extent that the Board of Directors determines, in good faith, that repatriation of any or all of the Net Proceeds of any Foreign Asset Sale would have a material adverse tax consequence to the Company, the Net Proceeds so affected may be retained outside of the United States by the applicable Restricted Subsidiary for so long as such material adverse tax consequence would continue. (g) The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that 55 the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Asset Sale provisions of this Indenture by virtue of such conflict. Section 4.11 Transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.5 million, an officers' certificate certifying that such Affiliate Transaction complies with this Section 4.11(a); and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an officers' certificate certifying that such Affiliate Transaction complies with this Section 4.11 and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors or, if there are no disinterested members of the Board of Directors, the Board of Directors shall have received a written opinion of an accounting, appraisal or investment banking firm of national standing stating that such Affiliate Transaction or series of Affiliate Transactions is fair to the Company or such Restricted Subsidiary from a financial point of view. (b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 4.11(a): (1) any employment agreement, employee benefit plan, stock option plan, officer and director indemnification agreement or any similar arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (2) transactions between or among the Company and its Restricted Subsidiaries and between or among the Company's Restricted Subsidiaries; (3) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person; (4) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company; 56 (5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company; (6) Restricted Payments that do not violate the provisions of Section 4.07 hereof; (7) loans or advances to employees in the ordinary course of business; (8) any repurchase, redemption or other retirement of Capital Stock of the Company held by employees of the Company or any of its Subsidiaries upon death, disability or termination of employment at a price not in excess of the Fair Market Value thereof approved by the Board of Directors; (9) any transaction between or among the Company and any of its Subsidiaries in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries; and (10) any agreement to do any of the foregoing. (c) Any transaction which has been determined, in the written opinion of an independent nationally recognized investment banking firm, to be fair, from a financial point of view, to the Company or the applicable Restricted Subsidiary shall be deemed to be in compliance with this Section 4.11. Section 4.12 Liens. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens. (b) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, grant or permit to exist a Lien upon any property (whether then held by it or to be acquired by it at a future time) as security for any Priority Lien Debt, unless (1) such Lien secures all Priority Lien Debt on an equal and ratable basis and (2) the Collateral Trustee holds an enforceable and perfected Lien upon such property as security equally and ratably for all Parity Lien Obligations in second priority to Priority Lien Debt. Section 4.13 Limitation on Changes in the Nature of the Business. The Company and its Restricted Subsidiaries shall engage only in Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. In addition, the Company will, and shall cause its Subsidiaries, to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law; provided to the extent that any such law is amended following the date of this Indenture in such a manner that would (absent application of this proviso) make non-compliance with this Section 4.13 not result in a material adverse effect on the Company's results of operations or financial condition, then the Company shall not be required to comply with this Section 4.13, but only to the extent of actions or failures to act that would (absent application of this Section 4.13) constitute violations of this Section 4.13 solely as a result of such amendment. 57 Section 4.14 Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect: (1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and (2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15 Offer to Repurchase Upon Change of Control. (a) If a Change of Control occurs, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's Notes pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in this Indenture. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased (the "Change of Control Payment"), to but excluding the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the change of control payment date (the "Change of Control Payment Date") specified in the notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Change of Control provisions of this Indenture by virtue of such compliance. (b) On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the trustee the Notes properly accepted together with an officers' certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. The paying agent shall promptly mail to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee upon receipt of an Authentication Order from the Company shall promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; 58 provided that each new note shall be in a principal amount of $1,000 or an integral multiple of $1,000. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) The Company shall not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to Section 3.07 herein, unless and until there is a default in payment of the applicable redemption price. Section 4.16 Limitation on Sale and Leaseback Transactions. (a) The Company shall not enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if: (1) the Company could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in Section 4.09 (a) herein and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.12 herein; (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value, as determined in good faith by the Board of Directors and set forth in an officers' certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.10 herein. (b) This Section 4.16 shall not apply to the Company's Subsidiaries. Section 4.17 Limitation on Issuances of Guarantees of Indebtedness. The Company shall not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company (other than the Existing Guarantees by the Canadian Guarantors) unless such Restricted Subsidiary simultaneously executes and delivers (1) supplemental indentures providing for the Guarantees of the payment of the Notes by such Restricted Subsidiary, which Guarantees shall be senior to such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness unless the Indebtedness of the Company so Guaranteed or secured is senior Indebtedness of the Company, in which case the Guarantees of the Notes may be pari passu with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness of the Company, and (2) a pledge or security agreement providing for a pledge of such assets to secure the Notes and all other Parity Lien Debt on an equal and ratable basis (subject only to Permitted Prior Liens). Section 4.18 Payments for Consent. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of the Notes, the 2010 Notes, the 2013 Notes or the Term Loans for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture, the Notes, the 2010 59 Notes, the 2013 Notes, the Term Loans, the Term Loan Agreement or any Security Documents unless such consideration is offered to be paid or agreed to be paid to all holders of such notes and/or Term Loans that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.19 Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be deemed to be an Investment made as of the time of the designation and shall reduce the remaining amount available for Restricted Payments under Section 4.07 herein or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation shall only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. Section 4.20 Changes in Covenant When Notes Rated Investment Grade. If on any date following the date of this Indenture: (1) any series of the notes is rated Baa3 or better by Moody's and BBB- or better by S&P; and (2) no Default or Event of Default shall have occurred and be continuing, then, beginning on that day and subject to the provisions of the following paragraph, the provisions of Section 4.07, 4.08, 4.09, 4.10, 4.11, 4.13, 4.19 and clause (4) of Section 5.01 hereof shall be suspended. Notwithstanding the foregoing, if the rating assigned by either such rating agency should subsequently decline to below Baa3 or BBB-, respectively, the foregoing provisions shall be reinstituted as of and from the date of such rating decline. Calculations under the reinstated Section 4.07 shall be made as if Section 4.07 had been in effect since the date of this Indenture except that no default shall be deemed to have occurred solely by reason of a Restricted Payment made while that Section 4.07 was suspended. These covenant suspension provisions shall continue to be applicable following any such reinstatement. The Company shall notify the Trustee if any covenants are suspended or reinstated pursuant to this Section 4.20. 60 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets. The Company may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (A) the Company is the surviving corporation; or (B) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under the Notes, this Indenture, and the Security Documents pursuant to agreements reasonably satisfactory to the Trustee and the Collateral Trustee; (3) immediately after such transaction, no Default or Event of Default exists; (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made: (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and (B) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) herein; and (5) such transaction shall not impair the ability of the Company or any of its Subsidiaries to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law, unless such exemption is no longer material to the Company and its Restricted Subsidiaries taken as a whole or to the Person formed by or surviving any such consolidation or merger (if other then the Company) and its Restricted Subsidiaries taken as a whole. In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. 61 Notwithstanding the foregoing: (1) the Company may merge with an Affiliate solely for the purpose of reincorporating the Company in another jurisdiction; and (2) the Company and its Restricted Subsidiaries may sell, assign, transfer, lease, convey or otherwise dispose of assets between or among each other (including by way of merger). Section 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default. Each of the following is an "Event of Default": (1) default for 30 days in the payment when due of interest on the Notes; (2) default in payment when due of the principal of, or premium, if any, on the Notes; (3) failure to purchase the Notes when required pursuant to Section 4.10, 4.15 or otherwise as required pursuant to this Indenture or the Notes; (4) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of that series of notes to comply with any of the other agreements in this Indenture, the Notes or the Security Documents; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, if that default: 62 (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Company or such Restricted Subsidiary becoming aware of such default; provided that the provisions of this clause (5) shall not apply to any default on Non-Recourse Debt; (6) failure by the Company or any of its Significant Subsidiaries to pay final judgments (not covered by insurance) aggregating in excess of $50.0 million, which judgments are not paid, discharged or stayed for a period of 30 days; (7) the repudiation by the Company or any of its Restricted Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against the Company or any of its Restricted Subsidiaries for any reason; provided that such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more; (8) except as permitted by this Indenture, any note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Canadian Guarantor, or any Person acting on behalf of any Canadian Guarantor, shall deny or disaffirm its obligations under its note Guarantee and such condition shall not have been cured within 30 days of written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of the Notes; and (9) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; and (10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 63 (A) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (B) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (C) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02 Acceleration. In the case of an Event of Default specified in clause (9) or (10) of Section 6.01 hereof, with respect to the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (9) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after July 15, 2005 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to July 15, 2005 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on July 15 of the years set forth below, as set forth below (expressed as a percentage of the principal amount of the Notes on the date of payment that would otherwise be due but for the provisions of this sentence):

YEAR PERCENTAGE - ---- ---------- 2003.............................. 5.145% 2004.............................. 3.430%

64 Section 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04 Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05 Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06 Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (1) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and 65 (5) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07 Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder; provided that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien of this Indenture upon any property subject to such Lien. Section 6.08 Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 66 Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they 67 conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.01; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02 Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to 68 the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) In no event shall the Trustee be required to take notice of any default or breach hereof or any Event of Default hereunder, except for Events of Default specified in Section 6.01(1) and/or 6.01(2) hereof, unless and until the Trustee shall have received from a Holder of a Note or from the Company express written notice of the circumstances constituting the breach, default or Event of Default and stating that said circumstances constitute an Event of Default hereunder. (h) If the Trustee is acting as Paying Agent and/or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 will also be afforded to such Paying Agent and Registrar. Section 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days after ascertaining it has such conflicting interest, apply to the SEC for permission to continue as trustee or resign to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06 Reports by Trustee to Holders of the Notes. (a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2) to the extent applicable. The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). 69 (b) A copy of each report at the time of its mailing to the Holders of Notes shall be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07 Compensation and Indemnity. (a) The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. (b) The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture (and any other Note Documents to which it is a party) against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. (c) The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. (d) To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(9) or (10) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.08 Replacement of Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. (b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: 70 (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10 Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11 Preferential Collection of Claims Against Company. 71 The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.02 Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium, if any, on such Notes when such payments are due from the trust referred to in Section 8.04 hereof; (2) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof; (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith; and (4) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03 Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company (to the extent applicable) shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and 72 the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(5) hereof shall not constitute Events of Default. Section 8.04 Conditions to Legal or Covenant Defeasance. In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether such Notes are being defeased to maturity or to a particular redemption date; (2) in the case of an election under Section 8.02 hereof, the Company has delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of an election under Section 8.03 hereof, the Company must deliver to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; 73 (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (7) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Notwithstanding anything in this Article 8 to the contrary, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06 Repayment to the Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter be permitted to look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, 74 and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 8.07 Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to provide for the assumption of the Company's obligations to the Holders of the Notes by a successor to the Company pursuant to Article 5 hereof; (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes; (5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (6) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; (7) to allow any Guarantor to execute a supplemental indenture and/or a Guarantee with respect to the Notes; (8) to make, complete or confirm any grant of Collateral permitted or required by this Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Indenture or any of the Security Documents; 75 (9) to conform the text of this Indenture, the Notes or the Security Documents to any provision of the Description of the Notes section of the Offering Circular to the extent that such provision of the Description of the Notes section of the Offering Circular was intended to be a verbatim recitation of a provision of this Indenture, the Notes or the Security Documents; or (10) to reflect any waiver or termination of any right arising under the provisions of this Indenture that otherwise would be enforceable by any holder of the Term Loan Obligations, if such waiver or termination is set forth in the agreement governing such Term Loan Obligations, provided that no such waiver or amendment shall adversely affect the right of holders of Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02 With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation, Section 3.09, 4.10 and 4.15 hereof), the Guarantees and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes (including, without limitation, Additional Notes, if any) then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount 76 of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (4) waive a Default or Event of Default in the payment of principal of, or interest or premium, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium, if any, on the Notes; (7) waive a redemption payment with respect to any Note (other than a payment required under Section 4.10 and Section 4.15); (8) release (A) any Collateral from the Liens created by the Security Documents except as specifically provided in this Indenture and the Security Documents as of the date of this Indenture or (B) all or substantially all of the Collateral or all or substantially all of the Canadian Guarantors from their obligations under the Guarantee and Collateral Agreement dated July 16, 2003 without the prior written consent of all Holders; or (9) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. Section 9.03 Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, 77 supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05 Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06 Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 and 7.02 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental Indenture is authorized or permitted by this Indenture. ARTICLE 10. COLLATERAL AND SECURITY Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation. Notwithstanding (1) anything to the contrary contained in the Security Documents, (2) the time of incurrence of any Series of Parity Lien Debt, (3) the order or method of attachment or perfection of any Liens securing any Series of Parity Lien Debt, (4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral, (5) the time of taking possession or control over any Collateral or (6) the rules for determining priority under any law governing relative priorities of Liens: (A) all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall secure, equally and ratably, all present and future Parity Lien Obligations; and (B) all proceeds of all Liens at any time granted by the Company or any Obligor to secure any of the Parity Lien Debt and other Parity Lien Obligations shall be allocated and distributed equally and ratably on account of the Parity Lien Debt and other Parity Lien Obligations; provided, that, for the avoidance of doubt, in the absence of an Event of Default, the Company shall be entitled to utilize cash proceeds of Collateral in the ordinary course of its business. The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Parity Lien Obligations, each present and future Parity Debt Representative and the Collateral Trustee as holder of Parity Liens. The Company shall not incur 78 any future Series of Parity Lien Debt unless the agreement governing such Series of Parity Lien Debt includes a Sharing Confirmation at the time of incurrence of such Series of Parity Lien Debt. Section 10.02 Ranking of Note Liens Notwithstanding: (1) anything to the contrary contained in the Security Documents, (2) the time of incurrence of any Series of Secured Debt, (3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt, (4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral, (5) the time of taking possession or control over any Collateral or (6) the rules for determining priority under any law governing relative priorities of Liens, all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall be subject and subordinate to Priority Liens securing Priority Lien Obligations up to the Priority Lien Cap. The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Priority Lien Obligations, each present and future Priority Lien Agent and the Collateral Trustee as holder of Priority Liens. No other Person shall be entitled to rely on, have the benefit of or enforce this provision. In addition, the foregoing provision is intended solely to set forth the relative ranking, as Liens, of the Liens securing Parity Lien Debt as against the Priority Liens. Neither the Notes, the 2010 Notes, the 2013 Notes nor the Term Loans nor any other Parity Lien Obligations nor the exercise or enforcement of any right or remedy for the payment or collection thereof are intended to be, or shall ever by reason of the foregoing provision, in any respect subordinated, deferred, postponed, restricted or prejudiced. Section 10.03 Release of Security Interest in Respect of Notes The Collateral Trustee's Liens upon the Collateral shall no longer secure the Notes or any other Obligations under this Indenture, and the right of the holders of the Notes and Obligations to the benefits and proceeds of the Collateral Trustee's Liens on Collateral shall terminate and be discharged: (1) upon satisfaction and discharge of this Indenture in accordance with Article 11 hereof; (2) upon a Legal Defeasance or Covenant Defeasance of the Notes in accordance with Article 8 hereof; or 79 (3) upon payment in full and discharge of all Notes outstanding under this Indenture and all related Obligations that are outstanding, due and payable under this Indenture at the time the Notes are paid in full and discharged. ARTICLE 11. SATISFACTION AND DISCHARGE Section 11.01 Satisfaction and Discharge. This Indenture shall be discharged and shall cease to be of further effect as to all Notes issued hereunder, when: (1) either: (a) all Notes that have been authenticated under this Indenture (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or shall become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of such deposit or shall occur as a result of such deposit and such deposit shall not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which the Company is bound; (3) the Company has paid or caused to be paid all sums payable by it under this Indenture; and (4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the provisions of Section 12.02 and Section 8.06 shall survive. In addition, nothing in this Section 11.01 shall be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture. 80 Section 11.02 Application of Trust Money. Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 11.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01; provided that if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent. ARTICLE 12. MISCELLANEOUS Section 12.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties or provisions of the TIA shall control. Section 12.02 Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Telephone No.: (408) 995-5115 Attention: Ron Fischer With a copy to: Covington & Burling 1330 Avenue of the Americas New York, NY 10019 Telecopier No.: (212) 841-1010 Attention: Bruce Bennett 81 If to the Trustee: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Telecopier No.: (302) 636-4145 Attention: Corporate Capital Markets By notice to the others, the Company or the Trustee may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03 Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 12.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signer, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. 82 Section 12.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA Section 314(e) and must include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 12.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, this Indenture, the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. Section 12.08 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTATION OF GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 12.09 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10 Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. 83 Section 12.11 Severability. In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.12 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 84 SIGNATURES Dated as of July 16, 2003 CALPINE CORPORATION By: /s/ Michael Thomas -------------------------------- Name: Title: 85 WILMINGTON TRUST COMPANY By: /s/ Michael W. Diaz -------------------------------- Name: Michael W. Diaz Title: Authorized Signer 86 EXHIBIT A [Face of Note] - -------------------------------------------------------------------------------- CUSIP [131347 BB 1] [U13055 AD 7] Second Priority Senior Secured Floating Rate Notes due 2007 No. ___ $____________ CALPINE CORPORATION promises to pay to CEDE & CO. or registered assigns, the principal sum of __________________________________________________________ Dollars on July 15, 2007. Interest Payment Dates: January 15, April 15, July 15, October 15 Record Dates: January 1, April 1, July 1, October 1 CALPINE CORPORATION By: ________________________________ Name: Title: Dated: July 16, 2003 This is one of the Notes referred to in the within-mentioned Indenture: WILMINGTON TRUST COMPANY, as Trustee By: __________________________________ Authorized Signatory - -------------------------------------------------------------------------------- A-1 [Back of Note] Second Priority Senior Secured Floating Rate Notes due 2007 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. Capitalized terms used herein have the meanings assigned to them in this Indenture referred to below unless otherwise indicated. A-2 (1) INTEREST. Calpine Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at the Applicable Eurodollar Rate (as defined in the Indenture) quarterly, on January 15, April 15, July 15 and October 15, from July 16, 2003 until maturity. The Company shall pay interest quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be October 15, 2003. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. On each Interest Payment Date the Company shall also pay a portion of the principal of the Notes equal to 0.25% of the original amount of the Notes. (2) METHOD OF PAYMENT. The Company shall pay interest and principal on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the January 1, April 1, July 1 or October 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes shall be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds shall be required with respect to principal of and interest, premium on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. (3) PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust Company, the Trustee under the Indenture, shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without prior notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. (4) INDENTURE. The Company issued the Notes under an Indenture dated as of July 16, 2003 (the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company, as evidenced by the Security Documents referred to in the Indenture. (5) OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to July 15, 2005. A-3 Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below:

Year Percentage - ---- ---------- 2005....................................... 103.000% 2006 and thereafter........................ 100.000%

(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to July 15, 2005, the Company may, on one or more occasions upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture with the net proceeds of an any one or more Public Equity Offerings (without regard to the reduction of the aggregate principal amount of the Notes outstanding due to any scheduled principal payments) at a redemption price equal to par plus the applicable Eurodollar Rate then in effect, plus accrued and unpaid interest, if any, to the redemption date; provided that at least 65% in aggregate principal amount of the Notes originally issued under the Indenture remains outstanding immediately after the occurrence of such redemption and that such redemption occurs within 45 days of the date of the closing of such Public Equity Offering. (6) MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. (7) REPURCHASE AT OPTION OF HOLDER. (a) If a Change of Control occurs, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's Notes pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in the Indenture. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased (the "Change of Control Payment"), to but excluding the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each holder as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, and when the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all holders of Notes and all holders of other Indebtedness that is pari passu with the Notes and equally and ratably secured with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets, including the Term Loans and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable (an "Asset Sale Offer"), to purchase or redeem the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased or redeemed out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the A-4 amount of Excess Proceeds shall be reset at zero. Holders of Notes that are the subject of an offer to purchase shall receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. (8) NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. (9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. (10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. (11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture, to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Guarantee with respect to the Notes, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture or any of the Security Documents, to conform the text of the Indenture, the Notes or the Security Documents to any provision of the Description of the Notes section of the Offering Circular to the extent that such provision of the Description of the Notes section of the Offering Circular was intended to be a verbatim recitation of a provision of the Indenture, the Notes or the Security Documents, or to reflect any waiver or termination of any right arising under the provisions of the Indenture that otherwise would be enforceable by any holder of the Term Loan A-5 Obligations, if such waiver or termination is set forth in the agreement governing such Term Loan Obligations, provided that no such waiver or amendment shall adversely affect the right of holders of Notes. (12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes, (iii) failure by the Company to purchase the Notes when required pursuant to Section 4.10 or 4.15 of the Indenture or otherwise as required pursuant to the Indenture or Notes; (iv) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of the Notes to comply with any of the other agreements in the Indenture, the Notes or the Security Documents; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 30 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that would constitute a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; (viii) the repudiation by the Company or any of its Restricted Subsidiaries or the unenforceability of the Security Documents if such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more and (ix) except as permitted by the Indenture, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes shall become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding Notes is in their interest, except a Default or Event of Default relating to the payment of principal or interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default under clauses (3) through (8) of the Section 6.01(a) of the Indenture, to deliver to the Trustee a statement specifying such Default or Event of Default. (13) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. (14) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, A-6 such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (15) AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (16) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (17) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Attention: Ron Fischer A-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature: __________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: -Section 4.10 -Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $______________ Date: _______________ Your Signature: _________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.: __________________ Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE* The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

Principal Amount Amount of decrease in Amount of increase in of this Global Note Principal Amount Principal Amount following such Signature of authorized of of decrease officer of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- ---------------- ---------------- ------------- ---------

* This schedule should be included only if the Note is issued in global form. A-10 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: Second Priority Senior Secured Floating Rate Notes due 2007 Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), between Calpine Corporation, as issuer (the "Company"), and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of B-1 the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ____________________________________ [Insert Name of Transferor] By: ________________________________ Name: Title: Dated: _______________________ B-2 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee shall hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note, in accordance with the terms of the Indenture. B-3 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: Second Priority Senior Secured Floating Rate Notes due 2007 (CUSIP [131347 BB 1] [U13055 AD 7]) Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued shall continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. C-1 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. _____________________________________ [Insert Name of Transferor] By: _________________________________ Name: Title: Dated: ______________________ C-2 EXHIBIT D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: Second Priority Senior Secured Floating Rate Notes due 2007 Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we shall do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we shall be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us shall bear a legend to the foregoing effect. D-1 EXHIBIT D 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ______________________________________________ [Insert Name of Accredited Investor] By: __________________________________________ Name: Title: Dated: _______________________ D-2 EX-4.2 4 f92357exv4w2.txt EXHIBIT 4.2 Exhibit 4.2 ================================================================================ ------------------------------------------------------ CALPINE CORPORATION 8.5% SECOND PRIORITY SENIOR SECURED NOTES DUE 2010 ---------------------------- INDENTURE Dated as of July 16, 2003 ---------------------------- ---------------------------- WILMINGTON TRUST COMPANY Trustee ---------------------------- ================================================================================ CROSS-REFERENCE TABLE*

Trust Indenture Act Section Indenture Section 310(a)(1)............................................................... 7.10 (a)(2)............................................................... 7.10 (a)(3)............................................................... N.A. (a)(4)............................................................... N.A. (a)(5)............................................................... 7.10 (b).................................................................. 7.10 (c).................................................................. N.A. 311(a).................................................................. 7.11 (b).................................................................. 7.11 (c).................................................................. N.A. 312(a).................................................................. 2.05 313(a).................................................................. 7.06 (b)(1)............................................................... 10.03 (b)(2)............................................................... 7.06; 7.07 (c).................................................................. 7.06 (d).................................................................. 7.06 314(a).................................................................. 4.03 (a)(4)............................................................... 12.05 (b).................................................................. N.A. (c)(3)............................................................... N.A. (e).................................................................. 12.05 (f).................................................................. N.A. 315(a).................................................................. 7.01 (b).................................................................. 7.05 (c).................................................................. 7.01 (d).................................................................. 7.01 (e).................................................................. 6.11 316(a) (last sentence).................................................. 2.09 (a)(1)(A)............................................................ 6.05 (a)(1)(B)............................................................ 6.04 (a)(2)............................................................... N.A. (b).................................................................. 6.07 (c).................................................................. 2.12 317(a)(1)............................................................... 6.08 (a)(2)............................................................... 6.09 (b).................................................................. 2.04 318(a).................................................................. N.A. (b).................................................................. 12.03 (c).................................................................. 12.01; 12.02; 12.03

N.A. means not applicable. * This Cross Reference Table is not part of this Indenture. TABLE OF CONTENTS

Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions....................................................................... 1 Section 1.02 Other Definitions................................................................. 29 Section 1.03 Incorporation by Reference of Trust Indenture Act................................. 29 Section 1.04 Rules of Construction............................................................. 30 ARTICLE 2. THE NOTES Section 2.01 Form and Dating................................................................... 31 Section 2.02 Execution and Authentication...................................................... 31 Section 2.03 Registrar and Paying Agent........................................................ 32 Section 2.04 Paying Agent to Hold Money in Trust............................................... 32 Section 2.05 Holder Lists...................................................................... 32 Section 2.06 Transfer and Exchange............................................................. 32 Section 2.07 Replacement Notes................................................................. 39 Section 2.08 Outstanding Notes................................................................. 39 Section 2.09 Treasury Notes.................................................................... 39 Section 2.10 Temporary Notes................................................................... 39 Section 2.11 Cancellation...................................................................... 40 Section 2.12 Defaulted Interest................................................................ 40 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee................................................................ 40 Section 3.02 Selection of Notes to Be Redeemed or Purchased.................................... 40 Section 3.03 Notice of Redemption.............................................................. 41 Section 3.04 Effect of Notice of Redemption.................................................... 42 Section 3.05 Deposit of Redemption or Purchase Price........................................... 42 Section 3.06 Notes Redeemed or Purchased in Part............................................... 42 Section 3.07 Optional Redemption............................................................... 42 Section 3.08 Mandatory Redemption.............................................................. 43 Section 3.09 Offer to Purchase by Application of Excess Proceeds............................... 43 ARTICLE 4. COVENANTS Section 4.01 Payment of Notes.................................................................. 45 Section 4.02 Maintenance of Office or Agency................................................... 45 Section 4.03 Reports........................................................................... 45 Section 4.04 Compliance Certificate............................................................ 46 Section 4.05 Taxes............................................................................. 47 Section 4.06 Stay, Extension and Usury Laws.................................................... 47 Section 4.07 Restricted Payments............................................................... 47 Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries.................... 50 Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock........................ 51 Section 4.10 Asset Sales....................................................................... 54

i Section 4.11 Transactions with Affiliates...................................................... 56 Section 4.12 Liens............................................................................. 57 Section 4.13 Limitation on Changes in the Nature of Business................................... 57 Section 4.14 Corporate Existence............................................................... 58 Section 4.15 Offer to Repurchase Upon Change of Control........................................ 58 Section 4.16 Limitation on Sale and Leaseback Transactions..................................... 59 Section 4.17 Limitation on Issuances of Guarantees of Indebtedness............................. 59 Section 4.18 Payments for Consent.............................................................. 60 Section 4.19 Designation of Restricted and Unrestricted Subsidiaries........................... 60 Section 4.20 Changes in Covenant When Notes Rated Investment Grade............................. 60 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets.......................................... 61 Section 5.02 Successor Corporation Substituted................................................. 62 ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default................................................................. 62 Section 6.02 Acceleration...................................................................... 64 Section 6.03 Other Remedies.................................................................... 65 Section 6.04 Waiver of Past Defaults........................................................... 65 Section 6.05 Control by Majority............................................................... 65 Section 6.06 Limitation on Suits............................................................... 65 Section 6.07 Rights of Holders of Notes to Receive Payment..................................... 66 Section 6.08 Collection Suit by Trustee........................................................ 66 Section 6.09 Trustee May File Proofs of Claim.................................................. 66 Section 6.10 Priorities........................................................................ 67 Section 6.11 Undertaking for Costs............................................................. 67 ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee................................................................. 67 Section 7.02 Rights of Trustee................................................................. 68 Section 7.03 Individual Rights of Trustee...................................................... 69 Section 7.04 Trustee's Disclaimer.............................................................. 69 Section 7.05 Notice of Defaults................................................................ 69 Section 7.06 Reports by Trustee to Holders of the Notes........................................ 69 Section 7.07 Compensation and Indemnity........................................................ 70 Section 7.08 Replacement of Trustee............................................................ 70 Section 7.09 Successor Trustee by Merger, etc.................................................. 71 Section 7.10 Eligibility; Disqualification..................................................... 71 Section 7.11 Preferential Collection of Claims Against Company................................. 72 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.......................... 72 Section 8.02 Legal Defeasance and Discharge.................................................... 72 Section 8.03 Covenant Defeasance............................................................... 72 Section 8.04 Conditions to Legal or Covenant Defeasance........................................ 73 ii Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.......................................................... 74 Section 8.06 Repayment to Company.............................................................. 74 Section 8.07 Reinstatement..................................................................... 75 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes............................................... 75 Section 9.02 With Consent of Holders of Notes.................................................. 76 Section 9.03 Compliance with Trust Indenture Act............................................... 77 Section 9.04 Revocation and Effect of Consents................................................. 77 Section 9.05 Notation on or Exchange of Notes.................................................. 78 Section 9.06 Trustee to Sign Amendments, etc................................................... 78 ARTICLE 10. COLLATERAL AND SECURITY Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation...................................................................... 78 Section 10.02 Ranking of Note Liens............................................................. 79 Section 10.03 Release of Security Interest in Respect of Notes.................................. 79 ARTICLE 11. SATISFACTION AND DISCHARGE Section 11.01 Satisfaction and Discharge........................................................ 80 Section 11.02 Application of Trust Money........................................................ 81 ARTICLE 12. MISCELLANEOUS Section 12.01 Trust Indenture Act Controls...................................................... 81 Section 12.02 Notices........................................................................... 81 Section 12.03 Communication by Holders of Notes with Other Holders of Notes..................... 82 Section 12.04 Certificate and Opinion as to Conditions Precedent................................ 82 Section 12.05 Statements Required in Certificate or Opinion..................................... 83 Section 12.06 Rules by Trustee and Agents....................................................... 83 Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders.......... 83 Section 12.08 Governing Law..................................................................... 83 Section 12.09 No Adverse Interpretation of Other Agreements..................................... 83 Section 12.10 Successors........................................................................ 83 Section 12.11 Severability...................................................................... 84 Section 12.12 Counterpart Originals............................................................. 84 Section 12.13 Table of Contents, Headings, etc.................................................. 84 EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR iii INDENTURE dated as of July 16, 2003 between Calpine Corporation, a Delaware corporation and Wilmington Trust Company (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the 8.5% Second Priority Senior Secured Notes due 2010 (the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions. "144A Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. Acquired Debt shall be deemed to be incurred on the date the acquired Person becomes a Restricted Subsidiary. "Additional Notes" means Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. For purposes of Section 4.11 herein, "Affiliate" shall also mean any Person of which the Company owns 10% or more of any class of Capital Stock or rights to acquire 10% or more of any class of Capital Stock and any Person who would be an Affiliate of any such Person pursuant to the first sentence hereof. "Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent. "Applicable Premium" means, with respect to any note on any redemption date, the greater of: (1) 1.0% of the principal amount of the note; or (2) the excess of: 1 (a) the present value at the redemption date of (i) the redemption price of the note at July 15, 2007 (such redemption price being set forth in Section 3.07 herein) plus (ii) all required interest payments due on the note through July 15, 2010 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of the redemption date plus 100 basis points; over (b) the principal amount of the note. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole shall be governed by Section 4.15 of this Indenture and/or Section 5.01 and not by Section 4.10; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, none of the following items shall be deemed to be an Asset Sale: (1) (A) any single transaction or series of related transactions that involves the sale of uninstalled turbines and related equipment, and (B) any single transaction or series of related transactions that involves other assets having a Fair Market Value of less than $50.0 million, it being understood that, in connection with any sale, lease, conveyance or other disposition of any Designated Assets or rights relating thereto in connection with a farm-out transaction, such transaction shall be valued as at the time of execution and delivery of binding contractual arrangements relating thereto; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries, (3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to a Restricted Subsidiary of the Company; (4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment that does not violate Section 4.07 herein or a Permitted Investment; and (7) the sale or other disposition of all or any part of the Company's right to amounts that have or are to become due and payable by Pacific Gas & Electric Company under that certain Agreement dated as of July 1, 1999, as amended, between Pacific Gas & Electric Company and Calpine Gilroy L.P., a California limited partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P. by the Company pursuant to the Purchase Agreement dated as of March 8, 2002, as amended, between Calpine Gilroy Cogen L.P. and the Company. 2 "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby shall be determined in accordance with the definition of "Capital Lease Obligation." "Bankruptcy Case" means any case under Title 11 of the United States Code or any successor bankruptcy law commenced voluntarily or involuntarily against the Company or any other Obligor. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the Board of Directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. "Business Day" means any day other than a Legal Holiday. "Canadian Gas Assets" means Designated Assets owned by a direct or indirect Restricted Subsidiary of one or more Canadian Guarantors. "Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana Canada Holdings LLC, a Delaware limited liability company, and any successor to any of the foregoing. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. 3 "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. "Cash Equivalents" means: (1) the lawful currency of any country where the Company owns or operates a Facility; (2) securities issued or directly and fully guaranteed or insured by the United States government or any state thereof (or any agency or instrumentality thereof), by the Canadian government (or any agency or instrumentality thereof), or by the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch or successor rating agency rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest ratings obtainable from Moody's or S&P and maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited liability company that is wholly-owned by the Canadian Guarantors. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the 4 properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act); (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; (4) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance); or (5) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Clearstream" means Clearstream Banking, S.A. "Collateral" means all properties and assets at any time owned or acquired by the Company, except the Excluded Assets, and the Canadian Guarantors' ownership interest in 65% of the aggregate outstanding voting stock of CCEC. "Collateral Trust Agreement" means that certain Collateral Trust Agreement dated as of July 16, 2003, among the Company, the Canadian Guarantors, the Credit Agreement Agent, the Trustee and the Bank of New York. "Collateral Trustee" means The Bank of New York in its capacity as collateral trustee under the Collateral Trust Agreement, together with its successors and assigns in such capacity. "Company" means Calpine Corporation, a Delaware Corporation and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus 5 (4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business; in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Current Liabilities," as of the date of determination, means the aggregate amount of liabilities of the Company and its Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), after eliminating (i) all inter-company items between the Company and any consolidated Subsidiary and (ii) all current maturities of long-term Indebtedness, all as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; and (3) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: 6 (1) was a member of such Board of Directors on the date of this Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors then still in office or with the approval of a majority of Directors whose election was previously so approved from time to time. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreement" means that certain Amended and Restated Credit Agreement, dated as of July 16, 2003, by and among the Company and The Bank of Nova Scotia and Bayerische Landesbank, as lead arrangers and bookrunners, providing for up to $500.0 million of revolving credit and term loan borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Credit Agreement Agent" means, at any time, the Person serving at such time as the "Agent" or "Administrative Agent" under the Credit Agreement or any other representative of the Lenders then most recently designated by a majority of the Lenders, in a written notice delivered to each Parity Debt Representative and the Collateral Trustee, as the Credit Agreement Agent for the purposes of the Parity Lien Debt Documents. "Credit Facilities" means one or more debt facilities (including the Credit Agreement) with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Assets" means all geothermal energy assets (including any related extraction, processing or similar equipment and geothermal power plants) and all natural gas assets (including any related extraction, processing or similar equipment, other than natural gas power plants) owned by the Company or any of its Restricted Subsidiaries from time to time, including the equity interests of any 7 Restricted Subsidiary owning any Designated Assets, but excluding (i) any geothermal energy assets that are both unproven and undeveloped and (ii) contracts for the purchase or sale of natural gas and natural gas supplied under such contracts. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes issued pursuant to this Indenture mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Indenture shall be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Assets" means: (1) any lease of property other than (i) a lease of a geothermal energy or natural gas interest or property, (ii) a lease of real estate underlying a power generation property or (iii) a capital lease; (2) all deposit accounts (as defined in Article 9 of the Uniform Commercial Code of any relevant jurisdiction) and deposits therein to the extent not exceeding $50.0 million in the aggregate, except for the Designated Assets Sale Proceeds Account and any deposit account and deposits therein holding amounts referred to in clause (7) of this definition; (3) the fixtures and equipment relating to any pipeline if, to the extent that and for so long as (i) the ownership or operation of such pipeline is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (a) such fixtures and equipment shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (3) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (b) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by 8 the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (4) all easements, rights-of-way, licenses and other real property interests for or pertaining to the construction, operation, use or maintenance of any pipeline over, upon or under land owned by another Person; (5) with respect to personal property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (a) such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (5) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (b) the proceeds of any sale, lease or other disposition of any such lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (6) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein (i) requires a third party consent which has not been obtained or (ii) constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for as long as the conditions set forth in clause (i) or (ii) of this clause (6) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents immediately and automatically at such time as such conditions cease to exist except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (7) any cash proceeds (including any earnings thereon) of Priority Lien Debt that are pledged to cash collateralize letters of credit; (8) any turbines which serve as collateral pursuant to that certain General Agreement dated as of January 31, 2002 among the Company, various Subsidiaries of the Company and Siemens Westinghouse Power Corporation relating to various purchase contracts and letters of intent for gas turbine generators, steam turbine generators and related accessories; 9 (9) proved oil and gas reserves located in Oklahoma and undeveloped reserves and unproven acreage located in California, Texas, Wyoming, Montana, Colorado, New Mexico and offshore Louisiana; provided that such reserves and acreage has a Fair Market Value not exceeding $20.0 million in the aggregate; (10) Capital Stock of Subsidiaries designated by the Company, but only for so long as (i) the Capital Stock of such Subsidiaries is not pledged to any Person (other than the Collateral Trustee on behalf of all holders of all Secured Debt) and (ii) such Subsidiaries collectively own less than 5.0% of the Company's total consolidated assets and collectively account for less than 5.0% of the Company's Consolidated Cash Flow; and (11) any other property in which a security interest cannot be perfected by the filing of a financing statement under the Uniform Commercial Code of the relevant jurisdiction; provided that such property has a Fair Market Value not exceeding $25.0 million in the aggregate. "Existing Guarantees" means the Guarantees of the Term Loans, the Notes and certain obligations under the Credit Agreement that exist on the date of this Indenture. "Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid. "Facility" means a power generation facility or energy producing facility, including any related fuel reserves. "Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company (unless otherwise provided in this Indenture). "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation, or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect (in accordance with Regulation 10 S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded; (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges shall not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; (4) any Person that is a Restricted Subsidiary on the Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on such Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, except interest on Indebtedness incurred to finance the development or construction of a Facility; plus (3) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon, but excluding any such Guarantee or Lien in effect on the date of this Indenture unless the same is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the effective 11 combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Foreign Asset Sale" means an Asset Sale in respect of the Capital Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described in Section 936 of the Internal Revenue Code of 1986, as amended, to the extent that the proceeds of such Asset Sale are received by a Person subject in respect of such proceeds to the tax laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia. "Foreign Subsidiary" means a Subsidiary that is incorporated in a jurisdiction other than the United States of America or a State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect and, to the extent optional, adopted by the Company, on the applicable date of determination. "Global Notes" means, individually and collectively, each of the Restricted Global Notes, substantially in the form of Exhibit A hereto issued in accordance with Section 2.01 or 2.06(b)(3) hereof. "Global Note Legend" means the legend set forth in Section 2.06(e)(2), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise). "Guarantor" means each Subsidiary of Calpine that Guarantees the Notes. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices. "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and 12 registered in the name of the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (A) the Fair Market Value of such asset at such date of determination, and (B) the amount of the Indebtedness of such other Person. Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation. 13 "Indenture" means this indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means the first $1,150,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof. "Initial Purchasers" means Credit Lyonnais (USA) Inc., Goldman, Sachs & Co., ING Financial Markets LLC, Scotia Capital (USA) Inc. and TD Securities (USA) Inc. "Insolvency Proceeding" means: (1) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Company or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Company or any other Obligor or any similar case or proceeding relative to the Company or any other Obligor or its creditors, as such, in each case whether or not voluntary; (2) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Company or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or (3) any other proceeding of any type or nature in which substantially all claims of creditors of the Company or any other Obligor are determined and any payment or distribution is or may be made on account of such claims. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 4.07(b). Except as otherwise provided in this Indenture, the amount of an Investment shall be determined at the time the Investment is made and without giving effect to subsequent changes in value. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. 14 "Lenders" means, at any time, the parties to the Credit Agreement then holding (or committed to provide) loans, letters of credit or other extensions of credit that constitute (or when provided shall constitute) Priority Lien Debt outstanding under the Credit Agreement. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Magic Valley Generating Assets" means the Magic Valley Generating Station, a natural gas fired power plant in commercial operation in Edinburg, Texas. "Material Designated Assets" means Designated Assets having a Fair Market Value in the aggregate in excess of $50.0 million. "Moody's" means Moody's Investors Service, Inc. (or, if such entity ceases to rate the applicable notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, without duplication: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary that is incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or any Restricted Subsidiary; provided that such Indebtedness is without recourse to the Company (except as permitted by clause (8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any property or assets of the Company or any 15 Restricted Subsidiary other than property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of the definition of Permitted Liens or property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (19) of the definition of Permitted Liens. "Note Documents" means this Indenture, the Notes, the 2007 Notes and the indenture governing such notes, the 2013 Notes and the indenture governing such notes, each Sharing Confirmation and the Security Documents. "Note Obligations" means the Notes (including any Additional Notes issued under the this Indenture) and all other Obligations of any Obligor under this Indenture, the Notes (including any Additional Notes issued under this Indenture) and the Security Documents. "Notes" has the meaning assigned to it in the preamble to this Indenture. The Initial Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness (including the Notes and this Indenture). "Obligor" means the Company and each Restricted Subsidiary of the Company (if any) that at any time guarantees or provides collateral security or credit support for any Secured Obligations. "Offering Circular" means that certain offering circular dated as of July 10, 2003, with respect to the $2.55 billion in aggregate principal amount offering of the Notes, the 2007 Notes and the 2013 Notes, collectively. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by one Officer of the Company that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Parity Debt Representative" means: (1) in the case of the Notes, the 2007 Notes or the 2013 Notes, the applicable trustee thereof; (2) in the case of the Term Loans, the Term Loan Administrative Agent; or (3) in the case of any other Series of Parity Debt, the trustee, agent or representative of the holders of such Series of Parity Lien Debt who maintains the transfer register for such Series of Parity Lien Debt and is appointed as a Parity Debt Representative (for purposes related to the administration of the Security Documents) pursuant to this Indenture or other agreement governing such Series of Parity Lien Debt. 16 "Parity Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Parity Lien Obligations. "Parity Lien Debt" means: (1) the Notes; (2) the Term Loans; and (3) any other Indebtedness (including additional notes and Term Loans) that: (A) is permitted to be incurred under Section 4.09 herein; and (B) is permitted to be secured by Parity Liens by clause (2) of the definition of Permitted Liens; provided, in the case of each issue or series of Indebtedness referred to in this clause (3), that: (i) on or before the date on which such Indebtedness was incurred by the Company such Indebtedness is designated by the Company, in an officers' certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Parity Lien Debt for the purposes of this Indenture and the Collateral Trust Agreement, (ii) such Indebtedness is governed by an indenture or other agreement that includes a Sharing Confirmation and (iii) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Trustee's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements and the other provisions of this clause (3) shall be conclusively established, for purposes of entitling the holders of such Indebtedness to share equally and ratably with the other holders of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's Liens on the Collateral, if the Company delivers to the Collateral Trustee an officers' certificate in the form required pursuant to the Collateral Trust Agreement stating that such requirements and other provisions have been satisfied and that such Indebtedness is Parity Lien Debt, together with an opinion of counsel stating that such officers' certificate has been duly authorized by the Board of Directors of the Company and has been duly executed and delivered, and the holders of such Indebtedness and Obligations in respect thereof shall be entitled to rely conclusively thereon). "Parity Lien Debt Documents" means, collectively, the Term Loan Documents, the Note Documents, and the indenture or agreement governing each other Series of Parity Lien Debt and all agreements binding on any Obligor related thereto. "Parity Lien Obligations" means Parity Lien Debt and all other Obligations in respect thereof. "Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream). 17 "Permitted Business" means the business of acquiring, constructing, managing, developing, improving, owning and operating Facilities, as well as any other activities reasonably related to the foregoing activities (including acquiring and holding reserves), including investing in Facilities. "Permitted Investments" means: (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 herein; (5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates; (7) Investments represented by Hedging Obligations; (8) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary in an aggregate principal amount not to exceed $5.0 million at any one time outstanding; (9) repurchases of the Notes; and (10) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) that are at the time outstanding not to exceed $100.0 million; provided that Designated Assets held by the Company may not be invested in, leased to or otherwise transferred to any Restricted Subsidiary; provided, however, that the Company may transfer proven undeveloped gas reserves to its Restricted Subsidiaries in the ordinary course of business for consumption in the power generating business of such Restricted Subsidiaries during the 12-month period following transfer. 18 "Permitted Liens" means: (1) Liens on assets of the Company or any Canadian Guarantor securing Obligations of the Company or such Canadian Guarantor under one or more Credit Facilities in an aggregate amount not exceeding the Priority Lien Cap; (2) Liens held by the Collateral Trustee equally and ratably securing the Notes and the Term Loans to be issued on the date of this Indenture and all future Parity Lien Debt and other Parity Lien Obligations; provided that the Collateral Trustee's Liens may secure Parity Lien Debt incurred after the date of this Indenture or Obligations in respect thereof only if, on the date of the incurrence of such Parity Lien Debt, after giving pro forma effect to the incurrence thereof and the application of the proceeds therefrom, the Secured Leverage Ratio is not greater than 2.75:1.0; (3) Liens in favor of the Company; (4) Pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or leases to which such Person is a party, and Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (5) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the definition of Permitted Debt covering only the assets acquired, designed, constructed, installed or improved with or financed by such Indebtedness; (6) Liens existing on the date of this Indenture; (7) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Restricted Subsidiary; (8) (A) Liens on assets or property of a Restricted Subsidiary (other than Material Designated Assets) incurred by any Restricted Subsidiary to secure Indebtedness of such Restricted Subsidiary incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or such Restricted Subsidiary, which Liens may include Liens on the Capital Stock of such Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a direct Subsidiary of the Company or (ii) owns, directly or indirectly, Material Designated Assets), (B) Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary that does not own, directly or indirectly, at the time of original incurrence of such a Lien under this clause (B) any Material Designated Assets or any operating properties or assets, securing Indebtedness incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of any Restricted Subsidiary that does not, directly or indirectly, own any operating properties or assets at the time of the original incurrence of such Lien, which Liens contemplated by this clause (8) may include Liens on the Capital Stock of one or more Restricted Subsidiaries that (i) are not direct Subsidiaries of the Company and (ii) do not, directly or indirectly, own any Material Designated Assets or operating properties or assets at the time of original incurrence of such Lien; or (C) without duplication, Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary (which Liens may include Liens on Capital Stock of such Restricted Subsidiary so long as the Capital Stock of such Restricted Subsidiary is not pledged as Collateral) that owns as of the date of this Indenture all or part of one or more of the peaking power plants (and no other significant unrelated assets) 19 constructed for the purpose of providing peaking capacity and energy to the California Department of Water Resources; provided, that the Indebtedness secured by any such Lien contemplated by this clause (8) may not be issued more than 365 days (or, in the case of clause (C) above, two years) after the later of the exploration, drilling, development, completion of construction, purchase, repair, improvement, addition or commencement of full commercial operation of the property or asset being so financed; (9) Liens on property or shares of Capital Stock of a Subsidiary at the time such Person becomes a Subsidiary; provided that any such Lien may not extend to any other property owned by the Company; (10) Liens on property at the time a Subsidiary acquires the property, including any acquisition by means of a merger or consolidation with or into the Subsidiary; provided that such Liens are not incurred in connection with, or in contemplation of, such merger or consolidation; and provided, further, that the Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (11) Liens incurred by a Person other than the Company or any Subsidiary on assets that are the subject of a Capitalized Lease Obligation to which the Company or a Subsidiary is a party; provided that any such Lien may not secure Indebtedness of the Company or any Subsidiary (except Indebtedness secured by a Lien on any property or assets of the Company or such Subsidiary incurred in connection with Indebtedness of another Person), with the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured) and may not extend to any other property owned by the Company or any Restricted Subsidiary; (12) Liens on assets of the Company Construction Finance Company, L.P. (and/or any other Restricted Subsidiary that subsequently owns any such assets) relating to the Magic Valley Generating Station; (13) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to leases incurred in the ordinary course of business and not otherwise prohibited by this Indenture; (14) Liens not in respect of Indebtedness consisting of the interest of the lessor under any lease entered into in the ordinary course of business and not otherwise prohibited by this Indenture; and Liens on shares of Capital Stock of a subsidiary that does not own any significant assets other than a lessee's interest in a Facility or on the Capital Stock of a subsidiary whose only significant asset is its direct or indirect interest in such lessee subsidiary; provided that in no event shall this clause (14) allow a lien on any Capital Stock constituting Collateral; (15) Liens which constitute banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract; (16) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; 20 (17) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens, in each case, arising in the ordinary course of business and with respect to amounts not yet due or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be diligently prosecuting appeal or other proceedings for review; (18) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of the Company or any Restricted Subsidiary or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of the Company or any Restricted Subsidiary; (19) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6), (8), (9) and (10); provided that (A) such new Lien shall be limited to all or part of the same property or assets that secured the original Lien (plus repairs, improvements and additions to such property or assets and Liens on the stock or other ownership interest in one or more Restricted Subsidiaries beneficially owning such property or assets) and (B) the amount of the Indebtedness secured by such Lien at such time (or, if the amount that may be realized in respect of such Lien is limited, by contract or otherwise, such limited lesser amount) is not increased (other than by an amount necessary to pay fees and expenses, including premiums, related to the refinancing, refunding, extension, renewal or replacement of such Indebtedness); (20) Liens on assets of Restricted Subsidiaries to secure letters of credit issued pursuant to clause (14) of the definition of Permitted Debt; provided if and to the extent such letters of credit are drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit and Liens to secure letters of credit incurred pursuant to clause (15) of the definition of Permitted Debt on cash collateral constituting the proceeds of Priority Lien Debt; (21) Liens (A) on cash and short-term investments of Restricted Subsidiaries to secure obligations with respect to (i) contracts for commercial and trading activities in the ordinary course of business and contracts (including physical delivery, option (whether cash or financial), exchange, swap and futures contracts) for the purchase, transmission, distribution, sale, lease or hedge of any energy-related commodity or service or (ii) interest rate, commodity price, or currency rate management contracts or derivatives and (B) encumbering assets of a Restricted Subsidiary, other than (i) Material Designated Assets or (ii) accounts or receivables, which Liens arise out of contracts or agreements relating to the generation, distribution or transmission or sale of energy and/or fuel; provided that all such agreements or contracts are entered into in the ordinary course of business; and (22) other Liens to secure Indebtedness in an aggregate amount not to exceed $50.0 million at any time outstanding. "Permitted Prior Liens" means (a) Liens securing Priority Lien Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses (5), (6), (10) or (11) of the definition of "Permitted 21 Liens" and (c) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued or accumulated interest on the Indebtedness and the amount of all fees, costs, expenses and premiums, including swap breakage and defeasance costs, incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that such Permitted Refinancing Indebtedness may have such shorter final maturity date and Weighted Average Life to Maturity as is equal to or greater than the latest maturity date of any Notes issued under this Indenture; and (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that Permitted Refinancing Indebtedness shall not include (A) Indebtedness of the Company incurred to refinance Non-Recourse Debt of a Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the Company that refinances Indebtedness of the Company or (C) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Pledged Power Project" means the power generation property and related equipment at each of the following locations: (1) the Goldendale Energy Center in Goldendale, Washington; (2) the Otay Mesa Energy Center near San Diego, California; (3) the Metcalf Energy Center near San Jose, California; (4) the Santa Rosa Energy Center in Santa Rosa County, Florida; (5) the Washington Parish Energy Center near Bogalusa, Louisiana; (6) the Deer Park Energy Center in Deer Park, Texas; and 22 (7) the Augusta Energy Center in Augusta, Georgia. "Priority Foreclosure Event" means the failure to pay at maturity or upon acceleration of maturity all outstanding Priority Lien Debt at any time when no Bankruptcy Case or Insolvency Proceeding is pending. "Priority Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Priority Lien Obligations not exceeding the Priority Lien Cap. "Priority Lien Agent" means the Credit Agreement Agent or any other agent for holders of Priority Lien Debt. "Priority Lien Cap" means an amount equal to (a) the Indebtedness outstanding under the Credit Agreement or any other Credit Facility in an aggregate principal amount not exceeding the greater of (1) $500.0 million, less the amount of any Net Proceeds of a Sale of Designated Assets applied to repay Priority Lien Debt and/or cash collateralize letters of credit that constitute Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available, plus (b) any interest (including any interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), penalties, premiums, fees, costs, expenses or other Obligations in respect of such Indebtedness. For purposes of this definition of Priority Lien Cap, all letters of credit shall be valued at face amount, whether or not drawn, and all letters of credit denominated in a currency other than U.S. dollars shall be valued at all times at the Equivalent Amount (as defined in the Credit Agreement) thereof on the date of issue thereof. "Priority Lien Debt" means Indebtedness under (a) the Credit Agreement or (b) any other Credit Facility that is secured by a Priority Lien that was permitted to be incurred under clause (1) of the definition of "Permitted Liens" but only if on or before the day on which such Indebtedness under a Credit Facility described in clause (b) above is incurred by the Company such Indebtedness is designated by the Company, in an officers' certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt Documents and the Collateral Trust Agreement. "Priority Lien Documents" means the Credit Agreement or any other Credit Facility pursuant to which any Priority Lien Debt is incurred and all other agreements governing, securing or relating to any Priority Lien Obligations. "Priority Lien Obligations" means the Priority Lien Debt and all other Obligations in respect of Priority Lien Debt. "Private Placement Legend" means the legend set forth in Section 2.06(e)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Public Equity Offering" means an underwritten primary public offering of the Company's equity securities pursuant to an effective registration statement under the Securities Act. 23 "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Global Note bearing the Private Placement Legend and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Required Parity Debtholders" means, at any time in respect of any action or matter, holders of a majority in aggregate outstanding principal amount of all Parity Lien Debt then outstanding, voting together as a single class. For this purpose, Parity Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding. "Required Priority Debtholders" means, at any time in respect of any action or matter, (1) holders of the outstanding principal amount of, or commitments with respect to, the applicable Priority Lien Debt then outstanding required pursuant to the terms of the applicable Credit Facility, voting as a single class, to approve such action or matter or (2) the Priority Lien Agent acting upon the authorization or consent of the holders referred to in the immediately preceding clause (1). For this purpose, Priority Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding. "Responsible Officer," means, with respect to the Collateral Trustee, any officer within the corporate trust department of the Collateral Trustee including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Collateral Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of the Collateral Trust Agreement. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day distribution compliance period as defined in Regulation S. (903(b)(3)) "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. 24 "S&P" means Standard & Poor's Ratings Group (or, if such entity ceases to rate the Notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Sale of Designated Assets" means any Asset Sale involving a sale or other disposition of Designated Assets. "SEC" means the Securities and Exchange Commission. "Secured Debt" means Parity Lien Debt and Priority Lien Debt. "Secured Debt Documents" means the Parity Lien Debt Documents and the Priority Lien Documents. "Secured Debt Representative" means each Parity Debt Representative and the Priority Lien Agent. "Secured Leverage Ratio" means, on any date, the ratio of: (1) the aggregate principal amount of Secured Debt outstanding on such date (and, for this purpose, letters of credit shall be deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) to (2) the aggregate amount of the Company's Consolidated Cash Flow for the most recent four-quarter period for which financial information is available. In addition, for purposes of calculating the Secured Leverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the date on which the event for which the calculation of the Secured Leverage Ratio is made (the "Leverage Calculation Date") shall be given pro forma effect in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Leverage Calculation Date, shall be excluded; (3) any Person that is a Restricted Subsidiary on the Leverage Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on the Leverage Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and 25 (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Leverage Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Secured Obligations" means the Parity Lien Obligations and the Priority Lien Obligations. "Securities Act" means the Securities Act of 1933, as amended. "Security Documents" means the Collateral Trust Agreement and one or more security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, deeds of trust or other grants or transfers for security executed and delivered by the Company or any other Obligor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Trustee, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms. "Series of Parity Lien Debt" means, severally, each series of the Notes, the 2007 Notes, the 2013 Notes, the Term Loans and each other issue or series of Parity Lien Debt for which a single transfer register is maintained. "Series of Secured Debt" means, severally, each series of the Notes, the 2007 Notes, the 2013 Notes, the Term Loans, each other issue or series of Parity Lien Debt for which a single transfer register is maintained and each issue or series of Priority Lien Debt for which a single register is maintained. "Sharing Confirmation" means, as to any Series of Parity Lien Debt, the written agreement of the holders of such Series of Parity Lien Debt, as set forth in the indenture or agreement governing such Series of Parity Lien Debt, for the enforceable benefit of all holders of each other existing and future Series of Parity Lien Debt and each existing and future Parity Debt Representative, that all Parity Lien Obligations shall be and are secured equally and ratably by all Liens at any time granted by the Company or any other Obligor to secure any Obligations in respect of such Series of Parity Lien Debt, whether or not upon property otherwise constituting Collateral, that all such Liens shall be enforceable by the Collateral Trustee for the benefit of all holders of Parity Lien Obligations equally and ratably, and that the holders of Obligations in respect of such Series of Parity Lien Debt are bound by the provisions in the Collateral Trust Agreement relating to the order of application of proceeds from enforcement of the Collateral Trustee's Liens upon the Collateral, and consent to and direct the Collateral Trustee to perform its obligations under the Collateral Trust Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of this Indenture, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, as applied to any Person, any corporation, limited or general partnership, trust, association or other business entity of which an aggregate of at least 50% of the outstanding Voting 26 Shares, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. "Term Loan Administrative Agent" means Goldman Sachs Credit Partners L.P., as administrative agent under the Term Loan Agreement, together with its successors in such capacity. "Term Loan Agreement" means that certain Term Loan Agreement dated the date of this Indenture between the Company and the Term Loan Administrative Agent, relating to $750.0 million in aggregate principal amount of Term Loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, increased, renewed, restated or replaced, in whole or in part, from time to time. "Term Loan Documents" means the Term Loan Agreement, each Sharing Confirmation and the Security Documents. "Term Loan Obligations" means the Term Loans (including additional Term Loans) and all other Obligations under the Term Loan Agreement and the Security Documents. "Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the Term Loan Agreement. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 of this Indenture. "Treasury Rate" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to July 15, 2010; provided, however, that if the period from the redemption date to July 15, 2010 is less than one year, the average of weekly yields on actively traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "2007 Notes" means the $500.0 million in aggregate principal amount of the Company's floating rate notes due 2007. "2013 Notes" means the $900.0 million in aggregate principal amount of the Company's 8 3/4% notes due 2013. "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary (and any subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed after the date of this Indenture, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Indebtedness that is non-recourse to the Company and its Restricted Subsidiaries; 27 (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that a corporation with no significant assets created for the sole purpose of serving as a co-obligor to facilitate a financing by a partnership of a limited liability company may be designated as an Unrestricted Subsidiary. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 herein, regarding Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 herein, the Company shall be in default of such Section 4.09. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under Section 4.09 herein, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years or portion thereof obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that shall elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. 28 "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. Section 1.02 Other Definitions.

Defined in Term Section ---- ------- "Affiliate Transaction"............................................................. 4.11 "Asset Sale Offer".................................................................. 3.09 "Authentication Order".............................................................. 2.02 "Change of Control Offer"........................................................... 4.15 "Change of Control Payment"......................................................... 4.15 "Change of Control Payment Date".................................................... 4.15 "Covenant Defeasance"............................................................... 8.03 "DTC"............................................................................... 2.03 "Event of Default".................................................................. 6.01 "Excess Proceeds"................................................................... 4.10 "incur"............................................................................. 4.09 "Legal Defeasance".................................................................. 8.02 "Offer Amount"...................................................................... 3.09 "Offer Period"...................................................................... 3.09 "Paying Agent"...................................................................... 2.03 "Permitted Debt".................................................................... 4.09 "Purchase Date"..................................................................... 3.09 "Registrar"......................................................................... 2.03 "Restricted Payments"............................................................... 4.07

Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. 29 Section 1.04 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) "shall" shall be interpreted to express a command; (6) provisions apply to successive events and transactions; and (7) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. 30 ARTICLE 2. THE NOTES Section 2.01 Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream shall be applicable to transfers of beneficial interests in the Global Notes that are held by Participants through Euroclear or Clearsteam. Section 2.02 Execution and Authentication. One Officer must sign the Notes for the Company by manual or facsimile signature. If the Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee will, upon receipt of a written order of the Company signed by one Officer (an "Authentication Order"), authenticate (i) Initial Notes in an aggregate principal amount up to $1.15 billion on the date of this Indenture and (ii) Additional Notes from time to time as permitted under this Indenture. 31 The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03 Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04 Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). Section 2.06 Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the 32 Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes shall be exchanged by the Company for Definitive Notes if: (1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; or (2) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee. Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated by the Trustee pursuant to an Authentication Order and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1). (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar both: (A) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and (B) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase. 33 (3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following: (A) if the transferee shall take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee shall take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee shall take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable. (4) Transfer and Exchange of Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or 34 (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the Company shall execute and the Trustee shall authenticate, upon receipt of an Authentication Order, and deliver to the Person designated in such Authentication Order a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (c) Transfer and Exchange of Definitive Notes for Beneficial Interests. (1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or 35 (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (d) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(d), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(d). (1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer shall be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer shall be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer shall be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (e) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (1) Private Placement Legend. (A) Each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 36 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS." (2) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to 37 a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (g) General Provisions Relating to Transfers and Exchanges. (1) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request. (2) No service charge shall be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (3) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (5) The Company shall not be required: (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (7) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. 38 Section 2.07 Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements hereunder are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge the applicable Holder for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08 Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10 Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall, upon receipt of an Authentication Order, authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. 39 Section 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes in accordance with its customary practices (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth: (1) the clause of this Indenture pursuant to which the redemption shall occur; (2) the redemption date; (3) the principal amount of Notes to be redeemed; and (4) the redemption price. Section 3.02 Selection of Notes to Be Redeemed or Purchased. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select Notes for redemption or purchase as follows: (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. 40 In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase. Section 3.03 Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 11, respectively, of this Indenture. The notice shall identify the Notes to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 41 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05 Deposit of Redemption or Purchase Price. Not less than one Business Day prior to the redemption or purchase price date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest on, all Notes to be redeemed or purchased. If the Company complies with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06 Notes Redeemed or Purchased in Part. Upon surrender of a Note that is redeemed or purchased in part, the Company shall issue and, upon receipt of an Authentication Order, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered. Section 3.07 Optional Redemption. (a) At any time prior to July 15, 2006, the Company may on one or more occasions upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 108.500% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of Notes originally issued under this Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (2) the redemption must occur within 45 days of the date of the closing of such Public Equity Offering. 42 (b) At any time prior to July 15, 2007 the Company may also redeem all or a part of the 2010 Notes, upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to the redemption date, subject to the rights of noteholders on the relevant record date to receive interest due on the relevant interest payment date. (c) After July 15, 2007 the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below, subject to the rights of noteholders on the relevant record date to receive interest on the relevant interest payment date:

Year Percentage ---- ---------- 2007................................................................. 104.250% 2008................................................................. 102.125% 2009 and thereafter.................................................. 100.000%

(d) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08 Mandatory Redemption. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09 Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company is required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales and assets. The Asset Sale Offer shall remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than three Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall apply all Excess Proceeds (the "Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The written notice shall contain 43 all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The written notice, which shall govern the terms of the Asset Sale Offer, shall state: (1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (2) the Offer Amount, the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment shall continue to accrue interest; (4) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (7) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (9) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, either directly or through the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company and receipt of an Authentication Order shall authenticate and mail or deliver such new Note 44 to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01 Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. Section 4.03 Reports. (a) Whether or not required by the Commission's rules and regulations, so long as any Notes are outstanding, the Company shall furnish to the holders of Notes, within the time periods specified in the Commission's rules and regulations: 45 (1) all quarterly and annual reports that would be required to be filed with the Commission on Forms 10-Q and 10-K if the Company were required to file such reports; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. (b) All such reports shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K shall include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, the Company shall file a copy of each of the reports referred to in clauses (1) and (2) in Section 4.03(a) above with the Commission for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the Commission shall not accept such a filing) and make such information available to securities analysts and prospective investors upon request. (c) If, at any time, the Company is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Company shall nevertheless continue filing the reports specified in Section 4.03(a) with the Commission within the time periods specified above unless the Commission shall not accept such a filing. The Company agrees that it shall not take any action for the purpose of causing the Commission not to accept any such filings. If, notwithstanding the foregoing, the Commission shall not accept the Company's filings for any reason, the Company shall post the reports referred to in Section 4.03(a) on its website within the time periods that would apply if the Company were required to file those reports with the Commission. (d) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by Section 4.03(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. (e) In addition, the Company agrees that, for so long as any Notes remain outstanding, at any time it is not required to file the reports required by Section 4.03(a) with the Commission, it shall furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Section 4.04 Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate prescribed by the TIA stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the Security Documents, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the Security Documents and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or the Security Documents (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, 46 if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Notes are outstanding, the Company shall deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05 Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07 Restricted Payments. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; 47 (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company that is contractually subordinated to the Notes (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries and excluding the purchase, repurchase or other acquisition of such subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); (2) the Company would, after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) herein; and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since the date of this Indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), and (9) of the next succeeding paragraph), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (c) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) to the extent that any Unrestricted Subsidiary of the Company designated as such after the date of this Indenture is redesignated as a Restricted Subsidiary after the date of this Indenture, the Fair Market Value of the Company's Investment in such Subsidiary as of the date of such redesignation, plus 48 (e) 100% of any payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets received by the Company or a Restricted Subsidiary of the Company after the date of this Indenture from an Unrestricted Subsidiary of the Company, to the extent that such payments, dividends, repayments or transfers were not otherwise included in Consolidated Net Income of the Company for such period, plus (f) $628.3 million. The preceding provisions shall not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of this Indenture; (2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock) or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment shall be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of Indebtedness of the Company that is contractually subordinated to the Notes with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness, so long as no Default has occurred and is continuing or would be caused thereby; (4) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of the Company to the holders of any class or series of such Restricted Subsidiary's Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former officer, direct or employee of the Company (or any of its Restricted Subsidiaries) pursuant to any equity subscription agreement, stock option agreement, shareholders' agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any twelve-month period, so long as no Default has occurred and is continuing or would be caused thereby; (6) the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the extent such Equity Interests represent a portion of the exercise price of those stock options; (7) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company or any Restricted Subsidiary of the Company issued on or after the date of this Indenture in accordance with the Fixed Charge Coverage test described under Section 4.09 herein; provided that no Default has occurred and is continuing or would be caused thereby (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and 49 (8) any purchase, redemption, defeasance or other acquisition or retirement for value of subordinated Indebtedness upon a Change of Control or an Asset Sale to the extent required by this Indenture or other agreement pursuant to which such subordinated Indebtedness was issued, but only if the Company (a) in the case of a Change of Control, has made an offer to repurchase the Notes as described under Section 4.15 herein or (b) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with the provisions described under Section 4.10 herein, so long as no Default has occurred and is continuing or would be caused thereby. (b) The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the preceding restrictions shall not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of this Indenture; (2) this Indenture, the Notes, the 2007 Notes and the indenture governing such notes, the 2013 Notes and the indenture governing such notes and the Term Loan Agreement or any other indenture governing letters of credit, loans or debt securities issued by or on behalf of the Company that are no more restrictive, taken as a whole, with respect to such dividend, distribution or other payment restrictions and loan or investment restrictions than those contained in this Indenture, the Notes, the 2007 Notes and the indenture governing such notes, the 2013 Notes and the indenture governing such notes and the Term Loan Agreement as in effect on the date of this Indenture; (3) applicable law, rule, regulation or order; 50 (4) customary non-assignment provisions in leases, contracts and licenses entered into in the ordinary course of business and consistent with past practices; (5) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of Section 4.08(a); (6) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition; (7) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (8) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 4.12 herein that limit the right of the debtor to dispose of the assets subject to such Liens; (9) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements; (10) any encumbrance or restriction imposed pursuant to the terms of any Non-Recourse Debt incurred pursuant to clause (6) of the definition of Permitted Debt or any preferred stock issued pursuant to clause (7) of the definition of Permitted Debt; provided that such encumbrance or restriction, in the written opinion of the President, Vice Chairman, Chief Operating Officer or Chief Financial Officer of the Company, (x) is required in order to obtain such financing or to place such preferred stock, (y) is customary for such financings or placements and (z) applies only to the assets or revenues of the applicable Restricted Subsidiary; (11) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Acquired Debt incurred pursuant to clause (10) of the definition of Permitted Debt; provided that such encumbrance or restriction was not incurred in connection with or in contemplation of such Restricted Subsidiary becoming a Restricted Subsidiary; and (12) restrictions on cash or other deposits or net worth imposed by customers or suppliers under contracts entered into in the ordinary course of business. Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such 51 Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) Section 4.09(a) shall not prohibit the incurrence of any of the following items (collectively, "Permitted Debt"): (1) the incurrence by the Company and the Guarantee by the Canadian Guarantors of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) not to exceed on any date of incurrence the greater of (A) $500.0 million or (B) the dollar amount that is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company and the Canadian Guarantors of Indebtedness represented by the Notes, the 2007 Notes, the 2013 Notes and the Term Loans to be issued on the date of this Indenture, and in each case the related Guarantees; (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Company or any of its Restricted Subsidiaries, in an aggregate principal amount (or accreted value, as applicable), including all Permitted Refinancing Indebtedness incurred to extend, refund, refinance, renew, replace or defease any Indebtedness incurred pursuant to this clause (4), not to exceed $100.0 million at any one time outstanding; (5) Indebtedness of the Company which is owed to and owned by a Restricted Subsidiary and Indebtedness of a Restricted Subsidiary that is owed to and owned by the Company or a Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the Company or by a Restricted Subsidiary, as the case may be; (6) the incurrence of Non-Recourse Debt by any Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets); (7) the issuance of preferred stock by a Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets), the net proceeds of which are applied to finance the exploration, drilling, development, construction or purchase of or by, or repairs or improvements or additions to, property or assets of the Company or any Restricted Subsidiary; 52 (8) the incurrence by the Company of Guarantees of Indebtedness of Restricted Subsidiaries which, but for such Guarantees, would be permitted to be incurred pursuant to clause (6) of Section 4.09 (b); provided that the aggregate principal amount of Indebtedness incurred pursuant to this clause (8) does not exceed $100.0 million at any one time outstanding; (9) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance, replace, defease or discharge Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under Section 4.09(a) or clauses (2), (3), (4), (5), (6), (8) or (10) of this Section 4.09(b) or this clause (9); (10) the incurrence of Acquired Debt by any Restricted Subsidiary of the Company at the time such Restricted Subsidiary becomes a Restricted Subsidiary of the Company so long as such Acquired Debt was not incurred in connection with or in contemplation of such Person becoming a Restricted Subsidiary of the Company; provided that the Company would have been able to incur such Indebtedness at the time of incurrence thereof by the Restricted Subsidiary pursuant to Section 4.09 (a); (11) the incurrence of Indebtedness pursuant to Hedging Obligations incurred in the ordinary course of business and not for speculative purposes; (12) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances and performance and surety bonds in the ordinary course of business; (13) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five business days; (14) the incurrence by any Restricted Subsidiary of Indebtedness represented by letters of credit (or Guarantees thereof) entered into in the ordinary course of business to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit; provided that such letters of credit shall not constitute Permitted Debt pursuant to this clause (14) if they are issued in support of Indebtedness; (15) the incurrence of Indebtedness by the Company represented by letters of credit cash collateralized with the proceeds of Priority Lien Debt; and (16) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to extend, refinance, renew, replace, defease or refund any Indebtedness incurred pursuant to this clause (16), not to exceed $100.0 million. The Company shall not incur and shall not permit any Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes (and the Applicable Guarantee) and the Term Loans on 53 substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured or by virtue of being secured on a junior basis. Section 4.10 Asset Sales. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale (including a Sale of Designated Assets) unless: (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following shall be deemed to be cash: (A) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Company or such Restricted Subsidiary from further liability; (B) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and (C) except in the case of a Sale of Designated Assets, any stock or assets of the kind referred to in clauses (4) or (6) of Section 4.10(b); and (3) in the case of a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary, as the case may be) shall deposit the Net Proceeds as cash collateral in a segregated account (a "Designated Asset Sale Proceeds Account") held by the Collateral Trustee or its agent to secure the Secured Obligations; provided, that for so long as the terms of any of the Company's senior unsecured notes that were issued prior to August 10, 2000 would prevent such a pledge by a Restricted Subsidiary, the Company shall deposit with the Collateral Trustee or its agent an amount of cash equal to the Net Proceeds as cash collateral to secure the Secured Obligations, and the applicable Restricted Subsidiary shall not be obligated to do so. (b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, other than a Sale of Designated Assets that are not Canadian Gas Assets, the Company (or the applicable Restricted Subsidiary, as the case may be) may apply those Net Proceeds: (1) to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt; (2) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of Calpine Canada Energy Finance ULC and/or Calpine Canada Energy Finance II ULC existing on the date of this Indenture; 54 (3) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of any Restricted Subsidiary and, if such Indebtedness is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (4) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of the Company; (5) to make a capital expenditure; or (6) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business. (c) Within 180 days after the receipt of any Net Proceeds from an Asset Sale that constitutes a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary that disposed of those Designated Assets, as the case may be) may apply those Net Proceeds to purchase other assets that would constitute Designated Assets or to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt and, if such Priority Lien Debt is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto. (d) Any Net Proceeds from Asset Sales (including Sales of Designated Assets) that are not applied or invested as provided in the preceding clauses of this Section 4.10 shall constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all holders of the Notes and all holders of other Indebtedness that is pari passu with the Notes and equally and ratably secured with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets, including the 2007 Notes, the 2013 Notes, the Term Loans and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable (an "Asset Sale Offer"), to purchase or redeem the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased or redeemed out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. (e) Notwithstanding the foregoing, to the extent that any or all of the Net Proceeds of any Foreign Asset Sale is prohibited or delayed by applicable local law from being repatriated to the United States, the portion of such Net Proceeds so affected shall not be required to be applied at the time provided above, but may be retained by the applicable Restricted Subsidiary so long, but only so long, as the applicable local law shall not permit repatriation to the United States. The Company shall promptly take or cause the applicable Restricted Subsidiary to promptly take all actions required by the applicable local law to permit such repatriation. Once such repatriation of any of the affected Net Proceeds is permitted under the applicable local law, the repatriation shall be immediately effected and the repatriated Net Proceeds shall be applied in the manner set forth in this Section 4.10 as if the Asset Sale had occurred on the date of such repatriation. 55 (f) Notwithstanding the foregoing, to the extent that the Board of Directors determines, in good faith, that repatriation of any or all of the Net Proceeds of any Foreign Asset Sale would have a material adverse tax consequence to the Company, the Net Proceeds so affected may be retained outside of the United States by the applicable Restricted Subsidiary for so long as such material adverse tax consequence would continue. (g) The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Asset Sale provisions of this Indenture by virtue of such conflict. Section 4.11 Transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.5 million, an officers' certificate certifying that such Affiliate Transaction complies with this Section 4.11(a); and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an officers' certificate certifying that such Affiliate Transaction complies with this Section 4.11 and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors or, if there are no disinterested members of the Board of Directors, the Board of Directors shall have received a written opinion of an accounting, appraisal or investment banking firm of national standing stating that such Affiliate Transaction or series of Affiliate Transactions is fair to the Company or such Restricted Subsidiary from a financial point of view. (b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 4.11(a): (1) any employment agreement, employee benefit plan, stock option plan, officer and director indemnification agreement or any similar arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (2) transactions between or among the Company and its Restricted Subsidiaries and between or among the Company's Restricted Subsidiaries; 56 (3) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person; (4) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company; (5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company; (6) Restricted Payments that do not violate the provisions of Section 4.07 hereof; (7) loans or advances to employees in the ordinary course of business; (8) any repurchase, redemption or other retirement of Capital Stock of the Company held by employees of the Company or any of its Subsidiaries upon death, disability or termination of employment at a price not in excess of the Fair Market Value thereof approved by the Board of Directors; (9) any transaction between or among the Company and any of its Subsidiaries in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries; and (10) any agreement to do any of the foregoing. (c) Any transaction which has been determined, in the written opinion of an independent nationally recognized investment banking firm, to be fair, from a financial point of view, to the Company or the applicable Restricted Subsidiary shall be deemed to be in compliance with this Section 4.11. Section 4.12 Liens. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens. (b) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, grant or permit to exist a Lien upon any property (whether then held by it or to be acquired by it at a future time) as security for any Priority Lien Debt, unless (1) such Lien secures all Priority Lien Debt on an equal and ratable basis and (2) the Collateral Trustee holds an enforceable and perfected Lien upon such property as security equally and ratably for all Parity Lien Obligations in second priority to Priority Lien Debt. Section 4.13 Limitation on Changes in the Nature of the Business. The Company and its Restricted Subsidiaries shall engage only in Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. In addition, the Company will, and shall cause its Subsidiaries, to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law; provided to the extent that any such law is amended following the date of this Indenture in such a manner that would (absent application of this proviso) make non-compliance with this Section 4.13 not result in a material adverse effect on the Company's results of operations or financial condition, then the 57 Company shall not be required to comply with this Section 4.13, but only to the extent of actions or failures to act that would (absent application of this Section 4.13) constitute violations of this Section 4.13 solely as a result of such amendment. Section 4.14 Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect: (1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and (2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15 Offer to Repurchase Upon Change of Control. (a) If a Change of Control occurs, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's Notes pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in this Indenture. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased (the "Change of Control Payment"), to but excluding the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the change of control payment date (the "Change of Control Payment Date") specified in the notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Change of Control provisions of this Indenture by virtue of such compliance. (b) On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and 58 (3) deliver or cause to be delivered to the trustee the Notes properly accepted together with an officers' certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. The paying agent shall promptly mail to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee upon receipt of an Authentication Order from the Company shall promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new note shall be in a principal amount of $1,000 or an integral multiple of $1,000. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) The Company shall not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to Section 3.07 herein, unless and until there is a default in payment of the applicable redemption price. Section 4.16 Limitation on Sale and Leaseback Transactions. (a) The Company shall not enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if: (1) the Company could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in Section 4.09 (a) herein and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.12 herein; (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value, as determined in good faith by the Board of Directors and set forth in an officers' certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.10 herein. (b) This Section 4.16 shall not apply to the Company's Subsidiaries. Section 4.17 Limitation on Issuances of Guarantees of Indebtedness. The Company shall not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company (other than the Existing Guarantees by the Canadian Guarantors) unless such Restricted Subsidiary simultaneously executes and delivers (1) supplemental indentures providing for the Guarantees of the payment of the Notes by such Restricted Subsidiary, which Guarantees shall be senior to such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness unless the Indebtedness of the Company so Guaranteed or secured is senior Indebtedness of the Company, in which case the Guarantees of the Notes may be pari passu with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness of the Company, and (2) a pledge or security agreement providing for a pledge of such 59 assets to secure the Notes and all other Parity Lien Debt on an equal and ratable basis (subject only to Permitted Prior Liens). Section 4.18 Payments for Consent. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of the Notes the 2007 Notes, the 2013 Notes or the Term Loans for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture, the Notes, the 2007 Notes, the 2013 Notes, the Term Loans, the Term Loan Agreement or any Security Documents unless such consideration is offered to be paid or agreed to be paid to all holders of such notes and/or Term Loans that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.19 Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be deemed to be an Investment made as of the time of the designation and shall reduce the remaining amount available for Restricted Payments under Section 4.07 herein or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation shall only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. Section 4.20 Changes in Covenant When Notes Rated Investment Grade. If on any date following the date of this Indenture: (1) any series of the notes is rated Baa3 or better by Moody's and BBB- or better by S&P; and (2) no Default or Event of Default shall have occurred and be continuing, then, beginning on that day and subject to the provisions of the following paragraph, the provisions of Section 4.07, 4.08, 4.09, 4.10, 4.11, 4.13, 4.19 and clause (4) of Section 5.01 hereof shall be suspended. Notwithstanding the foregoing, if the rating assigned by either such rating agency should subsequently decline to below Baa3 or BBB-, respectively, the foregoing provisions shall be reinstituted as of and from the date of such rating decline. Calculations under the reinstated Section 4.07 shall be made as if Section 4.07 had been in effect since the date of this Indenture except that no default shall be deemed to have occurred solely by reason of a Restricted Payment made while that Section 4.07 was suspended. These covenant suspension provisions shall continue to be applicable following any such reinstatement. The Company shall notify the Trustee if any covenants are suspended or reinstated pursuant to this Section 4.20. 60 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets. The Company may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (A) the Company is the surviving corporation; or (B) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under the Notes, this Indenture, and the Security Documents pursuant to agreements reasonably satisfactory to the Trustee and the Collateral Trustee; (3) immediately after such transaction, no Default or Event of Default exists; (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made: (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and (B) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) herein; and (5) such transaction shall not impair the ability of the Company or any of its Subsidiaries to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law, unless such exemption is no longer material to the Company and its Restricted Subsidiaries taken as a whole or to the Person formed by or surviving any such consolidation or merger (if other then the Company) and its Restricted Subsidiaries taken as a whole. In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. 61 Notwithstanding the foregoing: (1) the Company may merge with an Affiliate solely for the purpose of reincorporating the Company in another jurisdiction; and (2) the Company and its Restricted Subsidiaries may sell, assign, transfer, lease, convey or otherwise dispose of assets between or among each other (including by way of merger). Section 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default. Each of the following is an "Event of Default": (1) default for 30 days in the payment when due of interest on the Notes; (2) default in payment when due of the principal of, or premium, if any, on the Notes; (3) failure to purchase the Notes when required pursuant to Section 4.10, 4.15 or otherwise as required pursuant to this Indenture or the Notes; (4) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of that series of notes to comply with any of the other agreements in this Indenture, the Notes or the Security Documents; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, if that default: 62 (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Company or such Restricted Subsidiary becoming aware of such default; provided that the provisions of this clause (5) shall not apply to any default on Non-Recourse Debt; (6) failure by the Company or any of its Significant Subsidiaries to pay final judgments (not covered by insurance) aggregating in excess of $50.0 million, which judgments are not paid, discharged or stayed for a period of 30 days; (7) the repudiation by the Company or any of its Restricted Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against the Company or any of its Restricted Subsidiaries for any reason; provided that such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more; (8) except as permitted by this Indenture, any note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Canadian Guarantor, or any Person acting on behalf of any Canadian Guarantor, shall deny or disaffirm its obligations under its note Guarantee and such condition shall not have been cured within 30 days of written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of the Notes; and (9) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; and (10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 63 (A) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (B) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (C) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02 Acceleration. In the case of an Event of Default specified in clause (9) or (10) of Section 6.01 hereof, with respect to the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (9) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after July 15, 2007 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to July 15, 2007 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on July 15 of the years set forth below, as set forth below (expressed as a percentage of the principal amount of the Notes on the date of payment that would otherwise be due but for the provisions of this sentence):

YEAR PERCENTAGE - ---- ---------- 2003........................................................................ 8.500% 2004........................................................................ 7.438% 2005........................................................................ 6.375% 2006........................................................................ 5.313%

64 Section 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04 Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05 Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06 Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (1) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; 65 (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07 Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder; provided that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien of this Indenture upon any property subject to such Lien. Section 6.08 Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 66 Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. 67 However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.01; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02 Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. 68 (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) In no event shall the Trustee be required to take notice of any default or breach hereof or any Event of Default hereunder, except for Events of Default specified in Section 6.01(1) and/or 6.01(2) hereof, unless and until the Trustee shall have received from a Holder of a Note or from the Company express written notice of the circumstances constituting the breach, default or Event of Default and stating that said circumstances constitute an Event of Default hereunder. (h) If the Trustee is acting as Paying Agent and/or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 will also be afforded to such Paying Agent and Registrar. Section 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days after ascertaining it has such conflicting interest, apply to the SEC for permission to continue as trustee or resign to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06 Reports by Trustee to Holders of the Notes. (a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be 69 transmitted). The Trustee also shall comply with TIA Section 313(b)(2) to the extent applicable. The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). (b) A copy of each report at the time of its mailing to the Holders of Notes shall be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07 Compensation and Indemnity. (a) The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. (b) The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture (and any other Note Documents to which it is a party) against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. (c) The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. (d) To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(9) or (10) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.08 Replacement of Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. (b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then 70 outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10 Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section. 310(a)(1), (2) and (5). The Trustee is subject to TIA Section. 310(b). 71 Section 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.02 Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium, if any, on such Notes when such payments are due from the trust referred to in Section 8.04 hereof; (2) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof; (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith; and (4) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03 Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company (to the extent applicable) shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 72 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(5) hereof shall not constitute Events of Default. Section 8.04 Conditions to Legal or Covenant Defeasance. In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether such Notes are being defeased to maturity or to a particular redemption date; (2) in the case of an election under Section 8.02 hereof, the Company has delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of an election under Section 8.03 hereof, the Company must deliver to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; 73 (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (7) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Notwithstanding anything in this Article 8 to the contrary, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06 Repayment to the Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter be permitted to look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, 74 and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 8.07 Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to provide for the assumption of the Company's obligations to the Holders of the Notes by a successor to the Company pursuant to Article 5 hereof; (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes; (5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (6) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; (7) to allow any Guarantor to execute a supplemental indenture and/or a Guarantee with respect to the Notes; (8) to make, complete or confirm any grant of Collateral permitted or required by this Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Indenture or any of the Security Documents; 75 (9) to conform the text of this Indenture, the Notes or the Security Documents to any provision of the Description of the Notes section of the Offering Circular to the extent that such provision of the Description of the Notes section of the Offering Circular was intended to be a verbatim recitation of a provision of this Indenture, the Notes or the Security Documents; or (10) to reflect any waiver or termination of any right arising under the provisions of this Indenture that otherwise would be enforceable by any holder of the Term Loan Obligations, if such waiver or termination is set forth in the agreement governing such Term Loan Obligations, provided that no such waiver or amendment shall adversely affect the right of holders of Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02 With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation, Section 3.09, 4.10 and 4.15 hereof), the Guarantees and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes (including, without limitation, Additional Notes, if any) then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount 76 of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (4) waive a Default or Event of Default in the payment of principal of, or interest or premium, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium, if any, on the Notes; (7) waive a redemption payment with respect to any Note (other than a payment required under Section 4.10 and Section 4.15); (8) release (A) any Collateral from the Liens created by the Security Documents except as specifically provided in this Indenture and the Security Documents as of the date of this Indenture or (B) all or substantially all of the Collateral or all or substantially all of the Canadian Guarantors from their obligations under the Guarantee and Collateral Agreement dated July 16, 2003 without the prior written consent of all Holders; or (9) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. Section 9.03 Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, 77 supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05 Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06 Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 and 7.02 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental Indenture is authorized or permitted by this Indenture. ARTICLE 10. COLLATERAL AND SECURITY Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation. Notwithstanding (1) anything to the contrary contained in the Security Documents, (2) the time of incurrence of any Series of Parity Lien Debt, (3) the order or method of attachment or perfection of any Liens securing any Series of Parity Lien Debt, (4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral, (5) the time of taking possession or control over any Collateral or (6) the rules for determining priority under any law governing relative priorities of Liens: (A) all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall secure, equally and ratably, all present and future Parity Lien Obligations; and (B) all proceeds of all Liens at any time granted by the Company or any Obligor to secure any of the Parity Lien Debt and other Parity Lien Obligations shall be allocated and distributed equally and ratably on account of the Parity Lien Debt and other Parity Lien Obligations; provided, that, for the avoidance of doubt, in the absence of an Event of Default, the Company shall be entitled to utilize cash proceeds of Collateral in the ordinary course of its business. The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Parity Lien Obligations, each present and future Parity Debt Representative and the Collateral Trustee as holder of Parity Liens. The Company shall not incur 78 any future Series of Parity Lien Debt unless the agreement governing such Series of Parity Lien Debt includes a Sharing Confirmation at the time of incurrence of such Series of Parity Lien Debt. Section 10.02 Ranking of Note Liens Notwithstanding: (1) anything to the contrary contained in the Security Documents, (2) the time of incurrence of any Series of Secured Debt, (3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt, (4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral, (5) the time of taking possession or control over any Collateral or (6) the rules for determining priority under any law governing relative priorities of Liens, all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall be subject and subordinate to Priority Liens securing Priority Lien Obligations up to the Priority Lien Cap. The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Priority Lien Obligations, each present and future Priority Lien Agent and the Collateral Trustee as holder of Priority Liens. No other Person shall be entitled to rely on, have the benefit of or enforce this provision. In addition, the foregoing provision is intended solely to set forth the relative ranking, as Liens, of the Liens securing Parity Lien Debt as against the Priority Liens. Neither the Notes, the 2007 Notes, the 2013 Notes nor the Term Loans nor any other Parity Lien Obligations nor the exercise or enforcement of any right or remedy for the payment or collection thereof are intended to be, or shall ever by reason of the foregoing provision, in any respect subordinated, deferred, postponed, restricted or prejudiced. Section 10.03 Release of Security Interest in Respect of Notes The Collateral Trustee's Liens upon the Collateral shall no longer secure the Notes or any other Obligations under this Indenture, and the right of the holders of the Notes and Obligations to the benefits and proceeds of the Collateral Trustee's Liens on Collateral shall terminate and be discharged: (1) upon satisfaction and discharge of this Indenture in accordance with Article 11 hereof; (2) upon a Legal Defeasance or Covenant Defeasance of the Notes in accordance with Article 8 hereof; or 79 (3) upon payment in full and discharge of all Notes outstanding under this Indenture and all related Obligations that are outstanding, due and payable under this Indenture at the time the Notes are paid in full and discharged. ARTICLE 11. satisfaction and discharge Section 11.01 Satisfaction and Discharge. This Indenture shall be discharged and shall cease to be of further effect as to all Notes issued hereunder, when: (1) either: (a) all Notes that have been authenticated under this Indenture (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or shall become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of such deposit or shall occur as a result of such deposit and such deposit shall not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which the Company is bound; (3) the Company has paid or caused to be paid all sums payable by it under this Indenture; and (4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the provisions of Section 12.02 and Section 8.06 shall survive. In addition, nothing in this Section 11.01 shall be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture. 80 Section 11.02 Application of Trust Money. Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 11.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01; provided that if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent. ARTICLE 12. MISCELLANEOUS Section 12.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties or provisions of the TIA shall control. Section 12.02 Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Telephone No.: (408) 995-5115 Attention: Ron Fischer With a copy to: Covington & Burling 1330 Avenue of the Americas New York, NY 10019 Telecopier No.: (212) 841-1010 Attention: Bruce Bennett 81 If to the Trustee: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Telecopier No.: (302) 636-4145 Attention: Corporate Capital Markets By notice to the others, the Company or the Trustee may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03 Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 12.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signer, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. 82 Section 12.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA Section 314(e) and must include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 12.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, this Indenture, the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. Section 12.08 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTATION OF GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 12.09 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10 Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. 83 Section 12.11 Severability. In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.12 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 84 SIGNATURES Dated as of July 16, 2003 CALPINE CORPORATION By: /s/ Michael Thomas ---------------------------- Name: Title: 85 WILMINGTON TRUST COMPANY By: /s/ Michael W. Diaz ---------------------------- Name: Michael W. Diaz Title: Authorized Signer 86 EXHIBIT A [Face of Note] - -------------------------------------------------------------------------------- CUSIP [131347 BC 9] [U13055 AE 5] 8.50% Second Priority Senior Secured Notes due 2010 No. ___ $____________ CALPINE CORPORATION promises to pay to CEDE & CO. or registered assigns, the principal sum of____________________________________________________________ Dollars on July 15, 2010. Interest Payment Dates: January 15 and July 15 Record Dates: January 1 and July 1 CALPINE CORPORATION By: _________________________________ Name: Title: Dated: July 16, 2003 This is one of the Notes referred to in the within-mentioned Indenture: WILMINGTON TRUST COMPANY, as Trustee By:______________________________ Authorized Signatory - -------------------------------------------------------------------------------- A-1 [Back of Note] 8.50% Second Priority Senior Secured Notes due 2010 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. Capitalized terms used herein have the meanings assigned to them in this Indenture referred to below unless otherwise indicated. A-2 (1) INTEREST. Calpine Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8.50% per annum from July 16, 2003 until maturity. The Company shall pay interest semi-annually in arrears on January 15 and July 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be January 15, 2004. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. (2) METHOD OF PAYMENT. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the January 1 or July 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes shall be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds shall be required with respect to principal of and interest, premium on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. (3) PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust Company, the Trustee under the Indenture, shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without prior notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. (4) INDENTURE. The Company issued the Notes under an Indenture dated as of July 16, 2003 (the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company, as evidenced by the Security Documents referred to in the Indenture. (5) OPTIONAL REDEMPTION. (a) Except as set forth in subparagraphs (b) and (c) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to July 15, 2007. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the A-3 applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below:

Year Percentage - ---- ---------- 2007............................................................. 104.250% 2008............................................................. 102.125% 2009 and thereafter.............................................. 100.000%

(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to July 15, 2006, the Company may, on any one or more occasions upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture with the net proceeds of an any one or more Public Equity Offerings at a redemption price equal to 108.500% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date; provided that at least 65% in aggregate principal amount of the Notes originally issued under the Indenture remains outstanding immediately after the occurrence of such redemption and that such redemption occurs within 45 days of the date of the closing of such Public Equity Offering. (c) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to July 15, 2007, the Company may also redeem all or a part of the Notes, upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at a redemption price equal to 100.000% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to the redemption date, subject to the rights of holders on the record date to receive interest due on the Interest Payment Date. (6) MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. (7) REPURCHASE AT OPTION OF HOLDER. (a) If a Change of Control occurs, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's Notes pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in the Indenture. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased (the "Change of Control Payment"), to but excluding the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each holder as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, and when the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all holders of Notes and all holders of other Indebtedness that is pari passu with the Notes and equally and ratably secured with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets, including the Term Loans and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable (an "Asset Sale Offer"), to purchase or redeem the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased or redeemed out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal A-4 amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Holders of Notes that are the subject of an offer to purchase shall receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. (8) NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. (9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. (10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. (11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture, to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Guarantee with respect to the Notes, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture or any of the Security Documents, to conform the text of the Indenture, the Notes or the Security Documents to any provision of the Description of the Notes section of the Offering Circular to the extent that such provision of the Description of the Notes section of the Offering A-5 Circular was intended to be a verbatim recitation of a provision of the Indenture, the Notes or the Security Documents, or to reflect any waiver or termination of any right arising under the provisions of the Indenture that otherwise would be enforceable by any holder of the Term Loan Obligations, if such waiver or termination is set forth in the agreement governing such Term Loan Obligations, provided that no such waiver or amendment shall adversely affect the right of holders of Notes. (12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes, (iii) failure by the Company to purchase the Notes when required pursuant to Section 4.10 or 4.15 of the Indenture or otherwise as required pursuant to the Indenture or Notes; (iv) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of the Notes to comply with any of the other agreements in the Indenture, the Notes or the Security Documents; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 30 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that would constitute a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; (viii) the repudiation by the Company or any of its Restricted Subsidiaries or the unenforceability of the Security Documents if such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more and (ix) except as permitted by the Indenture, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes shall become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding Notes is in their interest, except a Default or Event of Default relating to the payment of principal or interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default under clauses (3) through (8) of the Section 6.01(a) of the Indenture, to deliver to the Trustee a statement specifying such Default or Event of Default. (13) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. A-6 (14) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (15) AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (16) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (17) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Attention: Ron Fischer A-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to:___________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature:______________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: -Section 4.10 -Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $_______________ Date: _______________ Your Signature:______________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:______________ Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE* The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

Principal Amount Amount of decrease Amount of increase in of this Global Note Signature of in Principal Amount Principal Amount following such authorized officer of of decrease of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- ---------------- ---------------- ------------- ---------

* This schedule should be included only if the Note is issued in global form. A-10 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: 8.50% Second Priority Senior Secured Notes due 2010 Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), between Calpine Corporation, as issuer (the "Company"), and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of B-1 the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ___________________________________ [Insert Name of Transferor] By:________________________________ Name: Title: Dated: _______________________ B-2 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _____), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee shall hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _____), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note, in accordance with the terms of the Indenture. B-3 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: 8.50% Second Priority Senior Secured Notes due 2010 (CUSIP ____________) Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued shall continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. C-1 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ________________________________________ [Insert Name of Transferor] By:_____________________________________ Name: Title: Dated: ______________________ C-2 EXHIBIT D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: 8.50% Second Priority Senior Secured Notes due 2010 Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we shall do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we shall be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us shall bear a legend to the foregoing effect. D-1 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ________________________________________ [Insert Name of Accredited Investor] By:_____________________________________ Name: Title: Dated: _______________________ D-2 EX-4.3 5 f92357exv4w3.txt EXHIBIT 4.3 Exhibit 4.3 - -------------------------------------------------------------------------------- ----------------------------------------------------- CALPINE CORPORATION 8.75% SECOND PRIORITY SENIOR SECURED NOTES DUE 2013 -------------------------------- INDENTURE Dated as of July 16, 2003 -------------------------------- -------------------------------- WILMINGTON TRUST COMPANY Trustee -------------------------------- - -------------------------------------------------------------------------------- CROSS-REFERENCE TABLE*

Trust Indenture Act Section Indenture Section 310(a)(1)................................................................... 7.10 (a)(2)................................................................... 7.10 (a)(3)................................................................... N.A. (a)(4)................................................................... N.A. (a)(5)................................................................... 7.10 (b)...................................................................... 7.10 (c)...................................................................... N.A. 311(a)...................................................................... 7.11 (b)...................................................................... 7.11 (c)...................................................................... N.A. 312(a)...................................................................... 2.05 313(a)...................................................................... 7.06 (b)(1)................................................................... 10.03 (b)(2)................................................................... 7.06; 7.07 (c)...................................................................... 7.06 (d)...................................................................... 7.06 314(a)...................................................................... 4.03 (a)(4)................................................................... 12.05 (b)...................................................................... N.A. (c)(3)................................................................... N.A. (e)...................................................................... 12.05 (f)...................................................................... N.A. 315(a)...................................................................... 7.01 (b)...................................................................... 7.05 (c)...................................................................... 7.01 (d)...................................................................... 7.01 (e)...................................................................... 6.11 316(a)(last sentence)....................................................... 2.09 (a)(1)(A)................................................................ 6.05 (a)(1)(B)................................................................ 6.04 (a)(2)................................................................... N.A. (b)...................................................................... 6.07 (c)...................................................................... 2.12 317(a)(1)................................................................... 6.08 (a)(2)................................................................... 6.09 (b)...................................................................... 2.04 318(a)...................................................................... N.A. (b)...................................................................... 12.03 (c)...................................................................... 12.01; 12.02; 12.03

N.A. means not applicable. * This Cross Reference Table is not part of this Indenture. TABLE OF CONTENTS

Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions.................................................................................... 1 Section 1.02 Other Definitions.............................................................................. 29 Section 1.03 Incorporation by Reference of Trust Indenture Act.............................................. 29 Section 1.04 Rules of Construction.......................................................................... 30 ARTICLE 2. THE NOTES Section 2.01 Form and Dating................................................................................ 31 Section 2.02 Execution and Authentication................................................................... 31 Section 2.03 Registrar and Paying Agent..................................................................... 32 Section 2.04 Paying Agent to Hold Money in Trust............................................................ 32 Section 2.05 Holder Lists................................................................................... 32 Section 2.06 Transfer and Exchange.......................................................................... 32 Section 2.07 Replacement Notes.............................................................................. 39 Section 2.08 Outstanding Notes.............................................................................. 39 Section 2.09 Treasury Notes................................................................................. 39 Section 2.10 Temporary Notes................................................................................ 39 Section 2.11 Cancellation................................................................................... 40 Section 2.12 Defaulted Interest............................................................................. 40 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee............................................................................. 40 Section 3.02 Selection of Notes to Be Redeemed or Purchased................................................. 40 Section 3.03 Notice of Redemption........................................................................... 41 Section 3.04 Effect of Notice of Redemption................................................................. 42 Section 3.05 Deposit of Redemption or Purchase Price........................................................ 42 Section 3.06 Notes Redeemed or Purchased in Part............................................................ 42 Section 3.07 Optional Redemption............................................................................ 42 Section 3.08 Mandatory Redemption........................................................................... 43 Section 3.09 Offer to Purchase by Application of Excess Proceeds............................................ 43 ARTICLE 4. COVENANTS Section 4.01 Payment of Notes............................................................................... 45 Section 4.02 Maintenance of Office or Agency................................................................ 45 Section 4.03 Reports........................................................................................ 45 Section 4.04 Compliance Certificate......................................................................... 46 Section 4.05 Taxes.......................................................................................... 47 Section 4.06 Stay, Extension and Usury Laws................................................................. 47 Section 4.07 Restricted Payments............................................................................ 47 Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries................................. 50 Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock..................................... 51 Section 4.10 Asset Sales.................................................................................... 54

i Section 4.11 Transactions with Affiliates................................................................... 56 Section 4.12 Liens.......................................................................................... 57 Section 4.13 Limitation on Changes in the Nature of Business................................................ 57 Section 4.14 Corporate Existence............................................................................ 58 Section 4.15 Offer to Repurchase Upon Change of Control..................................................... 58 Section 4.16 Limitation on Sale and Leaseback Transactions.................................................. 59 Section 4.17 Limitation on Issuances of Guarantees of Indebtedness.......................................... 59 Section 4.18 Payments for Consent........................................................................... 60 Section 4.19 Designation of Restricted and Unrestricted Subsidiaries........................................ 60 Section 4.20 Changes in Covenant When Notes Rated Investment Grade.......................................... 60 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets....................................................... 61 Section 5.02 Successor Corporation Substituted.............................................................. 62 ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default.............................................................................. 62 Section 6.02 Acceleration................................................................................... 64 Section 6.03 Other Remedies................................................................................. 65 Section 6.04 Waiver of Past Defaults........................................................................ 65 Section 6.05 Control by Majority............................................................................ 65 Section 6.06 Limitation on Suits............................................................................ 65 Section 6.07 Rights of Holders of Notes to Receive Payment.................................................. 66 Section 6.08 Collection Suit by Trustee..................................................................... 66 Section 6.09 Trustee May File Proofs of Claim............................................................... 66 Section 6.10 Priorities..................................................................................... 67 Section 6.11 Undertaking for Costs.......................................................................... 67 ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee.............................................................................. 67 Section 7.02 Rights of Trustee.............................................................................. 68 Section 7.03 Individual Rights of Trustee................................................................... 69 Section 7.04 Trustee's Disclaimer........................................................................... 69 Section 7.05 Notice of Defaults............................................................................. 69 Section 7.06 Reports by Trustee to Holders of the Notes..................................................... 69 Section 7.07 Compensation and Indemnity..................................................................... 70 Section 7.08 Replacement of Trustee......................................................................... 70 Section 7.09 Successor Trustee by Merger, etc............................................................... 71 Section 7.10 Eligibility; Disqualification.................................................................. 71 Section 7.11 Preferential Collection of Claims Against Company.............................................. 72 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance....................................... 72 Section 8.02 Legal Defeasance and Discharge................................................................. 72 Section 8.03 Covenant Defeasance............................................................................ 72 Section 8.04 Conditions to Legal or Covenant Defeasance..................................................... 73 ii Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.. 74 Section 8.06 Repayment to Company........................................................................... 74 Section 8.07 Reinstatement.................................................................................. 75 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes............................................................ 75 Section 9.02 With Consent of Holders of Notes............................................................... 76 Section 9.03 Compliance with Trust Indenture Act............................................................ 77 Section 9.04 Revocation and Effect of Consents.............................................................. 77 Section 9.05 Notation on or Exchange of Notes............................................................... 78 Section 9.06 Trustee to Sign Amendments, etc................................................................ 78 ARTICLE 10. COLLATERAL AND SECURITY Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation... 78 Section 10.02 Ranking of Note Liens.......................................................................... 79 Section 10.03 Release of Security Interest in Respect of Notes............................................... 79 ARTICLE 11. SATISFACTION AND DISCHARGE Section 11.01 Satisfaction and Discharge..................................................................... 80 Section 11.02 Application of Trust Money..................................................................... 81 ARTICLE 12. MISCELLANEOUS Section 12.01 Trust Indenture Act Controls................................................................... 81 Section 12.02 Notices........................................................................................ 81 Section 12.03 Communication by Holders of Notes with Other Holders of Notes.................................. 82 Section 12.04 Certificate and Opinion as to Conditions Precedent............................................. 82 Section 12.05 Statements Required in Certificate or Opinion.................................................. 83 Section 12.06 Rules by Trustee and Agents.................................................................... 83 Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders....................... 83 Section 12.08 Governing Law.................................................................................. 83 Section 12.09 No Adverse Interpretation of Other Agreements.................................................. 83 Section 12.10 Successors..................................................................................... 83 Section 12.11 Severability................................................................................... 84 Section 12.12 Counterpart Originals.......................................................................... 84 Section 12.13 Table of Contents, Headings, etc............................................................... 84 EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR iii INDENTURE dated as of July 16, 2003 between Calpine Corporation, a Delaware corporation and Wilmington Trust Company (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the 8.75% Second Priority Senior Secured Notes due 2013 (the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions. "144A Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. Acquired Debt shall be deemed to be incurred on the date the acquired Person becomes a Restricted Subsidiary. "Additional Notes" means Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. For purposes of Section 4.11 herein, "Affiliate" shall also mean any Person of which the Company owns 10% or more of any class of Capital Stock or rights to acquire 10% or more of any class of Capital Stock and any Person who would be an Affiliate of any such Person pursuant to the first sentence hereof. "Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent. "Applicable Premium" means, with respect to any note on any redemption date, the greater of: (1) 1.0% of the principal amount of the note; or (2) the excess of: 1 (a) the present value at the redemption date of (i) the redemption price of the note at July 15, 2008 (such redemption price being set forth in Section 3.07 herein) plus (ii) all required interest payments due on the note through July 15, 2013 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of the redemption date plus 100 basis points; over (b) the principal amount of the note. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole shall be governed by Section 4.15 of this Indenture and/or Section 5.01 and not by Section 4.10; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, none of the following items shall be deemed to be an Asset Sale: (1) (A) any single transaction or series of related transactions that involves the sale of uninstalled turbines and related equipment, and (B) any single transaction or series of related transactions that involves other assets having a Fair Market Value of less than $50.0 million, it being understood that, in connection with any sale, lease, conveyance or other disposition of any Designated Assets or rights relating thereto in connection with a farm-out transaction, such transaction shall be valued as at the time of execution and delivery of binding contractual arrangements relating thereto; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries, (3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to a Restricted Subsidiary of the Company; (4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) a Restricted Payment that does not violate Section 4.07 herein or a Permitted Investment; and (7) the sale or other disposition of all or any part of the Company's right to amounts that have or are to become due and payable by Pacific Gas & Electric Company under that certain Agreement dated as of July 1, 1999, as amended, between Pacific Gas & Electric Company and Calpine Gilroy L.P., a California limited partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P. by the Company pursuant to the Purchase Agreement dated as of March 8, 2002, as amended, between Calpine Gilroy Cogen L.P. and the Company. 2 "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby shall be determined in accordance with the definition of "Capital Lease Obligation." "Bankruptcy Case" means any case under Title 11 of the United States Code or any successor bankruptcy law commenced voluntarily or involuntarily against the Company or any other Obligor. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the Board of Directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. "Business Day" means any day other than a Legal Holiday. "Canadian Gas Assets" means Designated Assets owned by a direct or indirect Restricted Subsidiary of one or more Canadian Guarantors. "Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana Canada Holdings LLC, a Delaware limited liability company, and any successor to any of the foregoing. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. 3 "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. "Cash Equivalents" means: (1) the lawful currency of any country where the Company owns or operates a Facility; (2) securities issued or directly and fully guaranteed or insured by the United States government or any state thereof (or any agency or instrumentality thereof), by the Canadian government (or any agency or instrumentality thereof), or by the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch or successor rating agency rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest ratings obtainable from Moody's or S&P and maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited liability company that is wholly-owned by the Canadian Guarantors. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the 4 properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act); (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; (4) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance); or (5) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Clearstream" means Clearstream Banking, S.A. "Collateral" means all properties and assets at any time owned or acquired by the Company, except the Excluded Assets, and the Canadian Guarantors' ownership interest in 65% of the aggregate outstanding voting stock of CCEC. "Collateral Trust Agreement" means that certain Collateral Trust Agreement dated as of July 16, 2003, among the Company, the Canadian Guarantors, the Credit Agreement Agent, the Trustee and the Bank of New York. "Collateral Trustee" means The Bank of New York in its capacity as collateral trustee under the Collateral Trust Agreement, together with its successors and assigns in such capacity. "Company" means Calpine Corporation, a Delaware Corporation and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus 5 (4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business; in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Current Liabilities," as of the date of determination, means the aggregate amount of liabilities of the Company and its Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), after eliminating (i) all inter-company items between the Company and any consolidated Subsidiary and (ii) all current maturities of long-term Indebtedness, all as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; and (3) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: 6 (1) was a member of such Board of Directors on the date of this Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors then still in office or with the approval of a majority of Directors whose election was previously so approved from time to time. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Agreement" means that certain Amended and Restated Credit Agreement, dated as of July 16, 2003, by and among the Company and The Bank of Nova Scotia and Bayerische Landesbank, as lead arrangers and bookrunners, providing for up to $500.0 million of revolving credit and term loan borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Credit Agreement Agent" means, at any time, the Person serving at such time as the "Agent" or "Administrative Agent" under the Credit Agreement or any other representative of the Lenders then most recently designated by a majority of the Lenders, in a written notice delivered to each Parity Debt Representative and the Collateral Trustee, as the Credit Agreement Agent for the purposes of the Parity Lien Debt Documents. "Credit Facilities" means one or more debt facilities (including the Credit Agreement) with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Assets" means all geothermal energy assets (including any related extraction, processing or similar equipment and geothermal power plants) and all natural gas assets (including any related extraction, processing or similar equipment, other than natural gas power plants) owned by the Company or any of its Restricted Subsidiaries from time to time, including the equity interests of any 7 Restricted Subsidiary owning any Designated Assets, but excluding (i) any geothermal energy assets that are both unproven and undeveloped and (ii) contracts for the purchase or sale of natural gas and natural gas supplied under such contracts. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes issued pursuant to this Indenture mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Indenture shall be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Assets" means: (1) any lease of property other than (i) a lease of a geothermal energy or natural gas interest or property, (ii) a lease of real estate underlying a power generation property or (iii) a capital lease; (2) all deposit accounts (as defined in Article 9 of the Uniform Commercial Code of any relevant jurisdiction) and deposits therein to the extent not exceeding $50.0 million in the aggregate, except for the Designated Assets Sale Proceeds Account and any deposit account and deposits therein holding amounts referred to in clause (7) of this definition; (3) the fixtures and equipment relating to any pipeline if, to the extent that and for so long as (i) the ownership or operation of such pipeline is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (a) such fixtures and equipment shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (3) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (b) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by 8 the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (4) all easements, rights-of-way, licenses and other real property interests for or pertaining to the construction, operation, use or maintenance of any pipeline over, upon or under land owned by another Person; (5) with respect to personal property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (a) such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (5) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (b) the proceeds of any sale, lease or other disposition of any such lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (6) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein (i) requires a third party consent which has not been obtained or (ii) constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for as long as the conditions set forth in clause (i) or (ii) of this clause (6) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents immediately and automatically at such time as such conditions cease to exist except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 4.10 herein; (7) any cash proceeds (including any earnings thereon) of Priority Lien Debt that are pledged to cash collateralize letters of credit; (8) any turbines which serve as collateral pursuant to that certain General Agreement dated as of January 31, 2002 among the Company, various Subsidiaries of the Company and Siemens Westinghouse Power Corporation relating to various purchase contracts and letters of intent for gas turbine generators, steam turbine generators and related accessories; 9 (9) proved oil and gas reserves located in Oklahoma and undeveloped reserves and unproven acreage located in California, Texas, Wyoming, Montana, Colorado, New Mexico and offshore Louisiana; provided that such reserves and acreage has a Fair Market Value not exceeding $20.0 million in the aggregate; (10) Capital Stock of Subsidiaries designated by the Company, but only for so long as (i) the Capital Stock of such Subsidiaries is not pledged to any Person (other than the Collateral Trustee on behalf of all holders of all Secured Debt) and (ii) such Subsidiaries collectively own less than 5.0% of the Company's total consolidated assets and collectively account for less than 5.0% of the Company's Consolidated Cash Flow; and (11) any other property in which a security interest cannot be perfected by the filing of a financing statement under the Uniform Commercial Code of the relevant jurisdiction; provided that such property has a Fair Market Value not exceeding $25.0 million in the aggregate. "Existing Guarantees" means the Guarantees of the Term Loans, the Notes and certain obligations under the Credit Agreement that exist on the date of this Indenture. "Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid. "Facility" means a power generation facility or energy producing facility, including any related fuel reserves. "Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company (unless otherwise provided in this Indenture). "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation, or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect (in accordance with Regulation 10 S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded; (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges shall not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; (4) any Person that is a Restricted Subsidiary on the Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on such Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, except interest on Indebtedness incurred to finance the development or construction of a Facility; plus (3) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon, but excluding any such Guarantee or Lien in effect on the date of this Indenture unless the same is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the effective 11 combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Foreign Asset Sale" means an Asset Sale in respect of the Capital Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described in Section 936 of the Internal Revenue Code of 1986, as amended, to the extent that the proceeds of such Asset Sale are received by a Person subject in respect of such proceeds to the tax laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia. "Foreign Subsidiary" means a Subsidiary that is incorporated in a jurisdiction other than the United States of America or a State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect and, to the extent optional, adopted by the Company, on the applicable date of determination. "Global Notes" means, individually and collectively, each of the Restricted Global Notes, substantially in the form of Exhibit A hereto issued in accordance with Section 2.01 or 2.06(b)(3) hereof. "Global Note Legend" means the legend set forth in Section 2.06(e)(2), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise). "Guarantor" means each Subsidiary of Calpine that Guarantees the Notes. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices. "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and 12 registered in the name of the Depositary or its nominee that shall be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (A) the Fair Market Value of such asset at such date of determination, and (B) the amount of the Indebtedness of such other Person. Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation. 13 "Indenture" means this indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means the first $900,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof. "Initial Purchasers" means Credit Lyonnais (USA) Inc., Goldman, Sachs & Co., ING Financial Markets LLC, Scotia Capital (USA) Inc. and TD Securities (USA) Inc. "Insolvency Proceeding" means: (1) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Company or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Company or any other Obligor or any similar case or proceeding relative to the Company or any other Obligor or its creditors, as such, in each case whether or not voluntary; (2) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Company or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or (3) any other proceeding of any type or nature in which substantially all claims of creditors of the Company or any other Obligor are determined and any payment or distribution is or may be made on account of such claims. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 4.07(b). Except as otherwise provided in this Indenture, the amount of an Investment shall be determined at the time the Investment is made and without giving effect to subsequent changes in value. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. 14 "Lenders" means, at any time, the parties to the Credit Agreement then holding (or committed to provide) loans, letters of credit or other extensions of credit that constitute (or when provided shall constitute) Priority Lien Debt outstanding under the Credit Agreement. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Magic Valley Generating Assets" means the Magic Valley Generating Station, a natural gas fired power plant in commercial operation in Edinburg, Texas. "Material Designated Assets" means Designated Assets having a Fair Market Value in the aggregate in excess of $50.0 million. "Moody's" means Moody's Investors Service, Inc. (or, if such entity ceases to rate the applicable notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, without duplication: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary that is incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or any Restricted Subsidiary; provided that such Indebtedness is without recourse to the Company (except as permitted by clause (8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any property or assets of the Company or any 15 Restricted Subsidiary other than property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of the definition of Permitted Liens or property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (19) of the definition of Permitted Liens. "Note Documents" means this Indenture, the Notes, the 2007 Notes and the indenture governing such notes, the 2010 Notes and the indenture governing such notes, each Sharing Confirmation and the Security Documents. "Note Obligations" means the Notes (including any Additional Notes issued under the this Indenture) and all other Obligations of any Obligor under this Indenture, the Notes (including any Additional Notes issued under this Indenture) and the Security Documents. "Notes" has the meaning assigned to it in the preamble to this Indenture. The Initial Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness (including the Notes and this Indenture). "Obligor" means the Company and each Restricted Subsidiary of the Company (if any) that at any time guarantees or provides collateral security or credit support for any Secured Obligations. "Offering Circular" means that certain offering circular dated as of July 10, 2003, with respect to the $2.55 billion in aggregate principal amount offering of the Notes, the 2007 Notes and the 2010 Notes, collectively. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by one Officer of the Company that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Parity Debt Representative" means: (1) in the case of the Notes, the 2007 Notes or the 2010 Notes, the applicable trustee thereof; (2) in the case of the Term Loans, the Term Loan Administrative Agent; or (3) in the case of any other Series of Parity Debt, the trustee, agent or representative of the holders of such Series of Parity Lien Debt who maintains the transfer register for such Series of Parity Lien Debt and is appointed as a Parity Debt Representative (for purposes related to the administration of the Security Documents) pursuant to this Indenture or other agreement governing such Series of Parity Lien Debt. 16 "Parity Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Parity Lien Obligations. "Parity Lien Debt" means: (1) the Notes; (2) the Term Loans; and (3) any other Indebtedness (including additional notes and Term Loans) that: (A) is permitted to be incurred under Section 4.09 herein; and (B) is permitted to be secured by Parity Liens by clause (2) of the definition of Permitted Liens; provided, in the case of each issue or series of Indebtedness referred to in this clause (3), that: (i) on or before the date on which such Indebtedness was incurred by the Company such Indebtedness is designated by the Company, in an officers' certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Parity Lien Debt for the purposes of this Indenture and the Collateral Trust Agreement, (ii) such Indebtedness is governed by an indenture or other agreement that includes a Sharing Confirmation and (iii) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Trustee's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements and the other provisions of this clause (3) shall be conclusively established, for purposes of entitling the holders of such Indebtedness to share equally and ratably with the other holders of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's Liens on the Collateral, if the Company delivers to the Collateral Trustee an officers' certificate in the form required pursuant to the Collateral Trust Agreement stating that such requirements and other provisions have been satisfied and that such Indebtedness is Parity Lien Debt, together with an opinion of counsel stating that such officers' certificate has been duly authorized by the Board of Directors of the Company and has been duly executed and delivered, and the holders of such Indebtedness and Obligations in respect thereof shall be entitled to rely conclusively thereon). "Parity Lien Debt Documents" means, collectively, the Term Loan Documents, the Note Documents, and the indenture or agreement governing each other Series of Parity Lien Debt and all agreements binding on any Obligor related thereto. "Parity Lien Obligations" means Parity Lien Debt and all other Obligations in respect thereof. "Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream). 17 "Permitted Business" means the business of acquiring, constructing, managing, developing, improving, owning and operating Facilities, as well as any other activities reasonably related to the foregoing activities (including acquiring and holding reserves), including investing in Facilities. "Permitted Investments" means: (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 herein; (5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates; (7) Investments represented by Hedging Obligations; (8) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary in an aggregate principal amount not to exceed $5.0 million at any one time outstanding; (9) repurchases of the Notes; and (10) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) that are at the time outstanding not to exceed $100.0 million; provided that Designated Assets held by the Company may not be invested in, leased to or otherwise transferred to any Restricted Subsidiary; provided, however, that the Company may transfer proven undeveloped gas reserves to its Restricted Subsidiaries in the ordinary course of business for consumption in the power generating business of such Restricted Subsidiaries during the 12-month period following transfer. "Permitted Liens" means: 18 (1) Liens on assets of the Company or any Canadian Guarantor securing Obligations of the Company or such Canadian Guarantor under one or more Credit Facilities in an aggregate amount not exceeding the Priority Lien Cap; (2) Liens held by the Collateral Trustee equally and ratably securing the Notes and the Term Loans to be issued on the date of this Indenture and all future Parity Lien Debt and other Parity Lien Obligations; provided that the Collateral Trustee's Liens may secure Parity Lien Debt incurred after the date of this Indenture or Obligations in respect thereof only if, on the date of the incurrence of such Parity Lien Debt, after giving pro forma effect to the incurrence thereof and the application of the proceeds therefrom, the Secured Leverage Ratio is not greater than 2.75:1.0; (3) Liens in favor of the Company; (4) Pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or leases to which such Person is a party, and Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (5) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the definition of Permitted Debt covering only the assets acquired, designed, constructed, installed or improved with or financed by such Indebtedness; (6) Liens existing on the date of this Indenture; (7) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Restricted Subsidiary; (8) (A) Liens on assets or property of a Restricted Subsidiary (other than Material Designated Assets) incurred by any Restricted Subsidiary to secure Indebtedness of such Restricted Subsidiary incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or such Restricted Subsidiary, which Liens may include Liens on the Capital Stock of such Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a direct Subsidiary of the Company or (ii) owns, directly or indirectly, Material Designated Assets), (B) Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary that does not own, directly or indirectly, at the time of original incurrence of such a Lien under this clause (B) any Material Designated Assets or any operating properties or assets, securing Indebtedness incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of any Restricted Subsidiary that does not, directly or indirectly, own any operating properties or assets at the time of the original incurrence of such Lien, which Liens contemplated by this clause (8) may include Liens on the Capital Stock of one or more Restricted Subsidiaries that (i) are not direct Subsidiaries of the Company and (ii) do not, directly or indirectly, own any Material Designated Assets or operating properties or assets at the time of original incurrence of such Lien; or (C) without duplication, Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary (which Liens may include Liens on Capital Stock of such Restricted Subsidiary so long as the Capital Stock of such Restricted Subsidiary is not pledged as Collateral) that owns as of the date of this Indenture all or part of one or more of the peaking power plants (and no other significant unrelated assets) 19 constructed for the purpose of providing peaking capacity and energy to the California Department of Water Resources; provided, that the Indebtedness secured by any such Lien contemplated by this clause (8) may not be issued more than 365 days (or, in the case of clause (C) above, two years) after the later of the exploration, drilling, development, completion of construction, purchase, repair, improvement, addition or commencement of full commercial operation of the property or asset being so financed; (9) Liens on property or shares of Capital Stock of a Subsidiary at the time such Person becomes a Subsidiary; provided that any such Lien may not extend to any other property owned by the Company; (10) Liens on property at the time a Subsidiary acquires the property, including any acquisition by means of a merger or consolidation with or into the Subsidiary; provided that such Liens are not incurred in connection with, or in contemplation of, such merger or consolidation; and provided, further, that the Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (11) Liens incurred by a Person other than the Company or any Subsidiary on assets that are the subject of a Capitalized Lease Obligation to which the Company or a Subsidiary is a party; provided that any such Lien may not secure Indebtedness of the Company or any Subsidiary (except Indebtedness secured by a Lien on any property or assets of the Company or such Subsidiary incurred in connection with Indebtedness of another Person), with the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured) and may not extend to any other property owned by the Company or any Restricted Subsidiary; (12) Liens on assets of the Company Construction Finance Company, L.P. (and/or any other Restricted Subsidiary that subsequently owns any such assets) relating to the Magic Valley Generating Station; (13) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to leases incurred in the ordinary course of business and not otherwise prohibited by this Indenture; (14) Liens not in respect of Indebtedness consisting of the interest of the lessor under any lease entered into in the ordinary course of business and not otherwise prohibited by this Indenture; and Liens on shares of Capital Stock of a subsidiary that does not own any significant assets other than a lessee's interest in a Facility or on the Capital Stock of a subsidiary whose only significant asset is its direct or indirect interest in such lessee subsidiary; provided that in no event shall this clause (14) allow a lien on any Capital Stock constituting Collateral; (15) Liens which constitute banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract; (16) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; 20 (17) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens, in each case, arising in the ordinary course of business and with respect to amounts not yet due or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be diligently prosecuting appeal or other proceedings for review; (18) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of the Company or any Restricted Subsidiary or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of the Company or any Restricted Subsidiary; (19) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6), (8), (9) and (10); provided that (A) such new Lien shall be limited to all or part of the same property or assets that secured the original Lien (plus repairs, improvements and additions to such property or assets and Liens on the stock or other ownership interest in one or more Restricted Subsidiaries beneficially owning such property or assets) and (B) the amount of the Indebtedness secured by such Lien at such time (or, if the amount that may be realized in respect of such Lien is limited, by contract or otherwise, such limited lesser amount) is not increased (other than by an amount necessary to pay fees and expenses, including premiums, related to the refinancing, refunding, extension, renewal or replacement of such Indebtedness); (20) Liens on assets of Restricted Subsidiaries to secure letters of credit issued pursuant to clause (14) of the definition of Permitted Debt; provided if and to the extent such letters of credit are drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit and Liens to secure letters of credit incurred pursuant to clause (15) of the definition of Permitted Debt on cash collateral constituting the proceeds of Priority Lien Debt; (21) Liens (A) on cash and short-term investments of Restricted Subsidiaries to secure obligations with respect to (i) contracts for commercial and trading activities in the ordinary course of business and contracts (including physical delivery, option (whether cash or financial), exchange, swap and futures contracts) for the purchase, transmission, distribution, sale, lease or hedge of any energy-related commodity or service or (ii) interest rate, commodity price, or currency rate management contracts or derivatives and (B) encumbering assets of a Restricted Subsidiary, other than (i) Material Designated Assets or (ii) accounts or receivables, which Liens arise out of contracts or agreements relating to the generation, distribution or transmission or sale of energy and/or fuel; provided that all such agreements or contracts are entered into in the ordinary course of business; and (22) other Liens to secure Indebtedness in an aggregate amount not to exceed $50.0 million at any time outstanding. "Permitted Prior Liens" means (a) Liens securing Priority Lien Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses (5), (6), (10) or (11) of the definition of "Permitted 21 Liens" and (c) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued or accumulated interest on the Indebtedness and the amount of all fees, costs, expenses and premiums, including swap breakage and defeasance costs, incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that such Permitted Refinancing Indebtedness may have such shorter final maturity date and Weighted Average Life to Maturity as is equal to or greater than the latest maturity date of any Notes issued under this Indenture; and (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that Permitted Refinancing Indebtedness shall not include (A) Indebtedness of the Company incurred to refinance Non-Recourse Debt of a Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the Company that refinances Indebtedness of the Company or (C) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Pledged Power Project" means the power generation property and related equipment at each of the following locations: (1) the Goldendale Energy Center in Goldendale, Washington; (2) the Otay Mesa Energy Center near San Diego, California; (3) the Metcalf Energy Center near San Jose, California; (4) the Santa Rosa Energy Center in Santa Rosa County, Florida; (5) the Washington Parish Energy Center near Bogalusa, Louisiana; (6) the Deer Park Energy Center in Deer Park, Texas; and 22 (7) the Augusta Energy Center in Augusta, Georgia. "Priority Foreclosure Event" means the failure to pay at maturity or upon acceleration of maturity all outstanding Priority Lien Debt at any time when no Bankruptcy Case or Insolvency Proceeding is pending. "Priority Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Priority Lien Obligations not exceeding the Priority Lien Cap. "Priority Lien Agent" means the Credit Agreement Agent or any other agent for holders of Priority Lien Debt. "Priority Lien Cap" means an amount equal to (a) the Indebtedness outstanding under the Credit Agreement or any other Credit Facility in an aggregate principal amount not exceeding the greater of (1) $500.0 million, less the amount of any Net Proceeds of a Sale of Designated Assets applied to repay Priority Lien Debt and/or cash collateralize letters of credit that constitute Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available, plus (b) any interest (including any interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), penalties, premiums, fees, costs, expenses or other Obligations in respect of such Indebtedness. For purposes of this definition of Priority Lien Cap, all letters of credit shall be valued at face amount, whether or not drawn, and all letters of credit denominated in a currency other than U.S. dollars shall be valued at all times at the Equivalent Amount (as defined in the Credit Agreement) thereof on the date of issue thereof. "Priority Lien Debt" means Indebtedness under (a) the Credit Agreement or (b) any other Credit Facility that is secured by a Priority Lien that was permitted to be incurred under clause (1) of the definition of "Permitted Liens" but only if on or before the day on which such Indebtedness under a Credit Facility described in clause (b) above is incurred by the Company such Indebtedness is designated by the Company, in an officers' certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt Documents and the Collateral Trust Agreement. "Priority Lien Documents" means the Credit Agreement or any other Credit Facility pursuant to which any Priority Lien Debt is incurred and all other agreements governing, securing or relating to any Priority Lien Obligations. "Priority Lien Obligations" means the Priority Lien Debt and all other Obligations in respect of Priority Lien Debt. "Private Placement Legend" means the legend set forth in Section 2.06(e)(1) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Public Equity Offering" means an underwritten primary public offering of the Company's equity securities pursuant to an effective registration statement under the Securities Act. 23 "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Global Note bearing the Private Placement Legend and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Required Parity Debtholders" means, at any time in respect of any action or matter, holders of a majority in aggregate outstanding principal amount of all Parity Lien Debt then outstanding, voting together as a single class. For this purpose, Parity Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding. "Required Priority Debtholders" means, at any time in respect of any action or matter, (1) holders of the outstanding principal amount of, or commitments with respect to, the applicable Priority Lien Debt then outstanding required pursuant to the terms of the applicable Credit Facility, voting as a single class, to approve such action or matter or (2) the Priority Lien Agent acting upon the authorization or consent of the holders referred to in the immediately preceding clause (1). For this purpose, Priority Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding. "Responsible Officer," means, with respect to the Collateral Trustee, any officer within the corporate trust department of the Collateral Trustee including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Collateral Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of the Collateral Trust Agreement. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day distribution compliance period as defined in Regulation S.(9030(B)(3)) "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated the Securities Act. 24 "S&P" means Standard & Poor's Ratings Group (or, if such entity ceases to rate the Notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Sale of Designated Assets" means any Asset Sale involving a sale or other disposition of Designated Assets. "SEC" means the Securities and Exchange Commission. "Secured Debt" means Parity Lien Debt and Priority Lien Debt. "Secured Debt Documents" means the Parity Lien Debt Documents and the Priority Lien Documents. "Secured Debt Representative" means each Parity Debt Representative and the Priority Lien Agent. "Secured Leverage Ratio" means, on any date, the ratio of: (1) the aggregate principal amount of Secured Debt outstanding on such date (and, for this purpose, letters of credit shall be deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) to (2) the aggregate amount of the Company's Consolidated Cash Flow for the most recent four-quarter period for which financial information is available. In addition, for purposes of calculating the Secured Leverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the date on which the event for which the calculation of the Secured Leverage Ratio is made (the "Leverage Calculation Date") shall be given pro forma effect in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Leverage Calculation Date, shall be excluded; (3) any Person that is a Restricted Subsidiary on the Leverage Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on the Leverage Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and 25 (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Leverage Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Secured Obligations" means the Parity Lien Obligations and the Priority Lien Obligations. "Securities Act" means the Securities Act of 1933, as amended. "Security Documents" means the Collateral Trust Agreement and one or more security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, deeds of trust or other grants or transfers for security executed and delivered by the Company or any other Obligor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Trustee, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms. "Series of Parity Lien Debt" means, severally, each series of the Notes, the 2007 Notes, the 2010 Notes, the Term Loans and each other issue or series of Parity Lien Debt for which a single transfer register is maintained. "Series of Secured Debt" means, severally, each series of the Notes, the 2007 Notes, the 2010 Notes, the Term Loans, each other issue or series of Parity Lien Debt for which a single transfer register is maintained and each issue or series of Priority Lien Debt for which a single register is maintained. "Sharing Confirmation" means, as to any Series of Parity Lien Debt, the written agreement of the holders of such Series of Parity Lien Debt, as set forth in the indenture or agreement governing such Series of Parity Lien Debt, for the enforceable benefit of all holders of each other existing and future Series of Parity Lien Debt and each existing and future Parity Debt Representative, that all Parity Lien Obligations shall be and are secured equally and ratably by all Liens at any time granted by the Company or any other Obligor to secure any Obligations in respect of such Series of Parity Lien Debt, whether or not upon property otherwise constituting Collateral, that all such Liens shall be enforceable by the Collateral Trustee for the benefit of all holders of Parity Lien Obligations equally and ratably, and that the holders of Obligations in respect of such Series of Parity Lien Debt are bound by the provisions in the Collateral Trust Agreement relating to the order of application of proceeds from enforcement of the Collateral Trustee's Liens upon the Collateral, and consent to and direct the Collateral Trustee to perform its obligations under the Collateral Trust Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of this Indenture, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, as applied to any Person, any corporation, limited or general partnership, trust, association or other business entity of which an aggregate of at least 50% of the outstanding Voting 26 Shares, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. "Term Loan Administrative Agent" means Goldman Sachs Credit Partners L.P., as administrative agent under the Term Loan Agreement, together with its successors in such capacity. "Term Loan Agreement" means that certain Term Loan Agreement dated the date of this Indenture between the Company and the Term Loan Administrative Agent, relating to $750.0 million in aggregate principal amount of Term Loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, increased, renewed, restated or replaced, in whole or in part, from time to time. "Term Loan Documents" means the Term Loan Agreement, each Sharing Confirmation and the Security Documents. "Term Loan Obligations" means the Term Loans (including additional Term Loans) and all other Obligations under the Term Loan Agreement and the Security Documents. "Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the Term Loan Agreement. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 of this Indenture. "Treasury Rate" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to July 15, 2013; provided, however, that if the period from the redemption date to July 15, 2013 is less than one year, the average of weekly yields on actively traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "2007 Notes" means the $500.0 million in aggregate principal amount of the Company's floating rate notes due 2007. "2010 Notes" means the $1.15 billion in aggregate principal amount of the Company's 8 1/2% notes due 2010. "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary (and any subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed after the date of this Indenture, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Indebtedness that is non- recourse to the Company and its Restricted Subsidiaries; 27 (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that a corporation with no significant assets created for the sole purpose of serving as a co-obligor to facilitate a financing by a partnership of a limited liability company may be designated as an Unrestricted Subsidiary. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 herein, regarding Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 herein, the Company shall be in default of such Section 4.09. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under Section 4.09 herein, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years or portion thereof obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that shall elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. 28 "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. Section 1.02 Other Definitions.

Defined in Term Section - ---- ------- "Affiliate Transaction"............................................................. 4.11 "Asset Sale Offer".................................................................. 3.09 "Authentication Order".............................................................. 2.02 "Change of Control Offer"........................................................... 4.15 "Change of Control Payment"......................................................... 4.15 "Change of Control Payment Date".................................................... 4.15 "Covenant Defeasance"............................................................... 8.03 "DTC"............................................................................... 2.03 "Event of Default".................................................................. 6.01 "Excess Proceeds"................................................................... 4.10 "incur"............................................................................. 4.09 "Legal Defeasance".................................................................. 8.02 "Offer Amount"...................................................................... 3.09 "Offer Period"...................................................................... 3.09 "Paying Agent"...................................................................... 2.03 "Permitted Debt".................................................................... 4.09 "Purchase Date"..................................................................... 3.09 "Registrar"......................................................................... 2.03 "Restricted Payments"............................................................... 4.07

Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. 29 Section 1.04 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) "shall" shall be interpreted to express a command; (6) provisions apply to successive events and transactions; and (7) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. 30 ARTICLE 2. THE NOTES Section 2.01 Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream shall be applicable to transfers of beneficial interests in the Global Notes that are held by Participants through Euroclear or Clearsteam. Section 2.02 Execution and Authentication. One Officer must sign the Notes for the Company by manual or facsimile signature. If the Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee will, upon receipt of a written order of the Company signed by one Officer (an "Authentication Order"), authenticate (i) Initial Notes in an aggregate principal amount up to $1.15 billion on the date of this Indenture and (ii) Additional Notes from time to time as permitted under this Indenture. 31 The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03 Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04 Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). Section 2.06 Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the 32 Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes shall be exchanged by the Company for Definitive Notes if: (1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; or (2) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee. Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated by the Trustee pursuant to an Authentication Order and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1). (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar both: (A) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and (B) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase. 33 (3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following: (A) if the transferee shall take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee shall take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee shall take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable. (4) Transfer and Exchange of Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or 34 (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the Company shall execute and the Trustee shall authenticate, upon receipt of an Authentication Order, and deliver to the Person designated in such Authentication Order a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(b) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (c) Transfer and Exchange of Definitive Notes for Beneficial Interests. (1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or 35 (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (d) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(d), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(d). (1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer shall be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer shall be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer shall be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (e) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (1) Private Placement Legend. (A) Each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 36 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS." (2) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to 37 a Person who shall take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (g) General Provisions Relating to Transfers and Exchanges. (1) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request. (2) No service charge shall be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (3) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (5) The Company shall not be required: (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (7) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. 38 Section 2.07 Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements hereunder are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge the applicable Holder for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08 Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10 Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall, upon receipt of an Authentication Order, authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. 39 Section 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes in accordance with its customary practices (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth: (1) the clause of this Indenture pursuant to which the redemption shall occur; (2) the redemption date; (3) the principal amount of Notes to be redeemed; and (4) the redemption price. Section 3.02 Selection of Notes to Be Redeemed or Purchased. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select Notes for redemption or purchase as follows: (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. 40 In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase. Section 3.03 Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 11, respectively, of this Indenture. The notice shall identify the Notes to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 41 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05 Deposit of Redemption or Purchase Price. Not less than one Business Day prior to the redemption or purchase price date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest on, all Notes to be redeemed or purchased. If the Company complies with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06 Notes Redeemed or Purchased in Part. Upon surrender of a Note that is redeemed or purchased in part, the Company shall issue and, upon receipt of an Authentication Order, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered. Section 3.07 Optional Redemption. (a) At any time prior to July 15, 2006, the Company may on one or more occasions upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 108.750% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that: (1) at least 65% of the aggregate principal amount of Notes originally issued under this Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and (2) the redemption must occur within 45 days of the date of the closing of such Public Equity Offering. 42 (b) At any time prior to July 15, 2008 the Company may also redeem all or a part of the 2013 Notes, upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to the redemption date, subject to the rights of noteholders on the relevant record date to receive interest due on the relevant interest payment date. (c) After July 15, 2008 the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below, subject to the rights of noteholders on the relevant record date to receive interest on the relevant interest payment date:

Year Percentage - ---- ---------- 2008........................................................ 104.375% 2009........................................................ 102.917% 2010........................................................ 101.458% 2011 and thereafter......................................... 100.000%

(d) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08 Mandatory Redemption. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09 Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company is required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales and assets. The Asset Sale Offer shall remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than three Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall apply all Excess Proceeds (the "Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The written notice shall contain 43 all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The written notice, which shall govern the terms of the Asset Sale Offer, shall state: (1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (2) the Offer Amount, the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment shall continue to accrue interest; (4) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (7) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (9) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, either directly or through the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company and receipt of an Authentication Order shall authenticate and mail or deliver such new Note 44 to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01 Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. Section 4.03 Reports. (a) Whether or not required by the Commission's rules and regulations, so long as any Notes are outstanding, the Company shall furnish to the holders of Notes, within the time periods specified in the Commission's rules and regulations: 45 (1) all quarterly and annual reports that would be required to be filed with the Commission on Forms 10-Q and 10-K if the Company were required to file such reports; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. (b) All such reports shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K shall include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, the Company shall file a copy of each of the reports referred to in clauses (1) and (2) in Section 4.03(a) above with the Commission for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the Commission shall not accept such a filing) and make such information available to securities analysts and prospective investors upon request. (c) If, at any time, the Company is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Company shall nevertheless continue filing the reports specified in Section 4.03(a) with the Commission within the time periods specified above unless the Commission shall not accept such a filing. The Company agrees that it shall not take any action for the purpose of causing the Commission not to accept any such filings. If, notwithstanding the foregoing, the Commission shall not accept the Company's filings for any reason, the Company shall post the reports referred to in Section 4.03(a) on its website within the time periods that would apply if the Company were required to file those reports with the Commission. (d) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by Section 4.03(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. (e) In addition, the Company agrees that, for so long as any Notes remain outstanding, at any time it is not required to file the reports required by Section 4.03(a) with the Commission, it shall furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Section 4.04 Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate prescribed by the TIA stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and the Security Documents, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and the Security Documents and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture or the Security Documents (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, 46 if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Notes are outstanding, the Company shall deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05 Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07 Restricted Payments. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; 47 (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company that is contractually subordinated to the Notes (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries and excluding the purchase, repurchase or other acquisition of such subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); (2) the Company would, after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) herein; and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since the date of this Indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), and (9) of the next succeeding paragraph), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (c) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) to the extent that any Unrestricted Subsidiary of the Company designated as such after the date of this Indenture is redesignated as a Restricted Subsidiary after the date of this Indenture, the Fair Market Value of the Company's Investment in such Subsidiary as of the date of such redesignation, plus 48 (e) 100% of any payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets received by the Company or a Restricted Subsidiary of the Company after the date of this Indenture from an Unrestricted Subsidiary of the Company, to the extent that such payments, dividends, repayments or transfers were not otherwise included in Consolidated Net Income of the Company for such period, plus (f) $628.3 million. The preceding provisions shall not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of this Indenture; (2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock) or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment shall be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of Indebtedness of the Company that is contractually subordinated to the Notes with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness, so long as no Default has occurred and is continuing or would be caused thereby; (4) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of the Company to the holders of any class or series of such Restricted Subsidiary's Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former officer, direct or employee of the Company (or any of its Restricted Subsidiaries) pursuant to any equity subscription agreement, stock option agreement, shareholders' agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any twelve-month period, so long as no Default has occurred and is continuing or would be caused thereby; (6) the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the extent such Equity Interests represent a portion of the exercise price of those stock options; (7) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company or any Restricted Subsidiary of the Company issued on or after the date of this Indenture in accordance with the Fixed Charge Coverage test described under Section 4.09 herein; provided that no Default has occurred and is continuing or would be caused thereby (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and 49 (8) any purchase, redemption, defeasance or other acquisition or retirement for value of subordinated Indebtedness upon a Change of Control or an Asset Sale to the extent required by this Indenture or other agreement pursuant to which such subordinated Indebtedness was issued, but only if the Company (a) in the case of a Change of Control, has made an offer to repurchase the Notes as described under Section 4.15 herein or (b) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with the provisions described under Section 4.10 herein, so long as no Default has occurred and is continuing or would be caused thereby. (b) The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the preceding restrictions shall not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of this Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of this Indenture; (2) this Indenture, the Notes, the 2007 Notes and the indenture governing such notes, the 2010 Notes and the indenture governing such notes and the Term Loan Agreement or any other indenture governing letters of credit, loans or debt securities issued by or on behalf of the Company that are no more restrictive, taken as a whole, with respect to such dividend, distribution or other payment restrictions and loan or investment restrictions than those contained in this Indenture, the Notes, the 2007 Notes and the indenture governing such notes, the 2010 Notes and the indenture governing such notes and the Term Loan Agreement as in effect on the date of this Indenture; (3) applicable law, rule, regulation or order; 50 (4) customary non-assignment provisions in leases, contracts and licenses entered into in the ordinary course of business and consistent with past practices; (5) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of Section 4.08(a); (6) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition; (7) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (8) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of Section 4.12 herein that limit the right of the debtor to dispose of the assets subject to such Liens; (9) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements; (10) any encumbrance or restriction imposed pursuant to the terms of any Non-Recourse Debt incurred pursuant to clause (6) of the definition of Permitted Debt or any preferred stock issued pursuant to clause (7) of the definition of Permitted Debt; provided that such encumbrance or restriction, in the written opinion of the President, Vice Chairman, Chief Operating Officer or Chief Financial Officer of the Company, (x) is required in order to obtain such financing or to place such preferred stock, (y) is customary for such financings or placements and (z) applies only to the assets or revenues of the applicable Restricted Subsidiary; (11) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Acquired Debt incurred pursuant to clause (10) of the definition of Permitted Debt; provided that such encumbrance or restriction was not incurred in connection with or in contemplation of such Restricted Subsidiary becoming a Restricted Subsidiary; and (12) restrictions on cash or other deposits or net worth imposed by customers or suppliers under contracts entered into in the ordinary course of business. Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such 51 Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) Section 4.09(a) shall not prohibit the incurrence of any of the following items (collectively, "Permitted Debt"): (1) the incurrence by the Company and the Guarantee by the Canadian Guarantors of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) not to exceed on any date of incurrence the greater of (A) $500.0 million or (B) the dollar amount that is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company and the Canadian Guarantors of Indebtedness represented by the Notes, the 2007 Notes, the 2010 Notes and the Term Loans to be issued on the date of this Indenture, and in each case the related Guarantees; (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Company or any of its Restricted Subsidiaries, in an aggregate principal amount (or accreted value, as applicable), including all Permitted Refinancing Indebtedness incurred to extend, refund, refinance, renew, replace or defease any Indebtedness incurred pursuant to this clause (4), not to exceed $100.0 million at any one time outstanding; (5) Indebtedness of the Company which is owed to and owned by a Restricted Subsidiary and Indebtedness of a Restricted Subsidiary that is owed to and owned by the Company or a Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the Company or by a Restricted Subsidiary, as the case may be; (6) the incurrence of Non-Recourse Debt by any Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets); (7) the issuance of preferred stock by a Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets), the net proceeds of which are applied to finance the exploration, drilling, development, construction or purchase of or by, or repairs or improvements or additions to, property or assets of the Company or any Restricted Subsidiary; 52 (8) the incurrence by the Company of Guarantees of Indebtedness of Restricted Subsidiaries which, but for such Guarantees, would be permitted to be incurred pursuant to clause (6) of Section 4.09 (b); provided that the aggregate principal amount of Indebtedness incurred pursuant to this clause (8) does not exceed $100.0 million at any one time outstanding; (9) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance, replace, defease or discharge Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under Section 4.09(a) or clauses (2), (3), (4), (5), (6), (8) or (10) of this Section 4.09(b) or this clause (9); (10) the incurrence of Acquired Debt by any Restricted Subsidiary of the Company at the time such Restricted Subsidiary becomes a Restricted Subsidiary of the Company so long as such Acquired Debt was not incurred in connection with or in contemplation of such Person becoming a Restricted Subsidiary of the Company; provided that the Company would have been able to incur such Indebtedness at the time of incurrence thereof by the Restricted Subsidiary pursuant to Section 4.09 (a); (11) the incurrence of Indebtedness pursuant to Hedging Obligations incurred in the ordinary course of business and not for speculative purposes; (12) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances and performance and surety bonds in the ordinary course of business; (13) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five business days; (14) the incurrence by any Restricted Subsidiary of Indebtedness represented by letters of credit (or Guarantees thereof) entered into in the ordinary course of business to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit; provided that such letters of credit shall not constitute Permitted Debt pursuant to this clause (14) if they are issued in support of Indebtedness; (15) the incurrence of Indebtedness by the Company represented by letters of credit cash collateralized with the proceeds of Priority Lien Debt; and (16) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to extend, refinance, renew, replace, defease or refund any Indebtedness incurred pursuant to this clause (16), not to exceed $100.0 million. The Company shall not incur and shall not permit any Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes (and the Applicable Guarantee) and the Term Loans on 53 substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured or by virtue of being secured on a junior basis. Section 4.10 Asset Sales. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale (including a Sale of Designated Assets) unless: (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following shall be deemed to be cash: (A) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Company or such Restricted Subsidiary from further liability; (B) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and (C) except in the case of a Sale of Designated Assets, any stock or assets of the kind referred to in clauses (4) or (6) of Section 4.10(b); and (3) in the case of a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary, as the case may be) shall deposit the Net Proceeds as cash collateral in a segregated account (a "Designated Asset Sale Proceeds Account") held by the Collateral Trustee or its agent to secure the Secured Obligations; provided, that for so long as the terms of any of the Company's senior unsecured notes that were issued prior to August 10, 2000 would prevent such a pledge by a Restricted Subsidiary, the Company shall deposit with the Collateral Trustee or its agent an amount of cash equal to the Net Proceeds as cash collateral to secure the Secured Obligations, and the applicable Restricted Subsidiary shall not be obligated to do so. (b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, other than a Sale of Designated Assets that are not Canadian Gas Assets, the Company (or the applicable Restricted Subsidiary, as the case may be) may apply those Net Proceeds: (1) to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt; (2) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of Calpine Canada Energy Finance ULC and/or Calpine Canada Energy Finance II ULC existing on the date of this Indenture; 54 (3) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of any Restricted Subsidiary and, if such Indebtedness is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (4) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of the Company; (5) to make a capital expenditure; or (6) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business. (c) Within 180 days after the receipt of any Net Proceeds from an Asset Sale that constitutes a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary that disposed of those Designated Assets, as the case may be) may apply those Net Proceeds to purchase other assets that would constitute Designated Assets or to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt and, if such Priority Lien Debt is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto. (d) Any Net Proceeds from Asset Sales (including Sales of Designated Assets) that are not applied or invested as provided in the preceding clauses of this Section 4.10 shall constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all holders of the Notes and all holders of other Indebtedness that is pari passu with the Notes and equally and ratably secured with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets, including the 2007 Notes, the 2010 Notes, the Term Loans and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable (an "Asset Sale Offer"), to purchase or redeem the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased or redeemed out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. (e) Notwithstanding the foregoing, to the extent that any or all of the Net Proceeds of any Foreign Asset Sale is prohibited or delayed by applicable local law from being repatriated to the United States, the portion of such Net Proceeds so affected shall not be required to be applied at the time provided above, but may be retained by the applicable Restricted Subsidiary so long, but only so long, as the applicable local law shall not permit repatriation to the United States. The Company shall promptly take or cause the applicable Restricted Subsidiary to promptly take all actions required by the applicable local law to permit such repatriation. Once such repatriation of any of the affected Net Proceeds is permitted under the applicable local law, the repatriation shall be immediately effected and the repatriated Net Proceeds shall be applied in the manner set forth in this Section 4.10 as if the Asset Sale had occurred on the date of such repatriation. 55 (f) Notwithstanding the foregoing, to the extent that the Board of Directors determines, in good faith, that repatriation of any or all of the Net Proceeds of any Foreign Asset Sale would have a material adverse tax consequence to the Company, the Net Proceeds so affected may be retained outside of the United States by the applicable Restricted Subsidiary for so long as such material adverse tax consequence would continue. (g) The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Asset Sale provisions of this Indenture by virtue of such conflict. Section 4.11 Transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.5 million, an officers' certificate certifying that such Affiliate Transaction complies with this Section 4.11(a); and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an officers' certificate certifying that such Affiliate Transaction complies with this Section 4.11 and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors or, if there are no disinterested members of the Board of Directors, the Board of Directors shall have received a written opinion of an accounting, appraisal or investment banking firm of national standing stating that such Affiliate Transaction or series of Affiliate Transactions is fair to the Company or such Restricted Subsidiary from a financial point of view. (b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 4.11(a): (1) any employment agreement, employee benefit plan, stock option plan, officer and director indemnification agreement or any similar arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (2) transactions between or among the Company and its Restricted Subsidiaries and between or among the Company's Restricted Subsidiaries; 56 (3) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person; (4) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company; (5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company; (6) Restricted Payments that do not violate the provisions of Section 4.07 hereof; (7) loans or advances to employees in the ordinary course of business; (8) any repurchase, redemption or other retirement of Capital Stock of the Company held by employees of the Company or any of its Subsidiaries upon death, disability or termination of employment at a price not in excess of the Fair Market Value thereof approved by the Board of Directors; (9) any transaction between or among the Company and any of its Subsidiaries in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries; and (10) any agreement to do any of the foregoing. (c) Any transaction which has been determined, in the written opinion of an independent nationally recognized investment banking firm, to be fair, from a financial point of view, to the Company or the applicable Restricted Subsidiary shall be deemed to be in compliance with this Section 4.11. Section 4.12 Liens. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens. (b) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, grant or permit to exist a Lien upon any property (whether then held by it or to be acquired by it at a future time) as security for any Priority Lien Debt, unless (1) such Lien secures all Priority Lien Debt on an equal and ratable basis and (2) the Collateral Trustee holds an enforceable and perfected Lien upon such property as security equally and ratably for all Parity Lien Obligations in second priority to Priority Lien Debt. Section 4.13 Limitation on Changes in the Nature of the Business. The Company and its Restricted Subsidiaries shall engage only in Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. In addition, the Company will, and shall cause its Subsidiaries, to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law; provided to the extent that any such law is amended following the date of this Indenture in such a manner that would (absent application of this proviso) make non-compliance with this Section 4.13 not result in a material adverse effect on the Company's results of operations or financial condition, then the 57 Company shall not be required to comply with this Section 4.13, but only to the extent of actions or failures to act that would (absent application of this Section 4.13) constitute violations of this Section 4.13 solely as a result of such amendment. Section 4.14 Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect: (1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and (2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15 Offer to Repurchase Upon Change of Control. (a) If a Change of Control occurs, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's Notes pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in this Indenture. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased (the "Change of Control Payment"), to but excluding the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the change of control payment date (the "Change of Control Payment Date") specified in the notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Change of Control provisions of this Indenture by virtue of such compliance. (b) On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and 58 (3) deliver or cause to be delivered to the trustee the Notes properly accepted together with an officers' certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. The paying agent shall promptly mail to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee upon receipt of an Authentication Order from the Company shall promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new note shall be in a principal amount of $1,000 or an integral multiple of $1,000. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) The Company shall not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to Section 3.07 herein, unless and until there is a default in payment of the applicable redemption price. Section 4.16 Limitation on Sale and Leaseback Transactions. (a) The Company shall not enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if: (1) the Company could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in Section 4.09 (a) herein and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.12 herein; (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value, as determined in good faith by the Board of Directors and set forth in an officers' certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.10 herein. (b) This Section 4.16 shall not apply to the Company's Subsidiaries. Section 4.17 Limitation on Issuances of Guarantees of Indebtedness. The Company shall not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company (other than the Existing Guarantees by the Canadian Guarantors) unless such Restricted Subsidiary simultaneously executes and delivers (1) supplemental indentures providing for the Guarantees of the payment of the Notes by such Restricted Subsidiary, which Guarantees shall be senior to such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness unless the Indebtedness of the Company so Guaranteed or secured is senior Indebtedness of the Company, in which case the Guarantees of the Notes may be pari passu with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness of the Company, and (2) a pledge or security agreement providing for a pledge of such 59 assets to secure the Notes and all other Parity Lien Debt on an equal and ratable basis (subject only to Permitted Prior Liens). Section 4.18 Payments for Consent. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of the Notes the 2007 Notes, the 2010 Notes or the Term Loans for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture, the Notes, the 2007 Notes, the 2010 Notes, the Term Loans, the Term Loan Agreement or any Security Documents unless such consideration is offered to be paid or agreed to be paid to all holders of such notes and/or Term Loans that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.19 Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be deemed to be an Investment made as of the time of the designation and shall reduce the remaining amount available for Restricted Payments under Section 4.07 herein or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation shall only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. Section 4.20 Changes in Covenant When Notes Rated Investment Grade. If on any date following the date of this Indenture: (1) any series of the notes is rated Baa3 or better by Moody's and BBB- or better by S&P; and (2) no Default or Event of Default shall have occurred and be continuing, then, beginning on that day and subject to the provisions of the following paragraph, the provisions of Section 4.07, 4.08, 4.09, 4.10, 4.11, 4.13, 4.19 and clause (4) of Section 5.01 hereof shall be suspended. Notwithstanding the foregoing, if the rating assigned by either such rating agency should subsequently decline to below Baa3 or BBB-, respectively, the foregoing provisions shall be reinstituted as of and from the date of such rating decline. Calculations under the reinstated Section 4.07 shall be made as if Section 4.07 had been in effect since the date of this Indenture except that no default shall be deemed to have occurred solely by reason of a Restricted Payment made while that Section 4.07 was suspended. These covenant suspension provisions shall continue to be applicable following any such reinstatement. The Company shall notify the Trustee if any covenants are suspended or reinstated pursuant to this Section 4.20. 60 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets. The Company may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (A) the Company is the surviving corporation; or (B) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under the Notes, this Indenture, and the Security Documents pursuant to agreements reasonably satisfactory to the Trustee and the Collateral Trustee; (3) immediately after such transaction, no Default or Event of Default exists; (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made: (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and (B) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) herein; and (5) such transaction shall not impair the ability of the Company or any of its Subsidiaries to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law, unless such exemption is no longer material to the Company and its Restricted Subsidiaries taken as a whole or to the Person formed by or surviving any such consolidation or merger (if other then the Company) and its Restricted Subsidiaries taken as a whole. In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. 61 Notwithstanding the foregoing: (1) the Company may merge with an Affiliate solely for the purpose of reincorporating the Company in another jurisdiction; and (2) the Company and its Restricted Subsidiaries may sell, assign, transfer, lease, convey or otherwise dispose of assets between or among each other (including by way of merger). Section 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default. Each of the following is an "Event of Default": (1) default for 30 days in the payment when due of interest on the Notes; (2) default in payment when due of the principal of, or premium, if any, on the Notes; (3) failure to purchase the Notes when required pursuant to Section 4.10, 4.15 or otherwise as required pursuant to this Indenture or the Notes; (4) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of that series of notes to comply with any of the other agreements in this Indenture, the Notes or the Security Documents; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, if that default: 62 (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Company or such Restricted Subsidiary becoming aware of such default; provided that the provisions of this clause (5) shall not apply to any default on Non-Recourse Debt; (6) failure by the Company or any of its Significant Subsidiaries to pay final judgments (not covered by insurance) aggregating in excess of $50.0 million, which judgments are not paid, discharged or stayed for a period of 30 days; (7) the repudiation by the Company or any of its Restricted Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against the Company or any of its Restricted Subsidiaries for any reason; provided that such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more; (8) except as permitted by this Indenture, any note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Canadian Guarantor, or any Person acting on behalf of any Canadian Guarantor, shall deny or disaffirm its obligations under its note Guarantee and such condition shall not have been cured within 30 days of written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of the Notes; and (9) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; and (10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 63 (A) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (B) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (C) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02 Acceleration. In the case of an Event of Default specified in clause (9) or (10) of Section 6.01 hereof, with respect to the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (9) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs on or after July 15, 2008 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to July 15, 2008 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on July 15 of the years set forth below, as set forth below (expressed as a percentage of the principal amount of the Notes on the date of payment that would otherwise be due but for the provisions of this sentence): 64

YEAR PERCENTAGE - ---- ---------- 2003............................................................................. 8.750% 2004............................................................................. 7.875% 2005............................................................................. 7.000% 2006............................................................................. 6.125% 2007............................................................................. 5.250%

Section 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04 Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05 Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06 Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (1) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; 65 (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07 Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder; provided that a Holder shall not have the right to institute any such suit for the enforcement of payment if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver or loss of the Lien of this Indenture upon any property subject to such Lien. Section 6.08 Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 66 Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. 67 However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.01; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02 Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. 68 (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) In no event shall the Trustee be required to take notice of any default or breach hereof or any Event of Default hereunder, except for Events of Default specified in Section 6.01(1) and/or 6.01(2) hereof, unless and until the Trustee shall have received from a Holder of a Note or from the Company express written notice of the circumstances constituting the breach, default or Event of Default and stating that said circumstances constitute an Event of Default hereunder. (h) If the Trustee is acting as Paying Agent and/or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 will also be afforded to such Paying Agent and Registrar. Section 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days after ascertaining it has such conflicting interest, apply to the SEC for permission to continue as trustee or resign to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06 Reports by Trustee to Holders of the Notes. (a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be 69 transmitted). The Trustee also shall comply with TIA Section 313(b)(2) to the extent applicable. The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). (b) A copy of each report at the time of its mailing to the Holders of Notes shall be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07 Compensation and Indemnity. (a) The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. (b) The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture (and any other Note Documents to which it is a party) against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. (c) The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. (d) To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(9) or (10) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.08 Replacement of Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. (b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then 70 outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10 Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). 71 Section 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.02 Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium, if any, on such Notes when such payments are due from the trust referred to in Section 8.04 hereof; (2) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof; (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith; and (4) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03 Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company (to the extent applicable) shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 72 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(5) hereof shall not constitute Events of Default. Section 8.04 Conditions to Legal or Covenant Defeasance. In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether such Notes are being defeased to maturity or to a particular redemption date; (2) in the case of an election under Section 8.02 hereof, the Company has delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of an election under Section 8.03 hereof, the Company must deliver to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes shall not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and shall be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; 73 (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (7) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Notwithstanding anything in this Article 8 to the contrary, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06 Repayment to the Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter be permitted to look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, 74 and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 8.07 Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to provide for the assumption of the Company's obligations to the Holders of the Notes by a successor to the Company pursuant to Article 5 hereof; (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes; (5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (6) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; (7) to allow any Guarantor to execute a supplemental indenture and/or a Guarantee with respect to the Notes; (8) to make, complete or confirm any grant of Collateral permitted or required by this Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Indenture or any of the Security Documents; 75 (9) to conform the text of this Indenture, the Notes or the Security Documents to any provision of the Description of the Notes section of the Offering Circular to the extent that such provision of the Description of the Notes section of the Offering Circular was intended to be a verbatim recitation of a provision of this Indenture, the Notes or the Security Documents; or (10) to reflect any waiver or termination of any right arising under the provisions of this Indenture that otherwise would be enforceable by any holder of the Term Loan Obligations, if such waiver or termination is set forth in the agreement governing such Term Loan Obligations, provided that no such waiver or amendment shall adversely affect the right of holders of Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02 With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation, Section 3.09, 4.10 and 4.15 hereof), the Guarantees and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes (including, without limitation, Additional Notes, if any) then outstanding voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount 76 of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (4) waive a Default or Event of Default in the payment of principal of, or interest or premium, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium, if any, on the Notes; (7) waive a redemption payment with respect to any Note (other than a payment required under Section 4.10 and Section 4.15); (8) release (A) any Collateral from the Liens created by the Security Documents except as specifically provided in this Indenture and the Security Documents as of the date of this Indenture or (B) all or substantially all of the Collateral or all or substantially all of the Canadian Guarantors from their obligations under the Guarantee and Collateral Agreement dated July 16, 2003 without the prior written consent of all Holders; or (9) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. Section 9.03 Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, 77 supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05 Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06 Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 and 7.02 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental Indenture is authorized or permitted by this Indenture. ARTICLE 10. COLLATERAL AND SECURITY Section 10.01 Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation. Notwithstanding (1) anything to the contrary contained in the Security Documents, (2) the time of incurrence of any Series of Parity Lien Debt, (3) the order or method of attachment or perfection of any Liens securing any Series of Parity Lien Debt, (4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral, (5) the time of taking possession or control over any Collateral or (6) the rules for determining priority under any law governing relative priorities of Liens: (A) all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall secure, equally and ratably, all present and future Parity Lien Obligations; and (B) all proceeds of all Liens at any time granted by the Company or any Obligor to secure any of the Parity Lien Debt and other Parity Lien Obligations shall be allocated and distributed equally and ratably on account of the Parity Lien Debt and other Parity Lien Obligations; provided, that, for the avoidance of doubt, in the absence of an Event of Default, the Company shall be entitled to utilize cash proceeds of Collateral in the ordinary course of its business. The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Parity Lien Obligations, each present and future Parity Debt Representative and the Collateral Trustee as holder of Parity Liens. The Company shall not incur 78 any future Series of Parity Lien Debt unless the agreement governing such Series of Parity Lien Debt includes a Sharing Confirmation at the time of incurrence of such Series of Parity Lien Debt. Section 10.02 Ranking of Note Liens Notwithstanding: (1) anything to the contrary contained in the Security Documents, (2) the time of incurrence of any Series of Secured Debt, (3) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt, (4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral, (5) the time of taking possession or control over any Collateral or (6) the rules for determining priority under any law governing relative priorities of Liens, all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall be subject and subordinate to Priority Liens securing Priority Lien Obligations up to the Priority Lien Cap. The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Priority Lien Obligations, each present and future Priority Lien Agent and the Collateral Trustee as holder of Priority Liens. No other Person shall be entitled to rely on, have the benefit of or enforce this provision. In addition, the foregoing provision is intended solely to set forth the relative ranking, as Liens, of the Liens securing Parity Lien Debt as against the Priority Liens. Neither the Notes, the 2007 Notes, the 2010 Notes nor the Term Loans nor any other Parity Lien Obligations nor the exercise or enforcement of any right or remedy for the payment or collection thereof are intended to be, or shall ever by reason of the foregoing provision, in any respect subordinated, deferred, postponed, restricted or prejudiced. Section 10.03 Release of Security Interest in Respect of Notes The Collateral Trustee's Liens upon the Collateral shall no longer secure the Notes or any other Obligations under this Indenture, and the right of the holders of the Notes and Obligations to the benefits and proceeds of the Collateral Trustee's Liens on Collateral shall terminate and be discharged: (1) upon satisfaction and discharge of this Indenture in accordance with Article 11 hereof; (2) upon a Legal Defeasance or Covenant Defeasance of the Notes in accordance with Article 8 hereof; or 79 (3) upon payment in full and discharge of all Notes outstanding under this Indenture and all related Obligations that are outstanding, due and payable under this Indenture at the time the Notes are paid in full and discharged. ARTICLE 11. SATISFACTION AND DISCHARGE Section 11.01 Satisfaction and Discharge. This Indenture shall be discharged and shall cease to be of further effect as to all Notes issued hereunder, when: (1) either: (a) all Notes that have been authenticated under this Indenture (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or shall become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of such deposit or shall occur as a result of such deposit and such deposit shall not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which the Company is bound; (3) the Company has paid or caused to be paid all sums payable by it under this Indenture; and (4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the provisions of Section 12.02 and Section 8.06 shall survive. In addition, nothing in this Section 11.01 shall be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture. 80 Section 11.02 Application of Trust Money. Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 11.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01; provided that if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent. ARTICLE 12. MISCELLANEOUS Section 12.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties or provisions of the TIA shall control. Section 12.02 Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Telephone No.: (408) 995-5115 Attention: Ron Fischer With a copy to: Covington & Burling 1330 Avenue of the Americas New York, NY 10019 Telecopier No.: (212) 841-1010 Attention: Bruce Bennett 81 If to the Trustee: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Telecopier No.: (302) 636-4145 Attention: Corporate Capital Markets By notice to the others, the Company or the Trustee may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03 Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 12.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signer, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. 82 Section 12.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA Section 314(e) and must include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 12.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, this Indenture, the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. Section 12.08 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTATION OF GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 12.09 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10 Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. 83 Section 12.11 Severability. In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.12 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 84 SIGNATURES Dated as of July 16, 2003 CALPINE CORPORATION By: /s/ Michael Thomas ----------------------------- Name: Title: 85 WILMINGTON TRUST COMPANY By: /s/ Michael W. Diaz -------------------------------------- Name: Michael W. Diaz Title: Authorized Signer 86 EXHIBIT A [Face of Note] - -------------------------------------------------------------------------------- CUSIP [131347 BD 7] [U13055 AF 2] 8.75% Second Priority Senior Secured Notes due 2013 No. ___ $____________ CALPINE CORPORATION promises to pay to CEDE & CO. or registered assigns, the principal sum of ___________________________________________________________ Dollars on July 15, 2013. Interest Payment Dates: January 15 and July 15 Record Dates: January 1 and July 1 CALPINE CORPORATION By: ________________________________________ Name: Title: Dated: July 16, 2003 This is one of the Notes referred to in the within-mentioned Indenture: WILMINGTON TRUST COMPANY, as Trustee By: ______________________________________ Authorized Signatory - ------------------------------------------------------------------------------- A-1 [Back of Note] 8.75% Second Priority Senior Secured Notes due 2013 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. Capitalized terms used herein have the meanings assigned to them in this Indenture referred to below unless otherwise indicated. A-2 (1) INTEREST. Calpine Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8.75% per annum from July 16, 2003 until maturity. The Company shall pay interest semi-annually in arrears on January 15 and July 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be January 15, 2004. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. (2) METHOD OF PAYMENT. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the January 1 or July 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes shall be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds shall be required with respect to principal of and interest, premium on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. (3) PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust Company, the Trustee under the Indenture, shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without prior notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. (4) INDENTURE. The Company issued the Notes under an Indenture dated as of July 16, 2003 (the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are secured obligations of the Company, as evidenced by the Security Documents referred to in the Indenture. (5) OPTIONAL REDEMPTION. (a) Except as set forth in subparagraphs (b) and (c) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to July 15, 2008. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the A-3 applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below:

Year Percentage - ---- ---------- 2008........................................................................... 104.375% 2009........................................................................... 102.917% 2010........................................................................... 101.458% 2011 and thereafter............................................................ 100.000%

(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to July 15, 2006, the Company may, on any one or more occasions, upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture with the net proceeds of an any one or more Public Equity Offerings at a redemption price equal to 108.750% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date; provided that at least 65% in aggregate principal amount of the Notes originally issued under the Indenture remains outstanding immediately after the occurrence of such redemption and that such redemption occurs within 45 days of the date of the closing of such Public Equity Offering. (c) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to July 15, 2008, the Company may also redeem all or a part of the Notes, upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at a redemption price equal to 100.000% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to the redemption date, subject to the rights of holders on the record date to receive interest due on the Interest Payment Date. (6) MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. (7) REPURCHASE AT OPTION OF HOLDER. (a) If a Change of Control occurs, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's Notes pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in the Indenture. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, on the Notes repurchased (the "Change of Control Payment"), to but excluding the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each holder as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, and when the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all holders of Notes and all holders of other Indebtedness that is pari passu with the Notes and equally and ratably secured with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets, including the Term Loans and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable (an "Asset Sale Offer"), to purchase or redeem the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased or redeemed out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess A-4 Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Holders of Notes that are the subject of an offer to purchase shall receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. (8) NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. (9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. (10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. (11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes and Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture, the Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture, to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Guarantee with respect to the Notes, to make, complete or confirm any grant of Collateral permitted or required by the Indenture or any of the Security Documents or any release of Collateral that becomes effective as set forth in the Indenture or any of the Security Documents, to conform the text of the Indenture, the Notes or the Security Documents to any provision of the Description of the Notes section of the Offering A-5 Circular to the extent that such provision of the Description of the Notes section of the Offering Circular was intended to be a verbatim recitation of a provision of the Indenture, the Notes or the Security Documents, or to reflect any waiver or termination of any right arising under the provisions of the Indenture that otherwise would be enforceable by any holder of the Term Loan Obligations, if such waiver or termination is set forth in the agreement governing such Term Loan Obligations, provided that no such waiver or amendment shall adversely affect the right of holders of Notes. (12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes, (iii) failure by the Company to purchase the Notes when required pursuant to Section 4.10 or 4.15 of the Indenture or otherwise as required pursuant to the Indenture or Notes; (iv) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Trustee or the holders of at least 25% in outstanding aggregate principal amount of the Notes to comply with any of the other agreements in the Indenture, the Notes or the Security Documents; (v) default under certain other agreements relating to Indebtedness of the Company which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 30 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that would constitute a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; (viii) the repudiation by the Company or any of its Restricted Subsidiaries or the unenforceability of the Security Documents if such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more and (ix) except as permitted by the Indenture, any Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes shall become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding Notes is in their interest, except a Default or Event of Default relating to the payment of principal or interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default under clauses (3) through (8) of the Section 6.01(a) of the Indenture, to deliver to the Trustee a statement specifying such Default or Event of Default. (13) TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. A-6 (14) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (15) AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (16) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (17) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Attention: Ron Fischer A-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature: ____________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: Section 4.10 Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $_________________ Date: _______________ Your Signature: ____________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.: ____________________ Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE* The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

Principal Amount Amount of decrease Amount of increase in of this Global Note Signature of in Principal Amount Principal Amount following such authorized officer of of decrease of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- ------------------- --------------------- ------------------- ------------------

* This schedule should be included only if the Note is issued in global form. A-10 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: 8.75% Second Priority Senior Secured Notes due 2013 Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), between Calpine Corporation, as issuer (the "Company"), and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of B-1 the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ___________________________________________ [Insert Name of Transferor] By:________________________________________ Name: Title: Dated: _______________________ B-2 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee shall hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note, in accordance with the terms of the Indenture. B-3 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: 8.75% Second Priority Senior Secured Notes due 2013 (CUSIP [131347 BD 7] [U13055 AF 2]) Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued shall continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued shall be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. C-1 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ____________________________________________ [Insert Name of Transferor] By: ________________________________________ Name: Title: Dated: ______________________ C-2 EXHIBIT D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Wilmington Trust 520 Madison Avenue, 33rd Floor New York, NY 10022 Re: 8.75% Second Priority Senior Secured Notes due 2013 Reference is hereby made to the Indenture, dated as of July 16, 2003 (the "Indenture"), among Calpine Corporation, as issuer (the "Company") and Wilmington Trust Company, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we shall do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we shall be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us shall bear a legend to the foregoing effect. D-1 EXHIBIT D 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ____________________________________________ [Insert Name of Accredited Investor] By: ________________________________________ Name: Title: Dated: _______________________ D-2 EX-4.4 6 f92357exv4w4.txt EXHIBIT 4.4 Exhibit 4.4 EXECUTION COPY ================================================================================ POWER CONTRACT FINANCING, L.L.C., Issuer, and WILMINGTON TRUST COMPANY, Trustee, Accounts Agent, Paying Agent and Registrar ---------- INDENTURE Dated as of June 13, 2003 5.200% Senior Secured Notes due 2006 6.256% Senior Secured Notes due 2010 ================================================================================ TABLE OF CONTENTS

Page ---- ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions.................................................................... 1 SECTION 102. Compliance Certificates and Opinions........................................... 2 SECTION 103. Form of Documents Delivered to Trustee......................................... 3 SECTION 104. Acts of Holders................................................................ 4 SECTION 105. Notices, Etc. to Trustee and Issuer............................................ 5 SECTION 106. Notice to Holders: Waiver...................................................... 5 SECTION 107. Effect of Headings and Table of Contents....................................... 6 SECTION 108. Successors and Assigns......................................................... 6 SECTION 109. Severability Clause............................................................ 6 SECTION 110. Benefits of Indenture.......................................................... 6 SECTION 111. Conflict with Trust Indenture Act.............................................. 6 SECTION 112. Governing Law; Consent to Jurisdiction and Service of Process.................. 6 SECTION 113. Legal Holidays................................................................. 8 SECTION 114. Incorporators, Shareholders, Members, Officers and Directors of Issuer Exempt from Individual Liability............................................... 8 SECTION 115. Execution in Counterparts...................................................... 8 ARTICLE TWO FORM OF NOTES SECTION 201. Form of Note................................................................... 8 SECTION 202. Restrictive Legends............................................................ 10 ARTICLE THREE THE NOTES SECTION 301. Amount ........................................................................ 13 SECTION 302. Denominations.................................................................. 14 SECTION 303. Execution, Authentication, Delivery and Dating................................. 14 SECTION 304. Temporary Notes................................................................ 16 SECTION 305. Registration, Registration of Transfer and Exchange............................ 16 SECTION 306. Book Entry Provisions for Global Notes......................................... 17 SECTION 307. Special Transfer Provisions.................................................... 19 SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes.................................... 22 SECTION 309. Payment on Notes; Rights Preserved............................................. 23 SECTION 310. Persons Deemed Owners.......................................................... 24 SECTION 311. Cancellation................................................................... 24 SECTION 312. Computation of Interest........................................................ 25

i SECTION 313. CUSIP and CINS Numbers......................................................... 25 SECTION 314. Parity of Notes................................................................ 25 ARTICLE FOUR APPLICATION OF PROCEEDS FROM SALE OF NOTES SECTION 401. Application of Proceeds from Sale of Notes..................................... 25 ARTICLE FIVE ACCOUNTS SECTION 501. Establishment of Accounts...................................................... 25 SECTION 502. Collections Account............................................................ 26 SECTION 503. Working Capital Account........................................................ 28 SECTION 504. Reserve Account................................................................ 29 SECTION 505. Reserve Investments Account.................................................... 29 SECTION 506. Damages and Indemnity Account.................................................. 29 SECTION 507. Statements; Investment of Funds................................................ 31 ARTICLE SIX SATISFACTION AND DISCHARGE SECTION 601. Satisfaction and Discharge of Indenture........................................ 32 SECTION 602. Application of Trust Money..................................................... 33 ARTICLE SEVEN EVENTS OF DEFAULT AND REMEDIES SECTION 701. Events of Default.............................................................. 33 SECTION 702. Acceleration of Maturity: Rescission and Annulment............................. 35 SECTION 703. Remedies upon an Event of Default.............................................. 37 SECTION 704. Certain Sales of Collateral.................................................... 37 SECTION 705. No Marshaling.................................................................. 38 SECTION 706. Trustee May Recover Unpaid Indebtedness After Sale of Collateral............... 38 SECTION 707. Recovery of Judgment Does Not Affect Rights.................................... 38 SECTION 708. Collection of Indebtedness and Suits for Enforcement by Trustee................ 38 SECTION 709. Trustee May File Proofs of Claim............................................... 39 SECTION 710. Trustee May Enforce Claims Without Possession of Notes......................... 40 SECTION 711. Application of Money Collected................................................. 40 SECTION 712. Limitation on Suits............................................................ 41 SECTION 713. Unconditional Right of Holders to Receive Principal, Make-Whole Premium and Interest........................................................... 41 SECTION 714. Restoration of Rights and Remedies............................................. 41 SECTION 715. Rights and Remedies Cumulative................................................. 42 SECTION 716. Delay or Omission Not Waiver................................................... 42 SECTION 717. Control by Holders............................................................. 42 ii SECTION 718. Waiver of Past Defaults........................................................ 42 SECTION 719. Waiver of Force Majeure and Stay or Extension Laws............................. 43 SECTION 720. Trustee to Give Notice of Default, but May Withhold in Certain Circumstances... 43 SECTION 721. Undertaking for Costs.......................................................... 43 ARTICLE EIGHT THE TRUSTEE SECTION 801. Duties and Responsibilities of the Trustee; During Default; Prior to Default... 44 SECTION 802. Certain Rights of Trustee...................................................... 45 SECTION 803. Trustee Not Responsible for Recitals or Issuance of Notes...................... 46 SECTION 804. May Hold Notes................................................................. 47 SECTION 805. Money Held In Trust............................................................ 47 SECTION 806. Compensation and Indemnification of Trustee, Accounts Agent, Paying Agent and Registrar and Its Prior Claim................................. 47 SECTION 807. Right of Trustee to Rely on Officer's Certificate, Etc......................... 48 SECTION 808. Corporate Trustee Required; Eligibility........................................ 48 SECTION 809. Qualification of Trustee; Conflicting Interests................................ 49 SECTION 810. Resignation and Removal; Appointment of Successor Trustee...................... 49 SECTION 811. Acceptance of Appointment by Successor......................................... 51 SECTION 812. Merger Conversion, Consolidation or Succession to Business..................... 51 SECTION 813. Preferential Collection of Claims Against Issuer............................... 52 SECTION 814. No Liability for Clean-up of Hazardous Materials............................... 52 SECTION 815. Accounts Agent Registrar and Paving Agent...................................... 52 SECTION 816. Filing Fees.................................................................... 52 SECTION 817. Fee Agreement.................................................................. 53 ARTICLE NINE HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER SECTION 901. Holder Lists................................................................... 53 SECTION 902. Disclosure of Names and Addresses of Holders................................... 53 SECTION 903. Reports by Trustee............................................................. 53 SECTION 904. Reports by Issuer.............................................................. 53 ARTICLE TEN SUPPLEMENTS AND AMENDMENTS TO INDENTURE AND SECURITY DOCUMENTS SECTION 1001. Without Vote of Holders........................................................ 54 SECTION 1002. With Consent of Holders........................................................ 55 SECTION 1003. Execution of Supplemental Indentures........................................... 56 SECTION 1004. Effect of Supplemental Indentures.............................................. 56 iii SECTION 1005. Conformity with Trust Indenture Act............................................ 56 SECTION 1006. Reference in Notes to Supplemental Indentures.................................. 56 SECTION 1007. Notice of Supplemental Indentures.............................................. 57 ARTICLE ELEVEN AFFIRMATIVE COVENANTS SECTION 1101. Payment of Principal and Interest.............................................. 57 SECTION 1102. Maintenance of Office or Agency................................................ 57 SECTION 1103. Maintenance of Existence, Properties........................................... 57 SECTION 1104. Payments of Taxes and Other Claims............................................. 58 SECTION 1105. Material Agreements............................................................ 58 SECTION 1106. Notice of Certain Events....................................................... 58 SECTION 1107. Compliance with Laws and Other Agreements...................................... 59 SECTION 1108. Maintenance of Books and Records............................................... 59 SECTION 1109. Approvals...................................................................... 59 SECTION 1110. Rule 144A Information for the Holders.......................................... 60 SECTION 1111. Recording...................................................................... 60 SECTION 1112. Further Assurances............................................................. 60 SECTION 1113. Collateral..................................................................... 61 SECTION 1114. Performance of Obligations..................................................... 61 SECTION 1115. Return of Monies Held by Trustee............................................... 61 SECTION 1116. Schedule and Delivery of Energy Under the CDWR Power Sales Agreement........... 61 ARTICLE TWELVE NEGATIVE COVENANTS SECTION 1201. Liens ......................................................................... 61 SECTION 1202. Indebtedness................................................................... 62 SECTION 1203. Guaranties..................................................................... 62 SECTION 1204. Transactions with Affiliates................................................... 62 SECTION 1205. Investments, Loans and Advances................................................ 62 SECTION 1206. Material Agreements; Additional Contracts...................................... 62 SECTION 1207. Fundamental Change............................................................. 62 SECTION 1208. Restricted Payments............................................................ 63 ARTICLE THIRTEEN REDEMPTION OF NOTES SECTION 1301. Applicability of Article....................................................... 63 SECTION 1302. Election to Redeem; Notice to Trustee.......................................... 63 SECTION 1303. Selection by Trustee of Notes to Be Redeemed................................... 63 SECTION 1304. Notice of Redemption........................................................... 64 SECTION 1305. Deposit of Redemption Price.................................................... 64 SECTION 1306. Notes Payable on Redemption Date............................................... 65 SECTION 1307. Notes Redeemed in Part......................................................... 65 iv ARTICLE FOURTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. Issuer's Option to Effect Defeasance or Covenant Defeasance.................... 65 SECTION 1402. Defeasance and Discharge....................................................... 65 SECTION 1403. Covenant Defeasance............................................................ 66 SECTION 1404. Conditions to Defeasance or Covenant Defeasance................................ 66 SECTION 1405. Deposited Money to Be Held in Trust; Other Miscellaneous Provisions............ 68 SECTION 1406. Reinstatement.................................................................. 68 ARTICLE FIFTEEN MEETINGS OF HOLDERS OF NOTES SECTION 1501. Purposes for Which Holders' Meetings May Be Called............................. 68 SECTION 1502. Call of Meetings by Trustee.................................................... 69 SECTION 1503. Issuer and Holders May Call Meeting............................................ 69 SECTION 1504. Persons Entitled to Vote at Meeting............................................ 69 SECTION 1505. Determination of Voting Rights: Conduct and Adjournment of Meeting............. 69 SECTION 1506. Counting Votes and Recording Action of Meeting................................. 70 ARTICLE SIXTEEN COVENANTS OF HOLDERS OF NOTES SECTION 1601. Treatment of Notes as Indebtedness for Tax Purposes............................ 71 EXHIBIT A Definitions EXHIBIT B1 Form of Face of Note Power Contract Financing, L.L.C. 5.200% Senior Secured Note Due 2006 EXHIBIT B2 Form of Face of Note Power Contract Financing, L.L.C. 6.256% Senior Secured Note Due 2010. EXHIBIT C Form of Certificate to Be Delivered upon Termination of Distribution Compliance Period on or after July 23, 2003 EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Institutional Accredited Investors EXHIBIT E Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S EXHIBIT F Form of Issuer Order and Officer's Certificate of Power Contract Financing, L.L.C. v POWER CONTRACT FINANCING, L.L.C. RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND INDENTURE, DATED AS OF JUNE 13, 2003

TRUST INDENTURE ACT SECTION INDENTURE SECTION Section 310 (a)(1) ................................................ 808 (a)(2) ................................................ 808 (b) ................................................ 808, 809, 810 Section 311 (a) ................................................ 813 (b) ................................................ 813 Section 312 (a) ................................................ 901 (b) ................................................ 902 (c) ................................................ 902 Section 313 (a) ................................................ 903 (b) ................................................ 903 (c) ................................................ 720, 903 (d) ................................................ 903 Section 314 (a) ................................................ 904, 1106 (b) ................................................ 1111 (c)(1) ................................................ 102 (c)(2) ................................................ 102 (d) ................................................ 1111 (e) ................................................ 102 Section 315 (a) ................................................ 801 (b) ................................................ 720 (c) ................................................ 801 (d) ................................................ 801 (e) ................................................ 721 Section 316 (a) (last sentence)................................. 101 ("Outstanding") (a)(1)(A) ................................................ 717 (a)(1)(B) ................................................ 718 (b) ................................................ 713 (c) ................................................ 104 Section 317 (a)(1) ................................................ 708, 709 (a)(2) ................................................ 709 (b) ................................................ 1115 Section 318 (a) ................................................ 111 (c) ................................................ 111

- ---------- Note: This reconciliation and tie shall not, for any purpose, be deemed part of the Indenture vi This INDENTURE, dated as of June 13, 2003 (this "Indenture"), is made by and between POWER CONTRACT FINANCING, L.L.C., a limited liability company organized and existing under the laws of the State of Delaware, having its principal executive offices at 50 West San Fernando Street, Suite 670, San Jose, California 95113 (the "Issuer"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation (the "Trustee"). RECITALS WHEREAS, the Issuer has duly authorized the execution and delivery of this Indenture to provide for the creation and issuance on the Closing Date, of 5.200% Senior Secured Notes due February 1, 2006 initially to be issued in the aggregate principal amount of $339,929,000 (the "Notes due 2006") and 6.256% Senior Secured Notes due February 1, 2010 initially to be issued in the aggregate principal amount of $462,317,000 (the "Notes due 2010"); WHEREAS, all necessary actions to ensure that this Indenture is a valid indenture and agreement according to its terms have been taken; WHEREAS, as security for the payment and performance by the Issuer of its obligations under this Indenture and the Notes (as defined below), the Issuer has agreed to assign and pledge the Collateral (as defined below) as collateral to the Trustee for the benefit of the Trustee and the Holders (as defined below); and WHEREAS, the Trustee has agreed to act as trustee, accounts agent, paying agent and registrar under this Indenture on the following terms and conditions. NOW, THEREFORE, for and in consideration of the premises herein contained and the purchase of the Notes by the Holders, it is mutually covenanted and agreed, for the benefit of the parties hereto and the equal and proportionate benefit of all Holders, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) capitalized terms used herein shall have the respective meanings assigned to them in Exhibit A; (b) the terms defined in Exhibit A include the plural as well as the singular; (c) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (d) the words "herein," "hereof' and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (e) except as otherwise expressly provided herein, (i) all accounting terms used herein shall be interpreted, (ii) all financial statements and all certificates and reports as to financial matters required to be delivered to the Trustee hereunder shall be prepared and (iii) all calculations made for the purposes of determining compliance with this Indenture shall (except as otherwise expressly provided herein) be made in accordance with, or by application of, GAAP applied on a basis consistent with that used in the preparation of the latest corresponding financial statements furnished hereunder to the Trustee; (f) all references in this Indenture to "Articles," "Sections," "Exhibits" and other subdivisions of this Indenture are to the designated articles, sections and other subdivisions of, and the exhibits to, this Indenture; (g) unless otherwise expressly specified or the context otherwise requires, all references in this Indenture or any Exhibit to any agreement, contract or document (including this Indenture) shall include reference to all exhibits to such agreement, contract or document; (h) unless otherwise expressly specified or the context otherwise requires, any agreement, contract or document defined or referred to herein shall mean such agreement, contract or document as in effect as of the date hereof, as the same may thereafter be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof; (i) unless otherwise expressly specified or the context otherwise requires, pronouns having a masculine or feminine gender shall be deemed to include the other; (j) any reference to any Person shall include its permitted successors and assigns in accordance with the terms of this Indenture and the other Financing Documents and, in the case of any Governmental Agency, any Person succeeding to its functions and capacities; and (k) the term "including" denotes an example and not a limitation. SECTION 102. Compliance Certificates and Opinions. (a) Upon any application or request by the Issuer to the Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any application or request as to which the furnishing of such 2 documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished. (b) Every Officer's Certificate or Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (i) a statement that each individual signing such Officer's Certificate or Opinion of Counsel has read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officer's Certificate or Opinion of Counsel are based; (iii) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; (iv) a statement as to whether, in the opinion of each such individual, such covenant or condition has been complied with; and (v) a statement that, in the opinion of each such individual, such Officer's Certificate or Opinion of Counsel complies with the provisions of this Section 102 and that the Trustee may rely on such Officer's Certificate or Opinion of Counsel. (c) Any certificate, statement or opinion of an officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or Opinion of Counsel or representations by counsel (which shall also be addressed to the Trustee and the Holders), unless such officer knows that the certificate or Opinion of Counsel or representations with respect to the matters upon which his certificate, statement or Opinion of Counsel will be based are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or Opinion of Counsel may be based, insofar as it relates to factual matters or information which is in the possession of the Issuer, upon the certificate, statement or opinion of or representations by an officer or officers of the Issuer, unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. (d) Any certificate, statement or opinion of an officer of the Issuer or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of an Accountant in the employ of the Issuer (which shall be additionally addressed to the Trustee and the Holders), unless such officer or counsel, as the case may be, knows that the certificate or opinion with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. (e) Any certificate or opinion of any Independent Accountant filed with the Trustee shall contain a statement that such Accountant is Independent. SECTION 103. Form of Documents Delivered to Trustee. (a) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to 3 some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. (b) Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders may be embodied in and evidenced by (i) one or more instruments of substantially similar tenor signed by the Holders in person or by their respective agents or proxies duly appointed in writing, (ii) the record of Holders voting in favor thereof, either in person or by their respective agents or proxies duly appointed in writing, at any meeting of Holders duly called and held in accordance with the provisions of Article Fifteen, or (iii) a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is expressly required hereby, to the Issuer. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Note, shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Issuer, if made in the manner provided in this Section 104. The record of any meeting of Holders shall be proved in the manner provided in Section 1506. (b) The affidavit of a witness of such execution sworn to before a notary public or other officer authorized by law to take acknowledgments of deeds or administer oaths, or by a certificate of such notary or other officer, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof shall be conclusive evidence of the fact and date of execution by any Person of any such instrument or writing. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) Entries in the Security Register shall be conclusive evidence of the principal amount and serial numbers of Notes held by any Person, and the date of holding the same, and the Trustee shall not be affected by notice to the contrary. (d) If the Issuer shall solicit from the Holders of either Series of the Notes any request, demand, authorization, direction, notice, consent, waiver or other Act, the Issuer may, at its option, by or pursuant to a Management Committee's Consent, fix in advance a record date for the determination of such Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Issuer shall 4 have no obligation to do so. Notwithstanding Trust Indenture Act Section 316(c), such record date shall be the record date specified in or pursuant to such Management Committee's Consent, which shall be a date not earlier than the date thirty (30) days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed unless otherwise specified herein. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Notes have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Notes shall be computed as of such record date; provided, that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven (11) months after the record date. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 105. Notices, Etc. to Trustee and Issuer. Any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other documents provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Holder or by the Issuer shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office; or (b) the Issuer by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Issuer addressed to it at the address of its principal office specified in the first paragraph of this Indenture or at any other address previously furnished in writing to the Trustee by the Issuer. SECTION 106. Notice to Holders: Waiver. (a) Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, or delivered by overnight courier or facsimile, to each Holder, at its address or facsimile number (as applicable) as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. Where this Indenture provides for notice in any manner, such notice and the manner of its giving may be waived in writing by the Person entitled to receive such notice, either before or after the event and such waiver shall be the 5 equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In any case where notice to Holders is given by mail or fax (as applicable), neither the failure to mail or fax such notice, nor any defect in any notice so mailed or faxed (as the case may be), to any particular Holder shall affect the sufficiency of such notice with respect to other Holders, and any notice that is mailed or faxed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holder actually receives notice. (b) In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail or deliver notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 107. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. SECTION 108. Successors and Assigns. All covenants, stipulations, promises and agreements in this Indenture by or on behalf of each of the Trustee and the Issuer shall bind and inure to the benefit of their respective successors and assigns, whether so expressed or not. SECTION 109. Severability Clause. In case any provision in this Indenture or in any Note shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 110. Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto, any Accounts Agent, any Paying Agent, any Registrar, and their successors and permitted assigns hereunder, and the Holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 111. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with the duties imposed by the Trust Indenture Act Sections 310 to 318, inclusive, or conflicts with any provision of the Trust Indenture Act that is required under the Trust Indenture Act to be a part of and govern this Indenture, such duties or provision of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded by its terms, such provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 112. Governing Law; Consent to Jurisdiction and Service of Process. (a) This Indenture and the Notes shall be governed by, and construed in 6 accordance with, the law of the State of New York without giving effect to the principles thereof relating to conflicts of law except Section 5-1401 of the New York General Obligations Law. (b) The Issuer consents to the non-exclusive jurisdiction of any court of the State of New York or any United States federal court sitting in the Borough of Manhattan, New York City, New York, United States, and any appellate court from any thereof, and waives any immunity from the jurisdiction of such courts over any suit, action, or proceeding that may be brought in connection with this Indenture, the Financing Documents or the Notes. The Issuer irrevocably waives, to the fullest extent permitted by law, any objection to any suit, action, or proceeding that may be brought in connection with this Indenture, the Financing Documents or the Notes in such courts whether on the grounds of venue, residence or domicile or on the ground that any such suit, action or proceeding has been brought in an inconvenient forum. The Issuer agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Issuer and may be enforced in any court to the jurisdiction of which the Issuer is subject by a suit upon such judgment. The Issuer agrees that service of all writs, process and summonses in any suit, action or proceeding brought in connection with this Indenture, the Financing Documents or the Notes against the Issuer, or with respect to its property and assets, in any court of the State of New York or any United States federal court sitting in the Borough of Manhattan, New York City may be made upon National Corporate Research, Ltd. ("NCR") at 225 W. 34th Street, Suite 910, New York, NY 10122, whom the Issuer appoints as its authorized agent for service of process. The Issuer represents and warrants that NCR has agreed to act as the Issuer's agent for service of process. The Issuer agrees that such appointment shall be irrevocable so long as any of the Notes remain outstanding or until the irrevocable appointment by the Issuer of a successor in New York City as its authorized agent for such purpose and the acceptance (on terms reasonably satisfactory to the Trustee) of such appointment by such successor. The Issuer further agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. If NCR shall cease to act as the Issuer's agent for service of process, the Issuer shall appoint without delay another such agent and provide prompt written notice to the Trustee of such appointment. With respect to any such action in any court of the State of New York or any United States federal court in the Borough of Manhattan, City of New York, service of process upon NCR, as the authorized agent of the Issuer for service of process, and written notice of such service to the Issuer, shall be deemed in every respect effective service of process upon the Issuer. Without prejudice to the foregoing, the Issuer hereby irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Issuer at the address of its principal office specified in the first paragraph of this Indenture or at any other address previously furnished in writing to the Trustee by the Issuer. (c) Nothing in this Section 112 shall affect the right of any party to serve legal process in any other manner permitted by law or affect the right of any party 7 to bring any action or proceeding against any other party or its property in the courts of other jurisdictions. SECTION 113. Legal Holidays. If any Payment Date, Redemption Date or Stated Maturity of any Note or of any installment of principal thereof or payment of interest thereon, or any date on which any defaulted interest is proposed to be paid, shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of any Note) payment of interest or principal (or Make-Whole Premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Payment Date or Redemption Date, or at the Stated Maturity, or on the date on which the defaulted interest is proposed to be paid; provided, that no interest shall accrue on the amount then due for the period from and after such Payment Date, Redemption Date, Stated Maturity or the date on which the defaulted interest is proposed to be paid, as the case may be, to the date of such payment. SECTION 114. Incorporators, Shareholders, Members, Officers and Directors of Issuer Exempt from Individual Liability. No recourse under or upon any obligation, covenant or agreement contained in this Indenture or any Security Document, or because of any indebtedness evidenced thereby, shall be had against any incorporator, as such, or against any past, present or future stockholder, member, manager, officer or director, as such, of the Issuer or the Issuer's Members, or of any successor, either directly or through the Issuer or the Issuer's Members, as the case may be, or any successor, under any rule of law, statute, or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of the Notes by the Holders and as part of the consideration for the issuance of the Notes. Nothing contained in this Section 114 shall, however, limit the liability of any Person for any fraud, gross negligence or willful misconduct on their part. SECTION 115. Execution in Counterparts. This instrument may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. ARTICLE TWO FORM OF NOTES SECTION 201. Form of Note. (a) The Notes due 2006 and the accompanying Trustee's certificate of authentication shall be substantially in the form annexed hereto as Exhibit B1. The Notes due 2010 and the accompanying Trustee's certificate of authentication shall be substantially in the form annexed hereto as Exhibit B2. The Notes may have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have letters, notations or other marks of identification and such notations, legends or endorsements required by law, the rules of any stock exchange, agreements to which the Issuer is subject or usage. Any portion of the text of any Note may be set forth on the reverse thereof, with an 8 appropriate reference thereto on the face of the Note. The Issuer shall approve the form of the Notes and any notation, legend or endorsement on the Notes. Each Note shall be dated the date of its authentication. (b) The definitive Notes shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner permitted by the rules under any applicable securities laws, all as determined by the officers of the Issuer executing such Notes, as evidenced by their execution of such Notes. (c) The terms and provisions contained in the form of the Notes annexed hereto as Exhibit B1 or B2, as applicable shall constitute, and are hereby expressly made, a part of this Indenture; provided, that to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. To the extent applicable, the Issuer and the Trustee, by their execution and delivery of this Indenture, and the Holders and beneficial owners of the Notes by their acceptance of the Notes expressly agree to such terms and provisions and to be bound thereby. (d) Notes offered and sold to QIBs in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit B1 or B2, as applicable (each, a "Rule 144A Global Note"), deposited with the Trustee as custodian for DTC and registered in the name of a nominee of DTC, duly executed by the Issuer and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of each Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided. (e) Notes offered and sold in offshore transactions in reliance on Regulation S shall be initially issued in the form of one or more temporary global Notes in registered form, substantially in the form set forth in Exhibit B1 or B2, as applicable (each, a "Temporary Regulation S Global Note"), deposited with the Trustee as custodian for DTC and registered in the name of a nominee of DTC for the accounts of Euroclear Bank, S.A./N.V., as operator of Euroclear and Clearstream Luxembourg, duly executed by the Issuer and authenticated by the Trustee as hereinafter provided. Each Temporary Regulation S Global Note will be exchangeable for one or more permanent global Notes (each, a "Permanent Regulation S Global Note"; and together with the Temporary Regulation S Global Notes, the "Regulation S Global Notes") after the fortieth (40th) day following the Closing Date, upon certification (substantially in the form of Exhibit C) that the beneficial interests in such global Note are owned by either Non-U.S. Persons or U.S. Persons who purchased such interests pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The aggregate principal amount of each Regulation S Global Note may from time to time be increased or decreased by adjustments made in the records of the Trustee, as custodian for DTC or its nominee, as herein provided. (f) Notes offered and sold to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who are not QIBs 9 (excluding Non-U.S. Persons) shall initially be issued in the form of permanent certificated Notes in registered form in substantially the form of Exhibit B1 or B2, as applicable ("U.S. Physical Notes"). Notes issued pursuant to Section 306 in exchange for or upon transfer of interests in a Rule 144A Global Note or a Regulation S Global Note shall be in the form of U.S. Physical Notes and permanent certificated Notes in registered form substantially in the form set forth in Exhibit B1 or B2, as applicable (the "Regulation S Physical Note"), respectively. (g) The U.S. Physical Notes and the Regulation S Physical Notes are sometimes collectively herein referred to as the "Physical Notes." The Regulation S Global Notes and the Rule 144A Global Notes are sometimes collectively referred to as the "Global Notes." SECTION 202. Restrictive Legends. (a) (i) Each Rule 144A Global Note and each U.S. Physical Note shall bear the legend set forth below (the "Private Placement Legend") on the face thereof, except as otherwise provided in Section 307(e), and (ii), and each Regulation S Global Note and each Regulation S Physical Note shall bear the legend set forth below on the face thereof until at least July 23, 2003, and receipt by the Issuer and the Trustee of a certificate substantially in the form of Exhibit C: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, RESOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES THAT ANY OFFER, SALE OR OTHER TRANSFER OF SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) (THE "RESALE RESTRICTION TERMINATION 10 DATE"), SHALL ONLY BE MADE: (A) TO THE ISSUER OR ANY SUBSIDIARY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER," AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO, OR FOR OFFER OR RESALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT, PRIOR TO ANY SUCH OFFER, RESALE OR TRANSFER (i) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR PURSUANT TO CLAUSE (E) OR (F) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE, TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND FURTHER SUBJECT, IN EACH OF THE FOREGOING CASES, EXCEPT (D), TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A 11 CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. (b) Each Global Note shall also bear the following legend on the face thereof UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE. THE HOLDER OF THIS GLOBAL NOTE REPRESENTS THAT (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA") (AN "ERISA PLAN") OR OTHER PLAN, AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR A GOVERNMENTAL PLAN THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF 12 ERISA OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR (ii) THE PURCHASE AND HOLDING BY IT OF THIS NOTE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF A GOVERNMENTAL PLAN, ANY SUBSTANTIALLY SIMILAR FEDERAL, STATE OR LOCAL LAW) FOR WHICH AN EXEMPTION IS NOT AVAILABLE. ARTICLE THREE THE NOTES SECTION 301. Amount. (a) The Notes due 2006 and the Notes due 2010 to be issued under this indenture are hereby created. The maximum aggregate principal amount of Notes due 2006 that may be authenticated and delivered under this Indenture on the Closing Date is $339,929,000 and the maximum aggregate principal amount of Notes due 2010 that may be authenticated and delivered under this Indenture on the Closing Date is $462,317,000. (b) The Notes due 2006 shall be known and designated as the "5.200% Senior Secured Notes due 2006" of the Issuer and the Notes due 2010 shall be known and designated as the "6.256% Senior Secured Notes due 2010" of the Issuer. The Stated Maturity of the Notes due 2006 shall be February 1, 2006 and the Stated Maturity of the Notes due 2010 shall be February 1, 2010. Interest on the Notes due 2006 will accrue at the rate of 5.200% per annum and interest on the Notes due 2010 will accrue at the rate of 6.256% per annum, in each case from the Closing Date, or from the most recent Interest Payment Date on which interest has been paid or duly provided for, payable each applicable Interest Payment Date, until the full principal thereof is paid or duly provided for. (c) Principal payments on the Notes due 2006 will be made on the Principal Payment Dates in an amount equal to the amount, if any, set forth opposite the applicable Principal Payment Date on the amortization schedule set out below. The aggregate principal amount of the Notes due 2006 payable on each Principal Payment Date is:

Principal Payment Date Principal Payable Amount ---------------------- ------------------------ February 1, 2004 $ 43,150,835 August 1, 2004 $ 70,728,895 February 1, 2005 $ 74,102,631 August 1, 2005 $ 73,994,448 February 1, 2006 $ 77,952,191

13 (d) Principal payments on the Notes due 2010 will be made on the Principal Payment Dates in an amount equal to the amount, if any, set forth opposite the applicable Principal Payment Date on the amortization schedule set out below. The aggregate principal amount of the Notes due 2010 payable on each Principal Payment Date is:

Principal Payment Date Principal Payable Amount ---------------------- ------------------------ February 1, 2004 $ 0 August 1, 2004 $ 0 February 1, 2005 $ 0 August 1, 2005 $ 0 February 1, 2006 $ 0 August 1, 2006 $ 77,945,061 February 1, 2007 $ 82,418,034 August 1, 2007 $ 45,757,654 February 1, 2008 $ 48,607,171 August 1, 2008 $ 49,017,109 February 1, 2009 $ 51,660,859 August 1, 2009 $ 52,056,612 February 1, 2010 $ 54,854,500

(e) The principal of, Make-Whole Premium, if any, and interest on, the Notes shall be payable to, and the Notes shall be exchangeable and transferable by, at the office or agency of the Issuer in the Borough of Manhattan, the City of New York, maintained for such purposes (which initially shall be the Corporate Trust Office of the Trustee), the Person in whose name such Note is registered at the close of business on the Regular Record Date applicable to each Principal Payment Date or otherwise in accordance with Section 309. (f) The Notes shall be redeemable as provided in Article Thirteen. (g) This Indenture shall, to the extent applicable, incorporate and be governed by the provisions of the Trust Indenture Act that are required to be part of and to govern indentures qualified under the Trust Indenture Act. SECTION 302. Denominations. The Notes shall be issuable only in registered form without coupons and initially only in minimum denominations of $100,000 and integral multiples of $1,000 in excess thereof; provided, that initial purchases of the Notes by purchasers who are institutional "accredited investors" who are not QIBs shall be in minimum amounts of $250,000; and provided, further that after initial issuance, Notes may be issued upon exchange or transfer in such amounts as may be necessary to evidence the entire unpaid principal amount of any Note surrendered or exchanged. SECTION 303. Execution, Authentication, Delivery and Dating. (a) The Notes shall be executed on behalf of the Issuer by its President or a Vice 14 President and attested by a Vice President, its Secretary or an Assistant Secretary. The signature of any of these officers on the Notes may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Notes. (b) Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. (c) At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Notes executed by the Issuer to the Trustee for authentication, together with an Issuer Order for the authentication and delivery of such Notes, directing the Trustee to authenticate the Notes; and the Trustee, in accordance with such Issuer Order, shall authenticate and deliver such Notes as in this Indenture provided and not otherwise. Each such Issuer Order shall specify the Series and amount of Notes to be authenticated, the date on which the Notes are to be authenticated, whether the Notes are to be Initial Notes or Unrestricted Notes and whether the Notes are to be issued as Physical Notes or Global Notes or such other information as the Trustee may reasonably request. The Trustee shall receive, as part of any such Issuer Order, an Officer's Certificate certifying that all conditions precedent to the issuance of Notes contained herein have been fully complied with. Any Issuer Order and Officer's Certificate delivered by the Issuer to the Trustee pursuant to this Section 303(c) shall be substantially in the form annexed hereto as Exhibit F. The Trustee may also request an Opinion of Counsel of the Issuer in connection with such authentication of Notes. Upon receipt of any such Issuer Order, the Trustee shall, in accordance with such Issuer Order, authenticate Notes due 2006 for original issue in the aggregate principal amount not to exceed $339,929,000 and Notes due 2010 for original issue in the aggregate principal amount not to exceed $462,317,000. The aggregate principal amount of Notes due 2006 outstanding at any time may not exceed $339,929,000 and the aggregate principal amount of Notes due 2010 outstanding at any time may not exceed $462,317,000. (d) Each Note shall be dated the date of its authentication. (e) The Trustee may appoint an authenticating agent or agents reasonably acceptable to the Issuer to authenticate Notes. Unless limited by terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Any authenticating agent has the same rights as an agent to deal with the Issuer or an Affiliate of the Issuer. (f) No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for in Exhibit B1 or B2, as applicable duly executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such 15 Note has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. (g) In case the Issuer shall have executed an indenture supplemental hereto with the Trustee pursuant to Section 1001(a), any of the Notes authenticated or delivered prior to the assumption of the Issuer's obligations by any successor Person, may, from time to time, at the request of the successor Person, be exchanged for other Notes executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance and of like tenor as the Notes surrendered for such exchange and of like principal amount, and the Trustee, upon Issuer Request of the successor Person, shall authenticate and deliver Notes as specified in such request for the purpose of such exchange. If Notes shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section 303 in exchange or substitution for or upon registration of transfer of any Notes, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Notes at the time Outstanding for Notes authenticated and delivered in such new name. SECTION 304. Temporary Notes. (a) Pending the preparation of definitive Notes, the Issuer may execute, and upon an Issuer Order, the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. (b) If temporary Notes are issued, the Issuer will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Issuer designated for such purpose pursuant to Section 1102, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and deliver, in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. SECTION 305. Registration, Registration of Transfer and Exchange. (a) The Issuer shall cause to be kept at the Corporate Trust Office of the Registrar a register which, subject to such reasonable regulations as the Issuer may prescribe, shall provide for the registration of Notes and for the registration of transfers and exchanges of Notes, and the Trustee is hereby appointed "Registrar" for the purposes of registering Notes and transfers and exchanges of Notes as herein provided. This register shall be sometimes referred to herein as the "Security Register," and shall be in written form or any other form capable of being converted into written form within a 16 reasonable time. At all reasonable times, the Security Register shall be open to inspection by the Trustee. (b) The Notes shall be transferable only upon the surrender of a Note to the Issuer for registration of transfer. Subject to the provisions of Section 307, upon surrender for registration of transfer of any Note at the office or agency of the Issuer designated pursuant to Section 1102, the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denomination or denominations of a like aggregate principal amount. (c) At the option of the Holder thereof, Notes may be exchanged for other Notes to be registered in the name of such Holder, of authorized denominations and of like tenor, maturity and aggregate principal amount, upon surrender of the Notes to be exchanged at any office or agency maintained for such purpose. Whenever any Notes are so surrendered for exchange, the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and make available for delivery, the Notes which the Holder making the exchange is entitled to receive. (d) All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. (e) Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Issuer or the Registrar) be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Registrar, duly executed by the Holder thereof or his or her attorney duly authorized in writing. (f) No service charge shall be made for any registration of transfer or exchange or redemption of Notes; provided, that the Issuer may require payment in certain circumstances of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 304, 1006 or 1307 not involving any transfer. (g) The Issuer shall not be required (i) to issue, register the transfer of or exchange any Notes during a period beginning at the opening of business 15 days before the selection of Notes to be redeemed under Section 1303 and ending at the close of business on the day of such mailing of the relevant notice of redemption or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 306. Book Entry Provisions for Global Notes. (a) Each Global Note initially shall (i) be registered in the name of Cede & Co., as nominee of DTC (such nominee being referred to herein as the "Global Note Holder"), (ii) be 17 deposited with, or on behalf of, DTC or with the Trustee, as custodian for DTC and (iii) bear legends as set forth in Section 202. (b) Members of, or participants in, DTC (collectively, the "Participants" or the "DTC Participants") shall have no rights under this Indenture with respect to any Global Note held on their behalf by DTC, or the Trustee as its custodian, or under any Global Note, and DTC may be treated by the Issuer, the Trustee and any agent of the Issuer or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the Trustee or any agent of the Issuer or the Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or shall impair, as between DTC and its Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (c) Transfers of any Global Note shall be limited to transfers of such Global Note in whole, but not in part, to DTC, its successors or their respective nominees. Interests of beneficial owners in a Global Note may be transferred in accordance with the applicable rules and procedures of DTC and the provisions of Section 307. In addition, U.S. Physical Notes or Regulation S Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the Rule 144A Global Notes or Regulation S Global Notes, respectively, if (i) the Issuer notifies the Trustee in writing that DTC is unwilling or unable to continue as depository for the Global Notes or DTC ceases to be a "Clearing Agency" registered under the Exchange Act and a successor depository is not appointed by the Issuer within ninety (90) days or (ii) the Issuer, at its option, notifies the Trustee in writing that it elects to have the Physical Notes so issued. (d) Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. (e) In connection with the transfer of an entire Rule 144A Global Note or Regulation S Global Note to beneficial owners pursuant to paragraph (c) of this Section 306, the Rule 144A Global Note or Regulation S Global Note, as the case may be, shall be deemed to be surrendered to the Trustee for cancellation, and the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and deliver, to each beneficial owner identified by DTC in exchange for its beneficial interest in the Rule 144A Global Note or Regulation S Global Note, as the case may be, an equal aggregate principal amount of Physical Notes of authorized denominations. (f) Any U.S. Physical Note delivered in exchange for an interest in the Rule 144A Global Note pursuant to subsection (c) of this Section 306 shall, unless such exchange is made on or after the Resale Restriction Termination Date for such Note, bear the Private Placement Legend. 18 (g) The registered Global Note Holder may grant proxies and otherwise authorize any person, including DTC's Participants and persons that may hold interests through DTC's Participants, to take any action which a Holder is entitled to take under this Indenture or the Notes. (h) Any beneficial owner of interests in a Global Note may receive Physical Notes (which shall bear the Private Placement Legend if required by Section 202) in accordance with the procedures of DTC. In connection with the execution, authentication and delivery of such Physical Notes in exchange for beneficial interests in a Global Note pursuant to this paragraph (h) or paragraph (c) above, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the applicable Global Note in an amount equal to the principal amount of the beneficial interest in such Global Note to be transferred, and the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and deliver, one or more Physical Notes of like tenor and having an equal aggregate principal amount. SECTION 307. Special Transfer Provisions. Unless and until a Note is sold under an effective Registration Statement, the following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. The following provisions shall apply with respect to the registration of any proposed transfer of a Note to any institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) which is not a QIB (excluding Non-U.S. Persons): (i) The Registrar shall register the transfer of any Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is on or after the Resale Restriction Termination Date or (y) the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit D. (ii) If the proposed transferor is a DTC Participant holding a beneficial interest in the Rule 144A Global Note, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (i) above and (y) instructions given in accordance with DTC's and the Registrar's procedures therefor, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Note to be transferred, and the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and deliver, one or more Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a U.S. Physical Note or an interest in the Rule 144A Global Note to a QIB (excluding Non-U.S. Persons): 19 (i) If the Note to be transferred consists of (x) a U.S. Physical Note, the Registrar shall register the transfer and the Issuer shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Notes if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Issuer and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Issuer and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it, or the Person on whose behalf it is acting with respect to any such account, is a QIB within the meaning of Rule 144A, is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in a Rule 144A Global Note, the transfer of such interest may be effected only through the book-entry system maintained by DTC. (ii) If the proposed transferee is a DTC Participant, and the Notes to be transferred consist of U.S. Physical Notes, upon receipt by the Registrar of instructions given in accordance with DTC's and the Registrar's procedures therefor, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the U.S. Physical Notes to be transferred, and the Trustee shall cancel the U.S. Physical Notes so transferred. (c) Transfers of Interests in the Regulation S Global Note or Regulation S Physical Notes to U.S. Persons. The following provisions shall apply with respect to any transfer of interests in the Regulation S Global Note or Regulation S Physical Notes to U.S. Persons: (i) prior to the removal of the Private Placement Legend for the Regulation S Global Notes or the Regulation S Physical Notes pursuant to Section 202, the Registrar shall refuse to register such transfer; and (ii) after such removal pursuant to Section 202, the Registrar shall register the transfer of any such Note without requiring any additional certification. (d) Transfers to Non-U.S. Persons at Any Time. The following provisions shall apply with respect to any transfer of a Note to a Non-U.S. Person: 20 (i) Prior to July 23, 2003, the Registrar shall register any proposed transfer of a Note to a Non-U.S. Person upon receipt of a certificate substantially in the form of Exhibit E from the proposed transferor and the Issuer shall execute, and the Trustee shall, upon receipt of an Issuer Order, authenticate and deliver, one or more Temporary Regulation S Global Notes of like tenor and amount. (ii) On and after July 23, 2003, the Registrar shall register any proposed transfer to any Non-U.S. Person (x) if the Note to be transferred is a Regulation S Physical Note, (y) if the Note to be transferred is a U.S. Physical Note or an interest in the Rule 144A Global Note, upon receipt of a certificate substantially in the form of Exhibit E from the proposed transferor and, (z) in the case of either clause (x) or (y), the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and deliver, one or more Physical Notes of like tenor and amount. (iii) If the proposed transferor is a DTC Participant holding a beneficial interest in the Rule 144A Global Note, upon receipt by the Registrar of (x) the document, if any, required by paragraph (i) and (y) instructions in accordance with DTC's and the Registrar's procedures therefor, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Note to be transferred and the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and deliver, one or more Regulation S Global Notes or Physical Notes of like tenor and amount. (e) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend unless the Issuer has reasonable cause to believe that a Note is a Restricted Security and delivers to the Trustee an Issuer Order, in which case the Trustee shall authenticate and deliver a new Note bearing a Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless either (i) the circumstances contemplated by paragraph (a)(i)(x) of this Section 307 exist or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Issuer and the Registrar to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (f) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture and such Note. 21 (g) Retention of Records. The Registrar shall retain until such time as no Notes remain Outstanding copies of all letters, notices and other written communications received pursuant to Section 306 or this Section 307. The Issuer shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. (h) No Duty to Monitor. Neither the Trustee nor the Registrar shall have an obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes. (a) If any mutilated Note is surrendered to the Trustee or the Registrar, the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order and such security or indemnity as may be required by the Trustee, Registrar and the Issuer to save each of them and any agent of theirs harmless, shall authenticate and deliver, in exchange therefor a new Note of like tenor and principal amount and bearing a number not contemporaneously Outstanding, or, in case any such mutilated Note has become or is about to become due and payable, the Issuer in its discretion may, instead of issuing a new Note, pay such Note. (b) If there shall be delivered to the Issuer and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Note and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Issuer or the Trustee that such Note has been acquired by a bona fide purchaser, the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount and bearing a number not contemporaneously Outstanding, or, in case any such destroyed, lost or stolen Note has become or is about to become due and payable, the Issuer in its discretion may, instead of issuing a new Note, pay such Note. (c) Upon the issuance of any new Note under this Section 308, the Issuer may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. (d) Every new Note issued pursuant to this Section 308 in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes, duly issued hereunder. 22 (e) The provisions of this Section 308 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 309. Payment on Notes; Rights Preserved. (a) Principal of, Make-Whole Premium, if any, and interest on any Note which is payable, and is punctually paid or duly provided for, on any Payment Date shall be paid in accordance with Section 502(b) hereof to the Person in whose name such Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date applicable to such Payment Date at the office or agency of the Issuer in the Borough of Manhattan, the City of New York, maintained for such purposes (which initially shall be the Corporate Trust Office) pursuant to Section 1102 or, at the option of the Issuer, interest may be paid by check mailed to the address of the Person entitled thereto pursuant to Section 310 as such address appears in the Security Register; provided, that (i) all payments with respect to the Global Notes and Physical Notes the Holders of which have given wire transfer instructions to the Trustee by the Regular Record Date shall be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof; (ii) the payment of the final installment of principal of, or interest on, each Note shall only be made upon presentation and surrender of such Note at the Corporate Trust Office or such other place as may be designated pursuant to this Indenture; and (iii) upon written request from any Holder of Outstanding Notes in the aggregate principal amount of $1,000,000, payments of interest on, or principal (other than the final payment of principal) of, such Notes shall be made by wire transfer to such Holder. (b) Any principal of, Make-Whole Premium, if any, or interest on any Note which is payable, but is not punctually paid or duly provided for, on the relevant Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted principal or interest and (to the extent lawful) interest on such defaulted principal or interest at the applicable rate borne by such Note plus additional interest at the rate of one percent (1%) per annum (such defaulted interest and interest thereon herein collectively called "Defaulted Payments") shall be paid by the Issuer as provided in clause (c) below. (c) The Issuer shall make payment of any Defaulted Payment to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a Special Record Date for the payment of such Defaulted Payment, which shall be fixed in the following manner. The Issuer shall notify the Trustee in writing of the amount of the Defaulted Payment proposed to be paid on each Note and the date of the proposed payment and, at the same time, the Issuer shall deposit in the Collections Account an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Payment or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Payment as provided in this clause (c). Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Payment, which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 23 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Issuer of such Special Record Date and, in the name and at the expense of the Issuer, shall cause notice of the proposed payment of such Defaulted Payment and the Special Record Date therefor to be given in the manner provided for in Section 106 not less than ten (10) days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Payment and the Special Record Date therefor having been so given, such Defaulted Payment shall be paid by the Trustee to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such Special Record Date. (d) Subject to the foregoing provisions of this Section 309, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 310. Persons Deemed Owners. (a) Prior to the due presentment of a Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of, Make-Whole Premium, if any, and (subject to Section 309) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Issuer, the Trustee or any agent of the Issuer or the Trustee shall be affected by notice to the contrary. (b) None of the Issuer, the Trustee and any agent of the Issuer or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Note in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 311. Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Issuer at any time may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Notes previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever and any Notes previously authenticated hereunder which the Issuer has not issued and sold, and all Notes so delivered shall be promptly canceled by the Trustee. If the Issuer shall so acquire any of the Notes, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 311, except as expressly permitted by this Indenture. All canceled Notes held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Issuer unless by Issuer Order the Issuer shall direct that canceled Notes be returned to it; provided, that such Issuer Order is timely and the Notes have not 24 been previously disposed of by the Trustee; and provided further, that the Trustee shall not be required to destroy such canceled Notes. SECTION 312. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 313. CUSIP and CINS Numbers. The Issuer in issuing the Notes may use "CUSIP" and "CINS" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" or "CINS" numbers in notices of redemption or exchange as a convenience to Holders; provided, that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption or exchange, that reliance may be placed only on the other identification numbers printed on the Notes and that any such redemption shall not be affected by any defect in or omission of such numbers. SECTION 314. Parity of Notes. All Notes issued and Outstanding hereunder, regardless of the time or times of their issuance, rank on a parity with each other Note and each Note shall be secured equally and ratably by this Indenture and the Security Documents with each other Note, without preference, priority or distinction of any one thereof over any other by reason of difference in time of issuance or otherwise, and each Note shall be entitled to the same benefits and security in this Indenture and the Security Documents as each other Note. ARTICLE FOUR APPLICATION OF PROCEEDS FROM SALE OF NOTES SECTION 401. Application of Proceeds from Sale of Notes. The Issuer covenants to use the net proceeds from the issuance and sale of the Notes (a) to pay approximately $326,000,000 to Calpine Energy Services, L.P. ("CES") in partial payment for the purchase of the CDWR Power Sales Agreement and the Morgan Stanley CDWR Guarantee, (b) to pay approximately $361,400,000 to CES in partial payment for the purchase of the MSCG power purchase agreement and the Morgan Stanley MSCG Guarantee, (c) to fund the reserve account in an amount equal to $94,441,188, (d) to pay approximately $20,300,000 for all costs, fees and expenses incurred in connection with this offering, including fees to Morgan Stanley & Co. Incorporated for structuring the offering of the Notes and acting as initial purchaser of the Notes in this offering and (e) to transfer any remaining amounts to the Working Capital Account. ARTICLE FIVE ACCOUNTS SECTION 501. Establishment of Accounts. (a) Wilmington Trust Company, a Delaware banking corporation, is hereby appointed as the "Accounts Agent" and, in such capacity, will act, in accordance with Article 8 of the UCC, as the "securities intermediary" with respect to any "securities accounts" and as a "bank" with respect to any "deposit accounts" (as each such term is defined in the UCC) in which a security interest may be granted under the UCC pursuant hereto and pursuant to the Assignment 25 and Security Agreement (together with its successors and permitted assigns in each such capacity, the "Accounts Agent"). Pursuant hereto and to the Assignment and Security Agreement, the Accounts Agent shall establish and maintain the following non-interest bearing accounts (collectively, the "Accounts") in the name of the Trustee for its own benefit and the equal and ratable benefit of the Holders as provided in this Indenture: (i) the Collections Account; (ii) the Working Capital Account; (iii) the Reserve Account; (iv) the Reserve Investments Account; and (v) the Damages and Indemnity Account (each as defined below). The Accounts Agent will invest funds in each such Account in accordance with Section 507 and act with respect to all "financial assets" (as such term is defined in Article 8 of the UCC) credited to the Accounts as a "securities intermediary" (as such term is defined in Article 8 of the UCC). The Accounts Agent shall hold and safeguard the Accounts during the term of this Indenture and the Assignment and Security Agreement and shall treat the "security entitlements" (as such term is defined in Article 8 of the UCC) in the Accounts as security entitlements pledged by the Issuer to the Trustee for its own benefit and the equal and ratable benefit of the Holders to be held in accordance with the provisions of this Indenture and the Assignment and Security Agreement. Neither the Issuer nor any Affiliate of the Issuer shall have any rights against the Accounts Agent hereunder (other than rights which may arise as a result of the Accounts Agent's gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, non-appealable judgment), as a third-party beneficiary or otherwise, including, any right to direct the Accounts Agent to distribute or allocate any funds in the Accounts (except as expressly provided herein or as provided in the Assignment and Security Agreement). The Accounts Agent shall comply with Part 5 of Article 8 of the UCC. (b) All monies and Permitted Investments credited to the Accounts from time to time shall constitute part of the Collateral and shall be collateral security for the payment and performance by the Issuer of all its obligations under the Financing Documents and, subject to the terms of this Indenture, shall at all times be subject to the sole dominion and control of the Trustee for the purposes and on the terms set forth in this Indenture and the other Financing Documents. Until payment and performance of all the obligations of the Issuer under the Financing Documents in accordance with the provisions hereof, the Issuer shall have no right to the funds credited to the Accounts, except as provided in this Article Five. If a Notice of an Actionable Event shall have been given and be outstanding, the Trustee shall apply all or any of the monies in the Accounts in accordance with the express terms of the Indenture and in the order of priority set forth in Section 711. SECTION 502. Collections Account. (a) On or prior to the Closing Date, the Accounts Agent shall establish and maintain a segregated trust account no. 61186-1, in the name of the Trustee in its trust capacity and entitled "Collections Account" (the "Collections Account"). Thereafter, without limitation of any other amounts required under this Indenture to be deposited in the Collections Account (including any profit or interest earned on the investment of moneys held in any Account pursuant to Section 507), all Collections and all Account Transfer Payments shall be deposited with the Accounts Agent for the benefit of the Trustee in the Collections Account. The Issuer shall instruct each Person from whom it receives or is entitled to 26 receive Collections to pay such Collections (identifying them as such in writing to the Trustee) directly to the Trustee for deposit in the Collections Account, and the Trustee shall be entitled to receive directly all Collections from the Persons owing the same. In furtherance of the foregoing, the Consents have been executed and delivered concurrently with the execution and delivery of this Indenture. In the event that any Collections are remitted directly to, or are otherwise received by, the Issuer, all such Collections shall be held by the Issuer as the agent of and in trust for the Trustee, and the Issuer shall promptly remit such Collections in the form received (with any necessary endorsement) to the Trustee for deposit in the Collections Account. (b) Unless a Notice of an Actionable Event shall have been given in writing to the Trustee and be outstanding, in which case the provisions of Section 711 shall be applicable, the Trustee shall apply amounts in the Collections Account on the dates specified below and in the following order of priority for payment to the appropriate Person, but in each case only to the extent that all current and past due amounts ranking prior thereto have been paid in full: (i) FIRST, on the first day of August of each year, beginning on August 1, 2004, to pay to the Trustee the amount of Trustee Fees due and payable at such time in connection with the Notes; (ii) SECOND, on or before the later of (A) the twenty first day of each month, or (B) the eleventh day after receipt of an invoice from Morgan Stanley Capital or, if such day is not a Business Day, then on the next Business Day, to pay Morgan Stanley Capital for electric energy sold or made available to Issuer by Morgan Stanley Capital under the MSCG Power Purchase Agreement (as specified in an Officer's Certificate of the Issuer delivered to the Trustee at least three Business Days prior to such payment date); (iii) THIRD, on the first day of each month, to pay to the payee thereof all governmental fees and other expenses (including legal fees and the expenses of the independent members of the Management Committee, the Administrative Agent and the Trustee, but excluding the annual fees of any of the foregoing) required to be paid by the Issuer to third-parties in order for the Issuer to remain in compliance with its obligations under this Indenture (as specified in an Officer's Certificate of the Issuer delivered to the Trustee at least three Business Days prior to the first day of each month); (iv) FOURTH, on each Interest Payment Date, to pay, on a pro rata basis to the Holders of each Series of the Notes, an amount equal to all interest due and payable (including past due amounts, if any) at such time on the Notes; (v) FIFTH, on each Principal Payment Date, to pay, on a pro rata basis to the Holders of each Series of the Notes, an amount equal 27 to the principal and Make-Whole Premium (if any, with respect to any Notes called for optional redemption) due and payable (including past due amounts, if any) at such time on such Notes (as specified in an Officer's Certificate of the Issuer delivered to the Trustee at least three Business Days prior to such payment date); (vi) SIXTH, on each Payment Date, to transfer to the Reserve Account an amount, if any, necessary to cause the amount on deposit in the Reserve Account to be equal to the Reserve Required Balance (as specified in an Officer's Certificate of the Issuer delivered to the Trustee at least three Business Days prior to such payment date); (vii) SEVENTH, on the first day of August of each year (beginning on August 1, 2003), in arrears, to pay to Morgan Stanley Capital's an amount equal to the annual fees payable to Morgan Stanley Capital under the Scheduling Services Agreement (as specified in an Officer's Certificate of the Issuer delivered to the Trustee at least three Business Days prior to such payment date); (viii) EIGHTH, on the first day of August of each year (beginning on August 1, 2004), to pay (1) to the Administrative Agent an amount equal to the annual fees payable to the Administrative Agent under the Administrative Services Agreement; (2) the fees of the Issuer's independent managers; (3) the fees of the rating agencies; and (4) the premiums, fees or other charges for insurance (in each case, as specified in an Officer's Certificate of the Issuer delivered to the Trustee at least three Business Days prior to such payment date); and (ix) NINTH, on each Payment Date, provided, that (as specified in an Officer's Certificate of the Issuer delivered to the Trustee no later than 10:00 a.m. (EDT) on such Payment Date) (A) no Event of Default or Default has occurred and is continuing on such Payment Date and (B) the Debt Service Coverage Ratio calculated as of such Payment Date equals or exceeds 1.01 to 1.00, to deposit the remaining Distributable Collections in the Working Capital Account. SECTION 503. Working Capital Account. On or prior to the Closing Date, the Accounts Agent shall establish and maintain a segregated trust account no. 61186-5, in the name of the Trustee in its trust capacity and entitled "Working Capital Account" (the "Working Capital Account"). The Working Capital Account shall be funded with all amounts released from the Collections Account in accordance with clause (ix) of Section 502(b). In addition, any amounts remaining after application of the proceeds from sale of the Notes will be transferred to the Working Capital Account. Subject to Section 3(d)(v) of the Assignment and Security Agreement, any amounts held in the Working Capital Account may be used by the Issuer pursuant to an Issuer Request to the Trustee at least three Business Days prior to the requested fund transfer date, for working capital or other purposes, including for distribution to its Members. So long as 28 no Event of Default has occurred and is continuing, the Trustee shall not issue instructions or orders with respect to the Working Capital Account and any funds held therein which are contrary to those issued by the Issuer pursuant to an Issuer Request with respect to the Working Capital Account and any funds held therein. SECTION 504. Reserve Account. (a) On or prior to the Closing Date, the Accounts Agent shall establish and maintain a segregated trust account no. 61186-2, in the name of the Trustee in its trust capacity and entitled "Reserve Account" (the "Reserve Account"). The Reserve Account shall be funded (i) on the Closing Date with the net proceeds from the issuance and sale of the Notes in an amount equal to the Reserve Required Balance as of the Closing Date and (ii) thereafter, by a transfer of funds, if funds are available for such purpose, from the Collections Account to the Reserve Account in accordance with clause (vi) of Section 502(b). (b) In the event that on any Interest Payment Date or Principal Payment Date, as applicable, the aggregate amount of funds on deposit in and available to be withdrawn from the Collections Account shall be insufficient for the payment of interest or principal then due and payable on the Notes (any such deficiency, a "Reserve Deficiency"), the Trustee shall forthwith transfer to the Collections Account from the Reserve Account an amount equal to such Reserve Deficiency. If on any Payment Date the aggregate amount of funds on deposit in and available to be withdrawn from the Reserve Account shall exceed the then current Reserve Required Balance, any such excess funds shall be transferred on the next Payment Date to the Collections Account for application in accordance with the provisions of Section 502. SECTION 505. Reserve Investments Account. On or prior to the Closing Date, the Accounts Agent shall establish and maintain a segregated trust account no. 61186-3, in the name of the Trustee in its trust capacity and entitled "Reserve Investments Account" (the "Reserve Investments Account"). Thereafter, all earnings on Permitted Investments made with funds on deposit in the Reserve Account shall be deposited and retained in the Reserve Investments Account until the Trustee shall have received from each of Moody's and Standard & Poor's a written consent to the release of such amounts in the Reserve Investments Account. Upon receipt by the Trustee of such consents from Moody's and Standard & Poor's, the Trustee shall transfer all amounts held in the Reserve Investments Account to the Collections Account, and following the date of such consents, all earnings thereafter on Permitted Investments made with funds on deposit in the Reserve Account shall be deposited in the Collections Account. SECTION 506. Damages and Indemnity Account. (a) On or prior to the Closing Date, the Accounts Agent shall establish and maintain a segregated trust account no. 61186-4, in the name of the Trustee in its trust capacity and entitled "Damages and Indemnity Account" (the "Damages and Indemnity Account"). The Damages and Indemnity Account shall be funded with all amounts paid by Morgan Stanley Capital under the MSCG Power Purchase Agreement and all amounts paid by Morgan Stanley under the Morgan Stanley MSCG Guarantee, in each case, with respect to (i) all damages payable by Morgan Stanley Capital to the Issuer pursuant to Article Four of the MSCG Power Purchase Agreement, (ii) any Termination Payment payable by Morgan Stanley Capital to the Issuer pursuant to Article Five of the MSCG Power Purchase Agreement and (iii) all indemnity payments payable by 29 Morgan Stanley Capital to the Issuer pursuant to Section 10.4 of the MSCG Power Purchase Agreement. The Damages and Indemnity Account shall also be funded with all amounts paid by CDWR under the CDWR Power Sales Agreement with respect to (i) all damages payable by CDWR to the Issuer pursuant to Article Four of the CDWR Power Sales Agreement, (ii) any Termination Payment payable by CDWR to the Issuer pursuant to Article Five of the CDWR Power Sales Agreement and (iii) all indemnity payments payable by CDWR to the Issuer pursuant to Section 10.4 of the CDWR Power Sales Agreement. (b) The Trustee shall, from time to time, as specified in an Officer's Certificate of the Issuer, withdraw from the Damages and Indemnity Account and pay to CDWR, when due (i) all damages payable by the Issuer to CDWR pursuant to Article Four of the CDWR Power Sales Agreement and (ii) all indemnity payments payable by the Issuer to CDWR pursuant to Section 10.4 of the CDWR Power Sales Agreement. The Trustee shall, from time to time, as specified in an Officer's Certificate of the Issuer, withdraw from the Damages and Indemnity Account and pay to Morgan Stanley Capital, when due (i) all damages payable by the Issuer to Morgan Stanley Capital pursuant to Article Four of the MSCG Power Purchase Agreement and (ii) all indemnity payments payable by the Issuer to Morgan Stanley Capital pursuant to Section 10.4 of the MSCG Power Purchase Agreement (c) In the event any Termination Payment is made into the Damages and Indemnity Account, the Trustee shall apply amounts in the Damages and Indemnity Account in the following order of priority for payment to the appropriate Person: (i) FIRST, if amounts payable under the Notes are accelerated as a result of the occurrence and continuation of an Event of Default, to pay, on a pro rata basis to the Holders, an amount equal to the entire principal amount of the Notes as of the Early Termination Date and any interest thereon accrued and unpaid as of the Early Termination Date and, in the event such Termination Payment is made by Morgan Stanley Capital as a result of its default under the MSCG Power Purchase Agreement and the CDWR Power Sales Agreement terminates as a result of such default, a Make-Whole Premium on the notes, calculated as if an optional redemption pursuant to Section 1302 had occurred on the date such Termination Payment is made; provided that the Issuer is obliged to pay such Make-Whole Premium if, and only to the extent that an amount equal to such Make-Whole Premium is paid to Issuer by Morgan Stanley or Morgan Stanley Capital in connection with such Termination Payment. (ii) SECOND, to pay the Termination Payment, if any, payable by the Issuer to CDWR pursuant to Article Five of the CDWR Power Sales Agreement; and 30 (iii) THIRD, to pay the Termination Payment, if any, payable by the Issuer to Morgan Stanley Capital pursuant to Article Five of the MSCG Power Purchase Agreement. SECTION 507. Statements; Investment of Funds. On or before the fifth (5th) Business Day of each calendar month the Trustee shall provide the Issuer with a written statement of (a) the balances in each of the Accounts at the end of the immediately preceding calendar month, (b) the amounts deposited into each of the Accounts for the immediately preceding calendar month (and the sources of such amounts) and (c) the application and payees of amounts withdrawn from each of the Accounts for the immediately preceding calendar month. Funds on deposit in the Accounts shall be invested by the Trustee, as specified in an Issuer Order, in Permitted Investments. The Issuer shall deliver to the Trustee on the date hereof an Issuer Order specifying its initial investment instructions which shall remain in effect until changed by a subsequent Issuer Order given not less than five (5) Business Days before the effective date of such change. All such Permitted Investments shall be maintained in the name of the Trustee and pledged to the Trustee to be held by it as part of the Collateral hereunder, and the Trustee shall be authorized to endorse any of such Permitted Investments in a manner satisfactory to it, on behalf of the Issuer. The Trustee and, as applicable, the Accounts Agent may rely and shall be fully protected, as provided in Section 807, in their reliance on an Issuer Order that complies with the provisions of this Section 507, and shall be indemnified as provided in Section 806. All earnings on Permitted Investments shall be credited to the Collections Account upon receipt thereof by the Trustee, provided, that all earnings on Permitted Investments made with funds on deposit in the Reserve Account shall be deposited in the Reserve Investments Account in accordance with Section 505, all earnings on Permitted Investments made with funds on deposit in the Reserve Investments Account shall be retained in the Reserve Investments Account in accordance with Section 505 and all such amounts held in the Reserve Investments Account shall be released in accordance with Section 505. All losses shall be charged to the applicable Account. Whenever the Trustee or the Accounts Agent is required or permitted to make any payment or transfer under this Indenture, the Trustee or the Accounts Agent, as the case may be, shall have the right, and is hereby irrevocably authorized, to sell or otherwise liquidate any Permitted Investments to the extent necessary to make such payment or transfer and shall have no liability for and shall be fully protected from and against any losses incurred in connection with such sale or liquidation. The Trustee or the Accounts Agent shall have no obligation to invest and reinvest any cash held in the Accounts in the absence of timely and specific written investment direction from the Issuer. Other than by reason of each of their own negligent failure to act or each of their own willful misconduct, in no event shall the Trustee or the Accounts Agent, as the case may be, be liable for the selection of investments or for investment losses incurred thereon. Other than by reason of each of their own negligent failure to act or each of their own willful misconduct, the Trustee or the Accounts Agent, as the case may be, shall have no liability in respect of losses incurred as a result of the liquidation of any investment prior to its stated maturity or the failure of the Issuer to provide timely written investment direction. 31 ARTICLE SIX SATISFACTION AND DISCHARGE SECTION 601. Satisfaction and Discharge of Indenture. (a) This Indenture shall, upon receipt by the Trustee of an Issuer Request, cease to be of further effect with respect to the Notes of either Series (except as to any surviving rights of registration of transfer or exchange of Notes of such Series herein expressly provided for and except as otherwise specifically provided in this Indenture) and the Trustee, at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when: (i) either: (A) all Notes of such Series theretofore authenticated and delivered (other than (1) Notes of such Series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 308 and (2) Notes of such Series for whose payment money has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Issuer and thereafter repaid to the Issuer, as provided in Section 1402) have been delivered to the Trustee for cancellation; or (B) all Notes of such Series not theretofore delivered to the Trustee for cancellation (1) have become due and payable, or (2) will become due and payable at their Stated Maturity within one year, or (3) if redeemable at the option of the Issuer, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuer, and the Issuer, in the case of (i)(B)(1), (2) or (3) above, has irrevocably deposited .or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Notes of such Series not theretofore delivered to the Trustee for cancellation, for principal, Make-Whole Premium, if any, and interest to the date of such deposit (in the case of Notes of such Series which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; 32 (ii) the Issuer has paid or caused to be paid all other sums then payable hereunder by the Issuer with respect to such Series of the Notes; and (iii) the Issuer has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to such Series of the Notes have been complied with. (b) Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Article Six, the obligations of the Issuer to the Trustee or any agent of the Trustee appointed in accordance with the provisions hereof and the Paying Agent under Section 806 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (i) of this Section 601, the obligations of the Trustee under Section 801 shall survive. SECTION 602. Application of Trust Money. All money deposited with the Trustee pursuant to Section 601 shall be held in trust and applied by the Trustee, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal, Make-Whole Premium, if any, and interest for whose payment such money has been deposited with the Trustee; provided, that such money need not be segregated from other funds except to the extent required in this Indenture or by law. ARTICLE SEVEN EVENTS OF DEFAULT AND REMEDIES SECTION 701. Events of Default. "Event of Default," wherever used herein, means the occurrence of any one of the following events with respect to any Series of the Notes (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law (including, but not limited to, force majeure and any other impossibility of performance) or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the Issuer shall default in the payment of any principal or Make-Whole Premium, if any, with respect to any Notes of such Series called for optional redemption, on any Notes of such Series when the same shall become due and payable, whether by scheduled maturity or acceleration, or otherwise, and such default shall continue for a period of at least five (5) days; or (b) the Issuer shall default in the payment of interest required to be paid with respect to, any of the Notes of such Series in each case when the same shall become due and payable, and such default shall continue for a period of at least fifteen (15) days; or 33 (c) the Issuer shall fail to observe or perform any term, covenant or obligation of any Material Agreement or Financing Document (including, without limitation, the furnishing of notices) and such failure (i) could reasonably be expected to result in a Material Adverse Effect and (ii) shall continue for a period of at least thirty (30) days after the date notice thereof shall have been given to the Issuer by the Trustee or by the Majority Holders of such Series of the Notes; or (d) CDWR shall fail to observe or perform any term, covenant or obligation of the CDWR Power Sales Agreement or the CDWR Consent and such failure (i) could reasonably be expected to result in a Material Adverse Effect and (ii) shall continue for a period of at least thirty (30) days after the date notice thereof shall have been given to the Issuer by the Trustee or by the Majority Holders of such Series of the Notes; or (e) Morgan Stanley shall fail to observe or perform any term, covenant or obligation of the Morgan Stanley MSCG Guarantee or the Morgan Stanley Consent and such failure (i) could reasonably be expected to result in a Material Adverse Effect and (ii) shall continue for a period of at least thirty (30) days after the date notice thereof shall have been given to the Issuer by the Trustee or by the Majority Holders of such Series of the Notes; or (f) any Material Agreement or Financing Document (other than the CDWR Power Sales Agreement and the Morgan Stanley MSCG Guarantee) shall cease at any time to be valid, enforceable and binding and in full force and effect and such invalidity or unenforceability could reasonably be expected to result in a Material Adverse Effect; or (g) (i) any Lien granted to the Trustee hereunder or under any Financing Document on any material portion of the Collateral shall cease to be valid and effective, shall cease to be perfected or otherwise fails to be a first priority security interest, or (ii) any creditor of the Issuer (other than the Trustee or the Holders) shall assert any right or interest with respect to the Collateral and such assertion of rights or interests could reasonably be expected to result in a Material Adverse Effect, or (iii) the Issuer's right to receive payments with respect to the Collateral (other than pursuant to any Lien granted by the Indenture or any Financing Document) shall otherwise be terminated or impaired and such termination or impairment of the right to receive payments could reasonably be expected to result in a Material Adverse Effect; or (h) the Issuer shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or other similar Person of itself or of all or a substantial part of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code, (v) file a petition or any other document seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, composition or readjustment of debts or other similar laws or (vi) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition or 34 other pleading filed against the Issuer in an involuntary case under the Federal Bankruptcy Code or any other similar law; or (i) a proceeding or case shall be commenced without the application or consent of the Issuer in any court of competent jurisdiction seeking (i) its liquidation, reorganization, dissolution, winding-up, the composition or readjustment of debts or any other similar relief, (ii) the appointment of a trustee, receiver, custodian, liquidator or other similar Person of the Issuer under any law relating to bankruptcy, insolvency, reorganization, winding-up, composition or adjustment of debts or other similar laws, and such proceeding or case shall continue undismissed, or any order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect for a period of sixty (60) or more consecutive days, or any order for relief or other similar order against the Issuer shall be entered in an involuntary case under the Federal Bankruptcy Code or any other similar law; or (j) it becomes unlawful for the Issuer to perform any of its obligations under this Indenture, any Security Document, or any Note of such Series, or any of its obligations hereunder or thereunder ceases to be valid, binding and enforceable, unless such event or occurrence could not reasonably be expected to result in a Material Adverse Effect; or (k) the CDWR Power Sales Agreement or the Morgan Stanley MSCG Guarantee shall for any reason be terminated or abrogated at any time (prior to its scheduled expiration) or ceases at any time to be valid, enforceable and binding and in full force and effect; or (l) a judgment or judgments for the payment of money in excess of $30 million in the aggregate, which is or are not adequately covered by insurance or a payment or performance bond, shall be entered against the Issuer and such judgment or judgments shall not have been vacated, discharged, stayed or bonded pending appeal within sixty (60) days from the entry thereof. SECTION 702. Acceleration of Maturity: Rescission and Annulment. (a) If an Event of Default (other than a Bankruptcy Event of Default) occurs and is continuing, then and in every such case the Trustee, upon the direction of the Holders of no less than twenty-five percent (25%) of the Outstanding Notes so affected (for an Event of Default specified in clauses (a) and (b) of Section 701) or the Majority Holders of either Series of the Notes (for any Event of Default other than those specified in clauses (a) and (b) of Section 701), shall declare the principal amount of all the Notes to be due and payable immediately, by a notice in writing to the Issuer (and to the Trustee, if given by the Holders), and upon any such declaration such principal amount, any accrued and unpaid interest, any Make-Whole Premium previously due and owing by the Issuer in connection with an optional redemption pursuant to Section 1302, and all other amounts payable under the Notes shall become immediately due and payable. (b) If a Bankruptcy Event of Default occurs, the principal amount of, any accrued interest on, any Make-Whole Premium previously due and owing by the 35 Issuer in connection with an optional redemption pursuant to Section 1302, and all other amounts payable under the Notes then Outstanding shall become immediately due and payable. (c) In addition, if one or more of the Events of Default (other than a Bankruptcy Event of Default) shall have occurred and be continuing, the Trustee may accelerate the maturity of the Notes as provided in clause (a) of this Section 702 notwithstanding the absence of direction from the Holders if in the judgment of the Trustee such action is necessary to protect the interests of the Holders. (d) At any time after the principal of the Notes shall have become due and payable upon a declared acceleration as provided in this Section 702, and before any judgment or decree for the payment of the money so due, or any portion thereof, shall be entered, the Majority Holders of either Series of the Notes, by written notice to the Issuer and the Trustee, may rescind and annul such declaration and its consequences if all Events of Default giving rise to such acceleration have been cured or waived. (e) At any time after a declaration of acceleration under this Indenture, but before a judgment or decree for payment of the principal amount of the Notes (or the applicable Series of the Notes so affected, as the case may be) then due has been obtained by the Trustee, the Issuer by written notice to a Responsible Officer of the Trustee, may rescind and annul such declaration and its consequences if: (i) the Issuer has paid or deposited with the Trustee a sum sufficient to pay: (A) all overdue interest on all the Notes; (B) all unpaid principal of and Make-Whole Premium, if any, on any Outstanding Notes that have become due otherwise than by such declaration of acceleration and interest thereon at the respective interest rates borne by the Notes; (C) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by the Notes; and (D) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (ii) all Defaults and Events of Default, other than the nonpayment of amounts of principal of, Make-Whole Premium, if any, or interest on the Notes that have become due solely by such declaration of acceleration have been cured or waived as provided in Section 718. 36 No such rescission shall affect any subsequent Default or impair any right consequent thereon. SECTION 703. Remedies upon an Event of Default. If any Event of Default shall have occurred and be continuing and acceleration shall have occurred pursuant to Section 702, the Trustee may, subject in each case to the provisions of Section 807, exercise any or all of the rights and remedies granted to it in any Security Document. Without limiting the generality of the foregoing, the Issuer expressly agrees that in any such event the Trustee, without demand of performance or any other demand, advertisement or notice of any kind (except the notice specified below of the time and place of public or private sale) to or upon the Issuer or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the extent permitted by applicable law), may, and at the written instruction of the Majority Holders of either Series of the Notes shall, subject to the provisions of the Consents and to the provisions of any law or regulation having the force of law: (a) collect, receive and appropriate any or all of the Collateral and exercise any right, remedy, power or privilege of the Issuer under any Material Agreement; (b) set off against all amounts due and payable hereunder with funds held in the Accounts; (c) proceed by suit at law or in equity to seek specific performance of any obligation of the Issuer; (d) take possession of the Collateral forthwith or any time thereafter, in which case the Issuer shall marshal and deliver the Collateral to the Trustee or its designee at such time or times and such place or places as the Trustee may reasonably specify; (e) subject to the provisions of Section 704, forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver all or any part of the Collateral (or contract to do so) at one or more public or private sales, at any exchange, broker's board or at any of the Trustee's offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk; (f) institute legal proceedings for the appointment of a receiver with respect to any or all of the Collateral or with respect to the Issuer; or (g) proceed by suit at law or in equity to foreclose upon, or appoint a receiver with respect to, the Collateral or exercise any other right or remedy (including specific performance of the Issuer's obligations under the Financing Documents) available under applicable law. The Trustee may sell any or all of the Collateral as provided above at any private or public sale, it being hereby agreed that twenty (20) Business Days' notice by the Trustee to the Issuer shall be deemed to be reasonable notice of any such sale. The Issuer hereby waives, to the extent permitted by applicable law, any claims against the Trustee arising by reason of the fact that the price at which Collateral may have been sold at any such private sale was less than the price which might have been obtained at a public sale. SECTION 704. Certain Sales of Collateral. In connection with the exercise of any remedies under Section 703(e) the Trustee will not sell the Collateral or any portion thereof without the written consent of all of the Holders of the Notes Outstanding unless the proceeds of such sale will be sufficient to satisfy all of the outstanding principal amount, accrued and unpaid interest, Make-Whole Premium, if any, and all other amounts due and payable under the Notes. 37 SECTION 705. No Marshaling. To the extent that it lawfully may, the Issuer hereby agrees that it will not at any time plead, claim or take the benefit of any appraisement, valuation, stay, extension, moratorium or redemption law now or hereafter in force and any requirement of marshaling in the event of foreclosure of the security interests hereby created, the effect of which might be to prevent or delay the enforcement of any Security Document or the absolute sale of the whole or any part of the Collateral or the possession thereof by the Trustee or any purchaser at any sale by the Trustee. The Issuer, for itself and all who may claim under the Issuer, as far as the Issuer may lawfully do so, hereby waives and releases the benefit of all such laws. Except as otherwise expressly provided in this Indenture, to the extent permitted by applicable law, the Issuer hereby waives presentment, demand, protest or any notice of any kind in connection with, and not expressly set forth in, any Security Document or herein. SECTION 706. Trustee May Recover Unpaid Indebtedness After Sale of Collateral. Subject to Section 114, in the case of a sale of the Collateral and of the application of the proceeds of such sale to the payment of the indebtedness secured by this Indenture and the Security Documents, the Trustee in its own name, and as trustee of an express trust, shall be entitled and empowered, by any appropriate means, legal, equitable or otherwise to enforce payment of, and to receive all amounts then remaining due and unpaid upon, all or any of the Notes, for the equal and ratable benefit of the Holders thereof, and upon any other portion of the indebtedness remaining unpaid, including the Make-Whole Premium, if any, with interest at the rates specified in the respective Notes on the overdue principal, Make-Whole Premium, if any, and (to the extent that payment of such interest is legally enforceable) on the overdue installments of interest. SECTION 707. Recovery of Judgment Does Not Affect Rights. No recovery of any such judgment or final decree by the Trustee and no levy of any execution under any such judgment upon any of the Collateral, or upon any other property, shall in any manner or to any extent affect any rights, powers or remedies of the Trustee, or any liens, rights, powers or remedies of the Holders, but all such liens, rights, powers or remedies shall continue unimpaired as before. SECTION 708. Collection of Indebtedness and Suits for Enforcement by Trustee. (a) The Issuer covenants that if: (i) default is made in the payment of any installment of interest on any Note when such interest becomes due and payable and such default continues for a period of thirty (30) days, or (ii) default is made in the payment of the principal of or Make-Whole Premium, if any, on any Note when such becomes due and payable, the Issuer will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal, Make-Whole Premium, if any, and interest, and interest on any overdue 38 principal, Make-Whole Premium, if any, and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest, at the applicable rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. (b) If the Issuer fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, at the direction of the Holders as set forth herein, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Issuer or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Issuer or any other obligor upon the Notes, wherever situated. (c) If an Event of Default with respect to the Notes occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Notes by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 709. Trustee May File Proofs of Claim. (a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Issuer or any other obligor upon the Notes or the Property of the Issuer or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Issuer for the payment of overdue principal, Make-Whole Premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and Make-Whole Premium, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the 39 reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 806. (b) Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. SECTION 710. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders. SECTION 711. Application of Money Collected. Any money collected by the Trustee pursuant to this Article Seven or the Security Documents shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or Make-Whole Premium, if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: (a) First, to the payment of all amounts due to the Trustee and each predecessor Trustee, if any, under Section 806; (b) Second, to the payment of the amounts then due and unpaid for principal of, Make-Whole Premium (with respect to Notes called for optional redemption), if any, and any interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts then due and payable on such Notes for principal, Make-Whole Premium, if any, and any interest, respectively; (c) Third, to the payment of all amounts due and payable to CDWR under the CDWR Power Sales Agreement, to Morgan Stanley Capital under the MSCG Power Purchase Agreement and to the Administrative Agent under the Administrative Services Agreement, as the case may be, as set forth in an Officer's Certificate or as determined by a court of competent jurisdiction; and (d) Fourth, to the Issuer or to whoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 40 SECTION 712. Limitation on Suits. No Holder of any Note shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default, with respect to the Notes of such Series; (b) the Majority Holders of the Outstanding Notes of such Series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Majority Holders of the Outstanding Notes of such Series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Notes, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders. SECTION 713. Unconditional Right of Holders to Receive Principal, Make-Whole Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article Fourteen), of the principal of, Make-Whole Premium, if any, on and (subject to Section 309) interest on, such Note on the Stated Maturity expressed in such Note (or, in the case of redemption, on the Redemption Date), including any interest accrued during any grace period provided in Section 701, and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 714. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Issuer, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and 41 thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 715. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in clause (e) of Section 308, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 716. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Seven or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 717. Control by Holders. (a) The Majority Holders of each Series of the Notes shall have the right to direct in writing the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided, that such Majority Holders have provided the Trustee with indemnity acceptable to the Trustee against the costs, expenses (including reasonable attorneys' fees and expenses) and liabilities to be incurred in following such direction and that direction shall not be in conflict with any law and the provisions of this Indenture and provided, further, that (subject to the provisions of Section 801) the Trustee shall have the right to decline to follow any such direction if such directions are unclear or inconsistent with any other directives given to the Trustee or if the Trustee, being advised by counsel, shall determine that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by a Responsible Officer of the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability or if the Trustee in good faith shall so determine that the actions or forbearances specified in or pursuant to such direction would be unduly prejudicial to the interests of Holders so affected not joining in the giving of said direction, it being understood that (subject to Section 801) the Trustee shall have no duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such Holders. (b) Nothing in this Indenture shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction or directions by such Majority Holders. SECTION 718. Waiver of Past Defaults. (a) The Majority Holders of the Outstanding Notes of either Series may on behalf of the Holders of all the Notes of 42 such Series waive any past default with respect to such Notes, except a default in the payment of the principal of, Make-Whole Premium, if any, or any interest on any Note or in respect of a covenant or provision hereof that cannot be modified or amended without the unanimous affirmative vote of all Holders of such Series. (b) Upon any such waiver, any such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture and the Trustee, Issuer and the Holders of such Series of the Notes, as the case may be, shall be restored respectively to their former positions and rights hereunder; provided, that no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 719. Waiver of Force Majeure and Stay or Extension Laws. The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any force majeure, impossibility of performance and any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture, and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such force majeure, impossibility or law and covenants that the Issuer will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted or such force majeure or impossibility grounds have occurred. SECTION 720. Trustee to Give Notice of Default, but May Withhold in Certain Circumstances. Within forty-five (45) days after a Responsible Officer assigned to the Corporate Trust Office of the Trustee obtains actual knowledge of the occurrence of any Default hereunder, the Trustee shall transmit by mail to all Holders as their names shall appear on the Security Register, in the manner and to the extent provided in Trust Indenture Act Section 313(c), notice of such Default hereunder, unless such Default shall have been cured or waived; provided, that except in the case of a default in the payment of the principal of, Make-Whole Premium, if any, or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. SECTION 721. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs (including reasonable attorneys' fees and expenses) against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that the provisions of this Section 721 shall not apply to any suit instituted by the Trustee, or the Issuer to any suit instituted by any Holder or group of Holders, holding in the aggregate more than ten percent (10%) in principal amount of the Outstanding Notes of either Series, or any suit instituted by any Holder for the enforcement of the payment of 43 the principal of, Make-Whole Premium, if any, or interest, if any, on any Note on or after the respective due dates expressed in such Note (or, in the case of redemption, on or after the Redemption Date). ARTICLE EIGHT THE TRUSTEE SECTION 801. Duties and Responsibilities of the Trustee; During Default; Prior to Default. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default that may have occurred, shall undertake to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) during the continuance of an Event of Default: (A) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (B) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided, that in the case of any such statements, certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein); (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and 44 (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders pursuant to Section 717 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. (c) None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there shall be reasonable ground for believing that the repayment of such funds or indemnity satisfactory to it against such liability is not assured to it. Notwithstanding anything to the contrary contained herein, in no event shall the Trustee be liable under this Indenture or any of the other Financing Documents to which it is a party for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits). SECTION 802. Certain Rights of Trustee. Subject to the provisions of Section 801: (a) the Trustee and, as applicable, the Accounts Agent, may conclusively rely and shall be fully protected in acting or refraining from acting in reliance upon any resolution, Officer's Certificate or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Issuer mentioned herein shall be sufficiently evidenced by an Officer's Certificate, Issuer Request or Issuer Order (unless other evidence in respect thereof be herein specifically prescribed), and any Management Committee's Consent may be sufficiently evidenced to the Trustee by a copy thereof certified by the secretary or a Member of the Issuer; (c) the Trustee may consult with counsel of its selection and any advice of counsel or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder or under any Security Document in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or under any other Financing Document at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred therein or thereby; 45 (e) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, notice, security or other paper or document unless requested in writing so to do by the Majority Holders of either Series of the Notes; provided, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require indemnity satisfactory to it against such expenses or liabilities as a condition to proceeding; the reasonable expenses of every such investigation shall be paid by the Issuer or, if paid by the Trustee, any predecessor trustee or the Holders of any Outstanding Notes, shall be repaid by the Issuer upon demand; (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder or under any other Financing Document either directly or by or through agents or attorneys not regularly in its employ and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (g) neither the Trustee nor the Accounts Agent shall be liable for any action taken, suffered or omitted by either of them in good faith and believed by the Trustee or the Accounts Agent, as the case may be, to be authorized or within the discretion or rights or powers conferred upon the Trustee or the Accounts Agent, as the case may be, by this Indenture; (h) except during the continuance of an Event of Default, the Trustee need perform only those duties as are specifically set forth in this Indenture; (i) the Trustee is hereby authorized and directed to enter into the Security Documents; (j) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture; and (k) the rights, privileges, protections, immunities and benefits given to the Trustee, including its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder and under the Security Documents. SECTION 803. Trustee Not Responsible for Recitals or Issuance of Notes. Other than as specifically provided in the Trustee recitals of this Indenture; the recitals contained herein and in the Notes, except for the Trustee's certificates of authentication, shall be taken as the statements of the Issuer, and the Trustee assumes no 46 responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of any disclosure document or offering materials or of the Notes. Neither the Trustee nor its agents appointed in accordance with the provisions hereof shall be accountable for the use or application by the Issuer of the Notes or the proceeds thereof. SECTION 804. May Hold Notes. The Trustee, any Paying Agent, the Registrar or any other agent of the Issuer or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and, subject to Trust Indenture Act Sections 310(b) and 311, may otherwise deal with the Issuer with the same rights it would have if it were not the Trustee, any Paying Agent, the Registrar or any other agent of the Issuer or such agent and, subject to Sections 809 and 813, if operative, may otherwise deal with the Issuer and receive, collect, hold and retain collections from the Issuer with the same rights it would have if it were not the Trustee, any Paying Agent, the Registrar or any other agent of the Issuer. SECTION 805. Money Held In Trust. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. Neither the Trustee nor any agent of the Issuer shall be under any liability for interest on any moneys received by it hereunder except as otherwise agreed with the Issuer. SECTION 806. Compensation and Indemnification of Trustee, Accounts Agent, Paying Agent and Registrar and Its Prior Claim. (a) The Issuer covenants and agrees to pay to the Trustee, the Accounts Agent and to each Paying Agent and Registrar, and the Trustee, the Accounts Agent and each Paying Agent and Registrar shall be entitled to, such compensation as set forth in any fee agreement between the Issuer and the Trustee entered into in connection with the execution and delivery of this Indenture by the parties hereto or in connection with the issuance of the Notes (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Issuer covenants and agrees to pay or reimburse the Trustee, the Accounts Agent and each Paying Agent and Registrar and their respective predecessors upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ) except any such expenses, disbursement or advance as may arise from its negligence or bad faith. As security for such payment and for all of the other obligations of the Issuer set forth in this Section 806 (and any fees referred to in Section 816), the Trustee shall have a security interest and Lien prior to the Notes upon all Collateral. The provisions of this Section 806 shall survive the resignation or removal of the Trustee and the termination of the other provisions of this Indenture. (b) The Issuer also covenants to indemnify the Trustee, the Accounts Agent and each Paying Agent and Registrar and their respective predecessors, officers, directors, employees, representatives and agents for, and to hold it harmless against, any 47 and all loss, liability, damage, claim or expense, including taxes (other than taxes based on the income of the Trustee, the Accounts Agent and each Paying Agent and Registrar and their respective predecessors, officers, directors, employees, representatives and agents) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance, administration or enforcement of this Indenture and under the other Financing Documents or the trusts hereunder and its duties hereunder and the other Financing Documents, including any liability which the Trustee, the Accounts Agent or any Paying Agent or Registrar may incur as a result of failure to withhold, pay or report any tax, assessment or other governmental charge and the costs and expenses of defending itself against or investigating any claim of liability in the premises. The obligations of the Issuer under this Section 806(b) to compensate and indemnify the Trustee, the Accounts Agent and each Paying Agent and Registrar and their respective predecessors and to pay or reimburse the Trustee, the Accounts Agent and each Paying Agent and Registrar and their respective predecessors for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the termination, satisfaction and discharge of this Indenture. References herein to the "Trustee" shall be deemed to also refer to the Trustee acting in its capacity as Accounts Agent, Paying Agent, Registrar or in any other capacity as contemplated herein or in any Financing Document. (c) Where the Trustee incurs expenses or renders services in connection with a Bankruptcy Event of Default, such expenses (including reasonable attorneys' fees and expenses) and the compensation for the services are intended to constitute expenses of administration under applicable federal or state bankruptcy, insolvency or other law. SECTION 807. Right of Trustee to Rely on Officer's Certificate, Etc. Subject to Sections 801 and 802, whenever in the administration of the trusts of this Indenture the Trustee, or in the carrying out of its duties under Article Five, the Accounts Agent, shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of bad faith on the part of the Trustee or the Accounts Agent, as the case may be, be deemed to be conclusively proved and established by an Officer's Certificate delivered to the Trustee or the Accounts Agent, as the case may be, and such certificate, in the absence of bad faith on the part of the Trustee or the Accounts Agent, as the case may be, shall be full warranty to the Trustee or the Accounts Agent, as the case may be, for any action taken, suffered or omitted by the Trustee or the Accounts Agent, as the case may be, under the provisions of this Indenture upon the faith thereof. SECTION 808. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Trust Indenture Act Section 310(a)(1) and (2) and which shall have a combined capital and surplus of at least one hundred fifty million Dollars ($150,000,000). If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 808, the combined capital and surplus of such corporation 48 shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee shall comply with the provisions of the Trust Indenture Act Section 310(b). If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 808, it shall resign immediately in the manner and with the effect hereinafter specified in this Article Eight. SECTION 809. Qualification of Trustee; Conflicting Interests. If the Trustee has or shall acquire any conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall, within 90 days after ascertaining that it has a conflicting interest and if the Event of Default to which such conflicting interest relates has not been cured or duly waived before the end of such 90 day period, either eliminate such conflicting interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 810. Resignation and Removal; Appointment of Successor Trustee. (a) The Trustee may at anytime resign by giving written notice of resignation to the Issuer and by mailing written notice thereof by first-class mail, postage prepaid, to all Holders at their last addresses as they shall appear on the Security Register specifying the day upon which the resignation is to take effect, and such resignation will take effect immediately upon the later of the appointment of a successor trustee pursuant to this Article Eight and such specified day. Upon receiving such notice of resignation, the Issuer, by a Management Committee's Consent, shall promptly appoint a successor trustee satisfying the requirements of Section 808 by written instrument in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee or trustees. If no successor trustee shall have been so appointed and have accepted appointment within thirty (30) days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Holder who has been a bona fide Holder of a Note or Notes for at least six (6) months may, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper, appoint a successor trustee. (b) In case at any time any of the following shall occur: (i) the Trustee shall fail to comply with the provisions of Section 809 and Trust Indenture Act Section 310(b) after written request therefor by the Issuer or by any Holder who has been a bona fide Holder for at least six (6) months, except when the Trustee's duty to resign is stayed in accordance with the provisions of Trust Indenture Act Section 310(b); or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 808 and shall fail to resign after written request therefor by the Issuer or by any Holder who has been a bona fide Holder for at least six (6) months; or 49 (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver or liquidator of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, the Issuer may, by Management Committee's Consent, remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Members, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 811, unless the Trustee's duty to resign is stayed as provided herein, any Holder who has been a bona fide Holder for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. (c) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Issuer, by a Management Committee's Consent, shall promptly appoint a successor trustee satisfying the requirements of Section 808. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor trustee shall be appointed by an Act of the Majority Holders of either Series of the Notes delivered to the Issuer and the retiring Trustee, the successor trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor trustee with respect to such Series of the Notes and to that extent supersede the successor trustee appointed by the Issuer. If no successor trustee shall have been so appointed by the Issuer or the Holders and accepted appointment in the manner hereinafter provided within 60 days, any Holder who has been a bona fide Holder for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor trustee. (d) It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as an indenture trustee in such jurisdiction. (e) The Issuer shall give notice of each resignation and each removal of the Trustee and each appointment of a successor trustee in the manner provided for in Section 106. Each notice shall include the name of the successor trustee and the address of its Corporate Trust Office. (f) The Holders, by Act of the Majority Holders of either Series of the Notes, may at any time remove the Trustee with respect to such Series of the Notes and appoint a successor trustee with respect to such Series of the Notes by delivering to the Trustee so removed, to the successor trustee so appointed and to the Issuer the evidence provided for in Section 104 of the action in that regard taken by the Majority Holders of such Series of the Notes. 50 (g) No resignation or removal of the Trustee and no appointment of a successor trustee pursuant to any of the provisions of this Section 810 shall become effective until the acceptance of appointment by the successor trustee as provided in Section 811. SECTION 811. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor trustee, every such successor trustee so appointed shall execute, acknowledge and deliver to the Issuer and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; provided, that on the request of the Issuer or the successor trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. (b) Upon request of any such successor trustee, the Issuer shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all rights, powers and trusts referred to in clause (a) of this Section 811. (c) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article Eight. (d) In no event shall the retiring Trustee be liable for the acts or omissions of any successor trustee. SECTION 812. Merger Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder; provided, that such corporation shall be otherwise qualified and eligible under this Article Eight, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor trustee had itself authenticated such Notes; and in case at that time any of the Notes shall not have been authenticated, any successor trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have; provided, further, that the right to adopt the certificate of authentication of any predecessor Trustee or to 51 authenticate Notes in the name of any predecessor trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 813. Preferential Collection of Claims Against Issuer. If and when the Trustee shall be or become a creditor of the Issuer (or any other obligor under the Notes), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Issuer (or any such other obligor), excluding any creditor relationships described in Trust Indenture Act Section 311(b). A Trustee who has resigned or has been removed shall be subject to Trust Indenture Act Section 311 (a) to the extent indicated therein. SECTION 814. No Liability for Clean-up of Hazardous Materials. (a) In the event that the Trustee is required to acquire title to an asset for any reason, or take any managerial action of any kind in regard thereto, in order to carry out any fiduciary or trust obligation for the benefit of another, which in the Trustee's sole discretion may cause the Trustee to be considered an "owner or operator" under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. Sections 9601, et seq., or otherwise cause the Trustee to incur liability under CERCLA or any other federal, state or local law, the Trustee reserves the right to, instead of taking such action, either resign as Trustee or arrange for the transfer of the title or control of the asset to a court appointed receiver. (b) The Trustee shall not be liable to the Issuer or Holders or any other person for any environmental claims or contribution actions under any federal, state or local law, rule or regulation by reason of the Trustee's actions and conduct as authorized, empowered and directed hereunder or relating to the discharge, release or threatened release of hazardous materials into the environment, except to the extent of the Trustee's negligence or willful misconduct. SECTION 815. Accounts Agent Registrar and Paving Agent. Insofar as such provisions may be applicable, the Accounts Agent, the Registrar, the Paying Agent and any other agent appointed in accordance with the provisions hereof shall enjoy the same protections, immunities and indemnities as are provided for in this Article Eight with respect to the Trustee. SECTION 816. Filing Fees. The Issuer agrees to pay or to reimburse the Trustee for any and all amounts in respect of all filing, recording and registration fees which may be payable or determined to be payable in respect of the execution, delivery, performance and enforcement of the Financing Documents and agrees to save the Trustee harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such fees. The obligations of the Issuer under this Section 816 shall survive the resignation or removal of the Trustee and the termination of the other provisions of this Indenture. 52 SECTION 817. Fee Agreement. The Fee Agreement provides for the compensation of the Trustee hereunder for its services as such, and the Trustee will not look to the holders of the Notes for any payment for such services, provided, that this Section 817 shall not alter the provisions of Section 502(b)(i) or the lien provided in Section 806(a). ARTICLE NINE HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER SECTION 901. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders. If the Trustee is not the Registrar, the Issuer shall furnish to the Trustee at least five (5) Business Days before each Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders. The Trustee may conclusively rely upon such list provided by the Issuer until otherwise notified by the Issuer or such list is amended by the Issuer. SECTION 902. Disclosure of Names and Addresses of Holders. Every Holder of Notes, by receiving and holding the same, agrees with the Issuer and the Trustee that none of the Issuer or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Trust Indenture Act Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Trust Indenture Act Section 312(b). SECTION 903. Reports by Trustee. (a) Within sixty (60) days after May 1 of each year commencing with the first May 1 after the first issuance of Notes pursuant to this Indenture, the Trustee shall transmit to the Holders in the manner and to the extent provided in Trust Indenture Act Section 313(c), a brief report dated as of such May 1 if required by Trust Indenture Act Section 313(a). (b) The Trustee shall transmit to the Holders, in the manner and to the extent provided in Trust Indenture Act Section 313(c), a brief report, if required, by Trust Indenture Act Section 313(b). SECTION 904. Reports by Issuer. (a) The Issuer shall: (i) file with the Trustee, within fifteen (15) days after the Issuer is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Issuer may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act or, if the Issuer is not required to file information, documents or reports pursuant to either of such Sections, then 53 it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (ii) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Issuer with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (iii) transmit to all Holders, in the manner and to the extent provided in Trust Indenture Act Section 313(c), within thirty (30) days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Issuer pursuant to paragraphs (i) and (ii) of clause (a) of this Section 904 as may be required by rules and regulations prescribed from time to time by the Commission. (b) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer's Certificates). ARTICLE TEN SUPPLEMENTS AND AMENDMENTS TO INDENTURE AND SECURITY DOCUMENTS SECTION 1001. Without Vote of Holders. Without the vote or approval of any Holders of either Series of the Notes, the Issuer, when authorized by or pursuant to a Management Committee's Consent, and the Trustee, at any time and from time to time, may amend or supplement this Indenture, any Security Documents or the Notes, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Issuer and the assumption by any such successor of the covenants of the Issuer contained herein and in the Notes; or (b) to add to the covenants of the Issuer for the benefit of the Holders or to surrender any right or power herein conferred upon the Issuer; or (c) to add any additional Events of Default; or 54 (d) to secure the Notes with additional collateral; or (e) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee and to add to or change any of the provisions hereof as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one trustee; or (f) to cure any ambiguity, to correct or supplement any provision hereof which may be inconsistent with any other provision in this Indenture provided that such action shall not adversely affect the interests of the Holders of such Series of the Notes in any material respect; or (g) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of the Notes; provided, that any such action does not adversely affect the interests of the Holders of such Series of the Notes in any material respect. SECTION 1002. With Consent of Holders. (a) The Issuer, when authorized by or pursuant to a Management Committee's Consent, and the Trustee may amend or supplement this Indenture or the Notes for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or the Notes or of modifying in any manner the rights of the Holders under this Indenture with the consent of the Majority Holders of the Notes affected by such amendment or supplement (voting as a single class), by Act of said Holders delivered to the Issuer and the Trustee; provided, that no such amendment or supplement shall, without the consent of the Holder of each Outstanding Note, (i) change the Stated Maturity of the Principal of, or any installment of interest on, any Note; (ii) reduce the principal amount of any Note, or any Make-Whole Premium payable upon the redemption of any Note, or reduce the rate of interest on any Note, including discharge of repayment of principal of or interest on any Note; (iii) reduce the percentage in principal amount of Outstanding Notes, the consent of the Holders of which is required for the adoption of a resolution or the quorum required at any meeting of Holders at which a resolution is adopted or the percentage in principal amount of Outstanding Notes the Holders of which are entitled to request the calling of a Holder's meeting; (iv) change the percentage rules established for adopting resolutions at meetings of Holders or regarding the quorum necessary to constitute a meeting; (v) modify any of the provisions of this Section 1002 and Section 718, except to increase any percentage specified herein or therein; 55 (vi) change the place or coin or currency for payment of principal of, Make-Whole Premium, if any, or interest on any Note; (vii) impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof or any Redemption Date or Payment Date therefor; (viii) permit the creation of any Lien with respect to all or any substantial portion of the Collateral, or release or terminate the Lien of the Security Documents on all or any substantial portion of the Collateral or deprive any Holder of the security afforded by the Lien of the Security Documents, except to the extent expressly permitted by this Indenture or any of the Security Documents; (ix) modify the ranking or priority of the Notes; or (x) waive a default in the payment of principal of, Make-Whole Premium, if any, or interest on, the Notes. (b) It shall not be necessary for any Act of Holders under this Section 1002 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 1003. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any amended or supplemental indenture permitted by this Article Ten or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 1004. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article Ten, (a) this Indenture or the applicable Security Document shall be modified in accordance therewith, (b) such supplemental indenture, amendment, modification or waiver shall form a part of this Indenture or the applicable Security Document (as the case may be) for all purposes and (c) every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 1005. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Ten shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 1006. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Ten may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental 56 indenture. If the Issuer shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer, and, upon receipt of an Issuer Order, authenticated and delivered by the Trustee, in exchange for Outstanding Notes. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such supplemental indenture, amendment, modification or waiver. SECTION 1007. Notice of Supplemental Indentures. Promptly after the execution by the Issuer and the Trustee of any supplemental indenture, amendment, modification or waiver pursuant to the provisions of Section 1002, the Issuer shall give notice thereof to the Holders, in the manner provided for in Section 106, setting forth in general terms the substance of such supplemental indenture, amendment, modification or waiver. ARTICLE ELEVEN AFFIRMATIVE COVENANTS SECTION 1101. Payment of Principal and Interest. The Issuer shall duly and punctually pay the principal of, Make-Whole Premium, if any, and interest on the Notes in accordance with the terms of the Notes and this Indenture. SECTION 1102. Maintenance of Office or Agency. (a) The Issuer will maintain in the Borough of Manhattan, the City of New York, and in each Place of Payment, an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. (b) The Issuer will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuer shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee and the Issuer hereby appoints the same as its agent to receive such respective presentations, surrenders, notices and demands. (c) The Issuer may also from time to time designate one or more other offices or agencies where Notes may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, that no such designation or rescission shall in any manner relieve the Issuer of its obligation to maintain an office or agency in accordance with the requirements set forth above for such purposes. The Issuer will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1103. Maintenance of Existence, Properties. (a) The Issuer shall preserve and maintain its legal existence and form as a bankruptcy-remote 57 special purpose entity separate from any other entity, and shall preserve and maintain all registrations necessary therefor. (b) The Issuer shall preserve and maintain all of its licenses, rights, privileges and franchises necessary for the conduct of its business and the performance of its obligations under the Material Agreements and the Financing Documents, except to the extent failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 1104. Payments of Taxes and Other Claims. The Issuer shall pay and discharge or cause to be paid and discharged, before the same shall become delinquent, all taxes, assessments and governmental charges levied or imposed upon the Issuer, and all lawful claims or obligations which, if unpaid, might by law become a Lien upon the Property of the Issuer; provided, that the Issuer will not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claims whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate funds have been set aside. SECTION 1105. Material Agreements. The Issuer will enforce all of its rights, powers and remedies under each of the Material Agreements, unless the failure to enforce such rights, powers and remedies could not reasonably be expected to result in a Material Adverse Effect. SECTION 1106. Notice of Certain Events. The Issuer shall furnish to the Trustee: (a) within 120 days after the end of each fiscal year of the Issuer ending after the date hereof, an Officer's Certificate of a Responsible Officer stating that (i) no Default has occurred and is continuing (or if any such Default has occurred and is continuing, describing such Default in reasonable detail and describing the steps being taken to remedy such Default) and (ii) the Issuer is in compliance with all conditions and covenants under this Indenture, the Notes and the other Financing Documents to which it is a party; and (b) each of the following items promptly after the Issuer learns of the occurrence or existence thereof: (i) written notice of the occurrence of any event or condition which constitutes a Default or an Event of Default, stating that such event or condition has occurred and describing it and any action being or proposed to be taken with respect thereto; (ii) written notice of the Issuer's failure to observe or perform any term, covenant or obligation of the LLC Agreement (unless such failure could not reasonably be expected to result in a Material Adverse Effect), stating that failure has occurred and describing it and any action being or proposed to be taken with respect thereto; 58 (iii) any actually proposed amendment, termination, rescission, discharge (other than by performance) or waiver under or with respect to any Financing Document or Material Agreement; (iv) written notice of any Force Majeure Event under the CDWR Power Sales Agreement; (v) any written notice requiring the Issuer to make any indemnity payments under any Material Agreement; (vi) written notice of any material litigation filed against the Issuer; and (vii) written notice of any change which could be reasonably expected to result in a Material Adverse Effect. With respect to the information and documents required to be delivered to the Trustee pursuant to clauses (a) and (b) of this Section 1106, the Issuer hereby further covenants and agrees to deliver or cause to be delivered any such documents and information (i) to each Holder who makes a request in writing to the Issuer and (ii) to any owner of a beneficial interest in a Global Note who makes a request in writing to the Issuer (which request may indicate that it is a continuing request for such information until further notice from a Holder or such owner of a beneficial interest in a Global Note to the contrary) for such documents or information. Delivery of such reports, information and documents to the Trustee is for information purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein (other than an expressly stated notice of Default or Event of Default) or determinable from information contained therein, including the Issuer's compliance with any of its covenants hereunder. SECTION 1107. Compliance with Laws and Other Agreements. The Issuer shall comply with (a) all applicable laws, rules, regulations, orders and directions of any Governmental Agency having jurisdiction over it or its business and (b) all of its covenants and obligations contained in any agreement to which the Issuer is a party, unless, in each case, the failure to so comply could not reasonably be expected to result in a Material Adverse Effect. SECTION 1108. Maintenance of Books and Records. The Issuer shall at all times maintain proper books, accounts and records in accordance with GAAP. The Issuer shall permit the Trustee and its representatives, upon reasonable notice and during normal business hours, to visit its premises and inspect all books, accounts and records of the Issuer. SECTION 1109. Approvals. The Issuer will maintain in full force and effect and comply in all respects with the conditions and obligations under all applicable Government Approvals which it has obtained or which may from time to time become necessary in connection with any of (a) the execution, delivery and performance 59 in accordance with their respective terms of the Material Agreements or the Financing Documents to which it is a party, and (b) the taking of any action contemplated hereby or thereby, in each case except to the extent that failure to do so could not reasonably be expected to result in a Material Adverse Effect. Without limiting the generality of the foregoing, the Issuer will make all required filings as a public utility under the FPA on or prior to the time such filings are required to be made and shall take all actions, if required, necessary to maintain its FERC market-based rate authority. SECTION 1110. Rule 144A Information for the Holders. At any time when the Issuer is not subject to Section 13 or 15(d) of the Securities Exchange Act, upon the request of a Holder, the Issuer shall promptly furnish to such Holder or to a prospective purchaser who is a qualified institutional buyer of such Note designated by such Holder, as the case may be, information specified in Rule 144A(d)(4) under the Securities Act ("Rule 144A Information") in order to permit compliance by such Holder with Rule 144A in connection with the resale of such Note by such Holder; provided, that the Issuer shall not be required to furnish Rule 144A Information in connection with any request made on or after the date which is two (2) years from the later of (a) the date such Note (or any Predecessor Note) was acquired from the Issuer or (b) the date such Note (or any Predecessor Note) was last acquired from an "affiliate" of the Issuer within the meaning of Rule 144 under the Securities Act; provided, further, that the Issuer shall not be required to furnish such information at any time to a prospective purchaser located outside the United States who is not a "United States Person" within the meaning of Regulation S under the Securities Act if such Note may then be sold to such prospective purchaser in accordance with Rule 904 under the Securities Act (or any successor provision thereto). SECTION 1111. Recording. (a) The Issuer shall cause, at its own expense, this Indenture and each of the Security Documents, and all amendments or supplements thereto, to be registered, recorded and filed or re-recorded, re-filed and renewed in such manner and in such place or places, if any, as may be required by law in order fully to preserve and protect the security interests created under the Security Documents and to effectuate and preserve the security therein granted to the Trustee hereunder for the benefit of the Trustee and the Holders. (b) Without prejudice to the above, the Issuer will comply with all applicable provisions of the Trust Indenture Act, including Trust Indenture Act Sections 314(b) and (d). SECTION 1112. Further Assurances. The Issuer shall, at its own cost and expense, execute and deliver, and cause to be executed and delivered, to the Trustee all such documents, instruments and agreements, and do all such other acts and things as may be reasonably required to preserve the Liens in favor of the Trustee with the required first-ranking priority and to enable the Trustee to exercise and enforce its rights under this Indenture, the Security Documents and the other documents, instruments and agreements required under this Indenture and to carry out the intent of this Indenture and the other Financing Documents. 60 SECTION 1113. Collateral. The Issuer shall take all actions necessary to maintain and preserve the perfection and priority of all Liens in favor of the Trustee on the Collateral, and shall from time to time execute or cause to be executed and filed any and all further instruments (including financing statements required by the Uniform Commercial Code, continuation statements and similar statements with respect to the Liens in favor of the Trustee created by the Financing Documents) as are necessary to maintain and preserve such Liens, or which the Trustee may reasonably request. SECTION 1114. Performance of Obligations. The Issuer may contract with other Persons to assist it in performing its duties under this Indenture and the other Financing Documents, and any performance of such duties by a Person identified to the Trustee in an Officer's Certificate of the Issuer shall be deemed to be action taken by the Issuer. As of the Closing Date, the Issuer has contracted with the Administrative Agent to assist the Issuer in performing its duties under this Indenture and the other Financing Documents and any action taken by the Administrative Agent on behalf of the Issuer to assist it in performing its duties under this Indenture and the other Financing Documents shall be deemed to be action taken by the Issuer. SECTION 1115. Return of Monies Held by Trustee. (a) On any date on which the principal of any Note becomes due in full, if the outstanding principal of such Note, together with all interest accruing thereon to the due date, and any other amounts payable by the Issuer to the Trustee or the Holders under this Indenture or any other Financing Document, have been finally and irrevocably paid to the Trustee for the benefit of the Holders, all interest on such Notes shall cease to accrue on the date of such payment. (b) Moneys so deposited with the Trustee or then held by the Issuer in trust for the payment of the principal of, Make-Whole Premium, if any, or interest on, any Note which remain unclaimed two (2) years after the date that all amounts payable by the Issuer to the Trustee or to the Holders under this Indenture or any other Financing Document has been finally and irrevocably paid to the Trustee for the benefit of the Holders, shall, at the request of the Issuer if at the time, to the knowledge of the Trustee, no Event of Default shall have occurred and be continuing, be paid to the Issuer and the Holders shall thereafter look solely to the Issuer for payment with respect to amounts deposited with the Trustee and returned to the Issuer pursuant to this Section 1115(b). SECTION 1116. Schedule and Delivery of Energy Under the CDWR Power Sales Agreement. The Issuer shall schedule and deliver, or cause to be scheduled and delivered, the full amount of energy required by the CDWR Power Sales Agreement in accordance with the terms of the CDWR Power Sales Agreement. ARTICLE TWELVE NEGATIVE COVENANTS SECTION 1201. Liens. The Issuer shall not create, incur, assume or permit to exist any Lien upon any of the Collateral, other than the Liens created by this 61 Indenture and the Security Documents, unless the failure to so comply could not reasonably be expected to result in a Material Adverse Effect. SECTION 1202. Indebtedness. The Issuer shall not create, assume, incur or otherwise become or remain obligated in respect of, or permit to remain outstanding, any Indebtedness, except for Indebtedness represented by the Notes. SECTION 1203. Guaranties. The Issuer shall not at any time be or become obligated, contingently or otherwise, with respect to any Guaranty. SECTION 1204. Transactions with Affiliates. The Issuer shall not effect any transaction with any of its Affiliates on a basis more favorable to such Affiliate than would at the time be obtainable for a comparable transaction on an arm's-length dealing with an unrelated third party, except for the Material Agreements entered into on or before the Closing Date. SECTION 1205. Investments, Loans and Advances. The Issuer shall not purchase, hold or acquire any capital stock, evidences of Indebtedness or other securities of, make or permit to exist any loans or advances to or make or permit to exist any investment or other interest in, any other Person, except Permitted Investments. SECTION 1206. Material Agreements; Additional Contracts. (a) The Issuer shall not assign any of its rights or obligations under any Material Agreement nor will the Issuer amend in any respect or terminate or suffer any such amendment or termination of, or grant any waiver of material and timely performance with respect to, or agree to the assignment of the rights or obligations of any party to, any Material Agreement; provided, that the Issuer may make amendments to the Material Agreements which are of a routine, ministerial or administrative nature to the extent that what is contemplated under any such amendment is not otherwise expressly prohibited hereunder or could reasonably be expected to result in a Material Adverse Effect; provided, however, that any amendment or modification to any Material Agreement which extends or modifies the time for payment due thereunder shall not be deemed to be an amendment of a routine, ministerial or administrative nature; provided, further, that nothing in this Section 1206(a) shall prevent the Issuer or the Trustee from terminating the Administrative Services Agreement in connection with a breach thereof by the Administrative Agent in accordance with the Administrative Agent Consent. (b) The Issuer shall not become a party to any contract, lease, agreement or instrument other than the agreements expressly identified in the definitions of Material Agreements and Financing Documents to the extent such action could reasonably be expected to result in a Material Adverse Effect. SECTION 1207. Fundamental Change. The Issuer shall not (a) sell, lease, transfer or otherwise dispose of any of its right, title or interest in or to the Collateral, unless the failure to so comply could not reasonably be expected to result in a Material Adverse Effect, (b) conduct any business or own any assets other than the business and assets conducted and owned by it as of the Closing Date, (c) directly or 62 indirectly merge, amalgamate or consolidate with any other Person, liquidate, wind up, terminate, reorganize or dissolve itself, or otherwise wind up, (d) change its legal form or its state of formation or (e) establish any subsidiary. SECTION 1208. Restricted Payments. Except as permitted in accordance with the conditions set forth in Section 401 and clause (ix) of Section 502(b), the Issuer shall not, directly or indirectly, (a) make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to its Members or any owner of a beneficial interest in the Issuer or otherwise with respect to any ownership or equity interest or security in or of the Issuer, (b) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or security or (c) set aside or otherwise segregate any amounts for any such purpose. The Issuer will not, directly or indirectly, make payments to or distributions from the Collections Account except in accordance with this Indenture and the Financing Documents. ARTICLE THIRTEEN REDEMPTION OF NOTES SECTION 1301. Applicability of Article. Either Series of the Notes shall be redeemable (in whole or in part) before their Stated Maturity in accordance with the terms of such Notes and in accordance with this Article Thirteen. SECTION 1302. Election to Redeem; Notice to Trustee. The Issuer may, at any time and from time to time, elect to redeem either Series of the Notes, in whole or in part, such election to be evidenced by or pursuant to a Management Committee's Consent. In case of any redemption at the election of the Issuer pursuant to this Article 13, the Issuer shall, at least sixty (60) days prior to the Redemption Date fixed by the Issuer (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Notes to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Notes to be redeemed pursuant to Section 1303. SECTION 1303. Selection by Trustee of Notes to Be Redeemed. (a) If less than all the Notes of such Series are to be redeemed pursuant to Section 1302, the particular Notes of such Series to be redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the Trustee, from the Outstanding Notes of such Series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Notes of such Series; provided, that no such partial redemption shall reduce the portion of the principal amount of a Note not redeemed to less than the minimum authorized denomination for Notes established pursuant to Section 302. (b) The Trustee shall promptly notify the Issuer in writing of the Notes of such Series selected for redemption pursuant to Section 1302 and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. 63 (c) For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Notes shall relate, in the case of any Note redeemed or to be redeemed only in part pursuant to Section 1302, to the portion of the principal amount of such Note which has been or is to be redeemed. SECTION 1304. Notice of Redemption. (a) Notice of redemption pursuant to Section 1302 shall be given in the manner provided for in Section 106 not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date to each Holder of Notes of the applicable Series to be redeemed, but failure to give such notice in the manner herein provided to the Holder of any Note of the applicable Series designated for redemption in whole or in part, or any defect in the notice of any such Holder, shall not affect the validity of the proceedings for the redemption of any other Note or portion thereof. (b) Any notice that is mailed to the Holders in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. (c) All notices of redemption shall state: (i) the Redemption Date, (ii) the Redemption Price, (iii) if less than all the Outstanding Notes are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Notes to be redeemed, (iv) that on the Redemption Date the Redemption Price (together with accrued interest, if any, to the Redemption Date payable as provided in Section 1306) will become due and payable upon each Note, or the portion thereof, to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, and (v) the Place of Payment where such Notes, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price. (d) Notice of redemption of Notes to be redeemed at the election of the Issuer shall be given by the Issuer or, at the Issuer's request made not less than fifteen (15) days prior to the latest date such notice of redemption may be given, by the Trustee in the name and at the expense of the Issuer. SECTION 1305. Deposit of Redemption Price. Not later than one (1) Business Day before any Redemption Date, the Issuer shall deposit with the Trustee or with a Paying Agent an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Notes of the applicable Series which are to be redeemed on that date. 64 SECTION 1306. Notes Payable on Redemption Date. (a) Notice of redemption having been given in accordance with Section 1304, the Notes of the applicable Series to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price thereof (together with accrued interest, if any, to the Redemption Date), and from and after such Redemption Date (unless the Issuer shall default in the payment of the Redemption Price and accrued interest) such Notes shall cease to bear interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Issuer at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, that installments of interest on Notes whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Notes, or one or more Predecessor Notes, registered as such at the close of business on the relevant Regular Record Dates according to their terms and the provisions of Section 310. (b) If any Note of the applicable Series called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and Make-Whole Premium, if any) shall, until paid, bear interest from the Redemption Date at the rate of interest set forth in such Note. SECTION 1307. Notes Redeemed in Part. Any Note of the applicable Series which is to be redeemed only in part (pursuant to the provisions of this Article Thirteen or of Article Fourteen) shall be surrendered at a Place of Payment therefor (with, if the Issuer or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Issuer and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Issuer shall execute, and, upon receipt of an Issuer Order, the Trustee shall authenticate and deliver to the Holder of such Note of the applicable Series without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Note so surrendered. ARTICLE FOURTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. Issuer's Option to Effect Defeasance or Covenant Defeasance. The provisions of this Article Fourteen shall apply to the Notes of either Series, and the Issuer may, at its option by a Management Committee's Consent, effect defeasance of such Series of the Notes under Section 1402, or covenant defeasance under Section 1403 in accordance with this Article Fourteen. SECTION 1402. Defeasance and Discharge. Upon the Issuer's exercise of the option provided in Section 1401 applicable to this Section 1402 the Issuer shall be deemed to have been discharged from its obligations with respect to the Outstanding Notes of such Series on the date the conditions set forth in Section 1404 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Issuer shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Notes of such Series, which shall thereafter be deemed to be 65 "Outstanding" only for the purposes of Section 1405 and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all of its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Issuer, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of such Outstanding Notes of such Series to receive, solely from the trust fund described in Section 1404(a) and as more fully set forth in such Section, payments in respect of the principal of, Make-Whole Premium, if any, and interest on such Notes when such payments are due; (b) the Issuer's obligations with respect to such Notes under Sections 305, 306, 307, 308, and 1102; (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (d) this Article Fourteen. Subject to compliance with this Article Fourteen, the Issuer may exercise its option under this Section 1402 notwithstanding the prior exercise of its option under Section 1403. SECTION 1403. Covenant Defeasance. Upon the Issuer's exercise of the option provided in Section 1401 applicable to this Section 1403, (a) the Issuer shall be released from its obligations under Sections 1104 through 1116, inclusive, and Sections 1201 through 1208, inclusive and (b) the occurrence of any event specified in Section 701(c) (with respect to any of Sections 1104 through 1116, inclusive, and Sections 1201 through 1208, inclusive) shall be deemed not to be an Event of Default on or after the date the conditions set forth in Section 1404 are satisfied (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or clause, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or clause or by reason of reference in any such Section or clause to any other provision herein or in any other document and any such omission shall not be deemed to be an Event of Default, but, the remainder of this Indenture and such Notes shall be unaffected thereby. SECTION 1404. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 1402 or Section 1403 to the Outstanding Notes of either Series: (a) The Issuer shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 808 who shall agree to comply with the provisions of this Article Fourteen applicable to such trustee) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Notes of such Series, an amount sufficient, in the opinion of an internationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of and installment of interest on the Outstanding Notes of such Series on the Stated Maturity (or Redemption Date, if applicable) of such principal, Make-Whole Premium, if any, or installment of interest and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Notes of such Series on the day on which such 66 payments are due and payable in accordance with the terms of this Indenture and of the Notes. (b) In the case of an election under Section 1402, the Issuer shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable United States federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of Outstanding Notes of such Series will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (c) In the case of an election under Section 1403, the Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of Outstanding Notes of such Series will not recognize gain or loss for United States federal income tax purposes as a result of such covenant defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (d) The Issuer shall have delivered to the Trustee an Officer's Certificate to the effect that the Notes of such Series, if then listed on any securities exchange, will not be delisted as a result of such deposit. (e) No Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit or, insofar as Bankruptcy Events of Default are concerned, at any time during the period ending on the one hundred twenty-first (121") day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (f) Such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest as defined in Section 809 and for purposes of the Trust Indenture Act with respect to any securities of the Issuer. (g) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Issuer is a party or by which it is bound. (h) The Issuer shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1402 or the covenant defeasance under Section 1403 (as the case may be) have been complied with, and that such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an "investment company," as defined in the Investment Company Act of 1940, as amended, or such trust shall be qualified under such act or exempt from regulation thereunder. 67 SECTION 1405. Deposited Money to Be Held in Trust; Other Miscellaneous Provisions. (a) All money (or other property as may be provided hereunder) (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (collectively for purposes of this Section 1405 and Section 1406, the "Trustee") pursuant to Section 1404 in respect of Outstanding Notes of such Series shall be held in trust and applied by the Trustee, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer acting as its own Paying Agent) as the Trustee may determine, to the Holders of the Notes of such Series of all sums due and to become due thereon in respect of principal, Make-Whole Premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. (b) Anything in this Article Fourteen to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuer from time to time upon Issuer Request any money (or other property and any proceeds therefrom) held by it as provided in Section 1404 which, in the opinion of an internationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, is in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance, as applicable, in accordance with this Article Fourteen. SECTION 1406. Reinstatement. If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 1405 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuer's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 1402 or 1403, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 1405; provided, that if the Issuer makes any payment of principal of, Make-Whole Premium, if any, or interest on any Note following the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Note to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE FIFTEEN MEETINGS OF HOLDERS OF NOTES SECTION 1501. Purposes for Which Holders' Meetings May Be Called. A meeting of Holders may be called at any time and from time to time pursuant to this Article Fifteen for any of the following purposes: (a) to give any notice to the Issuer or to the Trustee, or to give any directions to the Trustee, or to waive or to consent to the waiving of any Default hereunder with respect to such Series of the Notes and its consequences, or to take any other action authorized to be taken by Holders of either Series of the Notes pursuant to Article Seven; 68 (b) to remove the Trustee as trustee with respect to such Series of the Notes pursuant to Section 810; (c) to consent to the execution of an indenture or indentures supplemental hereto with respect to such Series of the Notes pursuant to Section 1002; or (d) to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Notes of such Series under any other provision of this Indenture or under applicable law. SECTION 1502. Call of Meetings by Trustee. The Trustee may at any time call a meeting of Holders of either Series of the Notes to be held at such time and at such place in the Borough of Manhattan, the City of New York, for any purpose specified in Section 1501 as the Trustee at the time shall determine. Notice of every meeting of Holders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meetings shall be given by the Trustee, in the manner provided in Section 106, not less than twenty (20) nor more than one hundred twenty (120) days prior to the date fixed for the meeting, to the Holders. SECTION 1503. Issuer and Holders May Call Meeting. In case the Issuer, pursuant to a Management Committee's Consent, or the Holders of at least ten percent (10%) in aggregate principal amount of the Notes of such Series then outstanding, shall have requested the Trustee to call a meeting of Holders of such Series, by written request setting forth in general terms the action proposed to be taken at the meeting, and the Trustee shall not have made the mailing of the notice of such meeting within twenty (20) days after receipt of such request, then the Issuer or the Holders in the amount above specified may determine the time and the place in the Borough of Manhattan, the City of New York, for such meeting and may call such meeting to take any action authorized in Section 1501 by giving notice thereof as provided in Section 1502. SECTION 1504. Persons Entitled to Vote at Meeting. To be entitled to vote at any meeting of Holders of such Series a person shall be (a) a Holder of one or more Notes of such Series or (b) a person appointed by an instrument in writing as proxy for a Holder of such Series of the Notes. The only persons who shall be entitled to be present or to speak at any meeting of Holders of such Series of the Notes shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Issuer and its counsel. SECTION 1505. Determination of Voting Rights: Conduct and Adjournment of Meeting. (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Notes of either Series, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. Such regulations may provide that written instruments 69 appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 104 or other proof. Except as otherwise permitted or required by any such regulations, the holding of Notes of such Series shall be proved in the manner specified in Section 104 and the appointment of any proxy shall be proved in the manner specified in said Section 104 or by having the signature of the person executing the proxy witnessed or guaranteed by any bank, banker, trust company or firm satisfactory to the Trustee. (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Issuer or by Holders as provided in Section 1503, in which case the Issuer or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote. (c) At any meeting, each Holder of a Note or a proxy shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by it. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other Holders. Any meeting of Holders duly called pursuant to Section 1502 or 1503 may be adjourned from time to time to a place, date and time announced at such meeting, and the meeting may be held as so adjourned without further notice. (d) At any meeting duly called pursuant to this Article Fifteen, the presence of persons holding or representing Notes of either Series in an aggregate principal amount sufficient to take action upon the business for the transaction of which such meeting was called shall be necessary to constitute a quorum; provided, that if less than a quorum be present, the persons holding or representing a majority of the Notes of such Series represented at the meeting may adjourn such meeting with the same effect, for all intents and purposes, as though a quorum had been present. SECTION 1506. Counting Votes and Recording Action of Meeting. The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders or of their representatives by proxy and the serial numbers and principal amounts of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 1502. The record shall show the serial numbers of the Notes voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one 70 of the duplicates shall be delivered to the Issuer and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE SIXTEEN COVENANTS OF HOLDERS OF NOTES SECTION 1601. Treatment of Notes as Indebtedness for Tax Purposes. Each Holder of a Note by its acceptance of such note covenants and agrees to treat such Note as indebtedness for United States federal income tax purposes. 71 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. POWER CONTRACT FINANCING, L.L.C., as Issuer By: /s/ Eric Pryor ---------------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Trustee, Accounts Agent, Paying Agent and Registrar By /s/ James J. McGinley ---------------------------------------- Name: James J. McGinley Title: Authorized Signer EXHIBIT A DEFINITIONS "Account Transfer Payment" means the amounts that are to be transferred from the Reserve Account to the Collections Account pursuant to Section 502(a) of this Indenture. "Accountant" means a Person engaged in the practice of accounting who (except when this Indenture provides that an Accountant must be Independent) may be employed by or affiliated with the Issuer or an Affiliate of the Issuer. "Accounts" has the meaning specified in Section 501 of this Indenture. "Accounts Agent" means the Person named as the "Accounts Agent" in Section 501 (a) of this Indenture until a successor Accounts Agent shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Accounts Agent" shall mean such successor Accounts Agent. "Act" when used with respect to any Holder, has the meaning specified in Section 104 of this Indenture. "Administrative Agent" means, initially, Lord Securities Corporation pursuant to the original Administrative Services Agreement and, thereafter, any other Person that has entered into an Administrative Services Agreement with the Issuer. "Administrative Agent Consent" means the Consent and Agreement, dated as of the date of this Indenture, among the Administrative Agent, the Issuer and the Trustee as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. "Administrative Services Agreement" means the Administrative Services Agreement, dated as of the date of this Indenture, between the Administrative Agent and the Issuer as originally executed and as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof, and any replacement agreement substantially in the form of the original Administrative Services Agreement between a replacement Administrative Agent and the Issuer and entered into as contemplated by the Administrative Agent Consent. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Assignment and Security Agreement" means the Assignment and Security Agreement among the Issuer, the Trustee and the Accounts Agent, for the A-1 benefit of the Trustee and the Holders, dated as of the date of this Indenture, as originally executed and as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. "Bankruptcy Event of Default" means the events described in clause (h) or (i) of Section 701 of this Indenture. "Business Day" means, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the same jurisdiction as the Corporate Trust Office of the Trustee or of any relevant Place of Payment or other relevant location are authorized or obligated by law or executive order to close. "Capacity" has the meaning ascribed thereto under the MSCG Power Purchase Agreement. "CDWR" means the State of California Department of Water Resources or any successor to CDWR as the counterparty to a Replacement Agreement (as defined in the CDWR Power Sales Agreement) or assignee of CDWR pursuant to the CDWR Power Sales Agreement. "CDWR Consent" means the Consent and Agreement, dated as of the date of this Indenture, among CDWR and the Trustee, as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. "CDWR Letter Agreement" means the Letter Agreement, dated as of June 5, 2003, among CES and CDWR, as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. "CDWR Power Sales Agreement" means the EEI Master Power Purchase and Sale Agreement, dated as of April 22, 2002, between CDWR and the Issuer, as modified by the amended and restated cover sheet, dated as of April 22, 2002, between CDWR and the Issuer and the amended and restated confirmation letter related thereto referred to as "Calpine 1", dated as of April 22, 2002, between CDWR and the Issuer, or any Replacement Agreement (as defined in the CDWR Power Sales Agreement) pursuant to Section 10.5 of the CDWR Power Sales Agreement. "Clearstream Luxembourg" means Clearstream Banking, societe anonyme. "Closing Date" means June 13, 2003, being the date of issuance and delivery of the Initial Notes. "Collateral" has the meaning ascribed thereto in the Assignment and Security Agreement. "Collections" means all amounts payable to the Issuer from CDWR pursuant to the CDWR Power Sales Agreement and all earnings on Permitted Investments made with funds in any Account. A-2 "Collections Account" has the meaning set forth in Section 502(a) of this Indenture. "Collections Period" means the period from January 1 through June 30 of each year (for August Payment Dates) and from July 1 through December 31 of each year (for February Payment Dates), and the final Payment Date of February 1, 2006 with respect to the Notes due 2006 and February 1, 2010 with respect to the Notes due 2010. (except with respect to the first payment date of February 1, 2004, for which the collections period is the period from the closing date of the offering of these notes through December 31, 2003). "Commission" means the U.S. Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Consent" means, individually, the Administrative Agent Consent, the Scheduling Services Consent, the CDWR Consent, the Morgan Stanley Capital Consent and the Morgan Stanley Consent; collectively, the "Consents." "Corporate Trust Office" means the corporate trust office of the Trustee, at which, at any particular time, its corporate trust business shall be principally administered, which office on the date of execution of this Indenture is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, except that with respect to presentation of Notes for payment or for registration of transfer or exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate agency business shall be conducted. "Damages and Indemnity Account" shall have the meaning set forth in Section 506(a) of this Indenture. "Debt Service Coverage Ratio" means, as of each Payment Date, the ratio of (a) Net Collections for the Collections Period preceding such Payment Date divided by (b) Mandatory Debt Service payable on such Payment Date. "Default" means any condition or event that, with the giving of notice or lapse of time or both, would become an Event of Default. "Defaulted Payments" has the meaning specified in Section 309(b) of this Indenture. "Distributable Collections" means, as of any Payment Date, the amount of Collections then on deposit in the Collections Account after the operation of priorities first through eighth of Section 502(b) and corresponding to electric energy actually delivered, or that should have been delivered, to CDWR during the Collections Period preceding the Payment Date. A-3 "Dollar" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. "DTC" means The Depository Trust Company, its nominees and successors. "DTC Participants" or "Participants" has the meaning set forth in Section 306(b) of this Indenture. "Early Termination Date" has the meaning ascribed thereto in the MSCG Power Purchase Agreement. "Energy" has the meaning ascribed thereto in the MSCG Power Purchase Agreement. "Euroclear" means the accounts of purchasers at the Euroclear System. "Event of Default" has the meaning specified in Section 701 of this Indenture. "Federal Bankruptcy Code" means Title 11 of the United States Code or any other Federal Bankruptcy Code hereafter in effect. "Fee Agreement" means the Schedule of Fees, dated as of June 13, 2003, between the Issuer and the Trustee. "FERC" means the Federal Energy Regulatory Commission and any successor thereto. "Financing Document" means, individually, the Indenture, each Security Document, each Note, the Fee Agreement and any and all purchase agreements, filings and other instruments evidencing, securing or relating in any way to the Collateral or any other Financing Document, as shall from time to time be executed and delivered to the Trustee by or on behalf of the Issuer or any other Person pursuant to or as contemplated by this Indenture; collectively, the "Financing Documents." "Force Majeure Event" shall mean an event of "Force Majeure" as described in Section 1.23 of the CDWR Power Sales Agreement. "FPA" means the Federal Power Act of 1920, as amended. "GAAP" means, as of any date of determination, generally accepted accounting principles then in effect in the United States of America, applied on a consistent basis. "Global Note" or "Global Notes" collectively or individually, as the case may be, has the meaning set forth in Section 201(g) of this Indenture. A-4 "Global Note Holder" has the meaning set forth in Section 306(a) of this Indenture. "Governmental Agency" means any public legal entity or public agency of the United States, whether created by federal, state or local government or any other legal entity now existing or hereafter created, or now or hereafter owned or controlled, directly or indirectly, by any public legal entity or public agency of the United States. "Government Approval" means any authorization, approval, consent, waiver, exception, license, filing, registration, ruling, permit, tariff, certification, exemption and other action or requirement by or with any Governmental Agency. Without limiting the generality of the foregoing, with respect to the Issuer, Governmental Approvals shall include the approval from the FERC pursuant to Section 205 of the FPA for the rates to be charged by the Issuer under the CDWR Power Sales Agreement. "Guaranty" of or "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness, or (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, that the terms Guarantee and Guaranty shall not include endorsements for collection or deposit, in either case in the ordinary course of business. "Holder" means the Person in whose name a Note is registered in the Security Register. "Indebtedness" means with respect to any Person, (a) any liability of such Person (i) for borrowed money, or under any reimbursement obligation relating to a letter of credit, or (ii) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any businesses, properties or assets of any kind (other than a trade payable or a current liability arising in the ordinary course of business), or (iii) for the payment of money relating to any obligations under any capital lease of real or personal property which has been recorded as a capitalized lease obligation, (b) all redeemable stock issued by such Person (the amount of Indebtedness represented by any involuntary liquidation preference plus accrued and unpaid dividends), (c) any liability of others described in the preceding clause (a) that the Person has guaranteed or that is otherwise its legal liability; and (d) (without duplication) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (a), (b) and (c) above. For purposes of determining any particular amount of Indebtedness under this definition, guarantees of (or obligations with respect to letters of credit supporting) A-5 Indebtedness otherwise included in the determination of such amount shall not also be included. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Independent," when used with respect to any specified Person, means a Person who (a) is in fact independent of the Issuer and any other obligor upon the Notes and of any Affiliate of the Issuer or of such other obligor, (b) does not have any direct financial interest or any material indirect financial interest in the Issuer or in any such other obligor or in any Affiliate of the Issuer or of such other obligor and (c) is not connected with the Issuer or any such other obligor or any Affiliate of the Issuer or of such other obligor as an officer, member employee, promoter, underwriter, trustee, partner, director or Person performing similar functions. Whenever it is herein provided that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by an Issuer Order and approved by the Trustee in the exercise of reasonable care and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning hereof. "Independent Investment Banker" means Morgan Stanley & Co. Incorporated, or its successor. "Initial Notes" means collectively, the Initial Notes due 2006 and the Initial Notes due 2010. "Initial Notes due 2006" means the Notes due 2006 of the Issuer issued on the Closing Date for so long as such securities constitute Restricted Securities. "Initial Notes due 2010" means the Notes due 2010 of the Issuer issued on the Closing Date for so long as such securities constitute Restricted Securities. "Interest Payment Date" means the first (1st) calendar day of each February and August commencing on and from February 1, 2004 (or if any such day is not a Business Day, then the next succeeding Business Day). "Issuer" means the Person named as the "Issuer" in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Issuer" shall mean such successor Person. "Issuer Request" or "Issuer Order" means a written request or order signed in the name of the Issuer by its President or a Vice President or the President or Vice President of the Administrative Agent acting on behalf of the Issuer and delivered to the Trustee. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, assignment in trust, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement (including, without limitation, A-6 any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code of any state of the United States or comparable law of any jurisdiction). "LLC Agreement" means the limited liability company operating agreement of the Issuer, dated as of June 13, 2003 "Majority Holders" means with respect to any Series of the Notes, Holders of not less than fifty-one percent (51%) in aggregate principal amount of the Outstanding Notes of such Series (voting as a single class). "Make-Whole Premium" means, with respect to the Notes of either Series, an amount calculated by the Issuer equal to the Discounted Present Value calculated for any Note of such Series called for redemption less the unpaid principal amount of that Note; provided, that the Make-Whole Premium shall not be less than zero; provided, further, that a Make-Whole Premium shall not be due for any reason, or result from any event, other than in connection with an optional redemption of the Notes of such Series pursuant to Section 1302 of this Indenture or in the event Morgan Stanley Capital makes a Termination Payment to the Issuer that includes a Make-Whole Premium. For purposes of this definition, the "Discounted Present Value" of any Note subject to redemption shall be equal to the discounted present value of all principal and interest payments scheduled to become due in respect of that Note after the date of this redemption, calculated by an Independent Investment Banker using a discount rate equal to the sum of (a) the yield to maturity on the United States treasury security having an average life equal to the remaining average life of that Note and trading in the secondary market at the price closest to par and (b) thirty seven and one-half (37.5) basis points; provided, that, if there is no United States treasury security having an average life equal to the remaining average life of that Note, this discount rate shall be calculated using a yield to maturity interpolated or extrapolated on a straight-line basis (rounding to the nearest month, if necessary) from the yields to maturity for two United States treasury securities having average lives most closely corresponding to the remaining average life of that Note and trading in the secondary market at the price closest to par. "Management Committee" means the management committee of the Issuer. "Management Committee's Consent" means a copy of a consent certified by a Responsible Officer of the Issuer to have been duly adopted by the Management Committee and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Mandatory Debt Service" means all scheduled interest and principal payments on the Notes due on any Payment Date. "Material Adverse Effect" means, with respect to either Series of the Notes, an event, occurrence or condition which has or could reasonably be expected to A-7 have a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) of the Issuer, (b) the rights or remedies of the Trustee in respect of such Series of the Notes or Holders of such Series of the Notes under the Financing Documents, (c) the ability of any of the Issuer, Morgan Stanley, Morgan Stanley Capital or CDWR to perform its obligations under the Financing Documents or the Material Agreements to which it is a party or (d) the validity, enforceability or priority of the Liens on the Collateral. "Material Agreement" means, individually, the CDWR Power Sales Agreement, the MSCG Power Purchase Agreement, the PPA Purchase Agreement; the Administrative Services Agreement, the Scheduling Services Agreement, the Morgan Stanley MSCG Guarantee, the Morgan Stanley CDWR Guarantee the Administrative Agent Consent, the Scheduling Services Consent, the Morgan Stanley Consent, the Morgan Stanley Capital Consent, the CDWR Consent, the CDWR Letter Agreement and the LLC Agreement; collectively, the "Material Agreements." "Maturity," when used with respect to any Note, means the date on which the principal of such Note or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or otherwise. "Member" means any member of the Issuer; collectively, the "Members" of the Issuer. "Moody's" means Moody's Investors Service, Inc. "Morgan Stanley" means Morgan Stanley, a Delaware corporation, or its successors or assigns under the Morgan Stanley MSCG Guarantee. "Morgan Stanley Capital" means Morgan Stanley Capital Group Inc., a Delaware corporation, or any Replacement Supplier (as defined in the MSCG Power Purchase Agreement) or other successor to or assignee of Morgan Stanley Capital pursuant to the MSCG Power Purchase Agreement. "Morgan Stanley Capital Consent" means the Consent and Agreement, dated as of the date of this Indenture, among Morgan Stanley Capital, the Issuer and the Trustee as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. "Morgan Stanley Capital Payments" for any month, means the amount payable to Morgan Stanley Capital by the Issuer pursuant to the MSCG Power Purchase Agreement for Energy and Capacity provided to the Issuer by Morgan Stanley Capital in such month. "Morgan Stanley Consent" means the Consent and Agreement, dated as of the date of this Indenture, among Morgan Stanley, the Issuer and the Trustee as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. A-8 "Morgan Stanley CDWR Guarantee" means the Guarantee Agreement, dated as of May 1, 2002, between Calpine Corporation and CDWR, which was assumed by Morgan Stanley pursuant to the Assignment and Assumption Agreement, dated as of June 13, 2003, between Morgan Stanley and Calpine, and pursuant to which Morgan Stanley provides a guarantee in favor of CDWR with respect to the Issuer's payment obligations under the CDWR Power Sales Agreement, as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. "Morgan Stanley MSCG Guarantee" means the Guarantee, dated as of June 13, 2003, by Morgan Stanley in favor of the Issuer with respect to Morgan Stanley Capital's payment obligations under the MSCG Power Purchase Agreement, as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. "MSCG Power Purchase Agreement" means the EEI Master Power Purchase and Sale Agreement, dated as of June 13, 2003, between Morgan Stanley Capital and the Issuer, as modified by a cover sheet, dated as of June 13, 2003, between Morgan Stanley Capital and the Issuer and the confirmation letter related thereto, dated as of June 13, 2003, between Morgan Stanley Capital and the Issuer, as it may from time to time be replaced, supplemented, amended or restated pursuant to the applicable provisions thereof. "Net Collections" means, for any Collections Period, the difference, if positive, between (a) all Collections corresponding to energy actually delivered, or that should have been delivered, to CDWR during the Collections Period minus (b) the sum of all amounts paid during the Collections Period pursuant to clauses (i), (ii), (vi), (vii) (viii) of Section 502(b). "Non-U.S. Person" means a Person that is not a "U.S. Person" as defined in Regulation S and certified to the Trustee and the Registrar by such Person. "Notes" means, collectively, the Initial Notes and the Unrestricted Notes, as amended or supplemented from time to time in accordance with the terms of this Indenture, that are authenticated and delivered pursuant to this Indenture; individually, a "Note;" it being understood that "Notes" may, but does not necessarily include Notes of more than one Series. "Notes due 2006" has the meaning specified in the first recital. "Notes due 2010" has the meaning specified in the first recital. "Notice of an Actionable Event" means (a) a certificate of any Holder that an Event of Default has occurred or (b) whether or not any certificate or notice thereof shall have been delivered to the Trustee, a Bankruptcy Event of Default. A Notice of an Actionable Event has been "given" (i) in the case of a Bankruptcy Event of Default, when such Bankruptcy Event of Default occurs or (ii) in the case of any other Notice of an Actionable Event, when the certificate referred to in clause (a) of the immediately preceding sentence has actually been received by a Responsible Officer of the Trustee. A A-9 Notice of an Actionable Event has been "rescinded" when, after a Notice of an Actionable Event (other than in connection with a Bankruptcy Event of Default) has been given, the Majority Holders have subsequently delivered to a Responsible Officer of the Trustee a certificate stating that such Event of Default has been waived or cured or when, after a Bankruptcy Event of Default, such Bankruptcy Event of Default is no longer continuing and a Responsible Officer of the Trustee has received a certificate to this effect from the Majority Holders or the Issuer, provided, that a Notice of an Actionable Event may not be rescinded without the consent of the Holders of all of the Notes unless all amounts of interest on the Notes and all payments on account of the principal of and Make-Whole Premium (if any) on the Notes, other than amounts of principal of and Make-Whole Premium, if any, on any Outstanding Notes that have become due solely by reason of a declared acceleration as provided in Section 702 or interest thereon (with interest on such principal, Make-Whole Premium (if any) and, to the extent permitted by law, on overdue payments of interest, at the rates specified herein and the Notes with respect to overdue payments), and an additional amount sufficient to reimburse the Holders for the reasonable costs and expenses incurred in connection with the giving and rescinding of any such Notice of an Actionable Event shall have been paid prior to the entry of any judgment in respect of such amounts. A Notice of an Actionable Event is "outstanding" at all times after such Notice of an Actionable Event has been given until such time, if any, as such Notice of an Actionable Event has been rescinded. "Officer's Certificate" means a certificate signed by the president or any Vice President of the Issuer or any of the foregoing officers of the Administrative Agent acting on behalf of the Issuer, as the case may be, and by the principal accounting officer or the principal financial officer or the secretary of the Issuer or any of the foregoing officers of the Administrative Agent acting on behalf of the Issuer, as the case may be, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Issuer or the Administrative Agent, acting on behalf of the Issuer, including an employee of the Issuer or the Administrative Agent, acting on behalf of the Issuer, and who shall be acceptable to the Trustee. "Outstanding," when used with respect to Notes, means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (a) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Issuer) in trust or set aside and segregated in trust by the Issuer (if the Issuer shall act as its own Paying Agent) for the Holders of such Notes; provided, that if such Notes are to be redeemed, notice of such redemption has been duly given A-10 pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (c) Notes, except to the extent provided in Sections 1402 and 1403 of this Indenture, with respect to which the Issuer has effected defeasance and/or covenant defeasance as provided in Article Fourteen; and (d) Notes which have been paid pursuant to Section 309 of this Indenture or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands such Notes are valid obligations of the Issuer; provided, that for purposes of Section 303 of this Indenture and for purposes of determining whether the Holders of the requisite principal amount of the Outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders for quorum purposes, and for the purpose of making the calculations required by Trust Indenture Act Section 313, Notes owned by the Issuer or any other obligor upon the Notes or any Affiliate of the Issuer or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Issuer or any other obligor upon the Notes or any Affiliate of the Issuer or such other obligor. "Paying Agent" means the Trustee or any other Person (including the Issuer acting as Paying Agent) authorized by the Issuer to pay the principal of or interest on any Notes on behalf of the Issuer. "Payment Date" means an Interest Payment Date and/or a Principal Payment Date. "Permanent Regulation S Global Note" has the meaning set forth in Section 201(e) of this Indenture. "Permitted Investments" means the following investments maturing, in each case, not less than one (1) Business Day before the Payment Date next following the date such investment is made; provided, however, that in the case of any investment pursuant to clause (b) of this definition which is made with the Trustee, such investment may mature on such Payment Date: A-11 (a) any direct obligations of, or obligations fully and unconditionally guaranteed by, the United States of America, or any agency or instrumentality of the United States of America, the obligations of which are fully and unconditionally backed by the full faith and credit of the United States of America; (b) demand and time deposits in, certificates of deposit of, bankers' acceptances issued by, or federal funds sold by any depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal and/or state authorities, or incorporated under the laws of any other jurisdiction, so long as at the time of such investment or contractual commitment providing for such investment the unsecured commercial paper or other unsecured short-term debt obligations of such depository institution or trust company have at least the Required Credit Rating from Moody's and Standard & Poor's; (c) repurchase obligations with respect to any security described in clauses (a) or (b) above, in each case entered into with either (i) a depository institution or trust company (acting as principal) which in respect of its short-term unsecured debt has credit ratings of at least the Required Credit Rating from Moody's and Standard & Poor's or (ii) a money market fiend maintained by a broker which in respect of its short-term unsecured debt has at least the Required Credit Rating from Moody's and Standard & Poor's; (d) unsecured debt securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state thereof which have at the time of such investment at least the Required Credit Rating from Moody's and Standard & Poor's; (e) unsecured commercial paper which has at the time of such investment a rating of at least the Required Credit Rating from Moody's and Standard & Poor's; and (f) investments in money market funds or money market mutual funds which have at the time of such investment at least the Required Credit Rating from Moody's and Standard & Poor's (including such funds for which the Trustee or any of its Affiliates is investment manager or advisor and for which the Trustee or any of its Affiliates may receive a fee). "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. A-12 "Physical Note" or "Physical Notes" collectively or individually, as the case may be, has the meaning set forth in Section 201(g) of this Indenture. "Place of Payment" means, when used with respect to the Notes, the place or places where the principal of, Make-Whole Premium, if any, and interest on the Notes are payable as specified as contemplated by Sections 301(e) and 1102 of this Indenture. "PPA Purchase Agreement" means the Purchase Agreement and Assignment Agreement, dated as of June 13, 2003, among CES and the Issuer, as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof. "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note and, for the purposes of this definition, any Note authenticated and delivered under Section 308 of this Indenture in exchange for or in lieu of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note. "Principal Payment Date of the Notes" means the first (1st) calendar day of each February and August commencing on and from February 1, 2004 (or if such day is not a Business Day, then the next succeeding Business Day). "Private Placement Legend" has the meaning set forth in Section 202(a) of this Indenture. "Property" means any asset, revenue or any other property, whether tangible or intangible, real or personal, including, without limitation, any right to receive income. "QIB" means a "Qualified Institutional Buyer" under Rule 144A. "Rating Agencies" means Moody's and Standard & Poor's to the extent that, at the relevant time of determination, each such Rating Agency has an active rating in effect on the Notes or, if fewer than all such Rating Agencies have a current rating in effect on the Notes, each such Rating Agency that has an active rating in effect on the Notes; provided, that if none of such Rating Agencies has a current rating in effect on the Notes at any relevant time of determination, at least two (2) other internationally recognized rating institutions selected in good faith by the Management Committee. "Redemption Date" when used with respect to any Note to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" when used with respect to any Note to be redeemed, means the price at which such Note is to be redeemed pursuant to this Indenture. A-13 "Registrar" means the Trustee, until a successor Registrar shall have become such pursuant to the applicable provisions of this Indenture, and, thereafter, "Registrar" shall mean such successor Registrar. "Registration Statement" means a registration statement with respect to the Notes meeting the requirements of the Securities Act. "Regular Record Date," with respect to any Payment Date, means the date which is fifteen (15) Business Days immediately preceding such Payment Date. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Note" has the meaning set forth in Section 201(e) of this Indenture. "Regulation S Physical Note" has the meaning set forth in Section 201(f) of this Indenture. "Required Credit Rating" means A-1 (or its equivalent) or higher from Standard & Poor's and P-1 (or its equivalent) or higher from Moody's, as the case may be. "Resale Restriction Termination Date" means the date that is two years after the later of the original issue date and the last date on which the Issuer or any Affiliate of the Issuer was the owner of a Note (or any Predecessor Note). "Reserve Account" has the meaning specified in Section 504(a) of this Indenture. "Reserve Deficiency" has the meaning specified in Section 504(b) of this Indenture. "Reserve Investments Account" has the meaning specified in Section 505 of this Indenture. "Reserve Required Balance" means an amount equal to the greatest scheduled payment of principal and interest due on the Notes on any Payment Date. "Responsible Officer" means, with respect to any person other than the Trustee or the Issuer, a duly elected or appointed authorized and acting officer, agent or representative of such Person. "Responsible Officer" when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any Vice President, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge A-14 of and familiarity with the particular subject. "Responsible Officer" when used with respect to the Issuer means, unless the context otherwise requires, the managing member, president, chief executive officer, chief financial officer, vice president, principal accounting officer or treasurer of the Issuer or any of the foregoing officers of the Administrative Agent acting on behalf of the Issuer or other executive officer of the Issuer or the Administrative Agent acting on behalf of the Issuer who in the normal performance of his or her operational duties would have knowledge of the subject matter relating to any certificate, report or notice to be delivered or given under this Indenture or knowledge of any Default or Event of Default thereunder. "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. "Rule 144A" means Rule 144A under the Securities Act. "Rule 144A Global Note" has the meaning set forth in Section 201 (d) of this Indenture. "Rule 144A Information" has the meaning set forth in Section 1110 of this Indenture. "Scheduling Services Agreement" means the Scheduling Services Agreement, dated as of the date of this Indenture, between the Morgan Stanley Capital and the Issuer as originally executed and as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof, and any replacement agreement substantially in the form of the original Scheduling Services Agreement between a replacement scheduling coordinator and the Issuer and entered into as contemplated by the Morgan Stanley Capital Consent. "Scheduling Services Consent" means the Consent and Agreement, dated as of the date of this Indenture, among the Morgan Stanley Capital, the Issuer and the Trustee as it may from time to time be supplemented, amended or restated pursuant to the applicable provisions thereof with respect to the Scheduling Services Agreement. "Securities Act" means the Securities Act of 1933, as from time to time amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as from time to time amended. "Security Document" means, individually, the Assignment and Security Agreement, the Consents and all UCC financing statements required by this Indenture in connection with the Collateral; collectively, the "Security Documents." "Security Register" has the meaning specified in Section 305(a) of this Indenture. A-15 "Series" means either the Notes due 2010 or the Notes due 2006, but not both, as the context requires. "Special Record Date" for the payment of any defaulted principal or interest on the Notes means a date fixed by the Trustee pursuant to Section 309(c) of this Indenture. "Standard & Poor's" means Standards & Poor's Rating Services. "Stated Maturity" when used with respect to any Note or any installment of principal thereof or interest thereon, means the date specified in such Note as the fixed date on which the principal of such Note or such installment of principal or interest is due and payable. "Temporary Regulation S Global Note" has the meaning set forth in Section 201 (e) of this Indenture. "Termination Payment" (a) when used with respect to the MSCG Power Purchase Agreement has the meaning ascribed thereto in the MSCG Power Purchase Agreement and (b) when used with respect to the CDWR Power Sales Agreement has the meaning ascribed thereto in the CDWR Power Sales Agreement. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force on the date this Indenture was executed, except as provided in Section 1005 of this Indenture. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder. "Trustee Fees" means the amount of fees, expenses (including reasonable attorneys fees and expenses) and indemnities due to the Trustee, the Accounts Agent, each Paying Agent and the Registrar under this Indenture, the Fee Agreement and the other Financing Documents. "Uniform Commercial Code" or "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York and any other jurisdiction the laws of which control the creation or perfection of security interests under the Security Documents. "United States" or "U.S." means the United States of America (including the states and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "Unrestricted Notes" means one or more Notes that do not and are not required to bear the restrictive legends set forth in Section 202. A-16 "U.S. Person" has the meaning ascribed to such term in Regulation S and certified to the Trustee and the Registrar by such Person. "U.S. Physical Note" has the meaning set forth in Section 201(f) of this Indenture. "Vice President" when used with respect to the Issuer or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "Vice President." "Working Capital Account" has the meaning specified in Section 503 of this Indenture. A-17 EXHIBIT B1 FORM OF FACE OF NOTE POWER CONTRACT FINANCING, L.L.C. 5.200% SENIOR SECURED NOTE DUE 2006 CUSIP [__________] No. [__________] $[________] POWER CONTRACT FINANCING, L.L.C., a Delaware limited liability company (the "Issuer," which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to [_________], or its registered assigns, the outstanding principal sum of [WRITTEN AMOUNT] ($[amount]), on or prior to February 1, 2006, or such earlier date as this Note due 2006 may be redeemed (the "Maturity Date"), such payment to be made in semi-annual installments on February 1 and August 1 in each year commencing on February 1, 2004, and ending on the Maturity Date set forth above (or if any such day is not a Business Day, then the next succeeding Business Day), each such installment to be in the amount set forth opposite the applicable Payment Date on Annex A attached hereto (provided, that the portion of the principal amount remaining unpaid on the Maturity Date, together with all interest accrued and unpaid thereon, shall in any and all cases be due and payable on the Maturity Date), and to pay interest thereon from the Closing Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on February 1 and August 1 in each year commencing on February 1, 2004 in each year (or, if any such day is not a Business Day, then the next succeeding Business Day), at a rate of 5.200% per annum, until the principal hereof is paid or made available for payment, plus additional interest (to the extent that the payment of such interest shall be legally enforceable) at the rate of 1.0% per annum on any overdue principal and Make-Whole Premium and on any overdue installment of interest. The principal and interest so payable, and punctually paid or duly provided for, on any Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note due 2006 (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date next preceding such Payment Date. Any such principal or interest not so punctually paid or duly provided for (collectively, "Defaulted Payments") will forthwith cease to be payable to the Holder on such Regular Record Date and shall be paid to the Person in whose name this Note due 2006 (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Payment to be fixed by the Issuer, notice whereof shall be given by the Trustee to Holders of Notes due 2006 not less than 10 days prior to such Special Record Date. Reference is hereby made to the further provisions of this Note due 2006 set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Terms used but not otherwise defined in this Note due 2006 shall have the meanings as defined in the Indenture. The provisions of this Note due 2006 do not B1-1 purport to be complete and are subject to, and qualified in their entirety by reference to, the provisions of the Indenture. Unless the certificate of authentication hereon has been executed by the Trustee referred to below by manual signature, this Note due 2006 shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Issuer has caused this Note due 2006 to be duly executed manually or by facsimile by its duly authorized officers. Dated: ________________ POWER CONTRACT FINANCING, L.L.C. By_________________________________ Name: Title: [President/Vice President] Attest: By______________________________________ Name: Title: [Secretary/Assistant Secretary] B1-2 CERTIFICATE OF AUTHENTICATION Dated:______________ This is one of the 5.200% Senior Secured Notes due 2006 of the Issuer described in the within-mentioned Indenture. Wilmington Trust Company, as Trustee By_______________________________ Authorized Signatory B1-3 FORM OF REVERSE SIDE OF NOTE POWER CONTRACT FINANCING, L.L.C. 5.200% SENIOR SECURED NOTE DUE 2006 1. Principal and Interest. The Issuer will pay the principal of this Note due 2006 on or prior to February 1, 2006, in the manner set forth on the face of this Note due 2006. The Issuer promises to pay accrued and unpaid interest on the principal amount of this Note due 2006 on each Interest Payment Date, as set forth below, at the rate per annum shown above. Principal of and interest on this Note will be payable semi-annually (to the Holders of record of the Notes (or any predecessor Notes) at the close of business on the Regular Record Date immediately preceding the Principal Payment Date) on each Principal Payment Date and on each Interest Payment Date commencing February 1, 2004. Interest on this Note due 2006 will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Closing Date; provided, that if there is no existing default in the payment of interest and if this Note due 2006 is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The principal of, Make-Whole Premium, if any, and interest on the Notes due 2006 shall be payable and the Notes due 2006 shall be exchangeable and transferable at the office or agency of the Issuer in the Borough of Manhattan, the City of New York, maintained for such purposes (which initially shall be the Corporate Trust Office of the Trustee) or, at the option of the Issuer, interest may be paid by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register; provided, that (a) all payments with respect to the Global Notes and the Physical Notes the Holders of which have given wire transfer instructions to the Trustee by the Regular Record Date shall be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof; (b) the payment of the final installment of principal of, or interest on, each Note due 2006 shall only be made upon presentation and surrender of such Note due 2006 at the Corporate Trust Office, or such other place as may be designated pursuant to the Indenture; and (c) pursuant to the Indenture, upon written request from any Holder of Outstanding Notes due 2006 in the aggregate principal amount of $1,000,000 payments of interest on, or principal (other than the final payment of principal) of, such Notes due 2006 shall be made by wire transfer to such Holder. The Notes due 2006 will not be entitled to the benefit of any sinking fund. B1-4 3. Registrar. The Trustee will act as the Registrar. 4. Indenture; Limitations. The Issuer issued the Notes due 2006 under an Indenture dated as of June 13, 2003 (the "Indenture"), between the Issuer and Wilmington Trust Company, as trustee (the "Trustee"). The terms of the Notes due 2006 include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes due 2006 are subject to all such terms and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note due 2006 and the terms of the Indenture, the terms of the Indenture shall control. The Notes due 2006 are general obligations of the Issuer. The aggregate principal amount of Notes due 2006 issued on the Closing Date is $339,929,000. 5. Optional Redemption. The Notes due 2006 may be redeemed at the option of the Issuer, in whole or in part, at any time and from time to time at a Redemption Price equal to 100% of the Outstanding principal amount, plus accrued and unpaid interest to but excluding the Redemption Date, plus a Make-Whole Premium, if any. Notice of a redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of a Note due 2006 to be redeemed at such Holder's last address as it appears in the Security Register. On and after the Redemption Date, interest ceases to accrue on Notes due 2006 or portions of Notes due 2006 called for redemption, unless the Issuer defaults in the payment of the Redemption Price described above. 6. Denominations; Transfer; Exchange. The Notes due 2006 are issued only in registered form without coupons and initially only in minimum denominations of $100,000 and any integral multiple of $1,000 above that amount; provided, that initial purchases of the Notes due 2006 by purchasers who are institutional "accredited investors" who are not Qualified Institutional Buyers shall be in minimum amounts of $250,000; and provided, further that, after initial issuance, Notes due 2006 may be issued upon exchange or transfer in such amounts as may be necessary to evidence the entire unpaid principal amount of any Note due 2006 surrendered or exchanged. A Holder may register the transfer or exchange of Notes due 2006 in accordance with the Indenture. The Issuer may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Issuer need not register the transfer or exchange of any Notes due 2006 selected for redemption (except the unredeemed portion of any Note due 2006 being redeemed in part). Also, it need not B1-5 register the transfer or exchange of any Notes due 2006 for a period of 15 days before a selection of Notes due 2006 to be redeemed is made. 7. Persons Deemed Owners. A Holder may be treated as the owner of a Note due 2006 for all purposes. 8. Treatment of Notes as Indebtedness for Tax Purposes. Each Holder of a Note due 2006 by its acceptance of such Note due 2006 covenants and agrees to treat such Note as indebtedness for United States federal income tax purposes. 9. Unclaimed Money. If money for the payment of principal, Make-Whole Premium, if any, or interest remains unclaimed for two years after the date that all amounts payable by the Issuer to the Trustee or the Holders under any Financing Document have been finally and irrevocably paid to the Trustee for the benefit of the Holders, the Trustee will pay the money back to the Issuer at its request. After that, the Holders entitled to the money must look solely to the Issuer for payment and all liability of the Trustee will cease with respect to money deposited with the Trustee or held in trust by the Issuer and returned to the Issuer as unclaimed money. 10. Discharge Prior to Redemption or Maturity. If the Issuer irrevocably deposits, or causes to be deposited, with the Trustee money sufficient to pay the then outstanding principal of, Make-Whole Premium, if any, and accrued and unpaid interest on the Notes due 2006 to redemption or maturity, the Issuer will be discharged from the Indenture and the Notes due 2006, except in certain circumstances for certain sections thereof. 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes due 2006 may be amended or supplemented with the consent of the Majority Holders of any Outstanding Notes due 2006, and any existing default or compliance with any provision may be waived with the consent of the Majority Holders (other than for a default in the payment of the principal of, Make-Whole Premium, if any, or interest on any Note due 2006 or in respect of a covenant or provision of the Indenture that cannot be modified or amended without the unanimous affirmative vote of all Holders) of the principal amount of the Notes due 2006 then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes due 2006 to, among other things, cure any ambiguity, defect or inconsistency; provided, that such cure shall not materially adversely affect the interests of the Holders. 12. Restrictive Covenants. B1-6 The Indenture contains certain covenants, including, without limitation, covenants with respect to the following matters: (i) Indebtedness of the Issuer; (ii) restricted payments; (iii) transactions with Affiliates; (iv) fundamental change; and (v) compliance with Material Agreements. 13. Successor Persons. When a successor person or other entity assumes all the obligations of its predecessor under the Notes due 2006 and the Indenture, the predecessor person will be released from those obligations. 14. Remedies for Events of Default. If an Event of Default (other than a Bankruptcy Event of Default) occurs and is continuing, then and in every such case the Trustee, upon the direction of Holders of no less than 25% of the Outstanding Notes due 2006 (for an Event of Default with respect to a default in payment of principal, Make-Whole Premium, if any, or interest) or either the Majority Holders of the Outstanding Notes due 2006 (for any other Event of Default), shall declare the principal amount of all the Notes due 2006 to be due and payable immediately, by a notice in writing to the Issuer, and, upon any such declaration, such principal amount, any accrued and unpaid interest and all other amounts payable under the Notes due 2006 shall become immediately due and payable. If a Bankruptcy Event of Default occurs, the principal amount of, any accrued interest on and all other amounts payable under the Notes due 2006 then Outstanding shall become immediately due and payable. The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Notes due 2006. Subject to certain limitations, the Majority Holders may direct the Trustee in its exercise of any trust or power. 15. Trustee Dealings with Issuer. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes due 2006 and may make loans to, accept deposits from, perform services for, and otherwise deal with, the Issuer and its Affiliates as if it were not the Trustee; provided, that no conflicting interest results. 16. No Recourse Against Certain Others. Except as otherwise specifically provided in the Material Agreements, no recourse under or upon any obligation, covenant or agreement contained in this Note due 2006, the Indenture or any Security Document, or because of any indebtedness evidenced thereby, shall be had against any incorporator, as such, or against any past, present or future stockholder, member, manager, officer or director, as such, of the Issuer or the Issuer's Members or of any successor, either directly or through the Issuer or the Issuer's. Members, as the case may be, or any successor, under any rule of law, statute, or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released B1-7 by the acceptance of the Notes due 2006 by the Holders thereof and as part of the consideration for the issuance of the Notes due 2006. Nothing contained herein shall, however, limit the liability of any Person for any fraud, gross negligence or willful misconduct on their part. 17. Authentication. This Note due 2006 shall not be valid until the Trustee manually signs the certificate of authentication on the other side of this Note due 2006. 18. Governing Law. The Indenture and this Note due 2006 shall be governed by, and construed in accordance with, the law of the State of New York without giving effect to the principles thereof relating to conflicts of law except Section 5-1401 of the New York General Obligations Law. The Issuer will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to POWER CONTRACT FINANCING, L.L.C., 50 West San Fernando Street, Suite 670, San Jose, California 95113, Attention: President. B1-8 ANNEX A to Note REPAYMENT SCHEDULE FOR INITIAL NOTE

Principal Payment Date Principal Amount Payable ---------------------- ------------------------ February 1, 2004 $ August 1, 2004 $ February 1, 2005 $ August 1, 2005 $ February 1, 2006 $

B1-9 Form of Transfer Notice (To be executed by the registered Holder if such Holder desires to transfer this Note) To [__________] [__________] Attention: [__________] FOR VALUE RECEIVED the undersigned registered Holder hereby sells, assigns and transfers unto: Name of Assignee:______________________________________________ Taxpayer Identification Number of Assignee:__________________________ (Please print or typewrite name and address including zip code of assignee) [_________] [_________] [_________] the within Note and all rights thereunder, hereby irrevocably constituting and appointing [__________] attorney to transfer such Note on the books of the Issuer with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES EXCEPT PERMANENT REGULATION S PHYSICAL NOTES] In connection with any transfer of this Note occurring prior to the date which is the earlier of the date of an effective Registration Statement or [__________] the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] | |(a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or | |(b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof B1-10 unless and until the conditions to any such transfer of registration set forth herein and in Section 307 of the Indenture shall have been satisfied. Dated:____________________ By____________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. Signature Guarantee: TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: By____________________________________ NOTICE: To be executed by an executive officer B1-11 EXHIBIT B2 FORM OF FACE OF NOTE POWER CONTRACT FINANCING, L.L.C. 6.256% SENIOR SECURED NOTE DUE 2010 CUSIP [__________] No. [__________] $[________] POWER CONTRACT FINANCING, L.L.C., a Delaware limited liability company (the "Issuer," which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to [_________], or its registered assigns, the outstanding principal sum of [WRITTEN AMOUNT] ($[amount]), on or prior to February 1, 2010, or such earlier date as this Note due 2010 may be redeemed (the "Maturity Date"), such payment to be made in semi-annual installments on February 1 and August 1 in each year commencing on February 1, 2004, and ending on the Maturity Date set forth above (or if any such day is not a Business Day, then the next succeeding Business Day), each such installment to be in the amount set forth opposite the applicable Payment Date on Annex A attached hereto (provided, that the portion of the principal amount remaining unpaid on the Maturity Date, together with all interest accrued and unpaid thereon, shall in any and all cases be due and payable on the Maturity Date), and to pay interest thereon from the Closing Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on February 1 and August 1 in each year commencing on February 1, 2004 in each year (or, if any such day is not a Business Day, then the next succeeding Business Day), at a rate of 6.256% per annum, until the principal hereof is paid or made available for payment, plus additional interest (to the extent that the payment of such interest shall be legally enforceable) at the rate of 1.0% per annum on any overdue principal and Make-Whole Premium and on any overdue installment of interest. The principal and interest so payable, and punctually paid or duly provided for, on any Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note due 2010 (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date next preceding such Payment Date. Any such principal or interest not so punctually paid or duly provided for (collectively, "Defaulted Payments") will forthwith cease to be payable to the Holder on such Regular Record Date and shall be paid to the Person in whose name this Note due 2010 (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Payment to be fixed by the Issuer, notice whereof shall be given by the Trustee to Holders of Notes due 2010 not less than 10 days prior to such Special Record Date. Reference is hereby made to the further provisions of this Note due 2010 set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Terms used but not otherwise defined in this Note due 2010 shall have the meanings as defined in the Indenture. The provisions of this Note due 2010 do not B2-1 purport to be complete and are subject to, and qualified in their entirety by reference to, the provisions of the Indenture. Unless the certificate of authentication hereon has been executed by the Trustee referred to below by manual signature, this Note due 2010 shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Issuer has caused this Note due 2010 to be duly executed manually or by facsimile by its duly authorized officers. Dated: _____________________ POWER CONTRACT FINANCING, L.L.C. By _____________________________________ Name: Title: [President/Vice President] Attest: By ______________________________________ Name: Title: [Secretary/Assistant Secretary] B2-2 CERTIFICATE OF AUTHENTICATION Dated:__________________ This is one of the 6.256% Senior Secured Notes due 2010 of the Issuer described in the within-mentioned Indenture. Wilmington Trust Company, as Trustee By_______________________________ Authorized Signatory B2-3 FORM OF REVERSE SIDE OF NOTE POWER CONTRACT FINANCING, L.L.C. 6.256% SENIOR SECURED NOTE DUE 2010 1. Principal and Interest. The Issuer will pay the principal of this Note due 2010 on or prior to February 1, 2010, in the manner set forth on the face of this Note due 2010. The Issuer promises to pay accrued and unpaid interest on the principal amount of this Note due 2010 on each Interest Payment Date, as set forth below, at the rate per annum shown above. Principal of and interest on this Note will be payable semi-annually (to the Holders of record of the Notes (or any predecessor Notes) at the close of business on the Regular Record Date immediately preceding the Principal Payment Date) on each Principal Payment Date and on each Interest Payment Date commencing February 1, 2004. Interest on this Note due 2010 will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Closing Date; provided, that if there is no existing default in the payment of interest and if this Note due 2010 is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The principal of, Make-Whole Premium, if any, and interest on the Notes due 2010 shall be payable and the Notes due 2010 shall be exchangeable and transferable at the office or agency of the Issuer in the Borough of Manhattan, the City of New York, maintained for such purposes (which initially shall be the Corporate Trust Office of the Trustee) or, at the option of the Issuer, interest may be paid by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register; provided, that (a) all payments with respect to the Global Notes and the Physical Notes the Holders of which have given wire transfer instructions to the Trustee by the Regular Record Date shall be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof; (b) the payment of the final installment of principal of, or interest on, each Note due 2010 shall only be made upon presentation and surrender of such Note due 2010 at the Corporate Trust Office, or such other place as may be designated pursuant to the Indenture; and (c) pursuant to the Indenture, upon written request from any Holder of Outstanding Notes due 2010 in the aggregate principal amount of $1,000,000 payments of interest on, or principal (other than the final payment of principal) of, such Notes due 2010 shall be made by wire transfer to such Holder. The Notes due 2010 will not be entitled to the benefit of any sinking fund. B2-4 3. Registrar. The Trustee will act as the Registrar. 4. Indenture; Limitations. The Issuer issued the Notes due 2010 under an Indenture dated as of June 13, 2003 (the "Indenture"), between the Issuer and Wilmington Trust Company, as trustee (the "Trustee"). The terms of the Notes due 2010 include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes due 2010 are subject to all such terms and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note due 2010 and the terms of the Indenture, the terms of the Indenture shall control. The Notes due 2010 are general obligations of the Issuer. The aggregate principal amount of Notes due 2010 issued on the Closing Date is $462,317,000. 5. Optional Redemption. The Notes due 2010 may be redeemed at the option of the Issuer, in whole or in part, at any time and from time to time at a Redemption Price equal to 100% of the Outstanding principal amount, plus accrued and unpaid interest to but excluding the Redemption Date, plus a Make-Whole Premium, if any. Notice of a redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of a Note due 2010 to be redeemed at such Holder's last address as it appears in the Security Register. On and after the Redemption Date, interest ceases to accrue on Notes due 2010 or portions of Notes due 2010 called for redemption, unless the Issuer defaults in the payment of the Redemption Price described above. 6. Denominations; Transfer; Exchange. The Notes due 2010 are issued only in registered form without coupons and initially only in minimum denominations of $100,000 and any integral multiple of $1,000 above that amount; provided, that initial purchases of the Notes due 2010 by purchasers who are institutional "accredited investors" who are not Qualified Institutional Buyers shall be in minimum amounts of $250,000; and provided, further that, after initial issuance, Notes due 2010 may be issued upon exchange or transfer in such amounts as may be necessary to evidence the entire unpaid principal amount of any Note due 2010 surrendered or exchanged. A Holder may register the transfer or exchange of Notes due 2010 in accordance with the Indenture. The Issuer may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Issuer need not register the transfer or exchange of any Notes due 2010 selected for redemption (except the unredeemed portion of any Note due 2010 being redeemed in part). Also, it need not B2-5 register the transfer or exchange of any Notes due 2010 for a period of 15 days before a selection of Notes due 2010 to be redeemed is made. 7. Persons Deemed Owners. A Holder may be treated as the owner of a Note due 2010 for all purposes. 8. Treatment of Notes as Indebtedness for Tax Purposes. Each Holder of a Note due 2010 by its acceptance of such Note due 2010 covenants and agrees to treat such Note as indebtedness for United States federal income tax purposes. 9. Unclaimed Money. If money for the payment of principal, Make-Whole Premium, if any, or interest remains unclaimed for two years after the date that all amounts payable by the Issuer to the Trustee or the Holders under any Financing Document have been finally and irrevocably paid to the Trustee for the benefit of the Holders, the Trustee will pay the money back to the Issuer at its request. After that, the Holders entitled to the money must look solely to the Issuer for payment and all liability of the Trustee will cease with respect to money deposited with the Trustee or held in trust by the Issuer and returned to the Issuer as unclaimed money. 10. Discharge Prior to Redemption or Maturity. If the Issuer irrevocably deposits, or causes to be deposited, with the Trustee money sufficient to pay the then outstanding principal of, Make-Whole Premium, if any, and accrued and unpaid interest on the Notes due 2010 to redemption or maturity, the Issuer will be discharged from the Indenture and the Notes due 2010, except in certain circumstances for certain sections thereof. 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes due 2010 may be amended or supplemented with the consent of the Majority Holders of any Outstanding Notes due 2010, and any existing default or compliance with any provision may be waived with the consent of the Majority Holders (other than for a default in the payment of the principal of, Make-Whole Premium, if any, or interest on any Note due 2010 or in respect of a covenant or provision of the Indenture that cannot be modified or amended without the unanimous affirmative vote of all Holders) of the principal amount of the Notes due 2010 then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes due 2010 to, among other things, cure any ambiguity, defect or inconsistency; provided, that such cure shall not materially adversely affect the interests of the Holders. 12. Restrictive Covenants. B2-6 The Indenture contains certain covenants, including, without limitation, covenants with respect to the following matters: (i) Indebtedness of the Issuer; (ii) restricted payments; (iii) transactions with Affiliates; (iv) fundamental change; and (v) compliance with Material Agreements. 13. Successor Persons. When a successor person or other entity assumes all the obligations of its predecessor under the Notes due 2010 and the Indenture, the predecessor person will be released from those obligations. 14. Remedies for Events of Default. If an Event of Default (other than a Bankruptcy Event of Default) occurs and is continuing, then and in every such case the Trustee, upon the direction of Holders of no less than 25% of the Outstanding Notes due 2010 (for an Event of Default with respect to a default in payment of principal, Make-Whole Premium, if any, or interest) or either the Majority Holders of the Outstanding Notes due 2010 (for any other Event of Default), shall declare the principal amount of all the Notes due 2010 to be due and payable immediately, by a notice in writing to the Issuer, and, upon any such declaration, such principal amount, any accrued and unpaid interest and all other amounts payable under the Notes due 2010 shall become immediately due and payable. If a Bankruptcy Event of Default occurs, the principal amount of, any accrued interest on and all other amounts payable under the Notes due 2010 then Outstanding shall become immediately due and payable. The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Notes due 2010. Subject to certain limitations, the Majority Holders may direct the Trustee in its exercise of any trust or power. 15. Trustee Dealings with Issuer. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes due 2010 and may make loans to, accept deposits from, perform services for, and otherwise deal with, the Issuer and its Affiliates as if it were not the Trustee; provided, that no conflicting interest results. 16. No Recourse Against Certain Others. Except as otherwise specifically provided in the Material Agreements, no recourse under or upon any obligation, covenant or agreement contained in this Note due 2010, the Indenture or any Security Document, or because of any indebtedness evidenced thereby, shall be had against any incorporator, as such, or against any past, present or future stockholder, member, manager, officer or director, as such, of the Issuer or the Issuer's Members or of any successor, either directly or through the Issuer or the Issuer's. Members, as the case may be, or any successor, under any rule of law, statute, or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released B2-7 by the acceptance of the Notes due 2010 by the Holders thereof and as part of the consideration for the issuance of the Notes due 2010. Nothing contained herein shall, however, limit the liability of any Person for any fraud, gross negligence or willful misconduct on their part. 17. Authentication. This Note due 2010 shall not be valid until the Trustee manually signs the certificate of authentication on the other side of this Note due 2010. 18. Governing Law. The Indenture and this Note due 2010 shall be governed by, and construed in accordance with, the law of the State of New York without giving effect to the principles thereof relating to conflicts of law except Section 5-1401 of the New York General Obligations Law. The Issuer will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to POWER CONTRACT FINANCING, L.L.C., 50 West San Fernando Street, Suite 670, San Jose, California 95113, Attention: President. B2-8 ANNEX A to Note REPAYMENT SCHEDULE FOR INITIAL NOTE

Principal Payment Date Principal Amount Payable ---------------------- ------------------------ February 1, 2004 $ -- August 1, 2004 $ -- February 1, 2005 $ August 1, 2005 $ February 1, 2006 $ August 1, 2006 $ February 1, 2007 $ August 1, 2007 $ February 1, 2008 $ August 1, 2008 $ February 1, 2009 $ August 1, 2009 $ February 1, 2010 $

B2-9 Form of Transfer Notice (To be executed by the registered Holder if such Holder desires to transfer this Note) To [__________] [__________] Attention: [__________] FOR VALUE RECEIVED the undersigned registered Holder hereby sells, assigns and transfers unto: Name of Assignee:___________________________________ Taxpayer Identification Number of Assignee:_____________________ (Please print or typewrite name and address including zip code of assignee) [__________] [__________] [__________] the within Note and all rights thereunder, hereby irrevocably constituting and appointing [__________] attorney to transfer such Note on the books of the Issuer with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES EXCEPT PERMANENT REGULATION S PHYSICAL NOTES] In connection with any transfer of this Note occurring prior to the date which is the earlier of the date of an effective Registration Statement or [__________] the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] | |(a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or | |(b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof B2-10 unless and until the conditions to any such transfer of registration set forth herein and in Section 307 of the Indenture shall have been satisfied. Dated:____________________ By____________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. Signature Guarantee: TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: By____________________________________ NOTICE: To be executed by an executive officer B2-11 EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED UPON TERMINATION OF DISTRIBUTION COMPLIANCE PERIOD ON OR AFTER FEBRUARY 1, 2004 [date] Power Contract Financing, L.L.C. 50 West San Fernando Street San Jose, California 95113 Attn: Secretary Wilmington Trust Company, as Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attn: Corporate Trust Office Re: Power Contract Financing, L.L.C. (the "Issuer") [ ]% Senior Secured Notes due 20[ ] (the "Notes") Ladies and Gentlemen: This letter relates to U.S.$ __________ principal amount of Notes represented by the Regulation S Global Note (as defined in the Indenture) which bears a legend outlining restrictions upon transfer of such Regulation S Global Note. Pursuant to Section 201 of the Indenture (the "Indenture"), dated as of June 13, 2003, relating to the Notes, we hereby certify that we are (or we will hold such Notes on behalf of) a person who is not a U.S. person, as defined in Regulation S ("Regulation S") promulgated under the Securities Act of 1933, as amended (the "Securities Act") or who is a U.S. person who purchased such interests pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, you are hereby requested to exchange the legended certificate for an unlegended certificate representing an identical principal amount at maturity of Notes, all in the manner provided by the Indenture. You and the Issuer are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Holder] By_____________________________ Authorized Signature C-1 EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS [date] Wilmington Trust Company, as Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attn: Corporate Trust Office Power Contract Financing, L.L.C. 50 West San Fernando Street San Jose, California 95113 Attn: Secretary Re: Power Contract Financing, L.L.C. (the "Issuer") [ ]% Senior Secured Notes due 20[ ] (the "Notes") Ladies and Gentlemen: In connection with our proposed purchase of $[__________] aggregate principal amount of the Notes: 1. We understand that the Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing the Notes to offer, sell or otherwise transfer such Notes prior to the date which is two years after the later of the date of original issue and the last date on which the Issuer or any affiliate of the Issuer was the owner of such Notes, or any predecessor thereto (the "Resale Restriction Termination Date") only (a) to the Issuer, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales to Non-U.S. Persons (as defined in the Indenture pursuant to which the Notes were issued) that occur outside the United States within the meaning of Regulations S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act D-1 that is acquiring the Notes for its own account or for the account of such an institutional "accredited investor" for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property and the property of such investor account or accounts be at all times within our or their control and to compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) or Rule 501 under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. We acknowledge that the Issuer and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes pursuant to clauses (d), (e) and (t) above to require the delivery of an Opinion of Counsel (as defined in the Indenture pursuant to which the Notes were issued) certifications and/or other information satisfactory to the Issuer and the Trustee. 2. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) purchasing for our own account or for the account of such an institutional "accredited investor," and we are acquiring the Notes for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 3. We are acquiring the Notes purchased by us for our own account, or for one or more accounts as to each of which we exercise sole investment discretion and have authority to make, and do make, the statements contained in this letter. 4. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. D-2 Very truly yours, [Insert Name of Transferor] By____________________________ Name: Title: Dated:_______________ Upon transfer, the Notes should be registered in the name of the new beneficial owner as follows: Name: Address: Taxpayer ID Number: D-3 EXHIBIT E FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S [date] Power Contract Financing, L.L.C. 50 West San Fernando Street San Jose, California 95113 Wilmington Trust Company, as Trustee Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attn: Corporate Trust Office Re: Power Contract Financing, L.L.C. (the "Issuer") [ ]% Senior Secured Notes due 20[ ] (the "Notes") Ladies and Gentlemen: In connection with our proposed sale of $[__________] aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S ("Regulation S") under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States and the proposed transferee is a Non-U.S. Person (as defined in the Indenture pursuant to which the Notes were issued); (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been prearranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. In addition, if the sale is made during a distribution compliance period and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable thereto, E-1 we confirm that such sale has been made in accordance with the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be. You and the Issuer are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Insert Name of Transferor] By___________________________________ Name: Title: Dated:_______________________ E-2 EXHIBIT F FORM OF ISSUER ORDER AND OFFICER'S CERTIFICATE OF POWER CONTRACT FINANCING, L.L.C. Wilmington Trust Company as Trustee under the Indenture, dated as of June 13, 2003, between Wilmington Trust Company and Power Contract Financing, L.L.C. Attention: Corporate Trust Department Re: Delivery to Trustee of $[__________] Power Contract Financing, L.L.C. [ ]% Senior Secured Notes due 20[ ] Ladies and Gentlemen: The undersigned, Power Contract Financing, L.L.C. (the "Issuer"), hereby delivers to you, in your capacity as Trustee under the above-referenced Indenture (the "Indenture"), $[__________] in aggregate principal amount of the Issuer's [ ]% Senior Secured Notes due 20[ ] (the "Notes"). This Issuer Order and Officer's Certificate (this "Issuer Order") is delivered pursuant to Section 303(c) of the Indenture and terms used and not otherwise defined herein have the respective meanings assigned to such terms in the Indenture. The Notes delivered with this Issuer Order are [Initial Notes/Unrestricted Notes], are to be issued as [Physical Notes/Global Notes] in accordance with the terms of the Indenture and are to be authenticated as of the date of this Issuer Order. Pursuant to Section 303(c) of the Indenture, the Issuer hereby directs that you (i) authenticate the Notes and (ii) upon such authentication, deliver each of such Notes to the respective Holder thereof or to special New York counsel for such Holder, acting on such Holder's behalf. The Issuer hereby certifies that the Notes delivered with this Issuer Order have been duly executed by the Issuer and that all conditions precedent to the issuance of the Notes contained in the Indenture have been fully complied with. Very truly yours, POWER CONTRACT FINANCING, L.L.C. By:_________________________________ Name: Title: [President/Vice President] Dated:___________________________ F-1 EX-10.15 7 f92357exv10w15.txt EXHIBIT 10.15 EXHIBIT 10.15 EXECUTION COPY AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 16, 2003, among CALPINE CORPORATION, as the Borrower, CERTAIN COMMERCIAL LENDING INSTITUTIONS, as the Lenders, THE BANK OF NOVA SCOTIA as Administrative Agent, Funding Agent, Lead Arranger and Bookrunner, BAYERISCHE LANDESBANK, CAYMAN ISLANDS BRANCH as Lead Arranger, Co-Bookrunner and Documentation Agent and ING CAPITAL LLC and TORONTO DOMINION (TEXAS) INC. as Lead Arrangers, Co-Bookrunners and Co-Syndication Agents TABLE OF CONTENTS

PAGE ARTICLE I DEFINITIONS AND ACCOUNTING TERMS....................................................................... 1 SECTION 1.1. Defined Terms............................................................................ 1 SECTION 1.2. Use of Defined Terms..................................................................... 31 SECTION 1.3. Cross-References......................................................................... 31 SECTION 1.4. Accounting and Financial Determinations.................................................. 31 ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES........................................................... 31 SECTION 2.1. Commitments/Loans........................................................................ 31 SECTION 2.2. Reduction of Revolving Commitment Amount and Term B Loans................................ 33 SECTION 2.3. Borrowing Procedure...................................................................... 34 SECTION 2.4. Continuation and Conversion Elections.................................................... 34 SECTION 2.5. Funding ................................................................................. 34 SECTION 2.6. Notes; Register.......................................................................... 35 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES........................................................... 35 SECTION 3.1. Repayments and Prepayments............................................................... 35 SECTION 3.2. Interest Provisions...................................................................... 40 SECTION 3.3. Fees .................................................................................... 41 ARTICLE IV LETTERS OF CREDIT..................................................................................... 42 SECTION 4.1. Issuance Requests........................................................................ 42 SECTION 4.2. Issuances and Extensions................................................................. 43 SECTION 4.3. Expenses ................................................................................ 44 SECTION 4.4. Other Revolving Lenders' Participation................................................... 44 SECTION 4.5. Disbursements............................................................................ 45 SECTION 4.6. Reimbursement............................................................................ 45 SECTION 4.7. Cash Collateral.......................................................................... 46 SECTION 4.8. Nature of Reimbursement Obligations...................................................... 46 SECTION 4.9. Increased Costs; Indemnity............................................................... 48 SECTION 4.10. Existing Letters of Credit.............................................................. 49 SECTION 4.11. Equivalent Amount Determinations........................................................ 49 SECTION 4.12. Currency Fluctuations, etc.............................................................. 49 ARTICLE V CERTAIN LIBO RATE AND OTHER PROVISIONS................................................................. 50 SECTION 5.1. LIBO Rate Lending Unlawful............................................................... 50 SECTION 5.2. Deposits Unavailable..................................................................... 50 SECTION 5.3. Increased LIBO Rate Loan Costs, etc...................................................... 50 SECTION 5.4. Funding Losses........................................................................... 51 SECTION 5.5. Increased Capital Costs.................................................................. 51

i SECTION 5.6. Taxes ................................................................................... 52 SECTION 5.7. Payments, Computations, etc.............................................................. 53 SECTION 5.8. Sharing of Payments...................................................................... 54 SECTION 5.9. Use of Proceeds.......................................................................... 54 ARTICLE VI CONDITIONS PRECEDENT.................................................................................. 55 SECTION 6.1. Effectiveness; Initial Credit Extension.................................................. 55 SECTION 6.2. All Credit Extensions.................................................................... 57 ARTICLE VII REPRESENTATIONS AND WARRANTIES....................................................................... 59 SECTION 7.1. Organization, etc........................................................................ 59 SECTION 7.2. Due Authorization, Non-Contravention, etc................................................ 59 SECTION 7.3. Government Approval, Regulation, etc..................................................... 59 SECTION 7.4. Validity, etc............................................................................ 60 SECTION 7.5. Financial Information.................................................................... 60 SECTION 7.6. No Material Adverse Effect............................................................... 60 SECTION 7.7. Litigation, Labor Controversies, etc..................................................... 60 SECTION 7.8. Subsidiaries............................................................................. 60 SECTION 7.9. Ownership of Properties.................................................................. 61 SECTION 7.10. Taxes .................................................................................. 61 SECTION 7.11. Pension and Welfare Plans............................................................... 61 SECTION 7.12. Environmental Warranties................................................................ 61 SECTION 7.13. Regulations U and X..................................................................... 63 SECTION 7.14. Accuracy of Information................................................................. 63 SECTION 7.15. Protection under Security Documents..................................................... 63 SECTION 7.16. Indebtedness of Certain Subsidiaries.................................................... 63 SECTION 7.17. Designation of Subsidiaries............................................................. 63 ARTICLE VIII COVENANTS........................................................................................... 63 SECTION 8.1. Affirmative Covenants.................................................................... 63 SECTION 8.2. Negative Covenants....................................................................... 69 SECTION 8.3. No Restriction on Payments to the Borrower............................................... 82 ARTICLE IX EVENTS OF DEFAULT..................................................................................... 82 SECTION 9.1. Listing of Events of Default............................................................. 82 SECTION 9.2. Action if Bankruptcy..................................................................... 85 SECTION 9.3. Action if Other Event of Default......................................................... 85 ARTICLE X THE AGENT.............................................................................................. 85 SECTION 10.1. Actions................................................................................. 85 SECTION 10.2. Funding Reliance, etc................................................................... 86 SECTION 10.3. Exculpation............................................................................. 86 SECTION 10.4. Successor............................................................................... 86 ii SECTION 10.5. Loans or Letters of Credit Issued by Agent or any Issuer................................ 87 SECTION 10.6. Credit Decisions........................................................................ 87 SECTION 10.7. Copies, etc............................................................................. 87 SECTION 10.8. Other Agents; Lead Arrangers............................................................ 87 SECTION 10.9. Collateral Matters...................................................................... 88 ARTICLE XI MISCELLANEOUS PROVISIONS.............................................................................. 89 SECTION 11.1. Waivers, Amendments, etc................................................................ 89 SECTION 11.2. Notices................................................................................. 90 SECTION 11.3. Payment of Costs and Expenses........................................................... 90 SECTION 11.4. Indemnification......................................................................... 91 SECTION 11.5. Survival ............................................................................... 93 SECTION 11.6. Severability............................................................................ 93 SECTION 11.7. Headings ............................................................................... 93 SECTION 11.8. Execution in Counterparts, Effectiveness, etc........................................... 93 SECTION 11.9. Governing Law; Entire Agreement......................................................... 93 SECTION 11.10. Successors and Assigns................................................................. 93 SECTION 11.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes................ 94 SECTION 11.12. Other Transactions..................................................................... 97 SECTION 11.13. Forum Selection and Consent to Jurisdiction............................................ 97 SECTION 11.14. Waiver of Jury Trial................................................................... 98 SECTION 11.15. Confidentiality........................................................................ 98 SECTION 11.16. Judgment Currency...................................................................... 99 iii SCHEDULE I - Disclosure Schedule SCHEDULE II - Percentages SCHEDULE 1.1 - Organizational Chart SCHEDULE 4.10 - Existing Letters of Credit EXHIBIT A-1 - Form of Revolving Note EXHIBIT A-2 - Form of Term Note EXHIBIT B - Form of Borrowing Request EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D - Form of Issuance Request EXHIBIT E - Form of Lender Assignment Agreement EXHIBIT F-1 - Form of Opinion of general counsel of the Borrower EXHIBIT F-2 - Form of Opinion of special counsel to the Borrower EXHIBIT G - Form of Prepayment Option Notice EXHIBIT H - Form of Canadian Stock Pledge Agreement EXHIBIT I - Form of Collateral Trust Agreement EXHIBIT J - Form of Gilroy Assignment Agreement EXHIBIT K - Form of LLC Pledge Agreement EXHIBIT L - Form of Note Pledge Agreement EXHIBIT M - Form of Guarantee and Collateral Agreement EXHIBIT N - Form of Stock Pledge Agreement iv AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 16, 2003, among CALPINE CORPORATION, a Delaware corporation (together with its successors, the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), various lead Arrangers (as defined below), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative agent and funding agent (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower is a party to the Credit Agreement, dated as of March 8, 2002, as amended (the "2002 Credit Agreement"), with the lenders party thereto, the agents named therein, and Scotia Capital, as joint administrative agent and funding agent; WHEREAS, the Borrower has requested that the Lenders and the Agent amend and restate the 2002 Credit Agreement in its entirety to, among other things, (i) extend the maturity of the Revolving Loan Commitments until July 15, 2005, (ii) decrease the aggregate Revolving Loan Commitments to an amount equal to $300,000,000 and (iii) provide for a new term B loan facility in an aggregate principal amount equal to $200,000,000; WHEREAS, the Lenders and the Agent are willing to amend and restate the 2002 Credit Agreement and to make credit facilities available to the Borrower upon and subject to the terms and conditions hereinafter set forth; and WHEREAS, (i) the 2002 Credit Agreement is being amended and restated pursuant to this Agreement, (ii) certain indebtedness under the 2002 Credit Agreement, as amended and restated in connection with this Agreement, will be continued under this Agreement and (iii) all obligations of the Borrower under the Loan Documents and all liens and security interests created under the Loan Documents will be continued, amended and restated as provided herein and therein and will not be cancelled or discharged; NOW, THEREFORE, the parties hereto agree that the 2002 Credit Agreement shall be amended and restated in its entirety as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Acquisition" means an acquisition by the Borrower or any of its Subsidiaries of power projects, reserves of geothermal steam and fluids, natural gas reserves, and other assets within the scope of its existing business. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Agent pursuant to Section 10.4. "Aggregate Percentage" means, relative to any Lender, the percentage set forth opposite its name on Schedule II under the caption "Aggregate Percentage" or as set forth in its Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11. "Agreement" means, on any date, this Amended and Restated Credit Agreement as originally in effect on the Closing Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Base Rate" means, on any date and with respect to all Base Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently established by Scotia Capital at its Domestic Office as its base rate; and (b) the Federal Funds Rate most recently determined by Scotia Capital plus 1/2of 1%. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by the Agent in connection with extensions of credit. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans or any L/C Advances will take effect simultaneously with each change in the Alternate Base Rate. The Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate. "Applicable Margin" means (i) for any Base Rate Loan, 3.00% per annum and (ii) for any LIBO Rate Loan or L/C Advance, 4.00% per annum. "Approved Fund" means (i) a CLO and (ii) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. 2 "Arranger" or "Arrangers" means, individually or collectively as the case may be, each of Scotia Capital, BayernLB, Toronto Dominion (Texas) Inc. and ING Capital LLC. "Asset Sale" means any sale, transfer, lease or other disposition of property or assets, other than (i) a transfer of assets between or among the Borrower and its Subsidiaries, (ii) the sale or disposition of cash or Cash Equivalent Investments, (iii) the sale or lease of products, services or accounts receivable in the ordinary course of business and (iv) the sale or disposition of Excluded Assets. "Assignee Lender" is defined in Section 11.11.1. "Attributable Debt" means, with respect to a Sale/Leaseback Transaction, the present value as of the date of determination (discounted at the weighted average interest rate borne by the Senior Notes, compounded annually) of the total obligations of the lessee for rental payments for the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Authorized Officer" means, relative to any Obligor, the president, any executive vice president, any senior vice president, the vice president - finance, the chief financial officer and the treasurer, in each case for whom a signature and incumbency certificate has been delivered to the Agent. "Base Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "BayernLB" means Bayerische Landesbank, Cayman Islands Branch. "Borrower" is defined in the preamble. "Borrower EBITDA" means, for any period, the consolidated EBITDA of the Borrower and its Subsidiaries, minus that portion of Consolidated Interest Expense payable by the consolidating Subsidiaries, minus the principal payments of the consolidating Subsidiaries, minus the consolidated non-discretionary Capital Expenditures (i.e., Capital Expenditures which are expressly required to be made under any agreement, contract, instrument, permit, license, law, regulation, judgment or other arrangement (other than those arrangements and contracts that relate to the performance of the work for which the Capital Expenditure is being made) binding on the Borrower or any Subsidiary) of the Borrower and its Subsidiaries, plus, without duplication, cash and Cash Equivalent Investments of the Borrower's Wholly Owned Subsidiaries and Cogen America that are legally and contractually available to each such Subsidiary for the payment of dividends, but only to the extent the source of such cash and Cash Equivalent Investments is from such Subsidiary's EBITDA or from repayments to such Subsidiary of loans made by such Subsidiary. "Borrower Interest Expense" means, for any period, as applied to the Borrower, the sum of (a) the total interest expense of the Borrower for such period as determined in accordance with GAAP, including, without limitation, all interest paid by the Borrower under its subordinated debt securities issued to a Trust, plus (b) all but the principal component of rentals in respect of Capitalized Lease Liabilities paid, accrued, or scheduled to be paid or accrued by the Borrower, 3 plus (c) one-third of all operating lease obligations paid, accrued and/or scheduled to be paid by the Borrower, plus (d) capitalized interest, plus (e) dividends paid in respect of preferred stock of the Borrower held by Persons other than the Borrower, plus (f) cash contributions to any employee stock ownership plan to the extent such contributions are used by such employee stock ownership plan to pay interest or fees to any person (other than Borrower) in connection with loans incurred by such employee stock ownership plan to purchase capital stock of the Borrower. "Borrowing" means the Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1. "Borrowing Request" means a loan request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit B. "Business Day" means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in San Francisco or New York; and (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day on which dealings in Dollars are carried on in the London interbank market. "Calpine Gilroy" means Calpine Gilroy Cogen, L.P., a Delaware limited partnership and an indirect, Wholly Owned Subsidiary of the Borrower. "Calpine Holdings" means Calpine CCFC Holdings, Inc., an indirect, Wholly Owned Subsidiary of the Borrower. "Canadian Dollars" and the sign "Cdn$" shall each mean freely transferable lawful money of Canada. "Canadian Gas Reserves" means the oil and gas reserves of the Borrower's Canadian Subsidiaries. "Canadian Stock Pledge Agreement" means the First Amendment Pledge Agreement, dated as of July 16, 2003, by QM, JOQ and QCH in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), in the form attached hereto as Exhibit H, as amended, supplemented, restated or otherwise modified from time to time. "Capex Requirement" means, with respect to the utilization for Capital Expenditures of the Net Available Cash from any Asset Sale, Monetization, Insurance Event or incurrence of secured Indebtedness covered by any of those clauses of Section 3.1.1(c) which include a statement referring to the Capex Requirement, the requirement that, if such Net Available Cash is derived from assets owned by the Borrower, any Pledged Entity or any Subsidiary of a Pledged Entity, such Net Available Cash may only be used to make Capital Expenditures by the Borrower, any Pledged Entity or any Subsidiary of a Pledged Entity. 4 "Capital Expenditures" means, for any period, the aggregate amount of all (i) construction expenditures, (ii) major maintenance and gas drilling expenditures, (iii) equipment expenditures and (iv) general development expenditures of the Borrower and its Subsidiaries made during such period, in each case determined in accordance with GAAP. "Capitalized Lease Liabilities" means all rental obligations of the Borrower or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalent Investment" means, at any time: (a) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States government or an agency or instrumentality thereof; (b) commercial paper, maturing not more than nine months from the date of issue, which is issued by (i) a corporation (excluding Affiliates of the Borrower) organized under the laws of any state of the United States or of the District of Columbia and rated at least A-l by S&P or P-l by Moody's, or (ii) any Lender (or its holding company or Affiliates); (c) any certificate of deposit or bankers acceptance, maturing not more than one year after such time, which is issued by either (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, or (ii) any Lender; (d) money market mutual funds registered with the Securities and Exchange Commission; (e) corporate evidences of indebtedness rated A or better by S&P or A2 or better by Moody's; (f) any repurchase agreement entered into with any Lender (or other commercial banking institution of the stature referred to in clause (c)(i)) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (e); and 5 (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Lender (or other commercial banking institution) thereunder; or (g) any other investment approved by the Required Lenders. "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited liability company and an indirect, Wholly Owned Subsidiary of the Borrower. "CCEF" means Calpine Canada Energy Finance ULC, a Nova Scotia unlimited liability company and a direct, Wholly Owned Subsidiary of QCH. "CCEF Indenture" means that certain Indenture dated as of April 25, 2001, between CCEF and Wilmington Trust Company, as Trustee, as amended by the Amended and Restated Indenture, dated as of October 16, 2001, between CCEF and such Trustee. "CCEF Notes" means the $2,030,000,000 of 8 1/2% Senior Notes due 2008 and the Cdn$200,000,000 of 8 3/4% Senior Notes due 2007, in each case issued by CCEF pursuant to the CCEF Indenture. "CCEFII" means Calpine Canada Energy Finance II ULC, a Nova Scotia unlimited liability company and a direct, Wholly Owned Subsidiary of CCRC. "CCEFII Indenture" means that certain Indenture dated as of October 18, 2001, as supplemented by the First Supplemental Indenture, dated as of October 18, 2002, between CCEFII and Wilmington Trust Company, as Trustee. "CCEFII Notes" means the (pound)200,000,000 of 8 7/8% Senior Notes due 2011 and the (euro)175,000,000 of 8 3/8% Senior Notes due 2008, in each case issued by CCEFII pursuant to the CCEFII Indenture. "CCFCI" means Calpine Construction Finance Company, L.P., a Delaware limited partnership and an indirect, Wholly Owned Subsidiary of the Borrower. "CCFCI Credit Agreement" means the Amended and Restated Credit Agreement, dated as of February 15, 2001, among CCFCI, the lenders party thereto, Credit Suisse First Boston, as Lead Arranger, Syndication Agent and Bookrunner, The Bank of Nova Scotia, as Lead Arranger LC Bank and Administrative Agent, TD Securities (USA) Inc., as Co-Arranger and Co-Documentation Agent, and CIBC World Markets Corp., as Co-Arranger and Co-Documentation Agent, as amended, supplemented, restated or otherwise modified from time to time. "CCFCII" means Calpine Construction Finance Company II, LLC, a Delaware limited liability company and an indirect, Wholly Owned Subsidiary of the Borrower. "CCFCII Credit Agreement" means the Credit Agreement, dated as of October 16, 2000, among CCFCII, the lenders party thereto, Credit Suisse First Boston, as Lead Arranger and Administrative Agent, The Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger and Co-Syndication Agent, ING 6 (U.S.) Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent, and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as Arranger and Co-Documentation Agent, TD Securities (USA) Inc., as Arranger and Co-Documentation Agent, as amended, supplemented, restated or otherwise modified from time to time. "CCI" means Calpine Calgary, Inc., a Delaware corporation and an indirect, Wholly Owned Subsidiary of the Borrower. "CCNGC" means Calpine Canada Natural Gas Company, a Nova Scotia corporation and an indirect, Wholly Owned Subsidiary of the Borrower. "CCNGP" means Calpine Canada Natural Gas Partnership, an Alberta general partnership and an indirect, Wholly Owned Subsidiary of the Borrower. "CCRC" means Calpine Canada Resources Company, an Alberta corporation and an indirect, Wholly Owned Subsidiary of the Borrower. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "CES" means Calpine Energy Services, L.P., a Delaware limited partnership and an indirect, Wholly Owned Subsidiary of the Borrower. "CES Assets" means all assets owned by CES or any of its Subsidiaries on the Closing Date and any additional assets to the extent CES or any of its Subsidiaries obtains an interest in such assets after the Closing Date. "CES Credit Facility" means any credit facility in favor of CES, the proceeds of which are used solely for monthly purchases by CES of natural gas on a commodity basis. "Change in Control" means (i) the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of the Borrower and/or (ii) any "Change of Control" under (and as defined in) the High Yield Indentures. "CLO" means, with respect to any Lender, any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by such Lender or an Affiliate of such Lender. 7 "Closing Date" means the date specified in a written notice from the Agent on which this Agreement becomes effective pursuant to Section 11.8 and which is intended to be July 16, 2003. "CNGH" means Calpine Natural Gas Holdings, LLC, a Delaware limited liability company, and a direct, Wholly-Owned Subsidiary of the Borrower. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Cogen America" means Calpine Cogeneration Corporation (previously named Cogeneration Corporation of America), a Delaware corporation of which the Borrower indirectly owns not less than 50% of the outstanding voting stock. "Collateral" means any property of or other items belonging to the Borrower or certain of its Subsidiaries subject or purported to be subject from time to time to a Lien under any Loan Document to secure any or all of the Obligations. "Collateral Trust Agreement" means the Collateral Trust Agreement, dated as of July 16, 2003, among the Borrower, the Agent, the Collateral Trustee, Wilmington Trust Company and Goldman Sachs Credit Partners, L.P., in the form attached hereto as Exhibit I, as amended, supplemented, restated or otherwise modified from time to time. "Collateral Trustee" means The Bank of New York, as Collateral Trustee under the Collateral Trust Agreement, and any successor collateral trustee serving from time to time thereunder. "Commitment" means, relative to any Term B Lender, its Term B Loan Commitment and, relative to any Revolving Lender, its Revolving Loan Commitment. "Commitment Amount" means, as the context may require, either the Term B Loan Commitment Amount or the Revolving Commitment Amount. "Commitment Fee" is defined in Section 3.3.1. "Commitment Termination Date" means, as the context may require, either the Revolving Loan Commitment Termination Date or the Term B Loan Commitment Termination Date. "Commitment/Loan Termination Event" means (a) the occurrence of any Default described in clauses (a) through (d) of Section 9.1.9 with respect to the Borrower or any Significant Subsidiary; or (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of the Loans to be due and payable pursuant to Section 9.3, or 8 (ii) in the absence of such declaration, the giving of notice by the Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "Consolidated Income Tax Expense" means, for any period, as applied to the Borrower, the provision for local, state, federal or foreign income taxes on a consolidated basis for such period determined in accordance with GAAP. "Consolidated Interest Expense" means, for any period, as applied to the Borrower, the sum of (a) the total interest expense of the Borrower and its consolidated Subsidiaries for such period as determined in accordance with GAAP, plus (b) all but the principal component of rentals in respect of Capitalized Lease Liabilities paid, accrued, or scheduled to be paid or accrued by the Borrower or its consolidated Subsidiaries, plus (c) one-third of all operating lease obligations paid, accrued, and/or scheduled to be paid by the Borrower and its consolidated Subsidiaries, plus (d) capitalized interest, plus (e) dividends paid in respect of preferred stock of the Borrower or any Subsidiary held by Persons other than the Borrower or a Wholly Owned Subsidiary, including, without limitation, but without duplication of payments by the Borrower to a Trust, all payments by a Trust of dividends and distributions with respect to the Guaranteed Preferred Securities, plus (f) cash contributions to any employee stock ownership plan to the extent such contributions are used by such employee stock ownership plan to pay interest or fees to any Person (other than the Borrower or a Subsidiary) in connection with loans incurred by such employee stock ownership plan to purchase capital stock of the Borrower. "Consolidated Net Income (Loss)" means, for any period, as applied to the Borrower, the Consolidated Net Income (loss) of the Borrower and its consolidated Subsidiaries for such period, determined in accordance with GAAP, adjusted by excluding (without duplication), to the extent included in such net income (loss), the following: (i) all extraordinary gains or losses; (ii) any net income of any Person if such Person is not incorporated or organized in the United States, a state thereof or the District of Columbia, except that (A) the Borrower's equity in the net income of any such Person for such period shall be included in Consolidated Net Income (Loss) up to the aggregate amount of cash actually distributed by such Person during such period to the Borrower or a Subsidiary incorporated or organized in the United States, a state thereof or the District of Columbia, as a dividend or other distribution and (B) the equity of the Borrower or a Subsidiary in a net loss of any such Person for such period shall be included in determining Consolidated Net Income (Loss); (iii) the net income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not at the time thereof permitted, directly or indirectly, by operation of the terms of its charter or by-laws or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary or its stockholders; (iv) any net income (or loss) of any Person combined with the Borrower or any of its Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of such combination; (v) any gain (but not loss) realized upon the sale or other disposition of any property, plant or equipment of the Borrower or its Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition by the Borrower or any Subsidiary of any capital stock of any Person, provided that losses shall be included on an after-tax basis; and (vi) the cumulative effect of a change in accounting principles; and further adjusted by subtracting from such net income 9 the tax liability of any parent of the Borrower to the extent of payments made to such parent by the Borrower pursuant to any tax sharing agreement or other arrangement for such period. "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall be calculated on a net basis (i.e., after taking into effect agreements, undertakings and other arrangements between the Person whose obligations are being guaranteed and the counterparty to such Person's obligations) and shall (subject to any limitation set forth therein) be deemed to be the outstanding net principal amount (or maximum net principal amount, if larger) of the debt, obligation or other liability guaranteed thereby, or, if the principal amount is not stated or determinable, the maximum reasonably anticipated net liability in respect thereof as determined by the Person in good faith, provided that (y) the amount of any Contingent Liability arising out of any indebtedness, obligation or liability other than the items described in clauses (a), (b) and (c) of the definition of "Indebtedness" and (z) the amount of any Contingent Liability consisting of a "keep-well", "make well" or other similar arrangement shall be deemed to be zero unless and until the Borrower is required to make any payment with respect thereto (and shall thereafter be deemed to be the amount required to be paid). "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit C. "Control Agreement" means one or more control agreements establishing a perfected first priority security interest over cash collateral required under the Loan Documents, with the Agent or other institution satisfactory to it acting as intermediary thereunder. "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Convertible Senior Notes" means the $1,200,000,000 of 4% Convertible Senior Notes Due 2006 issued by the Borrower pursuant to the Shelf Indenture. "Convertible Subordinated Debentures" means the up to $284,536,100 of Convertible Subordinated Debentures due 2029 issued by the Borrower pursuant to the Indenture dated November 2, 1999, the up to $371,134,100 of Convertible Subordinated Debentures due 2030 issued by the Borrower pursuant to the Indenture dated January 31, 2000 and the up to $535,000,000 of Convertible Subordinated Debentures due 2030 issued by the Borrower pursuant to the Indenture dated August 9, 2000. 10 "Credit Extension" means and includes (a) the advancing of any Loans by the applicable Lenders in connection with a Borrowing, and (b) any issuance or extension by an Issuer of a Letter of Credit. "Debt" means the outstanding principal amount of all Indebtedness of the Borrower and its consolidated Subsidiaries of the nature referred to in clauses (a), (b), (c) and (f) of the definition of "Indebtedness," and (without duplication) all Contingent Liabilities in respect of any of the foregoing. "Deeds of Trust" means, collectively, (i) in connection with the Domestic Gas Reserves, the Existing Deeds of Trust, as amended and restated by the Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing, dated as of July 16, 2003, and each other mortgage, deed of trust or other real property collateral security instrument with respect to the Domestic Gas Reserves, from the Borrower to the Collateral Trustee (for the benefit of, among others, the Lenders), dated as of July 16, 2003 and delivered pursuant to Article VI hereof, as amended, supplemented, restated or otherwise modified from time to time and (ii) in connection with the Pledged Power Projects, each mortgage, deed of trust or other real property collateral security instrument with respect to a Pledged Power Project, from the Borrower to the Collateral Trustee (for the benefit of, among others, the Lenders), dated as of July 16, 2003 and delivered pursuant to Article VI hereof, as amended, supplemented, restated or otherwise modified from time to time. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Designated Assets" means all geothermal energy assets (including any related extraction, processing or similar equipment and geothermal power plants) and all Domestic Gas Reserves and Canadian Gas Reserves (including any related extraction, processing or similar equipment, other than natural gas power plants) owned by the Borrower or any of its Subsidiaries from time to time, including the equity interests of any Subsidiary owning any Designated Assets, but excluding (i) any geothermal energy assets that are both unproven and undeveloped and (ii) contracts for the purchase or sale of natural gas and natural gas supplied under such contracts. "Disbursement" is defined in Section 4.5. "Disbursement Date" is defined in Section 4.5. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented or otherwise modified from time to time by the Borrower with the written consent of the Agent and the Required Lenders. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Gas Reserves" means the oil and gas reserves of the Borrower and its Subsidiaries located in the United States. 11 "Domestic Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. A Lender may have separate Domestic Offices for purposes of making, maintaining or continuing Base Rate Loans. "EBITDA" means, for any period, as applied to the Borrower, the sum of Consolidated Net Income (Loss) (but without giving effect to adjustments, accruals, deductions or entries resulting from purchase accounting, extraordinary losses or gains and any gains or losses from any Asset Sales), plus the following to the extent included in calculating Consolidated Net Income (Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest Expense, (c) depreciation expense, (d) amortization expense and (e) all other non-cash items reducing Consolidated Net Income, less all non-cash items increasing Consolidated Net Income, in each case for such period; provided that, if the Borrower has any Subsidiary that is not a Wholly Owned Subsidiary, EBITDA shall be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to (A) the consolidated net income (loss) of such Subsidiary (to the extent included in Consolidated Net Income (Loss)) multiplied by (B) the quotient of (1) the number of shares of outstanding common stock of such Subsidiary not owned on the last day of such period by the Borrower or any Wholly Owned Subsidiary of the Borrower divided by (2) the total number of shares of outstanding common stock of such Subsidiary on the last day of such period. "8 1/4% Senior Notes" means the $250,000,000 of 8 1/4% Senior Notes due 2005 issued by the Borrower pursuant to the Shelf Indenture. "8 1/2% Senior Notes" means the $2,000,000,000 of 8 1/2% Senior Notes due 2011 issued by the Borrower pursuant to the Shelf Indenture. "8 3/4% Senior Note Indenture" means that certain Indenture dated as of July 8, 1997, as supplemented by the First Supplemental Indenture dated as of September 10, 1997 and the Second Supplemental Indenture dated as of July 31, 2000, between the Borrower and The Bank of New York, as Trustee. "8 3/4% Senior Notes" means the $275,000,000 of 8 3/4% Senior Notes due 2007 issued by the Borrower pursuant to the 8 3/4% Senior Note Indenture. "8 5/8% Senior Notes" means the $750,000,000 of 8 5/8% Senior Notes due 2010 issued by the Borrower pursuant to the Shelf Indenture. "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "Equivalent Amount" means, on any date, and in respect of any Foreign Currency Letter of Credit, the equivalent amount in U.S. Dollars of the Stated Amount of any such Foreign Currency Letter of Credit (or any related Reimbursement Obligations or Disbursements) denominated in either Canadian Dollars or Sterling, as the case may be, determined by using the 12 quoted spot rate at which the Issuer of such Letter of Credit offers to exchange Dollars for such Canadian Dollars or Sterling at the opening of business on such date. "Equivalent Amount Determination Date" is defined in Section 4.12. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Event of Default" is defined in Section 9.1. "Excess Proceeds Basket" is defined in Section 8.2.6(b). "Excluded Assets" shall have the meaning set forth in the Collateral Trust Agreement. "Existing Deeds of Trust" means each mortgage, deed of trust, or other real property collateral security instrument from the Borrower in favor of the agent under the 2002 Credit Agreement, as amended, supplemented, restated or otherwise modified from time to time. "Existing Letters of Credit" means the letters of credit and bank guarantee described in Schedule 4.10. "Facility" means a power generation facility or energy producing facility and all related assets and facilities, including any related fuel reserves. "Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving duress or necessity of either party. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Scotia Capital from three federal funds brokers of recognized standing selected by it. "Fee Letters" means the fee letter agreements, each dated as of July 15, 2003, between the Borrower and the Agent. "Fiscal Quarter" means any period of three consecutive months ending on March 31, June 30, September 30 or December 31 of any year. 13 "Fiscal Year" means any period of twelve consecutive calendar months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year (e.g. the "2003 Fiscal Year") refer to the Fiscal Year ending on the December 31 occurring during such calendar year. "Foreign Currency Letter of Credit" means any Letter of Credit denominated in either Canadian Dollars or Sterling. "Foreign Currency Letter of Credit Commitment Amount" means $200,000,000. "Foreign Currency Letter of Credit Outstandings" means any Letter of Credit Outstandings in respect of Foreign Currency Letters of Credit. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" is defined in Section 1.4. "Gilroy Assignment Agreement" means the First Amendment Assignment and Security Agreement, dated as of July 16, 2003, by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), in the form attached hereto as Exhibit J, as amended, supplemented, restated or otherwise modified from time to time. "Gilroy Receivable" means the Borrower's right, title and interest in all amounts due and payable to Calpine Gilroy by Pacific Gas & Electric Company under that certain Agreement, dated as of July 1, 1999, as amended, between Pacific Gas & Electric Company and Calpine Gilroy L.P., a California limited partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase Agreement. "Granting Lender" is defined in Section 11.11.3. "Guaranteed Preferred Securities" means the preferred securities issued by one of the Trusts, from time to time, including, without limitation the $276,000,000 of principal amount of such securities issued in November, 1999, the $300,000,000 of principal amount of such securities issued in January, 2000, the $60,000,000 of principal amount of such securities issued in February, 2000, and the $517,500,000 of principal amount of such securities issued in August, 2000. "Guarantors" means, collectively, QM, JOQ and QCH and any other Subsidiary of the Borrower that executes a joinder to the Security Agreement and becomes a party thereto. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; 14 (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "Hazardous Materials Indemnity" means, collectively (i) the Amended and Restated Hazardous Materials Undertaking and Indemnity (Multistate), dated as of July 16, 2003, by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders) and (ii) the Amended and Restated Hazardous Materials Undertaking and Unsecured Indemnity (California), dated as of July 16, 2003, by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), in each case in a form reasonably satisfactory to the Agent, as amended, supplemented, restated or otherwise modified from time to time. "Hedging Obligations" means, with respect to any Person, the net liabilities of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, foreign exchange contracts, currency swap agreements and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates and (b) commodity or power swap or exchange agreements. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular section, paragraph or provision of this Agreement or such other Loan Document. "High Yield Indentures" means the Senior Note Indentures (other than the Shelf Indenture). "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of any Obligor, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) which relates to the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause such Obligor to be in default of any of its obligations under Section 8.2.4. "including" means including without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which 15 is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Indebtedness" of any Person means, without duplication: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (excluding the Convertible Subordinated Debentures and any other subordinated debt securities issued by the Borrower to a Trust and the Guaranteed Preferred Securities or any similar securities); (b) all obligations, contingent or otherwise, relative to the stated amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; provided, however, that if a letter of credit or banker's acceptance has been issued to support or secure any other form of Indebtedness, only the greater of the stated amount of such letter of credit or banker's acceptance or the outstanding principal amount of Indebtedness supported or secured, but not both, will be considered Indebtedness hereunder; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (d) all other items other than deferred taxes, deferred revenue and deferred leases which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Obligations; (f) whether or not so included as liabilities in accordance with GAAP, all net obligations of such Person to pay the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business), and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse, but excluding any royalties or similar payments to be made by such Person which are based on production or performance; and (g) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person (i) shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless the indebtedness of such partnership or joint venture is expressly nonrecourse to such Person and (ii) shall exclude any preferred stock if, at the time of the incurrence or issuance thereof, it would not be recorded as debt of such Person, in accordance with GAAP. "Indemnified Liabilities" is defined in Section 11.4. 16 "Indemnified Parties" is defined in Section 11.4. "Insurance Event" means an event resulting in receipt of the proceeds described in clause (b) of the definition of Net Available Cash. "Interest Coverage Ratio" means, for any period of four Fiscal Quarters, the ratio of (x) the consolidated EBITDA of the Borrower and its Subsidiaries during such period to (y) the Consolidated Interest Expense of the Borrower and its Subsidiaries (excluding from Consolidated Interest Expense for purposes of this clause (y) interest capitalized in connection with the construction of a new Facility which interest is capitalized during the construction of such Facility) incurred during such period. This ratio shall be calculated after giving pro forma effect to any Acquisition based upon the historical audited financial statements of the project that was the subject of the Acquisition. It is agreed that for purposes of clause (f)(i) of Section 8.2.2 only, the Interest Coverage Ratio shall be calculated in conformity in all respects with the calculation of "Consolidated Coverage Ratio" under the Pre-2000 Indentures. "Interest Coverage Ratio (Parent Only)" means, for any period of four Fiscal Quarters, the ratio of (x) the Borrower EBITDA during such period to (y) the Borrower Interest Expense (excluding from Borrower Interest Expense for purposes of this clause (y) interest capitalized in connection with the construction of a new Facility which interest is capitalized during the construction of such Facility) during such period; provided, however, that if the Interest Coverage Ratio (Parent Only) as so calculated falls below 1.70 to 1.00, then for purposes of Section 6.2.4, the Interest Coverage Ratio (Parent Only) shall be calculated as of the end of any calendar month on a rolling twelve month basis until the Interest Coverage Ratio (Parent Only) equals or exceeds 1.70 to 1.00, at which time such ratio shall again be tested quarterly. This ratio shall be calculated after giving pro forma effect to any Acquisition. "Interest Period" means, relative to any LIBO Rate Loans, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4 and ending on (but excluding) the day which numerically corresponds to such date one, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), in each case as the Borrower may select in its relevant notice pursuant to Section 2.3 or 2.4; provided, however, that (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than five different dates; (b) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the same duration; (c) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless, if such Interest Period applies to LIBO Rate Loans, such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (d) no Interest Period may end later than the applicable Stated Maturity Date. 17 "Investment" means, relative to any Person, without duplication, (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business and prepaid expenses); (b) any Contingent Liability of such Person; and (c) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the Fair Market Value of such property. "Investment Joint Venture" means, with respect to any Person, any corporation, partnership or other Person of which 25% or more of the outstanding capital stock or other comparable ownership interest having ordinary voting power to elect not less than 25% of the board of directors of such corporation (irrespective or whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "Issuance Request" means a request and certificate duly executed by the chief executive, accounting or financial Authorized Officer of the Borrower, in substantially the form of Exhibit D (with such changes thereto as may be agreed upon from time to time by the Agent and the Borrower), together with a properly completed application for a Letter of Credit on an Issuer's standard form, executed by an Authorized Officer of the Borrower. In the event of a conflict between the terms of an application for a Letter of Credit and the terms of this Agreement, the terms of this Agreement shall prevail. "Issuer" means Scotia Capital, BayernLB, or any Affiliate or unit of agency of either, and any other Lender acceptable to the Borrower and the Agent, and any successor to any of the foregoing Persons. "Joint Venture" means, with respect to any Person, any corporation, partnership or other Person of which 50% of the outstanding capital stock or other comparable ownership interest having ordinary voting power to elect not less than 50% of the board of directors of such corporation (irrespective or whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "JOQ" means JOQ Canada, Inc., a Delaware corporation and indirect, Wholly Owned Subsidiary of CNGH. 18 "Judgment Currency" is defined in Section 11.16. "knowledge" or "to the Borrower's knowledge" means the knowledge of or to the knowledge of the president, any vice president, the general counsel, the secretary, the chief financial officer, the controller or the vice president-finance of the Borrower. "L/C Advances" is defined in Section 4.5. "Lender Assignment Agreement" means a Lender Assignment Agreement substantially in the form of Exhibit E. "Lenders" is defined in the preamble. "Letter of Credit" is defined in Section 4.1. "Letter of Credit Agreement" means the Letter of Credit Agreement, dated as of July 16, 2003, among the Borrower, various lenders parties thereto, Scotia Capital, as administrative agent thereunder, and Scotia Capital and BayernLB, as issuers thereunder. "Letter of Credit Outstandings" means, at any time, an amount equal to the sum of (a) the aggregate Stated Amount at such time of all Letters of Credit then outstanding and undrawn (as such aggregate Stated Amount shall be adjusted, from time to time, as a result of drawings, the issuance of Letters of Credit, or otherwise) after converting the aggregate Stated Amounts of all Foreign Currency Letters of Credit to the Equivalent Amount thereof, plus (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations (after converting the aggregate Reimbursement Obligations with respect to Disbursements made in either Canadian Dollars or Sterling to the Equivalent Amount thereof). "Leverage Ratio" means the ratio of (a) Debt to (b) Debt plus Tangible Net Worth. "LIBO Rate" is defined in Section 3.2.1. "LIBO Rate Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" is defined in Section 3.2.1. "LIBOR Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) as designated from time to time by notice from such Lender to the Borrower and the Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans of such Lender hereunder. "LIBOR Reserve Percentage" is defined in Section 3.2.1. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment for security, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or 19 interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "LLC Pledge Agreement" means the Second Amendment Pledge Agreement (Membership Interests), dated as of July 16, 2003, by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), in the form attached hereto as Exhibit K, as amended, supplemented, restated or otherwise modified from time to time. "Loan" means, as the context may require, either a Term B Loan or a Revolving Loan. "Loan Documents" means this Agreement, the Notes, the Security Agreement, the Deeds of Trust, the Fee Letters, the Collateral Trust Agreement, the Control Agreements, the Stock Pledge Agreement, the Gilroy Assignment Agreement, the LLC Pledge Agreement, the Note Pledge Agreement, the Canadian Stock Pledge Agreement, the Hazardous Materials Indemnity and each other relevant agreement, document or instrument delivered in connection therewith. "Mandatory Prepayment Date" is defined in Section 3.1.1. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the financial condition, operations, assets (including power projects), business or prospects of the Borrower and its Subsidiaries taken as a whole; or (b) a material adverse change in the ability of the Borrower or any other Obligor to perform under any Loan Document. "Material Designated Assets" means Designated Assets having a Fair Market Value in the aggregate in excess of $50,000,000. "Monetization" means, in respect of any tangible or intangible asset, any transaction or arrangement pursuant to which funds or access to cash or similar liquidity are obtained by subjecting such asset to any agreement, participation, production payment, forward sale, option or other right or disposition, assignment or transfer including any securitization involving such asset, but excluding (i) a transfer of assets between or among the Borrower and its Subsidiaries, (ii) the sale or disposition of cash or Cash Equivalent Investments, (iii) the sale or lease of products, services or accounts receivable in the ordinary course of business, (iv) any transaction or arrangement resulting in the creation of Indebtedness of the Borrower or any Subsidiary of the Borrower, (v) the sale or disposition of Excluded Assets and (vi) any Asset Sale. "Moody's" means Moody's Investor Service, Inc. "Net Available Cash" means, (a) with respect to any Asset Sale, the cash or cash equivalent payments received by the Borrower or any of its Subsidiaries in connection with such Asset Sale (including any cash received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as or when received and also including the proceeds of other property received when converted to cash or cash equivalents) net of the sum of, without duplication, (i) all reasonable legal, title and recording tax expenses, reasonable commissions, and other reasonable fees and expenses incurred directly relating to such Asset Sale, (ii) all local, state, federal and foreign taxes required to be paid or accrued as a liability by the Borrower or any of its Subsidiaries as a consequence of such Asset Sale, (iii) payments made to repay Indebtedness which is secured by any assets subject to such Asset Sale in accordance 20 with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or by applicable law, be repaid out of the proceeds from such Asset Sale and (iv) all distributions required by any contract entered into other than in contemplation of such Asset Sale to be paid to any holder of a minority equity interest in such Subsidiary as a result of such Asset Sale, so long as such distributions do not exceed such minority holder's pro rata portion (based on such minority holder's proportionate equity interest) of the cash or cash equivalent payments described above, net of the amounts set forth in clauses (i)-(iii) above; (b) all cash insurance proceeds received by the Borrower or any of its Subsidiaries from any condemnation awards or casualty losses (excluding proceeds of business interruption insurance) in respect of any asset the sale, transfer, lease or other disposition of which would constitute an Asset Sale, net of all payments made to repay Indebtedness which is secured by the assets which were the subject of such condemnation or casualty; provided, however, so long as no Event of Default shall have occurred and be continuing, upon the Borrower's request within 90 days after the date of such occurrence, such proceeds shall be retained by the Borrower or such Subsidiary or delivered to the Borrower or such Subsidiary to repair or replace the property subject to such casualty so long as the Borrower or such Subsidiary has undertaken and is diligently pursuing the repair of such property; provided, however, that if such repairs cease or if, after such repairs are completed, the Borrower or such Subsidiary retains any of such proceeds, such proceeds shall thereupon be applied as provided in Sections 2.2.2 and 3.1.1; and (c) with respect to any Monetization or any incurrence of Indebtedness, the cash proceeds received by the Borrower or any of its Subsidiaries from such Monetization or incurrence, net of attorneys' fees and expenses, banking and/or investment banking fees and expenses, accountants' fees and expenses, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "Net Equity Proceeds" means, with respect to any issuance by the Borrower or a Trust of any equity securities (including the Guaranteed Preferred Securities), the gross consideration received by or for the account of the issuer, net of attorneys' fees and expenses, banking and/or investment banking fees and expenses, accountants' fees and expenses, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "Nonmaterial Subsidiary Default" means any Default (excluding any Event of Default) arising or resulting from the default or potential default by a Subsidiary (other than a Significant Subsidiary) under any obligation or condition under Section 8.1 of this Agreement (but not any other section of this Agreement) or under any other agreement, contract or undertaking binding on such Subsidiary other than (i) the failure by such Subsidiary to make a required payment under any Indebtedness of such Subsidiary having a principal amount in excess of $10,000,000 and (ii) a default in the performance or observance of any obligation or condition with respect to any Indebtedness of such Subsidiary having a principal amount in excess of $10,000,000 and, as a result thereof, the holder or holders of such Indebtedness, or any trustee or agent for such holders, causes such Indebtedness to be repaid more quickly than theretofore scheduled, whether through the introduction of a "cash sweep," the increase of an existing "cash sweep" or otherwise. "Non-Recourse Debt" means Indebtedness of any Subsidiary of the Borrower (other than any Subsidiary that owns, directly or indirectly, any Material Designated Assets) that is incurred 21 to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Borrower or any Subsidiary (including power generation facilities); provided that such Indebtedness is without recourse to the Borrower (except as permitted by Section 8.2.3(n)) or any Subsidiary or to any property or assets of the Borrower or any Subsidiary other than property or assets (including capital stock or other comparable ownership interest) of a Subsidiary subject to a Lien permitted pursuant to Section 8.2.3(n) or property or assets (including capital stock or other comparable ownership interest) of a Subsidiary subject to a Lien permitted pursuant to Section 8.2.3(s). "Note" means, as the context may require, either a Revolving Note or a Term Note. "Note Pledge Agreement" means the First Amendment Note Pledge Agreement, dated as of July 16, 2003, by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), in the form attached hereto as Exhibit L, as amended, supplemented, restated or otherwise modified from time to time. "Notes" means the Revolving Notes and the Term Notes. "Obligations" means all obligations (monetary or otherwise) of the Borrower and each other Obligor arising under or in connection with this Agreement, the Notes and each other Loan Document. "Obligor" means the Borrower, each Guarantor or any other Person (other than the Agent or any Lender) obligated under, or otherwise a party to, any Loan Document. "Organic Document" means, relative to any Obligor, its certificate of incorporation, partnership agreement, or similar organizational document, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock or other ownership interests. "Original Currency" is defined in Section 11.16. "Parity Lien Debt" means any Indebtedness incurred in compliance with the 2003 Senior Note Indenture that is secured by the Collateral on a parity basis with the 2003 Senior Notes and the Second Priority B Loans. "Participant" is defined in Section 11.11.2. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. 22 "Percentage" means, as the context may require, a Lender's Revolving Percentage, Term Percentage or Aggregate Percentage. "Permitted Sale" means any individual sale, transfer, lease, contribution, conveyance or Monetization of a portion of the Domestic Gas Reserves or Canadian Gas Reserves (together with related tangible personal property) having a value, according to the most recent, year-end report evaluating the Domestic Gas Reserves and Canadian Gas Reserves prepared by an independent petroleum engineer acceptable to the Agent, of $5,000,000 or less; provided no such sale, transfer, lease, contribution or conveyance shall be a Permitted Sale to the extent that it would cause the aggregate value of all Permitted Sales during any period of twelve consecutive calendar months to exceed $25,000,000. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any Pension Plan or Welfare Plan. "Pledged Entity" means (i) any Subsidiary of the Borrower, (ii) any Investment Joint Venture and (iii) any trading joint venture or similar arrangement in which the Borrower has made an Investment of any capital stock or equity related securities of CES or any CES Assets pursuant to Section 8.2.5(d), all of the Borrower's (and its Subsidiaries') equity in which Subsidiary, Investment Joint Venture or trading joint venture or similar arrangement has been directly pledged to the Collateral Trustee (for the benefit of, among others, the Lenders hereunder) pursuant to the Security Documents. "Pledged Power Project" means the power generation property and related equipment at each of the following locations: (i) the Goldendale Energy Center in Goldendale, Washington; (ii) the Otay Mesa Energy Center near San Diego, California; (iii) the Metcalf Energy Center near San Jose, California; (iv) the Santa Rosa Energy Center in Santa Rosa County, Florida; (v) the Washington Parish Energy Center near Bogalusa, Louisiana; (vi) the Deer Park Energy Center in Deer Park, Texas; and (vii) the Augusta Energy Center in Augusta, Georgia. "Prepayment Option Notice" is defined in Section 3.1.1. "Prepayment Letter Agreement" means the letter, dated as of July 16, 2003, from the Agent to the Borrower in connection with the payment or prepayment of the Convertible Senior Notes. "Pre-2000 Indentures" means the Senior Note Indentures (other than the Shelf Indenture, the 2003 Senior Note Indenture, the Second Priority Term Loan Agreement, any other documentation under which the Parity Lien Debt is incurred, the CCEF Indenture and the CCEFII Indenture). "pro forma" or "pro forma basis" means, for any period, that if the Borrower or any Subsidiary shall have made any acquisition or disposition of assets or capital stock (occurring by merger or otherwise) since the beginning of such period (including any acquisition or disposition of assets or capital stock occurring in connection with a transaction causing a calculation to be 23 made hereunder), subject to the qualifications set forth in the definitions thereof, the Interest Coverage Ratio and Interest Coverage Ratio (Parent Only) calculated for such period shall be calculated after giving pro forma effect to such acquisition or disposition, based upon the historical audited financial statements covering the assets or stock so acquired or disposed. "Projected Cash Flow Statement" is defined in Section 6.1.12. "PUD" means any portion of the Domestic Gas Reserves or Canadian Gas Reserves to which only proved undeveloped oil and gas reserves or any category of unproved oil and gas reserves are attributed, or undeveloped acreage to which no oil and gas reserves are attributed. "QCH" means Quintana Canada Holdings, LLC, a Delaware limited liability company and indirect, Wholly Owned Subsidiary of CNGH. "QM" means Quintana Minerals (USA), Inc., a Delaware corporation and indirect, Wholly Owned Subsidiary of CNGH. "Quarterly Payment Date" means the last day of each March, June, September, and December or, if any such day is not a Business Day, the next succeeding Business Day. "Rating" means, as used in Section 8.2.9(a), the rating by the applicable Rating Agency of the senior secured debt (or, if no such rating exists, the implied rating thereof) of the Borrower (or, if the Borrower shall not be the survivor of a merger permitted under Section 8.2.9(a), of such survivor); provided that at any time after the credit facilities established by this Agreement shall be rated by such Rating Agency, "Rating" shall mean such rating. "Rating Agencies" means S&P and Moody's. "Register" is defined in Section 2.6. "Reimbursement Obligation" is defined in Section 4.6. "Release" means a "release", as such term is defined in CERCLA. "Repayable Restricted Capital" means all Restricted Capital of the Borrower and its Subsidiaries, other than the Convertible Senior Notes, the Convertible Subordinated Debentures, the Guaranteed Preferred Securities, any Subordinated Debt and any Contingent Liabilities in respect of any of the foregoing. "Required Lenders" means, at any time, Lenders owed or holding (a) if the Revolving Loan Commitments shall not have been terminated, at least 51% of the aggregate of all Term B Loans then outstanding, all unfunded Term B Loan Commitments, all Revolving Loans then outstanding, all Letter of Credit Outstandings on such date, and all unfunded Revolving Loan Commitments or (b) if the Revolving Loan Commitments shall have been terminated, at least 51% of the aggregate amount of all Loans and L/C Advances then outstanding. "Required Revolving Lenders" means, at any time, Revolving Lenders having Revolving Percentages aggregating at least 51%. 24 "Reset Date" is defined in Section 4.12. "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to time. "Restricted Capital" means (i) any Senior Notes, Subordinated Debt or Convertible Senior Notes and (ii) any other Indebtedness of the Borrower described in clause (a) of the definition thereof without giving effect to the parenthetical thereto and clause (g) thereof to the extent guaranteeing Indebtedness of the type described in clause (a) thereof or clause (ii) of this definition, and including, for avoidance of doubt, any such Indebtedness related to preferred or trust preferred or similar capital, or convertible to equity capital, but excluding any Indebtedness permitted to be incurred under Section 8.2.2(a)(i), (a)(iii) or (d). "Restricted Capital Payment" is defined in Section 8.2.6(b). "Restricted Subsidiary" has the meaning given in the Pre-2000 Indentures. "Revolving Commitment Amount" means, on any date, $300,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Revolving Commitment Availability" means, on any date, the excess of (a) the then Revolving Commitment Amount, over (b) the sum of (i) the outstanding principal amount of all Revolving Loans on such date plus (ii) the Letter of Credit Outstandings on such date. "Revolving Lender" means each Lender that holds a Revolving Loan Commitment or a Revolving Loan. "Revolving Loans" is defined in Section 2.1.2. "Revolving Loan Commitment" is defined in Section 2.1.2. "Revolving Loan Commitment Termination Date" means the earliest of (a) July 15, 2005; (b) the date on which the Revolving Loan Commitments of the Revolving Lenders are terminated in full or reduced to zero pursuant to Section 2.2; and (c) the date on which any Commitment/Loan Termination Event occurs. Upon the occurrence of any event described in clause (b) or (c), the Revolving Loan Commitments shall terminate automatically and without any further action. "Revolving Note" means a promissory note of the Borrower payable to the order of any Revolving Lender, in the form of Exhibit A-1 (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Revolving Lender resulting from its outstanding Revolving Loans and L/C 25 Advances, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Revolving Percentage" means, relative to any Revolving Lender, the percentage set forth opposite its name on Schedule II under the caption "Revolving Percentage" or as set forth in its Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11. After the Revolving Loan Commitment Termination Date, relative to any Revolving Lender, at any time, such Revolving Lender's "Revolving Percentage" shall be as in effect immediately prior to the Revolving Loan Commitment Termination Date and after giving effect to any Lender Assignment Agreement(s) of such Lender executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11 at or prior to such time. "S&P" means Standard & Poor's Ratings Group. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Borrower or a Subsidiary transfers such property to a Person and leases it back from such Person, other than leases for a term of not more than 36 months or between the Borrower and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. "Sale/Leaseback Transactions" shall not include any arrangements or transactions constituting Capitalized Lease Liabilities. "Saltend" means Saltend Cogeneration Company Limited, UK private limited company, a United Kingdom private limited company and an indirect, Wholly Owned Subsidiary of the Borrower. "Scotia Capital" is defined in the preamble. "Second Priority B Loans" means the $750,000,000 of Second Priority Secured Term B Loans incurred by the Borrower pursuant to the Second Priority Term Loan Agreement. "Second Priority Term Loan Agreement" means the Credit Agreement, dated as of July 16, 2003, among the Borrower, Goldman Sachs Credit Partners L.P., as sole lead arranger, sole bookrunner and administrative agent, Scotia Capital, as arranger and syndication agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank Hessen-Thuringen, as co-arrangers, and Credit Lyonnais New York Branch and Union Bank of California, N.A., as managing agents. "Security Agreement" means the Guarantee and Collateral Agreement, dated as of July 16, 2003, by the Borrower, QM, JOQ and QCH in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), in the form attached hereto as Exhibit M, as amended, supplemented, restated or otherwise modified from time to time. "Security Documents" means the Security Agreement, the Deeds of Trust, the Collateral Trust Agreement, the Stock Pledge Agreement, the Gilroy Assignment Agreement, the LLC Pledge Agreement, the Note Pledge Agreement, the Canadian Stock Pledge Agreement, the 26 Control Agreements and each other relevant agreement, document or instrument delivered in connection therewith. "Senior Note Indentures" means, collectively, the 7 3/4% Senior Note Indenture, the 7 5/8% Senior Note Indenture, the 7 7/8% Senior Note Indenture, the 8 3/4% Senior Note Indenture, the Shelf Indenture (to the extent relating solely to the Senior Notes), the 10 1/2% Senior Note Indenture, the 2003 Senior Note Indenture, the Second Priority Term Loan Agreement, any other documentation under which the Parity Lien Debt is incurred, the CCEF Indenture and the CCEFII Indenture. "Senior Notes" means, collectively, the 7 3/4% Senior Notes, the 7 5/8% Senior Notes, the 7 7/8% Senior Notes, the 8 1/4% Senior Notes, the 8 1/2% Senior Notes, the 8 3/4% Senior Notes, the 8 5/8% Senior Notes, the 10 1/2% Senior Notes, the Convertible Senior Notes, the 2003 Senior Notes, the Second Priority B Loans, the Parity Lien Debt, the CCEF Notes and the CCEFII Notes. "Senior Notes Basket" is defined in Section 8.2.6(b)(A)(y). "7 5/8% Senior Note Indenture" means that certain Indenture dated as of March 29, 1999, as supplemented by the First Supplemental Indenture dated as of July 31, 2000, between the Borrower and The Bank of New York, as Trustee. "7 5/8% Senior Notes" means the $250,000,000 of 7 5/8% Senior Notes due 2006 issued by the Borrower pursuant to the 7 5/8% Senior Note Indenture. "7 7/8% Senior Note Indenture" means that certain Indenture dated as of March 31, 1998, as supplemented by the First Supplemental Indenture dated as of July 24, 1998 and the Second Supplemental Indenture dated as of July 31, 2000, between the Borrower and The Bank of New York, as Trustee. "7 7/8% Senior Notes" means the $400,000,000 of 7 7/8% Senior Notes due 2008 issued by the Borrower pursuant to the 7 7/8% Senior Note Indenture. "7 3/4% Senior Note Indenture" means that certain Indenture dated as of March 29, 1999, as supplemented by the First Supplemental Indenture dated as of July 31, 2000, between the Borrower and The Bank of New York, as Trustee. "7 3/4% Senior Notes" means the $350,000,000 of 7 3/4% Senior Notes due 2009 issued by the Borrower pursuant to the 7 3/4% Senior Note Indenture. "Shelf Indenture" means that certain Indenture dated as of August 10, 2000, as supplemented from time to time, between the Borrower and Wilmington Trust Company, as Trustee. "Significant Subsidiary" means each Subsidiary of the Borrower that (a) accounted for at least 10% of consolidated revenues of the Borrower and its Subsidiaries or 10% of consolidated earnings of the Borrower and its Subsidiaries 27 before interest and taxes, in each case for the last four full Fiscal Quarters immediately preceding the date as of which any such determination is made; or (b) has assets which represent at least 10% of the consolidated assets of the Borrower and its Subsidiaries as of the last day of the last Fiscal Quarter of the Borrower immediately preceding the date as of which any such determination is made, all of which shall be as reflected on the financial statements of the Borrower for the period, or as of the date, in question. Notwithstanding the foregoing, (i) CCFCI shall be deemed to be a Significant Subsidiary for all purposes of this Agreement until such date as all Indebtedness under the CCFCI Credit Agreement shall have been repaid in full and all commitments to lend thereunder have been terminated and, thereafter, at any time when CCFCI meets the criteria set forth in the first sentence of this definition and (ii) CCFCII shall be deemed to be a Significant Subsidiary for all purposes of this Agreement until such date as all Indebtedness under the CCFCII Credit Agreement shall have been repaid in full and all commitments to lend thereunder have been terminated and, thereafter, at any time when CCFCII meets the criteria set forth in the first sentence of this definition. "Solvent" means, as to any Person at any time, that (i) the fair value of the property of such Person is greater than the amount of such Person's liabilities (whether subordinated, contingent, unmatured, unliquidated or otherwise); (ii) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (iii) such Person is able to pay its debts and other liabilities as they mature in the normal course of business; (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "SPC" is defined in Section 11.11.3. "Stated Amount" of each Letter of Credit means the "Stated Amount" as defined therein. "Stated Expiry Date" is defined in Section 4.1(b). "Stated Maturity Date" means, in the case of the Revolving Loans, July 15, 2005 and, in the case of the Term B Loans, July 15, 2007. "Sterling" and the sign "(pound)" shall mean freely transferable lawful money of the United Kingdom. "Stock Pledge Agreement" means the Second Amendment Pledge Agreement, dated as of July 16, 2003, by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), in the form attached hereto as Exhibit N, as amended, supplemented, restated or otherwise modified from time to time. 28 "Subordinated Debt" means all unsecured Indebtedness of the Borrower for money borrowed which is subordinated, upon terms satisfactory to the Agent and the Required Lenders, in right of payment to the payment in full in cash of all Obligations. "Subsidiary" means, with respect to any Person, any corporation, partnership or other Person of which at least 50% of the outstanding capital stock or other comparable ownership interest having ordinary voting power to elect a majority of the board of directors of such corporation, partnership or other Person (irrespective of whether at the time capital stock of any other class or classes of such corporation, partnership or other Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "Supermajority Lenders" means, at any time, Lenders owed or holding (a) if the Revolving Loan Commitments shall not have been terminated, at least 66 2/3% of the aggregate of all Term B Loans then outstanding, all unfunded Term B Loan Commitments, all Revolving Loans then outstanding, all Letter of Credit Outstandings on such date, and all unfunded Revolving Loan Commitments or (b) if the Revolving Loan Commitments shall have been terminated, at least 66 2/3% of the aggregate amount of all Loans and L/C Advances then outstanding. "Tangible Net Worth" means the consolidated net worth of the Borrower and its Subsidiaries, including the aggregate outstanding face amount of the Guaranteed Preferred Securities, after subtracting therefrom the aggregate amount of any intangible assets of the Borrower and its Subsidiaries, including goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks and brand names. "Taxes" is defined in Section 5.6. "10 1/2% Senior Note Indenture" means that certain Indenture dated as of May 16, 1996, as supplemented by the First Supplemental Indenture dated as of August 1, 2000, between the Borrower and State Street Bank and Trust Company (as successor trustee to Fleet National Bank), as Trustee. "10 1/2% Senior Notes" means the $180,000,000 of 10 1/2% Senior Notes due 2006 issued by the Borrower pursuant to the 10 1/2% Senior Note Indenture. "Term B Lender" means each Lender that holds a Term B Loan Commitment or a Term B Loan. "Term B Loan" is defined in Section 2.1.1. "Term B Loan Commitment" is defined in Section 2.1.1. "Term B Loan Commitment Amount" means, on any date, $200,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Term B Loan Commitment Termination Date" means the earliest of 29 (a) July 15, 2003; (b) the date on which the Term B Loan Commitments of the Term B Lenders are terminated in full or reduced to zero in accordance with Section 2.2; and (c) the date on which any Commitment/Loan Termination Event occurs. Upon the occurrence of any event described above, the Term B Loan Commitments shall terminate automatically and without further action. "Term B Prepayment Amount" is defined in Section 3.1.1. "Term Note" means a promissory note of the Borrower payable to the order of any Term B Lender, in the form of Exhibit A-2 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Term B Lender resulting from its outstanding Term B Loan, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Term Percentage" means, relative to any Term B Lender, the percentage set forth opposite its name on Schedule II under the caption "Term Percentage" or as set forth in its Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11. "Third Party Indebtedness" means Indebtedness owed to and held by any Person other than the Borrower or any of its Subsidiaries. "Trust" means Calpine Capital Trust, Calpine Capital Trust II and Calpine Capital Trust III, each a Delaware business trust. "2000 Credit Agreement" means the Second Amended and Restated Credit Agreement, dated as of May 23, 2000, as amended, among the Borrower, Scotia Capital and the lenders party thereto. "2003 Senior Notes" means the $2,550,000,000 of Second Priority Senior Secured Floating Rate Notes due 2007, 8 1/2% Second Priority Senior Secured Notes due 2010 and 8 3/4% Second Priority Senior Secured Notes due 2013, in each case issued by the Borrower pursuant to the 2003 Senior Note Indenture. "2003 Senior Note Indenture" means that certain Indenture dated as of July 16, 2003 between the Borrower and Wilmington Trust Company, as Trustee. "2002 Credit Agreement" is defined in the recitals. "type" means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. 30 "United States" or "U.S." means the United States of America, its fifty States and the District of Columbia. "U.S. Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States of America. "Welfare Plan" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. "Wholly Owned Subsidiary" means a Subsidiary all the capital stock of which (other than directors' qualifying shares) is owned by the Borrower or another Wholly Owned Subsidiary. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each Note, Borrowing Request, Continuation/Conversion Notice, Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder (including under Section 8.2.4) shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, generally accepted accounting principles ("GAAP") in effect in the United States from time to time. ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES SECTION 2.1. Commitments/Loans. On the terms and subject to the conditions of this Agreement (including Article VI), each Lender severally agrees to continue or make Loans pursuant to the Commitments described in this Section 2.1. SECTION 2.1.1. Term B Loan Commitment. On the Closing Date, each Term B Lender severally will make loans in U.S. Dollars (relative to such Lender, its "Term B Loan") to the Borrower equal to such Lender's Term Percentage of the aggregate amount of the Borrowing of Term B Loans requested by the Borrower to be made on such day. The Commitment of each Term B Lender described in this Section 2.1.1 is herein referred to as its "Term B Loan Commitment". At 2:00 p.m. (San Francisco time) on the Term B Commitment Termination Date, the Term B Loan Commitment shall terminate, and any portion of the Term B Loan Commitment Amount that is not borrowed prior to such time shall be extinguished. No amounts paid or prepaid with respect to Term B Loans may be reborrowed. 31 SECTION 2.1.2. Revolving Loan Commitment. From time to time on any Business Day occurring prior to the Revolving Loan Commitment Termination Date, each Revolving Lender severally will make loans in U.S. Dollars (relative to such Lender, its "Revolving Loans") to the Borrower equal to such Lender's Revolving Percentage of the aggregate amount of the Borrowing of Revolving Loans requested by the Borrower to be made on such day. The Commitment of each Revolving Lender described in this Section 2.1.2 to make Revolving Loans is herein referred to as its "Revolving Loan Commitment". On the terms and subject to the conditions hereof, the Borrower may from time to time borrow, prepay and reborrow Revolving Loans. SECTION 2.1.3. Commitment to Issue Letters of Credit. From time to time on any Business Day, an Issuer will issue, and each Revolving Lender will participate in, the Letters of Credit, in accordance with Article IV. SECTION 2.1.4. Lenders Not Permitted or Required To Make Loans or Issue or Participate in Letters of Credit Under Certain Circumstances. No Lender or Issuer, as the case may be, shall be permitted or required to (a) make its Term B Loan if, after giving effect thereto, (i) the aggregate outstanding principal amount of all Term B Loans of all Lenders would exceed the Term B Loan Commitment Amount, or (ii) the outstanding principal amount of the Term B Loans of such Lender would exceed such Lender's Term Percentage of the Term B Loan Commitment Amount; (b) make any Revolving Loan if, after giving effect thereto, (i) the aggregate outstanding principal amount of all Revolving Loans of all Lenders, together with all Letter of Credit Outstandings, would exceed the Revolving Commitment Amount, or (ii) the aggregate outstanding principal amount of all Revolving Loans of such Lender, together with its Revolving Percentage of all Letter of Credit Outstandings, would exceed such Lender's Revolving Percentage of the Revolving Commitment Amount; or (c) issue (in the case of an Issuer) or participate in (in the case of each Revolving Lender) any Letter of Credit prior to the Revolving Loan Commitment Termination Date, if, after giving effect thereto (i) all Letter of Credit Outstandings together with the aggregate outstanding principal amount of all Revolving Loans of all Lenders would exceed the Revolving Commitment Amount, (ii) in the case of the issuance of any Foreign Currency Letter of Credit, the Equivalent Amount of all Foreign Currency Letter of Credit 32 Outstandings would exceed the Foreign Currency Letter of Credit Commitment Amount, or (iii) such Lender's Revolving Percentage of all Letter of Credit Outstandings together with the aggregate outstanding principal amount of all Revolving Loans of such Lender would exceed such Lender's Revolving Percentage of the then Revolving Commitment Amount. SECTION 2.2. Reduction of Revolving Commitment Amount and Term B Loans. The Revolving Commitment Amount and the Term B Loans are subject to reduction and prepayment from time to time pursuant to this Section 2.2. Each prepayment of the Loans under this Section 2.2 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. SECTION 2.2.1. Optional Reduction. The Borrower may, from time to time on any Business Day, make a voluntary prepayment of the Term B Loans in accordance with Section 3.1.1. The Borrower may, from time to time on any Business Day voluntarily reduce the Revolving Commitment Amount; provided, however, that (i) all such reductions shall require at least three Business Days' prior notice to the Agent and be permanent reductions of the Revolving Commitment Amount, (ii) any partial reduction of the Revolving Commitment Amount shall be in a minimum amount of $2,000,000 and in an integral multiple of $500,000 and (iii) the last two sentences of Section 2.2.2(b) shall be applicable to each such reduction. SECTION 2.2.2. Mandatory Reductions. (a) There shall be a mandatory prepayment of the outstanding Term B Loans and reduction of the Revolving Commitment Amount by the amounts and in the circumstances set forth in Section 3.1.1. (b) Any prepayment of the outstanding Term B Loans and reduction of the Revolving Commitment Amount described in clause (a) shall be effective on the first Business Day following the Borrower's receipt of any related Net Available Cash. All such amounts shall be applied to the ratable (i) prepayment of the outstanding Term B Loans and (ii) permanent reduction of the Revolving Commitment Amount. Any such reduction of the Revolving Commitment Amount shall be accompanied by prepayment of the Revolving Loans to the extent, if any, that the sum of (i) the aggregate principal amount of all outstanding Revolving Loans plus (ii) the aggregate Letter of Credit Outstandings exceeds the amount of the Revolving Commitment Amount as so reduced, provided that if the aggregate principal amount of Revolving Loans then outstanding is less than the amount of such excess (because Letter of Credit Outstandings constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, deposit an amount in cash in a cash collateral account, consistent with and subject to the procedures set forth in Section 4.7 hereof, established with the Agent for the benefit of the Lenders. The application of any prepayment pursuant to Section 2.2 shall be made, first, to Base Rate Loans and, second, to LIBO Rate Loans. 33 SECTION 2.2.3. Post Default Application. After the occurrence and during the continuance of an Event of Default, all optional and mandatory prepayments of outstanding Term B Loans and reductions of the Revolving Commitment Amount under Section 2.2.1 and Section 2.2.2 shall be applied to the pro rata prepayment of all outstanding Revolving Loans and Term B Loans and cash-collateralization of any Letters of Credit outstanding hereunder. SECTION 2.3. Borrowing Procedure. By delivering a Borrowing Request to the Agent on or before 10:00 a.m., San Francisco time, on a Business Day, an Authorized Officer of the Borrower may from time to time irrevocably request, on not less than three days, in the case of LIBO Rate Loans, or one day in the case of Base Rate Loans, nor more than five Business Days' notice, that a Borrowing be made in a minimum amount of $2,000,000 or in the unused amount of the applicable Commitment. The Agent shall promptly transmit the information in the Borrower's request to each applicable Lender. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 11:00 a.m. (San Francisco time) on the Business Day specified in such Borrowing Request each applicable Lender shall deposit with the Agent same day funds in an amount equal to such Lender's applicable Percentage of the requested Borrowing. Such deposit will be made to an account which the Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the applicable Lenders, the Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Loan or L/C Advance shall be affected by any other Lender's failure to make any Loan or L/C Advance. SECTION 2.4. Continuation and Conversion Elections. By delivering a Continuation/ Conversion Notice to the Agent on or before 10:00 a.m., San Francisco time, on a Business Day, an Authorized Officer of the Borrower may from time to time irrevocably elect, on not less than three nor more than five Business Days' notice that all, or any portion in an aggregate minimum amount of $2,000,000 of any Loans be, in the case of Base Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans, be converted into a Base Rate Loan or continued as a LIBO Rate Loan (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that (i) each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Lenders, and (ii) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. The Agent shall promptly transmit the information in each Continuation/Conversion Notice to each Lender. SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility; provided, further, that each Lender shall use reasonable efforts in making any such election to minimize the costs payable by the Borrower 34 hereunder with respect to any Loan, Commitment or Letter of Credit. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 5.1, 5.2, 5.3 or 5.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. SECTION 2.6. Notes; Register. Unless the Agent shall have been advised by a Lender that it does not want to receive a Note, each Lender's Loans under each of its Commitments shall be evidenced by a Note payable to the order of such Lender in a maximum principal amount equal to such Lender's applicable Percentage of the original applicable Commitment Amount. Whether or not a Loan is evidenced by a Note, the Borrower hereby designates Agent to serve as its agent, solely for the purposes of this Section, to maintain a register (the "Register") on which Agent will record the name and address of each Lender, the Commitments and Loans and each repayment in respect of the principal amount of the Loans of each Lender from time to time. No payment with respect to the outstanding principal and interest applicable for each of the Loans shall be made to any Person other than the Person identified in such Register as the Lender. Failure to make any such recordation or any errors in such recordation shall not affect the Borrower's obligations in respect of such Loans. The entries in the Register shall be conclusive and binding on the Borrower absent manifest error. Upon reasonable notice and during normal business hours, representatives of the Borrower may from time to time inspect the Register. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Loans and L/C Advances evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of the Borrower or any other Obligor. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments. The Borrower shall repay in full the unpaid principal amount of each Loan upon the applicable Stated Maturity Date therefor. SECTION 3.1.1. Payment Terms. Prior to the Stated Maturity Date of each Loan, the Borrower (a) shall repay the Term B Loans of each Term B Lender in 16 consecutive quarterly installments, commencing on October 15, 2003 and ending on July 15, 2007, each of which shall be in an amount equal to such Lender's Term Percentage multiplied by $500,000; provided that the final installment shall be in an amount equal to such Lender's Term Percentage multiplied by $192,500,000; (b) may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Loans; provided, however, that 35 (i) any such prepayment shall be made pro rata among Loans of the same type and, if applicable, having the same Interest Period, of all Lenders; (ii) no such prepayment of any LIBO Rate Loan may be made on any day other than the last day of the Interest Period for such Loan, unless the Borrower also pays all losses and expenses (for which the Borrower has received written notice, including calculations in reasonable detail) as a result of such prepayment as provided in Section 5.4; (iii) each such voluntary prepayment shall require at least three but no more than five Business Days' prior written notice to the Agent specifying whether such prepayment is of Revolving Loans or (subject to clause (v) below) Term B Loans or both; (iv) each such voluntary partial prepayment shall be in an aggregate minimum amount of $2,000,000; and (v) no voluntary prepayment of the Term B Loans shall be permitted unless the Revolving Commitment Amount is reduced pursuant to Section 2.2.1 by at least a ratable amount; (c) shall, upon receipt by the Borrower or any Subsidiary of Net Available Cash from any Asset Sale, Monetization, Insurance Event or incurrence of secured Indebtedness permitted under Section 8.2.2(l) or (m) (excluding the CES Credit Facility), apply an amount equal to 100% of such Net Available Cash pro rata to prepayments of the outstanding Term B Loans and the reductions of the Revolving Loan Commitments (and to any related prepayments of the then outstanding Revolving Loans and to cash collateralization the Letters of Credit), in each case as contemplated under Section 2.2.2; provided that conversion of any non-cash proceeds realized from any Asset Sale, Monetization or Insurance Event to cash (including both the principal amount of such non-cash proceeds and any interest attributable thereto) shall be deemed to be Net Available Cash upon such conversion and applied pursuant to this clause (c); provided, further, that no such prepayments and reductions shall be required as a consequence of: (i) without duplication of any other clause of this paragraph (c), any Asset Sale or Monetization by the Borrower of the Gilroy Receivable or any Asset Sale of uninstalled turbines or equipment, to the extent that an amount equal to the Net Available Cash with respect thereto is applied within 355 days of the consummation of such Asset Sale or Monetization (A) to make Restricted Capital Payments in respect of Repayable Restricted Capital pursuant to Section 8.2.6(b)(B) or (B) to make Capital Expenditures to the extent permitted under Section 8.2.7 (subject, however, to the Capex Requirement); provided that to the extent any such Net Available Cash is not so applied during such 355-day period, the Borrower shall make the mandatory prepayments and commitment reductions required by this paragraph (c) by the close of business on the last day of such 355-day period in an aggregate amount equal to the portion of such Net Available Cash not so applied; or 36 (ii) without duplication of any other clause of this paragraph (c), any Asset Sale or Monetization of, or Insurance Event with respect to, assets that are not Designated Assets or CES Assets, to the extent that an amount equal to the Net Available Cash with respect thereto is applied within 355 days after the consummation of such Asset Sale or Monetization, or the receipt by the Borrower of the Net Available Cash with respect to such Insurance Event, to make Capital Expenditures to the extent permitted under Section 8.2.7 (subject, however, to the Capex Requirement); provided that to the extent any such Net Available Cash is not so applied during such 355-day period, the Borrower shall make the mandatory prepayments and commitment reductions required by this paragraph (c) by the close of business on the last day of such 355-day period in an aggregate amount equal to the portion of such Net Available Cash not so applied; and provided, further, that to the extent that at any time the aggregate amount of Net Available Cash described in this clause (ii) that has not been applied to make Capital Expenditures in accordance with this clause (ii) shall exceed the aggregate amount of Capital Expenditures then permitted to be made with such Net Available Cash under Section 8.2.7 during the applicable 355-day period described above, an amount equal to such excess shall, immediately thereafter, be applied in accordance with the immediately preceding proviso; or (iii) without duplication of any other clause of this paragraph (c), any Permitted Sale; or (iv) without duplication of any other clause of this paragraph (c), any sale, transfer, lease, contribution or conveyance by the Borrower or any of its Subsidiaries to any Person of an interest in a PUD pursuant to an agreement under which such Person commits to develop or to provide financing and/or funding to the Borrower or such Subsidiary solely for the development of such PUD; provided that (A) the Fair Market Value of such PUD interest (determined as of the date such agreement is entered into) is less than $25,000,000, (B) the aggregate Fair Market Value of all PUD interests (determined, in the case of each PUD, as of the date the agreement with respect to such PUD is entered into) sold, transferred, leased, contributed or conveyed as set forth in this clause (iv) is less than $100,000,000, (C) the Borrower or such Subsidiary shall retain legal ownership of the entirety of such PUD (except to the extent of the interest so sold, transferred, leased, contributed or conveyed) and (D) the Borrower shall have delivered to the Agent a certificate of an Authorized Officer of the Borrower as to the satisfaction of the conditions set forth in clauses (A) and (B) above (it being understood that the Borrower shall, before or within a reasonable time after consummation of the relevant transaction, deliver to the Agent such other information in connection therewith as the Agent may reasonably request); or (v) without duplication of any other clause of this paragraph (c), any Asset Sale or Monetization of Domestic Gas Reserves, Canadian Gas Reserves or geothermal energy assets, to the extent that an amount equal to the Net Available Cash with respect thereto is applied within 355 days after the consummation of such Asset Sale or Monetization (A) to make Capital Expenditures to the extent 37 permitted under Section 8.2.7 (subject, however, to the Capex Requirement) or (B) to purchase additional Domestic Gas Reserves, Canadian Gas Reserves or geothermal energy assets, which additional assets (I) become Collateral under the Security Documents (in the case of any such Domestic Gas Reserves and domestic geothermal energy assets) or (II) are owned by CCNGP (in the case of any such Canadian Gas Reserves and Canadian geothermal energy assets); provided that to the extent any such Net Available Cash is not so applied during such 355-day period, the Borrower shall make the mandatory prepayments and commitment reductions required by this paragraph (c) by the close of business on the last day of such 355-day period in an aggregate amount equal to the portion of such Net Available Cash not so applied; and provided further that the sum of (x) the net proceeds of all such Asset Sales of Domestic Gas Reserves and Canadian Gas Reserves and (y) the gross proceeds of all such Asset Sales of geothermal energy assets under this clause (v) shall not exceed $50,000,000 in the aggregate; or (vi) without duplication of any other clause of this paragraph (c), any Asset Sale or Monetization of CES Assets permitted under Section 8.2.10(c)(v) and any incurrence of Non-Recourse Debt by CES permitted under Section 8.2.2(m) (exclusive of the CES Credit Facility), to the extent that an amount equal to the Net Available Cash with respect thereto is applied within 355 days after the consummation of such Asset Sale or Monetization, or the incurrence of such Indebtedness, to make Capital Expenditures to the extent permitted under Section 8.2.7 (subject, however, to the Capex Requirement); provided that to the extent any such Net Available Cash is not so applied during such 355-day period, the Borrower shall make the mandatory prepayments and commitment reductions required by this paragraph (c) by the close of business on the last day of such 355-day period in an aggregate amount equal to the portion of such Net Available Cash not so applied; and provided, further, that to the extent that at any time the aggregate amount of Net Available Cash with respect to any Asset Sale or Monetization described in this clause (vi) that has not been applied to make Capital Expenditures in accordance with this clause (vi) shall exceed the aggregate amount of Capital Expenditures then permitted to be made with such Net Available Cash under Section 8.2.7 during the applicable 355-day period described above, an amount equal to such excess shall, immediately thereafter, be applied in accordance with the immediately preceding proviso; or (vii) without duplication of any other clause of this paragraph (c), any Asset Sale of any Canadian Gas Reserves to a royalty trust or income fund, to the extent that an amount equal to the Net Available Cash with respect thereto is applied within 355 days after the consummation of such Asset Sale (A) to repurchase or prepay the CCEFII Notes, (B) to make Capital Expenditures to the extent permitted under Section 8.2.7 (subject, however, to the Capex Requirement) or (C) to purchase additional Domestic Gas Reserves, Canadian Gas Reserves or geothermal energy assets, which additional assets (I) become Collateral under the Security Documents (in the case of any such Domestic Gas Reserves and domestic geothermal energy assets) or (II) are owned by CCNGP 38 (in the case of any such Canadian Gas Reserves and Canadian geothermal energy assets); provided that to the extent any such Net Available Cash is not so applied during such 355-day period, the Borrower shall make the mandatory prepayments and commitment reductions required by this paragraph (c) by the close of business on the last day of such 355-day period in an aggregate amount equal to the portion of such Net Available Cash not so applied; and provided further that (x) the aggregate Fair Market Value of all Canadian Gas Reserves subject to such Asset Sales is less than Cdn$300,000,000 and (y) the Borrower and/or one or more of its Subsidiaries shall at all times own not less than 25% of the units issued by such royalty trust or income fund (subject to dilution in accordance with the terms of such royalty trust or income fund) and such units shall be (I) if owned by the Borrower, pledged to the Collateral Trustee (for the benefit of, among others, the Lenders hereunder), (II) owned by a Pledged Entity or (III) if material adverse tax consequences to the Borrower or the Lenders would arise out of or result from the taking of either of the actions set forth in clauses (I) or (II) above, owned by a Subsidiary of a Pledged Entity; and (d) shall, immediately upon any acceleration of any Loans or either Commitment Termination Date pursuant to Section 9.2 or Section 9.3, repay all Loans, unless, pursuant to Section 9.3, only a portion of all Loans is so accelerated. Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by Section 5.4, and, in the case of clause (c) above, shall be made by the close of business of the day of receipt or deemed receipt of the relevant Net Available Proceeds. No voluntary prepayment of principal of any Revolving Loans shall cause a reduction in the Revolving Commitment Amount. Notwithstanding anything to the contrary in Section 2.2.2 or 3.1.1, with respect to the amount of any mandatory prepayment described in Section 2.2.2 or 3.1.1 that is allocated to Term B Loans (such amount, the "Term B Prepayment Amount") at any time when Revolving Loan Commitments remain outstanding, the Borrower will, in lieu of applying such amount to the prepayment of the Term B Loans, on the date specified for such prepayment, give the Agent telephonic notice (promptly confirmed in writing) requesting that the Agent prepare and provide to each Term B Lender a notice (each, a "Prepayment Option Notice") as described below. As promptly as practicable after receiving such notice from the Borrower, the Agent will send to each Term B Lender a Prepayment Option Notice, which shall be in the form of Exhibit G, and shall include an offer by the Borrower to prepay on the date (each a "Mandatory Prepayment Date") that is ten calendar days after the date of the Prepayment Option Notice (but in no event later than the date which is 365 days after the applicable Asset Sale, Monetization or Insurance Event) the relevant Term B Loans of such Lender by an amount equal to the portion of the Term B Prepayment Amount indicated in such Lender's Prepayment Option Notice as being applicable to such Lender's Term B Loans. On the Mandatory Prepayment Date, (i) the Borrower shall pay to the relevant Term B Lenders the aggregate amount necessary to prepay that portion of the outstanding Term B Loans in respect of which such Lenders have accepted prepayment as described above and (ii) the Borrower shall permanently reduce the Revolving Loan Commitments (and prepay Revolving Loans and cash collateralize the Letters of Credit) as 39 contemplated under Section 2.2.2 by an amount equal to the portion of the Term B Prepayment Amount not accepted by the relevant Term B Lenders. SECTION 3.1.2. Post Default Application of Payments. Notwithstanding any provision of Sections 2.2.2 or 3.1.1 to the contrary, after the occurrence and during the continuance of an Event of Default, all optional and mandatory payments under Section 3.1.1 shall be applied first to pay any fees and expenses then due and owing hereunder, second to the pro rata payment of accrued and unpaid interest on all Loans hereunder and third as set forth in Section 2.2.2(b). SECTION 3.2. Interest Provisions. Interest on the outstanding principal amount of Loans shall accrue and be payable in accordance with this Section 3.2. SECTION 3.2.1. Rates. Pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at a rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Margin; and (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin. The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate (Reserve Adjusted) ------------------------------- 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Agent on the basis of the LIBOR Reserve Percentage in effect on, and the applicable rates furnished to and received by the Agent from Scotia Capital, two Business Days before the first day of such Interest Period. "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate of interest equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in immediately available funds are offered to Scotia Capital's LIBOR Office in the London interbank market as at or about 11:00 a.m. London time two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of Scotia Capital's LIBO Rate Loan and for a period approximately equal to such Interest Period. "LIBOR Reserve Percentage" means, for each day of any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and 40 taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified from time to time under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount of any Loan is due and payable (whether on the applicable Stated Maturity Date, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin plus a margin of 2%. SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) on the date of any optional or required payment or prepayment, in whole or in part, of principal outstanding on such Loan being prepaid; (c) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the Closing Date; (d) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, at the end of the third month of such Interest Period); (e) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to clause (c), on the date of such conversion; and (f) on that portion of any Loans the Stated Maturity Date of which is accelerated pursuant to Section 9.2 or Section 9.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the applicable Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in this Section 3.3. All such fees shall be non-refundable. SECTION 3.3.1. Commitment Fees. The Borrower agrees to pay to the Agent for the account of each Revolving Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrower's inability to satisfy any condition of 41 Article VI) commencing on the Closing Date and continuing through the Revolving Loan Commitment Termination Date, a commitment fee (the "Commitment Fee") at the rate of 0.50% per annum, calculated on such Lender's Revolving Percentage of the average daily unused portion of the Revolving Commitment Amount. Commitment Fees shall be payable by the Borrower in arrears on each Quarterly Payment Date, commencing with the first such day following the Closing Date, and on the Revolving Loan Commitment Termination Date. SECTION 3.3.2. Fees. The Borrower agrees to pay to the Agent and the Lenders for their own accounts the fees described in the Fee Letters, at the times required in such letter. SECTION 3.3.3. Letter of Credit Fee. The Borrower agrees to pay to the Agent, for the account of the Revolving Lenders, for each Letter of Credit for the period from and including the date of the issuance of such Letter of Credit to (and including) the date upon which (or on the next succeeding Business Day upon which) such Letter of Credit expires or is returned to the Issuer that issued such Letter of Credit, a fee, in Dollars, on the average daily stated amount of such Letter of Credit (or the Equivalent Amount thereof with respect to Foreign Currency Letters of Credit) calculated at a per annum rate equal to the Applicable Margin for LIBO Rate Loans in effect from time to time. Such fee shall be payable by the Borrower in arrears on each Quarterly Payment Date, and on the date of termination or expiry of the last Letter of Credit outstanding hereunder (for any period then ending for which such fee shall not theretofore have been paid), commencing on the first such date after the issuance of such Letter of Credit. SECTION 3.3.4. Letter of Credit Issuing Fee. The Borrower agrees to pay to the Agent, for the account of each Issuer, an issuing fee, in Dollars, for each Letter of Credit issued by such Issuer for the period from and including the date of issuance of such Letter of Credit to (and including) the date upon which such Letter of Credit expires or is returned to the Issuer that issued such Letter of Credit at such rates as may be agreed in writing by the Borrower and the Issuers from time to time. Such fee shall be payable by the Borrower in arrears on each Quarterly Payment Date and on the date of termination or expiry of the last Letter of Credit outstanding hereunder for any period then ending for which such fee shall not theretofore have been paid, commencing on the first such date after the issuance of such Letter of Credit. For any Foreign Currency Letter of Credit, such issuing fee shall be calculated on the Equivalent Amount of the average daily stated amount thereof. ARTICLE IV LETTERS OF CREDIT SECTION 4.1. Issuance Requests. By delivering to the Agent and an Issuer an Issuance Request on or before 12:00 noon, New York time, the Borrower may request, from time to time prior to the Revolving Loan Commitment Termination Date and on not less than three nor more than ten Business Days' notice, that such Issuer issue an irrevocable standby letter of credit, in Dollars, Canadian Dollars or Sterling (provided that the Equivalent Amount of the aggregate Stated Amount of all Foreign Currency Letters of Credit after giving effect to such issuance shall not exceed the Foreign Currency Letter of Credit Commitment Amount) and in such form as may be requested by the Borrower and approved by such Issuer (each, together with the Existing Letters of Credit and any Foreign Currency Letters of Credit, a "Letter of Credit"), in support of 42 the general corporate purposes of the Borrower and its Subsidiaries (including credit support by the Borrower for gas and power contracts for CES, Calpine Energy Services Canada Partnership and Calpine Energy Services UK Limited) and which are described in such Issuance Request, provided that no Letter of Credit may be used (i) to finance acquisitions (other than acquisitions of equipment, sites and property in the ordinary course of the Borrower and its Subsidiaries' business, but in no event may Letters of Credit be used to finance acquisitions of power projects, reserves of geothermal steam and fluids and material gas reserves) or make any Investments in any third parties (other than Subsidiaries), directly or indirectly, through the Borrower or any of its Subsidiaries or Affiliates or (ii) to defease, repurchase or prepay any Subordinated Debt or any Senior Notes; and provided, further, that Letters of Credit shall only be used to secure or support obligations (other than for the deferred purchase price of property) entered into in the ordinary course of business of the Borrower and its Subsidiaries. Upon receipt of an Issuance Request, the Agent shall promptly notify the Revolving Lenders thereof. Each Letter of Credit shall by its terms: (a) be issued in a Stated Amount which (i) is at least the Equivalent Amount of $500,000 or such lesser amount as may be agreed by the Agent; (ii) does not exceed (or would not exceed) the then Revolving Commitment Availability; (b) be stated to expire on a date (its "Stated Expiry Date") no later than the earlier of (i) one year from its date of issuance and (ii) five days prior to the Stated Maturity Date for Revolving Loans; provided, however, that a Letter of Credit may provide that if it is not renewed prior to its Stated Expiry Date, it may be drawn by the beneficiary thereof; and (c) on or prior to its Stated Expiry Date (i) terminate immediately upon notice to the Issuer thereof from the beneficiary thereunder that all obligations covered thereby have been terminated, paid, or otherwise satisfied in full and surrender by the beneficiary of the Letter of Credit to such Issuer, and (ii) reduce in part immediately and to the extent the beneficiary thereunder has notified the Issuer thereof that the obligations covered thereby have been paid or otherwise satisfied in part and that the Letter of Credit may be reduced. SECTION 4.2. Issuances and Extensions. On the terms and subject to the conditions of this Agreement (including Article VI), the Issuer to whom notice was given under Section 4.1 shall issue Letters of Credit, in accordance with the Issuance Requests made therefor. Such Issuer will make available the original of each Letter of Credit which it issues in accordance with the Issuance Request therefor to the beneficiary thereof (and will notify the Agent of any issuance or amendment and such notice will be accompanied by a copy of each Letter of Credit issued and any amendment thereto) and will notify the beneficiary under any Letter of Credit of 43 any extension of the Stated Expiry Date thereof. The Agent will promptly notify the Revolving Lenders of issuances and amendments and, if requested in writing by a Revolving Lender, will provide copies of issuances and amendments to such requesting Revolving Lender. SECTION 4.3. Expenses. The Borrower agrees to pay to the Agent for the account of each Issuer the standard charges of such Issuer in connection with the issuance, maintenance, modification (if any) and administration of each Letter of Credit issued by such Issuer upon demand from time to time. SECTION 4.4. Other Revolving Lenders' Participation. Each Letter of Credit issued pursuant to Section 4.2 shall, effective upon its issuance and without further action, be issued on behalf of all Revolving Lenders (including the Issuer thereof) pro rata according to their respective Revolving Percentages. Each Revolving Lender shall, to the extent of its Revolving Percentage, be deemed irrevocably to have participated in the issuance of such Letter of Credit and shall be responsible to pay promptly to the Issuer thereof such Lender's Revolving Percentage of any unreimbursed drawings under a Letter of Credit which have not been reimbursed by the Borrower in accordance with Section 4.5, or which have been reimbursed by the Borrower but must be returned, restored or disgorged by the Issuer thereof for any reason, and each Revolving Lender shall, to the extent of its Revolving Percentage, be entitled to receive from the Agent a ratable portion of the letter of credit fees received by the Agent pursuant to Section 3.3.3, with respect to each Letter of Credit. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this Section 4.4 in respect of Letters of Credit issued or amended while such Revolving Lender remains a party to this Agreement is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment of any Letter of Credit or the occurrence and continuation of a Default or Event of Default or reduction or termination of the Revolving Loan Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. In the event that the Borrower shall fail to reimburse the Issuer thereof, or if for any reason Revolving Loans shall not be made to fund any Reimbursement Obligation, all as provided in Section 4.5 and Section 4.6 and in an amount equal to the amount of any drawing honored by such Issuer under a Letter of Credit issued by it, or in the event such Issuer must for any reason return or disgorge such reimbursement, such Issuer shall promptly notify each Revolving Lender of the unreimbursed amount of such drawing and of such Revolving Lender's respective participation therein. Each Revolving Lender shall make available to such Issuer, whether or not any Default shall have occurred and be continuing, an amount equal to its respective participation in same day or immediately available funds at the office of such Issuer specified in such notice not later than 2:00 p.m., New York time, on the Business Day (under the laws of the jurisdiction of such Issuer) after the date notified by such Issuer. In the event that any Revolving Lender fails to make available to an Issuer the amount of such Revolving Lender's participation in such Letter of Credit as provided herein, such Issuer shall be entitled to recover such amount on demand from such Revolving Lender together with interest at the daily average Federal Funds Rate for three Business Days and thereafter at the Alternate Base Rate plus 2%. Nothing in this Section shall be deemed to prejudice the right of any Revolving Lender to recover from any Issuer any amounts made available by such Revolving Lender to an Issuer pursuant to this Section in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit by the Issuer thereof in respect of which payment was made by such Revolving Lender constituted gross 44 negligence or willful misconduct on the part of such Issuer. Each Issuer shall distribute to each Revolving Lender which has paid all amounts payable by it under this Section with respect to any Letter of Credit issued by such Issuer such Lender's Revolving Percentage of all payments received by such Issuer from the Borrower in reimbursement of drawings honored by such Issuer under such Letter of Credit when such payments are received. SECTION 4.5. Disbursements. Each Issuer will notify the Borrower and the Agent promptly of the presentment for payment of any Letter of Credit issued by it, together with notice of the date (a "Disbursement Date") such payment shall be made (each such payment, a "Disbursement"). Unless otherwise agreed by the applicable Issuer and the Borrower, drawings under any Letter of Credit issued under Section 4.1 shall be made on sight. Subject to the terms and provisions of such Letter of Credit, each Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit. Prior to 2:00 p.m., New York time, on the Disbursement Date, the Borrower will reimburse each Issuer for all amounts in the currency which it has disbursed under the Letter of Credit or will notify such Issuer that it elects to make such reimbursement by requesting the Revolving Lenders to make a Revolving Loan in the Equivalent Amount of such required reimbursement. If Borrower elects to make such reimbursement by requesting a Revolving Loan in such amount and the conditions precedent in Article VI shall have been satisfied, the Revolving Lenders shall fund such Reimbursement Obligation by making Base Rate Loans in the appropriate Equivalent Amounts in accordance with Section 2.3. To the extent an Issuer is not reimbursed in full on the date payment is made under a Letter of Credit, the Borrower's Reimbursement Obligation shall accrue interest at the Alternate Base Rate plus the Applicable Base Rate Margin for two Business Days and thereafter at the Post-Maturity Rate described in Section 3.2.2, payable on demand, until reimbursed in full. In the event an Issuer is not reimbursed by the Borrower on any Disbursement Date, or if an Issuer must for any reason return or disgorge such reimbursement, the Revolving Lenders (including such Issuer) shall fund the Reimbursement Obligation therefor by making, on the next Business Day, Loans (or, if the Revolving Loan Commitments shall no longer then be in effect, advances ("L/C Advances") that are payable on demand and have the same characteristics as Loans and which shall be Obligations hereunder) in the appropriate Equivalent Amounts which are Base Rate Revolving Loans (or L/C Advances bearing interest by reference to the Base Rate) (except that such Revolving Loans or L/C Advances shall be made upon demand by the Agent rather than upon notice by the Borrower and shall be made, notwithstanding anything in this Agreement to the contrary, without regard to the satisfaction of the conditions precedent to the making of Revolving Loans set forth in Article VI of this Agreement and notwithstanding any termination of the Commitments). Each Revolving Lender's obligation to make Revolving Loans or L/C Advances in the amount of its Revolving Percentage of any unreimbursed amounts outstanding under a Letter of Credit pursuant hereto is several, and not joint or joint and several. Except as specifically noted herein, all terms and provisions that are applicable to Revolving Loans under this Agreement shall be equally applicable to L/C Advances. For example, and without limitation, the provisions of Sections 3.1.1(c), 3.2.2, 3.2.3, 5.5, 5.6, 5.8, 5.9, 7.13, 8.2.10(c), 9.1.1, 10.5, 11.1(c), 11.4(a) and 11.11 shall equally apply to L/C Advances as well as Loans. SECTION 4.6. Reimbursement. The Borrower's obligation (a "Reimbursement Obligation") under Section 4.5 to reimburse an Issuer with respect to each disbursement (including interest thereon), and each Revolving Lender's obligation to make participation 45 payments in each drawing which has not been reimbursed by the Borrower, shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim, or defense to payment which the Borrower may have or have had against any Revolving Lender or any beneficiary of a Letter of Credit, including any defense based upon the occurrence of any Default, any draft, demand or certificate or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient, the failure of any disbursement to conform to the terms of the applicable Letter of Credit (if, in such Issuer's good faith opinion, such disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such disbursement, or the legality, validity, form, regularity, or enforceability of such Letter of Credit; provided, however, that nothing herein shall adversely affect the right of the Borrower to commence any proceeding against an Issuer for any wrongful disbursement made by such Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or willful misconduct on the part of such Issuer. SECTION 4.7. Cash Collateral. In the circumstances set forth in Section 2.2.2(b) or 3.1.1, or upon the occurrence and during the continuation of any Event of Default described in Section 9.1.9, or, at the election of the Agent acting on instructions from the Required Revolving Lenders, upon notice to the Borrower after the occurrence and during the continuation of any other Event of Default, an amount equal to that portion of Letter of Credit Outstandings attributable to outstanding and undrawn Letters of Credit (or a lesser amount, if applicable, required pursuant to Section 2.2.2(b)) shall be deemed to have been paid or disbursed by the Issuers under the Letters of Credit (notwithstanding that such amount may not in fact have been paid or disbursed), and, upon notification by the Issuers to the Agent and the Borrower of its obligations under this Section, the Borrower shall be immediately obligated to reimburse the Agent the amount deemed to have been so paid or disbursed by the Issuers. Any amounts so received by the Agent from the Borrower pursuant to this Section shall be held as collateral security for the repayment of the Borrower's obligations in connection with the Letters of Credit. At any time when such a Letter of Credit shall terminate and all L/C Advances and Obligations of the Borrower to the Issuers in respect of such Letter of Credit are either terminated or paid or reimbursed to the Revolving Lenders and the Issuers in full, the Obligations of the Borrower under this Section with respect to such Letter of Credit shall also terminate (subject, however, to reinstatement in the event any payment in respect of such Letter of Credit is recovered in any manner from any Issuer or Revolving Lender), and the Agent will return to the Borrower the aggregate amount deposited by the Borrower with the Agent in respect of such Letter of Credit and not theretofore applied by the Agent to any Reimbursement Obligation. At such time when all Events of Default shall have been cured or waived, the Agent shall return to the Borrower all amounts then on deposit with it pursuant to this Section. All amounts on deposit pursuant to this Section shall, until their application to any Reimbursement Obligation or their return to the Borrower, as the case may be, bear interest at the daily average Federal Funds Rate from time to time in effect (net of the costs of any reserve requirements, in respect of amounts on deposit pursuant to this Section, pursuant to F.R.S. Board Regulation D), which interest shall be held by the Agent as additional collateral security for the repayment of the Borrower's Obligations in connection with the Letters of Credit issued by the Issuers. SECTION 4.8. Nature of Reimbursement Obligations. The Borrower shall assume all risks of the acts, omissions, or misuse of any Letter of Credit by the beneficiary thereof. Neither 46 any Issuer (except to the extent of its own gross negligence or willful misconduct) nor any Revolving Lender shall be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (b) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or otherwise; (e) any error, omission, interruption, loss or delay in the transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required in order to make a Disbursement thereunder) or of the proceeds thereof; (f) any error in interpretation of technical terms; (g) the performance of any transaction which underlies any Letter of Credit; (h) any act or omission of any Person other than the Issuer and the Revolving Lenders; (i) loss or destruction of any draft, demand, or document in transit or in the possession of others; (j) lack of knowledge of any particular trade usage (other than standard United States and Western European banking usage as used in the normal course of business); or (k) any consequence arising from causes beyond the control of the Issuer and the Revolving Lenders. None of the foregoing shall affect, impair, or prevent the vesting of any of the rights or powers granted any Issuer or any Revolving Lender hereunder. In furtherance and extension, and not in limitation or derogation, of any of the foregoing, any action taken or omitted to be taken by an Issuer in good faith and which is not grossly negligent shall be binding upon the Borrower and shall not put such Issuer under any resulting liability to the Borrower; provided, however, that nothing herein shall relieve any Issuer, the Agent or any Revolving Lender for any liability for its gross negligence or willful misconduct. 47 SECTION 4.9. Increased Costs; Indemnity. If by reason of (a) any change after the Closing Date in applicable law, regulation, rule, decree or regulatory requirement or any change after the Closing Date in the interpretation or application by any judicial or regulatory authority of any law, regulation, rule, decree or regulatory requirement, or (b) compliance by any Issuer or any Revolving Lender with any new or modified (after the Closing Date) direction, request or requirement (whether or not having the force of law) of any governmental or monetary authority, including Regulation D of the F.R.S. Board: (i) any Issuer or any Revolving Lender shall be subject to any tax (other than franchise taxes or taxes measured by net income or receipts), levy, charge or withholding of any nature or to any variation thereof or to any penalty with respect to the maintenance or fulfillment of its obligations under this Article IV, whether directly or by such being imposed on or suffered by any Issuer or any Revolving Lender; (ii) any reserve, deposit or similar requirement is or shall be applicable, imposed or modified in respect of any Letters of Credit issued by any Issuer or participations therein purchased by any Revolving Lender; or (iii) there shall be imposed on any Issuer or any Revolving Lender any other condition regarding this Article IV, any Letter of Credit or any participation therein; and the result of the foregoing is directly or indirectly to increase the cost to an Issuer or such Revolving Lender of issuing, making or maintaining any Letter of Credit or of purchasing or maintaining any participation therein, or to reduce any amount receivable in respect thereof by such Issuer or such Revolving Lender, then and in any such case such Issuer or such Revolving Lender may, at any time after the additional cost is incurred or the amount received is reduced, notify the Borrower thereof and provide Borrower with data and calculations supporting such costs, and the Borrower shall pay such amounts as such Issuer or Revolving Lender may specify to be necessary to compensate such Issuer or Revolving Lender for such additional cost or reduced receipt within ten (10) Business Days after receiving such notice, together with interest on such amount from the date of receipt of such notice until payment in full thereof at a rate equal at all times to the Alternate Base Rate plus the Applicable Margin; provided, however, that Section 5.6, rather than this Section 4.9 shall govern Borrower's obligations with respect to Taxes relating to payments by the Borrower described in the first sentence of Section 5.6(a). The good faith determination by an Issuer or Revolving Lender, as the case may be, of any amount due pursuant to this Section 4.9, as set forth in a statement setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest error, be final and conclusive and binding on all of the parties hereto. In addition to amounts payable as elsewhere provided in this Article IV, the Borrower hereby agrees to protect, indemnify, pay and save the Issuers and the Revolving Lenders harmless from and against any and all claims, demands, liabilities, damages, losses, 48 costs, charges and expenses (including reasonable attorneys' fees) which any Issuer or any Revolving Lender may incur or be subject to as a consequence, direct or indirect, of (x) the issuance of the Letters of Credit, other than as a result of the gross negligence or willful misconduct of an Issuer as determined by a court of competent jurisdiction, or (y) the failure of an Issuer to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority. SECTION 4.10. Existing Letters of Credit. On the Closing Date, the Existing Letters of Credit shall continue to be deemed for all purposes to be Letters of Credit outstanding under this Agreement and entitled to the benefits of this Agreement and the other Loan Documents, and shall be governed by the applications and agreements pertaining thereto and by this Agreement. Each Revolving Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuers on the Closing Date a participation in each such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) such Lender's Revolving Percentage times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.1.2, the Existing Letters of Credit shall be deemed to utilize pro rata the Revolving Loan Commitment of each Revolving Lender. SECTION 4.11. Equivalent Amount Determinations. For purposes of determining the amount of Foreign Currency Letter of Credit Outstandings and for purposes of calculating fees payable under Section 3.3.3 with respect to Foreign Currency Letter of Credit Outstandings, the principal amount of such Foreign Currency Letter of Credit Outstandings shall be deemed to be, as of any date of determination, the Equivalent Amount thereof at such date. The initial Equivalent Amount of any Foreign Currency Letter of Credit shall be determined by the Issuer of such Letter of Credit and notified by such Issuer in writing to the Agent and the Borrower on the date of issuance thereof. If a Disbursement is made by an Issuer under any Foreign Currency Letter of Credit, the Equivalent Amount of such Disbursement shall be determined by the relevant Issuer on the Disbursement Date related thereto, and such Issuer shall notify the Agent and the Borrower promptly of such Equivalent Amount. SECTION 4.12. Currency Fluctuations, etc. Not later than 12:00 p.m., New York time, on each Quarterly Payment Date and on each other date specified by the Agent (each, an "Equivalent Amount Determination Date"), each Issuer shall determine the Equivalent Amount as of such Equivalent Amount Determination Date with respect to each Foreign Currency for which there are at such time outstanding Foreign Currency Letters of Credit issued by such Issuer or in respect thereof (after giving effect to any Loans to be made or repaid or Letters of Credit to be issued or Reimbursement Obligations to be repaid on such date). Each Issuer shall notify the Borrower, the Revolving Lenders and the Agent of such Equivalent Amount. The Equivalent Amount so determined shall become effective on the first Business Day immediately following the relevant Equivalent Amount Determination Date (each, a "Reset Date") and shall remain effective until the next succeeding Reset Date. 49 ARTICLE V CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 5.1. LIBO Rate Lending Unlawful. If any Lender shall determine in good faith (which good faith determination shall, upon notice thereof to the Borrower and the Lenders, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of all Lenders to make, continue, maintain or convert into any such Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans of such type shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. Until such time as such Lender's obligation to make, continue and maintain LIBO Rate Loans is reinstated, the Borrower shall have the right (with the prior written consent of the Agent, which consent shall not be unreasonably withheld) to replace such affected Lender by obtaining another financial institution that is willing to purchase such affected Lender's interest herein for the full amount of any outstanding Loans, Reimbursement Obligations and other amounts owed hereunder (including principal, accrued interest, breakage costs and any other unreimbursed costs and expenses owed to such Lender), to assume such affected Lender's obligations under this Agreement and to become a Lender hereunder. In such event, the affected Lender shall, upon ten (10) Business Days notice from Borrower, assign one hundred percent (100%) of its interest hereunder to such replacement lender for the price described in the previous sentence. SECTION 5.2. Deposits Unavailable. If the Agent shall have determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Agent or any Lender in its relevant market; or (b) by reason of circumstances affecting the Agent's or any Lender's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then, upon notice from the Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended (at the end of the applicable Interest Period, in the case of outstanding LIBO Rate Loans) until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 5.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans as a result in any change after the Closing Date, in applicable law, regulation, rule, decree or regulatory requirement or in the interpretation or 50 application by any judicial or regulatory authority of any law, regulation, rule, decree or regulatory requirement. Such Lender shall promptly notify the Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within five Business Days of its receipt of such notice, and such notice shall, in the absence of manifest error and if given in good faith, be conclusive and binding on the Borrower. If such increased costs do not affect all of the Lenders, the Borrower shall have the right (with the prior written consent of the Agent, which consent shall not be unreasonably withheld) to replace the affected Lender by obtaining another financial institution that is willing to purchase such affected Lender's interest herein for the full amount of any outstanding Loans and Reimbursement Obligations (principal and accrued interest), to assume such affected Lender's obligations under this Agreement and to become a Lender hereunder. In such event, the affected Lender shall, upon five (5) Business Days notice from Borrower, assign one hundred percent (100%) of its interests hereunder to such replacement lender for the price described in the previous sentence and thereafter such Lender shall have no further obligations hereunder. SECTION 5.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto; (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor other than as a result of any act or omission by such Lender; (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/ Conversion Notice therefor other than as a result of any act or omission by such Lender; or (d) any LIBO Rate Loan not being prepaid in accordance with a notice of prepayment, then, upon the written notice of such Lender to the Borrower (with a copy to the Agent), the Borrower shall, within five Business Days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail and all information and documentation reasonably necessary to support such calculations) shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 5.5. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, 51 regulator or other governmental authority causes the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender attributable to or based upon the Loans, the Letters of Credit or Commitments hereunder to be increased, and such Lender determines (in its reasonable discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitments, issuance of or participation in Letters of Credit or the Loans made by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error and if made in good faith, be conclusive and binding on the Borrower. In determining such amount, such Lender may use any method of averaging and attribution that it (in its good faith discretion) shall deem applicable. SECTION 5.6. Taxes. (a) Subject to each Lender's compliance with this Section 5.6, all payments by the Borrower of principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (iii) pay to the Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Agent or any Lender with respect to any payment received by the Agent or such Lender hereunder, the Agent or such Lender may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent, for the account of the respective Lenders, the 52 required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 5.6, a distribution hereunder by the Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. (b) Upon the request of the Borrower or the Agent, each Lender (including, any participant or Assignee Lender) that is (a) organized under the laws of the United States or a state thereof shall execute and deliver to the Borrower and the Agent one or more (as the Borrower or the Agent may reasonably request) appropriately completed United States Internal Revenue Service Forms W-9 (or any successor forms or documents) and (b) organized under the laws of a jurisdiction other than the United States shall, prior to the due date of and as a condition to any payments hereunder or under the Notes, execute and deliver to the Borrower and the Agent one or more (as the Borrower or the Agent may reasonably request) United States Internal Revenue Service Forms W-8ECI or Forms W-8BEN or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish that such Lender (or participant or Assignee Lender) is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. The Borrower shall not be required to pay any additional amounts to any Lender (or participant or Assignee Lender) in respect of Taxes pursuant to this Section 5.6 if the obligation to pay such additional amounts would not have arisen but for a failure by such Lender (or participant or Assignee Lender) to comply with the provisions of this Section 5.6 unless such failure results from (a) a change in applicable treaty, law or regulation or interpretation thereof or (b) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the date such Lender (or participant or Assignee Lender) becomes a party to this Agreement. SECTION 5.7. Payments, Computations, etc. Unless otherwise expressly provided, all payments by the Borrower pursuant to this Agreement, the Notes or any other Loan Document shall be made by the Borrower to the Agent for the pro rata account of the Lenders entitled to receive such payment. All such payments required to be made to the Agent shall be made, without setoff, deduction or counterclaim, not later than 11:00 a.m., San Francisco time, on the date due, in same day or immediately available funds, to such account as the Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Agent on the next succeeding Business Day. The Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Agent for the account of such Lender. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (other than when calculated with respect to the Federal Funds Rate), 365 days or, if appropriate, 366 days). Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (c) of the definition of the term "Interest Period" with respect to LIBO Rate Loans) be 53 made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 5.8. Sharing of Payments. If any Lender shall obtain any payment or other recovery as a result of its receipt of any collateral or otherwise (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan (other than pursuant to the terms of Sections 5.3, 5.4 and 5.5) or Letter of Credit in excess of its pro rata share of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in Loans made by them and/or Letters of Credit as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 5.9) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 5.9. Use of Proceeds. The Borrower shall apply the proceeds of each Borrowing of Revolving Loans to the general corporate purposes of the Borrower and its Subsidiaries, including Capital Expenditures; Letters of Credit shall be used for general corporate purposes of the Borrower and its Subsidiaries (including credit support by the Borrower for gas and power contracts for CES, Calpine Energy Services Canada Partnership and Calpine Energy Services UK Limited). The Borrower shall apply the proceeds of the Term B Loans and of the 2003 Senior Notes and the Second Priority B Loans (a) to repay all amounts owing under the 2000 Credit Agreement and, except to the extent continued hereunder, the 2002 Credit Agreement and (b) after application as set forth in clause (a) above, to general corporate purposes. Without limiting the foregoing, no Letter of Credit or proceeds of any Loan will be used to (i) acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any "margin stock", as defined in F.R.S. Board Regulation U, (ii) finance acquisitions (other than the acquisition of equipment, sites and property in the ordinary course of the Borrower and its Subsidiaries' business, but in no event may Loans or Letters of Credit be used to finance acquisitions of power projects, reserves of geothermal steam and fluids and natural gas reserves), (iii) make Investments in any third parties (other than Investments in Subsidiaries), directly or indirectly, through the Borrower or any of its Subsidiaries or Affiliates, or (iv) defease, repurchase or prepay any Subordinated Debt or any Senior Notes. 54 ARTICLE VI CONDITIONS PRECEDENT SECTION 6.1. Effectiveness; Initial Credit Extension. The effectiveness of this Agreement and the obligation of each Lender to make its initial Credit Extension shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 6.1. SECTION 6.1.1. Credit Agreement; Other Loan Documents. The Agent shall have received, on or before the Closing Date, (i) this Agreement, executed and delivered by the Agent, the Borrower and each of the Lenders, (ii) the Security Agreement, executed and delivered by the Borrower, QM, JOQ and QCH in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), (iii) the Collateral Trust Agreement, executed and delivered by the Agent, the Collateral Trustee and the Trustee under the 2003 Senior Note Indenture, (iv) the Deeds of Trust, executed and delivered by the Borrower to the Collateral Trustee (for the benefit of, among others, the Lenders), together with any additional supporting documentation as shall be reasonably requested by the Agent, including (w) title and security title opinions from title examiners, and in form and substance, reasonably acceptable to the Agent, confirming the Borrower's ownership of, and the first perfected lien and security interest of the Collateral Trustee in, Domestic Gas Reserves having an aggregate value of not less than ninety percent (90%) of all proven reserves shown in the report from Netherland, Sewell & Associates, Inc. entitled "Estimate of Reserves and Future Revenue to the Calpine Corporation Interest in Certain Oil and Gas Properties located in the United States as of December 31, 2002", a copy of which shall be delivered to the Agent; (x) a certificate from the Borrower's insurance advisor as to the sufficiency of the Borrower's insurance program and compliance with the insurance requirements of the Loan Documents, (y) the Hazardous Materials Indemnity, executed and delivered by the Borrower, and (z) copies of all consents and approvals required in connection with the execution and delivery by the Borrower of the Deeds of Trust, (v) the Stock Pledge Agreement, executed and delivered by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), (vi) the Gilroy Assignment Agreement, executed and delivered by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), (vii) the LLC Pledge Agreement, executed and delivered by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), (viii) the Note Pledge Agreement, executed and delivered by the Borrower in favor of the Collateral Trustee (for the benefit of, among others, the Lenders), and (ix) the Canadian Stock Pledge Agreement, executed and delivered by QM, JOQ and QCH in favor of the Collateral Trustee (for the benefit of, among others, the Lenders). The Collateral Trustee shall be in possession of (a) all share certificates subject to the Security Documents together with undated stock powers duly executed in blank and (b) all promissory notes subject to the Security Documents together with all necessary instruments of transfer or assignment duly executed in blank. SECTION 6.1.2. Resolutions, etc. The Agent shall have received from each Obligor a certificate, dated the Closing Date, of its Secretary or Assistant Secretary, as to 55 (a) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to be executed by it; and (b) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement, the Notes and each other Loan Document executed by it, upon which certificate each Lender may conclusively rely until it shall have received a further certificate of the Secretary of such Obligor canceling or amending such prior certificate. SECTION 6.1.3. Delivery of Notes. The Agent shall have received (i) for the account of each Revolving Lender requesting same, its Revolving Note duly executed and delivered by the Borrower and (ii) for the account of each Term B Lender requesting same, its Term Note duly executed and delivered by the Borrower. SECTION 6.1.4. Lien Searches. The Agent shall have received the results of a recent lien search in the jurisdictions of incorporation of the Borrower and the Guarantors and where the Borrower's and the Guarantors' chief executive offices are located, and such search shall reveal no liens on any of the assets of the Borrower or the Guarantors except for liens permitted by Section 8.2.3 or discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Agent. SECTION 6.1.5. Compliance Certificate. The Agent shall have received a certificate, executed by an Authorized Officer of the Borrower, showing compliance with the financial covenants in Sections 6.2.4 and 8.2.4 as of December 31, 2002. SECTION 6.1.6. Fee Letters. The Agent shall have received the Fee Letters duly executed by all parties thereto. SECTION 6.1.7. Opinions of Counsel. The Agent shall have received opinions, dated the date of the Closing Date and addressed to the Agent and all Lenders, from (a) Lisa Bodensteiner, Esq., general counsel of the Borrower, and Covington & Burling, special counsel to the Borrower, substantially in the forms of Exhibits F-1 and F-2, respectively; and (b) Such other special and local counsel (including, without limitation, local counsel with respect to the Deeds of Trust) as may be required by the Agent, in each case in form and substance satisfactory to the Agent. SECTION 6.1.8. Closing Fees, Expenses, etc. The Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 11.3, if then invoiced. SECTION 6.1.9. No Material Adverse Effect. No Material Adverse Effect shall have occurred since December 31, 2002. 56 SECTION 6.1.10. Required Proceeds from Issuance of 2003 Senior Notes. The Borrower shall have received at least $1,800,000,000 in aggregate gross cash proceeds from the issuance of the 2003 Senior Notes and the Second Priority B Loans. SECTION 6.1.11. Termination of Existing Facilities. The Agent shall have received evidence satisfactory to it that (i) the 2000 Credit Agreement and all commitments thereunder shall have been terminated and all amounts outstanding thereunder shall have been paid in full and (ii) except to the extent continued hereunder, all amounts outstanding under the 2002 Credit Agreement shall have been paid in full, in each case with the proceeds of the Term B Loans and of the 2003 Senior Notes and the Second Priority B Loans. SECTION 6.1.12. Projections. The Agent shall have received from the Borrower a consolidated statement of projected cash flows (including sources and uses of cash) for the Borrower and its Subsidiaries through the Stated Maturity Date for Revolving Loans (the "Projected Cash Flow Statement"), certified by an Authorized Officer of the Borrower. SECTION 6.1.13. Pledged Power Projects. The Agent shall have received evidence satisfactory to it that ownership of the Pledged Power Projects has been conveyed to the Borrower by merger or otherwise. SECTION 6.2. All Credit Extensions. The obligation of each Lender to make any Credit Extension (including the initial Credit Extension) shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 6.2. SECTION 6.2.1. Compliance with Warranties, No Default, etc. Both before and after giving effect to any Credit Extension (but, if any Default of the nature referred to in Section 9.1.5 shall have occurred with respect to any other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds of any Borrowing) the following statements shall be true and correct (a) the representations and warranties set forth in Article VII (excluding, however, those contained in Section 7.7) and in each other Loan Document (excluding the representations and warranties set forth in the Deeds of Trust except to the extent that a breach thereof would reasonably be expected to cause a Material Adverse Effect) shall be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date); (b) except as disclosed by the Borrower to the Agent and the Lenders pursuant to Section 7.7 (i) no labor controversy, litigation, arbitration or governmental investigation or proceeding shall be pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Significant Subsidiaries which would reasonably be expected to cause a Material Adverse Effect or which purports to materially and adversely affect the legality, validity or enforceability of this Agreement, the Notes or any other Loan Document; and 57 (ii) no development shall have occurred in any labor controversy, litigation, arbitration or governmental investigation or proceeding disclosed pursuant to Section 7.7 which might have a Material Adverse Effect; and (c) no Default (other than a Nonmaterial Subsidiary Default) shall have then occurred and be continuing, and neither the Borrower, any other Obligor, nor any of its Significant Subsidiaries are in material violation of any law or governmental regulation or court order or decree which would reasonably be expected to cause a Material Adverse Effect. SECTION 6.2.2. Credit Request. The Agent shall have received a Borrowing Request or Issuance Request, as the case may be, for such Credit Extension. Each of the delivery of a Borrowing Request or an Issuance Request and the acceptance by the Borrower of the proceeds of the Borrowing or the issuance of the Letter of Credit, as applicable, shall constitute a representation and warranty by the Borrower that on the date of such Borrowing (both immediately before and after giving effect to such Borrowing and the application of the proceeds thereof) or the issuance of the Letter of Credit, as applicable, the statements made in Section 6.2.1 are true and correct. SECTION 6.2.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligors shall be satisfactory in form and substance to the Agent and its counsel; the Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Agent or its counsel may reasonably request. SECTION 6.2.4. Interest Coverage Ratio (Parent Only). The Interest Coverage Ratio (Parent Only), calculated as of the end of the most recently ended Fiscal Quarter or, if the Interest Coverage Ratio (Parent Only) had previously fallen below 1.70 to 1.00 and had not subsequently returned to 1.70 to 1.00 or better, calculated as of the end of the most recently ended calendar month, shall be at least 1.70 to 1.00 for the previous 12 months. SECTION 6.2.5. Indentures. (a) The Borrower shall have certified to the Agent that its incurrence of the Indebtedness under such Borrowing is permitted under the terms of Section 3.4 of the Pre-2000 Indentures. To the extent that the Borrower is relying on clause (a) of Section 3.4 of the Pre-2000 Indentures, the Borrower shall have delivered to the Agent a certificate of an Authorized Officer of the Borrower demonstrating its compliance with the incurrence test set forth therein. (b) The Borrower shall have certified to the Agent that the incurrence of Liens in respect of such Borrowing is permitted under the terms of Section 3.7 of the Pre-2000 Indentures and Section 3.4 of the Shelf Indenture; provided that the Borrower may not rely upon Section 3.7(d) of the Pre-2000 Indentures in making such analysis and certification. To the extent the Borrower is relying on Section 3.7(f)(1) of each of the Pre-2000 Indentures and on Section 3.4(a)(i) of the Shelf Indenture, the Borrower shall have delivered to the Agent a certificate of an Authorized Officer of the Borrower demonstrating its compliance with the provisions thereof. To the extent that the Borrower is relying on the proviso to Section 3.7 of each of the Pre-2000 Indentures and 58 the proviso to Section 3.4 of the Shelf Indenture, the Borrower shall have delivered to the Agent a certificate of an Authorized Officer of the Borrower demonstrating its compliance with the incurrence tests set forth therein. SECTION 6.2.6. Solvency. Both before and after giving effect to any Borrowing of Loans or issuance of any Letter of Credit hereunder, the Borrower and its Subsidiaries, on a consolidated basis, shall be Solvent. ARTICLE VII REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agent to enter into this Agreement and to make Loans or L/C Advances and issue Letters of Credit hereunder, the Borrower represents and warrants unto the Agent and each Lender as set forth in this Article VII. SECTION 7.1. Organization, etc. The Borrower and each of its Significant Subsidiaries is a corporation, partnership, limited liability company or similar entity validly organized and existing and in good standing under the laws of the State of its organization, is duly qualified to do business and is in good standing as a foreign organization in each jurisdiction where the nature of its business requires such qualification and where the failure to so qualify would have a material adverse effect on the Borrower's or any Obligor's ability to perform its obligations under the Loan Documents to which it is a party, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement, the Notes and each other Loan Document to which it is a party and to own or hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 7.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Borrower of this Agreement, the Notes and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Obligor of each Loan Document executed or to be executed by it are within the Borrower's and each such Obligor's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene the Borrower's or any such Obligor's Organic Documents; (b) contravene any contractual restriction (including, without limitation, the Senior Note Indentures), law or governmental regulation or court decree or order binding on or affecting the Borrower or any such Obligor; or (c) result in, or require the creation or imposition of, any Lien on any of the Borrower's or any other Obligor's properties. SECTION 7.3. Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower or any other Obligor of this Agreement, the Notes or any other Loan Document to which it is a party, 59 other than any such authorization, approval, action, notice or filing that has been obtained or made or, with respect to the Pledged Power Projects, will be obtained or made within its required period of time or the failure to obtain or make which would not have a Material Adverse Effect. Neither the Borrower nor any of its Significant Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 7.4. Validity, etc. This Agreement constitutes, and the Notes and each other Loan Document executed by the Borrower will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms except as enforceability may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting the rights of creditors or (ii) general principles of equity, including the possible unavailability of specific performance or injunctive relief; and each Loan Document executed pursuant hereto by each other Obligor will, on the due execution and delivery thereof by such Obligor, be the legal, valid and binding obligation of such Obligor enforceable in accordance with its terms except as enforceability may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting the rights of creditors or (ii) general principles of equity, including the possible unavailability of specific performance or injunctive relief. SECTION 7.5. Financial Information. The balance sheets of the Borrower and each of its Subsidiaries as at December 31, 2002 and the related statements of earnings and cash flow of the Borrower and each of its Subsidiaries, copies of which have been furnished to the Agent and each Lender, have been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of the corporations covered thereby as at the date thereof and the results of their operations for the period then ended. SECTION 7.6. No Material Adverse Effect. Since December 31, 2002, there has been no Material Adverse Effect. SECTION 7.7. Litigation, Labor Controversies, etc. There is no pending or, to the knowledge of the Borrower, threatened litigation, action, proceeding, investigation, or labor controversy affecting the Borrower or any of its Significant Subsidiaries, or any of their respective properties, businesses, assets or revenues, which would reasonably be expected to have a Material Adverse Effect or which purports to materially and adversely affect the legality, validity or enforceability of this Agreement, the Notes or any other Loan Document. SECTION 7.8. Subsidiaries. The Borrower has no Significant Subsidiaries, except those Significant Subsidiaries (a) which are identified in Item 7.8 ("Existing Significant Subsidiaries") of the Disclosure Schedule; or 60 (b) which are permitted to have been acquired in accordance with Section 8.2.5 or 8.2.9. The organizational chart attached hereto as Schedule 1.1 accurately reflects the ownership structures of the Borrower's equity interests in its Foreign Subsidiaries as of the Closing Date. SECTION 7.9. Ownership of Properties. The Borrower and each of its Significant Subsidiaries owns good and marketable title to all of its material properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges or claims (including infringement claims with respect to patents, trademarks, copyrights and the like) except as permitted pursuant to Section 8.2.3. As of the Closing Date, the Borrower owns all of the equity interests in CNGH, CNGH owns all of the equity interests in Calpine Holdings, the Canadian Gas Reserves are owned by CCNGP, substantially all of the Domestic Gas Reserves are owned by the Borrower and Calpine Holdings directly owns all of the partnership interests of CCFCI, and Saltend is indirectly owned by CCEC. All governmental filings necessary to perfect and protect, and establish and, so long as continuation statements are duly filed with the Secretary of State of the State of Delaware within the time periods required under the Uniform Commercial Code, maintain the priority of, the Liens created by the Security Documents have been duly effected or taken. SECTION 7.10. Taxes. The Borrower and each of its Significant Subsidiaries has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 7.11. Pension and Welfare Plans. No steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty. Neither the Borrower nor any member of the Controlled Group has any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. SECTION 7.12. Environmental Warranties. Except as set forth in Item 7.12 of the Disclosure Schedule, (a) All facilities and property (including underlying groundwater) owned or leased by the Borrower or any of its Significant Subsidiaries have been, and continue to be, owned or leased by the Borrower and its Significant Subsidiaries in material compliance with all Environmental Laws; (b) There have been no past, and there are no pending or, to the Borrower's knowledge, threatened 61 (i) claims, complaints, notices or requests for information received by the Borrower or any of its Significant Subsidiaries with respect to any alleged violation of any Environmental Law that, singly or in the aggregate, may reasonably be expected to result in a Material Adverse Effect, or (ii) complaints, notices or inquiries to the Borrower or any of its Significant Subsidiaries regarding potential liability under any Environmental Law that, singly or in the aggregate, may reasonably be expected to result in a Material Adverse Effect; (c) There are no unremediated Releases of Hazardous Materials at, on or under any property now or previously owned or leased by the Borrower or any of its Significant Subsidiaries that, singly or in the aggregate, result in, or may reasonably be expected to result in, a Material Adverse Effect; (d) The Borrower and its Significant Subsidiaries have been issued and are in material compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary for their businesses; (e) No property now or previously owned or leased by the Borrower or any of its Significant Subsidiaries is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (f) There are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by the Borrower or any of its Significant Subsidiaries that, singly or in the aggregate, result in, or may reasonably be expected to result in, a Material Adverse Effect; (g) Neither Borrower nor any Significant Subsidiary of the Borrower has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against the Borrower or such Significant Subsidiary thereof for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) There are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by the Borrower or any Significant Subsidiary of the Borrower that, singly or in the aggregate, result in, or may reasonably be expected to result in, a Material Adverse Effect; and (i) No conditions exist at, on or under any property now or previously owned or leased by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law which would reasonably be expected to result in a Material Adverse Effect. 62 SECTION 7.13. Regulations U and X. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loans will be used for a purpose which violates F.R.S. Board Regulation U or X. Terms for which meanings are provided in F.R.S. Board Regulation U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 7.14. Accuracy of Information. All factual information (which shall not include projections) heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to the Agent, any Issuer or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of the Borrower to the Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified (except with respect to the financial statements of Borrower and its Subsidiaries, which will fairly present the financial condition of the entities covered thereby as of the date thereof) and, with respect to information provided prior to the execution of this Agreement, as of the date of execution and delivery of this Agreement by the Agent and such Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. SECTION 7.15. Protection under Security Documents. Subject to the exceptions agreed to in the agreed form of such documents, the Security Documents create valid perfected first priority Liens in favor of the Collateral Trustee (for the benefit of, among others, the Lenders) on the property subject thereto. The Borrower hereby further represents and warrants to the Agent and each Lender that all stock certificates, LLC interest certificates and promissory notes required to be pledged under this Agreement and the Security Documents in accordance herewith and therewith have been delivered to the Collateral Trustee together with all necessary instruments of transfer or assignment duly executed in blank. SECTION 7.16. Indebtedness of Certain Subsidiaries. As of March 31, 2003, the only outstanding Third Party Indebtedness of any of Calpine Holdings and its Subsidiaries, CNGH and its Subsidiaries, QM, JOQ, QCH and CCEC and its Subsidiaries is as set forth on Item 7.16 of the Disclosure Schedule. SECTION 7.17. Designation of Subsidiaries. As of the Closing Date, each of CCEC and its Subsidiaries is an Unrestricted Subsidiary, as such term is defined in the Pre-2000 Indentures. ARTICLE VIII COVENANTS SECTION 8.1. Affirmative Covenants. The Borrower agrees with the Agent and each Lender that, from and after the Closing Date, until all Revolving Loan Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 8.1. 63 SECTION 8.1.1. Financial Information, Reports, Notices, etc. The Borrower will furnish, or will cause to be furnished, to each Lender and the Agent copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, (i) the consolidated balance sheet, statement of earnings and cash flow statement of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by an Authorized Officer of the Borrower and (ii) a consolidating balance sheet and a consolidating statement of earnings of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by an Authorized Officer of the Borrower; (b) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Borrower, (i) a copy of the annual audit report for such Fiscal Year for the Borrower and its Subsidiaries, including therein the consolidated balance sheet, statement of earnings and cash flow statement of the Borrower and its Subsidiaries as of the end of such Fiscal Year, in each case certified (without any Impermissible Qualification) in a manner acceptable to the Agent and the Required Lenders by PricewaterhouseCoopers LLC or other independent public accountants acceptable to the Agent and the Required Lenders and (ii) a consolidating balance sheet and a consolidating statements of earnings of the Borrower and its Subsidiaries as of the end of such Fiscal Year, certified by an Authorized Officer of the Borrower; (c) as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year and within 120 days after the end of each Fiscal Year, a certificate, executed by an Authorized Officer of the Borrower, showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Agent) compliance with the financial covenants set forth in Sections 6.2.4 and 8.2.4, and a certificate, executed by an Authorized Officer of the Borrower, showing (i) a computation of the amounts described in Section 3.1.1(c) and in clauses (x) and (y) of the last sentence of Section 8.2.3 and (ii) a computation of the utilization of all baskets contained within the negative covenants set forth in Section 8.2 as of the end of such period; (d) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Borrower, a consolidated budget for the Borrower and its Subsidiaries for the following Fiscal Year, in form and substance satisfactory to the Revolving Lenders; (e) if the Interest Coverage Ratio (Parent Only), calculated as of the end of the most recently ended Fiscal Quarter, had previously fallen below 1.70 to 1.00 and had not subsequently returned to 1.70 to 1.00 or better, as soon as available and in any event within 30 days after the end of each calendar month thereafter, a certificate, executed by an Authorized Officer of the Borrower, showing (in reasonable detail and with appropriate calculations and computations in all respect satisfactory to the Agent) the 64 calculation of the Interest Coverage Ratio (Parent Only) as of the end of such calendar month; (f) as soon as possible and in any event within three days after the Borrower obtains knowledge of each Default, a statement of an Authorized Officer of the Borrower setting forth details of such Default and the action which the Borrower has taken and proposes to take with respect thereto; (g) as soon as possible and in any event within five days after the Borrower obtains knowledge of (x) any adverse development with respect to any litigation, action, proceeding, or labor controversy described in Section 7.7, (y) the commencement of any labor controversy, litigation, action, proceeding of the type described in Section 7.7, or (z) any other Material Adverse Effect, notice thereof and copies of all documentation relating thereto; (h) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to any of its security holders, and all reports and registration statements which the Borrower or any of its Significant Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (i) immediately upon the Borrower's knowledge of the institution of any steps by the Borrower or any member of its Controlled Group to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto; (j) as soon as available and in any event within 30 days after the end of each month during the 2003 and 2004 Fiscal Years of the Borrower, and thereafter within 60 days after the end of each Fiscal Quarter of the Borrower, an update of the Projected Cash Flow Statement, certified by an Authorized Officer of the Borrower; (k) as soon as available and in any event within 30 days after the end of each month, a certificate signed by an Authorized Officer of the Borrower setting forth (i) the Borrower's consolidated cash balance as at the end of such month (identifying both the restricted and unrestricted portions thereof) and (ii) actual sources and uses of cash of the Borrower and its Subsidiaries on a consolidated basis during such month; (l) within 30 days after any Asset Sale or Monetization by the Borrower or any of its Subsidiaries, an officer's certificate with respect to such Asset Sale or Monetization, which certificate shall be in form and substance reasonably satisfactory to the Agent and shall provide details of such Asset Sale or Monetization, including the amount of 65 proceeds thereof, the date of receipt thereof and any planned reinvestment to be made therewith; (m) on or before August 15, 2003, an update of Item 7.16 of the Disclosure Schedule through June 30, 2003; and (n) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Significant Subsidiaries as any Lender through the Agent may from time to time reasonably request and which the Borrower is legally permitted to provide to such Lender. The Borrower may provide some or all of the information required in clauses (a) and (b) above by providing copies of its Forms 10-Q and/or 10-K filed with the Securities and Exchange Commission. SECTION 8.1.2. Compliance with Laws, etc. The Borrower will, and will cause each of its Subsidiaries to, comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include (without limitation): (a) the maintenance and preservation of its existence and, if applicable, qualification as a foreign corporation or comparable entity; and (b) the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 8.1.3. Maintenance of Properties. The Borrower will, and will cause each of its Subsidiaries to, maintain, preserve, protect and keep its material properties in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times unless the Borrower determines in good faith that the continued maintenance of any of its properties is no longer economically desirable. SECTION 8.1.4. Insurance. (a) Except as provided in Section 8.1.4(b), the Borrower will, and will cause each of its Subsidiaries to, maintain or cause to be maintained with responsible insurance companies insurance with respect to its properties and business (including business interruption insurance) against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses and will, upon request of the Agent, furnish to each Lender at reasonable intervals a certificate of an Authorized Officer of the Borrower setting forth the nature and extent of all insurance maintained by the Borrower and its Subsidiaries in accordance with this Section. All insurance policies required to be maintained under the Deeds of Trust shall be in amounts satisfactory to the Agent and shall be issued on forms and by companies and with endorsements acceptable to the Agent. 66 (b) With respect to the Domestic Gas Reserves, the Borrower will, and will cause each of its Subsidiaries to, maintain or cause to be maintained the insurance required by the Deeds of Trust. SECTION 8.1.5. Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions and permit the Agent or any of its representatives or any Lender, at reasonable times and intervals, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower's financial matters with the Agent or its representatives whether or not any representative of the Borrower is present) and to examine (and, at the expense of the Borrower, photocopy extracts from) any of its books or other corporate records. The Borrower shall pay any fees of such independent public accountant incurred in connection with the exercise by the Agent of its rights pursuant to this Section; provided, however, after the occurrence and during the continuance of any Default, the Borrower shall pay for all fees of such independent accountants incurred with each exercise by the Agent or any Lender of its rights pursuant to this Section. SECTION 8.1.6. Environmental Covenant. The Borrower will, and will cause each of its Significant Subsidiaries to, (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; (b) immediately notify the Agent and provide copies upon receipt of all material written claims, complaints, notices or inquiries relating to the condition of its facilities and properties or compliance with Environmental Laws; and (c) provide such information and certifications which the Agent may reasonably request from time to time to evidence compliance with this Section 8.1.6. SECTION 8.1.7. Dividends of Subsidiaries. Promptly upon (but in no case more than five (5) Business Days after) the occurrence of an Event of Default, the Borrower shall cause each of its Wholly Owned Subsidiaries to declare and pay dividends on, or to make payments or distributions on account of, the shares of all classes of stock of such entity in an amount equal to (x) all funds legally and contractually available at such time to such Subsidiary for the payment of dividends minus (y) without duplication, such Wholly Owned Subsidiary's budgeted working capital and budgeted cash requirements for the following six months. SECTION 8.1.8. Intercompany Notes. The Borrower will, promptly upon the creation of any additional Indebtedness owing from any of its Subsidiaries that has not been evidenced by a non-recourse secured note pledged to the Collateral Trustee, cause such Indebtedness to be evidenced by a promissory note and pledged to the Collateral Trustee, pursuant to the Security Documents, as collateral security for the Obligations. It is understood and agreed that (i) upon 67 the conversion to equity of all Indebtedness owing from a Subsidiary to the Borrower or the repayment of all Indebtedness from a Subsidiary to the Borrower, the promissory note of such Subsidiary shall be released from the Security Documents and cancelled and (ii) subject to the approval of the Agent (not to be unreasonably withheld), the Borrower may substitute new non-recourse secured promissory notes for promissory notes previously pledged to the Collateral Trustee. If all of the Indebtedness owing to the Borrower from a Subsidiary that is a Pledged Entity shall be converted to equity, not later than ten days thereafter the Borrower shall pledge to the Collateral Trustee such equity interest and deliver to the Collateral Trustee the stock certificate, if any, evidencing such interest together with duly executed stock powers, in blank. SECTION 8.1.9. Additional Collateral, etc. (a) With respect to any personal property acquired after the Closing Date directly by the Borrower (other than any Excluded Assets and other than any property described in clause (b) below) as to which the Collateral Trustee, for the benefit of, among others, the Lenders, does not have a perfected Lien, the Borrower shall promptly (i) execute and deliver to the Collateral Trustee such amendments to the Security Documents or such other documents as the Agent reasonably deems necessary or advisable to grant to the Collateral Trustee, for the benefit of, among others, the Lenders, a security interest in such property and (ii) take all actions necessary or advisable to grant to the Collateral Trustee, for the benefit of, among others, the Lenders, a perfected first priority security interest in such property, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Agent. (b) With respect to any new direct Subsidiary (other than a Subsidiary that is an Excluded Asset) created or acquired after the Closing Date by the Borrower, the Borrower shall promptly (i) execute and deliver to the Collateral Trustee such amendments to the Security Documents as the Agent deems necessary or advisable to grant to the Collateral Trustee, for the benefit of, among others, the Lenders, a perfected first priority security interest in the capital stock of such new Subsidiary, (ii) deliver to the Collateral Trustee the certificates representing such capital stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower, and (iii) if reasonably requested by the Agent, deliver to the Agent legal opinions (which may be from in-house counsel) relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Agent. SECTION 8.1.10. Ownership Interests. CNGH shall at all times directly or indirectly own 100% of all equity interests of CCEC, which shall, in turn, directly or indirectly own 100% of the equity interests in Saltend and in CCNGP. CCNGP shall at all times own all of the Canadian Gas Reserves. The Borrower shall at all times own 100% of the equity interests of CNGH. The Borrower shall at all times own 100% of the equity interests of Calpine Holdings. Calpine Holdings shall at all times own 100% of the equity interests of CCFCI. CNGH shall at all times own 100% of the equity interests of CCI; CCI shall at all times own 100% of the equity interests of QM, JOQ, and QCH; QM, JOQ and QCH shall at all times own 100% of the equity interests of CCEC; CCEC shall at all times own 100% of the equity interests of CCRC and CCNGC; and CCRC and CCNGC shall at all times own 100% of the equity interests of CCNGP. 68 Nothing in this Section 8.1.10 shall, however, be deemed to limit (i) the reorganization of CCNGP's direct ownership such that the partnership interests in CCNGP are owned and held by (A) a Subsidiary of the Borrower formed as a result of the consolidation or merger of CCRC and CCNGC and (B) another Subsidiary of the Borrower or a new Subsidiary of the Borrower formed by the Borrower or one of its Subsidiaries, (ii) the ability of any one or more of QM, JOQ or QCH to merge or consolidate with one or more of the others (subject only to a delivery of a certificate in a form reasonably satisfactory to the Agent to the effect that the merged entity would not be liable for any Obligations of CCEF) or (iii) the ability of the Borrower and its Subsidiaries to enter into transactions that are contemplated by Section 3.1.1(c)(i) through (vii) and permitted under Section 8.2.10. SECTION 8.1.11. Incremental Domestic Gas Reserves. The Borrower shall cause all acquisitions of additional Domestic Gas Reserves after the Closing Date to be made by the Borrower, a Subsidiary of the Borrower that is a Pledged Entity or a Subsidiary of any such Subsidiary. SECTION 8.1.12. Gas Reserves. Within 60 days after the acquisition of any Domestic Gas Reserves by the Borrower after the Closing Date, the Borrower shall execute and deliver to the Collateral Trustee such mortgages, deeds of trust, assignments, security agreements, financing statements and/or fixture filings, together with any additional supporting documentation, as shall be reasonably requested by the Agent in order to perfect a security interest in favor of the Collateral Trustee (on behalf of, among others, the Lenders) with respect to such Domestic Gas Reserves. The Borrower (a) shall notify the Lenders promptly after each acquisition by the Borrower or any of its Subsidiaries (in one transaction or a series of related transactions) of Domestic Gas Reserves or Canadian Gas Reserves having an aggregate value in excess of $5,000,000 and (b) shall provide to the Lenders updates not less frequently than every six months with respect to acquisitions by the Borrower and its Subsidiaries of Domestic Gas Reserves and Canadian Gas Reserves, in each case indicating the size, location and purchase price of such reserves. SECTION 8.2. Negative Covenants. The Borrower agrees with the Agent and each Lender that, from and after the Closing Date until all Revolving Loan Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 8.2. SECTION 8.2.1. Business Activities. The Borrower will not, and will not permit any of its Subsidiaries or Joint Ventures to, engage in any business activity, except the business of acquiring, developing, constructing, owning and operating power generation facilities, purchasing, developing and selling electricity and steam (including geothermal steam and fluids), purchasing, developing and selling natural gas and other fuels and related marketing activities, and such activities as may be incidental or related thereto; provided, however, that up to ten percent (10%) of the consolidated net assets of the Borrower and its Subsidiaries may be used for unrelated businesses. SECTION 8.2.2. Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness, other than, without duplication, the following: 69 (a) (i) Indebtedness created in connection with any Loan Document, (ii) any Indebtedness existing as of the Closing Date, (iii) any Indebtedness evidenced by promissory notes pledged to the Collateral Trustee pursuant to the Security Documents and (iv) the 2003 Senior Notes, the Second Priority B Loans and any Parity Lien Debt; (b) Indebtedness which is incurred by the Borrower or any of the Borrower's Subsidiaries to a vendor of any assets to finance the acquisition of such assets so long as the only recourse of such vendor is to some or all of the assets so financed; (c) unsecured Indebtedness incurred in the ordinary course of business (including open accounts extended by suppliers on normal trade terms in connection with purchases of goods and services, but excluding Indebtedness incurred through the borrowing of money or Contingent Liabilities); (d) (i) Indebtedness of the Borrower which is owed to and held by a Subsidiary (it being understood and agreed that the obligations of the Borrower under its subordinated debt securities issued to a Trust in connection with the Guaranteed Preferred Securities are not considered Indebtedness for purposes of this Agreement), (ii) Indebtedness of a Subsidiary which is owed to and held by the Borrower and (iii) Indebtedness of a Subsidiary which is owed to and held by a Subsidiary; provided, however, that any subsequent transfer of such Indebtedness (other than to the Borrower or a Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the Borrower or by a Subsidiary, as the case may be; (e) Non-Recourse Debt of a Subsidiary of the Borrower other than CES; (f) (i) Unsecured Subordinated Debt of the Borrower and other unsecured Indebtedness of the Borrower if, after giving effect to the issuance thereof, the Interest Coverage Ratio calculated as of the end of the most recent Fiscal Quarter on a pro forma basis is equal to or greater than 2.00 to 1.00 and (ii) unsecured Indebtedness of any Subsidiary of the Borrower (other than Indebtedness for borrowed money) incurred in the ordinary course of business up to an aggregate principal amount of $100,000,000 at any one time outstanding; (g) Indebtedness secured by property or assets acquired by, or owned by any Person acquired by, the Borrower or any of its Subsidiaries that was in existence at the time such property, assets or Person are acquired so long as such Indebtedness was not incurred in contemplation of such acquisition; provided, however, that the Borrower would have been able to incur such Indebtedness at the time of closing of such acquisition pursuant to clause (f) above (assuming for purposes of this proviso that such Indebtedness was unsecured); (h) unsecured Indebtedness of the Borrower or any of its Subsidiaries arising from the endorsements of instruments for collection in the ordinary course of business; (i) Indebtedness of the Borrower or any of its Subsidiaries with respect to surety, appeal, indemnity, performance or other similar bonds in the ordinary course of business; 70 (j) Hedging Obligations and Contingent Obligations associated therewith and other unsecured Contingent Liabilities of the Borrower or any of its Subsidiaries, in each case incurred in the ordinary course of business and not for speculative purposes and consistent with applicable risk management guidelines established by the Borrower from time to time; (k) Indebtedness in respect of commercial paper issued and sold in the commercial paper market in an aggregate principal or stated amount not to exceed the unused availability under this Agreement; (l) secured Indebtedness of the Borrower or any of its Subsidiaries (other than Indebtedness permitted under clause (e) above or clause (m) below) so long as (i) recourse for any such Indebtedness is limited solely to the asset or assets securing such Indebtedness and (ii) the Net Available Cash with respect thereto is applied in accordance with Section 3.1.1(c); (m) Non-Recourse Debt of CES (including any CES Credit Facility) so long as (i) the aggregate outstanding principal amount of such Indebtedness, together with the aggregate Fair Market Value of CES Assets subject to Asset Sales and other Monetizations by CES which have been permitted under Section 8.2.10(c)(v), shall not exceed $500,000,000 during the term of this Agreement and (ii) other than with respect to the CES Credit Facility, the Net Available Cash with respect thereto is applied in accordance with Section 3.1.1(c); (n) Contingent Liabilities of the Borrower in respect of Indebtedness of any Subsidiary which, but for such Contingent Liabilities, would be permitted to be incurred pursuant to clause (e) above; provided that the aggregate principal amount of Indebtedness incurred pursuant to this clause (n) shall not exceed $100,000,000 at any one time outstanding; (o) Indebtedness incurred by any Subsidiary of the Borrower represented by letters of credit (or Contingent Liabilities in connection therewith) entered into in the ordinary course of business to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit; provided that no such letter of credit shall constitute Indebtedness permitted pursuant to this clause (o) if it is issued in support of Indebtedness; (p) Indebtedness of Thomassen Turbine Services B.V., a Dutch company, incurred for working capital purposes in an aggregate principal amount not to exceed $5,000,000 (or the equivalent thereof) at any one time outstanding; (q) Indebtedness of the Borrower under the Letter of Credit Agreement; and (r) refinancings, refundings, extensions, renewals or replacements of any of the foregoing permitted Indebtedness; provided that the outstanding principal amount of such Indebtedness is not increased (other than by an amount necessary to pay fees and expenses, including premiums, related to the refinancing, refunding, extension, renewal 71 or replacement of such Indebtedness), no obligor under such Indebtedness is liable for any such Indebtedness except to the extent it was liable for the Indebtedness so renewed or refinanced and if the Indebtedness being refinanced is subordinated to the Obligations, such Indebtedness shall be subordinated at least to the same extent; provided, further, that the limitations set forth in this clause (r) shall not apply to Indebtedness which is otherwise permitted under this Section 8.2.2, even if such Indebtedness is used to repay or refinance other existing Indebtedness. provided, however, that no Indebtedness otherwise permitted by clauses (d)(ii), (f), (g), (j) or (k) shall be incurred if, after giving effect to the incurrence thereof, any Default (other than a Nonmaterial Subsidiary Default) shall have occurred and be continuing and provided further that in no event shall CCNGP or any of its direct or indirect parent entities (other than any direct or indirect parent entities of QM, JOQ or QCH) create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness other than, without duplication, Indebtedness permitted by clauses (a), (b), (c), (d)(ii), (d)(iii) (provided that any such Indebtedness permitted by clause (d)(iii) shall be owed to and held by a Subsidiary that is a Pledged Entity or a Subsidiary of a Pledged Entity), (h), (i) and (r) of this Section 8.2.2. SECTION 8.2.3. Liens. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, revenues or assets, whether now owned or hereafter acquired, except: (a) Liens securing payment of the Obligations granted pursuant to any Loan Document; (b) Liens granted prior to the Closing Date to secure payment of Indebtedness of the type permitted and described in clause (a) of Section 8.2.2; (c) Liens granted to secure payment of Indebtedness of the type permitted and described in clause (b) of Section 8.2.2 where recourse is limited as described in clause (b) of Section 8.2.2; (d) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (e) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (f) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; 72 (g) judgment Liens in existence less than 15 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies; (h) Liens granted to secure payment of Indebtedness of the type permitted and described in clauses (g) and (l) of Section 8.2.2 where recourse is limited as described in clauses (g) or (l), as applicable, of Section 8.2.2; (i) Zoning restrictions, easements, rights of way, title irregularities and other similar encumbrances which alone or in the aggregate do not materially detract from the value of the property subject thereto; (j) Liens on the property or assets of any Subsidiary of the Borrower in favor of the Borrower; (k) Banker's Liens and similar Liens (including set-off rights) in respect of bank deposits; (l) Landlord's Liens and similar Liens in respect of leased property; (m) Liens securing Attributable Debt with respect to outstanding leases entered into pursuant to Sale/Leaseback Transactions so long as, with respect to Sale/Leaseback Transactions closing after January 1, 2002, the amount thereof does not exceed 10% of the consolidated tangible assets of the Borrower and its Subsidiaries; (n) (A) Liens on assets or property of a Subsidiary (other than Material Designated Assets) incurred by any Subsidiary to secure Indebtedness of such Subsidiary incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Borrower or such Subsidiary, which Liens may include Liens on the capital stock or other comparable ownership interest of such Subsidiary (other than CES or any Subsidiary that (i) is a direct Subsidiary of the Borrower, (ii) owns, directly or indirectly, Material Designated Assets or (iii) is a Pledged Entity); (B) Liens (other than Liens on Material Designated Assets) incurred by any Subsidiary that does not own, directly or indirectly, at the time of original incurrence of such a Lien under this clause (B) any Material Designated Assets or any operating properties or assets, securing Indebtedness incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of any Subsidiary that does not, directly or indirectly, own any operating properties or assets at the time of the original incurrence of such Lien, which Liens contemplated by this clause (n) may include Liens on the capital stock or other comparable ownership interest of one or more Subsidiaries (other than CES) that (i) are not direct Subsidiaries of the Borrower, (ii) do not, directly or indirectly, own any Material Designated Assets or operating properties or assets at the time of original incurrence of such Lien and (iii) are not Pledged Entities; or (C) without duplication, Liens (other than Liens on Material Designated Assets) incurred by any Subsidiary (which Liens may include Liens on the capital stock or other comparable 73 ownership interest of such Subsidiary (other than CES) so long as such Subsidiary is not a Pledged Entity) that owns as of the Closing Date all or part of one or more of the peaking power plants (and no other significant unrelated assets) constructed for the purpose of providing peaking capacity and energy to the California Department of Water Resources; provided that the Indebtedness secured by any such Lien contemplated by this clause (n) may not be issued more than 365 days (or, in the case of clause (C) above, two years) after the later of the exploration, drilling, development, completion of construction, purchase, repair, improvement, addition or commencement of full commercial operation of the property or asset being so financed; (o) Liens on assets of Subsidiaries to secure letters of credit issued pursuant to Section 8.2.2(o); provided that if and to the extent such letters of credit are drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit; (p) Liens (i) on cash and short-term investments of Subsidiaries to secure obligations with respect to (A) contracts for commercial and trading activities in the ordinary course of business and contracts (including physical delivery, option (whether cash or financial), exchange, swap and futures contracts) for the purchase, transmission, distribution, sale, lease or hedge of any energy-related commodity or service or (B) interest rate, commodity price, or currency rate management contracts or derivatives and (ii) encumbering assets of a Subsidiary, other than (A) Material Designated Assets or (B) accounts or receivables, which Liens arise out of contracts or agreements relating to the generation, distribution or transmission or sale of energy and/or fuel; provided that all such agreements or contracts are entered into in the ordinary course of business; (q) Liens on assets of Thomassen Turbine Services B.V., a Dutch company, securing Indebtedness permitted under Section 8.2.2(p); (r) Liens incurred by the Borrower on cash in an amount not to exceed $200,000,000 plus any earnings thereon, which Liens secure obligations of the Borrower under the Letter of Credit Agreement; and (s) Liens incurred in connection with the refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) of Indebtedness secured by Liens permitted and described in clauses (b), (c), (h), (n), (o), (q) and (r) of this Section 8.2.3; provided, however, that (x) such new Lien shall be limited to all or part of the same property or assets that secured the original Lien (plus repairs, expansions, enhancements, improvements and additions to such property or assets) and (y) the Indebtedness secured by such Lien at such time is not increased (other than by an amount necessary to pay fees and expenses, including premiums, related to the refinancing, refunding, extension, renewal or replacement of such Indebtedness); provided, further, that the limitations set forth in this clause (s) shall not apply to Liens which are otherwise permitted under this Section 8.2.3, even if such Liens secure Indebtedness issued to repay or refinance existing Indebtedness permitted and described in clauses (b), (c), (h), (n), (o), (q) and (r) of this Section 8.2.3. 74 Without limitation of the foregoing, in no event shall CCNGP or any of its direct or indirect parent entities (other than any direct or indirect parent entities of QM, JOQ or QCH) create, incur, assume or suffer to exist a Lien upon any of its property, revenues, or assets, whether now owned or hereafter acquired, except for Liens permitted by clauses (a) through (g), (i) through (l), (o), (p) and (s) of this Section 8.2.3. SECTION 8.2.4. Financial Condition. The Borrower will not permit: (a) Its Tangible Net Worth to be less than (i) $4,200,000,000 plus (ii) 50% of the Consolidated Net Income of the Borrower and its Subsidiaries (without giving effect to any losses) for each Fiscal Quarter ending on or after June 30, 2003 plus (iii) 100% of the Net Equity Proceeds from any equity offering by the Borrower after the Closing Date. (b) Its Leverage Ratio to be greater than .80 to 1.00 as of the end of any Fiscal Quarter. (c) Its Interest Coverage Ratio as of the end of any Fiscal Quarter, to be less than 1.75 to 1.00 for the twelve (12) month period comprising the four previous Fiscal Quarters. (d) Its Interest Coverage Ratio (Parent Only) as of the end of any Fiscal Quarter, to be less than 1.60 to 1.00 for the twelve (12) month period comprising the four previous Fiscal Quarters. SECTION 8.2.5. Investments. The Borrower will not, and will not permit any of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, whether done in a single transaction or a series of related transactions, except: (a) Investments existing on the Closing Date; (b) Cash Equivalent Investments or Investments (as defined in the High Yield Indentures) by a Restricted Subsidiary in the Borrower or any other Restricted Subsidiary; (c) Investments by the Borrower in any of its Subsidiaries or in any Person that becomes a Subsidiary as a result of such Investment or in any Investment Joint Venture of the Borrower or Investments by the Borrower's Subsidiaries in other Subsidiaries or in any Person that becomes a Subsidiary as a result of such Investment or in any Investment Joint Venture of the Borrower, whether now existing or hereafter organized in lines of business of the Borrower and its Subsidiaries permitted under Section 8.2.1 by way of contributions to capital or loans or advances (including guarantees and other forms of Contingent Liabilities to the extent that the occurrence of the obligations being guaranteed or supported would otherwise be permitted hereunder); (d) Investments by the Borrower or any of its Subsidiaries constituting contributions of the stock or assets of CES to Persons that are neither Subsidiaries of the Borrower nor Investment Joint Ventures of the Borrower in connection with the establishment of a trading joint venture or similar arrangement; provided that no such 75 Investment shall be permitted hereunder unless the equity interests of the Borrower in such trading joint venture or similar arrangement are pledged by the Borrower to the Collateral Trustee for the benefit of, among others, the Lenders pursuant to a pledge agreement to be executed concurrently with the making of such Investment; and (e) from and after the Closing Date, in the ordinary course of business, Investments by the Borrower or any of its Subsidiaries in Persons that are not Subsidiaries of the Borrower or Investment Joint Ventures of the Borrower so long as such Persons are engaged only in permitted lines of business of the Borrower and its Subsidiaries and lines of business related thereto and so long as no such single Investment (or series of related Investments) exceeds 5% of the Borrower's consolidated tangible assets as of the end of the most recent Fiscal Quarter for which the Borrower has delivered the financial statements required under Section 8.1.1 hereof and the aggregate of all such Investments at any time outstanding does not exceed 10% of the Borrower's consolidated tangible assets as of the end of the most recent Fiscal Quarter for which the Borrower has delivered the financial statements required under Section 8.1.1 hereof; provided, however, that (f) any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (g) no Investment otherwise permitted by clauses (c), (d) or (e) shall be permitted to be made if, immediately after giving effect thereto, any Material Adverse Effect or any Default (other than a Nonmaterial Subsidiary Default) shall have occurred and be continuing. SECTION 8.2.6. Restricted Payments, etc. On and at all times after the Closing Date: (a) the Borrower will not declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of the Borrower or on any warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower (other than dividends or distributions payable in its common stock or warrants to purchase its common stock or splitups or reclassifications of its stock into additional or other shares of its common stock) or apply, or permit any of its Subsidiaries (other than Restricted Subsidiaries) to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries (other than Restricted Subsidiaries) to purchase or redeem, any shares of any class of capital stock (now or hereafter outstanding) of the Borrower, or warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower; (b) the Borrower will not, and will not permit any of its Subsidiaries to make any payment or prepayment of principal of, or make any payment of interest in respect of, or 76 redeem, purchase or defease any Restricted Capital (any such payment, prepayment, redemption, purchase or defeasance, a "Restricted Capital Payment"), other than Restricted Capital Payments on the scheduled dates and in the amounts provided in the documentation therefor as in effect on the Closing Date (provided that any such payments would not violate the subordination provisions of any Subordinated Debt), provided that, subject to each of the other clauses of this Section 8.2.6, (A) the Borrower shall be permitted to make Restricted Capital Payments in respect of all or a portion of the Repayable Restricted Capital if (x) both before and after giving effect thereto, no Default shall have occurred or be continuing and there are no Loans outstanding or Letter of Credit Outstandings hereunder or (y) both before and after giving effect thereto, no Default shall have occurred and be continuing and the aggregate amount of all such Restricted Capital Payments shall not exceed $400,000,000 (the "Senior Notes Basket"); (B) the Borrower shall be permitted to make Restricted Capital Payments in respect of all or a portion of the Repayable Restricted Capital, in addition to those permitted by clause (A) immediately preceding, with the sum (the "Excess Proceeds Basket") of (x) the gross proceeds of the offering of the 2003 Senior Notes and the Second Priority B Loans to the extent such gross proceeds exceed $1,800,000,000, (y) an amount equal to the aggregate Net Available Cash with respect to any Asset Sale or Monetization by the Borrower of the Gilroy Receivable and/or any Asset Sale of uninstalled turbines or equipment, to the extent that the Borrower is entitled to use such amount for such purpose pursuant to Section 3.1.1(c)(i)(A) and (z) an amount equal to 50% of the portion that has not been utilized pursuant to clause (G)(ii) below of the Net Equity Proceeds with respect to common stock of the Borrower issued more than 60 days prior to the date of such Restricted Capital Payment; (C) the Borrower shall be permitted to make Restricted Capital Payments (i) in connection with refinancings, refundings, extensions, renewals or replacements of Indebtedness permitted under Section 8.2.2(r) or (ii) with the proceeds of Parity Lien Debt; (D) any Restricted Capital Payment in respect of Repayable Restricted Capital permitted hereunder shall be at a price in respect of principal thereof not to exceed $1.00 per $1.00 of the principal amount of such Repayable Restricted Capital, (E) no Restricted Capital Payment in respect of Repayable Restricted Capital having a final maturity date prior to the Stated Maturity Date of the Term B Loans shall be made with the proceeds of any Indebtedness (other than the 2003 Senior Notes, the Second Priority B Loans and any Parity Lien Debt); (F) Restricted Capital Payments may be made with respect to Convertible Senior Notes, Guaranteed Preferred Securities and/or Convertible Subordinated Debentures (i) in accordance with the Prepayment Letter Agreement and (ii) with the proceeds of, or in exchange for, securities having substantially similar terms to the securities in respect of which such Restricted Capital Payment is made, except that such newly issued securities must have (x) a later final maturity and a longer weighted average life to maturity than the securities refinanced therewith and (y) an interest or dividend rate, as applicable, consistent with those prevailing at the time of issuance thereof in the market for similar securities; and (G) any Restricted Capital Payment may be made with (i) common stock of the Borrower or (ii) the Net Equity Proceeds with respect to common stock of the Borrower issued not more than 60 days prior to the date of such Restricted Capital Payment, in which case such Restricted Capital Payment shall not be deemed a usage of the Senior Notes Basket or the Excess Proceeds Basket and the limitations imposed by clause (D) above shall not be applicable thereto; 77 (c) the Borrower will not, and will not permit any Subsidiary to, make any deposit for any of the purposes described in clauses (a) or (b) of this Section 8.2.6 except to the extent a payment, prepayment or other Restricted Capital Payment would be otherwise permitted hereunder; and (d) the Borrower will not, and will not permit any of its Subsidiaries to, make any voluntary prepayment of principal of any Indebtedness (other than the Loans and payments by any Subsidiary on Indebtedness permitted to be incurred under Section 8.2.2(d)(ii) or (d)(iii) (provided that any such Indebtedness shall be owed to and held by (i) a Restricted Subsidiary or (ii) a Subsidiary that is a Pledged Entity or a Subsidiary of a Pledged Entity)), if either before or after giving effect thereto, there shall exist a Default (other than a Nonmaterial Subsidiary Default) or an Event of Default. SECTION 8.2.7. Capital Expenditures and Investments. The Borrower will not, and will not permit any of its Subsidiaries to, (a) make or commit to make Capital Expenditures for or Investments in, or in connection with, any new project if a Default or Event of Default shall have occurred and be continuing or (b) make Capital Expenditures (excluding for purposes of this clause (b) any such Capital Expenditure or portion thereof made with the proceeds of any Non-Recourse Debt which is permitted to be incurred under Section 8.2.2) during any period set forth below in an aggregate amount for the Borrower and its Subsidiaries in excess of the amount set forth for such period below.

PERIOD AMOUNT ------ ------ Closing Date through December 31, 2003 $ 862,500,000 2004 Fiscal Year $1,150,000,000 2005 Fiscal Year $ 500,000,000

SECTION 8.2.8. Rental Obligations. The Borrower shall not enter into any arrangement which does not create a Capitalized Lease Liability or a Sale/Leaseback Transaction and which involves the leasing by the Borrower from any lessor of any real or personal property (or any interest therein), except for arrangements which, together with all other such arrangements which shall then be in effect, will not require the payment of an aggregate amount of rentals by the Borrower in excess of (excluding escalations resulting from a rise in the consumer price or similar index) $25,000,000 in any Fiscal Year; provided, however, that any calculation made for purposes of this Section 8.2.8 shall exclude any amounts required to be expended for maintenance and repairs, insurance, taxes, assessments, and other similar charges. SECTION 8.2.9. Consolidation, Merger, etc. The Borrower will not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) except: (a) the Borrower or a Wholly Owned Subsidiary may merge with another Person if (i) (A) Borrower or such Subsidiary is the continuing Person following such merger or (B) in the case of a merger by the Borrower, the Person (if other than the Borrower) 78 formed by such merger (including a consolidation effected by a sale or transfer of all or substantially all of the assets of a Person) is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia and expressly assumes the obligations of the Borrower under this Agreement, (ii) such merger or consolidation is otherwise permitted under the Senior Note Indentures, (iii) no Default (other than a Nonmaterial Subsidiary Default) has occurred and is continuing or would occur after giving effect thereto and (iv) after giving effect thereto, (x) the Rating by S&P shall be BB- or higher or the Rating by Moody's shall be Ba3 or higher; provided that if the Ratings by the Rating Agencies shall be at different levels, the Rating by the Rating Agency with the lower of such Ratings shall be no more than one level below the Rating of the Rating Agency with the higher of such Ratings; (b) any Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Borrower or any other Subsidiary; provided, however, that if any Subsidiary that is a Pledged Entity shall merge with any other Subsidiary that is not a Pledged Entity, such Pledged Entity shall be the continuing Person following such merger; and provided, further, that if any Subsidiary that is a Pledged Entity shall liquidate or dissolve voluntarily into, or merge into, the Borrower or any other Subsidiary, or the assets or stock of any such Subsidiary are purchased or otherwise acquired by the Borrower or any other Subsidiary, the assets of such Subsidiary shall be transferred (whether by means of merger or otherwise) (i) to the Borrower (and pledged by the Borrower as collateral security for the Obligations) or (ii) to another Subsidiary that is a Pledged Entity; (c) so long as no Default (other than a Nonmaterial Subsidiary Default) has occurred and is continuing or would occur after giving effect thereto, the Borrower or any of its Subsidiaries may purchase all or substantially all of the assets or stock of any Person if permitted by Section 8.2.5 and Section 8.2.7; and (d) a Subsidiary may consolidate with, or merge into or with, another Person that is not the Borrower or a Subsidiary of the Borrower to the extent otherwise permitted under Section 8.2.10. SECTION 8.2.10. Asset Dispositions, etc. The Borrower will not, and will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other rights with respect to, all or any substantial part of its assets (including accounts receivable and capital stock of Subsidiaries) to any Person (other than to the Borrower or any Subsidiary), whether done in a single transaction or a series of related transactions, unless (a) such sale, transfer, lease, contribution or conveyance is (i) in the ordinary course of its business or (ii) permitted by Section 8.2.9; or (b) in the event such sale, transfer, lease, contribution or conveyance involves the Domestic Gas Reserves or Canadian Gas Reserves, such sale, transfer, lease, contribution or conveyance, individually and taken together with all sales, transfers, leases, contributions or conveyances within the period of twelve consecutive calendar months 79 during which such sale, transfer, lease, contribution or conveyance occurs, is a Permitted Sale; or (c) such sale, transfer, lease, contribution or conveyance is not covered by clauses (a) or (b) above and (i) the Borrower or its Subsidiary receives consideration at the time of such sale, transfer, lease, contribution or conveyance at least equal to the Fair Market Value of assets being sold, transferred, leased, contributed or conveyed; (ii) at least seventy-five percent (75%) of the consideration received by the Borrower or such Subsidiary is in the form of cash or cash equivalents (other than with respect to the sale of the Gilroy Receivable, as to which there shall not be any minimum cash consideration requirement); (iii) in the case of all Asset Sales (other than the sale of the Gilroy Receivable), any non-cash consideration received by the Borrower or such Subsidiary in the form of Restricted Capital shall be deemed to be a usage of the Senior Notes Basket in an amount equal to the Fair Market Value of such Restricted Capital as of the date of consummation of such Asset Sale; (iv) in the case of the sale of the Gilroy Receivable, any non-cash consideration received by the Borrower or such Subsidiary shall not be deemed to be a usage of the Senior Notes Basket; (v) in the case of any Asset Sale or Monetization of CES Assets by CES (including any incurrence of secured Indebtedness by CES permitted under Section 8.2.2(m)), (A) such Asset Sale or Monetization provides for no recourse to the Borrower or any of its Subsidiaries (other than representations, warranties, covenants and indemnities entered into by the Borrower or any of its Subsidiaries which are customary in comparable Asset Sale or Monetization transactions) or any Lien on or recourse to any of their assets other than to CES and its Subsidiaries or to CES Assets (excluding, for avoidance of doubt, any capital stock of CES) and (B) the aggregate Fair Market Value of the CES Assets subject to all such Asset Sales and Monetizations, together with the aggregate outstanding principal amount of Non-Recourse Debt of CES incurred under Section 8.2.2(m), shall not exceed $500,000,000 during the term of this Agreement; (vi) in the case of any assets sold, transferred, leased, contributed or conveyed by the Borrower or any Subsidiary of the Borrower organized under the laws of the United States (or any State thereof, including the District of Columbia) to any Subsidiary of the Borrower organized under the laws of Canada or any province or territory thereof, the aggregate Fair Market Value of all such assets shall not exceed $100,000,000; and (vii) all prepayments required in respect thereof pursuant to Sections 2.2.2 and 3.1.1 are made in accordance therewith. SECTION 8.2.11. Modification of Certain Agreements. The Borrower will not consent to any amendment, supplement or other modification of any of the terms or provisions contained in, or applicable to, any Restricted Capital described in clause (i) of the definition thereof, or any document or instrument evidencing or applicable thereto, other than (i) any amendment, supplement or other modification which (A) extends the date or reduces the amount of any required repayment or redemption or (B) cures any ambiguity, omission, defect or inconsistency therein or in any documentation under which such Restricted Capital is issued or incurred so long as such a cure is not adverse to the interests of the Lenders or (ii) any other change that is not adverse to the interests of the Lenders or that has been approved by the Required Lenders. SECTION 8.2.12. Transactions with Affiliates. Except for transactions between the Borrower and its Wholly Owned Subsidiaries or Cogen America or between one Wholly Owned 80 Subsidiary and another Wholly Owned Subsidiary or Cogen America, the Borrower will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any arrangement or contract with any of its other Affiliates unless such arrangement or contract is fair and equitable to the Borrower or such Subsidiary and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Borrower or such Subsidiary with a Person which is not one of its Affiliates. SECTION 8.2.13. Negative Pledges, Restrictive Agreements, etc. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any agreement which: (i) prohibits the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired, or the ability of the Borrower or any other Obligor to amend or otherwise modify this Agreement or any other Loan Document; or (ii) restricts the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower; provided, however, that the above restriction shall not be applicable to (A) this Agreement or any other Loan Document; (B) any agreement governing Indebtedness permitted under Section 8.2.2(a), (b), (e), (f), (g), (j) (provided that the Borrower has delivered to the Agent a certificate of an Authorized Officer of the Borrower certifying that the provision contained in such agreement, which would otherwise cause such agreement to violate this Section 8.2.13, (I) is required in order to enter into such agreement, (II) is customary for such agreements and (III) applies only to the Person entering into such agreement and its Subsidiaries), (l), (m), (o) (provided that any such agreement, but for this proviso, would violate only clause (i) of this Section 8.2.13) or (p) (and refinancings, extensions and renewals of such Indebtedness permitted under Section 8.2.2(r)); (C) any agreement in respect of a Sale/Leaseback Transaction permitted under Section 8.2.3(m); or (D) any agreement pursuant to which any preferred equity shall be issued (provided that the provision contained in such agreement, which would otherwise cause such agreement to violate this Section 8.2.13, restricts only the right of the issuer of such preferred equity to pay dividends on the common equity of such issuer while any arrearage exists in the payment of dividends on such preferred equity). SECTION 8.2.14. Amendments to Canadian Documentation. The Borrower will not, and will not permit CCEC, CCEF or QCH, to amend the contractual arrangements among CCEC, QCH and CCEF in respect of the term debentures dated April 25, 2001, August 14, 2001 and August 23, 2001 between CCEC and CCEF and the documentation executed in connection therewith or the memorandum of association or articles of association of CCEC without the prior written consent of the Agent and the Arrangers, which consent shall not be unreasonably withheld or delayed. The Borrower will not permit any amendments to be made to the articles of incorporation of any Guarantor without the prior written consent of the Agent and the Arrangers, which consent shall not be unreasonably withheld or delayed. Nothing in this Section 8.2.14 81 shall, however, be deemed to limit the ability of any one or more of QM, JOQ or QCH to merge or consolidate with one or more of the others (subject only to a delivery of a certificate in a form reasonably satisfactory to the Agent to the effect that the merged entity would not be liable for any Obligations of CCEF). SECTION 8.2.15. Restrictions on Issuance of Preferred Equity. No Subsidiary of the Borrower shall issue any preferred or preference capital stock or other capital stock with rights prior to or in addition to those contained in common equity, other than any such equity issued by a Subsidiary of the Borrower (other than a Subsidiary that owns, directly or indirectly, any Material Designated Assets), the net proceeds of which are applied to finance the exploration, drilling, development, construction or purchase of or by, or repairs or improvements or additions to, property or assets of the Borrower or any Subsidiary. SECTION 8.3. No Restriction on Payments to the Borrower. Nothing herein shall restrict the ability of any Subsidiary of the Borrower to make any payment by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments or any other payment, directly or indirectly, to the Borrower. ARTICLE IX EVENTS OF DEFAULT SECTION 9.1. Listing of Events of Default. Each of the following events or occurrences described in this Section 9.1 shall constitute an "Event of Default". SECTION 9.1.1. Non-Payment of Obligations. The Borrower shall default in the payment or prepayment when due of any principal of any Loan, the Borrower shall default in the payment when due of any Reimbursement Obligation, or the Borrower shall default (and such default shall continue unremedied for a period of five days) in the payment when due of interest on any Loan, any fee or of any other Obligation. SECTION 9.1.2. Breach of Warranty. Any representation or warranty of the Borrower or any other Obligor made or deemed to be made hereunder or in any other Loan Document executed by it or any other writing or certificate furnished by or on behalf of the Borrower or any other Obligor to the Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article VI) is or shall be incorrect when made in any material respect. SECTION 9.1.3. Non-Performance of Certain Covenants and Obligations. The Borrower shall default in the due performance and observance of any of its obligations under Section 8.2 or the Fee Letter and such default shall continue unremedied for a period of 10 days after the earlier of (i) actual knowledge thereof by the Borrower or (ii) notice thereof has been given to the Borrower by the Agent or by any Lender. SECTION 9.1.4. Non-Performance of Other Covenants and Obligations. Any Obligor shall default in the due performance and observance of any other agreement contained herein or in any other Loan Document executed by it, and such default shall continue unremedied for a 82 period of 30 days after notice thereof shall have been given to the Borrower by the Agent or any Lender (or such longer period as the Required Lenders in their discretion, may agree, provided that such Obligor has commenced such cure within such 30 day period and thereafter diligently pursues such cure to completion). SECTION 9.1.5. Default on Other Indebtedness. (a) A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 9.1.1) of the Borrower or any of its Significant Subsidiaries or any other Obligor having a principal amount, individually or in the aggregate, in excess of $10,000,000, (b) a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or, in the case of the Borrower only, such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity (and notice of such default has been given to the relevant borrower), (c) a default shall occur in the performance or observance of any obligation or condition with respect to the Borrower's debt securities issued to a Trust or to any Indebtedness of any Significant Subsidiary (other than CCFCI and CCFCII) or Obligor, in either case having a principal amount in excess of $10,000,000, and, as a result thereof, the holder or holders of such debt securities or such Indebtedness, or any trustee or agent for such holders, causes such securities or Indebtedness to be repaid more quickly than theretofore scheduled, whether through the introduction of a "cash sweep," the increase of an existing "cash sweep" or otherwise, or (d) a default of a type described in clause (b) above shall occur with respect to any Indebtedness of CCFCI or CCFCII having an unpaid principal amount in excess of $10,000,000 (whether or not such default actually results in the acceleration of the applicable Indebtedness) and, as a result thereof, the holder or holders of such debt securities or such Indebtedness, or any trustee or agent for such holders, causes such securities or Indebtedness to be repaid more quickly than theretofore scheduled, whether through the introduction of a "cash sweep," the increase of an existing "cash sweep" or otherwise. SECTION 9.1.6. Judgments. Any final judgment or order (not covered by insurance) for the payment of money shall be rendered against the Borrower or any Significant Subsidiary or any other Obligor in an amount in excess of $25,000,000 (or its foreign currency equivalent) (treating any deductibles, self-insurance or retention as not so covered) which is not stayed or discharged within 30 days after entry of such final judgment or order, and there shall be any period of more than 30 consecutive days following entry of the final judgment or order in excess of $25,000,000 (or its foreign currency equivalent) during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. SECTION 9.1.7. Pension Plans. Any of the following events shall occur with respect to any Pension Plan (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such 83 Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $10,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. SECTION 9.1.8. Control of the Borrower. Any Change in Control shall occur. SECTION 9.1.9. Bankruptcy, Insolvency, etc. The Borrower or any of its Significant Subsidiaries or any other Obligor shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any of its Significant Subsidiaries or any other Obligor or any property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any of its Significant Subsidiaries or any other Obligor or for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days, provided that the Borrower, each Significant Subsidiary and each other Obligor hereby expressly authorizes the Agent and each Lender to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower or any of its Significant Subsidiaries or any other Obligor, and, if any such case or proceeding is not commenced by the Borrower or such Significant Subsidiary or such other Obligor, such case or proceeding shall be consented to or acquiesced in by the Borrower or such Significant Subsidiary or such other Obligor or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that the Borrower, each Significant Subsidiary and each other Obligor hereby expressly authorizes the Agent and each Lender to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or (e) take any action authorizing any of the foregoing. SECTION 9.1.10. Impairment of Security, etc. Any Loan Document, or any Lien granted thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; or the Borrower, any other Obligor or any Subsidiary shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or 84 any Lien securing any Obligation shall, in whole or in part, cease to be a perfected first priority Lien, subject only to those exceptions expressly permitted by such Loan Document. SECTION 9.2. Action if Bankruptcy. If any Event of Default described in clauses (a) through (d) of Section 9.1.9 shall occur with respect to the Borrower or any Significant Subsidiary or any other Obligor, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. SECTION 9.3. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (a) through (d) of Section 9.1.9 with respect to the Borrower or any Significant Subsidiary or any other Obligor) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate and the Agent may thereupon exercise any and all remedies available under the Loan Documents and applicable law. ARTICLE X THE AGENT SECTION 10.1. Actions. Each Lender hereby appoints Scotia Capital as its Agent under and for purposes of this Agreement, the Notes and each other Loan Document. Each Lender authorizes the Agent to act on behalf of such Lender under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by such Person (with respect to which such Person agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Agent and the Arrangers, pro rata according to such Lender's Aggregate Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Agent or any Arranger in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, and as to which the Agent or any Arranger is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the Agent's or any Arranger's, as the case may be, gross negligence or willful misconduct. The Agent and the Arrangers shall not be required to take any action hereunder, under the Notes or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, the Notes or 85 any other Loan Document, unless they are indemnified hereunder to its satisfaction. If any indemnity in favor of the Agent or any Arranger shall be or become, in such Person's determination, inadequate, such Person may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 10.2. Funding Reliance, etc. Unless the Agent shall have been notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., San Francisco time, on the day prior to a Borrowing that such Lender will not make available the amount which would constitute its applicable Percentage of such Borrowing on the date specified therefor, the Agent may assume that such Lender has made such amount available to the Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Agent, such Lender and the Borrower severally agree to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Agent made such amount available to the Borrower to the date such amount is repaid to the Agent, at the interest rate applicable at the time to Loans comprising such Borrowing. SECTION 10.3. Exculpation. Neither the Agent nor any of their respective directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own willful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by the Agent shall not obligate it to make any further inquiry or to take any action. The Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which it believes to be genuine and to have been presented by a proper Person. SECTION 10.4. Successor. The Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Agent at any time shall resign, the Required Lenders may appoint another Lender as a successor thereto which shall thereupon become the Agent, as applicable, hereunder. If no successor shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Person may, on behalf of the Lenders, appoint a successor, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, as applicable, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as the Agent, the provisions of 86 (a) this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement; and (b) Section 11.3 (with respect to expenses incurred prior to resignation) and Section 11.4 shall continue to inure to its benefit. SECTION 10.5. Loans or Letters of Credit Issued by Agent or any Issuer. (a) The Agent shall have the same rights and powers with respect to (x) the Loans made by it or any of its Affiliates, (y) the Notes held by it or any of its Affiliates, and (z) its participating interests in the Letters of Credit as any other Lender and may exercise the same as if it were not the Agent. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if such Person were not the Agent hereunder. (b) Each Issuer shall have the same rights and powers with respect to (x) the Loans made by it or any of its Affiliates, (y) the Notes held by it or any of its Affiliates, and (z) its participating interests in the Letters of Credit as any other Lender and may exercise the same as if it were not an Issuer. Each Issuer and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not an Issuer hereunder. SECTION 10.6. Credit Decisions. Each Lender acknowledges that it has, independently of the Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 10.7. Copies, etc. The Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Agent from the Borrower for distribution to the Lenders by the Agent in accordance with the terms of this Agreement. SECTION 10.8. Other Agents; Lead Arrangers. None of the Lenders identified on the facing page or signature pages of this Agreement as a "bookrunner," or "lead arranger" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each 87 Lender acknowledges that it has not relied, and will not rely, on any of the Lenders so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. SECTION 10.9. Collateral Matters. (a) Each of the Lenders hereby acknowledges and agrees that Liens upon the Collateral granted to or held by the Agent or the Collateral Trustee under any Loan Document will be released: (i) in whole, upon termination of the Revolving Loan Commitments and payment in full of all Obligations (other than contingent indemnification obligations) and the expiration or termination of all Letters of Credit; (ii) as to any Collateral that is sold, transferred or otherwise disposed of, or to be sold, transferred or otherwise disposed of, as part of any sale, transfer or other disposition, or proposed sale, transfer or other disposition permitted under Sections 8.2.9 or 8.2.10 (exclusive of any transfer (whether by means of merger or otherwise) to any Subsidiary of the Borrower permitted under Sections 8.2.9 or 8.2.10; provided, however, that if any Pledged Power Project is transferred from the Borrower to a Subsidiary that is a Pledged Entity or a Subsidiary of a Pledged Entity, the Lien created by the applicable Security Document thereon shall be so released); (iii) in connection with any abandonment, forfeiture, surrender or release of oil and gas assets permitted under the Deeds of Trust; (iv) as to any Excluded Assets; and (v) to the extent permitted by Section 11.1(f). (b) Each Lender hereby authorizes the Agent to act under the Collateral Trust Agreement to release the Collateral Trustee's Lien on applicable Collateral to the extent set forth in clause (a) above. (c) Each Lender hereby authorizes and directs the Agent to transfer to the Collateral Trustee all Liens and security interests held by the Agent under the 2002 Credit Agreement, including the Agent's interest as beneficiary or mortgagee under the Existing Deeds of Trust, its interest as secured party under related financing statements and all rights, powers, duties and obligations under the Existing Deeds of Trust necessary or helpful in the exercise of the Collateral Trustee's duties and obligations under the Collateral Trust Agreement. (d) The Borrower agrees that, in the case of any Lien to be released in connection with a proposed sale, transfer or other disposition pursuant to clause (a)(ii) above, (i) such release will only become effective in connection with a Permitted Sale, (ii) no Lien on such property has or will be granted to any other Person other than the Collateral Trustee (for the benefit of, among others, the Lenders hereunder) during the period between the date of such release and the date of the consummation of the Permitted Sale and (iii) in 88 the event that the consummation of the Permitted Sale does not take place (or a definitive binding agreement with respect to such Permitted Sale is not entered into) with 60 days of such release, the Lien of the Collateral Trustee (for the benefit of, among others, the Lenders hereunder) on such property will immediately and automatically be reinstated. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. Waivers, Amendments, etc. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and, except as set forth in the second proviso below, the Required Lenders; provided, however, that no such amendment, modification or waiver which would: (a) modify this Section 11.1 or modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender; (b) modify any requirement hereunder that any particular action be taken by the Required Revolving Lenders or change the definition of "Required Revolving Lenders" shall be effective unless consented to by each Revolving Lender; (c) (i) increase (A) the Revolving Commitment Amount of any Revolving Lender or (B) the Revolving Percentage of any Revolving Lender shall be made without the consent of such Lender or (ii) extend the Revolving Loan Commitment Termination Date or change any provision expressly requiring the consent of all Revolving Lenders shall be made without the consent of each Revolving Lender; (d) (i) increase (A) the Term B Loan Commitment Amount of any Term B Lender or (B) the Term Percentage of any Term B Lender shall be made without the consent of such Lender or (ii) change any provision expressly requiring the consent of all Term B Lenders shall be made without the consent of each Term B Lender; (e) reduce any fees described in Article III shall be made without the consent of each Lender affected thereby or extend the due date for, or reduce the amount of, any scheduled payment of principal, interest or fees on any Loan (or reduce the principal amount of or rate of interest on any Loan) shall be made without the consent of the Lender holding the Note evidencing such Loan; (f) authorize the release of any Lien created by a Loan Document shall be effective without the consent of Lenders having at least 75% of the aggregate of all Term B Loans then outstanding, all unfunded Term B Loan Commitments, all Revolving Loans then outstanding, all Letter of Credit Outstandings on such date, and all unfunded Revolving Loan Commitments, except that no such consent shall be required to the extent that the sale or other disposition of the asset subject to the Lien is permitted hereunder and the proceeds thereof are applied as required by this Agreement; 89 (g) modify the application of payments specified under Sections 2.2.2 and 3.1.1(c) shall be effective without the consent of the Supermajority Lenders; (h) release any Guarantor shall be effective without the consent of all Lenders unless all or substantially all of the Collateral has been released hereunder; (i) extend the due date for, or reduce the amount of, any Reimbursement Obligation for a Letter of Credit which has been drawn shall be made without the consent of the Issuer thereof and each Revolving Lender; (j) affect adversely the interests, rights or obligations of an Issuer qua an Issuer shall be made without the consent of such Issuer; or (k) affect adversely the interests, rights or obligations of the Agent qua the Agent shall be made without consent of the Agent; and provided, further, that (a) none of the matters referred to in clauses (b), (c)(i)(B), (c)(ii) or (i) of the immediately preceding proviso shall require the consent of any Term B Lender and (b) none of the matters referred to in clauses (d)(i)(B) or (d)(ii) of the immediately preceding proviso shall require the consent of any Revolving Lender. Notwithstanding the foregoing, Section 10.3 shall not be amended without the consent of the Agent. No failure or delay on the part of the Agent, any Lender or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent, any Lender or the holder of any Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 11.2. Notices. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or set forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 11.3. Payment of Costs and Expenses. The Borrower agrees to pay on demand all reasonable expenses of the Agent and the Arrangers (including the reasonable fees and out-of-pocket expenses of one special oil and gas counsel to the Agent and the Arrangers and one counsel to the Agent and the Arrangers covering all other matters, and of local counsel, if any, who may be retained by counsel to the Agent and the Arrangers) in connection with 90 (a) the negotiation, preparation, execution, delivery or administration of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, (b) the filing, recording, refiling or rerecording of any Uniform Commercial Code financing statements and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof, and (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. If the Agent or its counsel shall be precluded from undertaking the duties described in clause (b) above due to a conflict of interest, the Lenders may appoint another Lender and/or counsel to discharge such duties and the Borrower shall be responsible for the reasonable expenses of such Lender and counsel. The Borrower further agrees to pay, and to save the Agent, each Issuer and the Lenders harmless from all liability for, any stamp or other taxes (other than income taxes) which may be payable in connection with the execution or delivery of this Agreement, the borrowings hereunder, the issuance of the Notes, the issuance of the Letters of Credit, or any other Loan Documents. The Borrower also agrees to reimburse the Agent, each Issuer and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent or such Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) the enforcement of any Obligations upon and during the continuing of an Event of Default. SECTION 11.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent, the Arrangers, the Issuers and each Lender and each of their respective Affiliates, officers, directors, employees and agents, and each other person controlling any of the foregoing within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, claims, liabilities and damages, and expenses incurred by any Indemnified Party in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan or the use of any Letter of Credit; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of the Required Lenders' refusal to make any Credit Extension as a result of the Borrower's failure to satisfy the conditions in Article VI 91 hereof but not including any breach of this Agreement or any other Loan Document by the Agent or any of the Lenders); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by the Borrower or any of its Subsidiaries of all or any portion of the stock or assets of any Person, whether or not the Agent or such Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material; or (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, except for any such Indemnified Liabilities resulting from, arising out of or relating to the relevant Indemnified Party's gross negligence or willful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. In addition to the foregoing, the Borrower hereby waives any and all rights to seek or obtain consequential damages from any Indemnified Party. The Lenders agree to indemnify each Issuer with respect to any acts taken or omissions suffered by the Issuer in connection with each Letter of Credit issued by it or proposed to be issued by it and the related Issuance Request (to the extent not reimbursed by the Borrower), ratably according to their respective Aggregate Percentages, from and against any and all claims, damages, losses, liabilities and expenses (including without limitation, reasonable fees and disbursements of counsel) of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against any Issuer in any way relating to or arising out of any of the Loan Documents or the Letters of Credit or any action taken or omitted by such Issuer under the Loan Documents or the Letters of Credit (EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR EXPENSE ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF THE ISSUER, BUT EXCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR EXPENSE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ISSUER). IT IS THE INTENT OF THE PARTIES HERETO THAT THE ISSUER SHALL, TO THE EXTENT PROVIDED IN THIS SECTION 11.4, BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. Without limitation of the foregoing, each Lender agrees to reimburse each Issuer promptly upon demand for such Lender's ratable share of any reasonable out-of-pocket expenses (including reasonable counsel fees) incurred by such Issuer in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in 92 respect of rights or responsibilities under, the Loan Documents or the Letters of Credit, or any of them, to the extent that the Issuer is not reimbursed for such expenses by the Borrower. SECTION 11.5. Survival. The obligations of the Borrower under Sections 5.3, 5.4, 5.5, 5.6, 11.3 and 11.4, and the obligations of the Lenders under Section 10.1, shall in each case survive any termination of this Agreement, the payment in full of all Obligations and the termination of all Commitments. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 11.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 11.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 11.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be executed by the Borrower and the Agent and be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Agent) shall have been received by the Agent, and the conditions precedent set forth in Section 6.1 shall have been satisfied. SECTION 11.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 11.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Agent and all Lenders; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 11.11. 93 SECTION 11.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes. Each Lender may assign, or sell participations in, its Loans, Notes and Revolving Loan Commitments to one or more other Persons in accordance with this Section 11.11. SECTION 11.11.1. Assignments. Any Lender, (a) with the written consent of the Borrower and the Agent (which consents shall not be unreasonably withheld and which consent, in the case of the Borrower, shall be deemed to have been given in the absence of a written notice delivered by the Borrower to the Agent, on or before the fifth Business Day after receipt by the Borrower of such Lender's request for consent, stating, in reasonable detail, the reasons why the Borrower proposes to withhold such consent and which consent shall not be required from the Borrower after the occurrence and during the continuance of an Event of Default) and each Issuer (which consent may be granted or withheld in its sole unfettered discretion) may at any time assign and delegate its Revolving Loans and/or Revolving Loan Commitments to one or more commercial banks or other financial institutions; provided that, in addition to the consents of the Agent and each Issuer as set forth above, only notice to and not the consent of the Borrower shall be required for the assignment and delegation of Revolving Loans and/or Revolving Loan Commitments (i) to any Affiliate or Approved Fund of such Lender or (ii) in connection with the primary syndication of the Revolving Loans and/or Revolving Loan Commitments by the Arrangers, and (b) with the written consent of the Borrower and the Agent (which consents shall not be unreasonably withheld and which consent, in the case of the Borrower, shall be deemed to have been given in the absence of a written notice delivered by the Borrower to the Agent, on or before the fifth Business Day after receipt by the Borrower of such Lender's request for consent, stating, in reasonable detail, the reasons why the Borrower proposes to withhold such consent and which consent shall not be required from the Borrower after the occurrence and during the continuance of an Event of Default or in connection with the assignment and delegation of any Term B Loans) may at any time assign and delegate its Term B Loans to one or more commercial banks or other financial institutions; provided that, in addition to the consent of the Agent as set forth above, only notice to and not the consent of the Borrower shall be required for the assignment and delegation of Term B Loans (i) to any Affiliate or Approved Fund of such Lender or (ii) in connection with the primary syndication of the Term B Loans by the Arrangers, (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Lender's Loans, Commitments and other interests, in a minimum aggregate amount of $5,000,000 in the case of Revolving Loan Commitments or, if less, the amount of such Lender's Revolving Loan Commitment; provided, however, that any such Assignee Lender will comply, if applicable, with the provisions contained in Section 5.6 and further, provided, however, that, the Borrower, each other Obligor and the Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until 94 (i) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Agent by such Lender and such Assignee Lender, (ii) such Assignee Lender shall have executed and delivered to the Borrower and the Agent a Lender Assignment Agreement, and to the extent and on the terms required herein, such agreement shall have been accepted by the Agent and the Borrower, and (iii) the processing fees described below shall have been paid. From and after the date that the Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents with respect to obligations arising after the date of assignment. Within five Business Days after its receipt of notice that the Agent has received an executed Lender Assignment Agreement, the Borrower shall, if requested by the Assignee Lender, execute and deliver to the Agent (for delivery to the relevant Assignee Lender) new Notes evidencing such Assignee Lender's assigned Loans and Commitments and, if the assignor Lender has retained Loans and Commitments hereunder, replacement Notes in the principal amount of the Loans and Commitments retained by the assignor Lender hereunder (such Notes to be in exchange for, but not in payment of, those Notes then held by such assignor Lender). Each such Note shall be dated the date of the predecessor Notes. The assignor Lender shall mark the predecessor Notes "exchanged" and deliver them to the Borrower. Such assignor Lender or such Assignee Lender must also pay a processing fee to the Agent upon delivery of any Lender Assignment Agreement in the amount of $3,000. Any attempted assignment and delegation not made in accordance with this Section 11.11.1 shall be null and void. In addition to the foregoing, and notwithstanding any other provision hereof, (i) any Lender may at any time without notice to or consent by any other Person assign its rights under this Agreement to any Federal Reserve Bank and (ii) the Agent shall provide notice to the Lenders of any assignments by it under this Section 11.11.1. SECTION 11.11.2. Participations. Any Lender may at any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") participating interests (or a sub-participating interest, in the case of a Lender's participating interest in a Letter of Credit) in any of the Loans, Commitments, or other interests of such Lender hereunder; provided, however, that (a) no participation or sub-participation contemplated in this Section 11.11 shall relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document, 95 (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations, (c) the Borrower and each other Obligor and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents, (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in clause (b) of Section 11.1, and (e) the Borrower shall not be required to pay any amount under Section 5.6 that is greater than the amount which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 5.3, 5.4, 5.5, 5.6, 5.8, 5.9, 11.3 and 11.4, shall be considered a Lender. SECTION 11.11.3. Special Funding Vehicles. Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (a "SPC"), identified as such in writing from time to time by the Granting Lender to the Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender is obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan, (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall remain obligated to make such Loan pursuant to the terms hereof, (iii) the Borrower shall not be required to pay any amount under Section 5.6 that is greater than the amount which it would have been required to pay had there been no grant to an SPC and any SPC (or assignee of an SPC) will comply, if applicable, with the provisions contained in Section 5.6. No grant by any Granting Lender to an SPC agreeing to provide a Loan or making of such Loan by any SPC shall operate to relieve such Granting Lender of its liabilities and obligations hereunder, except to the extent of the making of such Loan by such SPC. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In addition, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, any SPC may (i) with notice to, but without the prior written consent of, the Borrower and the Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and the Agent, each in its sole discretion) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This Section may not be amended without the written consent of any SPC that 96 holds an option to provide Loans. No recourse under any obligation, covenant, or agreement of the SPC contained in this Agreement shall be had against any shareholder, officer, agent or director of the SPC as such, by the enforcement of any assessment or by any proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that this Agreement is a corporate obligation of the SPC and no personal liability shall attach to or be incurred by any officer, agents or member of the SPC as such, or any of them under or by reason of any of the obligations, covenants or agreements of the SPC contained in this Agreement, or implied therefrom, and that any and all personal liability for breaches by the SPC of any such obligations, covenants or agreements, either at law or by statute or constitution, of every such shareholder, officer, agent or director is hereby expressly waived by all parties to this Agreement as a condition of and consideration for the SPC entering into this Agreement; provided, however, that the foregoing shall not relieve any such person or entity of any liability they might otherwise have as a result of fraudulent actions or omissions taken by them. All parties to this Agreement acknowledge and agree that the SPC shall only be liable for any claims that each of them may have against the SPC only to the extent of the SPC's assets. The provisions of this clause shall survive the termination of this Agreement. SECTION 11.12. Other Transactions. Nothing contained herein shall preclude the Agent or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 11.13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK OR IN ANY MANNER PROVIDED BY LAW. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH 97 LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 11.14. Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION AMONG ANY OF THE AGENT, THE LENDERS AND THE BORROWER BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 11.15. Confidentiality. The Lenders shall hold all non-public information (which has been identified as such by the Borrower) obtained pursuant to the requirements of this Agreement in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to any of their examiners, their Affiliates, outside auditors, counsel and other professional advisors in connection with this Agreement or as reasonably required by any bona fide transferee, participant or assignee or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided, however, that (a) unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; (b) prior to any such disclosure pursuant to this Section 11.15, each Lender shall require any such bona fide transferee, participant and assignee receiving a disclosure of non-public information to agree in writing (i) to be bound by this Section 11.15; 98 (ii) to require such Person to require any other Person to whom such Person discloses such non-public information to be similarly bound by this Section 11.15; (c) except as may be required by an order of a court of competent jurisdiction and to the extent set forth therein, no Lender shall be obligated or required to return any materials furnished by the Borrower or any Subsidiary; and (d) to any direct or indirect contractual counterparty in swap agreements or to such contractual counterparty's advisor (so long as such contractual counterparty or advisor agrees to be bound by the provisions of this Section 11.15). Notwithstanding anything herein to the contrary, the parties to this Agreement (and their employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) relating to such tax treatment and tax structure. However, no such party shall disclose any information relating to such tax treatment or tax structure to the extent nondisclosure is reasonably necessary in order to comply with applicable securities laws. For this purpose, "tax structure" is limited to facts relevant to the U.S. federal income tax treatment of the transactions contemplated by this Agreement and does not include information relating to the identity of the Borrower, its affiliates, agents or advisors. SECTION 11.16. Judgment Currency. The Obligations of the Borrower and any other Obligor in respect of any sum due to any Lender or the Agent hereunder, under the Notes or under or in respect of any other Loan Document shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than the currency in which such sum was originally denominated (the "Original Currency"), be discharged only to the extent that on the Business Day following receipt by such Lender or the Agent of any sum adjudged to be so due in the Judgment Currency, such Lender or the Agent, in accordance with normal banking procedures, purchases the Original Currency with the Judgment Currency. If the amount of Original Currency so purchased is less than the sum originally due to such Lender or the Agent, the Borrower agrees as a separate obligation and notwithstanding any such judgment, to indemnify each Lender and the Agent, as the case may be, against such loss, and if the amount of Original Currency so purchased exceeds the sum originally due to such Lender and the Agent, as the case may be, each Lender and the Agent agree to remit any excess to the applicable Obligor. If, for the purpose of obtaining judgment in any court, it is necessary to convert a sum due under any Loan Document in another currency into Dollars, Canadian Dollars or Sterling, as the case may be, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the applicable Lender could purchase such other currency with Dollars, Canadian Dollars or Sterling, as the case may be, in New York, at the close of business on the Business Day immediately preceding the day on which final judgment is given, together with any premiums and costs of exchange payable in connection with such purchase. 99 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. CALPINE CORPORATION By: /s/ Michael Thomas --------------------------------- Name: Michael Thomas Title: Address: 50 West San Fernando Avenue San Jose, CA 95113 Facsimile No.: (408) 995-0505 Attention: Treasurer THE BANK OF NOVA SCOTIA, as Agent By: /s/ Denis P. O'Meara ----------------------------------------- Name: Denis P. O'Meara Title: Managing Director Address: Scotia Capital One Liberty Plaza New York, NY 10006 Facsimile No.: (212) 225-5480 Attention: Denis P. O'Meara with a copy to: The Bank of Nova Scotia 600 Peachtree Street N.E. Suite 2700 Atlanta, GA 30308 Facsimile No.: (404) 888-8998 Attention: Hilma Gabbidon Administrative Agent Loan Administration BAYERISCHE LANDESBANK, CAYMAN ISLANDS BRANCH, as Lender By: /s/ Dietmar Rieg /s/ James H. Boyle ----------------------------------------------- Name: Dietmar Rieg James H. Boyle Title: First Vice President Vice President Address: 560 Lexington Avenue New York, New York 10022 Facsimile No.: 212-310-9930 Attention: Loan Administration CREDIT LYONNAIS NEW YORK BRANCH, as Lender By: /s/ Martin C. Livingston ------------------------------------------- Name: Martin C. Livingston Title: Vice President Address: 1301 Avenue of the Americas New York, NY 10019 Facsimile No.: 212.261.3421 Attention: Project Finance Department ING CAPITAL LLC, as Lender By: /s/ Charles M. O'Neil ----------------------------------------- Name: Charles M. O'Neil Title: Managing Director By: /s/ G. Dominick Bellamy, Jr. ----------------------------------------- Name: G. Dominick Bellamy, Jr. Title: Director Address: 1325 Avenue of the Americas 7th Floor New York, New York 10019 Facsimile No.: 646-424-6440 / 6441 Attention: Charmen Smith UNION BANK OF CALIFORNIA, N.A., as Lender By: /s/ Bryan Read ------------------------------------------------ Name: Bryan Read Title: Vice President Address: Union Bank of California, N.A. Energy Capital Services 445 South Figueroa St. 15th Floor Los Angeles, CA 90071 Facsimile No.: (213) 236-4096 Attention: Bryan Read TORONTO DOMINION (TEXAS) INC., as Lender By: /s/ Lynn Chasin ----------------------------------------------- Name: Lynn Chasin Title: Vice President Address: 909 Fannin St., Suite 1700 Houston, Texas 77010 Facsimile No.: 713-951-9921 Attention: Lynn Chasin EX-10.16 8 f92357exv10w16.txt EXHIBIT 10.16 Exhibit 10.16 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This FIRST AMENDMENT, dated as of August 7, 2003 (this "Amendment"), to the Amended and Restated Credit Agreement, dated as of July 16, 2003 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among CALPINE CORPORATION, a Delaware corporation (together with its successors, the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), various lead Arrangers (as defined below), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative agent and funding agent (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower, the Lenders and the Agent have heretofore entered into the Credit Agreement; and WHEREAS, the Borrower, the Lenders and the Agent now desire to amend the Credit Agreement in certain respects, as hereinafter provided; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree as follows: SECTION 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings set forth in the Credit Agreement. SECTION 2. Amendment to Section 1.1 (Defined Terms). Section 1.1 of the Credit Agreement is hereby amended by deleting therefrom the definition of "Applicable Margin" in its entirety and substituting in place thereof the following new definition: "Applicable Margin" means (i) for any Revolving Loan that is a Base Rate Loan, 3.00% per annum, (ii) for any Revolving Loan that is a LIBO Rate Loan or L/C Advance, 4.00% per annum, (iii) for any Term B Loan that is a Base Rate Loan, 2.50% per annum, and (iv) for any Term B Loan that is a LIBO Rate Loan, 3.50% per annum. SECTION 3. Amendment to Section 3.3.3 (Letter of Credit Fee). Section 3.3.3 of the Credit Agreement is hereby amended by deleting the text of such Section 3.3.3 in its entirety and substituting in its place the following new text: "The Borrower agrees to pay to the Agent, for the account of the Revolving Lenders, for each Letter of Credit for the period from and including the date of the issuance of such Letter of Credit to (and including) the date upon which (or on the next succeeding Business Day upon which) such Letter of Credit expires or is returned to the Issuer that issued such Letter of Credit, a fee, in Dollars, on the average daily stated amount of such Letter of Credit (or the Equivalent Amount thereof with respect to Foreign Currency Letters of Credit) calculated at a per annum rate equal to the Applicable Margin for Revolving Loans that are LIBO Rate Loans in effect from time to time. Such fee shall be payable by the Borrower in arrears on each Quarterly Payment Date, and on the date of termination or expiry of the last Letter of Credit outstanding hereunder (for any period then ending for which such fee shall not theretofore have been paid), commencing on the first such date after the issuance of such Letter of Credit." SECTION 4. Effectiveness. This Amendment shall become effective upon fulfillment of the following conditions precedent: (a) the Borrower shall have delivered to the Agent a duly executed copy of this Amendment, (b) the Agent shall have received duly executed copies of this Amendment from the Required Lenders and each Term B Lender, (c) the Agent shall have received such other documents as the Agent shall have reasonably requested, and (d) no Default or Event of Default shall have occurred and be continuing on the date hereof after giving effect to this Amendment. SECTION 5. Representations and Warranties. The Borrower hereby represents and warrants that the representations and warranties contained in the Credit Agreement (except those which expressly speak as of a certain date) will be, after giving effect to this Amendment, true and correct in all material respects, as if made on and as of the date hereof. SECTION 6. Continuing Effect of Credit Agreement. This Amendment shall not constitute an amendment or waiver of any other provision of the Credit Agreement or the Loan Documents not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of the Borrower that would require a waiver or consent of the Agent and/or the Lenders. Except as expressly amended hereby, the provisions of the Credit Agreement and the Loan Documents shall remain in full force and effect. All references to the Credit Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby. SECTION 7. Counterparts. This Amendment may be executed in counterparts and all of the said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Amendment by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. SECTION 8. Governing Law. THIS AMENDMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 9. Expenses. The Borrower agrees to pay or reimburse the Agent for all of its out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of this Amendment, including the fees and disbursements of counsel to the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. CALPINE CORPORATION By: /s/ Michael Thomas ----------------------------------- Name: Michael Thomas Title: SVP & Corporate Treasurer THE BANK OF NOVA SCOTIA, as Agent By: /s/ Denis P. O'Meara ----------------------------------- Name: Denis P. O'Meara Title: Managing Director BAYERISCHE LANDESBANK, CAYMAN ISLANDS BRANCH, as Lender By: /s/ Dietmar Rieg ----------------------------------- Name: Dietmar Rieg Title: First Vice President By: /s/ James H. Boyle ----------------------------------- Name: James H. Boyle Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH, as Lender By: /s/ Martin C. Livingston ----------------------------------- Name: Martin C. Livingston Title: Vice President ING CAPITAL LLC, as Lender By: /s/ Erwin Thomet ----------------------------------- Name: Erwin Thomet Title: Managing Director /s/ G. D. Bellany, Jr. Name: G.D. Bellany, Jr. Title: Director UNION BANK OF CALIFORNIA, N.A., as Lender By: /s/ Bryan Read ----------------------------------- Name: Bryan Read Title: Vice President TORONTO DOMINION (TEXAS) INC., as Lender By: /s/ Lynn Chasin ----------------------------------- Name: Lynn Chasin Title: Vice President American Express Certificate Company By: American Express Asset Management Group, Inc. as Collateral Manager By: /s/ Yvonne E. Stevens --------------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director Centurion CDO II, Ltd. By: American Express Asset Management Group, Inc. as Collateral Manager By: /s/ Leanne Stavrakis ----------------------------------- Name: Leanne Stavrakis Title: Director-Operations Centurion CDO VI, Ltd. By: American Express Asset Management Group, Inc. As Collateral Manager By: /s/ Leanne Stavrakis ----------------------------------- Name: Leanne Stavrakis Title: Director - Operations ELT LTD., as Lender By: /s/ Ann E. Morris ----------------------------------- Name: Ann E. Morris Title: Authorized Agent FOOTHILL INCOME TRUST, L.P., as Lender By: /s/ Jeff Nikora ----------------------------------- Name: Jeff Nikora Title: Managing Member GALLATIN FUNDING I LTD., By: Bear Stearns Asset Management Inc. as its Collateral Manager By: /s/ Jonathan Berg ----------------------------------- Name: Jonathan Berg Title: Vice President HIGHLAND OFFSHORE PARTNERS, L.P., as Lender By: Highland Capital Management, L.P. As General Partner By: /s/ Mark Okada ----------------------------------- Name: Mark Okada Title: Chief Investment Officer Highland Capital Management, L.P. IDS Life Insurance Company By: American Express Asset Management Group, Inc. as Collateral Manager By: /s/ Yvonne E. Stevens --------------------------------------------- Name: Yvonne E. Stevens Title: Senior Managing Director JUPITER LOAN FUNDING LLC, as Lender By: /s/ Ann E. Morris ----------------------------------- Name: Ann E. Morris Title: Asst Vice President ORIX FINANCE CORP. I, as Lender By: /s/ Sheppard H.C. Davis, Jr. ----------------------------------- Name: Sheppard H.C. Davis, Jr. Title: Authorized Representative PROTECTIVE LIFE INSURANCE COMPANY, as Lender By: /s/ Richard J. Bielen ----------------------------------- Name: Richard J. Bielen Title: Sr. VP, CIO & Treasurer SEABOARD CLO 2000, LTD., as Lender, by ORIX Capital Markets, LLC Its Collateral Manager By: /s/ Sheppard H.C. Davis, Jr. ----------------------------------- Name: Sheppard H.C. Davis, Jr. Title: Managing Director SEMINOLE FUNDING LLC, as Lender By: ___________________________________ Name: Title: Sequils-Centurion V, Ltd. By: American Express Asset Management Group, Inc. as Collateral Manager By: /s/ Leanne Stavrakis ----------------------------------- Name: Leanne Stavrakis Title: Director - Operations STANWICH LOAN FUNDING LLC, as Lender By: /s/ Ann E. Morris ----------------------------------- Name: Ann E. Morris Title: Asst Vice President VENTURE CDO 2002, LIMITED By its investment advisor, Barclays Capital Asset Management Limited, By its sub-advisor, Barclays Bank PLC, New York Branch as Lender By: /s/ Martin F. Davey ----------------------------------- Name: Martin F. Davey Title: Director VENTURE II CDO 2002, LIMITED By its investment advisor, Barclays Bank PLC, New York Branch as Lender By: /s/ Martin F. Davey ----------------------------------- Name: Martin F. Davey Title: Director WINGED FOOT FUNDING TRUST, as Lender By: /s/ Ann E. Morris ----------------------------------- Name: Ann E. Morris Title: Authorized Agent AIMCO CDO SERIES 2000-A, as Lender By: /s/ [illegible] ----------------------------------- Name: Title: By: /s/ [illegible] ALLSTATE LIFE INSURANCE COMPANY, as Lender By: /s/ [illegible] ----------------------------------- Name: Title: By: /s/ [illegible] ARCHIMEDES FUNDING IV (CAYMAN), LTD. BY: ING Capital Advisors LLC, as Collateral Manager BY: /s/ Gordon R. Cook ----------------------------------- Name: Gordon R. Cook Title: Managing Director BALANCED HIGH YIELD FUND II LTD. BY: ING Capital Advisors LLC, as Asset Manager BY: /s/ Gordon R. Cook ----------------------------------- Name: Gordon R. Cook Title: Managing Director ENDURANCE CLO I, LTD. c/o ING Capital Advisors LLC, as Collateral Manager BY: /s/ Gordon R. Cook ----------------------------------- Name: Gordon R. Cook Title: Managing Director SEQUILS-ING I (HBDGM), LTD. BY: ING Capital Advisors LLC, as Collateral Manager By: /s/ Gordon R. Cook ----------------------------------- Name: Gordon R. Cook Title: Managing Director CARLYLE HIGH YIELD PARTNERS II, LTD., as Lender By: /s/ Linda Pace ----------------------------------- Name: Linda Pace Title: Principal CARLYLE HIGH YIELD PARTNERS III, LTD., as Lender By: /s/ Linda Pace ----------------------------------- Name: Linda Pace Title: Principal CARLYLE HIGH YIELD PARTNERS IV, LTD., as Lender By: /s/ Linda Pace ----------------------------------- Name: Linda Pace Title: Principal CARLYLE HIGH YIELD PARTNERS, L.P., as Lender By: /s/ Linda Pace ----------------------------------- Name: Linda Pace Title: Principal CARLYLE LOAN OPPORTUNITY FUND, as Lender By: /s/ Linda Pace ----------------------------------- Name: Linda Pace Title: Principal FRANKLIN CLO I, LIMITED, as Lender By: /s/ Richard D'Addario ----------------------------------- Name: Richard D'Addario Title: Senior Vice President FRANKLIN CLO II, LIMITED, as Lender By: /s/ Richard D'Addario ----------------------------------- Name: Richard D'Addario Title: Senior Vice President FRANKLIN CLO III, LIMITED, as Lender By: /s/ Richard D'Addario ----------------------------------- Name: Richard D'Addario Title: Senior Vice President FRANKLIN CLO IV, LIMITED, as Lender By: /s/ Richard D'Addario ----------------------------------- Name: Richard D'Addario Title: Senior Vice President FRANKLIN FLOATING RATE DAILY ACCESS FUND, as Lender By: /s/ Richard D'Addario ----------------------------------- Name: Richard D'Addario Title: Senior Vice President FRANKLIN FLOATING RATE MASTER SERIES, as Lender By: /s/ Richard D'Addario ----------------------------------- Name: Richard D'Addario Title: Senior Vice President FRANKLIN FLOATING RATE TRUST, as Lender By: /s/ Madeline Lam ----------------------------------- Name: Madeline Lam Title: Vice President GLENEAGLES TRADING LLC, as Lender By: /s/ Ann E. Morris ----------------------------------- Name: Ann E. Morris Title: Asst Vice President ING-ORYX CLO, LTD. BY: ING Capital Advisors LLC, as Collateral Manager By: /s/ Gordon R. Cook ----------------------------------- Name: Gordon R. Cook Title: Managing Director NEMEAN CLO, LTD. BY: ING Capital Advisors LLC, as Investment Manager BY: /s/ Gordon R. Cook ----------------------------------- Name: Gordon R. Cook Title: Managing Director KATONAH I, LTD., as Lender By: /s/ Ralph Della Rocca ----------------------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, L.L.C. As Manager KATONAH II, LTD., as Lender By: /s/ Ralph Della Rocca ----------------------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, L.L.C. As Manager KATONAH III, LTD., as Lender By: /s/ Ralph Della Rocca ----------------------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, L.L.C. As Manager KATONAH IV, LTD., as Lender By: /s/ Ralph Della Rocca ----------------------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, L.L.C. As Manager KZH CNC LLC, as Lender By: ___________________________________ Name: Title: KZH CYPRESSTREE-1 LLC By: /s/ Hi Hua ----------------------------------- Name: Hi Hua Title: Authorized Agent KZH ING-2 LLC By: /s/ Hi Hua ----------------------------------- Name: Hi Hua Title: Authorized Agent KZH PONDVIEW LLC By: /s/ Hi Hua ----------------------------------- Name: Hi Hua Title: Authorized Agent KZH RIVERSIDE LLC By: /s/ Hi Hua ----------------------------------- Name: Hi Hua Title: Authorized Agent KZH SOLEIL LLC By: /s/ Hi Hua ----------------------------------- Name: Hi Hua Title: Authorized Agent KZH STERLING LLC By: /s/ Hi Hua ----------------------------------- Name: Hi Hua Title: Authorized Agent KZH WATERSIDE LLC By: /s/ Hi Hua ----------------------------------- Name: Hi Hua Title: Authorized Agent LEHMAN COMMERCIAL PAPER INC., as Lender By: ___________________________________ Name: Title: MAGNETITE IV CLO, LIMITED, as Lender By: /s/ Mark J. Williams ----------------------------------- Name: Mark J. Williams Title: Authorized Signatory MAGNETITE V CLO, LIMITED, as Lender By: /s/ Mark J. Williams ----------------------------------- Name: Mark J. Williams Title: Authorized Signatory NORTHWOODS CAPITAL II, LIMITED, as Lender By: Angelo, Gordon & Co., L.P. as Collateral Manager By: /s/ John W. Fraser ----------------------------------- Name: John W. Fraser Title: Managing Director NORTHWOODS CAPITAL III, LIMITED, as Lender By: Angelo, Gordon & Co., L.P. as Collateral Manager By: /s/ John W. Fraser ----------------------------------- Name: John W. Fraser Title: Managing Director NORTHWOODS CAPITAL, LIMITED, as Lender By: Angelo, Gordon & Co., L.P. as Collateral Manager By: /s/ John W. Fraser ----------------------------------- Name: John W. Fraser Title: Managing Director OAK HILL CREDIT PARTNERS I, LIMITED, as Lender By: Oak Hill CLO Management I, LLC, As Investment Manager By: /s/ Scott D. Krase ----------------------------------- Name: Scott D. Krase Title: Vice President OAK HILL CREDIT PARTNERS II, LIMITED, as Lender By: Oak Hill CLO Management II, LLC, As Investment Manager By: /s/ Scott D. Krase ----------------------------------- Name: Scott D. Krase Title: Vice President OAK HILL SECURITIES FUND II, L.P., as Lender By: Oak Hill Securities GenPar II, L.P. its General Partner By: Oak Hill Securities MGP II, Inc., its General Partner By: /s/ Scott D. Krase ----------------------------------- Name: Scott D. Krase Title: Vice President OAK HILL SECURITIES FUND, L.P., as Lender By: Oak Hill Securities GenPar, L.P. its General Partner By: Oak Hill Securities MGP, Inc., its General Partner By: /s/ Scott D. Krase ----------------------------------- Name: Scott D. Krase Title: Vice President OCTAGON INVESTMENT PARTNERS III LTD., as Lender By: ___________________________________ Name: Title: PACIFICA CDO II, LTD, as Lender By: /s/ Tom Colwell ----------------------------------- Name: Tom Colwell Title: Sr VP SUNTRUST BANK, as Lender By: ___________________________________ Name: Title: TRUMBULL THC, LTD., as Lender By: /s/ Stacey Malek ----------------------------------- Name: Stacey Malek Title: Attorney In Fact EX-10.17 9 f92357exv10w17.txt EXHIBIT 10.17 Exhibit 10.17 EXECUTION COPY ================================================================================ CALPINE CORPORATION SENIOR SECURED TERM LOANS DUE 2007 CREDIT AGREEMENT Dated as of July 16, 2003 GOLDMAN SACHS CREDIT PARTNERS L.P. Sole Lead Arranger, Sole Bookrunner and Administrative Agent THE BANK OF NOVA SCOTIA Arranger and Syndication Agent TD SECURITIES (USA) INC., ING (U.S.) CAPITAL LLC AND LANDESBANK HESSEN-THURINGEN Co-Arrangers CREDIT LYONNAIS NEW YORK BRANCH AND UNION BANK OF CALIFORNIA, N.A. Managing Agents ================================================================================ TABLE OF CONTENTS

PAGE ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions.................................................................. 3 SECTION 1.02. Other Definitions............................................................ 40 SECTION 1.03. Rules of Construction........................................................ 41 ARTICLE II THE TERM LOANS SECTION 2.01. Term Loans................................................................... 42 SECTION 2.02. Pro Rata Shares; Availability of Funds....................................... 43 SECTION 2.03. Use of Proceeds.............................................................. 44 SECTION 2.04. Evidence of Debt; Register; Lenders' Books and Records; Notes................ 44 SECTION 2.05. Interest..................................................................... 45 SECTION 2.06. Conversion/Continuation...................................................... 46 SECTION 2.07. Default Interest............................................................. 47 SECTION 2.08. Fees......................................................................... 47 SECTION 2.09. Scheduled Payments/Commitment Reductions..................................... 47 SECTION 2.10. Voluntary Prepayments........................................................ 49 SECTION 2.11. Mandatory Offers............................................................. 51 SECTION 2.12. Application of Prepayments................................................... 53 SECTION 2.13. General Provisions Regarding Payments........................................ 53 SECTION 2.14. Ratable Sharing.............................................................. 54 SECTION 2.15. Making or Maintaining Eurodollar Rate Loans.................................. 55 SECTION 2.16. Increased Costs; Capital Adequacy............................................ 57

i SECTION 2.17. Taxes; Withholding, etc...................................................... 59 SECTION 2.18. Removal or Replacement of a Lender........................................... 61 SECTION 2.19. Additional Term Loans........................................................ 62 ARTICLE III CONDITIONS PRECEDENT SECTION 3.01. Closing Date................................................................. 65 SECTION 3.02. Conditions to Each Term Loan................................................. 70 ARTICLE IV REPRESENTATIONS AND WARRANTIES ARTICLE V COVENANTS SECTION 5.01. [Intentionally Omitted.]..................................................... 81 SECTION 5.02. [Intentionally Omitted.]..................................................... 81 SECTION 5.03. Reports...................................................................... 81 SECTION 5.04. Compliance Certificate....................................................... 82 SECTION 5.05. Taxes........................................................................ 83 SECTION 5.06. Stay, Extension and Usury Laws............................................... 83 SECTION 5.07. Restricted Payments.......................................................... 83 SECTION 5.08. Dividend and Other Payment Restrictions Affecting Subsidiaries............... 86 SECTION 5.09. Incurrence of Indebtedness and Issuance of Preferred Stock................... 88 SECTION 5.10. Asset Sales.................................................................. 92 SECTION 5.11. Transactions with Affiliates................................................. 95 SECTION 5.12. Liens........................................................................ 97 SECTION 5.13. Limitation on Changes in the Nature of Business.............................. 98 SECTION 5.14. Corporate Existence.......................................................... 98 ii SECTION 5.15. Offer to Repurchase Upon Change of Control.................................. 99 SECTION 5.16. Limitation on Sale and Leaseback Transactions............................... 100 SECTION 5.17. [Intentionally Omitted.].................................................... 100 SECTION 5.18. [Intentionally Omitted.].................................................... 100 SECTION 5.19. Limitation on Issuances of Guarantees of Indebtedness....................... 100 SECTION 5.20. [Intentionally Omitted.].................................................... 101 SECTION 5.21. Payments for Consent........................................................ 101 SECTION 5.22. Designation of Restricted and Unrestricted Subsidiaries..................... 101 SECTION 5.23. Suspension of Covenants..................................................... 101 ARTICLE VI SUCCESSORS SECTION 6.01. Merger, Consolidation, or Sale of Assets.................................... 102 SECTION 6.02. Successor Corporation Substituted........................................... 104 ARTICLE VII DEFAULTS AND REMEDIES SECTION 7.01. Events of Default........................................................... 104 SECTION 7.02. Acceleration................................................................ 107 SECTION 7.03. Other Remedies.............................................................. 107 SECTION 7.04. Waiver of Past Defaults..................................................... 107 SECTION 7.05. Control by Majority......................................................... 108 SECTION 7.06. [Intentionally Omitted.].................................................... 108 SECTION 7.07. [Intentionally Omitted.].................................................... 108 SECTION 7.08. Collection Suit by Administrative Agent..................................... 108 SECTION 7.09. Priorities.................................................................. 108 ARTICLE VIII AGENTS iii SECTION 8.01. Appointment of Agents....................................................... 109 SECTION 8.02. Powers and Duties........................................................... 109 SECTION 8.03. General Immunity............................................................ 109 SECTION 8.04. Agents Entitled to Act as Lender............................................ 110 SECTION 8.05. Lenders' Representations, Warranties and Acknowledgment..................... 111 SECTION 8.06. Right to Indemnity.......................................................... 111 SECTION 8.07. Successor Administrative Agent.............................................. 112 ARTICLE IX COLLATERAL AND SECURITY ARTICLE X RANKING OF LIENS ARTICLE XI COLLATERAL SHARING SECTION 11.01. Equal and Ratable Lien Sharing by holders of Parity Lien Debt............... 113 SECTION 11.02. Enforcement................................................................. 113 SECTION 11.03. Amendment................................................................... 114 ARTICLE XII INTENTIONALLY OMITTED ARTICLE XIII MISCELLANEOUS SECTION 13.01. Notices..................................................................... 114 SECTION 13.02. Expenses.................................................................... 115 SECTION 13.03. Indemnity................................................................... 116 SECTION 13.04. Set-Off..................................................................... 117 SECTION 13.05. Amendments and Waivers...................................................... 117 SECTION 13.06. Successors and Assigns; Participations...................................... 119 iv SECTION 13.07. Independence of Covenants................................................... 124 SECTION 13.08. Survival of Representations, Warranties and Agreements...................... 124 SECTION 13.09. No Waiver; Remedies Cumulative.............................................. 124 SECTION 13.10. Marshalling; Payments Set Aside............................................. 124 SECTION 13.11. Severability................................................................ 124 SECTION 13.12. Term Loan Obligations Several; Independent Nature of Lenders' Rights........ 125 SECTION 13.13. Headings.................................................................... 125 SECTION 13.14. Applicable Law.............................................................. 125 SECTION 13.15. Consent to Jurisdiction..................................................... 125 SECTION 13.16. Waiver Of Jury Trial........................................................ 125 SECTION 13.17. Confidentiality............................................................. 126 SECTION 13.18. Usury Savings Clause........................................................ 127 SECTION 13.19. Counterparts................................................................ 128 SECTION 13.20. Effectiveness............................................................... 128 SECTION 13.21. Statements Required in Certificate or Opinion............................... 128 v APPENDICES: A Initial Term Loan Commitments B Notice Addresses SCHEDULES: 1.01(a) Mortgaged Properties 1.01(b) Pledged Subsidiaries 4.01(c) Capital Stock Matters 4.01(aa) Subsidiary Companies of Holding Companies 4.01(cc) First-Tier Public Utility Subsidiaries 4.01(dd) Exempt Wholesale Generators 4.01(ee) Texas Subsidiaries 4.01(hh) Retail Service Subsidiaries 4.01(ii) FERC Complaints EXHIBITS: A Assignment Agreement B Certificate Re Non-Bank Status C Conversion/Continuation Notice D Funding Notice E Lender Addendum F Lender Joinder Agreement G Term Loan Note vi This CREDIT AGREEMENT, dated as of July 16, 2003, is entered into by and among CALPINE CORPORATION, a Delaware corporation (the "Company"), the Lenders party hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Administrative Agent (together with its successors in such capacity, the "Administrative Agent") and as Sole Lead Arranger and Sole Bookrunner (in such capacity, the "Sole Lead Arranger"), THE BANK OF NOVA SCOTIA, as Arranger and Syndication Agent, TD SECURITIES (USA) INC., ING (U.S.) CAPITAL LLC and LANDESBANK HESSEN-THURINGEN, as Co-Arrangers, and CREDIT LYONNAISE NEW YORK BRANCH and UNION BANK OF CALIFORNIA, N.A., as Managing Agents. RECITALS: 1. The Company intends to borrow $750,000,000 in aggregate principal amount of Term Loans (the "Initial Term Loans") under this Agreement. 2. The Company intends to issue (i) $500,000,000 in aggregate principal amount of Second-Priority Senior Secured Floating Rate Notes due 2007, (the "2007 Notes") pursuant to the Indenture, dated as of July 16, 2003 (the "2007 Indenture"), by and among the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (ii) $1,150,000,000 in aggregate principal of 8.50% Second Priority Senior Secured Notes due 2010, (the "2010 Notes") pursuant to the Indenture, dated as of July 16, 2003 (the "2010 Indenture"), by and among the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee") and (iii) $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013, (the "2013 Notes", together with the 2007 Notes and the 2010 Notes, the "Initial Notes") pursuant to the Indenture, dated as of July 16, 2003 (the "2013 Indenture", together with the 2007 Indenture and the 2010 Indenture, the "Indentures"), by and among the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee", together with the 2007 Trustee and the 2010 Trustee, the "Trustees"). 3. The Company intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified, renewed, restated or replaced from time to time, the "Credit Agreement"), among, inter alia, the Company, the lenders referred to therein, and The Bank of Nova Scotia, as administrative agent, relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder. 4. Pursuant to the Guarantee and Collateral Agreement, dated as of July 16, 2003 (the "Guarantee and Collateral Agreement"), by and among the Company, the Canadian Guarantors (as defined below) and the Collateral Trustee (as defined below), the Canadian Guarantors shall guarantee, on a limited basis as provided therein, payment of the Initial Term Loans, all other Term Loan Obligations and all other Secured Obligations (such terms as defined below). 5. The Company intends to secure the Initial Term Loans, all other Term Loan Obligations and all other Secured Obligations, including its obligations under the Credit Agreement and any future Priority Lien Debt (as defined below), on a priority basis, and, subject to such priority, its obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Initial Term Loans and any future Parity Lien Debt (as defined below) Equally and Ratably (as defined below), with security interests in all present and future Collateral (as defined below). 6. The Company has entered into the Collateral Trust Agreement (as defined below) which sets forth the terms on which the Company has appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to receive, hold, maintain, administer, enforce and distribute all Security Documents, and all guarantees granted thereunder, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof. 2 ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. Acquired Debt shall be deemed to be incurred on the date the acquired Person becomes a Restricted Subsidiary. "Additional Notes" means, with respect to any series of the Initial Notes, Notes (other than the Initial Notes) issued under the applicable Indenture in accordance with Sections 2.02 and 4.09 thereof, as part of the same series as the applicable Initial Notes. "Adjusted Eurodollar Rate" means, with respect to a Eurodollar Rate Loan for the relevant Interest Period, the sum of the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Applicable Reserve Requirement (expressed as a decimal) applicable to such Interest Period. "Administrative Agent" is defined in the Recitals hereto. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. For purposes of Section 5.11 herein, "Affiliate" shall also mean any Person of which the Company owns 10% or more of any class of Capital Stock or rights to acquire 10% or more of any class of Capital Stock and any Person who would be an Affiliate of any such Person pursuant to the first sentence hereof. "Agents" means the Administrative Agent and the Sole Lead Arranger. "Agreement" means this Credit Agreement, dated as of July 16, 2003. "Applicable Reserve Requirement" means, at any time, for any Eurodollar Rate Loan, the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any 3 basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against "Eurocurrency liabilities" (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the applicable Adjusted Eurodollar Rate or any other interest rate of a Term Loan is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on Eurodollar Rate Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole shall be governed by Sections 5.15 and 6.01 of this Agreement and not by Section 5.10; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, none of the following items shall be deemed to be an Asset Sale: (1)(A) any single transaction or series of related transactions that involves the sale of uninstalled turbines and related equipment, and (B) any single transaction or series of related transactions that involves other assets having a Fair Market Value of less than $50.0 million, it being understood that, in connection with any sale, lease, conveyance or other disposition of any Designated Assets or rights relating thereto in connection with a farm-out transaction, such transaction shall be valued as at the time of execution and delivery of binding contractual arrangements relating thereto; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries, (3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to a Restricted Subsidiary of the Company; (4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business; 4 (5) a Restricted Payment that does not violate Section 5.07 or a Permitted Investment; (6) the sale or other disposition of cash or Cash Equivalents; and (7) the sale or other disposition of all or any part of the Company's right to amounts that have or are to become due and payable by Pacific Gas & Electric Company under that certain Agreement dated as of July 1, 1999, as amended, between Pacific Gas & Electric Company and Calpine Gilroy L.P., a California limited partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P. by the Company pursuant to the Purchase Agreement dated as of March 8, 2002, as amended, between Calpine Gilroy Cogen L.P. and the Company. "Assignment Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit A with such amendments or modifications as may be approved by the Administrative Agent. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby shall be determined in accordance with the definition of "Capital Lease Obligation." "Bankruptcy Case" means any case under Title 11 of the United States Code or any successor bankruptcy law commenced voluntarily or involuntarily against the Company or any other Obligor. "Bankruptcy Code" means Title 11, U.S. Code, as amended, or any similar federal or state law for the relief of debtors. "Base Rate" means, for any day, a fluctuating rate of interest per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of (a) the Federal Funds Effective Rate for such day and (b) one-half of one percent (0.5%) per annum. "Base Rate Loan" means a Term Loan bearing interest at a rate determined by reference to the Base Rate. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by 5 conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the Board of Directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. "Business Day" means (i) any day excluding Saturday, Sunday or any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or Eurodollar Rate Loans, the term "Business Day" shall mean any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market. "Calculation Date" shall have the meaning provided in the definition of "Fixed Charge Coverage Ratio." "Canadian Gas Assets" means Designated Assets owned by a direct or indirect Restricted Subsidiary of one or more Canadian Guarantors. "Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana Canada Holdings LLC, a Delaware limited liability company, and any successor to any of the foregoing. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. "Capital Stock" means: (1) in the case of a corporation, corporate stock; 6 (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. "Cash Equivalents" means: (1) the lawful currency of any country where the Company owns or operates a Facility; (2) securities issued or directly and fully guaranteed or insured by the United States government or any state thereof (or any agency or instrumentality thereof), by the Canadian government (or any agency or instrumentality thereof), or by the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch or successor rating agency rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest ratings obtainable from Moody's or S&P and maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited liability company that is wholly-owned by the Canadian Guarantors. 7 "Certificate re Non-Bank Status" means a certificate substantially in the form of Exhibit B. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act); (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; (4) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance); or (5) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Closing Date" means the date on which the Initial Term Loans are made. "Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "Collateral" means all properties and assets at any time owned or acquired by the Company, except the Excluded Assets, and the Canadian Guarantors' ownership interest in 65% of the aggregate outstanding Voting Stock of CCEC. "Collateral Trust Agreement" the Collateral Trust Agreement dated as of July 16, 2003, among the Company, the Trustees, the Administrative Agent and the Collateral Trustee. "Collateral Trustee" means The Bank of New York in its capacity as collateral trustee under the Collateral Trust Agreement, together with its successors in such capacity. 8 "Company" means Calpine Corporation, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business; in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; and 9 (3) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Conversion/Continuation Date" means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice. "Conversion/Continuation Notice" means a Conversion/Continuation Notice substantially in the form of Exhibit C "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of this Agreement; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors then still in office or with the approval of a majority of Directors whose election was previously so approved from time to time. "Control Agreement" means the Designated Asset Sale Proceeds Account Control Agreement dated July 16, 2003, among the Company, the Collateral Trustee and an institution reasonably acceptable to the Initial Purchasers, as depository agent. "Credit Date" means the date that a Term Loan is made. "Credit Agreement" is defined in the recitals hereto. "Credit Agreement Agent" means, at any time, the Person serving at such time as the "Agent" or "Administrative Agent" under the Credit Agreement or any other representative of the lenders thereunder then most recently designated by a majority of such lenders, in a written notice delivered to each Parity Debt Representative and the Collateral Trustee, as the Credit Agreement Agent for the purposes of the Parity Lien Debt Documents. 10 "Credit Facilities" means one or more debt facilities (including the Credit Agreement) with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Default" means any event that is or with the passage of time or the giving of notice (or both) would be an Event of Default. "Designated Assets" means all geothermal energy assets (including any related extraction, processing or similar equipment and geothermal power plants) and all natural gas assets (including any related extraction, processing or similar equipment, other than natural gas power plants) owned by the Company or any of its Restricted Subsidiaries from time to time, including the equity interests of any Restricted Subsidiary owning any Designated Assets, but excluding (i) any geothermal energy assets that are both unproven and undeveloped and (ii) contracts for the purchase or sale of natural gas and natural gas supplied under such contracts. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the Maturity Date. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement shall be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Dollars" and the sign "$" mean the lawful money of the United States of America. "Eligible Assignee" means (i) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses. "Environmental Claim" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise) by any Governmental Authority or any other Person arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law, (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity or (iii) in connection with any 11 actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Equally and Ratably" means, in reference to sharing of Liens or proceeds thereof as between the holders of Parity Lien Obligations with respect to each outstanding Series of Parity Lien Debt, that such Liens or proceeds: (1) shall be allocated and distributed first to each Parity Debt Representative for each outstanding series of Parity Lien Debt, for account of the holders of such Series of Parity Lien Debt, ratably in proportion to the principal of and interest and premium (if any) outstanding on each outstanding Series of Parity Lien Debt when the allocation or distribution is made, and thereafter (2) shall be allocated and distributed (if any remain after payment in full of all of the principal of and interest and premium (if any) on all outstanding Parity Lien Debt) to each Parity Debt Representative for each outstanding series of Parity Lien Debt, for account of the holders of any remaining Parity Lien Obligations with respect to such outstanding Series of Parity Lien Debt, ratably in proportion to the aggregate unpaid amount of such remaining Parity Lien Obligations due and demanded (with written notice to the applicable Parity Debt Representative and the Collateral Trustee) prior to the date such distribution is made. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Eurodollar Base Rate" means, with respect to a Eurodollar Rate Loan for the relevant Interest Period, the applicable British Bankers' Association LIBOR rate for deposits in Dollars as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, if no such British Bankers' Association LIBOR rate is available to the Administrative Agent, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be (a) the rate determined by the Administrative Agent to be the offered rate on such other page or other service which displays an average British Bankers Association Interest Settlement Rate for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, or (b) in the event the rates referenced in the preceding clauses (a) is not available, the rate per annum equal to the offered quotation rate to first class banks in the London interbank market by GSCP for deposits (for delivery on the first day of the relevant period) in Dollars of amounts in same day funds comparable to the principal amount of the applicable Term Loan of the Administrative Agent, in its capacity as a Lender, for which the Adjusted Eurodollar Rate is then being determined with maturities comparable to such period as of approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period. 12 "Eurodollar Rate Loan" means a Term Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Assets" means: (1) any lease of property other than (i) a lease of a geothermal energy or natural gas interest or property, (ii) a lease of real estate underlying a power generation property or (iii) a capital lease; (2) all deposit accounts (as defined in Article 9 of the Uniform Commercial Code of any relevant jurisdiction) and deposits therein to the extent not exceeding $50.0 million in the aggregate, except for the Designated Assets Sale Proceeds Account and any deposit account and deposits therein holding amounts referred to in clause (7) of this definition; (3) the fixtures and equipment relating to any pipeline if, to the extent that and for so long as (i) the ownership or operation of such pipeline is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (a) such fixtures and equipment shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (3) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (b) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 5.10 herein; (4) all easements, rights-of-way, licenses and other real property interests for or pertaining to the construction, operation, use or maintenance of any pipeline over, upon or under land owned by another Person; (5) with respect to personal property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, 13 power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (a) such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (5) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents, immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (b) the proceeds of any sale, lease or other disposition of any such lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 5.10 herein; (6) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein (i) requires a third party consent which has not been obtained or (ii) constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right shall be an Excluded Asset only to the extent and for as long as the conditions set forth in clause (i) or (ii) of this clause (6) are and remain satisfied and to the extent such assets otherwise constitute Collateral, shall cease to be an Excluded Asset, and shall become subject to the security interests granted to the Collateral Trustee under the Security Documents immediately and automatically at such time as such conditions cease to exist except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with Section 5.10 herein; (7) any cash proceeds (including earnings thereon) of Priority Lien Debt that are pledged to cash collateralize letters of credit; (8) any turbines which serve as collateral pursuant to that certain General Agreement dated as of January 31, 2002 among the Company, various Subsidiaries of the Company and Siemens Westinghouse Power Corporation relating to various purchase contracts and letters of intent for gas turbine generators, steam turbine generators and related accessories; (9) proved oil and gas reserves located in Oklahoma and undeveloped reserves and unproven acreage located in California, Texas, Wyoming, Montana, Colorado, New 14 Mexico and offshore Louisiana; provided that such reserves and acreage has a Fair Market Value not exceeding $20.0 million in the aggregate; (10) Capital Stock of Subsidiaries designated by the Company, but only for so long as (i) the Capital Stock of such Subsidiaries is not pledged to any Person (other than the Collateral Trustee on behalf of all holders of all Secured Debt) and (ii) such Subsidiaries collectively own less than 5.0% of the Company's total consolidated assets and collectively account for less than 5.0% of the Company's Consolidated Cash Flow; and (11) any other property in which a security interest cannot be perfected by the filing of a financing statement under the Uniform Commercial Code of the relevant jurisdiction; provided that such property has a Fair Market Value not exceeding $25.0 million in the aggregate. "Existing Guarantees" means the Guarantees of the Term Loans, the Notes and certain obligations under the Credit Agreement that exist on the date of this Agreement. "Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries in existence on the date of this Agreement, until such amounts are repaid. "Existing Senior Secured Credit Facilities" means the 2000 Credit Agreement and the 2002 Credit Agreement. "Facility" means a power generation facility or energy producing facility, including any related fuel reserves. "Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company (unless otherwise provided in this Agreement). "Federal Funds Effective Rate" means for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent, in its capacity as a Lender, on such day on such transactions as determined by the Administrative Agent. "FERC" means the Federal Energy Regulatory Commission. "Final Offering Circular" means the final offering circular dated July 10, 2003 (such offering circular, as amended or supplemented, and including all material incorporated by reference therein). 15 "First Amendment Assignment and Security Agreement" means the First Amendment Assignment and Security Agreement dated as of July 16, 2003, between the Company and the Collateral Trustee. "First Amendment Note Pledge Agreement" means the First Amendment Note Pledge Agreement dated as of July 16, 2003, between the Company and the Collateral Trustee. "First Amendment Pledge Agreement" means the First Amendment Pledge Agreement dated as of July 16, 2003, between the Company and the Collateral Trustee. "Fixed Charge Coverage Ratio" means, with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation, or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect (in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded; (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges shall not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; 16 (4) any Person that is a Restricted Subsidiary on the Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on such Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, except interest on Indebtedness incurred to finance the development or construction of a Facility; plus (3) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon, but excluding any such Guarantee or Lien in effect on the date of this Agreement unless the same is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Foreign Asset Sale" means an Asset Sale in respect of the Capital Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described in Section 936 of the Code to 17 the extent that the proceeds of such Asset Sale are received by a Person subject in respect of such proceeds to the tax laws of a jurisdiction other than the United States of America or any State thereof or the District of Columbia. "Foreign Subsidiary" means a Subsidiary that is incorporated in a jurisdiction other than the United States of America or a State thereof or the District of Columbia. "Funding Notice" means a notice substantially in the form of Exhibit D "GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect and, to the extent optional, adopted by the Company, on the applicable date of determination. "Gilroy Agreement" means the Gilroy Receivables Assignment Agreement dated as of July 16, 2003, between the Company and the Collateral Trustee. "Governmental Authority" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government. "GSCP" means Goldman Sachs Credit Partners L.P. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise). "Guarantors" means the Canadian Guarantors and each other Subsidiary of the Company that Guarantees the Term Loans. "Guarantee and Collateral Agreement" means the Guarantee and Collateral Agreement dated as of July 16, 2003, among Quintana Minerals, (USA), Inc., JOQ Canada, Inc. and Quintana Canada Holdings, LLC, the Company, the Trustees, the Collateral Trustee, the Administrative Agent and the Bank of Nova Scotia, as Credit Agreement Agent. "Hazardous Materials" means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a 18 hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or the indoor or outdoor environment. "Hazardous Materials Activity" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, release, threatened release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition, or handling of any Hazardous Materials, and any corrective action or reponse action with respect to any of the foregoing. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices. "Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or (6) representing any Hedging Obligations, 19 if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (A) the Fair Market Value of such asset at such date of determination, and (B) the amount of the Indebtedness of such other Person. Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation. "Indemnified Liabilities" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or 20 arising out of (i) this Agreement or the other Term Loan Documents or the transactions contemplated hereby or thereby (including Lenders' agreement to make Term Loans or the use or intended use of the proceeds thereof, or any enforcement of any of the Term Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of any Guarantee of the Term Loan Obligations)); or (ii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership or practice of the Company and any of its Affiliates. "Indentures" is defined in the Recitals. "Initial Purchasers" means Goldman, Sachs & Co., Credit Lyonnais (USA) Inc., ING Financial Markets LLC, Scotia Capital (USA) Inc. and TD Securities (USA) Inc. "Initial Term Loan" means an Initial Term Loan made by a Lender to the Company pursuant to Section 2.1(a) (Term Loans). "Initial Term Loan Commitment" means the commitment of a Lender to make or otherwise fund an Initial Term Loan and "Initial Term Loan Commitments" means such commitments of all Lenders in the aggregate. The amount of each Lender's Initial Term Loan Commitment, if any, is set forth on Appendix A, on Schedule 1 to the Lender Addendum delivered by such Lender or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Initial Term Loan Commitments as of the Closing Date is $750,000,000. "Initial Notes" is defined in the Recitals. "Insolvency Proceeding" means: (1) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Company or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Company or any other Obligor or any similar case or proceeding relative to the Company or any other Obligor or its creditors, as such, in each case whether or not voluntary; (2) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Company or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or (3) any other proceeding of any type or nature in which substantially all claims of creditors of the Company or any other Obligor are determined and any payment or distribution is or may be made on account of such claims. "Interest Payment Date" means with respect to (i) any Base Rate Loan, each April 15, July 15, October 15 and January 15 of each year, commencing on the first such date to occur after the Closing Date and the final maturity date of such Term Loan; and (ii) any Eurodollar Rate Loan, 21 the last day of each Interest Period applicable to such Term Loan; provided, in the case of each Interest Period of longer than three months "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period. "Interest Period" means, in connection with a Eurodollar Rate Loan, an interest period of one, two, three or six months, as selected by the Company in the applicable Funding Notice or Conversion/Continuation Notice, (i) initially, commencing on the Credit Date or Conversion/Continuation Date; and (ii) thereafter, commencing on the day on which the immediately preceding Interest Period expires; provided, (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c), of this definition, end on the last Business Day of a calendar month; and (c) no Interest shall extend beyond the Maturity Date. "Interest Rate Determination Date" means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period. "Investment Grade Rating" means a rating equal to or higher than Baa3 (or the equivalent) by Moody's or BBB- (or the equivalent) by S&P. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in Section 5.07. Except as otherwise provided in this Agreement, the amount of an Investment shall be determined at the time the Investment is made and without giving effect to subsequent changes in value. "Lender" means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement or a Lender Joinder Agreement. 22 "Lender Addendum" means with respect to any initial Lender, a Lender Addendum, substantially in the form of Exhibit E to be executed and delivered by such Lender on the Closing Date as provided in Section 13.06(j). "Lender Joinder Agreement" means an agreement substantially in the form of Exhibit F "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Magic Valley Generating Assets" means the Magic Valley Generating Station, a natural gas fired power plant in commercial operation in Edinburg, Texas. "Material Adverse Effect" has the meaning in Section 2(o) of the Purchase Agreement. "Material Designated Assets" means Designated Assets having a Fair Market Value in the aggregate in excess of $50.0 million. "Maturity Date" means the earlier of (i) July 16, 2007, and (ii) the date that all Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise. "Moody's" means Moody's Investors Service, Inc. (or, if such entity ceases to rate the Term Loans for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Mortgages" the mortgages or deeds of trust listed on Schedule 1.01(a) hereto. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, without duplication: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). 23 "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "New Credit Facility" means the senior secured credit facility provided under the Credit Agreement providing for up to $500.0 million of revolving credit and term loan borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary that is incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or any Restricted Subsidiary; provided that such Indebtedness is without recourse to the Company (except as permitted by clause (8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any property or assets of the Company or any Restricted Subsidiary other than property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of the definition of Permitted Liens or property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (19) of the definition of Permitted Liens. "Note Documents" means each Indenture, each of the Notes, each Sharing Confirmation and the Security Documents. "Note Obligations" means each of the Notes (including any Additional Notes issued under the applicable Indenture) and all other Obligations of any Obligor under the applicable Indenture, the applicable Notes (including any Additional Notes issued under the applicable Indenture) and the Security Documents. "Notes" means the Initial Notes and any Additional Notes. "Notice" means a Funding Notice or a Conversion/Continuation Notice. "Obligations" means any principal, interest (including any interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the maturity of the Indebtedness thereunder and any reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the filing of any 24 petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Obligor" means the Company and each Restricted Subsidiary of the Company (if any) that at any time guarantees or provides collateral security or credit support for any Secured Obligations. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 13.21 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Administrative Agent, that meets the requirements of Section 13.21 hereof. The counsel may be an employee of, or counsel to, the Company, any Subsidiary of the Company or the Administrative Agent. "Parity Debt Representative" means: (1) in the case of any of the Notes, the applicable Trustee; (2) in the case of the Term Loans, the Administrative Agent; or (3) in the case of any other Series of Parity Debt, the trustee, agent or representative of the holders of such Series of Parity Lien Debt who maintains the transfer register for such Series of Parity Lien Debt and is appointed as a Parity Debt Representative (for purposes related to the administration of the Security Documents) pursuant to the indenture or other agreement governing such Series of Parity Lien Debt. "Parity Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Parity Lien Obligations. "Parity Lien Debt" means: (1) the Notes; (2) the Term Loans; and (3) any other Indebtedness (including Additional Notes and Additional Term Loans) that: 25 (A) is permitted to be incurred by the covenant described under Section 5.09 herein; and (B) is permitted to be secured by Parity Liens by clause (2) of the definition of Permitted Liens; provided, in the case of each issue or series of Indebtedness referred to in this clause (3), that: (i) on or before the date on which such Indebtedness was incurred by the Company such Indebtedness is designated by the Company, in an officers' certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Parity Lien Debt for the purposes of this Agreement and the Collateral Trust Agreement, (ii) such Indebtedness is governed by an indenture or other agreement that includes a Sharing Confirmation and (iii) all requirements set forth in the Collateral Trust Agreement as to the confirmation, grant or perfection of the Collateral Trustee's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements and the other provisions of this clause (3) shall be conclusively established, for purposes of entitling the holders of such Indebtedness to share Equally and Ratably with the other holders of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's Liens on the Collateral, if the Company delivers to the Collateral Trustee an officers' certificate in the form required pursuant to the Collateral Trust Agreement stating that such requirements and other provisions have been satisfied and that such Indebtedness is Parity Lien Debt, together with an Opinion of Counsel stating that such officers' certificate has been duly authorized by the Board of Directors of the Company and has been duly executed and delivered, and the holders of such Indebtedness and Obligations in respect thereof shall be entitled to rely conclusively thereon). "Parity Lien Debt Documents" means, collectively, the Term Loan Documents, the Note Documents, and the indenture or agreement governing each other Series of Parity Lien Debt and all agreements binding on any Obligor related thereto. "Parity Lien Obligations" means Parity Lien Debt and all other Obligations in respect thereof. "Permitted Business" means the business of acquiring, constructing, managing, developing, improving, owning and operating Facilities, as well as any other activities reasonably related to the foregoing activities (including acquiring and holding reserves), including investing in Facilities. 26 "Permitted Investments" means: (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 5.10 herein; (5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates; (7) Investments represented by Hedging Obligations; (8) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary in an aggregate principal amount not to exceed $5.0 million at any one time outstanding; (9) repurchases of the Notes and repayments of the Term Loans; and (10) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) that are at the time outstanding not to exceed $100.0 million; provided that Designated Assets held by the Company may not be invested in, leased to or otherwise transferred to any Restricted Subsidiary; provided, however, that the Company may transfer proven undeveloped gas reserves to its Restricted Subsidiaries in 27 the ordinary course of business for consumption in the power generating business of such Restricted Subsidiaries during the 12-month period following transfer. "Permitted Liens" means: (1) Liens on assets of the Company or any Canadian Guarantor securing Obligations of the Company or such Canadian Guarantor under one or more Credit Facilities in an aggregate amount not exceeding the Priority Lien Cap; (2) Liens held by the Collateral Trustee Equally and Ratably securing the Initial Notes and the Term Loans to be issued on the date of this Agreement and all future Parity Lien Debt and other Parity Lien Obligations; provided that the Collateral Trustee's Liens may secure Parity Lien Debt incurred after the date of this Agreement or Obligations in respect thereof only if, on the date of the incurrence of such Parity Lien Debt, after giving pro forma effect to the incurrence thereof and the application of the proceeds therefrom, the Secured Leverage Ratio is not greater than 2.75:1.0; (3) Liens in favor of the Company; (4) Pledges or deposits made under workers' compensation, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for payment of Indebtedness) or leases to which such Person is a party, and Liens or deposits to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (5) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the definition of Permitted Debt covering only the assets acquired, designed, constructed, installed or improved with or financed by such Indebtedness; (6) Liens existing on the date of this Agreement; (7) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Restricted Subsidiary; (8) (A) Liens on assets or property of a Restricted Subsidiary (other than Material Designated Assets) incurred by any Restricted Subsidiary to secure Indebtedness of such Restricted Subsidiary incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or such Restricted Subsidiary, which Liens may include Liens on the Capital Stock of such Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a direct Subsidiary of the Company or (ii) owns, directly or indirectly, Material Designated Assets), (B) Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary that does not own, directly or indirectly, at the time of original incurrence of such a Lien under this clause (B) any Material Designated Assets 28 or any operating properties or assets, securing Indebtedness incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of any Restricted Subsidiary that does not, directly or indirectly, own any operating properties or assets at the time of the original incurrence of such Lien, which Liens contemplated by this clause (8) may include Liens on the Capital Stock of one or more Restricted Subsidiaries that (i) are not direct Subsidiaries of the Company and (ii) do not, directly or indirectly, own any Material Designated Assets or operating properties or assets at the time of original incurrence of such Lien; or (C) without duplication, Liens (other than Liens on Material Designated Assets) incurred by any Restricted Subsidiary (which Liens may include Liens on the Capital Stock of such Restricted Subsidiary so long as the Capital Stock of such Restricted Subsidiary is not pledged as Collateral) that owns as of the date of this Agreement one or more of the peaking power plants (and no other significant assets) constructed for the purpose of providing peaking capacity and energy to the California Department of Water Resources; provided, that the Indebtedness secured by any such Lien contemplated by this clause (8) may not be issued more than 365 days (or, in the case of clause (C) above, two years) after the later of the exploration, drilling, development, completion of construction, purchase, repair, improvement, addition or commencement of full commercial operation of the property or asset being so financed; (9) Liens on property or shares of Capital Stock of a Subsidiary at the time such Person becomes a Subsidiary; provided that any such Lien may not extend to any other property owned by the Company; (10) Liens on property at the time a Subsidiary acquires the property, including any acquisition by means of a merger or consolidation with or into the Subsidiary; provided that such Liens are not incurred in connection with, or in contemplation of, such merger or consolidation; and provided, further, that the Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (11) Liens incurred by a Person other than the Company or any Subsidiary on assets that are the subject of a Capitalized Lease Obligation to which the Company or a Subsidiary is a party; provided that any such Lien may not secure Indebtedness of the Company or any Subsidiary (except Indebtedness secured by a Lien on any property or assets of the Company or such Subsidiary incurred in connection with Indebtedness of another Person), with the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured) and may not extend to any other property owned by the Company or any Restricted Subsidiary; (12) Liens on assets of the Company Construction Finance Company, L.P. (and/or any other Restricted Subsidiary that subsequently owns any such assets) relating to the Magic Valley Generating Station; 29 (13) Liens not in respect of Indebtedness arising from Uniform Commercial Code financing statements for informational purposes with respect to leases incurred in the ordinary course of business and not otherwise prohibited by this Agreement; (14) Liens not in respect of Indebtedness consisting of the interest of the lessor under any lease entered into in the ordinary course of business and not otherwise prohibited by this Agreement; and Liens on shares of Capital Stock of a subsidiary that does not own any significant assets other than a lessee's interest in a Facility or on the Capital Stock of a subsidiary whose only significant asset is its direct or indirect interest in such lessee subsidiary; provided that in no event shall this clause (14) allow a lien on any Capital Stock constituting Collateral; (15) Liens which constitute banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with any bank or other financial institution, whether arising by operation of law or pursuant to contract; (16) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (17) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens, in each case, arising in the ordinary course of business and with respect to amounts not yet due or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be diligently prosecuting appeal or other proceedings for review; (18) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of the Company or any Restricted Subsidiary or to the ownership of its properties that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of the Company or any Restricted Subsidiary; (19) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancings, refundings, extensions, renewals or replacements) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6), (8), (9) and (10); provided that (A) such new Lien shall be limited to all or part of the same property or assets that secured the original Lien (plus repairs, improvements and additions to such property or assets and Liens on the stock or other ownership interest in one or more Restricted Subsidiaries beneficially owning such property or assets) and (B) 30 the amount of the Indebtedness secured by such Lien at such time (or, if the amount that may be realized in respect of such Lien is limited, by contract or otherwise, such limited lesser amount) is not increased (other than by an amount necessary to pay fees and expenses, including premiums, related to the refinancing, refunding, extension, renewal or replacement of such Indebtedness); (20) Liens on assets of Restricted Subsidiaries to secure letters of credit issued pursuant to clause (14) of the definition of Permitted Debt; provided if and to the extent such letters of credit are drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit and Liens to secure letters of credit incurred pursuant to clause (15) of the definition of Permitted Debt on cash Collateral constituting the proceeds of Priority Lien Debt; (21) Liens (A) on cash and short-term investments of Restricted Subsidiaries to secure obligations with respect to (i) contracts for commercial and trading activities in the ordinary course of business and contracts (including physical delivery, option (whether cash or financial), exchange, swap and futures contracts) for the purchase, transmission, distribution, sale, lease or hedge of any energy-related commodity or service or (ii) interest rate, commodity price, or currency rate management contracts or derivatives and (B) encumbering assets of a Restricted Subsidiary, other than (i) Material Designated Assets or (ii) accounts or receivables, which Liens arise out of contracts or agreements relating to the generation, distribution or transmission or sale of energy and/or fuel; provided that all such agreements or contracts are entered into in the ordinary course of business; and (22) other Liens to secure Indebtedness in an aggregate amount not to exceed $50.0 million at any time outstanding. "Permitted Prior Liens" means (a) Liens securing Priority Lien Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses (5), (6), (10) or (11) of the definition of "Permitted Liens" and (c) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued or accumulated interest on the Indebtedness and the amount of 31 all fees, costs, expenses and premiums, including swap breakage and defeasance costs, incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that such Permitted Refinancing Indebtedness may have such shorter final maturity date and Weighted Average Life to Maturity as is equal to or greater than the latest maturity date of any Term Loans borrowed under this Agreement; and (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Term Loans, such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and is subordinated in right of payment to, the Term Loans on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided that Permitted Refinancing Indebtedness shall not include (A) Indebtedness of the Company incurred to refinance Non-Recourse Debt of a Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the Company that refinances Indebtedness of the Company or (C) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Pledged Subsidiaries" means the first-tier subsidiaries listed on Schedule 1.01(b) hereto. "preferred stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of the other Capital Stock issued by such Person. "Prime Rate" means the rate of interest per annum that Goldman Sachs Credit Partners L.P. announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Goldman Sachs Credit Partners L.P. or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Principal Office" means, for the Administrative Agent, its "Principal Office" as set forth on Appendix B, or such other office as the Administrative Agent may from time to time designate in writing to the Company, the Administrative Agent and each Lender. 32 "Priority Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Priority Lien Obligations not exceeding the Priority Lien Cap. "Priority Lien Agent" means the Credit Agreement Agent or any other agent for holders of Priority Lien Debt. "Priority Lien Cap" means an amount equal to (a) the Indebtedness outstanding under the Credit Agreement or any other Credit Facility in an aggregate principal amount not exceeding the greater of (1) $500.0 million, less the amount of any Net Proceeds of a Sale of Designated Assets applied to repay Priority Lien Debt and/or cash collateralize letters of credit that constitute Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available, plus (b) any interest (including any interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the maturity of the Indebtedness thereunder and any reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), penalties, premiums, fees, costs, expenses or other Obligations in respect of such Indebtedness. For purposes of this definition of Priority Lien Cap, all letters of credit shall be valued at face amount, whether or not drawn, and all letters of credit denominated in a currency other than U.S. dollars shall be valued at all times at the Equivalent Amount (as defined in the Credit Agreement) thereof on the date of issue thereof. "Priority Lien Debt" means Indebtedness under (a) the Credit Agreement or (b) any other Credit Facility that is secured by a Priority Lien that was permitted to be incurred under clause (1) of the definition of "Permitted Liens" but only if on or before the day on which such Indebtedness under a Credit Facility described in clause (b) above is incurred by the Company such Indebtedness is designated by the Company, in an officers' certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt Documents (including this Agreement) and the Collateral Trust Agreement. "Priority Lien Documents" means the Credit Agreement or any other Credit Facility pursuant to which any Priority Lien Debt is incurred and all other agreements governing, securing or relating to any Priority Lien Obligations. "Priority Lien Obligations" means the Priority Lien Debt and all other Obligations in respect of Priority Lien Debt. "Pro Rata Share" means with respect to all payments, computations and other matters relating to the Term Loans of any Lender, the percentage obtained by dividing (A) an amount equal to the aggregate outstanding Term Loans of that Lender, by (B) an amount equal to the sum of the aggregate amount of outstanding Term Loans of all Lenders. 33 "Public Equity Offering" means an underwritten primary public offering of the Company's equity securities pursuant to an effective registration statement under the Securities Act. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. "Purchase Agreement" means the Purchase Agreement dated July 10, 2003, among the Company and the Initial Purchasers. "Regulation A" means Regulation A of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Related Fund" means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Requisite Lenders" means one or more Lenders holding more than 50% of the sum of the aggregate outstanding Term Loans (or, at any time prior to the funding of the Initial Term Loans, the Initial Term Loan Commitments). For this purpose only, Term Loans registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company shall be deemed not to be outstanding. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "S&P" means Standard & Poor's Ratings Group (or, if such entity ceases to rate the Term Loans for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). 34 "Sale of Designated Assets" means any Asset Sale involving a sale or other disposition of Designated Assets. "SEC" means the Securities and Exchange Commission. "Second Amendment Pledge Agreement" means the Second Amendment Pledge Agreement dated as of July 16, 2003, between the Company and the Collateral Trustee. "Secured Debt" means Parity Lien Debt and Priority Lien Debt. "Secured Debt Documents" means the Parity Lien Debt Documents and the Priority Lien Documents. "Secured Debt Representative" means each Parity Debt Representative and the Priority Lien Agent. "Secured Leverage Ratio" means, on any date, the ratio of: (1) the aggregate principal amount of Secured Debt outstanding on such date (and, for this purpose, letters of credit shall be deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) to (2) the aggregate amount of the Company's Consolidated Cash Flow for the most recent four-quarter period for which financial information is available. In addition, for purposes of calculating the Secured Leverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations or acquisitions of assets, or any Person or any of its Restricted Subsidiaries acquired by merger, consolidation or the acquisition of all or substantially all of its assets by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the date on which the event for which the calculation of the Secured Leverage Ratio is made (the "Leverage Calculation Date") shall be given pro forma effect in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Leverage Calculation Date, shall be excluded; 35 (3) any Person that is a Restricted Subsidiary on the Leverage Calculation Date shall be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on the Leverage Calculation Date shall be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the Leverage Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months). "Secured Obligations" means the Parity Lien Obligations and the Priority Lien Obligations. "Secured Parties" means any Person, including the Lenders, who is holding a Secured Obligation (including the Administrative Agent or any other Secured Debt Representative), at any time. "Security Documents" means the Guarantee and Collateral Agreement, the First Amendment Pledge Agreement, the Second Amendment Pledge Agreement, First Amendment Assignment and Security Agreement, First Amendment Note Pledge Agreement, the Control Agreement, the Mortgages, the Collateral Trust Agreement and all other grants or transfers for security, instruments, documents and agreements delivered by any Obligor pursuant to any Secured Debt Document in order to grant to the Collateral Trustee for the benefit of the Secured Parties, a Lien on any Collateral as security for the Secured Obligations, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms. "Securities Act" means the Securities Act of 1933, as amended. "Series of Parity Lien Debt" means, severally, each series of the Notes, the Term Loans and each other issue or series of Parity Lien Debt for which a single transfer register is maintained. "Series of Secured Debt" means, severally, each series of Notes, the Term Loans, each other issue or series of Parity Lien Debt for which a single transfer register is maintained and each issue or series of Priority Lien Debt for which a single register is maintained. "Sharing Confirmation" means, as to any Series of Parity Lien Debt, the written agreement of the holders of such Series of Parity Lien Debt, as set forth in the indenture or agreement governing such Series of Parity Lien Debt, for the enforceable benefit of all holders of each other existing and future Series of Parity Lien Debt and each existing and future Parity Debt Representative, that all Parity Lien Obligations shall be and are secured Equally and Ratably by all Liens at any time granted by the Company or any other Obligor to secure any Obligations in 36 respect of such Series of Parity Lien Debt, whether or not upon property otherwise constituting Collateral, that all such Liens shall be enforceable by the Collateral Trustee for the benefit of all holders of Parity Lien Obligations Equally and Ratably, and that the holders of Obligations in respect of such Series of Parity Lien Debt are bound by the provisions in the Collateral Trust Agreement relating to the order of application of proceeds from enforcement of the Collateral Trustee's Liens upon the Collateral, and consent to and direct the Collateral Trustee to perform its obligations under the Collateral Trust Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Sole Lead Arranger" is defined in the Preamble. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of the indenture or other agreement governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, as applied to any Person, any corporation, limited or general partnership, trust, association or other business entity of which an aggregate of at least 50% of the outstanding Voting Shares, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. "Tax" means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided, "Tax on the overall net income" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person's applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office). "Term Loan" means an Initial Term Loan or an Additional Term Loan. "Term Loan Commitment" means any Initial Term Loan Commitment or Additional Term Loan Commitment. "Term Loan Document" means any of this Agreement, the Term Loan Notes, if any, the Security Documents, each Sharing Confirmation and all other documents, instruments or agreements 37 executed and delivered by a Obligor for the benefit of any Agent or any Lender in connection herewith. "Term Loan Note" means a promissory note in the form of Exhibit G as it may be amended, supplemented or otherwise modified from time to time. "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which the Indentures are qualified under the Trust Indenture Act. "Trustees" is defined in the Recitals. "2000 Credit Agreement" means the Second Amended and Restated Credit Agreement, dated as of May 23, 2000, among the Company, Bayerische Landesbank, as Co-Arranger and Syndication Agent, The Bank of Nova Scotia, as Lead Arranger and Administrative Agent, and the Lenders named therein. "2002 Credit Agreement" means the Credit Agreement, dated as of March 8, 2002, among the Company, the Lenders named therein, The Bank of Nova Scotia and Bayerische Landesbank Girozentrale, as lead arrangers and bookrunners, Salomon Smith Barney Inc. and Deutsche Banc Alex. Brown Inc., as lead arrangers and bookrunners, Bank of America, National Association, and Credit Suisse First Boston, Cayman Islands Branch, as lead arrangers and syndication agents, TD Securities (USA) Inc., as lead arranger, The Bank of Nova Scotia, as joint administrative agent and funding agent, and Citicorp USA, Inc., as joint administrative agent . "Type of Loan" means with respect to any Term Loan, a Base Rate Loan or a Eurodollar Rate Loan. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary (and any subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed after the date of this Agreement, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Indebtedness that is non-recourse to the Company and its Restricted Subsidiaries; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; 38 (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that a corporation with no significant assets created for the sole purpose of serving as a co-obligor to facilitate a financing by a partnership of a limited liability company may be designated as an Unrestricted Subsidiary. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Administrative Agent by filing with the Administrative Agent a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 5.07 herein, regarding Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Agreement and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 5.09 herein, the Company shall be in default of this Agreement. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under Section 5.09 herein, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "U.S." means the United States of America. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years or portion thereof obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that shall elapse between such date and the making of such payment; by 39 (2) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. Other Definitions.

DEFINED IN TERM SECTION - --------------------------------------------------------------------------------------------------- "Additional Term Loan Borrowing Date".......................................... 2.19 "Additional Term Loan Commitments"............................................. 2.19 "Additional Term Loans"........................................................ 2.19 "Affected Lender".............................................................. 2.15 "Affected Loans"............................................................... 2.15 "Affiliate Transaction" ....................................................... 5.11 "Aggregate Amounts Due"........................................................ 2.14 "Asset Sale Offer"............................................................. 2.11 "Asset Sale Proceeds Account".................................................. 5.10 "Change of Control Offer"...................................................... 5.15 "Change of Control Payment".................................................... 5.15 "Change of Control Payment Date"............................................... 5.15 "Environmental Law"............................................................ 4.01 "ERCOT" ....................................................................... 4.01 "Event of Default"............................................................. 7.01 "EWG" ......................................................................... 4.01 "Exchange Act" ................................................................ 4.01 "Exchange Act Report" ......................................................... 4.01 "Filing Agent"................................................................. 3.01 "Financing Statements"......................................................... 3.01 "FPA" ......................................................................... 4.01 "Funding Guarantor"............................................................ 12.05 "Increased Cost Lenders"....................................................... 2.18 "Indemnitee"................................................................... 13.03 "Installment".................................................................. 2.09 "Installment Date"............................................................. 2.09 "Investment Company Act" ...................................................... 4.01 "Non-Consenting Lender"........................................................ 2.18 "Non-US Lender"................................................................ 2.17 "Offer Amount"................................................................. 2.11 "Offer Period"................................................................. 2.11 "Offering Documents" .......................................................... 4.01 "Oil and Gas Leases" .......................................................... 4.01 "Oil and Gas Properties" ...................................................... 4.01

40

DEFINED IN TERM SECTION - --------------------------------------------------------------------------------------------------- "Payment Default".............................................................. 7.01 "Permitted Debt" .............................................................. 5.09 "Preliminary Offering Circular" ............................................... 4.01 "PUHCA" ....................................................................... 4.01 "PURPA" ....................................................................... 4.01 "QF" .......................................................................... 4.01 "Register"..................................................................... 2.04 "Repayment Date"............................................................... 2.11 "Replacement Lender"........................................................... 2.18 "Restricted Payment" .......................................................... 5.07 "10-K" ........................................................................ 4.01 "Terminated Lender"............................................................ 2.18 "TPUC" ........................................................................ 4.01 "UCC Collateral" .............................................................. 3.01

SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (a) A term has the meaning assigned to it; (b) An accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. (d) Provisions apply to successive events and transactions. (e) Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. (f) Any reference to any agreement or instrument shall be deemed to include a reference to such agreement or instrument as assigned, amended, amended and restated, supplemented, otherwise modified from time to time or replaced in accordance with the terms of this Agreement. (g) The use in this Agreement or any of the Term Loan Documents of the word "include" or "including," when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words 41 of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. The word "will" shall be construed to have the same meaning and effect as the word "shall." (h) References to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. (i) References to "Sections" and "clauses" shall be to Sections and clauses, respectively, of this Agreement unless otherwise specifically provided. (j) References to "Articles" shall be to Articles of this Agreement unless otherwise specifically provided. (k) References to "Exhibits" and "Schedules" shall be to Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. (l) The use in this Agreement of the words "herein," "hereof," and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof. (m) This Agreement, the other Term Loan Documents and any documents or instruments delivered pursuant hereto shall be construed without regard to the identity of the party who drafted the various provisions of the same. Each and every provision of this Agreement, the other Term Loan Documents and instruments and documents entered into and delivered in connection therewith shall be construed as though the parties participated equally in the drafting of the same. Consequently, each of the parties acknowledges and agrees that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or the other Term Loan Documents and instruments and documents entered into and delivered in connection therewith. ARTICLE II THE TERM LOANS SECTION 2.01. Term Loans. (a) Term Loan Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make, on the Closing Date, an Initial Term Loan to the Company in an amount equal to such Lender's Initial Term Loan Commitment. The Company may make only one borrowing under the Initial Term Loan Commitment which shall be on the Closing Date. Any amount borrowed under this Section and subsequently 42 repaid or prepaid may not be reborrowed. All amounts owed hereunder with respect to the Initial Term Loans shall be paid in full no later than the Maturity Date. Each Lender's Initial Term Loan Commitment shall terminate immediately and without further action on the Closing Date after giving effect to the funding of such Lender's Initial Term Loan Commitment on such date. (b) Borrowing Mechanics for Term Loans. (i) The Company shall deliver to the Administrative Agent a fully executed Funding Notice no later than one Business Day prior to the Closing Date. Promptly upon receipt by the Administrative Agent of such Funding Notice, the Administrative Agent shall notify each Lender of the proposed borrowing. (ii) Each Lender shall make its Term Loan available to the Administrative Agent not later than 1:00 p.m. (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at the Administrative Agent's Principal Office. Upon satisfaction or waiver of the conditions precedent specified herein, the Administrative Agent shall make the proceeds of the Initial Term Loans available to the Company on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Initial Term Loans received by the Administrative Agent from Lenders to be credited to the account of the Company at the Administrative Agent's Principal Office or to such other account as may be designated in writing to the Administrative Agent by the Company. (iii) The Term Loans shall be funded on the Closing Date as Base Rate Loans unless the Company has requested funding as Eurodollar Rate Loans upon at least three Business Days' prior notice and agreed to indemnify the Lenders for the costs as set forth in Section 2.15(c) in form and substance reasonably satisfactory to the Administrative Agent. SECTION 2.02. Pro Rata Shares; Availability of Funds. (a) Pro Rata Shares. All Term Loans shall be made by the Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make a Term Loan requested hereunder nor shall any Term Loan Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender's obligation to make a Term Loan requested hereunder. 43 (b) Availability of Funds. Unless the Administrative Agent shall have been notified by any Lender prior to the applicable Credit Date that such Lender does not intend to make available to the Administrative Agent the amount of such Lender's Term Loan requested on such Credit Date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Credit Date and the Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to the Company a corresponding amount on such Credit Date. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Credit Date until the date such amount is paid to the Administrative Agent, at the customary rate set by the Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Company and the Company shall immediately pay such corresponding amount to the Administrative Agent together with interest thereon, for each day from such Credit Date until the date such amount is paid to the Administrative Agent, at the rate payable hereunder for Base Rate Loans. Nothing in this Section 2.02(b) shall be deemed to relieve any Lender from its obligation to fulfill its Term Loan Commitments hereunder or to prejudice any rights that the Company may have against any Lender as a result of any default by such Lender hereunder. SECTION 2.03. Use of Proceeds. The proceeds of the Initial Term Loans made on the Closing Date shall be applied by the Company to provide a portion of the funding required to retire the Existing Senior Secured Credit Facilities, and the balance of the proceeds shall be applied by the Company for working capital and general corporate purposes, all in accordance with the terms and provisions of the Company's then existing credit facilities and indentures. No portion of the proceeds of any Term Loans shall be used in any manner that causes or might cause the funding of the Term Loans or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act. SECTION 2.04. Evidence of Debt; Register; Lenders' Books and Records; Notes. (a) Lenders' Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Indebtedness of the Company to such Lender, including the amounts of the Term Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on the Company, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect the Company's Obligations in respect of any Term Loan; and provided further, in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern. 44 (b) Register. The Administrative Agent shall maintain at its Principal Office a register for the recordation of the names and addresses of the Lenders and the Term Loans of each Lender from time to time (the "Register"). The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall record in the Register the Term Loans, and each repayment or prepayment in respect of the principal amount of the Term Loans, and any such recordation shall be conclusive and binding on the Company and each Lender, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect the Company's Obligations in respect of any Term Loan. The Company hereby designates GSCP to serve as the Company's agent solely for purposes of maintaining the Register as provided in this Section 2.04, and the Company hereby agrees that, to the extent GSCP serves in such capacity, GSCP and its officers, directors, employees, agents and affiliates shall constitute "Indemnitees." (c) Term Loan Notes. If so requested by any Lender by written notice to the Company (with a copy to the Administrative Agent) at least two Business Days prior to the Closing Date, or at any time thereafter, the Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 13.06 on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after the Company's receipt of such notice)), a Term Loan Note or Term Loan Notes to evidence such Lender's Initial Term Loan. SECTION 2.05. Interest. (a) Except as otherwise set forth herein (and, in the case only of Additional Term Loans, except as may be otherwise agreed pursuant to any written agreement between the Company and the Lenders funding Additional Term Loans), Term Loans shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows: (i) if a Base Rate Loan, at the Base Rate plus 4.75% per annum; or (ii) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus 5.75% per annum. (b) The basis for determining the rate of interest with respect to any Term Loan, and the Interest Period with respect to any Eurodollar Rate Loan, shall be selected by the Company and notified to the Administrative Agent and the Lenders pursuant to the applicable Funding Notice or Conversion/Continuation Notice, as the case may be. If on any day a Term Loan is outstanding with respect to which a Funding Notice or Conversion/Continuation Notice has not been delivered to the Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Term Loan shall be a Base Rate Loan. 45 (c) In connection with Eurodollar Rate Loans there shall be no more than five (5) Interest Periods outstanding at any time. In the event that the Company fails to specify between a Base Rate Loan or a Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, such Term Loan (if outstanding as a Eurodollar Rate Loan) shall be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Term Loan (or if outstanding as a Base Rate Loan shall remain as, or (if not then outstanding) shall be made as, a Base Rate Loan). In the event that the Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, Company shall be deemed to have selected an Interest Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Company and each Lender. (d) Interest payable pursuant to Section 2.05(a) shall be computed (i) in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Term Loan, the date of the making of such Term Loan or the first day of an Interest Period applicable to such Term Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Term Loan or the expiration date of an Interest Period applicable to such Term Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided, if a Term Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Term Loan. (e) Except as otherwise set forth herein, interest on each Term Loan shall be payable in arrears on and to (i) each Interest Payment Date applicable to that Term Loan; (ii) upon any prepayment of that Term Loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid; and (iii) at maturity, including final maturity; provided, however, with respect to any voluntary prepayment of a Base Rate Loan, accrued interest shall instead be payable on the applicable Interest Payment Date. SECTION 2.06. Conversion/Continuation. (a) Subject to Section 2.15 and so long as no Default or Event of Default shall have occurred and then be continuing, the Company shall have the option: (i) to convert at any time all or any part of any Term Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that 46 amount from one Type of Term Loan to another Type of Loan; provided, a Eurodollar Rate Loan may only be converted on the expiration of the Interest Period applicable to such Eurodollar Rate Loan unless the Company shall pay all amounts due under Section 2.15 in connection with any such conversion; or (ii) upon the expiration of any Interest Period applicable to any Eurodollar Rate Loan, to continue all or any portion of such Term Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount as a Eurodollar Rate Loan. (b) The Company shall deliver a Conversion/Continuation Notice to the Administrative Agent no later than 10:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any Eurodollar Rate Loans (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Company shall be bound to effect a conversion or continuation in accordance therewith. SECTION 2.07. Default Interest. If all or a portion of the principal amount of the Term Loans shall not be paid when due, such overdue principal amount of Term Loans shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate that is 2.00% per annum in excess of the interest rate otherwise payable hereunder with respect to the applicable Term Loans; provided, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.07 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Administrative Agent or any Lender. SECTION 2.08. Fees. The Company agrees to pay to the Agents such fees in the amounts and at the times separately agreed upon. SECTION 2.09. Scheduled Payments/Commitment Reductions. (a) Scheduled Installments. The principal amounts of the Initial Term Loans shall be repaid in consecutive quarterly installments (each, an "Installment") in an amount equal to the aggregate principal amount of Initial Term Loans made on the 47 Closing Date multiplied by the percentage set forth below opposite the fiscal quarter on the last day of such fiscal quarter (each, an "Installment Date"):

- ---------------------------------------------------------- Fiscal Quarter Percentage - ---------------------------------------------------------- October 15, 2003 0.25% - ---------------------------------------------------------- January 15, 2004 0.25% - ---------------------------------------------------------- April 15, 2004 0.25% - ---------------------------------------------------------- July 15, 2004 0.25% - ---------------------------------------------------------- October 15, 2004 0.25% - ---------------------------------------------------------- January 15, 2005 0.25% - ---------------------------------------------------------- April 15, 2005 0.25% - ---------------------------------------------------------- July 15, 2005 0.25% - ---------------------------------------------------------- October 15, 2005 0.25% - ---------------------------------------------------------- January 15, 2006 0.25% - ---------------------------------------------------------- April 15, 2006 0.25% - ---------------------------------------------------------- July 15, 2006 0.25% - ---------------------------------------------------------- October 15, 2006 0.25% - ---------------------------------------------------------- January 15, 2007 0.25% - ---------------------------------------------------------- April 15, 2007 0.25% - ---------------------------------------------------------- July 15, 2007 96.25% - ----------------------------------------------------------

48 If any Additional Term Loans are made, such Additional Term Loans shall be repaid on each Installment Date occurring on or after the applicable date on which such Additional Term Loans are funded in an amount equal to (i) the aggregate principal amount of Additional Term Loans, multiplied by (ii) the ratio (expressed as a percentage) of (y) the amount of all other Initial Term Loans being repaid on such Installment Date and (z) the total aggregate principal amount of all other Initial Term Loans outstanding on such funding date. Notwithstanding the foregoing, (x) such Installments shall be reduced in connection with any voluntary or mandatory prepayments of the Initial Term Loans, in accordance with Sections 2.10, 5.10 and 5.15, as applicable; and (y) the Term Loans, together with all other amounts owed hereunder with respect thereto, shall, in any event, be paid in full no later than the Maturity Date. SECTION 2.10. Voluntary Prepayments. (a) Voluntary Prepayments. (i) The Company may not voluntarily prepay Term Loans except as provided in clause (b) below. In the event of any voluntary prepayment in accordance with clause (b), the Company may prepay any such Term Loans on any Business Day in whole or in part, in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. (ii) All such prepayments shall be made: (A) upon not less than one Business Day's prior written or telephonic notice in the case of Base Rate Loans; (B) upon not less than three Business Days' prior written or telephonic notice in the case of Eurodollar Rate Loans; and in each case given to the Administrative Agent by 1:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to the Administrative Agent (and the Administrative Agent shall promptly transmit such telephonic or original notice for Term Loans, by telefacsimile or telephone to each Lender). Upon the giving of any such notice, the principal amount of the Term Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any prepayment of any Term Loan pursuant to this Section shall be applied on a pro rata basis among the Lenders and applied to reduce the scheduled remaining Installments of principal on such Term Loan in inverse order of maturity. (b) Term Loan Call Protection. (i) The Company may not voluntarily prepay the Term Loans prior to July 15, 2005, except that the Company may on any one or more occasions make such prepayment with the proceeds of one or more Public Equity Offerings as set forth in this clause (i). In the event that for any reason the Term Loans are voluntarily prepaid prior to July 15, 2005, the Company shall pay the Lenders a prepayment premium equal to a percentage of the principal amount of the Term 49 Loans being prepaid, such percentage equal to the lesser of (1) the applicable per annum interest rate pursuant to Section 2.05(a)(i) for the day on which such prepayment shall occur and (2) the applicable per annum interest rate pursuant to Section 2.05(a)(ii) for a one month Interest Period beginning on the day on which such prepayment shall occur; provided that: (A) prior to July 15, 2005, the Company shall not be permitted to prepay the Term Loans having a principal amount greater than 35% of the aggregate principal amount of Term Loans extended under this Agreement since the Closing Date; (B) the Company may elect to make such prepayment only with the net cash proceeds of one or more Public Equity Offerings; and (C) each such prepayment must occur within 45 days of the closing of such Public Equity Offering; In the event that for any reason the Term Loans are voluntarily prepaid on or after July 15, 2005, the Company shall pay to Lenders a prepayment premium equal to the percentage set forth below opposite the period in which such prepayment shall occur multiplied by the principal amount of the Term Loans being prepaid. Term Loans may be prepaid without prepayment premium after July 15, 2006.

- -------------------------------------------------------- Year Ending on Percentage - -------------------------------------------------------- July 15, 2006 3.00% - --------------------------------------------------------

(c) Notwithstanding anything to the contrary contained in this Section 2.10 or any other provision of this Agreement, so long as (i) there is no Default or Event of Default and (ii) no Event of Default or Default would result therefrom, the Company may purchase all or any portion of any Term Loan of any Lender pursuant to an agreement between the Company and such Lender and such purchase shall not be deemed to be a voluntary prepayment hereunder; provided that the Company promptly provides a copy of such agreement to the Administrative Agent. The Company shall not make any purchase of a Term Loan from a Lender otherwise permitted by this Section 2.10(c) if, at the time of such purchase, a repurchase of outstanding Notes by the Company without additional disclosure by the Company to the holder of such Notes would result in a violation by the Company of Rule 10b-5 of the Exchange Act unless, prior to any such purchase of any Term Loans, such additional disclosure is made by the Company to such Lender. Notwithstanding the provisions of the preceding sentence, the Company, the Lenders and the Agents hereby agree that nothing in this Section 2.10(c) shall be understood to mean or suggest that the Term Loans constitute "securities" for 50 purposes of either the Securities Act or the Exchange Act. Following any purchase pursuant to this Section 2.10(c), the Term Loans so purchased shall be disregarded and not deemed outstanding (as to which the Company hereby agrees) for purposes of (i) the making of, or the application of, any payments to the Lenders under this Agreement or any other Term Loan Documents, (ii) the making of any request, demand, authorization, direction, notice, consent or waiver under this Agreement or any other Term Loan Documents or (iii) the determination of Requisite Lenders, or for any similar or related purpose, under this Agreement or any other Term Loan Documents. Failure by the Company to make any payment to a Lender required by an agreement permitted by this Section 2.10(c) shall not constitute an Event of Default under Section 7.01. SECTION 2.11. Mandatory Offers. (a) If the Company is required to prepay any Term Loans by reason of any Lender's acceptance of an Asset Sale Offer, the amount payable to such Lender shall be paid to the Administrative Agent for account of such Lender and credited to the remaining installments to become due on the Term Loans outstanding to such Lender. Any prepayment of any Term Loan pursuant hereto shall be applied to reduce the scheduled remaining Installments of principal on such Term Loan of such Lender in inverse order of maturity. (b) In the event that, pursuant to Section 5.10 hereof, the Company shall be required to commence an offer to all Lenders to repay Term Loans (an "Asset Sale Offer"), it shall follow the procedures specified below. 51 (i) The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Repayment Date"), the Company shall repay the principal amount of Term Loans required to be purchased pursuant to Section 5.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Term Loans for which repayment was requested in response to the Asset Sale Offer. Payment for any Term Loans shall be made in the same manner as interest payments are made. (ii) Upon the commencement of an Asset Sale Offer, the Company shall send a notice to the Administrative Agent (for delivery to each Lender). The notice shall contain all instructions and materials necessary to enable such Lenders to request repayment for the Term Loans pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Lenders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (A) that the Asset Sale Offer is being made pursuant to this Section 2.11 and Section 5.10 hereof and the length of time the Asset Sale Offer shall remain open; (B) the Offer Amount, the purchase price and the Repayment Date; (C) that any Term Loan for which repayment is not requested or accepted for repayment shall continue to accrete or accrue interest; (D) that, unless the Company defaults in making such payment, any Term Loan accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Repayment Date; (E) that Lenders electing to have Term Loans repaid pursuant to an Asset Sale Offer may only elect to have all of Term Loans repaid and may not elect to have only a portion of its Term Loans; (F) that Lenders shall be entitled to withdraw their request if the Company, or the Administrative Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Lender, the principal amount of the Term Loans for which the Lender requested repayment and a statement that such Lender is withdrawing his request to have Term Loans repaid; and 52 (G) that, if the aggregate principal amount of Term Loans for which repayment is requested by Lenders exceeds the Offer Amount, the Administrative shall select the Term Loans to be purchased on a pro rata basis. (iii) On or before the Repayment Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Term Loans or portions thereof for which repayment is requested pursuant to the Asset Sale Offer, or if repayment for Term Loans in an aggregate amount less than the Offer Amount have been requested, all Term Loans for which repayment is requested, and shall deliver to the Administrative Agent (for delivery to the Lenders) an Officers' Certificate stating that such Term Loans or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 2.11. The Company shall promptly (but in any case not later than five days after the Repayment Date) deliver to the Administrative Agent for the account of each Lender for which repayment is requested an amount equal to all outstanding amounts under the Term Loans for which repayment is requested by all Lenders that were accepted by the Company for repayment. The Administrative Agent shall promptly forward the appropriate amount to each Lender being repaid. SECTION 2.12. Application of Prepayments. Any prepayment of Term Loans shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by the Company pursuant to Section 2.15(c). SECTION 2.13. General Provisions Regarding Payments. (a) All payments by the Company of principal, interest, fees and other Term Loan Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to the Administrative Agent not later than 1:00 p.m. (New York City time) on the date due at the Administrative Agent's Principal Office for the account of Lenders. Funds received by the Administrative Agent after that time on such due date shall be deemed to have been paid by the Company on the next succeeding Business Day. (b) All payments in respect of the principal amount of any Term Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Term Loan on a date when interest is due and payable with respect to such Term Loan) shall be applied to the payment of interest before application to principal. 53 (c) The Administrative Agent shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, except that prepayment offers accepted by Lenders pursuant to Section 5.10 or 5.15 shall be allocated to the accepting Lenders ratably in proportion to the principal amount of Term Loans outstanding to each accepting Lender (and not to all Lenders based on Pro Rata Shares), together with all other amounts due thereto, including, without limitation, all fees payable with respect thereto, to the extent received by the Administrative Agent. (d) Notwithstanding the foregoing provisions hereof, if any Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, the Administrative Agent shall give effect thereto in apportioning payments received thereafter. (e) Subject to the provisos set forth in the definition of "Interest Period", whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder. (f) The Company hereby authorizes the Administrative Agent to charge the Company's accounts with the Administrative Agent in order to cause timely payment to be made to the Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose) upon the occurrence of any Event of Default in respect of its payment obligations hereunder. (g) The Administrative Agent shall deem any payment by or on behalf of the Company hereunder that is not made in same day funds prior to 1:00 p.m. (New York City time) to be a non-conforming payment. Any such payment shall not be deemed to have been received by the Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. The Administrative Agent shall give prompt telephonic notice to the Company and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 7.01. Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.07 from the date such amount was due and payable until the date such amount is paid in full. SECTION 2.14. Ratable Sharing. The Lenders hereby agree among themselves that, except in the case of prepayments offered to and accepted by any Lender pursuant to Sections 5.10 or 5.15, if any of them shall, whether by voluntary payment (other than a voluntary 54 prepayment of Term Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Term Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Term Loan Documents (collectively, the "Aggregate Amounts Due" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify the Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of the Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. The Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by the Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. SECTION 2.15. Making or Maintaining Eurodollar Rate Loans. (a) Inability to Determine Applicable Interest Rate. In the event that the Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Term Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, the Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to the Company and each Lender of such determination, whereupon (i) no Term Loans may be made as, or converted to, Eurodollar Rate Loans until such time as the Administrative Agent notifies the Company and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Funding Notice or Conversion/Continuation Notice given by the Company with respect to the Term Loans in respect of which such determination was made shall be deemed to be rescinded by the Company. (b) Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with the Company and the Administrative Agent) that the making, maintaining or 55 continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "Affected Lender" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to the Company and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each other Lender). Thereafter (1) the obligation of the Affected Lender to make Term Loans as, or to convert Term Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (2) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by the Company pursuant to a Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall make such Term Loan as (or continue such Term Loan as or convert such Term Loan to, as the case may be) a Base Rate Loan, (3) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by the Company pursuant to a Funding Notice or a Conversion/Continuation Notice, the Company shall have the option, subject to the provisions of Section 2.15(c), to rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to the Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission the Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.15(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Term Loans as, or to convert Term Loans to, Eurodollar Rate Loans in accordance with the terms hereof. (c) Compensation for Breakage or Non-Commencement of Interest Periods. The Company shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of any Eurodollar Rate Loan 56 does not occur on a date specified therefor in a Funding Notice or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Conversion/Continuation Notice or a telephonic request for conversion or continuation; (ii) if any prepayment or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Term Loan (including, without limitation, pursuant to Section 2.10, 2.11, 5.10 and 5.15 hereof); or (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by the Company. (d) Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender. (e) Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this Section 2.15 and under Section 2.16 shall be made as though such Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided, however, each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.15 and under Section 2.16. SECTION 2.16. Increased Costs; Capital Adequacy. (a) Compensation For Increased Costs and Taxes. Subject to the provisions of Section 2.17 (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): 57 (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of the other Term Loan Documents or any of its obligations hereunder or thereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Term Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, the Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to the Company (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.16(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error. (b) Capital Adequacy Adjustment. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Term Loans, or participations therein or other 58 obligations hereunder with respect to the Term Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by the Company from such Lender of the statement referred to in the next sentence, the Company shall pay to such Lender such additional amount or amounts as shall compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to the Company (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.16(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error. SECTION 2.17. Taxes; Withholding, etc. (a) Payments to Be Free and Clear. All sums payable by any Obligor hereunder and under the other Term Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of any Obligor or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (b) Withholding of Taxes. If any Obligor or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by any Obligor to the Administrative Agent or any Lender under any of the Term Loan Documents: (i) the Company shall notify the Administrative Agent of any such requirement or any change in any such requirement as soon as the Company becomes aware of it; (ii) the Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Obligor) for its own account or (if that liability is imposed on the Administrative Agent or such Lender, as the case may be) on behalf of and in the name of the Administrative Agent or such Lender; (iii) the sum payable by such Obligor in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, the Administrative Agent or 59 such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any tax which it is required by clause (ii) above to pay, the Company shall deliver to the Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided, no such additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender. (c) Evidence of Exemption From U.S. Withholding Tax. Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax purposes (a "Non-US Lender") shall deliver to the Administrative Agent for transmission to the Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of the Company or the Administrative Agent (each in the reasonable exercise of its discretion): (i) two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Term Loan Documents; or (ii) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Code and cannot deliver either Internal Revenue Service Form W-8BEN or W-8ECI pursuant to clause (i) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, and 60 such other documentation required under the Code and reasonably requested by the Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Term Loan Documents. Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.17(c) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to the Administrative Agent for transmission to the Company two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Code and reasonably requested by the Company to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Term Loan Documents, or notify the Administrative Agent and the Company of its inability to deliver any such forms, certificates or other evidence. The Company shall not be required to pay any additional amount to any Non-US Lender under Section 2.17(b)(iii) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the second sentence of this Section 2.17(c), or (2) to notify the Administrative Agent and the Company of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided, if such Lender shall have satisfied the requirements of the first sentence of this Section 2.17(c) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of Section 2.17(c) shall relieve the Company of its obligation to pay any additional amounts pursuant to Section 2.16(a) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein. SECTION 2.18. Removal or Replacement of a Lender. Anything contained herein to the contrary notwithstanding, in the event that: (a) (i) any Lender (an "Increased-Cost Lender") shall give notice to the Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.15, 2.16 or 2.17, (ii) the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five Business Days after the Company's request for such withdrawal; or (b) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 13.05(b), the consent of Requisite Lenders shall have been obtained but the consent of 61 one or more of such other Lenders (each a "Non-Consenting Lender") whose consent is required shall not have been obtained; then, with respect to each such Increased-Cost Lender or Non-Consenting Lender (the "Terminated Lender"), the Company may, by giving written notice to the Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Term Loans in full to one or more Eligible Assignees (each a "Replacement Lender") in accordance with the provisions of Section 13.06 and Terminated Lender shall pay any fees payable thereunder in connection with such assignment; provided, (i) on the date of such assignment, the Replacement Lender shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Term Loans of the Terminated Lender, and (B) an amount equal to all accrued, but theretofore unpaid fees owing to such Terminated Lender pursuant to Section 2.11; (ii) on the date of such assignment, the Company shall pay any amounts payable to such Terminated Lender pursuant to Section 2.15(c), 2.16 or 2.17 or otherwise as if it were a prepayment; and (iii) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender. Upon the prepayment of all amounts owing to any Terminated Lender, such Terminated Lender shall no longer constitute a "Lender" for purposes hereof; provided, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender. SECTION 2.19. Additional Term Loans. With the consent of the Administrative Agent, the Company from time to time after the Closing Date may solicit commitments ("Additional Term Loan Commitments") for additional Term Loans ("Additional Term Loans") which may become committed and shall be funded on the following terms: (a) Additional Term Loans shall be committed and funded on the terms and conditions set forth in this Agreement applicable to Term Loans (other than those expressly applicable only to Initial Term Loans), except that the margins at which interest accrues pursuant to Section 2.05(a) in excess of the Base Rate on Base Rate Loans and in excess of the Adjusted Eurodollar Rate on Eurodollar Rate Loans may be changed with the consent of the Company as set forth in the Additional Term Loan Commitments. Without limiting the generality of the foregoing, Additional Term Loans shall be payable in full on the Maturity Date and shall be secured Equally and Ratably with the Initial Term Loans and all other Parity Lien Obligations by all security interests granted to the Collateral Trustee pursuant to the Security Documents. 62 (b) On each occasion on which Additional Term Loan Commitments are solicited, Additional Term Loan Commitments shall be solicited and delivered for simultaneous funding in a single drawdown on a single Business Day (an "Additional Term Loan Borrowing Date") in a minimum amount of $25,000,000. Additional Term Loans that are repaid may not be reborrowed. (c) With the consent of the Company and the Administrative Agent, Additional Term Loans may be funded at a discount or premium to the stated principal amount thereof, and the compensation paid or promised by the Company or any Subsidiary or Affiliate of the Company for the arrangement, solicitation, delivery or funding of Additional Term Loans shall not be restricted. (d) Additional Term Loan Commitments shall not be solicited, delivered or funded: (i) in an amount which the Company is not then permitted to incur under Section 5.09; (ii) in a stated principal amount which would, after giving effect to any simultaneous issuance of Additional Notes under the Indentures and any simultaneous incurrence of any other Parity Lien Debt and any simultaneous use of the proceeds of any such funding or issuance, result in a violation of clause (2) of the definition of "Permitted Liens"; or (iii) unless the Company and Guarantors deliver to the Administrative Agent, for the benefit of the Collateral Trustee, the Administrative Agent and the Lenders: (A) an Officers' Certificate to the effect that, on the Additional Term Loan Borrowing Date for such Additional Term Loans, (1) no Default or Event of Default has occurred and is continuing or resulted from the funding of such Additional Term Loans; (2) no "Default" or "Event of Default", as defined in each of the Parity Lien Debt Documents, has occurred and is continuing and (3) the requirements set forth in Section 2.19(d)(i) and (ii) are satisfied (and each Lender funding an Additional Term Loan shall be entitled to rely conclusively upon such Officers' Certificate as to all of the matters therein set forth for all purposes, including the right of such Additional Term Loan to share Equally and Ratably in the Collateral and all benefits thereof); and (B) such representations and warranties, Opinions of Counsel, confirmations and certificates as may reasonably be requested by the Administrative Agent. 63 (e) Neither of the Administrative Agent nor any Lender shall have any obligation whatsoever to arrange, commit to make, or fund any Additional Term Loan Commitment. (f) If and whenever it wishes to solicit Additional Term Loan Commitments, the Company shall, in consultation with the Administrative Agent, offer the opportunity to deliver such Additional Term Loan Commitments first to the then existing Lenders, which shall have five Business Days to accept such offer, with any such acceptances allocated ratably to accepting Lenders. To the extent such Additional Term Loan Commitments are not fully subscribed by accepting Lenders within the five Business Day period, the Company may solicit and accept such Additional Term Loan Commitments, in compliance with all applicable laws and legal requirements, from any Eligible Assignee reasonably satisfactory to the Administrative Agent. (g) All Additional Term Loan Commitments shall be delivered to the Administrative Agent prior to the relevant Additional Term Loan Borrowing Date. Each Eligible Assignee that delivers an Additional Term Loan Commitment shall also deliver to the Administrative Agent, prior to the relevant Additional Term Loan Borrowing Date, the duly executed Lender Joinder Agreement of such Eligible Assignee to be bound by and to perform, in respect of the Additional Term Loans funded by it, all of the obligations of a Lender under this Agreement; and thereupon, but only if and when such Additional Term Loans are funded by such Eligible Assignee, such Eligible Assignee shall become entitled to enjoy the rights of a Lender under this Agreement and such Additional Term Loans shall constitute Term Loans for all purposes of this Agreement. (h) Additional Term Loans shall be Base Rate Loans until the last day of the first Interest Period for any Eurodollar Rate Loans expiring after the relevant Additional Term Loan Borrowing Date, at which time the outstanding Base Rate Loans and Eurodollar Rate Loans shall be adjusted so that all Base Rate Loans and all Eurodollar Rate Loans are allocated to the Lenders ratably to their Pro Rata Shares. If so requested by the Company, the Administrative Agent may make such adjustment on any earlier Business Day, by resetting any Interest Period that has not then expired, and the Company shall pay compensation pursuant to Section 2.15(c) as if such reset constituted a prepayment of the affected Eurodollar Rate Loans. (i) Subject to the foregoing provisions of this Section 2.19, Additional Term Loans may be solicited, committed to and funded without need for any amendment or supplement to this Agreement and without need for consent from any other Lenders. 64 ARTICLE III CONDITIONS PRECEDENT SECTION 3.01. Closing Date. The obligation of any Lender to make a Term Loan on the Closing Date is subject to the accuracy of the representations and warranties on the part of the Company herein on the Closing Date, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and the satisfaction, or waiver in accordance with Section 13.05, of the following additional conditions precedent on or before the Closing Date: (a) [Intentionally Omitted.] (b) The Chief Financial Officer of the Company shall have furnished a certificate, dated the Closing Date, in form and substance satisfactory to the Administrative Agent, stating to the effect that: 65 (i) The Company does not intend to or believe that it has incurred or shall incur debts that will be beyond its ability to pay as they mature; (ii) No Pledged Subsidiary intends to or believes that it has incurred or shall incur debts that will be beyond its ability to pay as they mature; (iii) No Guarantor intends to or believes that it has incurred or shall incur debts that will be beyond its ability to pay as they mature; (iv) The present fair saleable value of the assets of the Company exceeds the amount that will be required to pay the probable liability on its existing debts (whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent) as they become absolute and matured; (v) The present fair saleable value of the assets of each Pledged Subsidiary exceeds the amount that will be required to pay the probable liability on its existing debts (whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent) as they become absolute and matured; (vi) The Company does not have unreasonably small capital for it to carry on its businesses as proposed to be conducted.; (vii) No Pledged Subsidiary has unreasonably small capital for it to carry on its business as proposed to be conducted; (viii) The Company is not incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or will become indebted; and (ix) No Pledged Subsidiary is incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or will become indebted. (c) The Collateral Trustee shall have received (with a copy for the Lenders) at the Closing Date: (i) appropriately completed copies, which have been duly authorized for filing by the appropriate Person, of Uniform Commercial Code Financing Statements naming the Company as a debtor and the Collateral Trustee as the secured party, or other similar instruments or documents to be filed under the UCC of all jurisdictions as may be necessary or, in the reasonable opinion of the Administrative 66 Agent and its counsel, desirable to perfect the security interests of the Collateral Trustee pursuant to the Security Documents; (ii) appropriately completed copies, which have been duly authorized for filing by the appropriate Person, of Uniform Commercial Code Form UCC-3 termination statements, if any, necessary to release all Liens (other than Permitted Prior Liens) of any Person in any Collateral described in the Security Documents previously granted by any Person; (iii) certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Administrative Agent, dated a date reasonably near to the Closing Date, listing all effective Financing Statements which name the Company (under its present name and any previous names) as the debtor, together with copies of such Financing Statements (none of which shall cover any Collateral described in the Security Documents, other than such Financing Statements that evidence Permitted Prior Liens); (iv) such releases, reconveyances, satisfactions or other instruments as it may request to confirm the release, satisfaction and discharge in full of all mortgages and deeds of trust at any time delivered by the Company to secure any Obligations in respect of the Existing Senior Secured Credit Facilities, duly executed, delivered and acknowledged in recordable form by the grantee named therein or its of record successors or assigns; (v) evidence reasonably satisfactory to the Lenders that (i) the 2000 Credit Agreement and all commitments thereunder shall have been terminated and all commitments thereunder shall have been paid in full and (ii) except to the extent continued under the New Credit Facility, all amounts outstanding under the 2002 Credit Agreement shall have been paid in full; (vi) evidence that all liens granted to the agent under the 2002 Credit Agreement have been assigned in a manner reasonably satisfactory to the Lenders and the Collateral Trustee; (vii) a copy of the Collateral Trust Agreement executed by the Credit Agreement Agent under the New Credit Facility; (viii) a certificate of insurance satisfactory to the Lenders confirming that all insurance requirements of the Guarantee and Collateral Agreement are satisfied; and 67 (ix) such other approvals, opinions or documents as the Administrative Agent, Lenders or the Collateral Trustee may reasonably request in form and substance satisfactory to each of them. (d) All Uniform Commercial Code Financing Statements or other similar Financing Statements and Uniform Commercial Code Form UCC-3 termination statements required pursuant to clauses (c)(i) and (ii) above (collectively, the "Financing Statements") shall have been delivered to CT Corporation System or another similar filing service company acceptable to the Administrative Agent (the "Filing Agent"). The Filing Agent shall have acknowledged in a writing reasonably satisfactory to the Administrative Agent and its counsel (i) the Filing Agent's receipt of all Financing Statements, (ii) that the Financing Statements have either been submitted for filing in the appropriate filing offices or shall be submitted for filing in the appropriate offices within ten days following the Closing Date and (iii) that the Filing Agent shall notify the Administrative Agent and its counsel of the results of such submissions within 30 days following the Closing Date. (e) The Company shall have (i) consummated the New Credit Facility, and such New Credit Facility shall have been funded prior to, or shall be funded simultaneously with, the Closing Date on substantially the terms described in the Final Offering Circular and other terms satisfactory to the Administrative Agent, and the Administrative Agent shall have received counterparts, conformed as executed, of the Credit Agreement and such other documentation as they deem necessary to evidence the consummation thereof and (ii) consummated the offering of the Notes, and such Notes shall have been issued prior to, or shall be issued simultaneously with, the Closing Date on substantially the terms described in the Final Offering Circular and other terms satisfactory to the Administrative Agent, and the Administrative Agent shall have received counterparts, conformed as executed, of the Indentures and such other documentation as they deem necessary to evidence the consummation thereof. (f) Prior to or simultaneously with the Closing Date, the Company shall have received cash proceeds from borrowings under the New Credit Facility and this Agreement in an amount sufficient, when added to the cash proceeds from the sale of the Notes (net of underwriting discounts and commissions), to pay in full in cash the payout amounts and all other fees, costs and expenses payable by the Company in connection with the closing of the financing transaction and shall have authorized disbursement of such cash proceeds directly to pay the payout amounts and such fees, costs and expenses pursuant to a disbursement authorization letter (in form and substance reasonably satisfactory to the Adminstrative Agent) executed and delivered by the Company, and the Administrative Agent shall have received such other confirmation as any of them may reasonably request as to the amendment and restatement of the Existing Senior Secured Credit Facilities in the form of the New Credit Facility. (g) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective 68 change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole which, in the judgment of the Administrative Agent, is material and adverse and makes it impractical or inadvisable to proceed with the borrowing of the Term Loans hereunder; (ii) any downgrading in the rating of any debt securities or preferred stock of the Company to CCC+ or below by S&P or Caa1 or below by Moody's; (iii) any suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (iv) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States which, in the judgment of the Administrative Agent, makes it impracticable or inadvisable to proceed with the borrowing of the Term Loans hereunder; or (vi) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment the Administrative Agent, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with the completion of the borrowing of the Term Loans hereunder. (h) The Lenders shall have received an opinion, in form and substance reasonably satisfactory to the Lenders and their counsel, dated such Closing Date, of Covington & Burling, counsel for the Company, including those matters described in Section 6(i) of the Purchase Agreement, as appropriately modified to reflect the borrowing of the Term Loans hereunder. The Lenders shall have received an opinion, in form and substance reasonably satisfactory to the Lenders and their counsel, dated such Closing Date, of Lisa Bodensteiner, Vice President and General Counsel of the Company, including those matters described in Section 6(j) of the Purchase Agreement, as appropriately modified to reflect the borrowing of the Term Loans hereunder. (i) [Intentionally Omitted.] (j) The Administrative Agent shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; and, subsequent to the date of the most recent financial statements in the Offering Documents (as defined below), there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of 69 operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Offering Document or as described in such certificate. (k) [Intentionally Omitted.] (l) Local counsel to the Company in California, Colorado, Louisiana, New Mexico and Texas shall have furnished to the Lenders their written opinions, dated the Closing Date, in form and substance reasonably satisfactory to the Lenders and their counsel as agreed as of the date hereof, as to such matters under the laws of their respective states as the Lenders may reasonably request, it being understood that such opinions shall be substantively similar to the opinions provided in connection with the closing of the Existing Senior Secured Credit Facilities. The Company shall furnish the Lenders with conformed copies of such other opinions, certificates, letters and documents as the Lenders reasonably request. The Lenders may in their sole discretion waive compliance with any conditions to the obligations of the Lenders hereunder. SECTION 3.02. Conditions to Each Term Loan. (a) Conditions Precedent. The obligation of each Lender to make any Term Loan on any Credit Date, including the Closing Date, are subject to the satisfaction, or waiver in accordance with Section 13.05, of the following conditions precedent: (i) the Administrative Agent shall have received a fully executed and delivered Funding Notice; and (ii) as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Term Loan that would constitute an Event of Default or a Default. The Administrative Agent is entitled, but not obligated to, request and receive, prior to the making of any Term Loan, additional information reasonably satisfactory to the requesting party confirming the satisfaction of any of the foregoing if, in the good faith judgment of the Administrative Agent such request is warranted under the circumstances. (b) Notices. Any Notice shall be executed by an Officer in a writing delivered to the Administrative Agent. In lieu of delivering a Notice, the Company may give the Administrative Agent telephonic notice by the required time of any proposed borrowing or conversion/continuation; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Notice to the Administrative Agent on or before the applicable date of borrowing or continuation/conversion. Neither the Administrative Agent nor any Lender shall incur any liability to the Company in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer or other Person authorized on behalf of the Company or for otherwise acting in good faith. 70 ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Initial Term Loans to be made hereby, the Company represents and warrants to, and agrees with, each Lender that: (a) A preliminary offering circular dated July 3, 2003 (such offering circular, as amended or supplemented, and including all material incorporated by reference therein, the "Preliminary Offering Circular") and a Final Offering Circular relating to the Notes to be offered by the Initial Purchasers have been prepared by the Company and delivered to the Initial Purchasers at such place or places as they may direct, at or prior to such time as the Initial Purchasers request. Such Preliminary Offering Circular and Final Offering Circular, together with any other document approved by the Company for use in connection with the contemplated resale of the Notes, are hereinafter collectively referred to as the "Offering Documents." The Offering Documents did not and shall not, as of their respective dates, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by the Initial Purchasers specifically for use therein. Except as disclosed in the Offering Documents, on the date of this Agreement, the Company's Annual Report on Form 10-K (the "10-K") most recently filed with the SEC and all subsequent reports (collectively, the "Exchange Act Reports") which have been filed by the Company with the Commission or sent to stockholders pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder. (b) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Documents; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification. (c) Each subsidiary of the Company (x) other than those subsidiaries specified in clause (y) of this subparagraph has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Documents; or (y) that is not a corporation is a limited 71 partnership, a limited liability company or business trust, has been duly formed and is validly existing as a limited partnership, a limited liability company or a business trust, as the case may be, in good standing under the laws of the jurisdiction of its formation, and has full power and authority to own its properties and conduct its business as described in the Offering Documents; each subsidiary of the Company is duly qualified to do business as a foreign corporation, limited partnership, limited liability company or business trust, as the case may be, in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; except as set forth on Schedule 4.01(c) hereto, the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects; and the Company is not a general partner in any partnership. (d) The Indentures have been duly authorized and conform to the description thereof contained in the Final Offering Circular; the Notes have been duly authorized, and when the Notes are delivered and paid for pursuant to the Purchase Agreement on the Closing Date, the Indentures shall have been duly executed and delivered, such Notes shall have been duly executed, authenticated, issued and delivered and shall conform to the description thereof contained in the Final Offering Circular and the Indentures and such Notes shall constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Each of the Security Documents has been duly authorized by the Company and the Guarantors (as applicable), when executed and delivered, shall conform in all material respects to the description thereof contained in the Final Offering Circular. Each of the Security Documents, when validly executed and delivered by the Company and the Guarantors (as applicable), shall constitute a valid and legally binding obligation of the Company and shall be enforceable against the Company and the Guarantors (as applicable) in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (f) The Purchase Agreement has been duly authorized, executed and delivered by the Company and conforms in all material respects to the description thereof contained in the Final Offering Circular. (g) When executed and delivered to the Collateral Trustee at the Closing Date, (i) the Security Documents shall grant and create, in favor of the Collateral Trustee for the benefit of the Secured Parties as security for all of the Secured Obligations, a valid second-priority security interest in the personal property Collateral defined in each of such instruments and (ii) each Mortgage shall grant and create, in favor of the Collateral Trustee for the benefit of the Secured Parties as security for all of the Secured 72 Obligations, a valid second-priority mortgage lien and/or security interest in the collateral defined in each of such instruments; and when the filings referred to in the following sentences are made, such second-priority security interests shall be perfected security interests and/or mortgage liens (subject only to Permitted Prior Liens and the provisions with respect to priority set forth in the Collateral Trust Agreement). When delivered at the Closing Date, each Mortgage shall be delivered, duly acknowledged and, if required for recordation, attested and otherwise shall be in recordable form. At the Closing Date, (i) all pledged Collateral shall be represented by certificated securities and (ii) all such certificated securities and all promissory notes and other instruments then evidencing or representing any Collateral shall be delivered to the Collateral Trustee in pledge for the benefit of the Secured Parties (and the lenders under the New Credit Facility) as security for all of the Secured Obligations, duly endorsed by an effective endorsement. (h) At the Closing Date, the representations and warranties contained in the Security Documents shall be true and correct in all respects. (i) Except as shall be disclosed in the Offering Documents, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or the Initial Purchasers for a brokerage commission, finder's fee or other like payment in connection with the offering of the Notes. (j) Except as (i) set forth on Schedule 4.01(c) hereto and (ii) provided for in the Purchase Agreement there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities with any other securities being registered pursuant to any other registration statement filed by the Company under the Securities Act (k) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement, the Indentures, the Security Documents or the Purchase Agreement or otherwise in connection with the borrowing of the Term Loans by the Company or the grant and perfection of the security interests in the Collateral pursuant to the Security Documents, except (i) such consents, approvals, authorizations and orders as have already been obtained, (ii) filings required to perfect the Collateral Trustee's security interests granted pursuant to the Security Documents and (iii) as would not, in the aggregate, have a Material Adverse Effect. (l) The execution, delivery and performance of this Agreement, the Indentures, the Security Documents and the Purchase Agreement by the Company and the Guarantors (as applicable), the borrowing of the Term Loans by the Company, the grant and perfection of the security interests in the Collateral pursuant to the Security Documents, compliance with the terms and provisions of each of the foregoing by the 73 Company and the consummation by the Company and the Guarantors (as applicable) of the transactions contemplated herein and therein shall not result in a breach or violation of any of the terms and provisions of, or conflict with or constitute a default under, or result in the imposition or creation of (or the obligation to create or impose) a Lien (other than in favor of the Secured Parties or the lenders under the New Credit Facility and in connection with the $150 million cash collateralization of certain letters of credit and liens on certain turbines owned directly by the Company that may arise as a result of the transactions contemplated hereby), any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter, by-laws or other organizational document of the Company or any such subsidiary, except in each case as would not have a Material Adverse Effect, and the Company has full power and authority to borrow the Term Loans as contemplated by this Agreement. (m) This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (n) Except as disclosed in the Offering Documents, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as shall be disclosed in the Offering Documents, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. No Financing Statements (as defined below) in respect of any property or assets of the Company shall be on file in favor of any person other than those in respect of Permitted Prior Liens and those to be terminated with respect to existing indebtedness. (o) The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (p) No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that might have a Material Adverse Effect. 74 (q) The Company and its subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (r) Except as shall be disclosed in the Final Offering Circular, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim. (s) Except as shall be disclosed in the Final Offering Circular, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under, or contemplated by, this Agreement, the Indentures, the Security Documents or the Purchase Agreement, or which are otherwise material in the context of the borrowing of the Term Loans; and no such actions, suits or proceedings are threatened or, to the knowledge of the Company, contemplated. (t) The financial information included in the Final Offering Circular present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and, except as otherwise shall be disclosed in the Offering Documents, such financial statements shall have been prepared in conformity with the GAAP applied on a consistent basis; and the assumptions used in preparing the pro forma financial statements included in the Final Offering Circular shall provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments shall give appropriate effect to those assumptions, and the pro forma columns therein shall reflect the proper application of those adjustments to the corresponding historical financial statement amounts. 75 (u) The statistical and market-related data (other than market-related data and statistical data provided by the Company) included in the Final Offering Circular shall be based on or derived from sources which the Company believes to be reliable and accurate, it being understood, however, that the Company has conducted no independent investigation of the accuracy thereof. (v) Except as shall be disclosed in the Final Offering Circular, since the date of the latest audited financial statements that shall be included in the Final Offering Circular there shall have been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Final Offering Circular, there has been no change in the capital stock or long-term debt of the Company or any of its subsidiaries and no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (w) The Company is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940, as amended (the "Investment Company Act"); the Company is not and, after giving effect to the offering, the borrowing of the Term Loans and the application of the proceeds thereof as described in the Offering Documents, and the consummation of the transactions contemplated by this Agreement, the Indentures, the Security Documents and the Purchase Agreement, shall not be an "investment company" as defined in the Investment Company Act of 1940. (x) [Intentionally Omitted.] (y) [Intentionally Omitted.] (z) [Intentionally Omitted.] (aa) Neither the Company nor any "subsidiary company" as that term is defined in the Public Utility Holding Company Act of 1935 ("PUHCA"), of the Company is, or after giving effect to the borrowing of the Term Loans, shall be, subject to regulation (i) as a "holding company," a "subsidiary company" of a holding company or a "public-utility company," as those terms are defined in PUHCA (except that Calpine Cogeneration Corporation and the other "subsidiary companies" of the Company listed on Schedule 4.01(aa), each of which is an EWG (as defined herein) or a QF (as defined herein), are "subsidiary companies" of holding companies); (ii) under the Federal Power Act, as amended ("FPA"), other than (A) as a power marketer or an "exempt wholesale generator" ("EWG"), as that term is defined Section 32 of PUHCA, that is a "public utility" with market-based rate authority under Section 205 of the FPA, or (B) as a "qualifying facility" ("QF") under the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), as contemplated by 18 C.F.R. Section 292.601(c); or (iii) under any 76 state law or regulation with respect to rates or the financial or organizational regulation of electric utilities, other than, with respect to subsidiaries of the Company that are QFs, as contemplated by 18 C.F.R. Section 292.602(c). (bb) Each of the power generation projects in which the Company or its subsidiaries has an interest which is subject to the requirements under PURPA and the regulations of FERC promulgated thereunder, as amended from time to time, necessary to be a "qualifying cogeneration facility" and/or a "qualifying small power production facility" meets such requirements. (cc) Each of the Company's subsidiaries listed on Schedule 4.01(cc) hereto has validly-issued orders from the FERC, not subject to any pending challenge, investigation, or proceeding (other than the FERC's generic proceeding initiated in Docket No. EL01-118-000), (i) authorizing such subsidiary to engage in wholesale sales of electricity, ancillary services and, to the extent permitted under its market-based rate tariff, other services at market-based rates, and (ii) granting such waivers and blanket authorizations as are customarily granted to entities with market-based rate authority. With respect to each such subsidiary, the FERC has not imposed any rate caps or mitigation measures other than rate caps and mitigation measures generally applicable to similarly situated marketers or generators selling electricity, ancillary services or other services at wholesale in the geographic market where such subsidiary conducts its business. (dd) All of the Company's subsidiaries listed on Schedule 4.01(dd) hereto own and/or operate Eligible Facilities within the meaning of Section 32 of PUHCA, and each such subsidiary has received a determination from FERC, not subject to any pending challenge or appeal, that it is an Exempt Wholesale Generator, within the meaning of Section 32 of PUHCA. (ee) Each of the Company's subsidiaries listed on Schedule 4.01(ee) hereto providing retail electric service in the Electric Reliability Council of Texas, Inc. ("ERCOT") has validly issued orders from the Texas Public Utilities Commission ("TPUC"), not subject to any pending challenge, investigation, or proceeding, authorizing such subsidiary to engage in sales of electricity at retail under the laws of the State of Texas. Each of the Company's subsidiaries listed on Schedule 4.01(ee) that are participating in the Texas wholesale electric market has registered with the TPUC and the TPUC has not imposed on any such subsidiary any specific rate cap or mitigation measures (ff) No consent, approval, authorization, or order of, or filing with the applicable state public utility commission under any public utility law of the State or any regulation promulgated pursuant to such law with respect to the rates or the financial or organizational regulation of electric utilities is required for the consummation of the merger of Goldendale Energy, Inc., Otay Mesa Generating Company, LLC, Metcalf Energy Center, LLC, Santa Rosa Energy, LLC, Washington Parish Energy Center, LLC, Deer Park Energy Center, LP and Augusta Energy LLC into the Company. 77 (gg) No consent, approval, authorization, or order of, or filing with any governmental agency or body or any court under the FPA, PUHCA or PURPA, or any regulation promulgated pursuant to such laws, is required for the consummation of the merger of Goldendale Energy, Inc., Otay Mesa Generating Company, LLC, Metcalf Energy Center, LLC, Santa Rosa Energy, LLC, Washington Parish Energy Center, LLC, Deer Park Energy Center, LP and Augusta Energy LLC into the Company, except such filings as could not be expected to delay or hinder such mergers. (hh) Each of the Company's subsidiaries listed on Schedule 4.01(hh) hereto providing retail energy services has full authorization to provide retail energy services to retail industrial, commercial and residential customers in its applicable states under the applicable Energy Laws. "Energy Laws" shall mean any state and local energy laws and regulations, in each of the states, regions or other applicable jurisdictions in which the Company and its subsidiaries are organized or otherwise conduct business, applicable to: (i) the ownership, operation, or control of electric generation, transmission, and distribution facilities; (ii) the purchase, sale, transmission, distribution, marketing or trading of electric energy; and (iii) organizational, financial and rate regulation of entities engaged in (i) and (ii) above. (ii) Other than the proceedings listed in Schedule 4.01(ii), there are no pending complaints filed with the FERC seeking abrogation or modification of a contract for the sale of power by the Company or any of its subsidiaries. (jj) Except as described in the Final Offering Circular (i) all royalties, rentals, deposits and other amounts due on the oil and gas properties of the Company have been properly and timely paid, and no proceeds from the sale or production attributable to the oil and gas properties of the Company are currently being held in suspense by any purchaser thereof, and (ii) there are no claims under take-or-pay contracts pursuant to which natural gas purchasers have any make-up rights affecting the interests of the Company in its oil and gas properties, except in any event under (i) or (ii) as would not have a Material Adverse Effect. (kk) As of the date hereof, the aggregate undiscounted monetary liability of the Company for oil or natural gas taken or received under any operating or other agreement relating to its oil and gas properties that permits any person to receive any portion of the interest of the Company in oil and natural gas or to receive cash or other payments to balance any disproportionate allocation of oil or natural gas could not have a Material Adverse Effect. (ll) To the Company's knowledge, each of the Company's and the Company's subsidiaries' surface and mineral leases (the "Oil and Gas Leases") is in full force and effect and all rentals, royalties, shut-in well payments, bonuses and other payments due or payable from or by the Company or the Company's subsidiaries under Oil and Gas Leases and applicable laws, rules and regulations, have been properly and timely paid, except where the failure to have in full force and effect or to pay properly and timely 78 would not have a Material Adverse Effect, and all conditions necessary to keep the Oil and Gas Leases in full force and effect in accordance with their terms as of the date hereof, except where the failure to satisfy such conditions would not have a Material Adverse Effect. (mm) The Company and its subsidiaries are entitled to receive (and are currently receiving with respect to producing Oil and Gas Leases), without present suspense or presently required indemnity against asserted or known defects or disputes regarding the Company's and any of the Company's subsidiaries' ownership, from each purchaser of its production, or from the person receiving payments from any such purchasers, the proceeds attributable to the net revenue interest in production from each of the Oil and Gas Leases, except where the failure to receive such proceeds would not have a Material Adverse Effect. (nn) All production from the wells operated by the Company has been properly accounted for and all proceeds attributable thereto have been properly paid in the ordinary course of business consistent with past practices. (oo) The reserve report issued by Netherland, Sewell & Associates, Inc. dated February 11, 2003 is accurate in all material respects and reflects all proved reserves and future revenues in the Company's oil and gas properties (the "Oil and Gas Properties") located in the United States, and the Mortgages shall create valid and first priority mortgage liens on all of the interests of the Company referred to in such Reserve Report. The reserve report issued by Gilbert Laustsen Jung Associates Ltd. dated February 26, 2003 is accurate in all material respects and reflects all proved reserves and future revenues in the Company's oil and gas properties located in Canada. (pp) At the Closing Date, the Company shall own the Oil and Gas Properties free and clear of all Liens (other than Permitted Liens), and no Financing Statements (as defined below) in respect of any property or assets of the Company shall be on file in favor of any person other than those in respect of Permitted Prior Liens and those to be terminated with respect to existing indebtedness. (qq) Prior to the date hereof, neither the Company nor any of its subsidiaries has entered into a contract pursuant to which oil and gas assets would be sold to any party other than subsidiaries or purchasers for fair market value. (rr) The Company is subject to Section 13 or 15(d) of the Exchange Act. (ss) None of the transactions contemplated by this Agreement (including, without limitation, the use of the proceeds from the borrowing of the Term Loans) shall violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations G, T, U, and X of the Board of Governors of the Federal Reserve System 79 (tt) Prior to the date hereof, neither the Company nor any of its affiliates has taken any action which is designed to or which has constituted or which might have been expected to cause or result in stabilization or manipulation of the price of any security of the Company in connection with the borrowing of the Term Loans. (uu) Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or By-laws or in default in the performance or observance of any material obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other material agreement or instrument to which it is a party or by which it or any of its properties may be bound. (vv) The statements set forth in the Final Offering Circular under the captions "Description of Certain Indebtedness" and "Description of the Notes," insofar as they purport to describe the provisions of the documents referred to therein, are accurate, complete and fair in all material respects. (ww) The description of the Collateral set forth in the Final Offering Circular under the caption "Description of the Collateral" is accurate and complete. (xx) Deloitte & Touche LLP and Pricewaterhouse Coopers LLP, who have certified certain financial statements of the Company and its subsidiaries, are each independent public accountants as required by the Act and the rules and regulations of the Commission thereunder. (yy) Each of Netherland, Sewell & Associates Inc. and Gilbert Laustsen Jung Associates Ltd. is an independent petroleum engineering firm and nothing has come to the Company's attention to cause it to believe that either such firm is not qualified to pass on questions relating to the reserves and production of the Company's oil and gas properties as set forth or incorporated by reference in the Final Offering Circular. (zz) The present fair saleable value of the assets of the Company and each of its subsidiaries exceeds the amount required to pay the probable liability on its and their existing debts, respectively (whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent), as they become absolute and matured, and as a result of consummation of the transactions contemplated herein and in the Final Offering Circular, shall continue to exceed such amount. (aaa) The Company and each of its subsidiaries, does not, and, as a result of consummation of the transactions contemplated herein and in the Final Offering Circular, shall not, have unreasonably small capital for it to carry on its business as proposed to be conducted. (bbb) Neither the Company nor any of its subsidiaries are incurring obligations or making transfers under any evidence of indebtedness with the intent to hinder, delay or defraud any entity to which it is or shall become indebted. 80 ARTICLE V COVENANTS SECTION 5.01. [Intentionally Omitted.] SECTION 5.02. [Intentionally Omitted.] SECTION 5.03. Reports. (a) Whether or not required by the SEC's rules and regulations, so long as any Term Loan Obligations are outstanding, the Company shall furnish to the Administrative Agent, within the time periods specified in the SEC's rules and regulations: (i) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if the Company were required to file such reports; and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. (b) All such reports shall be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K shall include a report on the Company's consolidated financial statements by the Company's certified independent accountants. In addition, the Company shall file a copy of each of the reports referred to in clauses (i) and (ii) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC shall not accept such a filing) and make such information available to securities analysts and prospective investors upon request. (c) If, at any time, the Company is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, the Company shall nevertheless continue filing the reports specified in Section 5.03(a) with the SEC within the time periods specified above unless the SEC shall not accept such a filing. The Company agrees that it shall not take any action for the purpose of causing the SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC shall not accept the Company's filings for any reason, the Company shall post the reports referred to in Section 5.03(a) on its website within the time periods that would apply if the Company were required to file those reports with the SEC. (d) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by Section 5.03(a) shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Final Offering Memorandum, of 81 the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. (e) In addition, the Company agrees that, for so long as any Term Loan Obligations remain outstanding, at any time it is not required to file the reports required by Section 5.03(a) with the Commission, it shall furnish to the Administrative Agent, upon its request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SECTION 5.04. Compliance Certificate. (a) The Company shall deliver to the Administrative Agent (for delivery to each Lender), within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Agreement, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Agreement and is not in default in the performance or observance of any of the terms, provisions and conditions of this Agreement (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Term Loans borrowed under this Agreement is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 5.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article V or Article VI hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Term Loan Obligations are outstanding, the Company shall deliver to the Administrative Agent, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default 82 or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 5.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Lenders. SECTION 5.06. Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Agreement; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Administrative Agent, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 5.07. Restricted Payments. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or dividends or distributions payable to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company that is contractually subordinated to the Term Loans 83 (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries and excluding the purchase, repurchase or other acquisition of such subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), except a payment of interest or principal at the Stated Maturity thereof; or (iv) make any Restricted Investment (all such payments and other actions set forth in these clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless after giving effect to such Restricted Payment: (v) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment (other than any Default or Event of Default that is cured as a result of such Restricted Payment); (vi) the Company would, after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 5.09(a) herein; and (vii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since the date of this Agreement (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), and (9) of the next succeeding paragraph), is less than the sum, without duplication, of: (A) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Agreement to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (B) 100% of the aggregate net cash proceeds received by the Company since the date of this Agreement as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than 84 Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (C) to the extent that any Restricted Investment that was made after the date of this Agreement is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (D) to the extent that any Unrestricted Subsidiary of the Company designated as such after the date of this Agreement is redesignated as a Restricted Subsidiary after the date of this Agreement, the Fair Market Value of the Company's Investment in such Subsidiary as of the date of such redesignation, plus (E) 100% of any payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets received by the Company or a Restricted Subsidiary of the Company after the date of this Agreement from an Unrestricted Subsidiary of the Company, to the extent that such payments, dividends, repayments or transfers were not otherwise included in Consolidated Net Income of the Company for such period, plus (F) $628.3 million (which is the amount currently available for Restricted Payments under the Company's indentures entered into prior to August 10, 2000). The preceding provisions shall not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of this Agreement; (2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock) or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment shall be excluded from clause (3)(B) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of Indebtedness of the Company that is contractually subordinated to the Term Loans with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness, so long as no Default has occurred and is continuing or would be caused thereby; 85 (4) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of the Company to the holders of any class or series of such Restricted Subsidiary's Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any current or former officer, direct or employee of the Company (or any of its Restricted Subsidiaries) pursuant to any equity subscription agreement, stock option agreement, shareholders' agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any twelve-month period, so long as no Default has occurred and is continuing or would be caused thereby; (6) the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the extent such Equity Interests represent a portion of the exercise price of those stock options; (7) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company or any Restricted Subsidiary of the Company issued on or after the date of this Agreement in accordance with the Fixed Charge Coverage test described under Section 5.09 herein; provided that no Default has occurred and is continuing or would be caused thereby (other than any Default or Event of Default that is cured as a result of such Restricted Payment); and (8) any purchase, redemption, defeasance or other acquisition or retirement for value of subordinated Indebtedness upon a Change of Control or an Asset Sale to the extent required by the indentures or other agreement pursuant to which such subordinated Indebtedness was issued, but only if the Company (a) in the case of a Change of Control, has made an offer to repay the Term Loans as described under Section 5.15 herein or (b) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with the provisions described under Section 5.10 herein, so long as no Default has occurred and is continuing or would be caused thereby. (b) The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. SECTION 5.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (i) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with 86 respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (ii) make loans or advances to the Company or any of its Restricted Subsidiaries; or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the preceding restrictions shall not apply to encumbrances or restrictions existing under or by reason of: (A) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of this Agreement and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of this Agreement; (B) this Agreement, any of the Indentures and any of the Notes issued pursuant to the Indentures or any other indenture governing letters of credit, loans or debt securities issued by or on behalf of the Company that are no more restrictive, taken as a whole, with respect to such dividend, distribution or other payment restrictions and loan or investment restrictions than those contained in this Agreement, the Indentures, and the Initial Notes as in effect on the date of this Agreement; (C) applicable law, rule, regulation or order; (D) customary non-assignment provisions in leases, contracts and licenses entered into in the ordinary course of business and consistent with past practices; (E) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (iii) of the preceding paragraph; (F) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition; 87 (G) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (H) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant described above under Section 5.12 herein that limit the right of the debtor to dispose of the assets subject to such Liens; (I) provisions limiting or prohibiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation or prohibition is applicable only to the assets that are the subject of such agreements; (J) any encumbrance or restriction imposed pursuant to the terms of any Non-Recourse Debt incurred pursuant to clause (vi) of the definition of Permitted Debt described in Section 5.09(b) or any preferred stock issued pursuant to clause (vii) of the definition of Permitted Debt described in Section 5.09(b); provided that such encumbrance or restriction, in the written opinion of the President, Vice Chairman, Chief Operating Officer or Chief Financial Officer of the Company, (x) is required in order to obtain such financing or to place such preferred stock, (y) is customary for such financings or placements and (z) applies only to the assets or revenues of the applicable Restricted Subsidiary; (K) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Acquired Debt incurred pursuant to clause (x) of the definition of Permitted Debt described in Section 5.09(b); provided that such encumbrance or restriction was not incurred in connection with or in contemplation of such Restricted Subsidiary becoming a Restricted Subsidiary; and (L) restrictions on cash or other deposits or net worth imposed by customers or suppliers under contracts entered into in the ordinary course of business. SECTION 5.09. Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company 88 may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) Section 5.09(a) shall not prohibit the incurrence of any of the following items (collectively, "Permitted Debt"): 89 (i) the incurrence by the Company and the Guarantee by the Canadian Guarantors of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (i) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) not to exceed on any date of incurrence the greater of (A) $500.0 million or (B) the dollar amount that is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available; (ii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iii) the incurrence by the Company and the Canadian Guarantors of Indebtedness represented by the 2007 Notes, the 2010 Notes and the 2013 Notes and the Term Loans to be issued on the date of this Agreement, and in each case the related Guarantees; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Company or any of its Restricted Subsidiaries, in an aggregate principal amount (or accreted value, as applicable), including all Permitted Refinancing Indebtedness incurred to extend, refund, refinance, renew, replace or defease any Indebtedness incurred pursuant to this clause (iv), not to exceed $100.0 million at any one time outstanding; (v) Indebtedness of the Company which is owed to and owned by a Restricted Subsidiary and Indebtedness of a Restricted Subsidiary that is owed to and owned by the Company or a Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any transfer of such Indebtedness (other than to the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the Company or by a Restricted Subsidiary, as the case may be; 90 (vi) the incurrence of Non-Recourse Debt by any Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets); (vii) the issuance of preferred stock by a Restricted Subsidiary of the Company (other than a Restricted Subsidiary that owns, directly or indirectly, any Material Designated Assets), the net proceeds of which are applied to finance the exploration, drilling, development, construction or purchase of or by, or repairs or improvements or additions to, property or assets of the Company or any Restricted Subsidiary; (viii) the incurrence by the Company of Guarantees of Indebtedness of Restricted Subsidiaries which, but for such Guarantees, would be permitted to be incurred pursuant to clause (vi) of this Section 5.09(b); provided that the aggregate principal amount of Indebtedness incurred pursuant to this clause (viii) does not exceed $100.0 million at any one time outstanding; (ix) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance, replace, defease or discharge Indebtedness (other than intercompany Indebtedness) that was permitted by this Agreement to be incurred under the first paragraph of this covenant or clauses (ii), (iii), (iv), (v), (vi), (viii) or (x) of this Section 5.09(b) or this clause (ix); (x) the incurrence of Acquired Debt by any Restricted Subsidiary of the Company at the time such Restricted Subsidiary becomes a Restricted Subsidiary of the Company so long as such Acquired Debt was not incurred in connection with or in contemplation of such Person becoming a Restricted Subsidiary of the Company; provided that the Company would have been able to incur such Indebtedness at the time of incurrence thereof by the Restricted Subsidiary pursuant to Section 5.09(a); (xi) the incurrence of Indebtedness pursuant to Hedging Obligations incurred in the ordinary course of business and not for speculative purposes; (xii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances and performance and surety bonds in the ordinary course of business; 91 (xiii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five business days; (xiv) the incurrence by any Restricted Subsidiary of Indebtedness represented by letters of credit (or Guarantees thereof) entered into in the ordinary course of business to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following a demand for reimbursement following payment on the letter of credit; provided that such letters of credit shall not constitute Permitted Debt pursuant to this clause (xiv) if they are issued in support of Indebtedness; (xv) the incurrence of Indebtedness by the Company represented by letters of credit cash collateralized with the proceeds of Priority Lien Debt; and (xvi) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to extend, refinance, renew, replace, defease or refund any Indebtedness incurred pursuant to this clause (xvi), not to exceed $100.0 million. The Company shall not incur any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated in right of payment to the Term Loans on substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured or by virtue of being secured on a junior basis. SECTION 5.10. Asset Sales. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale (including a Sale of Designated Assets) unless: 92 (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; (ii) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following shall be deemed to be cash: (A) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Term Loans) that are assumed by the transferee of any such assets pursuant to a customary novation or similar agreement that releases the Company or such Restricted Subsidiary from further liability; (B) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and (C) except in the case of a Sale of Designated Assets, any stock or assets of the kind referred to in clauses (iv) or (vi) of Section 5.10(b); and (iii) in the case of a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary, as the case may be) shall deposit the Net Proceeds as cash collateral in a segregated account (a "Designated Asset Sale Proceeds Account") held by the Collateral Trustee or its agent to secure the Secured Obligations; provided, that for so long as the terms of any of the Company's senior unsecured notes that were issued prior to August 10, 2000 would prevent such a pledge by a Restricted Subsidiary, the Company shall deposit with the Collateral Trustee or its agent an amount of cash equal to the Net Proceeds as cash collateral to secure the Secured Obligations, and the applicable Restricted Subsidiary shall not be obligated to do so. (b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, other than a Sale of Designated Assets that are not Canadian Gas Assets, the Company (or the applicable Restricted Subsidiary, as the case may be) may apply those Net Proceeds: 93 (i) to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt; (ii) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of Calpine Canada Energy Finance ULC and/or Calpine Canada Energy Finance II ULC existing on the date of this Agreement; (iii) in the case of an Asset Sale by a Restricted Subsidiary, to repay or repurchase Indebtedness of any Restricted Subsidiary and, if such Indebtedness is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (iv) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of the Company; (v) to make a capital expenditure; or (vi) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business. (c) Within 180 days after the receipt of any Net Proceeds from an Asset Sale that constitutes a Sale of Designated Assets other than Canadian Gas Assets, the Company (or the Restricted Subsidiary that disposed of those Designated Assets, as the case may be) may apply those Net Proceeds to purchase other assets that would constitute Designated Assets or to repay Priority Lien Debt and/or cash collateralize letters of credit constituting Priority Lien Debt and, if such Priority Lien Debt is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto. (d) Any Net Proceeds from Asset Sales (including Sales of Designated Assets) that are not applied or invested as provided in the preceding clauses of this Section 5.10 shall constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier point as may be elected by the Company, the Company shall make an offer to all Lenders and all holders of other Indebtedness that is pari passu with the Term Loans Equally and Ratably secured with the Term Loans containing provisions similar to those set forth in this Agreement with respect to offers to prepay, purchase or redeem with the proceeds of sales of assets, including the Notes and each series of Existing Indebtedness that contains similar asset sale provisions, when applicable, to prepay the maximum principal amount of Term Loans and such other pari passu Indebtedness that may be prepaid, purchased or redeemed out of the Excess Proceeds (including each series of Existing Indebtedness that contains similar asset sale provisions). The offer price in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of prepayment or purchase, and shall be payable in cash in accordance with the procedures 94 set forth in Section 2.11 hereof. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Agreement. If the aggregate principal amount of Term Loans and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Company shall select the Term Loans and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. (e) Notwithstanding the foregoing, to the extent that any or all of the Net Proceeds of any Foreign Asset Sale is prohibited or delayed by applicable local law from being repatriated to the United States, the portion of such Net Proceeds so affected shall not be required to be applied at the time provided above, but may be retained by the applicable Restricted Subsidiary so long, but only so long, as the applicable local law shall not permit repatriation to the United States. The Company shall promptly take or cause the applicable Restricted Subsidiary to promptly take all actions required by the applicable local law to permit such repatriation. Once such repatriation of any of the affected Net Proceeds is permitted under the applicable local law, the repatriation shall be immediately effected and the repatriated Net Proceeds shall be applied in the manner set forth in this Section 5.10 as if the Asset Sale had occurred on the date of such repatriation. (f) Notwithstanding the foregoing, to the extent that the Board of Directors determines, in good faith, that repatriation of any or all of the Net Proceeds of any Foreign Asset Sale would have a material adverse tax consequence to the Company, the Net Proceeds so affected may be retained outside of the United States by the applicable Restricted Subsidiary for so long as such material adverse tax consequence would continue. SECTION 5.11. Transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless: 95 (i) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (ii) the Company delivers to the Administrative Agent: (A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $2.5 million, an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant; and (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors or, if there are no disinterested members of the Board of Directors, the Board of Directors shall have received a written opinion of an accounting, appraisal or investment banking firm of national standing stating that such Affiliate Transaction or series of Affiliate Transactions is fair to the Company or such Restricted Subsidiary from a financial point of view. (b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 5.11(a): 96 (i) any employment agreement, employee benefit plan, stock option plan, officer and director indemnification agreement or any similar arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business; (ii) transactions between or among the Company and its Restricted Subsidiaries and between or among the Company's Restricted Subsidiaries; (iii) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person; (iv) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company; (v) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company; (vi) Restricted Payments that do not violate the provisions of this Agreement as described in Section 5.07 hereof; (vii) loans or advances to employees in the ordinary course of business; (viii) any repurchase, redemption or other retirement of Capital Stock of the Company held by employees of the Company or any of its Subsidiaries upon death, disability or termination of employment at a price not in excess of the Fair Market Value thereof approved by the Board of Directors; (ix) any transaction between or among the Company and any of its Subsidiaries in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries; and (x) any agreement to do any of the foregoing. (c) Any transaction which has been determined, in the written opinion of an independent nationally recognized investment banking firm, to be fair, from a financial point of view, to the Company or the applicable Restricted Subsidiary shall be deemed to be in compliance with this Section 5.11. 97 SECTION 5.12. Liens. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, except Permitted Liens. (b) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, grant or permit to exist a Lien upon any property (whether then held by it or to be acquired by it at a future time) as security for any Priority Lien Debt, unless (1) such Lien secures all Priority Lien Debt on an equal and ratable basis and (2) the Collateral Trustee holds an enforceable and perfected Lien upon such property as security Equally and Ratably for all Parity Lien Obligations in second priority to Priority Lien Debt. SECTION 5.13. Limitation on Changes in the Nature of Business. The Company and its Restricted Subsidiaries shall engage only in Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. In addition, the Company shall, and shall cause its Subsidiaries, to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law; provided to the extent that any such law is amended following the date of this Agreement in such a manner that would (absent application of this proviso) make non-compliance with this Section 5.13 not result in a material adverse effect on the Company's results of operations or financial condition, then the Company shall not be required to comply with this Section 5.13, but only to the extent of actions or failures to act that would (absent application of this Section 5.13) constitute violations of this Section 5.13 solely as a result of such amendment. SECTION 5.14. Corporate Existence. Subject to Article 6 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect: (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, 98 and that the loss thereof is not adverse in any material respect to the Lenders. SECTION 5.15. Offer to Repurchase Upon Change of Control. (a) If a Change of Control occurs, each Lender shall have the right to require the Company to repay all or any part (equal to $1,000 or an integral multiple of $1,000) of that Lender's Term Loans pursuant to the offer described below (the "Change of Control Offer") on the terms set forth in this Agreement. In the Change of Control Offer, the Company shall offer a payment in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, (the "Change of Control Payment"), to but excluding the date of repayment. Within 30 days following any Change of Control, the Company shall mail a notice to the Administrative Agent (for delivery to each Lender) describing the transaction or transactions that constitute the Change of Control and offering to repay all Term Loans on the change of control payment date (the "Change of Control Payment Date") specified in the notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by this Agreement and described in such notice. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful: (i) transfer to the Administrative Agent in immediately available funds an amount equal to the Change of Control Payment in respect of all Term Loans or portions thereof for which repayment has been requested; and (ii) deliver or cause to be delivered to the Adminstrative Agent an Officers' Certificate stating the aggregate principal amount of Term Loans or portions thereof being repaid by the Company. (c) The Administrative Agent shall promptly mail to each Lender so requesting the Change of Control Payment for such Term Loans. (d) The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (e) The provisions described above that require the Company to make a Change of Control Offer following a Change of Control shall be applicable whether or not any other provisions of this Agreement are applicable. (f) The Company shall not be required to make a Change of Control Offer upon a Change of Control if (i) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Agreement applicable to a Change of Control Offer made by the Company and repays all Term Loans not withdrawn under the Change of Control Offer or (ii) notice of voluntary 99 prepayment has been given in accordancy with Section 2.10 unless and until there is a default in payment of the applicable prepayment price. SECTION 5.16. Limitation on Sale and Leaseback Transactions. (a) The Company shall not enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if: (i) the Company could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in Section 5.09 (a) herein and (b) incurred a Lien to secure such Indebtedness pursuant to Section 5.12 herein; (ii) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value, as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Administrative Agent, of the property that is the subject of that sale and leaseback transaction; and (iii) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 5.10 herein. (b) This Section 5.16 shall not apply to the Company's Subsidiaries. SECTION 5.17. [Intentionally Omitted.] SECTION 5.18. [Intentionally Omitted.] SECTION 5.19. Limitation on Issuances of Guarantees of Indebtedness. The Company shall not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company (other than the Existing Guarantees by the Canadian Guarantors) unless such Restricted Subsidiary simultaneously executes and delivers (1) supplemental agreements providing for the Guarantees of the payment of the Term Loans by such Restricted Subsidiary, which Guarantees shall be senior to such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness unless the Indebtedness of the Company so Guaranteed or secured is senior Indebtedness of the Company, in which case the Guarantees of the Term Loans may be pari passu with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness of the Company, and (2) a pledge or security agreement providing for a pledge of such assets to secure the Term Loans and all other Parity Lien Debt on an Equal and Ratable basis (subject only to Permitted Prior Liens). 100 SECTION 5.20. [Intentionally Omitted.] SECTION 5.21. Payments for Consent. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Lender for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Agreement or any other Term Loan Document unless such consideration is offered to be paid or agreed to be paid to all Lenders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SECTION 5.22. Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be deemed to be an Investment made as of the time of the designation and shall reduce the remaining amount available for Restricted Payments under Section 5.07 herein or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation shall only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. SECTION 5.23. Suspension of Covenants. (a) If on any date following the date of this Agreement: (i) the Term Loans are rated Baa3 or better by Moody's and BBB--or better by S&P; and (ii) no Default or Event of Default shall have occurred and be continuing, then, beginning on that day and subject to the provisions of the following paragraph, the Company and its Restricted Subsidiaries shall no longer be subject to Sections 5.07, 5.08, 5.09, 5.10 (provided that the provisions of Section 5.10 relating to the Sale of Designated Assets and the application of the proceeds therefrom shall remain in full force and effect and shall not be suspended), 5.11, 5.13, 5.22 and 6.01(iv) hereof (the "Suspended Covenants"); provided that all other provisions of this Agreement shall continue to be in full force and effect. Notwithstanding the foregoing, if the rating assigned by either such rating agency should subsequently decline to below Baa3 or BBB--, respectively, the Suspended Covenants shall be 101 reinstituted as of and from the date of such rating decline. Calculations under the reinstated Section 5.07 shall be made as if the covenant set forth in Section 5.07 had been in effect since the date of this Agreement except that no Default shall be deemed to have occurred solely by reason of a Restricted Payment made while Section 5.07 was suspended. The covenant suspension provisions of this Section 5.23 shall continue to be applicable following any such reinstatement. ARTICLE VI SUCCESSORS SECTION 6.01. Merger, Consolidation, or Sale of Assets. The Company may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (i) either: (A) the Company is the surviving corporation; or (B) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; 102 (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under this Agreement and the other Term Loan Documents pursuant to agreements reasonably satisfactory to the Administrative Agent and the Collateral Trustee; (iii) immediately after such transaction, no Default or Event of Default exists; (iv) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made: (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and (B) shall, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 5.09(a) herein; and (v) such transaction shall not impair the ability of the Company or any of its Subsidiaries to conduct their respective businesses in a manner so as to maintain the exemption of the Company and its Subsidiaries from treatment as a public utility holding company under PUHCA or an electric utility or public utility under any federal, state or local law, unless such exemption is no longer material to the Company and its Restricted Subsidiaries taken as a whole or to the Person formed by or surviving any such consolidation or merger (if other then the Company) and its Restricted Subsidiaries taken as a whole. In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. Notwithstanding the foregoing: (A) the Company may merge with an Affiliate solely for the purpose of reincorporating the Company in another jurisdiction; and 103 (B) the Company and its Restricted Subsidiaries may sell, assign, transfer, lease, convey or otherwise dispose of assets between or among each other (including by way of merger). SECTION 6.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 6.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Agreement referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Agreement with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Term Loans except in the case of a sale of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 6.01 hereof. ARTICLE VII DEFAULTS AND REMEDIES SECTION 7.01. Events of Default. Each of the following is an "Event of Default": (i) default for 30 days in the payment when due of interest on the Term Loans; (ii) default in payment when due of the principal of, or premium, if any, on the Term Loans; (iii) failure to comply with Section 5.10 or 5.15; (iv) failure by the Company or any of its Restricted Subsidiaries for 30 days after written notice from the Administrative Agent or Lenders holding at least 25% in outstanding aggregate principal amount of the Term Loans then outstanding to comply with any of the other agreements in this Agreement or the other Term Loan Documents; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or 104 evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Agreement, if that default: (A) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (B) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or more, and such default shall not have been cured or waived or any such acceleration rescinded, or such Indebtedness repaid, within 20 days of the Company or such Restricted Subsidiary becoming aware of such default; provided that the provisions of this clause (v) shall not apply to any default on Non-Recourse Debt; 105 (vi) failure by the Company or any of its Significant Subsidiaries to pay final judgments (not covered by insurance) aggregating in excess of $50.0 million, which judgments are not paid, discharged or stayed for a period of 30 days; (vii) the repudiation by the Company or any of its Restricted Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the Security Documents against the Company or any of its Restricted Subsidiaries for any reason; provided that such breach, repudiation or unenforceability relates to Collateral having an aggregate Fair Market Value of $50.0 million or more; (viii) except as permitted by this Agreement, any Guarantee of the Term Loan Obligations shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Canadian Guarantor, or any Person acting on behalf of any Canadian Guarantor, shall deny or disaffirm its obligations under its Guarantee of the Term Loan Obligations and such condition shall not have been cured within 30 days of written notice from the Administrative Agent or Lenders holding at least 25% in outstanding aggregate principal amount of the Term Loans then outstanding; and (ix) (a) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when take together, would consitute a Significant Subsidiary pursuant to or within the meaning of the Bankruptcy Code: (1) commences a voluntary case, (2) consents to the entry of an order for relief against it in an involuntary case, (3) consents to the appointment of a custodian of it or for all or substantially all of its property, (4) makes a general assignment for the benefit of its creditors or (5) generally is not paying its debts as they become due or (b) a court of competent jurisdiction enters an order or decree under the Bankruptcy Code that: (1) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a Significant Subsidiary, in an involuntary case, (2) appoints a custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a Significant Subsidiary or (3) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a 106 Significant Subsidiary, and in any case under this clause (b) the order or decree remains unstayed and in effect for 60 consecutive days. SECTION 7.02. Acceleration. (a) In the case of an Event of Default specified in clause (ix) of Section 7.01 hereof, with respect to the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Term Loans shall become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Administrative Agent or Lenders holding at least 25% in outstanding aggregate principal amount of the Term Loans then outstanding may declare all the Term Loans to be due and payable immediately. (b) Upon any such declaration, the Term Loans shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (ix) of Section 7.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Term Loans shall be due and payable immediately without further action or notice. Lenders holding at least 25% in outstanding aggregate principal amount of the Term Loans then outstanding by written notice to the Administrative Agent may on behalf of all of the Lenders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. SECTION 7.03. Other Remedies. (a) If an Event of Default occurs and is continuing, the Administrative Agent may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Term Loans or to enforce the performance of this Agreement. (b) The Administrative Agent may maintain a proceeding even if it does not possess any of the Term Loans. A delay or omission by the Administrative Agent or any Lender in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 7.04. Waiver of Past Defaults. The Requisite Lenders by notice to the Administrative Agent may on behalf of the Lenders waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Term Loans (including in connection with an offer to purchase); provided, however, that the Requisite Lenders may rescind an acceleration and its consequences, including 107 any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Agremeent; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 7.05. Control by Majority. The Requisite Lenders may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Administrative Agent or exercising any trust or power conferred on it. However, the Administrative Agent may refuse to follow any direction that conflicts with law or this Agreement that the Administrative Agent determines may be unduly prejudicial to the rights of other Lenders or that may involve the Administrative Agent in personal liability. SECTION 7.06. [Intentionally Omitted.] SECTION 7.07. [Intentionally Omitted.] SECTION 7.08. Collection Suit by Administrative Agent. If an Event of Default specified in Section 7.01(1) or (2) occurs and is continuing, the Administrative Agent is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Term Loans and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Administrative Agent, its agents and counsel. SECTION 7.09. Priorities. If the Administrative Agent collects any money pursuant to this Article 7, it shall pay out the money in the following order: First: to the Administrative Agent, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Administrative Agent and the costs and expenses of collection; Second: to the Lenders for amounts due and unpaid on the Term Loans for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Term Loans for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. 108 The Administrative Agent may fix a record date and payment date for any payment to Lenders pursuant to this Section 7.10. ARTICLE VIII AGENTS SECTION 8.01. Appointment of Agents. The Company and the Lenders acknowledge and agree that GSCP has acted and shall be credited as sole lead arranger and sole bookrunner of the Initial Term Loans and that GSCP is hereby appointed Administrative Agent hereunder and under the other Term Loan Documents. Each Lender hereby authorizes the Sole Lead Arranger and the Administrative Agent to act as its agent in accordance with the terms hereof and the other Term Loan Documents. The Administrative Agent hereby agrees to act upon the express conditions contained herein and the other Term Loan Documents, as applicable. The provisions of this Article VIII are solely for the benefit of Agents and Lenders and no Obligor shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, the Administrative Agent shall act solely as an agent of Lenders and no Agent does or shall assume or be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Company or any of its Restricted Subsidiaries. The Sole Lead Arranger, without consent of or notice to any party hereto, may assign any and all of its rights or obligations hereunder to any of its Affiliates. GSCP in its capacity as the Sole Lead Arranger shall not have any duties, liabilities or obligations under the Term Loan Documents but shall be entitled to all benefits of this Article VIII. SECTION 8.02. Powers and Duties. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Term Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and the other Term Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other Term Loan Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Term Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Term Loan Documents except as expressly set forth herein or therein. SECTION 8.03. General Immunity. (a) No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency hereof or any other Term Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any 109 written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to Lenders or by or on behalf of any Obligor to any Agent or any Lender in connection with the Term Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Obligor or any other Person liable for the payment of any Term Loan Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Term Loan Documents or as to the use of the proceeds of the Term Loans or as to the existence or possible existence of any Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, the Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Term Loans or the component amounts thereof. (b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Term Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Term Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 13.05) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for the Company and its Restricted Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other Term Loan Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 13.05). SECTION 8.04. Agents Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Term Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits 110 from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with the Company or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from the Company for services in connection herewith and otherwise without having to account for the same to Lenders. SECTION 8.05. Lenders' Representations, Warranties and Acknowledgment. (a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Company and its Restricted Subsidiaries in connection with its Term Loans hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of the Company and its Restricted Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Term Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. (b) Each Lender, by delivering its signature page to this Agreement and funding its Initial Term Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Term Loan Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date. SECTION 8.06. Right to Indemnity. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Obligor, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Term Loan Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Term Loan Documents; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence. 111 SECTION 8.07. Successor Administrative Agent. The Administrative Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Lenders and the Company, and the Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to the Company and the Administrative Agent and signed by the Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to the Company, to appoint a successor Administrative Agent. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall promptly transfer to such successor Administrative Agent all sums, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent under the Term Loan Documents, whereupon such retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder. ARTICLE IX COLLATERAL AND SECURITY The Collateral Trustee's Liens upon the Collateral shall no longer secure the Term Loan Obligations outstanding under this Agreement, and the right of Lenders to the benefits and proceeds of the Collateral Trustee's Liens on Collateral shall terminate and be discharged: (1) upon payment in full and discharge of all outstanding Term Loans and all other Term Loan Obligations that are outstanding, due and payable at the timeall of the Term Loans are paid in full and discharged; or (2) with the prior written consent of each Lender. ARTICLE X RANKING OF LIENS Notwithstanding: (i) anything to the contrary contained in the Security Documents; (ii) the time of incurrence of any Series of Secured Debt; (iii) the order or method of attachment or perfection of any Liens securing any Series of Secured Debt; (iv) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral; (v) the time of taking possession or control over any Collateral or (vi) 112 the rules for determining priority under any law governing relative priorities of Liens, all Liens at any time granted by the Company or any other Obligor to secure any of the Parity Lien Debt shall be subject and subordinate to Priority Liens securing Priority Lien Obligations up to the Priority Lien Cap. The foregoing provision is intended for the benefit of, and shall be enforceable as a third party beneficiary by, each present and future holder of Priority Lien Obligations, each present and future Priority Lien Agent and the Collateral Trustee as holder of Priority Liens. No other Person shall be entitled to rely on, have the benefit of or enforce this provision. In addition, the foregoing provision is intended solely to set forth the relative ranking, as Liens, of the Liens securing Parity Lien Debt as against the Priority Liens. Neither the Notes nor the Term Loans nor any other Parity Lien Obligations nor the exercise or enforcement of any right or remedy for the payment or collection thereof are intended to be, or shall ever be by reason of the foregoing provision, in any respect subordinated, deferred, postponed, restricted or prejudiced. ARTICLE XI COLLATERAL SHARING SECTION 11.01. Equal and Ratable Lien Sharing by holders of Parity Lien Debt. Notwithstanding (i) anything to the contrary contained in the Security Documents; (ii) the time of incurrence of any Series of Parity Lien Debt; (iii) the order or method of attachment or perfection of any Liens securing any Series of Parity Lien Debt; (iv) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Collateral; (v) the time of taking possession or control over any Collateral or (vi) the rules for determining priority under any law governing relative priorities of Liens: (a) all Liens at any time granted by the Company or any other Obligor to secure any Parity Lien Obligations shall secure Equally and Ratably all present and future Parity Lien Obligations and (b) all proceeds of all Liens at any time granted by the Company or any Obligor to secure any of the Parity Lien Debt and other Parity Lien Obligations shall be allocated and distributed Equally and Ratably on account of the Parity Lien Debt and other Parity Lien Obligations; provided that, for the avoidance of doubt, in the absence of an Event of Default, the Company shall be entitled to utilize cash proceeds of Collateral in the ordinary course of its business. 113 SECTION 11.02. Enforcement. The provisions of Section 11.01 are binding upon and intended for the benefit of the Collateral Trustee and each present and future holder of Parity Lien Obligations, each of whom shall be entitled to enforce such provisions as a third party beneficiary thereof. SECTION 11.03. Amendment. (a) No amendment or supplement to the provisions of this Article XI that adversely affects the right of any holder of Parity Lien Obligations to share in the Collateral Equally and Ratably shall become effective without the consent of each such holder. (b) Any such amendment or supplement that imposes any obligation upon the Collateral Trustee or adversely affects the rights of the Collateral Trustee in its individual capacity shall become effective only with the consent of the Collateral Trustee. (c) No waiver of the provisions of this Article XI shall in any event be effective unless set forth in a writing signed and consented to, as required for an amendment under this Section 11.03, by the party to be bound thereby. ARTICLE XII INTENTIONALLY OMITTED ARTICLE XIII MISCELLANEOUS SECTION 13.01. Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to any Obligor, the Sole Lead Arranger, the Collateral Trustee or the Administrative Agent shall be sent to such Person's address as set forth on Appendix B or in the other relevant Term Loan Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to the Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided, no notice to any Agent shall be effective until received by such Agent. Documents, notices or reports required to be delivered to the Lenders pursuant to Sections 2.11, 5.03(a), 5.04 and 5.15 may be delivered electronically and posted electronically on IntraLinks/IntraAgency or other relevant website to which the Lenders have access (whether a commercial, third-party website or whether sponsored by Administrative Agent), if any; provided that (i) the Administrative Agent shall deliver paper copies of such reports to any Lender upon written request therefor; and (ii) the Administrative Agent shall notify (which may be by facsimile or electronic mail) each Lender of 114 the posting of any such reports and provide to each Lender by email electronic versions (i.e. soft copies) of such reports. SECTION 13.02. Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to pay promptly: (a) all expenses associated with the creation and perfection of security interests and associated documents, including, without limitation, the Security Documents and all Financing Statements, including filing fees and the reasonable fees and disbursements of Latham & Watkins LLP, counsel to the Sole Lead Arranger, incurred in connection therewith and the fees and disbursements of local counsel incurred in connection therewith, in each case, prior to the Closing Date; (b) all the actual and reasonable costs and expenses incurred after the Closing Date of preparation of the Term Loan Documents and any consents, amendments, waivers or other modifications thereto; (c) all the costs incurred after the Closing Date of furnishing all opinions by counsel for the Company and the other Obligors; (d) after the Closing Date, the reasonable fees, expenses and disbursements of counsel to Agents in connection with the negotiation, preparation, execution and administration of the Term Loan Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by the Company; (e) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Trustee, for the benefit of Lenders pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Security Documents; (f) all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants, consultants or appraisers; (g) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Trustee and its counsel) in connection with the custody or preservation of any of the Collateral; (h) all other actual and reasonable costs and expenses incurred by each Agent in connection with the syndication of the Term Loans and Term Loan Commitments and the negotiation, preparation and execution of the Term Loan Documents and any 115 consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (i) after the occurrence of a Default or an Event of Default, all costs and expenses, including reasonable attorneys' fees and costs of settlement, incurred by any Agent and Lenders in enforcing any Term Loan Obligations of or in collecting any payments due from any Obligor hereunder or under the other Term Loan Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Term Loan Guarantee) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or pursuant to any insolvency or bankruptcy cases or proceedings. SECTION 13.03. Indemnity. (a) In addition to the payment of costs and expenses pursuant to Section 13.02, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless the Administrative Agent and Lender and each of their respective Affiliates and each and all of the directors, officers, partners, trustees, employees, attorneys and agents, and (in each case) their respective heirs, representatives, successors and assigns (each of the foregoing, an "Indemnitee") from and against any and all Indemnified Liabilities; provided, no Indemnitee shall be entitled to indemnification hereunder with respect to any Indemnified Liability to the extent such Indemnified Liability is found by a final and nonappealable decision of a court of competent jurisdiction to have resulted directly and primarily from the gross negligence or willful misconduct of such Indemnitee. (b) All amounts due under Section 13.03(a) shall be payable not later than 10 days after written demand therefor. (c) To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in Section 13.03(a) may be unenforceable in whole or in part because they are violative of any law or public policy, the Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. (d) The Company shall not assert any claim against any Indemnitee, on any theory of liability, for any lost profits or special, indirect or consequential damages or (to the fullest extent lawful) any punitive damages arising out of, in connection with, or as a result of, this Agreement or any other Term Loan Document or any agreement or instrument or transaction contemplated hereby or relating in any respect to any Indemnified Liability, and the Company hereby forever waives, releases and agrees not to sue upon any claim for any such lost profits or special, indirect, consequential or (to the 116 fullest extent lawful) punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor. (e) The agreements in this Section 13.03 shall survive repayment of the Term Loans and all other amounts payable hereunder. SECTION 13.04. Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by each Obligor at any time or from time to time subject to the consent of the Administrative Agent, without prior written notice to any Obligor or to any other Person (other than the Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of any Obligor against and on account of the obligations and liabilities of any Obligor to such Lender hereunder, and under the other Term Loan Documents, including all claims of any nature or description arising out of or connected hereto, or with any other Term Loan Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the Term Loans or any other amounts due hereunder shall have become due and payable pursuant to Article II and although such obligations and liabilities, or any of them, may be contingent or unmatured. Each Obligor hereby further grants to the Administrative Agent and each Lender a security interest in all deposit accounts maintained with the Administrative Agent or such Lender as security for the Term Loan Obligations. SECTION 13.05. Amendments and Waivers. (a) Requisite Lenders' Consent. Subject to Section 13.05(e), no amendment, modification, termination or waiver of any provision of the Term Loan Documents, or consent to any departure by any Obligor therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders and any additional consents required by Sections 13.05(b) and (c). (b) Affected Lenders' Consent. No amendment, modification, termination, or consent shall be effective if the effect thereof would: (i) extend the scheduled final maturity of any Term Loan or Term Loan Note outstanding to any Lender without the prior written consent of that Lender; (ii) waive, reduce or postpone any scheduled repayment (but not prepayment) due to any Lender without the prior written consent of that Lender; (iii) reduce the rate of interest on any Term Loan (other than any waiver of any increase in the interest rate applicable to any Term 117 Loan pursuant to Section 2.07) payable to any Lender or reduce or extend any fee payable hereunder to any Lender without the prior written consent of that Lender; (iv) reduce the principal amount of any Term Loan outstanding to any Lender without the prior written consent of that Lender; (v) amend, modify, terminate or waive any provision of this Section 13.05(b), as it applies to any Lender without the prior written consent of that Lender; (vi) amend the definition of "Requisite Lenders" or "Pro Rata Share"; provided, without the consent of the Requisite Lenders as set forth in Section 2.19 hereof and otherwise with the consent of the Requisite Lenders additional extensions of credit pursuant hereto may be included in the determination of "Requisite Lenders" or "Pro Rata Share" on substantially the same basis as the Initial Term Loan Commitments and the Initial Term Loans are included on the Closing Date; (vii) (x) release all or substantially all of the Collateral or all or substantially all of the Guarantors from the Guarantee under the Guarantee and Collateral Agreement without the prior written consent of all Lenders or (y) release any Collateral from the Liens created by the Security Documents except as specifically provided for in this Agreement and the Security Documents; or (viii) consent to the assignment or transfer by any Obligor of any of its rights and obligations under any Term Loan Document without the prior written consent of all Lenders. (c) Other Consents. No amendment, modification, termination or waiver of any provision of the Term Loan Documents, or consent to any departure by any Obligor therefrom, shall amend, modify, terminate or waive any provision of Article VIII as the same applies to the Administrative Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of the Administrative Agent. (d) Execution of Amendments, etc. The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Obligor in any case shall entitle any Obligor to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this 118 Section 13.05 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by a Obligor, on such Obligor. (e) Certain Amendments. Notwithstanding the preceding provisions of this Section 13.05, the Company and the Administrative Agent may amend or supplement the Term Loan Documents without the consent of any Lender: (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for the assumption of the Company's obligations to the Lenders by a successor to the Company pursuant to Article V hereof; (iii) to make any change that would provide any additional rights or benefits to the Lenders or that does not adversely affect the legal rights hereunder of any Lender; (iv) to allow any Guarantor to execute a supplemental Guarantee with respect to the Term Loans; (v) to make, complete or confirm any grant of Collateral permitted or required by this Agreement or any of the Security Documents or any release of Collateral that becomes effective as set forth in this Agreement or any of the Security Documents; (vi) to conform the text of this Agreement, the Term Loan Notes or the Security Documents to any provision of the Description of the Notes section of the Offering Circular to the extent that such provision of the Description of the Notes section of the Offering Circular was intended to be a verbatim recitation of a provision of this Agreement, the Term Loan Notes or the Security Documents; or (vii) to reflect any waiver or termination of any right arising under the provisions of this Agreement that otherwise would be enforceable by any holder of the Initial Notes, if such waiver or termination is set forth in the indentures governing such Initial Notes, provided that no such waiver or amendment shall adversely affect the rights of the Lenders. SECTION 13.06. Successors and Assigns; Participations. (a) Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders and the other parties hereto. No Obligor's rights or obligations hereunder nor any interest therein may be assigned or delegated by 119 any Obligor without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Register. The Company, the Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Term Loan Commitments and Term Loans listed therein for all purposes hereof, and no assignment or transfer of any such Term Loan Commitment or Term Loan shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by the Administrative Agent and recorded in the Register as provided in Section 13.06(e). Prior to such recordation, all amounts owed with respect to the applicable Term Loan Commitment or Term Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Term Loan Commitments or Term Loans. (c) Right to Assign. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Term Loan Commitment or Term Loans owing to it or other Term Loan Obligation (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Term Loan and any related Term Loan Commitments): (i) to any Person meeting the criteria of clause (i) of the definition of the term of "Eligible Assignee" upon the giving of notice to the Company and the Administrative Agent; and (ii) to any Person meeting the criteria of clause (ii) of the definition of the term of "Eligible Assignee"; provided, further each such assignment pursuant to this Section 13.06(c) shall be in an aggregate amount of not less than $1,000,000 (or such lesser amount as may be agreed to by the Company and the Administrative Agent or as shall constitute the aggregate amount of the Term Loan Commitments and Term Loans outstanding to the assigning Lender). (d) Mechanics. The assigning Lender and the assignee thereof shall execute and deliver to the Administrative Agent an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to the Administrative Agent pursuant to Section 2.17(c). 120 (e) Notice of Assignment. Upon its receipt of a duly executed and completed Assignment Agreement (and any forms, certificates or other evidence required by this Agreement in connection therewith), the Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to the Company and shall maintain a copy of such Assignment Agreement. (f) Representations and Warranties of Assignee. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Term Loan Commitments or Term Loans, as the case may be; and (iii) it shall make or invest in, as the case may be, its Term Loan Commitments or Term Loans for its own account in the ordinary course of its business and without a view to distribution of such Term Loan Commitments or Term Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 13.06, the disposition of such Term Loan Commitments or Term Loans or any interests therein shall at all times remain within its exclusive control). (g) Effect of Assignment. Subject to the terms and conditions of this Section 13.06, as of the "Effective Date" specified in the applicable Assignment Agreement: 121 (i) the assignee thereunder shall have the rights and obligations of a "Lender" hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a "Lender" for all purposes hereof; (ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 13.08 and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations hereunder, such Lender shall cease to be a party hereto; provided, anything contained in any of the Term Loan Documents to the contrary notwithstanding, such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder); (iii) the Term Loan Commitments shall be modified to reflect the Term Loan Commitment of such assignee; and (iv) if any such assignment occurs after the issuance of any Term Loan Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Term Loan Notes to the Administrative Agent for cancellation, and thereupon the Company shall issue and deliver new Term Loan Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new outstanding Term Loans of the assignee and/or the assigning Lender. (h) Participations. Each Lender shall have the right at any time to sell one or more participations to any Person (other than the Company, any of its Restricted Subsidiaries or any of its Affiliates) in all or any part of its Term Loan Commitments, Term Loans or in any other Term Loan Obligation. The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would: (i) extend the final scheduled maturity of any Term Loan or Term Loan Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post- 122 default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Term Loan Commitment shall not constitute a change in the terms of such participation, and that an increase in any Term Loan Commitment or Term Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof); (ii) consent to the assignment or transfer by any Obligor of any of its rights and obligations under this Agreement; or (iii) release all or substantially all of the Collateral under the Security Documents (except as expressly provided in the Term Loan Documents) supporting the Term Loans hereunder in which such participant is participating. The Company agrees that each participant shall be entitled to the benefits of Sections 2.15(c), 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) of this Section; provided, (i) a participant shall not be entitled to receive any greater payment under Section 2.16 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with the Company's prior written consent and (ii) a participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the Company is notified of the participation sold to such participant and such participant agrees, for the benefit of the Company, to comply with Section 2.17 as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 13.04 as though it were a Lender, provided such Participant agrees to be subject to Section 2.14 as though it were a Lender. (i) Certain Other Assignments. In addition to any other assignment permitted pursuant to this Section 13.06, any Lender may assign and/or pledge all or any portion of its Term Loans, the other Term Loan Obligations owed by or to such Lender, and its Term Loan Notes, if any, to secure obligations of such Lender including, without limitation, (i) to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank and (ii) with respect to any Lender that is a fund that invests in bank loans, to any trustee or holder of obligations owed, or securities issued by, such fund as security for such obligations or securities or to any other representative of such holders; provided, no Lender, as between the Company and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, trustee or such holder of obligations be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. 123 (j) Delivery of Lender Addenda. Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent a Lender Addendum duly executed by such Lender, the Borrower and the Administrative Agent. SECTION 13.07. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. SECTION 13.08. Survival of Representations, Warranties and Agreements. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Term Loan. Notwithstanding anything herein or implied by law to the contrary, the agreements of each Obligor set forth in Sections 2.15(c), 2.16, 2.17, 13.02, 13.03, 13.04, 13.15, 13.16 and 13.17 and the agreements of Lenders set forth in Sections 2.14, 8.03(b) and 8.06 shall survive the payment of the Term Loans and the termination hereof. SECTION 13.09. No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Term Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Term Loan Documents. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. SECTION 13.10. Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Obligor or any other Person or against or in payment of any or all of the Term Loan Obligations. To the extent that any Obligor makes a payment or payments to the Administrative Agent or Lenders (or to the Administrative Agent, on behalf of Lenders), or the Administrative Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. SECTION 13.11. Severability. In case any provision in or obligation under any Term Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and 124 enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 13.12. Term Loan Obligations Several; Independent Nature of Lenders' Rights. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Term Loan Commitment of any other Lender hereunder. Nothing contained herein or in any other Term Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out hereof and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. SECTION 13.13. Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect. SECTION 13.14. Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York without regard to conflict of laws principles thereof. SECTION 13.15. Consent to Jurisdiction. All judicial proceedings brought against any party hereto arising out of or relating hereto or any other Term Loan Document, or any of the Term Loan Obligations, may be brought in any state or federal court of competent jurisdiction in the State, County and City of New York. By executing and delivering this agreement, each party hereto, for itself and in connection with its properties, irrevocably (a) accepts generally and unconditionally the nonexclusive jurisdiction and venue of such courts; (b) waives any defense of forum non conveniens; (c) agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to the applicable Obligor at its address provided in accordance with Section 13.01; (d) agrees that service as provided in clause (c) above is sufficient to confer personal jurisdiction over the applicable Obligor in any such proceeding in any such court, and otherwise constitutes effective and binding service in every respect; and (e) agrees Agents and Lenders retain the right to serve process in any other manner permitted by law or to bring proceedings against any Obligor in the courts of any other jurisdiction. SECTION 13.16. Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER TERM LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT 125 CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 13.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER TERM LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. SECTION 13.17. Confidentiality. Each Lender shall hold all non- public information regarding the Company and its business identified as such by the Company and obtained by such Lender pursuant to the requirements hereof in accordance with such Lender's customary procedures for handling confidential information of such nature, it being understood and agreed by the Company that, in any event, a Lender may make: (i) disclosures of such information to Affiliates of such Lender and to their agents and advisors (and to other Persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 13.17); (ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Term Loans or any participations therein or by any direct or indirect contractual counterparties (or the professional advisors thereto) in Commodity Hedge Agreements and Financial Hedge Agreements (provided, such assignee, transferee, participant, counterparties and advisors are advised of and agree to be bound by the provisions of this Section 13.17); (iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential 126 information relating to the Obligors received by it from any of the Agents or any Lender, and (iv) disclosures required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal or judicial process; provided, unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify the Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information. Notwithstanding anything to the contrary set forth herein or in any other written or oral understanding or agreement to which the parties hereto are parties or by which they are bound, the parties acknowledge and agree that (i) any obligations of confidentiality contained herein and therein do not apply and have not applied from the commencement of discussions between the parties to the tax treatment and tax structure of this Agreement, the Indentures, the Credit Agreement and the transactions contemplated hereby or thereby (and any related transactions or arrangements), and (ii) each party (and each of its employees, representatives, or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of this Agreement, the Indentures, the Credit Agreement and the transactions contemplated hereby or thereby and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such tax treatment and tax structure, all within the meaning of Treasury Regulations Section 1.6011-4; provided, however, that each party recognizes that the privilege each has to maintain, in its sole discretion, the confidentiality of a communication relating to this Agreement, the Indentures, the Credit Agreement and the transactions contemplated hereby or thereby, including a confidential communication with its attorney or a confidential communication with a federally authorized tax practitioner under Section 7525 of the Code, is not intended to be affected by the foregoing. SECTION 13.18. Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Term Loan Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Term Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Term Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Company shall pay to the Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate 127 had at all times been in effect. Notwithstanding the foregoing, it is the intention of Lenders and the Company to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Term Loans made hereunder or be refunded to the Company. SECTION 13.19. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. The delivery of an executed signature page of this Agreement, or any Joinder Agreement in connection herewith, by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. SECTION 13.20. Effectiveness. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Company and the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. SECTION 13.21. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement must include: (i) a statement that the Person making such certificate or opinion has read such covenant or condition; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (iv) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 128 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. CALPINE CORPORATION By: /s/ Michael Thomas ------------------------- Name: Michael Thomas Title: SVP and Treasurer S-1 GOLDMAN SACHS CREDIT PARTNERS L.P., as Administrative Agent, Sole Lead Arranger and a Lender By: /s/ RT Wagner --------------------------------------- Authorized Signatory ROBERT WAGNER Authorized Signatory S-2 APPENDIX A TO TERM LOAN AGREEMENT INITIAL TERM LOAN COMMITMENTS

=========================================================================================== Pro Lender Term Loan Commitment Rata Share =========================================================================================== Goldman Sachs Credit Partners L.P. $750,000,000.00 100% - ------------------------------------------------------------------------------------------- Total $750,000,000.00 100% ===========================================================================================

APPENDIX B to Term Loan Agreement NOTICE ADDRESSES Administrative Agent's Principal Office: Goldman Sachs Credit Partners L.P. 85 Broad Street New York, NY 10004 Attention: Pedro Ramirez Sole Lead Arranger: Goldman Sachs Credit Partners L.P. 85 Broad Street New York, NY 10004 Attention: Pedro Ramirez Obligors: Calpine Corporation 50 West San Fernando Street San Jose, CA 95113 Attention: General Counsel Collateral Trustee: The Bank of New York 101 Barclay Street Floor 8 West New York, NY 10286 Attention: Corporate Trust Administration 4 SCHEDULE 1.01(a) MORTGAGED PROPERTIES 5 SCHEDULE 1.01(b) PLEDGED SUBSIDIARIES 6 SCHEDULE 4.01(c) CAPITAL STOCK MATTERS 7 SCHEDULE 4.01(aa) SUBSIDIARY COMPANIES OF HOLDING COMPANIES 8 SCHEDULE 4.01(cc) FIRST-TIER PUBLIC UTILITY SUBSIDIARIES 9 SCHEDULE 4.01(dd) EXEMPT WHOLESALE GENERATORS 10 SCHEDULE 4.01(ee) TEXAS RETAIL SERVICE SUBSIDIARIES 11 SCHEDULE 4.01(hh) RETAIL SERVICE SUBSIDIARIES 12 SCHEDULE 4.01(ii) FERC COMPLAINTS 13 EXHIBIT A TO THE TERM LOAN AGREEMENT FORM OF ASSIGNMENT AGREEMENT Date: _______ __, ____ Goldman Sachs Credit Partners L.P., as the Administrative Agent 85 Broad Street New York, New York 10004 Attention: Pedro Ramirez Calpine Corporation 50 West San Fernando Avenue San Jose, CA 95113 Attention: Senior Vice President-Finance Re: Assignment Agreement Ladies and Gentlemen: Reference is made to the Credit Agreement, dated as of July 16, 2003 (as amended, supplemented, replaced or otherwise modified from time to time, the "Term Loan Agreement"), among Calpine Corporation, a Delaware corporation (the "Company"), the lenders from time to time parties thereto, Goldman Sachs Credit Partners L.P., as sole lead arranger and solebook runner, and Goldman Sachs Credit Partners L.P., as administrative agent. Unless otherwise defined herein, terms defined in the Term Loan Agreement and used herein shall have the meanings given to them in the Term Loan Agreement. As of [INSERT EFFECTIVE DATE OF ASSIGNMENT] (the "Effective Date"), [INSERT NAME OF ASSIGNOR] (the "Assignor") irrevocably sells, transfers, conveys and assigns, without recourse, representation or warranty (except as expressly set forth herein), to [INSERT NAME OF ASSIGNEE] (the "Assignee"), and the Assignee irrevocably purchases from the Assignor and assumes (as more particularly described in Schedule I hereto), [INSERT PERCENTAGE OF TERM LOANS TO BE ASSIGNED]% of (a) the Term Loans under the Term Loan Agreement and (b) all related rights, 14 benefits, obligations, liabilities, and indemnities under and in connection with the Term Loan Agreement and the other Term Loan Documents (the "Assigned Portion") (which represents $[INSERT AMOUNT TO BE ASSIGNED WHICH AGGREGATE AMOUNT MUST BE NOT LESS THAN $1,000,000] (OR SUCH LESSER AMOUNT AS SHALL BE AGREED BY THE COMPANY AND THE ADMINISTRATIVE AGENT OR AS SHALL CONSTITUTE THE AGGREGATE AMOUNT OF THE ASSIGNOR'S TERM LOANS AND OTHER OBLIGATIONS OWED TO THE ASSIGNOR)]). After giving effect to the foregoing assignment and delegation, the Assignor's and the Assignee's outstanding Term Loans for the purposes of the Term Loan Agreement and each other Term Loan Document will be as set forth in Schedule I hereto. In addition, this Agreement constitutes notice to the Administrative Agent, pursuant to Section 13.06 of the Term Loan Agreement, of the assignment and delegation to the Assignee of the Assigned Portion of the Term Loans of the Assignor outstanding under the Term Loan Agreement as of the Effective Date, subject to its written consents (as evidenced by your execution of this Agreement). All accrued and unpaid interest, fees and other amounts payable with respect to the Assigned Portion for any period of time prior to the Effective Date shall be payable to the Assignor, and all accrued and unpaid interest, fees and other amounts payable with respect to the Assigned Portion for any period from and after the Effective Date shall be payable to the Assignee. The Assignor and Assignee each agree to hold in trust for the other any such amounts that it receives pursuant to any Term Loan Document and to which the other party is entitled. The Assignee confirms and agrees that in becoming a Lender and in making its Term Loans under the Term Loan Agreement, such actions have and will be made without recourse to, or representation or warranty by, the Administrative Agent, except for the representations expressly set forth below. The Assignor represents and warrants that it is legally authorized to enter into and deliver this Agreement, that its existing aggregate Term Loans is as set forth on Schedule I hereto, that it is the legal and beneficial owner of the Assigned Portion and that it has not created any adverse claim on its interest in the Assigned Portion. Except as set forth in the previous sentence, the Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made pursuant to or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Term Loan Agreement, any other Term Loan Document or any other instrument or document furnished pursuant hereto or thereto, including the financial condition of the Company or any of their Subsidiaries or the performance or observance by any Lender or any of the Agents of any of its obligations under the Term Loan Agreement, any other Term Loan Document or any other instrument or document furnished pursuant hereto or thereto. The Assignee (a) represents and warrants that (i) it is an Eligible Assignee and that it is legally authorized to enter into and deliver this Agreement, (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Term Loan Commitments 15 or Term Loans, as the case may be and (iii) it will make or invest in, as the case may be, its Term Loan Commitments or Term Loans for its own account in the ordinary course of business and without a view to the distribution of such Term Loan Commitments or Term Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws, (b) confirms that it has received a copy of the Term Loan Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.03 of the Term Loan Agreement and copies of the documents which were required to be delivered under the Term Loan Agreement as a condition to the making of Term Loans thereunder and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement, (c) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Term Loan Agreement and the other Term Loan Documents are required to be performed by it as a Lender, and (d) attaches the forms prescribed by applicable Governmental Authorities as to the Assignee's status for purposes of determining exemption from withholding taxes with respect to all payments to be made to the Assignee under any of the Term Loan Documents or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty. In addition, the Assignee, independently and without reliance upon the Assignor, the Administrative Agent, any other Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, shall continue to make its own credit decisions in taking or not taking action under the Term Loan Agreement, the other Term Loan Documents and the other instruments and documents delivered in connection therewith. Following the execution of this Agreement, it will be delivered to the Administrative Agent for recording by the Administrative Agent pursuant to Section 13.06 of the Term Loan Agreement, effective as of the Effective Date. The Assignor attaches hereto the Term Note held by it, if any, evidencing the Assigned Portion and (i) upon request by the Assignee, will request that the Administrative Agent exchange the attached Note for a new Note payable to the Assignee and (ii) if the Assignor has retained any interest, may request that the Administrative Agent exchange the attached Note for a new Note payable to the Assignor, in each case in amounts which reflect the assignment being made hereby and after giving effect to any other assignments which have become effective on the Effective Date. Except as otherwise provided in the Term Loan Agreement, effective as of the Effective Date: (a) the Assignee: (i) shall be deemed automatically to have become a party to the Term Loan Agreement, have all the rights and obligations of a "Lender" under the Term Loan Agreement and the other Term Loan Documents as if it were an original signatory thereto to the extent specified in the second paragraph of this Agreement, and hereby expressly confirms its undertakings regarding its appointments and indemnity obligations provided for in Article XIII of the Term Loan Agreement; and (ii) agrees to be bound by the terms and conditions set forth in the Term Loan Agreement and the other Term Loan Documents as if it were an original signatory thereto; and 16 (b) the Assignor shall be released from its obligations and shall relinquish its rights under the Term Loan Agreement and the other Term Loan Documents to the extent specified in the second paragraph of this Agreement, except with regard to those provisions that expressly survive the termination of the Term Loan Agreement to the extent such provisions relate to the time prior to the Effective Date. The Assignee hereby advises each of you of the following administrative details with respect to the assigned Term Loan Commitments and Term Loans: (A) Address for Notices: ------------------------------------------------------- Institution Name: Attention: Domestic Office: Telephone: Facsimile: (B) Payment Instructions: The Assignee has attached hereto the forms, certificates or other evidence required by Section 2.17(c) of the Term Loan Agreement no later than the date of acceptance hereof by the Administrative Agent. The Assignee has also attached hereto any powers of attorney or other public or private documents requested by the Collateral Agent which are necessary to enable the Collateral Agent to enforce any of the Security Documents on behalf of the Secured Parties. The Administrative Agent shall notify the Company of any such assignments. This Agreement may be executed by the Assignor and Assignee in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same agreement. The delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. The parties hereto hereby agree to execute and deliver such other documents or instruments as shall be necessary to effect the purposes of this Agreement. This agreement shall be governed by the laws of the state of New York without regard to the conflicts of law provisions thereof, other than sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York. (Signature Page Follows) 17 IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Assignment and Acceptance Agreement as of the date first written above. [INSERT NAME OF ASSIGNOR] By:____________________________ Name: Title: [INSERT NAME OF ASSIGNEE] By:___________________ Name: Title: Accepted and acknowledged for recording in the Register this ____ day of ________, ___ S-1 [INCLUDE THE FOLLOWING ACKNOWLEDGEMENTS AND AGREEMENTS IN RESPECT OF ASSIGNMENTS FOR LESS THAN $1,000,000 IF SUCH ASSIGNMENT IS FOR AN AMOUNT DOES NOT CONSTITUTE THE AGGREGATE AMOUNT OF THE TERM LOAN COMMITMENTS AND TERM LOANS OUTSTANDING TO THE ASSIGNING LENDER] Acknowledged and Agreed GOLDMAN SACHS CREDIT PARTNERS L.P. By: __________________________________ Name: Title: CALPINE CORPORATION By: __________________________________ Name: Title: SCHEDULE I to Assignment Agreement A. Assigned Portion: Term Loans and Applicable Percentage with respect thereto $________ ________% B. Assignor's Adjusted Total Term Loans (after giving effect to the assignment contemplated hereby): Term Loans and Applicable Percentage with respect thereto $________ ________% C. Assignee's Adjusted Total Term Loans (after giving effect to the assignment contemplated hereby): Term Loans and Applicable Percentage with respect thereto $________ ________% 3 EXHIBIT B to the Term Loan Agreement [LETTERHEAD OF NON-US LENDER] FORM OF CERTIFICATE RE: NON-BANK STATUS Certificate Date: _______ __, ____ Goldman Sachs Credit Partners L.P. as the Administrative Agent 85 Broad Street New York, New York 10004 Attention: Pedro Ramirez Re: Non-Bank Status Ladies and Gentlemen: Reference is made to the Credit Agreement, dated as of July 16, 2003 (as amended, supplemented, replaced or otherwise modified from time to time, the "Term Loan Agreement"), by and among Calpine Corporation, a Delaware corporation (the "Company"), the Lenders party hereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger and sole bookrunner, and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Administrative Agent). Unless otherwise defined herein, terms defined in the Term Loan Agreement and used herein shall have the meanings given to them in the Term Loan Agreement. [INSERT NAME OF NON-U.S. LENDER] (the "Non-U.S. Lender") is providing this certificate pursuant to Section 2.17(c) of the Term Loan Agreement. The Non-U.S. Lender hereby represents and warrants as follows: (c) The Non-U.S. Lender is the sole record and beneficial owner of the Term Loans or the obligations evidenced by Term Loan Note in respect of which it is providing this certificate. (d) The Non-U.S. Lender is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). In this regard, the Non-U.S. Lender further represents and warrants that: (1) the Non-U.S. Lender is not subject to regulatory or other legal requirements as a bank in any jurisdiction; and 4 (2) the Non-U.S. Lender has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other legal requirements. (e) The Non-U.S. Lender is not a 10 percent shareholder of the Company within the meaning of Section 881(c)(3)(B) of the Code. (f) The Non-U.S. Lender is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c) (3)(C) of the Code. (Signature Page Follows) 5 IN WITNESS WHEREOF, the undersigned has duly executed this certificate by its respective authorized representative as of the day and year first above written. [INSERT NAME OF NON-U.S. LENDER] By: ________________________________________________ Name: Title: EXHIBIT C to the Term Loan Agreement [LETTERHEAD OF COMPANY] FORM OF CONVERSION/CONTINUATION NOTICE Date: _____ __, ____ Goldman Sachs Credit Partners L.P. as the Administrative Agent 85 Broad Street New York, New York 10004 Attention: Pedro Ramirez Re: Conversion/Continuation Notice Ladies and Gentlemen: Reference is made to the Credit Agreement, dated as of July 16, 2003 (as amended, supplemented, replaced or otherwise modified from time to time, the "Term Loan Agreement"), by and among Calpine Corporation, a Delaware corporation (the "Company"), the Lenders party hereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger and sole bookrunner, and Goldman Sachs Credit Partners L.P., as administrative agent (together with its successors in such capacity, the "Administrative Agent"). Unless otherwise defined herein, terms defined in the Term Loan Agreement and used herein shall have the meanings given to them in the Term Loan Agreement. The Company hereby gives you notice, irrevocably, pursuant to Section 2.06 of the Term Loan Agreement, that the Borrower hereby requests a [CONVERSION] [CONTINUATION] of Term Loans under the Term Loan Agreement and, in connection therewith, sets forth below the information relating to such [CONVERSION] [CONTINUATION] (the "Proposed [Conversion][Continuation]") as required by Section 2.06 of the Term Loan Agreement. The Borrower hereby requests that Term Loans be [CONVERTED] [CONTINUED] as follows: (i) The effective date of the proposed [CONVERSION][CONTINUATION] is ______, _______ (which is a Business Day). (ii) $___________ of the currently outstanding principal amount of Term Loans currently being maintained as Eurodollar Rate Loans with an Interest Period of __________ month(s), the last day of which is the date of the Proposed Conversion/Continuation referred to in clause (i) above, should be: 2 (A) continued as $__________ of Eurodollar Rate Loans with an Interest Period of ________ month(s); and (B) converted into $__________ of Base Rate Loans. (iii) $__________ of the currently outstanding principal amount of Term Loans currently being maintained as Base Rate Loans should be: (A) continued as $__________ of Base Rate Loans; (B) converted into $_________ of Eurodollar Rate Loans with an Interest Period of ________ month(s); and (C) converted into $__________ of Eurodollar Rate Loans with an Interest Period of _______ month(s). [(b) [INCLUDE THE FOLLOWING IF THE PROPOSED CONVERSION OR CONTINUATION IS A CONVERSION TO, OR A CONTINUATION OF, A EURODOLLAR RATE LOAN] The Company hereby certifies that, as of the date hereof, no Default or Event of Default has occurred or is continuing.] (Signature Page Follows) 3 IN WITNESS WHEREOF, the Company has caused this Continuation/Conversion Notice to be executed and delivered by an Officer of the Company on the date first written above. CALPINE CORPORATION By: Name: Title: 1 EXHIBIT D to the Term Loan Agreement [LETTERHEAD OF THE COMPANY] FORM OF FUNDING NOTICE Certificate Date: _______ __, ____ Goldman Sachs Credit Partners L.P. as the Administrative Agent 85 Broad Street New York, New York 10004 Attention: Pedro Ramirez Re: Funding Notice Ladies and Gentlemen: Reference is made to the Credit Agreement, dated as of July 16, 2003 (as amended, supplemented, replaced or otherwise modified from time to time, the "Term Loan Agreement"), by and among Calpine Corporation, a Delaware corporation (the "Company"), the Lenders party hereto from time to time, Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Administrative Agent") and as Sole Lead Arranger and Sole Bookrunner, The Bank of Nova Scotia, as Arranger and Syndication Agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank Hessen-Thuringen, as Co-Arrangers, and Credit Lyonnaise New York Branch and Union Bank of California, N.A., as Managing Agents. Unless otherwise defined herein, terms defined in the Term Loan Agreement and used herein shall have the meanings given to them in the Term Loan Agreement. The Company hereby gives you notice in accordance with Section 2.01 of the Credit Agreement that the Company irrevocably requests that the following Term Loans be made on July __, 2003 (which date satisfies the requirements set forth in Section 2.01 of the Credit Agreement), in each case, as described below: (a) The Company hereby requests that a Term Loan be made in an aggregate principal amount of [$_________] with an initial Interest Period of [____] months. [(b) The Company hereby requests that a Term Loan be made in an aggregate principal amount of [$_________] with an initial Interest Period of [____] months.] (Signature Page Follows) 2 IN WITNESS WHEREOF, on behalf of the Company, this certificate is delivered as of the date first above written. CALPINE CORPORATION By: __________________________________________ Name: Title: 3 EXHIBIT E to the Term Loan Agreement [INSERT LENDER NAME] LENDER ADDENDUM Reference is made to the Credit Agreement, dated as of July 16, 2003 (as amended, supplemented, replaced or otherwise modified from time to time, the "Term Loan Agreement"), among Calpine Corporation, a Delaware corporation, the Lenders party hereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger and sole bookrunner, and Goldman Sachs Credit Partners L.P., as administrative agent. Unless otherwise defined herein, terms defined in the Term Loan Agreement and used herein shall have the meanings given to them in the Term Loan Agreement. Upon execution and delivery of this Lender Addendum by the parties hereto as provided in Section 13.06(j) of the Term Loan Agreement, the undersigned hereby becomes a Lender thereunder having the Commitments set forth in Schedule 1 hereto, effective as of the Closing Date. This Lender Addendum shall be governed by, and construed and interpreted in accordance with, the laws of the state of New York. This Lender Addendum may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page hereof by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. (Signature Pages Follow) 4 IN WITNESS WHEREOF, the parties hereto have caused this Lender Addendum to be duly executed and delivered by their proper and duly authorized officers as of this ____ day of July, 2003. ______________________________________________ Name of Lender By: _________________________________________ Name: Title: Accepted and agreed: CALPINE CORPORATION By: ____________________________________________ Name: Title: GOLDMAN SACHS CREDIT PARTNERS L.P., as Administrative Agent By: _________________________________ Name: Title: 5 COMMITMENTS AND NOTICE ADDRESS 1. Name of Lender: Notice Address: Attention: Telephone: Facsimile: 2. Term Loan Commitment: EXHIBIT F to the Term Loan Agreement Goldman Sachs Credit Partners L.P., 85 Broad Street New York, New York 10004 Attention: Pedro Ramirez LENDER JOINDER AGREEMENT The undersigned, [INSERT LENDER'S NAME] (the "New Term Loan Lender"), hereby agrees to become party to the Credit Agreement, dated as of July 16, 2003 (as amended, supplemented, replaced or otherwise modified from time to time, the "Term Loan Agreement"), among Calpine Corporation, a Delaware corporation (the "Company"), the Lenders party hereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger and sole bookrunner, and Goldman Sachs Credit Partners L.P., as administrative agent (together with its successors in such capacity, the "Administrative Agent"). Upon the funding of the Additional Term Loans, the New Term Loan Lender agrees to be bound by, and to perform in respect of the Additional Term Loans, all of the Obligations of a Lender under the Term Loan Agreement. The amount of Additional Term Loan Commitment of the New Term Loan Lender shall be $[__________]. Except as otherwise set forth herein, the Additional Term Loans shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows: (a) if a Base Rate Loan, at the Base Rate plus [___]% per annum; or (b) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus [___]% per annum. The New Term Loan Lender hereby advises you of the following administrative details with respect to the Additional Term Loan Commitments and Additional Term Loans: (a) Address for Notices: Institution Name: Attention: Domestic Office: Telephone: Facsimile: (b) Payment Instructions The provisions of Article XIII of said Term Loan Agreement shall apply with like effect to this Lender Joinder Agreement. IN WITNESS WHEREOF, the undersigned has executed and delivered this Joinder as of ___________________, 20____. [__________________________________] By: ______________________________ Name: Title: EXHIBIT G to the Term Loan Agreement FORM OF TERM LOAN NOTE $____________ ______________________, FOR VALUE RECEIVED, the undersigned, Calpine Corporation (the "Company"), hereby unconditionally promises to pay to the order of [ ] (the "Lender") the principal sum in immediately available funds, of [ ] or, if less, the aggregate unpaid principal amount of all Term Loans made by the Lender to the Company pursuant to Section 2.01 of the Term Loan Agreement. The Company further agrees to pay interest in like money at the Principal Office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.05 of the Term Loan Agreement. The holder of this Term Loan Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date and amount of each Term Loan made pursuant to the Term Loan Agreement and the date and amount of each payment or prepayment of principal thereof, each continuation thereof, each conversion of all or a portion thereof and, in the case of Eurodollar Rate Loans, the length of each Interest Period with respect thereto. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Company in respect of any Term Loan. This Term Loan Note (a) is one of the Term Loan Notes referred to in the Credit Agreement, dated as of July 16, 2003 (as amended, supplemented, replaced or otherwise modified from time to time, the "Term Loan Agreement"), by and among the Company, the Lenders party hereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger and sole bookrunner, and Goldman Sachs Credit Partners L.P., as administrative agent; (b) is subject to the provisions of the Term Loan Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Term Loan Agreement. This Term Loan Note is secured and guaranteed as provided in the Term Loan Documents. Reference is hereby made to the Term Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Term Loan Note in respect thereof. Upon the occurrence of any Event of Default, all principal and all accrued interest then remaining unpaid on this Term Loan Note shall become, or may be declared to be, immediately due and payable, all as provided in, and subject to, the Term Loan Agreement. All parties now and hereafter liable with respect to this Term Loan Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Term Loan Agreement and used herein shall have the meanings given to them in the Term Loan Agreement. This Term Loan Note has been delivered in New York, New York and shall be deemed to be a contract made under, governed by and construed in accordance with the laws of the State of New York without regard to the conflict of law provisions thereof (other than sections 5-1401 and 5-1402 of the general obligations law of the state of New York). CALPINE CORPORATION By:______________________________ Name: Title: Schedule A to Term Loan Note LOANS, CONVERSIONS AND REPAYMENTS OF TERM LOANS

- ---------------------------------------------------------------------------------------------------------- Interest Period Date Amount of Term Loans (if applicable) Amount of Principal Repaid ----------------------------- --------------------------- Euro Dollar Notation Made Base Rate Euro Dollar Rate Base Rate Rate By - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------

A-1 EX-10.18 10 f92357exv10w18.txt EXHIBIT 10.18 Exhibit 10.18 EXECUTION COPY LETTER OF CREDIT AGREEMENT dated as of July 16, 2003, among CALPINE CORPORATION, as the Borrower, CERTAIN COMMERCIAL LENDING INSTITUTIONS, as the Lenders, and THE BANK OF NOVA SCOTIA, as Administrative Agent TABLE OF CONTENTS

PAGE ARTICLE I DEFINITIONS AND ACCOUNTING TERMS....................................................................... 1 SECTION 1.1. Defined Terms............................................................................ 1 SECTION 1.2. Use of Defined Terms..................................................................... 14 SECTION 1.3. Cross-References......................................................................... 14 SECTION 1.4. Accounting and Financial Determinations.................................................. 15 ARTICLE II COMMITMENTS AND LETTERS OF CREDIT PROCEDURES.......................................................... 15 SECTION 2.1. Commitment to Issue Letters of Credit.................................................... 15 SECTION 2.2. Reduction of Commitment Amount........................................................... 15 ARTICLE III REPAYMENTS, INTEREST AND FEES........................................................................ 16 SECTION 3.1. Interest Provisions...................................................................... 16 SECTION 3.2. Fees..................................................................................... 16 ARTICLE IV LETTERS OF CREDIT..................................................................................... 17 SECTION 4.1. Issuance Requests........................................................................ 17 SECTION 4.2. Issuances and Extensions................................................................. 18 SECTION 4.3. Expenses................................................................................. 18 SECTION 4.4. Other Lenders' Participation............................................................. 18 SECTION 4.5. Disbursements............................................................................ 19 SECTION 4.6. Reimbursement............................................................................ 19 SECTION 4.7. Cash Collateral.......................................................................... 20 SECTION 4.8. Nature of Reimbursement Obligations...................................................... 20 SECTION 4.9. Increased Costs; Indemnity............................................................... 21 SECTION 4.10. Existing Letters of Credit............................................................... 22 ARTICLE V CERTAIN ADDITIONAL PROVISIONS.......................................................................... 22 SECTION 5.1. Increased Capital Costs.................................................................. 22 SECTION 5.2. Taxes.................................................................................... 23 SECTION 5.3. Payments, Computations, etc.............................................................. 24 SECTION 5.4. Sharing of Payments...................................................................... 24 SECTION 5.5. Use of Proceeds.......................................................................... 25 ARTICLE VI CONDITIONS PRECEDENT.................................................................................. 25 SECTION 6.1. Effectiveness; Initial Credit Extension.................................................. 25 SECTION 6.2. All Credit Extensions.................................................................... 26

i ARTICLE VII REPRESENTATIONS AND WARRANTIES....................................................................... 28 SECTION 7.1. Organization, etc........................................................................ 28 SECTION 7.2. Due Authorization, Non-Contravention, etc................................................ 28 SECTION 7.3. Government Approval, Regulation, etc..................................................... 28 SECTION 7.4. Validity, etc............................................................................ 28 SECTION 7.5. Financial Information.................................................................... 29 SECTION 7.6. No Material Adverse Effect............................................................... 29 SECTION 7.7. Litigation, Labor Controversies, etc..................................................... 29 SECTION 7.8. Subsidiaries............................................................................. 29 SECTION 7.9. Regulations U and X...................................................................... 29 SECTION 7.10. Accuracy of Information.................................................................. 29 ARTICLE VIII COVENANTS........................................................................................... 30 SECTION 8.1. Covenants................................................................................ 30 ARTICLE IX EVENTS OF DEFAULT..................................................................................... 32 SECTION 9.1. Listing of Events of Default............................................................. 32 SECTION 9.2. Action if Event of Default............................................................... 34 ARTICLE X THE AGENT.............................................................................................. 35 SECTION 10.1. Actions................................................................................. 35 SECTION 10.2. Exculpation............................................................................. 35 SECTION 10.3. Successor............................................................................... 35 SECTION 10.4. Letters of Credit Issued by Agent or any Issuer......................................... 36 SECTION 10.5. Credit Decisions........................................................................ 36 SECTION 10.6. Copies, etc............................................................................. 36 SECTION 10.7. Collateral Matters...................................................................... 37 ARTICLE XI MISCELLANEOUS PROVISIONS.............................................................................. 37 SECTION 11.1. Waivers, Amendments, etc................................................................ 37 SECTION 11.2. Notices................................................................................. 38 SECTION 11.3. Payment of Costs and Expenses........................................................... 38 SECTION 11.4. Indemnification......................................................................... 39 SECTION 11.5. Survival................................................................................ 40 SECTION 11.6. Severability............................................................................ 40 SECTION 11.7. Headings................................................................................ 41 SECTION 11.8. Execution in Counterparts, Effectiveness, etc........................................... 41 SECTION 11.9. Governing Law; Entire Agreement......................................................... 41 SECTION 11.10. Successors and Assigns.................................................................. 41 SECTION 11.11. Sale and Transfer of Commitments; Participations in Commitments......................... 41 SECTION 11.12. Other Transactions...................................................................... 43 SECTION 11.13. Forum Selection and Consent to Jurisdiction............................................. 43 SECTION 11.14. Waiver of Jury Trial.................................................................... 44 SECTION 11.15. Confidentiality......................................................................... 44 ii SCHEDULE I - Disclosure Schedule SCHEDULE II - Percentages SCHEDULE 1.1 - Organizational Chart SCHEDULE 4.10 - Existing Letters of Credit EXHIBIT A - Form of Issuance Request EXHIBIT B - Form of Lender Assignment Agreement EXHIBIT C - Form of Cash Collateral Agreement EXHIBIT D-1 - Form of Opinion of general counsel of the Borrower EXHIBIT D-2 - Form of Opinion of special counsel to the Borrower iii LETTER OF CREDIT AGREEMENT THIS LETTER OF CREDIT AGREEMENT, dated as of July 16, 2003, among CALPINE CORPORATION, a Delaware corporation (together with its successors, the "Borrower"), the various financial institutions as are or may become parties hereto (collectively, the "Lenders"), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative agent (in such capacity, the "Agent"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lenders and the Agent enter into this Agreement pursuant to which Letters of Credit will be issued at the request of the Borrower; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Agent pursuant to Section 10.3. "Agreement" means, on any date, this Letter of Credit Agreement as originally in effect on the Closing Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Base Rate" means, on any date, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently established by Scotia Capital at its Domestic Office as its base rate; and (b) the Federal Funds Rate most recently determined by Scotia Capital plus 1/2 of 1%. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by the Agent in connection with extensions of credit. Changes in the rate of interest on any L/C Advances will take effect simultaneously with each change in the Alternate Base Rate. The Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate. "Amended and Restated Credit Agreement" means that certain Amended and Restated Credit Agreement dated as of July 16, 2003, among the Borrower, the various financial institutions as are or may become parties thereto, as lenders, various lead arrangers, and The Bank of Nova Scotia, as administrative agent and funding agent, as amended, supplemented or otherwise modified from time to time. "Applicable Margin" means for any L/C Advance maintained under the Commitment, 4.00% per annum. "Assignee Lender" is defined in Section 11.11.1. "Authorized Officer" means, relative to any Obligor, the president, any executive vice president, any senior vice president, the vice president - finance, the chief financial officer and the treasurer, in each case for whom a signature and incumbency certificate has been delivered to the Agent. "Borrower" is defined in the preamble. "Business Day" means any day which is neither a Saturday nor Sunday nor a legal holiday on which banks are authorized or required to be closed in San Francisco or New York. "Capitalized Lease Liabilities" means all rental obligations of the Borrower or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Collateral Account" means the cash collateral account maintained by the Agent pursuant to the Cash Collateral Agreement. "Cash Collateral Agreement" means the Cash Collateral Agreement to be entered into between the Borrower and the Agent in substantially the form attached hereto as Exhibit C, as amended, supplemented, restated or otherwise modified from time to time, pursuant to which the Letters of Credit are cash collateralized. "CCEF" means Calpine Canada Energy Finance ULC, a Nova Scotia unlimited liability company and a direct, Wholly Owned Subsidiary of QCH. 2 "CCEF Indenture" means that certain Indenture dated as of April 25, 2001, between CCEF and Wilmington Trust Company, as Trustee, as amended by the Amended and Restated Indenture, dated as of October 16, 2001, between CCEF and such Trustee. "CCEF Notes" means the $2,030,000,000 of 8 1/2% Senior Notes due 2008 and the Cdn$200,000,000 of 8 3/4% Senior Notes due 2007, in each case issued by CCEF pursuant to the CCEF Indenture. "CCEFII" means Calpine Canada Energy Finance II ULC, a Nova Scotia unlimited liability company and a direct, Wholly Owned Subsidiary of CCRC. "CCEFII Indenture" means that certain Indenture dated as of October 18, 2001, as supplemented by the First Supplemental Indenture, dated as of October 18, 2002, between CCEFII and Wilmington Trust Company, as Trustee. "CCEFII Notes" means the L200,000,000 of 8?% Senior Notes due 2011 and the E75,000,000 of 8?% Senior Notes due 2008, in each case issued by CCEFII pursuant to the CCEFII Indenture. "CCFCI" means Calpine Construction Finance Company, L.P., a Delaware limited partnership and an indirect, Wholly Owned Subsidiary of the Borrower. "CCFCI Credit Agreement" means the Amended and Restated Credit Agreement, dated as of February 15, 2001, among CCFCI, the lenders party thereto, Credit Suisse First Boston, as Lead Arranger, Syndication Agent and Bookrunner, The Bank of Nova Scotia, as Lead Arranger, LC Bank and Administrative Agent, TD Securities (USA) Inc., as Co-Arranger and Co-Documentation Agent, and CIBC World Markets Corp., as Co-Arranger and Co-Documentation Agent, as amended, supplemented, restated or otherwise modified from time to time. "CCFCII" means Calpine Construction Finance Company II, LLC, a Delaware limited liability company and an indirect, Wholly Owned Subsidiary of the Borrower. "CCFCII Credit Agreement" means the Credit Agreement, dated as of October 16, 2000, among CCFCII, the lenders party thereto, Credit Suisse First Boston, as Lead Arranger and Administrative Agent, The Bank of Nova Scotia, as Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger, Co-Documentation Agent, and LC Bank, CIBC World Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as Arranger and Co-Documentation Agent, TD Securities (USA) Inc., as Arranger and Co-Documentation Agent, as amended, supplemented, restated or otherwise modified from time to time. "CCRC" means Calpine Canada Resources Company, an Alberta corporation and an indirect, Wholly Owned Subsidiary of the Borrower. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. 3 "CES" means Calpine Energy Services, L.P., a Delaware limited partnership and an indirect, Wholly Owned Subsidiary of the Borrower. "Closing Date" means the date specified in a written notice from the Agent on which this Agreement becomes effective pursuant to Section 11.8 and which is intended to be July 16, 2003. "CNGH" means Calpine Natural Gas Holdings, LLC, a Delaware limited liability company, and a direct, Wholly Owned Subsidiary of the Borrower. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Collateral" means any property of or other items belonging to the Borrower or certain of its Subsidiaries subject or purported to be subject from time to time to a Lien under any Loan Document to secure any or all of the Obligations. "Commitment" is defined in Section 2.1. "Commitment Amount" means, on any date, $200,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Commitment Availability" means, on any date, the excess of (a) the then Commitment Amount, over (b) the Letter of Credit Outstandings on such date. "Commitment Fee" is defined in Section 3.2.1. "Commitment Termination Date" means the earliest of (a) July 15, 2005; (b) the date on which the Commitments of the Lenders are terminated in full or reduced to zero pursuant to Section 2.2; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (b) or (c), the Commitments shall terminate automatically and without any further action. "Commitment Termination Event" means (a) the occurrence of any Default described in clauses (a) through (d) of Section 9.1.7 with respect to the Borrower or any Significant Subsidiary; or (b) the occurrence and continuance of any other Event of Default and the giving of notice by the Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. 4 "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall be calculated on a net basis (i.e., after taking into effect agreements, undertakings and other arrangements between the Person whose obligations are being guaranteed and the counterparty to such Person's obligations) and shall (subject to any limitation set forth therein) be deemed to be the outstanding net principal amount (or maximum net principal amount, if larger) of the debt, obligation or other liability guaranteed thereby, or, if the principal amount is not stated or determinable, the maximum reasonably anticipated net liability in respect thereof as determined by the Person in good faith, provided that (y) the amount of any Contingent Liability arising out of any indebtedness, obligation or liability other than the items described in clauses (a), (b) and (c) of the definition of "Indebtedness" and (z) the amount of any Contingent Liability consisting of a "keep-well", "make well" or other similar arrangement shall be deemed to be zero unless and until the Borrower is required to make any payment with respect thereto (and shall thereafter be deemed to be the amount required to be paid). "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Convertible Senior Notes" means the $1,200,000,000 of 4% Convertible Senior Notes Due 2006 issued by the Borrower pursuant to the Shelf Indenture. "Convertible Subordinated Debentures" means the up to $284,536,100 of Convertible Subordinated Debentures due 2029 issued by the Borrower pursuant to the Indenture dated November 2, 1999, the up to $371,134,100 of Convertible Subordinated Debentures due 2030 issued by the Borrower pursuant to the Indenture dated January 31, 2000 and the up to $535,000,000 of Convertible Subordinated Debentures due 2030 issued by the Borrower pursuant to the Indenture dated August 9, 2000. "Credit Extension" means any issuance or extension by an Issuer of a Letter of Credit. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" is defined in Section 4.5. "Disbursement Date" is defined in Section 4.5. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented or otherwise modified from time to time by the Borrower with the written consent of the Agent and the Required Lenders. 5 "Dollar" and the sign "$" shall each mean freely transferable lawful money of the United States. "Domestic Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. "8 1/4% Senior Notes" means the $250,000,000 of 8 1/4% Senior Notes due 2005 issued by the Borrower pursuant to the Shelf Indenture. "8 1/2% Senior Notes" means the $2,000,000,000 of 8 1/2% Senior Notes due 2011 issued by the Borrower pursuant to the Shelf Indenture. "8 3/4% Senior Note Indenture" means that certain Indenture dated as of July 8, 1997, as supplemented by the First Supplemental Indenture dated as of September 10, 1997 and the Second Supplemental Indenture dated as of July 31, 2000, between the Borrower and The Bank of New York, as Trustee. "8 3/4% Senior Notes" means the $275,000,000 of 8 3/4% Senior Notes due 2007 issued by the Borrower pursuant to the 8 3/4% Senior Note Indenture. "8 5/8% Senior Notes" means the $750,000,000 of 8?% Senior Notes due 2010 issued by the Borrower pursuant to the Shelf Indenture. "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Event of Default" is defined in Section 9.1. "Existing Letters of Credit" means the letters of credit and bank guarantee described in Schedule 4.10. "Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving duress or necessity of either party. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as 6 published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Scotia Capital from three federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means any period of three consecutive months ending on March 31, June 30, September 30 or December 31 of any year. "Fiscal Year" means any period of twelve consecutive calendar months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year (e.g. the "2003 Fiscal Year") refer to the Fiscal Year ending on the December 31 occurring during such calendar year. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" is defined in Section 1.4. "Guaranteed Preferred Securities" means the preferred securities issued by one of the Trusts, from time to time, including, without limitation the $276,000,000 of principal amount of such securities issued in November, 1999, the $300,000,000 of principal amount of such securities issued in January, 2000, the $60,000,000 of principal amount of such securities issued in February, 2000, and the $517,500,000 of principal amount of such securities issued in August, 2000. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "Hedging Obligations" means, with respect to any Person, the net liabilities of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, foreign exchange contracts, currency swap agreements and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates and (b) commodity or power swap or exchange agreements. 7 "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular section, paragraph or provision of this Agreement or such other Loan Document. "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of any Obligor, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; or (b) which relates to the limited scope of examination of matters relevant to such financial statement. "including" means including without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Indebtedness" of any Person means, without duplication: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (excluding the Convertible Subordinated Debentures and any other subordinated debt securities issued by the Borrower to a Trust and the Guaranteed Preferred Securities or any similar securities); (b) all obligations, contingent or otherwise, relative to the stated amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; provided, however, that if a letter of credit or banker's acceptance has been issued to support or secure any other form of Indebtedness, only the greater of the stated amount of such letter of credit or banker's acceptance or the outstanding principal amount of Indebtedness supported or secured, but not both, will be considered Indebtedness hereunder; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (d) all other items other than deferred taxes, deferred revenue and deferred leases which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Obligations; (f) whether or not so included as liabilities in accordance with GAAP, all net obligations of such Person to pay the deferred purchase price of property or services 8 (excluding accounts payable incurred in the ordinary course of business), and indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse, but excluding any royalties or similar payments to be made by such Person which are based on production or performance; and (g) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person (i) shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless the indebtedness of such partnership or joint venture is expressly nonrecourse to such Person and (ii) shall exclude any preferred stock if, at the time of the incurrence or issuance thereof, it would not be recorded as debt of such Person, in accordance with GAAP. "Indemnified Liabilities" is defined in Section 11.4. "Indemnified Parties" is defined in Section 11.4. "Investment" means, relative to any Person, without duplication, (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business and prepaid expenses); (b) any Contingent Liability of such Person; and (c) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the Fair Market Value of such property. "Issuance Request" means a request and certificate duly executed by the chief executive, accounting or financial Authorized Officer of the Borrower, in substantially the form of Exhibit A (with such changes thereto as may be agreed upon from time to time by the Agent and the Borrower), together with a properly completed application for a Letter of Credit on an Issuer's standard form, executed by an Authorized Officer of the Borrower. In the event of a conflict between the terms of an application for a Letter of Credit and the terms of this Agreement, the terms of this Agreement shall prevail. "Issuer" means Scotia Capital or any Affiliate or unit of agency of Scotia Capital, and any successor to any of the foregoing Persons. 9 "knowledge" or "to the Borrower's knowledge" means the knowledge of or to the knowledge of the president, any vice president, the general counsel, the secretary, the chief financial officer, the controller or the vice president-finance of the Borrower. "L/C Advances" is defined in Section 4.5. "Lender Assignment Agreement" means a Lender Assignment Agreement substantially in the form of Exhibit B. "Lenders" is defined in the preamble and includes the Issuer. "Letter of Credit" is defined in Section 4.1. "Letter of Credit Outstandings" means, at any time, an amount equal to the sum of (a) the aggregate Stated Amount at such time of all Letters of Credit then outstanding and undrawn (as such aggregate Stated Amount shall be adjusted, from time to time, as a result of drawings, the issuance of Letters of Credit, or otherwise), plus (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment for security, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Loan Document" means this Agreement, the Cash Collateral Agreement and each other relevant agreement, document or instrument delivered in connection therewith. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the financial condition, operations, assets (including power projects), business or prospects of the Borrower and its Subsidiaries taken as a whole; or (b) a material adverse change in the ability of the Borrower or any other Obligor to perform under any Loan Document. "Nonmaterial Subsidiary Default" means any Default (excluding any Event of Default) arising or resulting from the default or potential default by a Subsidiary (other than a Significant Subsidiary) under any agreement, contract or undertaking binding on such Subsidiary other than (i) the failure by such Subsidiary to make a required payment under any Indebtedness of such Subsidiary having a principal amount in excess of $10,000,000 and (ii) a default in the performance or observance of any obligation or condition with respect to any Indebtedness of such Subsidiary having a principal amount in excess of $10,000,000 and, as a result thereof, the holder or holders of such Indebtedness, or any trustee or agent for such holders, causes such Indebtedness to be repaid more quickly than theretofore scheduled, whether through the introduction of a "cash sweep," the increase of an existing "cash sweep" or otherwise. "Obligations" means all obligations (monetary or otherwise) of the Borrower and each other Obligor arising under or in connection with this Agreement and each other Loan Document. 10 "Obligor" means the Borrower or any other Person (other than the Agent or any Lender) obligated under, or otherwise a party to, any Loan Document. "Organic Document" means, relative to any Obligor, its certificate of incorporation, partnership agreement, or similar organizational document, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock or other ownership interests. "Parity Lien Debt" means any Indebtedness incurred in compliance with the 2003 Senior Note Indenture that is secured by the Collateral (as defined in the Amended and Restated Credit Agreement) on a parity basis with the 2003 Senior Notes and the Second Priority B Loans. "Participant" is defined in Section 11.11.2. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "Percentage" means, relative to any Lender, the percentage set forth opposite its name on Schedule II under the caption "Percentage" or as set forth in its Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11. After the Commitment Termination Date, relative to any Lender, at any time, such Lender's "Percentage" shall be as in effect immediately prior to the Commitment Termination Date and after giving effect to any Lender Assignment Agreement(s) of such Lender executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11 at or prior to such time. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any Pension Plan or Welfare Plan. "Pre-2000 Indentures" means the Senior Note Indentures (other than the Shelf Indenture, the 2003 Senior Note Indenture, the Second Priority Term Loan Agreement, any other documentation under which the Parity Lien Debt is incurred, the CCEF Indenture and the CCEFII Indenture). "QCH" means Quintana Canada Holdings, LLC, a Delaware limited liability company and indirect, Wholly Owned Subsidiary of CNGH. 11 "Quarterly Payment Date" means the last day of each March, June, September, and December or, if any such day is not a Business Day, the next succeeding Business Day. "Reimbursement Obligation" is defined in Section 4.6. "Release" means a "release", as such term is defined in CERCLA. "Required Lenders" means, at any time, Lenders owed or holding (a) if the Commitments shall not have been terminated, at least 51% of the aggregate of all Letter of Credit Outstandings and unfunded Commitments on such date or (b) if the Commitments shall have been terminated, at least 51% of the aggregate amount of all L/C Advances then outstanding. "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to time. "Scotia Capital" is defined in the preamble. "Second Priority B Loans" means the $750,000,000 of Second Priority Secured Term B Loans incurred by the Borrower pursuant to the Second Priority Term Loan Agreement. "Second Priority Term Loan Agreement" means the Credit Agreement, dated as of July 16, 2003, among the Borrower, Goldman Sachs Credit Partners L.P., as sole lead arranger, sole bookrunner and administrative agent, Scotia Capital, as arranger and syndication agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank Hessen-Thuringen, as co-arrangers, and Credit Lyonnais New York Branch and Union Bank of California, N.A., as managing agents. "Senior Note Indentures" means, collectively, the 7 3/4% Senior Note Indenture, the 7 5/8% Senior Note Indenture, the 7 7/8% Senior Note Indenture, the 8 3/4% Senior Note Indenture, the Shelf Indenture (to the extent relating solely to the Senior Notes), the 10 1/2% Senior Note Indenture, the 2003 Senior Note Indenture, the Second Priority Term Loan Agreement, any other documentation under which the Parity Lien Debt is incurred, the CCEF Indenture and the CCEFII Indenture. "Senior Notes" means, collectively, the 7 3/4% Senior Notes, the 7 5/8% Senior Notes, the 7 1/8% Senior Notes, the 8 1/4% Senior Notes, the 8 1/2% Senior Notes, the 8 3/4% Senior Notes, the 8?% Senior Notes, the 10 1/2% Senior Notes, the Convertible Senior Notes, the 2003 Senior Notes, the Second Priority B Loans, the Parity Lien Debt, the CCEF Notes and the CCEFII Notes. "7 5/8% Senior Note Indenture" means that certain Indenture dated as of March 29, 1999, as supplemented by the First Supplemental Indenture dated as of July 31, 2000, between the Borrower and The Bank of New York, as Trustee. "7 5/8% Senior Notes" means the $250,000,000 of 7 5/8% Senior Notes due 2006 issued by the Borrower pursuant to the 7?% Senior Note Indenture. 12 "7 7/8% Senior Note Indenture" means that certain Indenture dated as of March 31, 1998, as supplemented by the First Supplemental Indenture dated as of July 24, 1998 and the Second Supplemental Indenture dated as of July 31, 2000, between the Borrower and The Bank of New York, as Trustee. "7 7/8% Senior Notes" means the $400,000,000 of 7 7/8% Senior Notes due 2008 issued by the Borrower pursuant to the 7 7/8% Senior Note Indenture. "7 3/4% Senior Note Indenture" means that certain Indenture dated as of March 29, 1999, as supplemented by the First Supplemental Indenture dated as of July 31, 2000, between the Borrower and The Bank of New York, as Trustee. "7 3/4% Senior Notes" means the $350,000,000 of 7 3/4% Senior Notes due 2009 issued by the Borrower pursuant to the 7 3/4% Senior Note Indenture. "Shelf Indenture" means that certain Indenture dated as of August 10, 2000, as supplemented from time to time, between the Borrower and Wilmington Trust Company, as Trustee. "Significant Subsidiary" means each Subsidiary of the Borrower that (a) accounted for at least 10% of consolidated revenues of the Borrower and its Subsidiaries or 10% of consolidated earnings of the Borrower and its Subsidiaries before interest and taxes, in each case for the last four full Fiscal Quarters immediately preceding the date as of which any such determination is made; or (b) has assets which represent at least 10% of the consolidated assets of the Borrower and its Subsidiaries as of the last day of the last Fiscal Quarter of the Borrower immediately preceding the date as of which any such determination is made, all of which shall be as reflected on the financial statements of the Borrower for the period, or as of the date, in question. Notwithstanding the foregoing, (i) CCFCI shall be deemed to be a Significant Subsidiary for all purposes of this Agreement until such date as all Indebtedness under the CCFCI Credit Agreement shall have been repaid in full and all commitments to lend thereunder have been terminated and, thereafter, at any time when CCFCI meets the criteria set forth in the first sentence of this definition and (ii) CCFCII shall be deemed to be a Significant Subsidiary for all purposes of this Agreement until such date as all Indebtedness under the CCFCII Credit Agreement shall have been repaid in full and all commitments to lend thereunder have been terminated and, thereafter, at any time when CCFCII meets the criteria set forth in the first sentence of this definition. "Stated Amount" of each Letter of Credit means the "Stated Amount" as defined therein. "Stated Expiry Date" is defined in Section 4.1(b). "Subordinated Debt" means all unsecured Indebtedness of the Borrower for money borrowed which is subordinated, upon terms satisfactory to the Agent and the Required Lenders, in right of payment to the payment in full in cash of all Obligations. 13 "Subsidiary" means, with respect to any Person, any corporation, partnership or other Person of which at least 50% of the outstanding capital stock or other comparable ownership interest having ordinary voting power to elect a majority of the board of directors of such corporation, partnership or other Person (irrespective of whether at the time capital stock of any other class or classes of such corporation, partnership or other Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "Taxes" is defined in Section 5.2. "10 1/2% Senior Note Indenture" means that certain Indenture dated as of May 16, 1996, as supplemented by the First Supplemental Indenture dated as of August 1, 2000, between Borrower and State Street Bank and Trust Company (as successor trustee to Fleet National Bank), as Trustee. "10 1/2% Senior Notes" means the $180,000,000 of 10 1/2% Senior Notes due 2006 issued by the Borrower pursuant to the 10 1/2% Senior Note Indenture. "Trust" means Calpine Capital Trust, Calpine Capital Trust II and Calpine Capital Trust III, each a Delaware business trust. "2003 Senior Notes" means the $2,550,000,000 of Second Priority Senior Secured Floating Rate Notes due 2007, 8 1/2% Second Priority Senior Secured Notes due 2010 and 8 3/4% Second Priority Senior Secured Notes due 2013, in each case issued by the Borrower pursuant to the 2003 Senior Note Indenture. "2003 Senior Note Indenture" means that certain Indenture dated as of July 16, 2003 between the Borrower and Wilmington Trust Company, as Trustee. "United States" or "U.S." means the United States of America, its fifty States and the District of Columbia. "Welfare Plan" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. "Wholly Owned Subsidiary" means a Subsidiary all the capital stock of which (other than directors' qualifying shares) is owned by the Borrower or another Wholly Owned Subsidiary. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each Issuance Request, Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, 14 unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, generally accepted accounting principles ("GAAP") in effect in the United States from time to time. ARTICLE II COMMITMENTS AND LETTERS OF CREDIT PROCEDURES SECTION 2.1. Commitment to Issue Letters of Credit. From time to time on any Business Day occurring prior to the Commitment Termination Date, an Issuer will issue, and each Lender will participate in, the Letters of Credit, in accordance with Article IV. The Commitment of each Lender described in this Section 2.1 to issue or participate in Letters of Credit is herein referred to as its "Commitment". SECTION 2.1.1. Lenders Not Permitted or Required To Issue or Participate in Letters of Credit Under Certain Circumstances. No Lender or Issuer, as the case may be, shall be permitted or required to issue (in the case of an Issuer) or participate in (in the case of each Lender) any Letter of Credit prior to the Commitment Termination Date, if, after giving effect thereto (i) all Letter of Credit Outstandings would exceed the Commitment Amount or the amount then on deposit in the Cash Collateral Account (which shall have been funded with the proceeds of borrowings under the Amended and Restated Credit Agreement); or (ii) such Lender's Percentage of all Letter of Credit Outstandings would exceed such Lender's Percentage of the then Commitment Amount. SECTION 2.2. Reduction of Commitment Amount. The Commitment Amount is subject to reduction from time to time pursuant to this Section 2.2. SECTION 2.2.1. Optional Reduction. The Borrower may, from time to time on any Business Day voluntarily reduce the Commitment Amount; provided, however, that all such reductions shall require at least three Business Days' prior notice to the Agent and be permanent reductions of the Commitment Amount, and any partial reduction of the Commitment Amount shall be in a minimum amount of $2,000,000 and in an integral multiple of $500,000. SECTION 2.2.2. Additional Cash Collateral. To the extent that at any time the aggregate amount of the Letter of Credit Outstandings exceeds the Commitment Amount in effect at such time or the amount then on deposit in the Cash Collateral Account, then the Borrower must immediately deposit with the Agent in the Cash Collateral Account additional cash collateral in an amount equal to such excess (or, as applicable, the greater of such excesses). 15 ARTICLE III REPAYMENTS, INTEREST AND FEES SECTION 3.1. Interest Provisions. Interest shall be payable in accordance with this Section 3.1. SECTION 3.1.1. Post-Maturity Rate. After the date any monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin plus a margin of 2%. SECTION 3.1.2. Payment Dates. Interest accrued on monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable shall be payable upon demand. SECTION 3.2. Fees. The Borrower agrees to pay the fees set forth in this Section 3.2. All such fees shall be non-refundable. SECTION 3.2.1. Commitment Fees. The Borrower agrees to pay to the Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrower's inability to satisfy any condition of Article VI) commencing on the Closing Date and continuing through the Commitment Termination Date, a commitment fee (the "Commitment Fee") at the rate of 0.10% per annum, calculated on such Lender's Percentage of the average daily unused portion of the Commitment Amount. Commitment Fees shall be payable by the Borrower in arrears on each Quarterly Payment Date, commencing with the first such day following the Closing Date, and on the Commitment Termination Date. SECTION 3.2.2. Letter of Credit Fee. The Borrower agrees to pay to the Agent, for the account of the Lenders, for each Letter of Credit for the period from and including the date of the issuance of such Letter of Credit to (and including) the date upon which (or on the next succeeding Business Day upon which) such Letter of Credit expires or is returned to the Issuer, a fee, in Dollars, on the average daily stated amount of such Letter of Credit calculated at a per annum rate equal to 0.05%. Such fee shall be payable by the Borrower in arrears on each Quarterly Payment Date, and on the date of termination or expiry of the last Letter of Credit outstanding hereunder (for any period then ending for which such fee shall not theretofore have been paid), commencing on the first such date after the issuance of such Letter of Credit. SECTION 3.2.3. Letter of Credit Issuing Fee. The Borrower agrees to pay to the Agent, for the account of each Issuer, an issuing fee, in Dollars, for each Letter of Credit issued by such Issuer for the period from and including the date of issuance of such Letter of Credit to (and including) the date upon which such Letter of Credit expires or is returned to the Issuer at such rates as may be agreed in writing by the Borrower and the Issuers from time to time. Such fee shall be payable by the Borrower in arrears on each Quarterly Payment Date and on the date of termination or expiry of the last Letter of Credit outstanding hereunder for any period then 16 ending for which such fee shall not theretofore have been paid, commencing on the first such date after the issuance of such Letter of Credit. ARTICLE IV LETTERS OF CREDIT SECTION 4.1. Issuance Requests. By delivering to the Agent and an Issuer an Issuance Request on or before 12:00 noon, New York time, the Borrower may request, from time to time prior to the Commitment Termination Date and on not less than three nor more than ten Business Days' notice, that such Issuer issue an irrevocable standby letter of credit in Dollars and in such form as may be requested by the Borrower and approved by such Issuer (each, together with the Existing Letters of Credit, a "Letter of Credit"), in support of the general corporate purposes of the Borrower and its Subsidiaries (including credit support by the Borrower for gas and power contracts for CES, Calpine Energy Services Canada Partnership and Calpine Energy Services UK Limited) and which are described in such Issuance Request, provided that no Letter of Credit may be used (i) to finance acquisitions (other than acquisitions of equipment, sites and property in the ordinary course of the Borrower and its Subsidiaries' business, but in no event may Letters of Credit be used to finance acquisitions of power projects, reserves of geothermal steam and fluids and material gas reserves) or make any Investments in any third parties (other than Subsidiaries), directly or indirectly, through the Borrower or any of its Subsidiaries or Affiliates or (ii) to defease, repurchase or prepay any Subordinated Debt or any Senior Notes; and provided, further, that Letters of Credit shall only be used to secure or support obligations (other than for the deferred purchase price of property) entered into in the ordinary course of business of the Borrower and its Subsidiaries. Upon receipt of an Issuance Request, the Agent shall promptly notify the Lenders thereof. Each Letter of Credit shall by its terms: (a) be issued in a Stated Amount which does not exceed (or would not exceed) the then Commitment Availability; (b) be stated to expire on a date (its "Stated Expiry Date") no later than one year from its date of issuance; provided, however, that a Letter of Credit may provide that if it is not renewed prior to its Stated Expiry Date, it may be drawn by the beneficiary thereof; and (c) on or prior to its Stated Expiry Date (i) terminate immediately upon notice to the Issuer thereof from the beneficiary thereunder that all obligations covered thereby have been terminated, paid, or otherwise satisfied in full and surrender by the beneficiary of the Letter of Credit to such Issuer, and (ii) reduce in part immediately and to the extent the beneficiary thereunder has notified the Issuer thereof that the obligations covered thereby have been paid or otherwise satisfied in part and that the Letter of Credit may be reduced. 17 SECTION 4.2. Issuances and Extensions. On the terms and subject to the conditions of this Agreement (including Article VI), the Issuer to whom notice was given under Section 4.1 shall issue Letters of Credit, in accordance with the Issuance Requests made therefor. Such Issuer will make available the original of each Letter of Credit which it issues in accordance with the Issuance Request therefor to the beneficiary thereof (and will notify the Agent of any issuance or amendment and such notice will be accompanied by a copy of each Letter of Credit issued and any amendment thereto) and will notify the beneficiary under any Letter of Credit of any extension of the Stated Expiry Date thereof. The Agent will promptly notify the Lenders of issuances and amendments and, if requested in writing by a Lender, will provide copies of issuances and amendments to such requesting Lender. SECTION 4.3. Expenses. The Borrower agrees to pay to the Agent for the account of each Issuer the standard charges of such Issuer in connection with the issuance, maintenance, modification (if any) and administration by such Issuer upon demand from time to time. SECTION 4.4. Other Lenders' Participation. Each Letter of Credit issued pursuant to Section 4.2 shall, effective upon its issuance and without further action, be issued on behalf of all Lenders (including the Issuer thereof) pro rata according to their respective Percentages. Each Lender shall, to the extent of its Percentage, be deemed irrevocably to have participated in the issuance of such Letter of Credit and shall be responsible to pay promptly to the Issuer thereof such Lender's Percentage of any unreimbursed drawings under a Letter of Credit which have not been reimbursed by the Borrower in accordance with Section 4.5, or which have been reimbursed by the Borrower but must be returned, restored or disgorged by the Issuer thereof for any reason, and each Lender shall, to the extent of its Percentage, be entitled to receive from the Agent a ratable portion of the letter of credit fees received by the Agent pursuant to Section 3.2.3, with respect to each Letter of Credit. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this Section 4.4 in respect of Letters of Credit issued or amended while such Lender remains a party to this Agreement is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment of any Letter of Credit or the occurrence and continuation of a Default or Event of Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. In the event that the Borrower shall fail to reimburse the Issuer thereof as provided in Section 4.5 and Section 4.6 and in an amount equal to the amount of any drawing honored by such Issuer under a Letter of Credit issued by it, or in the event such Issuer must for any reason return or disgorge such reimbursement, such Issuer shall promptly notify each Lender of the unreimbursed amount of such drawing and of such Lender's respective participation therein. Each Lender shall make available to such Issuer, whether or not any Default shall have occurred and be continuing, an amount equal to its respective participation in same day or immediately available funds at the office of such Issuer specified in such notice not later than 2:00 p.m., New York time, on the Business Day (under the laws of the jurisdiction of such Issuer) after the date notified by the Issuer. In the event that any Lender fails to make available to an Issuer the amount of such Lender's participation in such Letter of Credit as provided herein, such Issuer shall be entitled to recover such amount on demand from such Lender together with interest at the daily average Federal Funds Rate for three Business Days and thereafter at the Alternate Base Rate plus 2%. Nothing in this Section shall be deemed to prejudice the right of any Lender to recover from any 18 Issuer any amounts made available by such Lender to an Issuer pursuant to this Section in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit by the Issuer thereof in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of such Issuer. Each Issuer shall distribute to each Lender which has paid all amounts payable by it under this Section with respect to any Letter of Credit issued by such Issuer such Lender's Percentage of all payments received by such Issuer from the Borrower in reimbursement of drawings honored by such Issuer under such Letter of Credit when such payments are received. SECTION 4.5. Disbursements. Each Issuer will notify the Borrower and the Agent promptly of the presentment for payment of any Letter of Credit issued by it, together with notice of the date (a "Disbursement Date") such payment shall be made (each such payment, a "Disbursement"). Unless otherwise agreed by the applicable Issuer and the Borrower, drawings under any Letter of Credit issued under Section 4.1 shall be made on sight. Subject to the terms and provisions of such Letter of Credit, each Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit. Prior to 2:00 p.m., New York time, on the Disbursement Date, the Borrower will reimburse each Issuer in Dollars for all amounts which it has disbursed under the Letter of Credit. To the extent an Issuer is not reimbursed in full on the date payment is made under a Letter of Credit, the Borrower's Reimbursement Obligation shall accrue interest at the Alternate Base Rate plus the Applicable Margin for two Business Days and thereafter at the Post-Maturity Rate described in Section 3.1.1, payable on demand, until reimbursed in full. In the event an Issuer is not reimbursed by the Borrower on any Disbursement Date, or if an Issuer must for any reason return or disgorge such reimbursement, the Lenders (including such Issuer) shall fund the Reimbursement Obligation therefor by making, on the next Business Day, advances ("L/C Advances") that are payable on demand and shall be Obligations hereunder, bearing interest by reference to the Base Rate (except that such L/C Advances shall be made upon demand by the Agent rather than upon notice by the Borrower and shall be made, notwithstanding anything in this Agreement to the contrary, without regard to the satisfaction of the conditions precedent to the extension of credit set forth in Article VI of this Agreement and notwithstanding any termination of the Commitments). Each Lender's obligation to make L/C Advances in the amount of its Percentage of any unreimbursed amounts outstanding under a Letter of Credit pursuant hereto is several, and not joint or joint and several. SECTION 4.6. Reimbursement. The Borrower's obligation (a "Reimbursement Obligation") under Section 4.5 to reimburse an Issuer with respect to each disbursement (including interest thereon), and each Lender's obligation to make participation payments in each drawing which has not been reimbursed by the Borrower, shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim, or defense to payment which the Borrower may have or have had against any Lender or any beneficiary of a Letter of Credit, including any defense based upon the occurrence of any Default, any draft, demand or certificate or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient, the failure of any disbursement to conform to the terms of the applicable Letter of Credit (if, in such Issuer's good faith opinion, such disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such disbursement, or the legality, validity, form, regularity, or enforceability of such Letter of Credit; provided, however, that nothing herein shall adversely affect the right of the Borrower to commence any proceeding against an Issuer for any wrongful disbursement 19 made by such Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or willful misconduct on the part of such Issuer. SECTION 4.7. Cash Collateral. At any time when a Reimbursement Obligation becomes due and payable, the Agent will be entitled to draw amounts from the Cash Collateral Account to satisfy such Reimbursement Obligation. SECTION 4.8. Nature of Reimbursement Obligations. The Borrower shall assume all risks of the acts, omissions, or misuse of any Letter of Credit by the beneficiary thereof. Neither any Issuer (except to the extent of its own gross negligence or willful misconduct) nor any Lender shall be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (b) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or otherwise; (e) any error, omission, interruption, loss or delay in the transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required in order to make a Disbursement thereunder) or of the proceeds thereof; (f) any error in interpretation of technical terms; (g) the performance of any transaction which underlies any Letter of Credit; (h) any act or omission of any Person other than the Issuer and the Lenders; (i) loss or destruction of any draft, demand, or document in transit or in the possession of others; (j) lack of knowledge of any particular trade usage (other than standard United States and Western European banking usage as used in the normal course of business); or (k) any consequence arising from causes beyond the control of the Issuer and the Lenders. 20 None of the foregoing shall affect, impair, or prevent the vesting of any of the rights or powers granted any Issuer or any Lender hereunder. In furtherance and extension, and not in limitation or derogation, of any of the foregoing, any action taken or omitted to be taken by an Issuer in good faith and which is not grossly negligent shall be binding upon the Borrower and shall not put such Issuer under any resulting liability to the Borrower; provided, however, that nothing herein shall relieve any Issuer, the Agent or any Lender for any liability for its gross negligence or willful misconduct. SECTION 4.9. Increased Costs; Indemnity. If by reason of (a) any change after the Closing Date in applicable law, regulation, rule, decree or regulatory requirement or any change after the Closing Date in the interpretation or application by any judicial or regulatory authority of any law, regulation, rule, decree or regulatory requirement, or (b) compliance by any Issuer or any Lender with any new or modified (after the Closing Date) direction, request or requirement (whether or not having the force of law) of any governmental or monetary authority, including Regulation D of the F.R.S. Board: (i) any Issuer or any Lender shall be subject to any tax (other than franchise taxes or taxes measured by net income or receipts), levy, charge or withholding of any nature or to any variation thereof or to any penalty with respect to the maintenance or fulfillment of its obligations under this Article IV, whether directly or by such being imposed on or suffered by any Issuer or any Lender; (ii) any reserve, deposit or similar requirement is or shall be applicable, imposed or modified in respect of any Letters of Credit issued by any Issuer or participations therein purchased by any Lender; or (iii) there shall be imposed on any Issuer or any Lender any other condition regarding this Article IV, any Letter of Credit or any participation therein; and the result of the foregoing is directly or indirectly to increase the cost to an Issuer or such Lender of issuing, making or maintaining any Letter of Credit or of purchasing or maintaining any participation therein, or to reduce any amount receivable in respect thereof by such Issuer or such Lender, then and in any such case such Issuer or such Lender may, at any time after the additional cost is incurred or the amount received is reduced, notify the Borrower thereof and provide Borrower with data and calculations supporting such costs, and the Borrower shall pay such amounts as such Issuer or Lender may specify to be necessary to compensate such Issuer or Lender for such additional cost or reduced receipt within ten (10) Business Days after receiving such notice, together with interest on such amount from the date of receipt of such notice until payment in full thereof at a rate equal at all times to the Alternate Base Rate plus the Applicable Margin; provided, however, that Section 5.2, rather than this Section 4.9 shall govern Borrower's obligations with respect to Taxes relating to payments by the Borrower described in the first sentence of Section 5.2(a). The good faith determination by an Issuer or Lender, as the case may 21 be, of any amount due pursuant to this Section 4.9, as set forth in a statement setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest error, be final and conclusive and binding on all of the parties hereto. In addition to amounts payable as elsewhere provided in this Article IV, the Borrower hereby agrees to protect, indemnify, pay and save the Issuers and the Lenders harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which any Issuer or any Lender may incur or be subject to as a consequence, direct or indirect, of (x) the issuance of the Letters of Credit, other than as a result of the gross negligence or willful misconduct of an Issuer as determined by a court of competent jurisdiction, or (y) the failure of an Issuer to honor a drawing under any Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority. SECTION 4.10. Existing Letters of Credit. On the Closing Date, the Existing Letters of Credit shall continue to be deemed for all purposes to be Letters of Credit outstanding under this Agreement and entitled to the benefits of this Agreement and the other Loan Documents, and shall be governed by the applications and agreements pertaining thereto and by this Agreement. Each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuers on the Closing Date a participation in each such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) such Lender's Percentage times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.1, the Existing Letters of Credit shall be deemed to utilize pro rata the Commitment of each Lender. ARTICLE V CERTAIN ADDITIONAL PROVISIONS SECTION 5.1. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority causes the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender attributable to or based upon the Letters of Credit or Commitments hereunder to be increased, and such Lender determines (in its reasonable discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitments, issuance of or participation in Letters of Credit is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error and if made in good faith, be conclusive and binding on the Borrower. In determining such 22 amount, such Lender may use any method of averaging and attribution that it (in its good faith discretion) shall deem applicable. SECTION 5.2. Taxes. (a) Subject to each Lender's compliance with this Section 5.2, all payments by the Borrower of all amounts payable hereunder (including interest) shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (iii) pay to the Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Agent or any Lender with respect to any payment received by the Agent or such Lender hereunder, the Agent or such Lender may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent, for the account of the respective Lenders, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 5.2, a distribution hereunder by the Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. (b) Upon the request of the Borrower or the Agent, each Lender (including, any participant or Assignee Lender) that is (a) organized under the laws of the United States or a state thereof shall execute and deliver to the Borrower and the Agent one or more (as the Borrower or the Agent may reasonably request) appropriately completed United States Internal Revenue Service Forms W-9 (or any successor forms or documents) and (b) organized under the laws of a jurisdiction other than the United States shall, prior to 23 the due date of and as a condition to any payments hereunder, execute and deliver to the Borrower and the Agent one or more (as the Borrower or the Agent may reasonably request) United States Internal Revenue Service Forms W-8ECI or Forms W-8BEN or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish that such Lender (or participant or Assignee Lender) is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. The Borrower shall not be required to pay any additional amounts to any Lender (or participant or Assignee Lender) in respect of Taxes pursuant to this Section 5.2 if the obligation to pay such additional amounts would not have arisen but for a failure by such Lender (or participant or Assignee Lender) to comply with the provisions of this Section 5.2 unless such failure results from (a) a change in applicable treaty, law or regulation or interpretation thereof or (b) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the date such Lender (or participant or Assignee Lender) becomes a party to this Agreement. SECTION 5.3. Payments, Computations, etc. Unless otherwise expressly provided, all payments by the Borrower pursuant to this Agreement or any other Loan Document shall be made by the Borrower to the Issuer or, as applicable, to the Agent for the pro rata account of the Lenders entitled to receive such payment. All such payments required to be made to the Agent shall be made, without setoff, deduction or counterclaim, not later than 11:00 a.m., San Francisco time, on the date due, in same day or immediately available funds, to such account as the Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Agent on the next succeeding Business Day. The Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Agent for the account of such Lender. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 365 days or, if appropriate, 366 days. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 5.4. Sharing of Payments. If any Lender shall obtain any payment or other recovery as a result of its receipt of any collateral or otherwise (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Letter of Credit in excess of its pro rata share of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in Letters of Credit as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to (b) the total amount so recovered from 24 the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 5.5) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 5.5. Use of Proceeds. Letters of Credit shall be used for general corporate purposes of the Borrower and its Subsidiaries (including credit support by the Borrower for gas and power contracts for CES, Calpine Energy Services Canada Partnership and Calpine Energy Services UK Limited). No Letter of Credit will be used to (i) acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any "margin stock", as defined in F.R.S. Board Regulation U, (ii) finance acquisitions (other than the acquisition of equipment, sites and property in the ordinary course of the Borrower and its Subsidiaries' business, but in no event may Letters of Credit be used to finance acquisitions of power projects, reserves of geothermal steam and fluids and natural gas reserves), (iii) make Investments in any third parties (other than Investments in Subsidiaries), directly or indirectly, through the Borrower or any of its Subsidiaries or Affiliates, or (iv) defease, repurchase or prepay any Subordinated Debt or any Senior Notes. ARTICLE VI CONDITIONS PRECEDENT SECTION 6.1. Effectiveness; Initial Credit Extension. The effectiveness of this Agreement and the obligation of each Lender to make its initial Credit Extension shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 6.1. SECTION 6.1.1. Letter of Credit Agreement; Amended and Restated Credit Agreement. The Agent shall have received, on or before the Closing Date (a) this Agreement, executed and delivered by the Agent, the Borrower and each of the Lenders; and (b) evidence satisfactory to it that the Amended and Restated Credit Agreement has been executed and delivered by the parties thereto, and that any other conditions precedent to the effectiveness thereof have been satisfied. SECTION 6.1.2. Resolutions, etc. The Agent shall have received from each Obligor a certificate, dated the Closing Date, of its Secretary or Assistant Secretary, as to 25 (a) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement and each other Loan Document to be executed by it; and (b) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement and each other Loan Document executed by it, upon which certificate each Lender may conclusively rely until it shall have received a further certificate of the Secretary of such Obligor canceling or amending such prior certificate. SECTION 6.1.3. Cash Collateral Agreement. The Agent shall have received the Cash Collateral Agreement, duly executed and delivered by the Borrower, in substantially the form of Exhibit C hereto. SECTION 6.1.4. Cash Collateral. The Borrower shall have deposited in the Cash Collateral Account an amount in immediately available funds equal to $132,747,066 on the Closing Date. SECTION 6.1.5. Opinions of Counsel. The Agent shall have received opinions, dated the date of the Closing Date and addressed to the Agent and all Lenders, from (a) Lisa Bodensteiner, Esq., general counsel of the Borrower, and Covington & Burling, special counsel to the Borrower, substantially in the forms of Exhibits D-1 and D-2, respectively; and (b) Such other special and local counsel as may be required by the Agent, in each case in form and substance satisfactory to the Agent. SECTION 6.1.6. Closing Fees, Expenses, etc. The Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.2 and 11.3, if then invoiced. SECTION 6.1.7. No Material Adverse Effect. No Material Adverse Effect shall have occurred since December 31, 2002. SECTION 6.2. All Credit Extensions. The obligation of each Lender to make any Credit Extension (including the initial Credit Extension) shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 6.2. SECTION 6.2.1. Commitment Under Amended and Restated Credit Agreement. The Revolving Loan Commitment (as defined in the Amended and Restated Credit Agreement) shall remain in full force and effect. SECTION 6.2.2. Compliance with Warranties, No Default, etc. Both before and after giving effect to any Credit Extension the following statements shall be true and correct (a) the representations and warranties set forth in Article VII (excluding, however, those contained in Section 7.7) and in each other Loan Document shall be true 26 and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date); (b) except as disclosed by the Borrower to the Agent and the Lenders pursuant to Section 7.7 (i) no labor controversy, litigation, arbitration or governmental investigation or proceeding shall be pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Significant Subsidiaries which would reasonably be expected to cause a Material Adverse Effect or which purports to materially and adversely affect the legality, validity or enforceability of this Agreement or any other Loan Document; and (ii) no development shall have occurred in any labor controversy, litigation, arbitration or governmental investigation or proceeding disclosed pursuant to Section 7.7 which might have a Material Adverse Effect; and (c) no Default (other than a Nonmaterial Subsidiary Default) shall have then occurred and be continuing, and neither the Borrower, any other Obligor, nor any of its Significant Subsidiaries are in material violation of any law or governmental regulation or court order or decree which would reasonably be expected to cause a Material Adverse Effect. SECTION 6.2.3. Credit Request. The Agent shall have received an Issuance Request for such Credit Extension. The delivery of an Issuance Request and the issuance of the Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of the issuance of the Letter of Credit the statements made in Section 6.2.2 are true and correct. SECTION 6.2.4. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligors shall be satisfactory in form and substance to the Agent and its counsel; the Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Agent or its counsel may reasonably request. SECTION 6.2.5. Indentures. (a) The Borrower shall have certified to the Agent that its incurrence of the Indebtedness under the Letters of Credit hereunder is permitted under the terms of Section 3.4 of the Pre-2000 Indentures. To the extent that the Borrower is relying on clause (a) of Section 3.4 of the Pre-2000 Indentures, the Borrower shall have delivered to the Agent a certificate of an Authorized Officer of the Borrower demonstrating its compliance with the incurrence test set forth therein. (b) The Borrower shall have certified to the Agent that the incurrence of Liens in respect of such Borrowing is permitted under the terms of Section 3.7 of the Pre-2000 Indentures and Section 3.4 of the Shelf Indenture. 27 ARTICLE VII REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agent to enter into this Agreement and to make L/C Advances and issue Letters of Credit hereunder, the Borrower represents and warrants unto the Agent and each Lender as set forth in this Article VII. SECTION 7.1. Organization, etc. The Borrower and each of its Significant Subsidiaries is a corporation, partnership, limited liability company or similar entity validly organized and existing and in good standing under the laws of the State of its organization, is duly qualified to do business and is in good standing as a foreign organization in each jurisdiction where the nature of its business requires such qualification and where the failure to so qualify would have a material adverse effect on the Borrower's or any Obligor's ability to perform its obligations under the Loan Documents to which it is a party, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement and each other Loan Document to which it is a party and to own or hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 7.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Borrower of this Agreement and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Obligor of each Loan Document executed or to be executed by it are within the Borrower's and each such Obligor's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene the Borrower's or any such Obligor's Organic Documents; (b) contravene any contractual restriction (including, without limitation, the Senior Note Indentures), law or governmental regulation or court decree or order binding on or affecting the Borrower or any such Obligor; or (c) result in, or require the creation or imposition of, any Lien on any of the Borrower's or any other Obligor's properties. SECTION 7.3. Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower or any other Obligor of this Agreement or any other Loan Document to which it is a party. Neither the Borrower nor any of its Significant Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 7.4. Validity, etc. This Agreement constitutes, and each other Loan Document executed by the Borrower will, on the due execution and delivery thereof, constitute, 28 the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms except as enforceability may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting the rights of creditors or (ii) general principles of equity, including the possible unavailability of specific performance or injunctive relief; and each Loan Document executed pursuant hereto by each other Obligor will, on the due execution and delivery thereof by such Obligor, be the legal, valid and binding obligation of such Obligor enforceable in accordance with its terms except as enforceability may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting the rights of creditors or (ii) general principles of equity, including the possible unavailability of specific performance or injunctive relief. SECTION 7.5. Financial Information. The balance sheets of the Borrower and each of its Subsidiaries as at December 31, 2002 and the related statements of earnings and cash flow of the Borrower and each of its Subsidiaries, copies of which have been furnished to the Agent and each Lender, have been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of the corporations covered thereby as at the date thereof and the results of their operations for the period then ended. SECTION 7.6. No Material Adverse Effect. Since December 31, 2002, there has been no Material Adverse Effect. SECTION 7.7. Litigation, Labor Controversies, etc. There is no pending or, to the knowledge of the Borrower, threatened litigation, action, proceeding, investigation, or labor controversy affecting the Borrower or any of its Significant Subsidiaries, or any of their respective properties, businesses, assets or revenues, which would reasonably be expected to have a Material Adverse Effect or which purports to materially and adversely affect the legality, validity or enforceability of this Agreement or any other Loan Document. SECTION 7.8. Subsidiaries. The Borrower has no Significant Subsidiaries, except those Significant Subsidiaries which are identified in Item 7.8 ("Existing Significant Subsidiaries") of the Disclosure Schedule. The organizational chart attached hereto as Schedule 1.1 accurately reflects the ownership structures of the Borrower's equity interests in its Foreign Subsidiaries as of the Closing Date. SECTION 7.9. Regulations U and X. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no Letter of Credit will be used for a purpose which violates F.R.S. Board Regulation U or X. Terms for which meanings are provided in F.R.S. Board Regulation U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 7.10. Accuracy of Information. All factual information (which shall not include projections) heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to the Agent, any Issuer or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of the Borrower to the Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified 29 (except with respect to the financial statements of Borrower and its Subsidiaries, which will fairly present the financial condition of the entities covered thereby as of the date thereof) and, with respect to information provided prior to the execution of this Agreement, as of the date of execution and delivery of this Agreement by the Agent and such Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. ARTICLE VIII COVENANTS SECTION 8.1. Covenants. The Borrower agrees with the Agent and each Lender that, from and after the Closing Date, until all Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 8.1. SECTION 8.1.1. Financial Information, Reports, Notices, etc. The Borrower will furnish, or will cause to be furnished, to each Lender and the Agent copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, (i) the consolidated balance sheet, statement of earnings and cash flow statement of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by an Authorized Officer of the Borrower and (ii) a consolidating balance sheet and a consolidating statement of earnings of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by an Authorized Officer of the Borrower; (b) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Borrower, (i) a copy of the annual audit report for such Fiscal Year for the Borrower and its Subsidiaries, including therein the consolidated balance sheet, statement of earnings and cash flow statement of the Borrower and its Subsidiaries as of the end of such Fiscal Year, in each case certified (without any Impermissible Qualification) in a manner acceptable to the Agent and the Required Lenders by PricewaterhouseCoopers LLC or other independent public accountants acceptable to the Agent and the Required Lenders and (ii) a consolidating balance sheet and a consolidating statements of earnings of the Borrower and its Subsidiaries as of the end of such Fiscal Year, certified by an Authorized Officer of the Borrower; (c) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Borrower, a consolidated budget for the Borrower and its Subsidiaries for the following Fiscal Year, in form and substance satisfactory to the Lenders; (d) as soon as possible and in any event within three days after the Borrower obtains knowledge of each Default, a statement of an Authorized Officer of the Borrower 30 setting forth details of such Default and the action which the Borrower has taken and proposes to take with respect thereto; (e) as soon as possible and in any event within five days after the Borrower obtains knowledge of (x) any adverse development with respect to any litigation, action, proceeding, or labor controversy described in Section 7.7, (y) the commencement of any labor controversy, litigation, action, proceeding of the type described in Section 7.7, or (z) any other Material Adverse Effect, notice thereof and copies of all documentation relating thereto; (f) promptly after the sending or filing thereof, copies of all reports which the Borrower sends to any of its security holders, and all reports and registration statements which the Borrower or any of its Significant Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (g) immediately upon the Borrower's knowledge of the institution of any steps by the Borrower or any member of its Controlled Group to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto; and (h) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Significant Subsidiaries as any Lender through the Agent may from time to time reasonably request and which the Borrower is legally permitted to provide to such Lender. The Borrower may provide some or all of the information required in clauses (a) and (b) above by providing copies of its Forms 10-Q and/or 10-K filed with the Securities and Exchange Commission. SECTION 8.1.2. Compliance with Laws, etc. The Borrower will, and will cause each of its Subsidiaries to, comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include (without limitation): (a) the maintenance and preservation of its existence and, if applicable, qualification as a foreign corporation or comparable entity; and (b) the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. 31 SECTION 8.1.3. Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions and permit the Agent or any of its representatives or any Lender, at reasonable times and intervals, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower's financial matters with the Agent or its representatives whether or not any representative of the Borrower is present) and to examine (and, at the expense of the Borrower, photocopy extracts from) any of its books or other corporate records. The Borrower shall pay any fees of such independent public accountant incurred in connection with the exercise by the Agent of its rights pursuant to this Section; provided, however, after the occurrence and during the continuance of any Default, the Borrower shall pay for all fees of such independent accountants incurred with each exercise by the Agent or any Lender of its rights pursuant to this Section. ARTICLE IX EVENTS OF DEFAULT SECTION 9.1. Listing of Events of Default. Each of the following events or occurrences described in this Section 9.1 shall constitute an "Event of Default". SECTION 9.1.1. Non-Payment of Obligations. The Borrower shall default in the payment when due of any Reimbursement Obligation, or the Borrower shall default (and such default shall continue unremedied for a period of five days) in the payment when due of interest on any such Reimbursement Obligation, any fee or of any other Obligation. SECTION 9.1.2. Breach of Warranty. Any representation or warranty of the Borrower or any other Obligor made or deemed to be made hereunder or in any other Loan Document executed by it or any other writing or certificate furnished by or on behalf of the Borrower or any other Obligor to the Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article VI) is or shall be incorrect when made in any material respect. SECTION 9.1.3. Non-Performance of Covenants and Obligations. Any Obligor shall default in the due performance and observance of any agreement contained herein or in any other Loan Document executed by it, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Agent or any Lender (or such longer period as the Required Lenders in their discretion, may agree, provided that such Obligor has commenced such cure within such 30 day period and thereafter diligently pursues such cure to completion). SECTION 9.1.4. Default on Other Indebtedness. (a) A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 9.1.1) of the Borrower or any of its Significant Subsidiaries or any other Obligor having a principal amount, individually or in the aggregate, in excess of $10,000,000, (b) a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if 32 the effect of such default is to accelerate the maturity of any such Indebtedness or, in the case of the Borrower only, such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity (and notice of such default has been given to the relevant borrower), (c) a default shall occur in the performance or observance of any obligation or condition with respect to the Borrower's debt securities issued to a Trust or to any Indebtedness of any Significant Subsidiary (other than CCFCI and CCFCII) or Obligor, in either case having a principal amount in excess of $10,000,000, and, as a result thereof, the holder or holders of such debt securities or such Indebtedness, or any trustee or agent for such holders, causes such securities or Indebtedness to be repaid more quickly than theretofore scheduled, whether through the introduction of a "cash sweep," the increase of an existing "cash sweep" or otherwise, or (d) a default of a type described in clause (b) above shall occur with respect to any Indebtedness of CCFCI or CCFCII having an unpaid principal amount in excess of $10,000,000 (whether or not such default actually results in the acceleration of the applicable Indebtedness) and, as a result thereof, the holder or holders of such debt securities or such Indebtedness, or any trustee or agent for such holders, causes such securities or Indebtedness to be repaid more quickly than theretofore scheduled, whether through the introduction of a "cash sweep," the increase of an existing "cash sweep" or otherwise. SECTION 9.1.5. Judgments. Any final judgment or order (not covered by insurance) for the payment of money shall be rendered against the Borrower or any Significant Subsidiary or any other Obligor in an amount in excess of $25,000,000 (or its foreign currency equivalent) (treating any deductibles, self-insurance or retention as not so covered) which is not stayed or discharged within 30 days after entry of such final judgment or order, and there shall be any period of more than 30 consecutive days following entry of the final judgment or order in excess of $25,000,000 (or its foreign currency equivalent) during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. SECTION 9.1.6. Pension Plans. Any of the following events shall occur with respect to any Pension Plan (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $10,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. SECTION 9.1.7. Bankruptcy, Insolvency, etc. The Borrower or any of its Significant Subsidiaries or any other Obligor shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; 33 (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any of its Significant Subsidiaries or any other Obligor or any property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any of its Significant Subsidiaries or any other Obligor or for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days, provided that the Borrower, each Significant Subsidiary and each other Obligor hereby expressly authorizes the Agent and each Lender to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower or any of its Significant Subsidiaries or any other Obligor, and, if any such case or proceeding is not commenced by the Borrower or such Significant Subsidiary or such other Obligor, such case or proceeding shall be consented to or acquiesced in by the Borrower or such Significant Subsidiary or such other Obligor or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that the Borrower, each Significant Subsidiary and each other Obligor hereby expressly authorizes the Agent and each Lender to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or (e) take any action authorizing any of the foregoing. SECTION 9.1.8. Impairment of Security, etc. Any Loan Document, or any Lien granted thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; or the Borrower, any other Obligor or any Subsidiary shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or any Lien securing any Obligation shall, in whole or in part, cease to be a perfected first priority Lien, subject only to those exceptions expressly permitted by such Loan Document. SECTION 9.2. Action if Event of Default. If any Event of Default shall occur for any reason, whether voluntary or involuntary, and be continuing, the Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare that all Commitments (if not theretofore terminated) be terminated, whereupon without further notice, the Commitments shall terminate and the Agent may exercise any and all remedies available under the Loan Documents and applicable law, including withdrawing amounts from the Cash Collateral Account pursuant to Section 4.7. 34 ARTICLE X THE AGENT SECTION 10.1. Actions. Each Lender hereby appoints Scotia Capital as its Agent under and for purposes of this Agreement and each other Loan Document. Each Lender authorizes the Agent to act on behalf of such Lender under this Agreement and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by such Person (with respect to which such Person agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Agent, pro rata according to such Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Agent in any way relating to or arising out of this Agreement and any other Loan Document, including reasonable attorneys' fees, and as to which the Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the Agent's gross negligence or willful misconduct. The Agent shall not be required to take any action hereunder or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement or any other Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of the Agent shall be or become, in the Agent's determination, inadequate, the Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 10.2. Exculpation. Neither the Agent nor any of its directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own willful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by the Agent shall not obligate it to make any further inquiry or to take any action. The Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which it believes to be genuine and to have been presented by a proper Person. SECTION 10.3. Successor. The Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Agent at any time shall resign, the Required Lenders may appoint another Lender as a successor thereto which shall thereupon become the Agent, as applicable, hereunder. If no successor shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring 35 Agent's giving notice of resignation, then the retiring Person may, on behalf of the Lenders, appoint a successor, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, as applicable, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as the Agent, the provisions of (a) this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement; and (b) Section 11.3 (with respect to expenses incurred prior to resignation) and Section 11.4 shall continue to inure to its benefit. SECTION 10.4. Letters of Credit Issued by Agent or any Issuer. (a) The Agent shall have the same rights and powers with respect to its participating interests in the Letters of Credit as any other Lender and may exercise the same as if it were not the Agent. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if such Person were not the Agent hereunder. (b) Each Issuer shall have the same rights and powers with respect to its participating interests in the Letters of Credit as any other Lender and may exercise the same as if it were not an Issuer. Each Issuer and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not an Issuer hereunder. SECTION 10.5. Credit Decisions. Each Lender acknowledges that it has, independently of the Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 10.6. Copies, etc. The Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Agent will distribute to each Lender each document or instrument received for its account and 36 copies of all other communications received by the Agent from the Borrower for distribution to the Lenders by the Agent in accordance with the terms of this Agreement. SECTION 10.7. Collateral Matters. (a) Each of the Lenders hereby acknowledges and agrees that Liens upon the Collateral granted to or held by the Agent under any Loan Document will be released: (i) in whole, upon termination of the Commitments and payment in full of all Obligations (other than contingent indemnification obligations) and the expiration or termination of all Letters of Credit; (ii) to the extent permitted by Section 11.1(e); and (iii) if requested by the Borrower, to the extent the amount then on deposit in the Cash Collateral Account exceeds an amount equal to the sum of the Letter of Credit Outstandings and all other Obligations then outstanding. (b) Each Lender hereby authorizes the Agent to act under the Cash Collateral Agreement to release the Agent's Lien on applicable Collateral only to the extent set forth in clause (a) above. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. Waivers, Amendments, etc. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver which would: (a) modify this Section 11.1 or modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender; (b) modify any requirement hereunder that any particular action be taken by the Required Lenders or change the definition of "Required Lenders" shall be effective unless consented to by each Lender; (c) increase the Commitment Amount of any Lender or the Percentage of any Lender shall be made without the consent of such Lender or extend the Commitment Termination Date or change any provision expressly requiring the consent of all Lenders shall be made without the consent of each Lender; 37 (d) reduce any fees described in Article III shall be made without the consent of each Lender affected thereby; (e) authorize the release of any Lien created by a Loan Document shall be effective without the consent of Lenders having 100% of the aggregate of all Letter of Credit Outstandings and unfunded Commitments on such date; (f) extend the due date for, or reduce the amount of, any Reimbursement Obligation for a Letter of Credit which has been drawn shall be made without the consent of the Issuer thereof and each Lender; (g) affect adversely the interests, rights or obligations of an Issuer qua an Issuer shall be made without the consent of such Issuer; or (h) affect adversely the interests, rights or obligations of the Agent qua the Agent shall be made without consent of the Agent. In addition, Section 10.2 shall not be amended without the consent of the Agent. No failure or delay on the part of the Agent or any Lender in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent or any Lender under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 11.2. Notices. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or set forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 11.3. Payment of Costs and Expenses. The Borrower agrees to pay on demand all reasonable expenses of the Agent (including the reasonable fees and out-of-pocket expenses of a single counsel to the Agent, and of local counsel, if any, who may be retained by counsel to the Agent) in connection with (a) the negotiation, preparation, execution, delivery or administration of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, and 38 (b) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. The Borrower further agrees to pay, and to save the Agent, each Issuer and the Lenders harmless from all liability for, any stamp or other taxes (other than income taxes) which may be payable in connection with the execution or delivery of this Agreement, the issuance of the Letters of Credit, or any other Loan Documents. The Borrower also agrees to reimburse the Agent, each Issuer and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent or such Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) the enforcement of any Obligations upon and during the continuing of an Event of Default. SECTION 11.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent, the Issuers and each Lender and each of their respective Affiliates, officers, directors, employees and agents, and each other person controlling any of the foregoing within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (collectively, the "Indemnified Parties"), free and harmless from and against any and all actions, causes of action, suits, losses, costs, claims, liabilities and damages, and expenses incurred by any Indemnified Party in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the use of any Letter of Credit; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of the Required Lenders' refusal to make any Credit Extension as a result of the Borrower's failure to satisfy the conditions in Article VI hereof but not including any breach of this Agreement or any other Loan Document by the Agent or any of the Lenders); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by the Borrower or any of its Subsidiaries of all or any portion of the stock or assets of any Person, whether or not the Agent or such Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material; or (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the 39 Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, except for any such Indemnified Liabilities resulting from, arising out of or relating to the relevant Indemnified Party's gross negligence or willful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. In addition to the foregoing, the Borrower hereby waives any and all rights to seek or obtain consequential damages from any Indemnified Party. The Lenders agree to indemnify each Issuer with respect to any acts taken or omissions suffered by the Issuer in connection with each Letter of Credit issued by it or proposed to be issued by it and the related Issuance Request (to the extent not reimbursed by the Borrower), ratably according to their respective Percentages, from and against any and all claims, damages, losses, liabilities and expenses (including without limitation, reasonable fees and disbursements of counsel) of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against any Issuer in any way relating to or arising out of any of the Loan Documents or the Letters of Credit or any action taken or omitted by such Issuer under the Loan Documents or the Letters of Credit (EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR EXPENSE ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF THE ISSUER, BUT EXCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR EXPENSE ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ISSUER). IT IS THE INTENT OF THE PARTIES HERETO THAT THE ISSUER SHALL, TO THE EXTENT PROVIDED IN THIS SECTION 11.4, BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE. Without limitation of the foregoing, each Lender agrees to reimburse each Issuer promptly upon demand for such Lender's ratable share of any reasonable out-of-pocket expenses (including reasonable counsel fees) incurred by such Issuer in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, the Loan Documents or the Letters of Credit, or any of them, to the extent that the Issuer is not reimbursed for such expenses by the Borrower. SECTION 11.5. Survival. The obligations of the Borrower under Sections 5.1, 5.2, 11.3 and 11.4, and the obligations of the Lenders under Section 10.1, shall in each case survive any termination of this Agreement, the payment in full of all Obligations and the termination of all Commitments. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 11.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. 40 SECTION 11.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 11.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be executed by the Borrower and the Agent and be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Agent) shall have been received by the Agent, and the conditions precedent set forth in Section 6.1 shall have been satisfied. SECTION 11.9. Governing Law; Entire Agreement. THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 11.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Agent and all Lenders; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 11.11. SECTION 11.11. Sale and Transfer of Commitments; Participations in Commitments. Each Lender may assign, or sell participations in its Commitments to one or more other Persons in accordance with this Section 11.11. SECTION 11.11.1. Assignments. Any Lender, with the written consent of the Borrower and the Agent (which consents shall not be unreasonably withheld and which consent, in the case of the Borrower, shall be deemed to have been given in the absence of a written notice delivered by the Borrower to the Agent, on or before the fifth Business Day after receipt by the Borrower of such Lender's request for consent, stating, in reasonable detail, the reasons why the Borrower proposes to withhold such consent and which consent shall not be required from the Borrower after the occurrence and during the continuance of an Event of Default) and each Issuer (which consent may be granted or withheld in its sole unfettered discretion) may at any time assign and delegate its Commitments to one or more commercial banks or other financial institutions; provided that, in addition to the consents of the Agent and each Issuer as set forth above, only notice to and not the consent of the Borrower shall be required for the assignment and delegation of Commitments to any Affiliate of such Lender or to any other Lender or an Affiliate of any 41 other Lender, and (each Person described in the foregoing clause as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Lender's Commitments and other interests, in a minimum aggregate amount of $5,000,000; provided, however, that any such Assignee Lender will comply, if applicable, with the provisions contained in Section 5.2 and further, provided, however, that, the Borrower, each other Obligor and the Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (i) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Agent by such Lender and such Assignee Lender, (ii) such Assignee Lender shall have executed and delivered to the Borrower and the Agent a Lender Assignment Agreement, and to the extent and on the terms required herein, such agreement shall have been accepted by the Agent and the Borrower, and (iii) the processing fees described below shall have been paid. From and after the date that the Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents with respect to obligations arising after the date of assignment. Such assignor Lender or such Assignee Lender must pay a processing fee to the Agent upon delivery of any Lender Assignment Agreement in the amount of $3,000. Any attempted assignment and delegation not made in accordance with this Section 11.11.1 shall be null and void. In addition to the foregoing, and notwithstanding any other provision hereof, (i) any Lender may at any time without notice to or consent by any other Person assign its rights under this Agreement to any Federal Reserve Bank and (ii) the Agent shall provide notice to the Lenders of any assignments by it under this Section 11.11.1. SECTION 11.11.2. Participations. Any Lender may at any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") a sub-participating interest in the Commitments, or other interests of such Lender hereunder; provided, however, that (a) no sub-participation contemplated in this Section 11.11 shall relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document, 42 (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations, (c) the Borrower and each other Obligor and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents, (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, and (e) the Borrower shall not be required to pay any amount under Section 5.2 that is greater than the amount which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 5.1, 5.2, 5.4, 5.5, 11.3 and 11.4, shall be considered a Lender. SECTION 11.12. Other Transactions. Nothing contained herein shall preclude the Agent or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 11.13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK OR IN ANY MANNER PROVIDED BY LAW. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT 43 IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 11.14. Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION AMONG ANY OF THE AGENT, THE LENDERS AND THE BORROWER BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 11.15. Confidentiality. The Lenders shall hold all non-public information (which has been identified as such by the Borrower) obtained pursuant to the requirements of this Agreement in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to any of their examiners, their Affiliates, outside auditors, counsel and other professional advisors in connection with this Agreement or as reasonably required by any bona fide transferee, participant or assignee or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided, however, that (a) unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; (b) prior to any such disclosure pursuant to this Section 11.15, each Lender shall require any such bona fide transferee, participant and assignee receiving a disclosure of non-public information to agree in writing (i) to be bound by this Section 11.15; 44 (ii) to require such Person to require any other Person to whom such Person discloses such non-public information to be similarly bound by this Section 11.15; (c) except as may be required by an order of a court of competent jurisdiction and to the extent set forth therein, no Lender shall be obligated or required to return any materials furnished by the Borrower or any Subsidiary; and (d) to any direct or indirect contractual counterparty in swap agreements or to such contractual counterparty's advisor (so long as such contractual counterparty or advisor agrees to be bound by the provisions of this Section 11.15). Notwithstanding anything herein to the contrary, the parties to this Agreement (and their employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the federal income tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) relating to such tax treatment and tax structure. However, no such party shall disclose any information relating to such tax treatment or tax structure to the extent nondisclosure is reasonably necessary in order to comply with applicable securities laws. For this purpose, "tax structure" is limited to facts relevant to the U.S. federal income tax treatment of the transactions contemplated by this Agreement and does not include information relating to the identity of the Borrower, its affiliates, agents or advisors. 45 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. CALPINE CORPORATION By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: Senior Vice President - Treasurer Address: 50 West San Fernando Avenue San Jose, CA 95113 Facsimile No.: (408) 995-0505 Attention: Senior Vice President - Treasurer 46 THE BANK OF NOVA SCOTIA, as Agent By: /s/ Denis P. O'Meara ------------------------------------------ Name: Denis P. O'Meara Title: Managing Director Address: Scotia Capital One Liberty Plaza New York, NY 10006 Facsimile No.: (212) 225-5480 Attention: Denis P. O'Meara with a copy to: The Bank of Nova Scotia 600 Peachtree Street N.E. Suite 2700 Atlanta, GA 30308 Facsimile No.: (404) 888-8998 Attention: Hilma Gabbidon Administrative Agent Loan Administration 47 LENDERS THE BANK OF NOVA SCOTIA By: /s/ Denis P. O'Meara ------------------------------------------ Name: Denis P. O'Meara Title: Managing Director Address: Scotia Capital One Liberty Plaza New York, NY 10006 Facsimile No.: (212) 225-5480 Attention: Denis P. O'Meara with a copy to: The Bank of Nova Scotia 600 Peachtree Street N.E. Suite 2700 Atlanta, GA 30308 Facsimile No.: (404) 888-8998 Attention: Hilma Gabbidon Administrative Agent Loan Administration 48 SCHEDULE I DISCLOSURE SCHEDULE ITEM 7.8 EXISTING SIGNIFICANT SUBSIDIARIES: Calpine Construction Finance Company, L.P. Calpine Construction Finance Company II, LLC Calpine Canada Resources Company Calpine Canada Natural Gas Company Calpine Canada Energy Limited Calpine Calgary, Inc. Calpine Natural Gas Holdings, LLC Calpine Central Inc. Calpine Energy Services, LP CPN Energy Services, LP, Inc. Geysers Power Company, LLC Thermal Power Company Geysers Power I Company Calpine Construction Finance Company I, LLC Calpine CCFC II Holdings, Inc. 49 SCHEDULE II PERCENTAGES THE BANK OF NOVA SCOTIA 100% 50 SCHEDULE 1.1 ORGANIZATIONAL CHART SEE ATTACHED. 51 SCHEDULE 4.10 EXISTING LETTERS OF CREDIT

BNS L/S BENEFICIARY AMOUNT - -------------------------------------------------------------------------------------- 026 Port Authority of New York $ 1,500,000.00 08L0348 Ford Motor Credit Company $ 52,000.00 08L0349 Ford Motor Credit Company $ 1,500,000.00 S001 Tampa Electric $ 592,200.00 S016 Chase Manhattan Bank $ 491,652.00 S017 Chase Manhattan Bank $ 2,214,661.00 S024 BNY Western Trust Co. $ 2,700,000.00 S046 Public Utility District No.1 Klickitat $ 8,305,517.00 S047 Public Service of Colorado $ 28,100,000.00 S048 Public Service of Colorado $ 14,000,000.00 S049 Equistar Chemicals L.P. $ 2,400,000.00 S060 ISO New England $ 2,600,000.00 SO62 Southern Company Services, Inc. $ 100,000.00 SO63 American Transmission Systems, Inc. $ 1,143,000.00 SO64 Duke Energy Trading and Marketing, L.L.C $ 7,095,000.00 SO65 Carolina Power & Light Company $ 5,200,000.00 S066 Wisconsin Power & Light Company $ 4,629,170.00 S067 PG&E Gas Transmission, Northwest $ 3,922,266.00 S002/02 Southern Companies Services, Inc. $ 150,000.00 S003/02 Southern Companies Services, Inc. $ 1,100,000.00 S008/02 Connecticut Municipal Electric Energy Cooperative $ 1,000,000.00 S011/02 Mobile Gas Service Corp. $ 2,300,000.00 S017/02 Liberty Mutual Insurance Co. $ 3,100,000.00 S018/02 Kemper Surplus Lines Insurance Company $ 1,000,000.00 S026/02 Montreal Trust Company of Canada $ 3,750,000.00 S027/02 The Bank of Nova Scotia Trust Company of New York $ 3,374,000.00 S029/02 TransCanada PipeLines Limited $ 1,450,000.00 S031/02 Florida Power & Light $ 3,444,518.00 S032/02 Kemper, et al $ 3,287,500.00 S034/02 TransCanada PipeLines Ltd. $ 3,900,000.00 S053/02 Alabama Power Company $ 70,000.00 90503/80085 Pengrowth Corporation $ 7,200,000.00 90505/80085 Kinder Morgan Texas Pipeline $ 3,000,000.00 90506/80085 Southern Company Services $ 175,000.00 90507/80085 Bureau of Land Management $ 100,000.00

52

Pound Streling L/C Amount BPG 0801-001 BP Gas Marketing Limited $ 57,932,000.00 (35,000,000.00) NGC Gtee National Grid Company $ 10,386,127.50 ( 6,274,847.45) BPG 0801-003 Elexon Clear Limited $ 4,634,560.00 ( 2,800,000.00) NGC LC National Grid Company $ 1,254,858.43 ( 758,131.00) 0054/02 CSFB $ 38,354,030.00 0055/02 El Paso Merchant Energy $ 15,000,000.00 0058/02 Tennessee Valley Authority $ 1,000,000.00 0059/02 Tampa Electric Company $ 551,211.00 0060/02 Tampa Electric Company $ 13,156,290.00 0062/02 San Diego Gas and Electric $ 2,312,000.00 0071/02 Wild Goose Storage $ 405,000.00 0072/02 Tennessee Valley Authority $ 10,000,000.00 0092/02 American Transmission Company LLC $ 1,802,500.00 099/02 Gulf South Pipeline Company, L.P. $ 3,420,000.00 0100/02 Algonquin Gas Transmission Company $ 2,500,000.00 0101/02 Wisconsin Electric Power Company $ 10,000,000.00 0117/02 Progress Energy $ 600,000.00 0014/03 Tennessee Valley Authority $ 3,000,000.00 0015/03 Acadia Power Partners $ 13,000,000.00 0016/03 Acadia Power Partners $ 15,000,000.00 0018/03 $ 626,960.00 0019/03 $ 750,000.00 0034/03 $ 3,000,000.00 0035/03 $ 13,651,000.00 --------------- Total LCs Outstanding $355,083,602.93

53 EX-10.19 11 f92357exv10w19.txt EXHIBIT 10.19 Exhibit 10.19 EXECUTION COPY ================================================================================ GUARANTEE AND COLLATERAL AGREEMENT made by CALPINE CORPORATION, QUINTANA MINERALS (USA), INC., JOQ CANADA, INC. and QUINTANA CANADA HOLDINGS LLC in favor of THE BANK OF NEW YORK, as Collateral Trustee Dated as of July 16, 2003 ================================================================================ TABLE OF CONTENTS

Page ---- SECTION 1. DEFINED TERMS................................................................................... 2 1.1 Definitions..................................................................................... 2 1.2 Other Definitional Provisions................................................................... 4 SECTION 2. GUARANTEE....................................................................................... 4 2.1 Guarantee....................................................................................... 4 2.2 Right of Contribution........................................................................... 5 2.3 No Subrogation.................................................................................. 5 2.4 Amendments, etc. with respect to the Secured Obligations........................................ 5 2.5 Guarantee Absolute and Unconditional............................................................ 6 2.6 Reinstatement................................................................................... 6 2.7 Payments........................................................................................ 7 SECTION 3. GRANT OF SECURITY INTEREST...................................................................... 7 SECTION 4. REPRESENTATIONS AND WARRANTIES.................................................................. 8 4.1 Title; No Other Liens........................................................................... 8 4.2 Perfected First Priority Liens.................................................................. 8 4.3 Jurisdiction of Organization; Chief Executive Office............................................ 9 4.4 Inventory and Equipment......................................................................... 9 4.5 Farm Products................................................................................... 9 4.6 [Intentionally Omitted]......................................................................... 9 4.7 Receivables..................................................................................... 9 4.8 Intellectual Property........................................................................... 9 SECTION 5. COVENANTS....................................................................................... 9 5.1 Delivery of Instruments, Certificated Securities and Chattel Paper.............................. 9 5.2 Maintenance of Insurance........................................................................ 9 5.3 Maintenance of Perfected Security Interest; Further Documentation.............................. 10 5.4 Changes in Locations, Name, etc................................................................ 10 5.5 [Intentionally Omitted]........................................................................ 10 SECTION 6. REMEDIAL PROVISIONS............................................................................ 10 6.1 Proceeds to be Turned Over To Collateral Trustee............................................... 10 6.2 Application of Proceeds........................................................................ 11 6.3 Code and Other Remedies........................................................................ 11 6.4 Deficiency..................................................................................... 11 SECTION 7. THE COLLATERAL TRUSTEE......................................................................... 11 7.1 Duty of Collateral Trustee..................................................................... 11 7.2 Execution of Financing Statements.............................................................. 12 7.3 Authority of Collateral Trustee................................................................ 12 SECTION 8. MISCELLANEOUS.................................................................................. 12 8.1 Amendments in Writing.......................................................................... 12 8.2 Notices........................................................................................ 12 8.3 No Waiver by Course of Conduct; Cumulative Remedies............................................ 12

i 8.4 Enforcement Expenses; Indemnification.......................................................... 13 8.5 Successors and Assigns......................................................................... 13 8.6 Set-Off........................................................................................ 13 8.7 Counterparts................................................................................... 14 8.8 Severability................................................................................... 14 8.9 Section Headings............................................................................... 14 8.10 Integration.................................................................................... 14 8.11 GOVERNING LAW.................................................................................. 14 8.12 Submission To Jurisdiction; Waivers............................................................ 14 8.13 Acknowledgements............................................................................... 15 8.14 Additional Grantors............................................................................ 15 8.15 Releases; Termination.......................................................................... 15 8.16 WAIVER OF JURY TRIAL........................................................................... 15 SCHEDULES Schedule 1 Notice Addresses Schedule 2 Perfection Matters Schedule 3 Jurisdictions of Organization and Chief Executive Offices Schedule 4A Oil and Gas Inventory and Equipment Locations Schedule 4B Other Inventory and Equipment Locations Schedule 5 Intellectual Property ii GUARANTEE AND COLLATERAL AGREEMENT GUARANTEE AND COLLATERAL AGREEMENT, dated as of July 16, 2003, made by Calpine Corporation (the "Company") and each of the signatories hereto (together with the Company and any other entity that may become a party hereto as provided herein, the "Grantors"), in favor of The Bank of New York, as Collateral Trustee (in such capacity, the "Collateral Trustee") for the benefit of the Secured Parties (as defined below). W I T N E S S E T H: WHEREAS, the Company intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified, renewed, restated or replaced from time to time, the "Credit Agreement") among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder; WHEREAS, the Company intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Secured Floating Rate Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50%% Second Priority Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between the Company and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"); WHEREAS, the Company intends to secure its Secured Obligations, including its obligations under the Credit Agreement and any future Priority Lien Debt, on a priority basis, and, subject to such priority, its obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with security interests in, among other things, all present and future Collateral (as defined below); WHEREAS, the Company has entered into a Collateral Trust Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among, inter alia, the Company, the other Grantors and the Collateral Trustee which sets forth the terms on which the Company has appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to receive, hold, maintain, administer, enforce and distribute the Existing Security Documents and all other Security Documents, including this Agreement and the guarantees granted hereunder, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof; WHEREAS, the Company is a member of an affiliated group of companies that includes each other Grantor; 2 WHEREAS, the proceeds of the extensions of credit under each of the Credit Agreement and the Term Loan Agreement, and the proceeds of the offering of each of the 2007 Notes, the 2010 Notes and the 2013 Notes, will be used in part to enable the Company to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses; WHEREAS, the Company and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the making of the extensions of credit under each of the Credit Agreement and the Term Loan Agreement and the offering of each of the 2007 Notes, 2010 Notes and 2013 Notes; and WHEREAS, it is a condition precedent to the obligation of the lenders to make their respective extensions of credit to the Company under each of the Credit Agreement and the Term Loan Agreement, and condition precedent to the obligation of the purchasers to purchase each of the 2007 Notes, the 2010 Notes and the 2013 Notes, that the Grantors shall have executed and delivered this Agreement to the Collateral Trustee for the benefit of the Secured Parties; NOW, THEREFORE, in consideration of the premises contained herein and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINED TERMS 1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the Collateral Trust Agreement and used herein shall have the meanings given to them in the Collateral Trust Agreement, and the following terms are used herein as defined in the New York UCC: Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims, Documents, Equipment, Farm Products, General Intangibles, Instruments, Inventory, Letter-of-Credit Rights and Supporting Obligations. (b) The following terms shall have the following meanings: "Agreement": this Guarantee and Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Collateral": as defined in Section 3. "Collateral Account": any collateral account established by the Collateral Trustee as provided in Section 6.1. "Copyrights": (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in Schedule 5), all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof. "Copyright Licenses": any written agreement naming the Company as licensor or licensee (including, without limitation, those listed in Schedule 5), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright. 3 "Deposit Account": as defined in the Uniform Commercial Code of any applicable jurisdiction and, in any event, including, without limitation, any demand, time, savings, passbook or like account maintained with a depositary institution. "Guarantor Pledge Agreement": the First Amendment Pledge Agreement dated as of July 16, 2003 among each of the Guarantors and the Collateral Trustee. "Guarantors": the collective reference to each Grantor other than the Company. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Investment Property": the collective reference to all "investment property" as such term is defined in Section 9-102(a)(49) of the New York UCC. "New York UCC": the Uniform Commercial Code as from time to time in effect in the State of New York. "Panda Note" means the note of Panda Energy International, Inc. due December 2003 held by the Company. "Patents": (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including, without limitation, any of the foregoing referred to in Schedule 5, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any of the foregoing referred to in Schedule 5, and (iii) all rights to obtain any reissues or extensions of the foregoing. "Patent License": all agreements, whether written or oral, providing for the grant by or to the Company of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 5. "Proceeds": all "proceeds" as such term is defined in Section 9-102(a)(64) of the New York UCC and, in any event, shall include, without limitation, all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto. "Receivable": any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including, without limitation, any Account). "Secured Parity Lien Parties": any Person who is holding a Parity Lien Obligation (including any Parity Debt Representative), at any time. "Secured Parties": any Person who is holding a Secured Obligation (including any Secured Debt Representative), at any time. 4 "Secured Priority Lien Parties": any Person who is holding a Priority Lien Obligation (including any Priority Lien Agent), at any time. "Trademarks": (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including, without limitation, any of the foregoing referred to in Schedule 5, and (ii) the right to obtain all renewals thereof. "Trademark License": any agreement, whether written or oral, providing for the grant by or to the Company of any right to use any Trademark, including, without limitation, any of the foregoing referred to in Schedule 5. 1.2 Other Definitional Provisions. (a) The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to the Company, shall refer to the Company's Collateral or the relevant part thereof. SECTION 2 GUARANTEE 2.1 Guarantee. (a) The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Collateral Trustee, for the benefit of the Secured Parties and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Company when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations. (b) Anything herein or in any other Secured Debt Document to the contrary notwithstanding, (i) the recourse of the Collateral Trustee or the Secured Parties against each Guarantor hereunder and under the other Secured Debt Documents shall be limited solely to such Guarantor's ownership interests in CCEC pledged to the Collateral Trustee, for the benefit of the Secured Parties, pursuant to the Guarantor Pledge Agreement and (ii) the maximum liability of each Guarantor hereunder and under the other Secured Debt Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). (c) Each Guarantor agrees that the Secured Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Collateral Trustee or any Secured Party hereunder. (d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Secured Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 5 shall have been satisfied by payment in full and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have been terminated or expired. (e) No payment made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Collateral Trustee or any Secured Party from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Secured Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Secured Obligations or any payment received or collected from such Guarantor in respect of the Secured Obligations), remain liable for the Secured Obligations up to the maximum liability of such Guarantor hereunder until the Secured Obligations are paid in full and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have been terminated or expired. 2.2 Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Collateral Trustee and the Secured Parties, and each Guarantor shall remain liable to the Collateral Trustee and the Secured Parties for the full amount guaranteed by such Guarantor hereunder. 2.3 No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Collateral Trustee or any Secured Party, no Guarantor shall be entitled to be subrogated to any of the rights of the Collateral Trustee or any Secured Party against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Collateral Trustee or any Secured Party for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Collateral Trustee and the Secured Parties by the Company on account of the Secured Obligations are paid in full and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have been terminated or expired. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Secured Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Collateral Trustee and the Secured Parties, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Collateral Trustee in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Collateral Trustee, if required), to be applied against the Secured Obligations, whether matured or unmatured, in such order as the Collateral Trustee may determine, subject to the terms and provisions of the Collateral Trust Agreement. 2.4 Amendments, etc. with respect to the Secured Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Secured Obligations made by the Collateral Trustee or any Secured Party may be rescinded by the Collateral Trustee or such Secured Party and any of the Secured Obligations continued, and the Secured Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by 6 the Collateral Trustee or any Secured Party, and any of the Secured Debt Documents may be amended, modified, supplemented or terminated, in whole or in part, as the requisite parties thereto deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Collateral Trustee or any Secured Party for the payment of the Secured Obligations may be sold, exchanged, waived, surrendered or released. Neither the Collateral Trustee nor any Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Secured Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Secured Obligations and notice of or proof of reliance by the Collateral Trustee or any Secured Party upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Secured Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Company and any of the Guarantors, on the one hand, and the Collateral Trustee and the Secured Parties, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Secured Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of any of the Secured Debt Documents, any of the Secured Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Collateral Trustee or any Secured Party, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Company or any other Person against the Collateral Trustee or any Secured Party, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Secured Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Collateral Trustee or any Secured Party may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Company, any other Guarantor or any other Person or against any collateral security or guarantee for the Secured Obligations or any right of offset with respect thereto, and any failure by the Collateral Trustee or any Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from the Company, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Collateral Trustee or any Secured Party against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.6 Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Secured Obligations is rescinded or must otherwise be restored or returned by the Collateral Trustee or any Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 7 2.7 Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Collateral Trustee without set-off or counterclaim in Dollars at an office of the Collateral Trustee in the City of New York. SECTION 3 GRANT OF SECURITY INTEREST The Company hereby (i) assigns and transfers to the Collateral Trustee, and hereby grants to the Collateral Trustee, for the benefit of the Secured Priority Lien Parties, a first priority security interest in, all of the following property now owned or at any time hereafter acquired by the Company or in which the Company now has or at any time in the future may acquire any right, title or interest, except the Excluded Assets (collectively, the "Collateral"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Priority Lien Obligations and (ii) assigns and transfers to the Collateral Trustee, and hereby grants to the Collateral Trustee, for the benefit of the Secured Parity Lien Parties, a second priority security interest in, all of the Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Parity Lien Obligations: (a) all Accounts; (b) all Chattel Paper; (c) all Contracts; (d) all Deposit Accounts; (e) all Documents; (f) all Equipment; (g) all General Intangibles; (h) all Instruments; (i) all Intellectual Property; (j) all Inventory; (k) all Investment Property; (l) all Letter-of-Credit Rights; (m) all other property not otherwise described above; (n) all books and records pertaining to the Collateral; and (o) to the extent not otherwise included, all Proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing; 8 provided, however, that notwithstanding any of the other provisions set forth in this Section 3, this Agreement shall not, at any time, constitute a grant of a security interest in any property that is, at such time, an Excluded Asset. In addition, notwithstanding any other provision set forth in this Agreement, to the extent that any other Security Document to which the Collateral Trustee is a party grants a security interest in any of the Collateral and a security interest in such Collateral is also granted in this Agreement and the provisions of such other Security Document are inconsistent with the provisions of this Agreement with respect to such Collateral, the provisions of such other Security Document shall control. This Agreement and the security interests and Liens granted and created herein secures the payment an performance of all Secured Obligations of the Company now or hereafter, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest (including any interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the maturity of the Indebtedness thereunder and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, premiums, penalties, indemnifications, expenses or otherwise, and including all amounts that constitute part of the Secured Obligations and would be owed by the Company but for the fact that they are unenforceable or not allowed due to a pending Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the foregoing, it is the intent of the parties that (i) the Liens securing the Parity Lien Obligations are subject and subordinate to the Liens securing the Priority Lien Obligations up to the Priority Lien Cap and (ii) this Agreement creates two separate and distinct Liens: the first Lien securing the payment and performance of the Priority Lien Obligations and the second Lien securing the payment and performance of the Parity Lien Obligations. SECTION 4 REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Collateral Trustee and each Secured Party that: 4.1 Title; No Other Liens. Except for the security interest granted to the Collateral Trustee for the benefit of the Secured Parties pursuant to this Agreement and the other Liens permitted to exist on the Collateral by the Secured Debt Documents, the Company owns each item of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Collateral Trustee, for the benefit of the Secured Parties, pursuant to this Agreement or as are permitted by each of the Secured Debt Documents. For the avoidance of doubt, it is understood and agreed that the Company may, as part of its business, grant licenses to third parties to use Intellectual Property owned or developed by the Company. For purposes of this Agreement and the other Secured Debt Documents, such licensing activity shall not constitute a "Lien" on such Intellectual Property. Each of the Collateral Trustee and each Secured Party understands that any such licenses may be exclusive to the applicable licensees, and such exclusivity provisions may limit the ability of the Collateral Trustee to utilize, sell, lease or transfer the related Intellectual Property or otherwise realize value from such Intellectual Property pursuant hereto. 4.2 Perfected First Priority Liens. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 2 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Collateral Trustee in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral 9 in favor of the Collateral Trustee, for the benefit of the Secured Parties, as collateral security for the Secured Obligations, enforceable in accordance with the terms hereof against all creditors of the Company and any Persons purporting to purchase any Collateral from the Company and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for unrecorded Liens permitted by the Secured Debt Documents which have priority over the Liens on the Collateral by operation of law. 4.3 Jurisdiction of Organization; Chief Executive Office. On the date hereof, the Company's jurisdiction of organization, identification number from the jurisdiction of organization (if any), and the location of the Company's chief executive office or sole place of business or principal residence, as the case may be, are specified on Schedule 3. The Company has furnished to the Collateral Agent a certified charter, certificate of incorporation or other organization document and long-form good standing certificate as of a date which is recent to the date hereof. 4.4 Inventory and Equipment. On the date hereof, (a) the Inventory and the Equipment (other than mobile goods) representing natural gas and oil assets (including any related extraction, processing or similar equipment, but excluding natural gas power plants), in each case with a fair market value of $1,000,000 or more, are kept at the locations listed on Schedule 4A and (b) the Inventory and the Equipment (other than mobile goods and that Inventory and Equipment described in clause (a) above), in each case with a fair market value of $1,000,000 or more, are kept at the locations listed on Schedule 4B. 4.5 Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 4.6 [Intentionally Omitted] 4.7 Receivables. (a) No amount payable to the Company under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Collateral Trustee (other than the Panda Note). (b) None of the obligors on any Receivables is a Governmental Authority. 4.8 Intellectual Property. Schedule 5 lists all material Intellectual Property owned by the Company in its own name on the date hereof. SECTION 5 COVENANTS The Company covenants and agrees with the Collateral Trustee and the Secured Parties that, from and after the date of this Agreement until the Secured Obligations shall have been paid in full and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have been terminated or expired: 5.1 Delivery of Instruments, Certificated Securities and Chattel Paper. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be immediately delivered to the Collateral Trustee, duly indorsed in a manner satisfactory to the Collateral Trustee, to be held as Collateral pursuant to this Agreement. The Company agrees to promptly (and in any event within 15 days from the date hereof) deliver the Panda Note to the Collateral Trustee, duly indorsed in a manner satisfactory to the Collateral Trustee, to be held as Collateral pursuant to this Agreement. 5.2 Maintenance of Insurance. (a) The Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained, with financially sound and reputable companies, insurance 10 policies insuring the Inventory and Equipment and other properties and business (including business interruption insurance) of the Company and its Subsidiaries against loss by fire, explosion, theft and such other casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses. (b) As promptly as practicable after each year following the date of this Agreement and beginning with 2004, and in any event prior to February 1 in each such year, the Company will furnish to the Collateral Trustee and each Secured Debt Representative an Officers' Certificate setting forth the nature and extent of all insurance maintained by the Company and its Subsidiaries. 5.3 Maintenance of Perfected Security Interest; Further Documentation. (a) The Company shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.2 and shall defend such security interest against the claims and demands of all Persons whomsoever, subject to the rights of the Company under the Secured Debt Documents to dispose of the Collateral and the Lien release provisions in the Secured Debt Documents. (b) The Company will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as necessary for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) filing any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) in the case of Investment Property, Deposit Accounts, Letter-of-Credit Rights and any other relevant Collateral, taking any actions necessary to enable the Collateral Trustee to obtain "control" (within the meaning of the applicable Uniform Commercial Code) with respect thereto. 5.4 Changes in Locations, Name, etc. The Company will not, except upon 15 days' prior written notice to the Collateral Trustee and each Secured Debt Representative and delivery to the Collateral Trustee of (a) all additional executed financing statements and other documents as necessary to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 4 showing any additional location at which Inventory or Equipment shall be kept: (i) change its jurisdiction of organization or the location of its chief executive office or sole place of business or principal residence from that referred to in Section 4.3; or (ii) change its name. 5.5 [Intentionally Omitted] SECTION 6. REMEDIAL PROVISIONS 6.1 Proceeds to be Turned Over To Collateral Trustee. If an Actionable Default shall occur and be continuing, all Proceeds received by the Company consisting of cash, checks and other near-cash items shall be held by the Company in trust for the Collateral Trustee and the Secured Parties, segregated from other funds of the Company, and shall, forthwith upon receipt by the Company, be turned over to the Collateral Trustee in the exact form received by the Company (duly indorsed in blank by the Company or to the Collateral Trustee, if required). All Proceeds of Collateral received by the Collateral Trustee hereunder shall be held by the Collateral Trustee in a Collateral Account maintained under its sole dominion and control or under the sole dominion and control of the Credit Agreement Agent, acting as agent for the Collateral Trustee. All Proceeds while held by the Collateral Trustee in a Collateral Account (or by the Company in trust for the Collateral Trustee and the Secured Parties) shall continue to be held as 11 collateral security for all the Secured Obligations and shall not constitute payment thereof until applied as provided in Section 6.2. 6.2 Application of Proceeds. If an Actionable Default shall have occurred and be continuing, the Collateral Trustee may apply all or any part of Proceeds constituting Collateral, whether or not held in any Collateral Account, in payment of the Secured Obligations, in each case subject to the terms and provisions of the Collateral Trust Agreement. 6.3 Code and Other Remedies. If an Actionable Default shall occur and be continuing, the Collateral Trustee, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law, in each case subject to the terms and provisions of the Collateral Trust Agreement. Without limiting the generality of the foregoing, and in each case subject to the terms and provisions of the Collateral Trust Agreement, the Collateral Trustee, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Company or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Collateral Trustee or any Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Collateral Trustee or any Secured Party shall have the right, but shall not be obligated to, upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Company, which right or equity is hereby waived and released. The Company further agrees, at the Collateral Trustee's request, to assemble the Collateral and make it available to the Collateral Trustee at places which the Collateral Trustee shall reasonably select, whether at the Company's premises or elsewhere. The Collateral Trustee shall apply the net proceeds of any action taken by it pursuant to this Section 6.3 in accordance with the provisions of the Collateral Trust Agreement. To the extent permitted by applicable law, the Company waives all claims, damages and demands it may acquire against the Collateral Trustee or any Secured Party arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. 6.4 Deficiency. The Company shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Secured Obligations and the fees and disbursements of any attorneys employed by the Collateral Trustee to collect such deficiency. SECTION 7. THE COLLATERAL TRUSTEE 7.1 Duty of Collateral Trustee. The Collateral Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Collateral Trustee deals with similar property for its own account. Neither the Collateral Trustee, any Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Company or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the 12 Collateral Trustee and the Secured Parties hereunder are solely to protect the Collateral Trustee's and the Secured Parties' interests in the Collateral and shall not impose any duties or obligations upon the Collateral Trustee or any Secured Party to exercise any such powers. The Collateral Trustee and the Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to the Company for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. Notwithstanding anything to the contrary contained in this Agreement, the rights, privileges, powers, benefits and immunities of the Collateral Trustee hereunder are subject to the terms, conditions and limitations set forth in the Collateral Trust Agreement, reference to which is made for all purposes; provided, however, that any forbearance by the Collateral Trustee in exercising any right or remedy available to it under the Collateral Trust Agreement shall not give rise to a defense on the part of the Grantors with respect to the Collateral Trustee's exercise of any right or remedy pursuant to this Agreement or as otherwise afforded by applicable law. 7.2 Execution of Financing Statements. Pursuant to any applicable law, the Company authorizes the Collateral Trustee to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of the Company in such form and in such offices as are necessary to perfect the security interests of the Collateral Trustee under this Agreement. The Company authorizes the Collateral Trustee to use the collateral description "all personal property except for Excluded Assets" in any such financing statements. The Company hereby ratifies and authorizes the filing by the Collateral Trustee of any financing statement with respect to the Collateral made prior to the date hereof. The Collateral Trustee shall be under no obligation to file or record such financings statements or to make any other filing under the UCC in connection with this Agreement. 7.3 Authority of Collateral Trustee. The Company acknowledges that the rights and responsibilities of the Collateral Trustee under this Agreement with respect to any action taken by the Collateral Trustee or the exercise or non-exercise by the Collateral Trustee of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Trustee and the Secured Parties, be governed by the Collateral Trust Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Trustee and the Company, the Collateral Trustee shall be conclusively presumed to be acting on behalf of the Secured Parties with full and valid authority so to act or refrain from acting, and the Company shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. SECTION 8. MISCELLANEOUS 8.1 Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 7.1 of the Collateral Trust Agreement. 8.2 Notices. All notices, requests and demands to or upon the Collateral Trustee, any Secured Debt Representative or the Company hereunder shall be effected in the manner provided for in Section 7.5 of the Collateral Trust Agreement; provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1. 8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither the Collateral Trustee nor any Secured Party shall by any act (except by a written instrument pursuant to Section 8.1), delay, 13 indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Actionable Default. No failure to exercise, nor any delay in exercising, on the part of the Collateral Trustee or any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Collateral Trustee or any Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Collateral Trustee or such Secured Party would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 8.4 Enforcement Expenses; Indemnification. (a) The Guarantors jointly and severally agree to pay or reimburse the Collateral Trustee for all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Secured Debt Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to the Collateral Trustee. (b) Each Guarantor agrees to pay, and to save the Collateral Trustee harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Agreement. (c) Each Guarantor agrees to pay, and to save the Collateral Trustee harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Company would be required to do so pursuant to Section 7.7 of the Collateral Trust Agreement. (d) The maximum liability of each Guarantor under this Section 8.4 shall be limited to such Guarantor's ownership interests in CCEC pledged to the Collateral Trustee, for the benefit of the Secured Parties, pursuant to the Guarantor Pledge Agreement. The agreements in this Section 8.4 shall survive repayment of the Secured Obligations and all other amounts payable under the Secured Debt Documents. 8.5 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Collateral Trustee and the Secured Parties and their successors and assigns; provided that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Collateral Trustee. 8.6 Set-Off. Each Grantor hereby irrevocably authorizes the Collateral Trustee at any time and from time to time while an Actionable Default shall have occurred and be continuing, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Collateral Trustee to or for the credit or the account of such Grantor, or any part thereof in such amounts as the Collateral Trustee may elect, against and on account of the obligations and liabilities of such Grantor to the Collateral Trustee hereunder and claims of every nature and description of the Collateral Trustee against such Grantor, in any currency, whether arising hereunder or under any other Secured Debt Document or otherwise, as the Collateral Trustee may elect, whether or not the Collateral Trustee has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Collateral Trustee shall notify such Grantor promptly of any such set-off and the 14 application made by the Collateral Trustee of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Collateral Trustee under this Section 8.6 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Collateral Trustee may have. 8.7 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 8.8 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.9 Section Headings. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 8.10 Integration. This Agreement, the Collateral Trust Agreement and the other Secured Debt Documents represent the agreement of the Grantors, the Collateral Trustee and the Secured Parties with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Collateral Trustee or any Secured Party relative to subject matter hereof and thereof not expressly set forth or referred to herein, the Collateral Trust Agreement or in the other Secured Debt Documents. 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Secured Debt Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor at its address referred to in Section 8.2 or at such other address of which the Collateral Trustee shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and 15 (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 8.13 Acknowledgements. Each Grantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Secured Debt Documents to which it is a party; (b) neither the Collateral Trustee nor any Secured Party has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Secured Debt Documents, and the relationship between the Grantors, on the one hand, and the Collateral Trustee and Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Secured Debt Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Grantors and the Secured Parties. 8.14 Additional Grantors. Each Subsidiary of the Company that is required by any Secured Debt Document to become a party to this Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto. 8.15 Releases; Termination(a) . All or any portion of the Collateral shall be released from the Liens created hereby, the Guarantee of any Guarantor under this Agreement shall terminate and this Agreement shall terminate, in each case as provided in Section 4.1 of the Collateral Trust Agreement. 8.16 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER SECURED DEBT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 16 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written. CALPINE CORPORATION, By: /s/ Michael Thomas -------------------------------- Title: QUINTANA MINERALS (USA), INC., By: /s/ Michael Thomas -------------------------------- Title: JOQ CANADA, INC., By: /s/ Michael Thomas -------------------------------- Title: QUINTANA CANADA HOLDINGS, LLC, By: /s/ Michael Thomas -------------------------------- Title: 17 THE BANK OF NEW YORK, as Collateral Trustee, By: /s/ Michael Pitfick ---------------------------------------- Name: Michael Pitfick Title: Assistant Vice President SCHEDULE 1 NOTICE ADDRESSES FOR GUARANTORS QUINTANA MINERALS (USA), INC. 50 West San Fernando Street San Jose, CA 95113 QUINTANA CANADA HOLDINGS, LLC 50 West San Fernando Street San Jose, CA 95113 JOQ CANADA, INC. 50 West San Fernando Street San Jose, CA 95113 SCHEDULE 2 PERFECTION MATTERS A. UCC-1 FINANCING STATEMENTS UCC-1 FINANCING STATEMENTS AS TRANSMITTING UTILITY 1) Delaware SOS 2) California SOS 3) Arkansas SOS 4) Colorado SOS 5) Mississippi SOS 6) Montana SOS 7) New Mexico SOS 8) Oklahoma County Clerk, OK 9) Texas SOS 10) Wyoming SOS UCC-1 FINANCING STATEMENT Delaware SOS UCC- FIXTURE FILING AGAINST PROJECT FACILITY Richmond County, GA UCC-3 ASSIGNMENTS FROM BANK OF NOVA SCOTIA, AS AGENT TO THE BANK OF NEW YORK, AS COLLATERAL TRUSTEE - ------------------------------------------------------------------------------------------------------- Delaware Secretary of State 20678940 3/15/2002 - ------------------------------------------------------------------------------------------------------- Delaware Secretary of State 21165863 5/9/2002 - ------------------------------------------------------------------------------------------------------- New Mexico Secretary of State 2002050903023 5/9/2002 - ------------------------------------------------------------------------------------------------------- Garfield County, Colorado Reception #603031 5/8/2002 Book 1353, Page 410 - ------------------------------------------------------------------------------------------------------- Delaware Secretary of State 21165871 5/9/2002 - ------------------------------------------------------------------------------------------------------- Jefferson Parish, LA 26262652 5/7/2002 - ------------------------------------------------------------------------------------------------------- Delaware Secretary of State 21165913 5/9/2002 - ------------------------------------------------------------------------------------------------------- Colusa County, CA 02-2146 5/17/2002 - ------------------------------------------------------------------------------------------------------- Contra Costa County, CA 2002-0170009-00 5/13/2002 - ------------------------------------------------------------------------------------------------------- Fresno County, CA 2002-0085594 5/23/2002 - ------------------------------------------------------------------------------------------------------- Kern County, CA 0202084537 5/24/2002 - ------------------------------------------------------------------------------------------------------- Kings County, CA 0210875 5/20/2002 - ------------------------------------------------------------------------------------------------------- Sacramento County, CA Book 20020507, Page 0614 5/7/2002 - ------------------------------------------------------------------------------------------------------- Solano County, CA 2002-00058870 5/9/2002 - ------------------------------------------------------------------------------------------------------- Sutter County, CA 2002-0009818 5/17/2002 - ------------------------------------------------------------------------------------------------------- Tulare County, CA 2002-0045392 6/14/2002 - ------------------------------------------------------------------------------------------------------- Yolo County, CA 2002-0019211-00 5/7/2002 - ------------------------------------------------------------------------------------------------------- SCHEDULE 3 LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE OF THE GRANTORS

Grantor Jurisdiction of Organization Location of Chief Executive Office ------- ---------------------------- ---------------------------------- CALPINE CORPORATION DELAWARE SAN JOSE, CALIFORNIA QUINTANA MINERALS (USA), INC. DELAWARE SAN JOSE, CALIFORNIA QUINTANA CANADA HOLDINGS, LLC DELAWARE SAN JOSE, CALIFORNIA JOQ CANADA, INC. DELAWARE SAN JOSE, CALIFORNIA

SCHEDULE 4A INVENTORY AND EQUIPMENT LOCATIONS LOCATIONS OF OIL AND GAS INVENTORY AND EQUIPMENT: [List of counties from Exhibit A to the Oil and Gas Mortgages] SCHEDULE 4B LOCATIONS OF OTHER INVENTORY AND EQUIPMENT: 1. Goldendale Energy Center - Goldendale, Washington. 2. Otay Mesa Energy Center - near San Diego, California. 3. Metcalf Energy Center - near San Jose, California. 4. Santa Rosa Energy Center - Santa Rosa County, Florida. 5. Washington Parish Energy Center - near Bogalusa, Louisiana. 6. Deer Park Energy Center - Deer Park, Texas. 7. Augusta Energy Center - Augusta, Georgia. SCHEDULE 5 MATERIAL INTELLECTUAL PROPERTY None. Annex 1 to Guarantee and Collateral Agreement ASSUMPTION AGREEMENT, dated as of ________________, 200_, made by ______________________________ (the "Additional Grantor"), in favor of The Bank of New York, as collateral trustee (in such capacity, the "Collateral Trustee") for the Secured Parties. All capitalized terms not defined herein shall have the meaning ascribed to them in the Collateral Trust Agreement. W I T N E S S E T H : WHEREAS, Calpine Corporation (the "Company"), certain of its Subsidiaries and the Collateral Trustee have entered into a Collateral Trust Agreement, dated as of July 16, 2003 (as amended, supplemented or otherwise modified from time to time, the "Collateral Trust Agreement"); WHEREAS, in connection with the Collateral Trust Agreement, the Company and certain of its Subsidiaries have entered into the Guarantee and Collateral Agreement, dated as of July 16, 2003 (as amended, supplemented or otherwise modified from time to time, the "Guarantee and Collateral Agreement") in favor of the Collateral Trustee for the benefit of the Secured Parties; WHEREAS, an applicable Secured Debt Document requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement; NOW, THEREFORE, IT IS AGREED: 1. Guarantee and Collateral Agreement. By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section 8.14 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. The information set forth in Annex 1-A hereto is hereby added to the information set forth in the Schedules to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in Section 4 of the Guarantee and Collateral Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 2 IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL GRANTOR] By: _______________________ Name: Title: Annex 1-A to Assumption Agreement Supplement to Schedule 1 Supplement to Schedule 2 Supplement to Schedule 3 Supplement to Schedule 4 Supplement to Schedule 5 EX-10.20 12 f92357exv10w20.txt EXHIBIT 10.20 Exhibit 10.20 EXECUTION COPY Canadian Guarantors Stock Pledge FIRST AMENDMENT PLEDGE AGREEMENT THIS FIRST AMENDMENT PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of July 16, 2003, made by Quintana Minerals (USA), Inc., a Delaware corporation, JOQ Canada, Inc., a Delaware corporation, and Quintana Canada Holdings, LLC, a Delaware limited liability company (each a "Pledgor" and collectively, the "Pledgors") in favor of The Bank of New York, as Collateral Trustee (together with any successor(s) thereto in such capacity, the "Collateral Trustee") for the benefit of the Secured Parties. W I T N E S S E T H WHEREAS, Calpine Corporation (the "Company") intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified, renewed, restated or replaced from time to time, the "Credit Agreement") among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder; WHEREAS, the Company intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Secured Floating Rate Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between the Company and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"); WHEREAS, the Pledgors intend to guarantee the Secured Obligations of the Company on a limited basis and to secure their respective Secured Obligations under such limited guarantees, including their respective obligations under the Credit Agreement and any future Priority Lien Debt, on a priority basis, and, subject to such priority, their respective obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with security interests in, and pledge of, among other things, all present and future Pledged Collateral (as defined below); WHEREAS, the Company and the Pledgors have entered into a Collateral Trust Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among, inter alia, the Company, the Pledgors and the Collateral Trustee which sets forth the terms on which the Company and the Pledgors have appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to receive, hold, maintain, administer, enforce and distribute the Existing Security Documents and all other Security Documents, including this Pledge Agreement, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof; WHEREAS, the Company and the Pledgors will derive substantial direct and indirect benefit from the making of the extensions of credit under each of the Credit Agreement and the Term Loan Agreement and the offering of each of the 2007 Notes, 2010 Notes and 2013 Notes; WHEREAS, it is a condition precedent to the obligation of the lenders to make their respective extensions of credit to the Company under each of the Credit Agreement and the Term Loan Agreement, and condition precedent to the obligation of the purchasers to purchase each of the 2007 Notes, the 2010 Notes and the 2013 Notes, that the Pledgors shall have executed and delivered this Pledge Agreement to the Collateral Trustee for the benefit of the Secured Parties; and WHEREAS, this Pledge Agreement amends and restates in its entirety the Pledge Agreement dated as of March 8, 2002 made by the Pledgors in favor of The Bank of Nova Scotia, as agent; NOW, THEREFORE, in consideration of the premises contained herein and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Collateral Trustee" is defined in the preamble. "Collateral Trust Agreement" is defined in the recitals. "Company" is defined in the preamble. "Distributions" means all stock dividends, liquidating dividends, shares of stock resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers, consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares or other shares of capital stock constituting Pledged Collateral, but shall not include Dividends. 2 "Dividends" means cash dividends and cash distributions with respect to any Pledged Shares or other Pledged Property made in the ordinary course of business and not a liquidating dividend. "Pledge Agreement" is defined in the preamble. "Pledged Collateral" is defined in Section 2.1. "Pledged Property" means all Pledged Shares and all other pledged shares of capital stock, all other securities, all assignments of any amounts due or to become due, all other instruments which are now being delivered by the Pledgors to the Collateral Trustee or may from time to time hereafter be delivered by the Pledgors to the Collateral Trustee for the purpose of pledge under this Pledge Agreement or any other Secured Debt Document, and all proceeds of any of the foregoing. "Pledged Share Issuer" means each Person identified in Attachment 1 hereto as the issuer of the Pledged Shares identified opposite the name of such Person. "Pledged Shares" means all shares of capital stock of any Pledged Share Issuer which are delivered by a Pledgor to the Collateral Trustee as Pledged Property hereunder. "Secured Parity Lien Parties" means any Person who is holding a Parity Lien Obligation (including any Parity Debt Representative), at any time. "Secured Parties" means any Person who is holding a Secured Obligation (including any Secured Debt Representative), at any time. "Secured Priority Lien Parties" means any Person who is holding a Priority Lien Obligation (including any Priority Lien Agent), at any time. "Securities Act" is defined in Section 6.2. "U.C.C." means the Uniform Commercial Code as in effect in the State of New York. SECTION 1.2. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Collateral Trust Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II PLEDGE SECTION 2.1. Grant of Security Interest. Each Pledgor hereby (i) pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to the Collateral Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, and hereby grants to the Collateral 3 Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, a continuing first priority security interest in, all of the following property (the "Pledged Collateral") and (ii) pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to the Collateral Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, a continuing second priority security interest in, all of the Pledged Collateral: (a) all issued and outstanding shares of capital stock identified on Attachment 1 hereto of each Pledged Share Issuer identified on Attachment 1 hereto; (b) and the certificates representing the Pledged Shares and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (c) all additional shares of stock of any issuer of the Pledged Shares from time to time acquired by any Pledgor in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (d) all proceeds of any of the foregoing; provided, however, that in no event shall the Pledged Collateral constitute or give rise to any rights or interests in excess of a 65% ownership interest in the Pledged Share Issuer. SECTION 2.2. Security for Obligations; Separate Liens. This Pledge Agreement and the security interests and Liens granted and created herein secures the payment and performance of all Secured Obligations of the Pledgors now or hereafter, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest (including any interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, premiums, penalties, indemnifications, expenses or otherwise, and including all amounts that constitute part of the Secured Obligations and would be owed by the Pledgors but for the fact that they are unenforceable or not allowed due to a pending Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the foregoing, it is the intent of the parties that (i) the Liens securing the Parity Lien Obligations are subject and subordinate to the Liens securing the Priority Lien Obligations up to the Priority Lien Cap and (ii) this Pledge Agreement creates two separate and distinct Liens: the first Lien securing the payment and performance of the Priority Lien Obligations and the second Lien securing the payment and performance of the Parity Lien Obligations. SECTION 2.3. Delivery of Pledged Property. All certificates or instruments representing or evidencing any Pledged Collateral, including all Pledged Shares, shall be delivered to and held by or on behalf of the Collateral Trustee pursuant hereto, shall be in 4 suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION 2.4. Intentionally Omitted. SECTION 2.5. Continuing Security Interest; Transfer of Note. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the other Secured Debt Documents, shall (a) remain in full force and effect until payment in full of all Secured Obligations and the termination or expiration of all commitments to extend credit under all Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt, (b) be binding upon each Pledgor and its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Collateral Trustee hereunder, to the benefit of the Collateral Trustee and each other Secured Party. Without limiting the foregoing clause (c), any Secured Party may assign or otherwise transfer (in whole or in part) any right or obligation under the Secured Debt Documents to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Secured Party under any Secured Debt Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the applicable provisions of each of the Secured Debt Documents. Upon the payment in full and discharge of all Secured Obligations that are then outstanding, due and payable and the termination or expiration of all commitments to extend credit under all Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt, the security interest granted herein shall terminate and all rights to the Pledged Collateral shall revert to the Pledgors. Upon any such termination or any release of the Lien provided for hereunder in accordance with the Secured Debt Documents, the Collateral Trustee will, at the Pledgors' sole expense, deliver to the Pledgors, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Shares, together with all other Pledged Collateral held by the Collateral Trustee hereunder, and execute and deliver to each Pledgor such documents as the Pledgors shall reasonably request to evidence such termination or release. SECTION 2.6. Security Interest Absolute. All rights of the Collateral Trustee and the security interests granted to the Collateral Trustee hereunder, and all obligations of the Pledgors hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of any of the Secured Debt Documents, (b) the failure of any Secured Party or any holder of any Secured Obligation 5 (i) to assert any claim or demand or to enforce any right or remedy against the Company, any other Obligor or any other Person under the provisions of any of the Secured Debt Documents or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Secured Obligations of the Company or any other Obligor, (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other extension, compromise or renewal of any Secured Obligation of the Company or any other Obligor, (d) any reduction, limitation, impairment or termination of any Secured Obligations of the Company or any other Obligor for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Pledgors hereby waive any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Secured Obligations of the Company, any other Obligor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of any of the Secured Debt Documents, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Pledged Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Secured Obligations, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Company, any other Obligor, any surety or any guarantor. SECTION 2.7. [Intentionally Omitted.] SECTION 2.8. Waiver of Subrogation. Until such time as the Secured Obligations have been paid in full and discharged, and all commitments to extend credit under all Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt shall have been permanently terminated or expired, each Pledgor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company or any other Obligor that arise from the existence, payment, performance or enforcement of the Pledgors' obligations under this Pledge Agreement or any other Secured Debt Document, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Collateral Trustee against the Company or any other Obligor or any collateral which the Collateral Trustee now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Company or any other Obligor, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any 6 amount shall be paid to any Pledgor in violation of the preceding sentence and the Secured Obligations shall not have been indefeasibly paid in full, in cash, and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have not been permanently terminated or expired, such amount shall be deemed to have been paid to such Pledgor for the benefit of, and held in trust for, the Collateral Trustee, and shall forthwith be paid to the Collateral Trustee to be credited and applied upon the Secured Obligations, whether matured or unmatured, in accordance with the terms of the Collateral Trust Agreement. Each Pledgor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Secured Debt Documents and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Warranties, etc. Each Pledgor represents and warrants unto the Collateral Trustee and each Secured Party, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Shares) by such Pledgor to the Collateral Trustee of any Pledged Collateral, as set forth in this Article. SECTION 3.1.1 Organization, etc. Each Pledgor is a corporation validly organized and existing and in good standing under the laws of the State of its organization, is duly qualified to do business and is in good standing as a foreign organization in each jurisdiction where the nature of its business requires such qualification and where the failure to so qualify would have a material adverse effect on such Pledgor's ability to perform its obligations under this Pledge Agreement or the other Secured Debt Documents to which it is a party, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Secured Obligations under this Pledge Agreement and each other Secured Debt Document to which it is a party and to own or hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 3.1.2 Due Authorization, Non-Contravention, etc. The execution, delivery and performance by any Pledgor of this Pledge Agreement and each other Secured Debt Document executed or to be executed by it are within such Pledgor's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene such Pledgor's organizational documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting such Pledgor; or (c) result in, or require the creation or imposition of, any Lien (other than the lien created hereunder) on any of such Pledgor's properties. SECTION 3.1.3 Regulation, etc. Each Pledgor is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7 SECTION 3.1.4 Validity, etc. This Pledge Agreement constitutes, and each other Secured Debt Document executed by each Pledgor will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of each Pledgor enforceable in accordance with their respective terms except as enforceability may be subject to or limited by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting the rights of creditors or (ii) general principles of equity, including the possible unavailability of specific performance or injunctive relief. SECTION 3.1.5 Ownership, No Liens, etc. Each Pledgor is the legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign) the Pledged Collateral, free and clear of all liens, security interests, options, or other charges or encumbrances, except any lien or security interest granted pursuant hereto in favor of the Collateral Trustee. SECTION 3.1.6 Valid Security Interest. The delivery of such Pledged Collateral to the Collateral Trustee is effective to create a valid, perfected, first priority or second priority, as the case may be, security interest in such Pledged Collateral and all proceeds thereof, securing the Secured Obligations. No filing or other action will be necessary to perfect or protect such security interest. SECTION 3.1.7 As to Pledged Shares. All of the Pledged Shares are duly authorized and validly issued, fully paid, and non-assessable, and constitute sixty-five percent (65%) of all of the issued and outstanding shares of capital stock entitled to vote in the election of the Board of Directors of the Pledged Share Issuer. SECTION 3.1.8 Authorization, Approval, etc. No authorization, approval, or other action by, and no notice to or filing with, any governmental authority, regulatory body or any other Person is required either (a) for the pledge by any Pledgor of any Pledged Collateral pursuant to this Pledge Agreement or for the execution, delivery, and performance of this Pledge Agreement by any Pledgor, or (b) for the exercise by the Collateral Trustee of the voting or other rights provided for in this Pledge Agreement, or, except with respect to any Pledged Shares, as may be required in connection with a disposition of such Pledged Shares by laws affecting the offering and sale of securities generally, the remedies in respect of the Pledged Collateral pursuant to this Pledge Agreement. SECTION 3.1.9 Compliance with Laws. Each Pledgor is in compliance with the requirements of all applicable laws (including, without limitation, the provisions of the Fair Labor Standards Act), rules, regulations and orders of every governmental authority, the non-compliance with which might materially adversely affect the business, properties, assets, operations, condition (financial or otherwise) or prospects of any Pledgor or the value of the Pledged Collateral or the worth of the Pledged Collateral as collateral security. 8 ARTICLE IV COVENANTS SECTION 4.1. Protect Collateral; Further Assurances, etc. Except as otherwise permitted under the Secured Debt Documents, no Pledgor will sell, assign, transfer, pledge or encumber in any other manner the Pledged Collateral (except in favor of the Collateral Trustee hereunder) and each Pledgor will warrant and defend the right and title herein granted unto the Collateral Trustee in and to the Pledged Collateral (and all right, title, and interest represented by the Pledged Collateral) against the claims and demands of all Persons whomsoever. Each Pledgor agrees that at any time, and from time to time, at the expense of the Pledgors, the Pledgors will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Collateral Trustee or any Secured Debt Representative may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. SECTION 4.2. Stock Powers, etc. The Pledgors agree that all Pledged Shares (and all other shares of capital stock constituting Pledged Collateral) delivered by the Pledgors pursuant to this Pledge Agreement will be accompanied by duly executed undated blank stock powers, or other equivalent instruments of transfer acceptable to the Collateral Trustee. The Pledgors will, from time to time upon the request of the Collateral Trustee or any Secured Debt Representative, promptly deliver to the Collateral Trustee such stock powers, instruments, and similar documents, satisfactory in form and substance to the Collateral Trustee, with respect to the Pledged Collateral as the Collateral Trustee may reasonably request and will, from time to time upon the request of the Collateral Trustee or any Secured Debt Representative after the occurrence of any Actionable Default, promptly transfer any Pledged Shares or other shares of common stock constituting Pledged Collateral into the name of any nominee designated by the Collateral Trustee. SECTION 4.3. Continuous Pledge. Subject to Section 2.5, the Pledgors will, at all times, keep pledged to the Collateral Trustee pursuant hereto all shares of capital stock constituting Pledged Collateral, all Dividends and Distributions with respect thereto, and all other Pledged Collateral and other securities, instruments, proceeds, and rights from time to time received by or distributable to any Pledgor in respect of any Pledged Collateral. SECTION 4.4. Voting Rights. The Pledgors agree after any Actionable Default shall have occurred and be continuing and the Collateral Trustee has notified the Pledgors of the Collateral Trustee's intention to exercise its voting power under this Section 4.4 (i) the Collateral Trustee may exercise (to the exclusion of the Pledgors) the voting power and all other incidental rights of ownership with respect to any Pledged Shares or other shares of capital stock constituting Pledged Collateral and each Pledgor hereby grants the Collateral Trustee an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Shares and such other Pledged Collateral; and 9 (ii) promptly to deliver to the Collateral Trustee such additional proxies and other documents as may be necessary to allow the Collateral Trustee to exercise such voting power. The Collateral Trustee agrees that unless an Actionable Default shall have occurred and be continuing and the Collateral Trustee shall have given the notice referred to in Section 4.4(b), the Pledgors shall have the exclusive voting power with respect to any shares of capital stock (including any of the Pledged Shares) constituting Pledged Collateral and the Collateral Trustee shall, upon the written request of the Pledgors, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by the Pledgors which are necessary to allow the Pledgors to exercise voting power with respect to any such share of capital stock (including any of the Pledged Shares) constituting Pledged Collateral; provided, however, that no vote shall be cast, or consent, waiver, or ratification given, or action taken by the Pledgors that would materially impair any Pledged Collateral or be inconsistent with or violate any material provision of any of the Secured Debt Document (including this Pledge Agreement). SECTION 4.5. Additional Undertakings. The Pledgors will not take or omit to take any action the taking or the omission of which would result in any impairment or alteration of any material obligation of the maker of any instrument constituting Pledged Collateral. ARTICLE V THE COLLATERAL TRUSTEE SECTION 5.1. Collateral Trustee Appointed Attorney-in-Fact. The Pledgors hereby irrevocably appoint the Collateral Trustee the Pledgors' attorney-in-fact, with full authority in the place and stead of each Pledgor and in the name of each Pledgor or otherwise, from time to time in the Collateral Trustee's discretion, to take any action and to execute any instrument which the Collateral Trustee may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) after the occurrence and continuance of an Actionable Default, to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) after the occurrence and continuance of an Actionable Default, to file any claims or take any action or institute any proceedings which the Collateral Trustee may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of the Collateral Trustee with respect to any of the Pledged Collateral. Each Pledgor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. Collateral Trustee May Perform. If any Pledgor fails to perform any agreement contained herein, the Collateral Trustee may itself perform, or cause performance of, 10 such agreement, and the expenses of the Collateral Trustee incurred in connection therewith shall be payable by the Pledgors pursuant to Section 6.4. SECTION 5.3 Collateral Trustee's Rights and Duties Subject to Collateral Trust Agreement. Notwithstanding anything to the contrary contained in this Pledge Agreement, in acting under and by virtue of this Pledge Agreement, the Collateral Trustee shall be entitled to all of the rights, privileges and immunities provided to it in the Collateral Trust Agreement, and the rights and duties of the Collateral Trustee hereunder are subject in all respects to the terms, conditions and limitations set forth in the Collateral Trust Agreement (including, without limitation the provisions of Article 5 thereof), reference to which is made for all purposes; provided, however, that any forbearance by the Collateral Trustee in exercising any right or remedy available to it under the Collateral Trust Agreement shall not give rise to a defense on the part of the Pledgors with respect to the Collateral Trustee's exercise of any right or remedy pursuant to this Pledge Agreement or as otherwise afforded by applicable law. ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If an Actionable Default shall have occurred and be continuing: (a) The Collateral Trustee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Pledged Collateral) and also may, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Trustee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Trustee may deem commercially reasonable in each case subject to the terms and provisions of the Collateral Trust Agreement. The Pledgors agree that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Pledgors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Trustee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Collateral Trustee may, in each case subject to the terms and provisions of the Collateral Trust Agreement, (i) transfer all or any part of the Pledged Collateral into the name of the Collateral Trustee or its nominee, with or without disclosing that such Pledged Collateral is subject to the lien and security interest hereunder, (ii) notify the parties obligated on any of the Pledged Collateral to make payment to the Collateral Trustee of any amount due or to become due thereunder, 11 (iii) enforce collection of any of the Pledged Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in any Pledgor's name to allow collection of the Pledged Collateral, (v) take control of any proceeds of the Pledged Collateral, and (vi) execute (in the name, place and stead of the Pledgors) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral. SECTION 6.2. Securities Laws. If the Collateral Trustee shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to Section 6.1, the Pledgors agree that, upon request of the Collateral Trustee, the Pledgors will, at their own expense: (a) execute and deliver, and cause each issuer of the Pledged Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or advisable to register such Pledged Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Pledged Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. SECTION 6.3. Compliance with Restrictions. The Pledgors agree that in any sale of any of the Pledged Collateral whenever an Actionable Default shall have occurred and be continuing, the Collateral Trustee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to 12 persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Pledged Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Pledgors further agree that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Trustee be liable nor accountable to the Pledgors for any discount allowed by the reason of the fact that such Pledged Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4. Application of Proceeds. All cash proceeds received by the Collateral Trustee in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral shall thereafter be applied in accordance with Section 3.4 of the Collateral Trust Agreement. SECTION 6.5. Indemnity and Expenses. The Pledgors hereby indemnify and holds harmless the Collateral Trustee from and against any and all claims, losses, and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except claims, losses, or liabilities resulting from the Collateral Trustee's gross negligence or willful misconduct. Upon demand, the Pledgors will pay to the Collateral Trustee the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Collateral Trustee may incur in connection with: (a) the administration of this Pledge Agreement and each other Secured Debt Document; (b) the custody, preservation, use, or operation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral; (c) the exercise or enforcement of any of the rights of the Collateral Trustee hereunder; or (d) the failure by the Pledgors to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Security Document. This Pledge Agreement is a Security Document executed pursuant to the Collateral Trust Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by the Pledgors herefrom shall in any event be effective unless the same shall be in writing and signed by the Collateral Trustee in accordance with Section 7.1 of the Collateral Trust Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. 13 SECTION 7.3. Protection of Collateral. The Collateral Trustee may from time to time, at its option, perform any act which the Pledgors agree hereunder to perform and which the Pledgors shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Actionable Default) and the Collateral Trustee may from time to time take any other action which the Collateral Trustee or any Secured Debt Representative reasonably deems necessary for the maintenance, preservation or protection of any of the Pledged Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic communication) and shall be effected in the manner provided for in Section 7.5 of the Collateral Trust Agreement. SECTION 7.5. Section Captions. Section captions used in this Pledge Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. SECTION 7.6. Severability. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. SECTION 7.7. Governing Law, Entire Agreement, etc. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER SECURITY DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE PLEDGORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL TRUSTEE'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE 14 STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY PLEDGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH PLEDGOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT. SECTION 7.9. Waiver of Jury Trial. THE COLLATERAL TRUSTEE AND THE PLEDGORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE PLEDGORS. THE PLEDGORS ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER SECURED DEBT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO EACH SUCH SECURED DEBT DOCUMENT. 15 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. QUINTANA CANADA HOLDINGS, LLC By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: Address: 50 West San Fernando Street San Jose, CA 95113 Facsimile No.: Attention: QUINTANA MINERALS (USA), INC. By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: Address: 50 West San Fernando Street San Jose, CA 95113 Facsimile No.: Attention: JOQ CANADA, INC. By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: Address: 50 West San Fernando Street San Jose, CA 95113 Facsimile No.: Attention: 16 THE BANK OF NEW YORK, not in its individual capacity, but solely as Collateral Trustee By: /s/ Michael Pitfick ----------------------------------------- Name: Michael Pitfick Title: Assistant Vice President 17 EXECUTION COPY Canadian Guarantors Stock Pledge ATTACHMENT 1 to Pledge Agreement Pledged Shares Pledged Share Issuer Class A Common Stock

Authorized Outstanding % of Shares Shares Shares Pledged ---------- ----------- ----------- Calpine Canada Energy Ltd. 1,000,000,000 35,100 65%

(3,391 Class A shares pledged by Quintana Minerals (USA), Inc.) (16,034 Class A shares pledged by Quintana Canada Holdings, LLC) (3,390 Class A shares pledged by JOQ Canada, Inc.) EX-10.21 13 f92357exv10w21.txt EXHIBIT 10.21 Exhibit 10.21 EXECUTION COPY FIRST AMENDMENT ASSIGNMENT AND SECURITY AGREEMENT THIS FIRST AMENDMENT ASSIGNMENT AND SECURITY AGREEMENT (this "Assignment Agreement"), dated as of July 16, 2003, made by CALPINE CORPORATION, a Delaware corporation (the "Company"), in favor of THE BANK OF NEW YORK, as Collateral Trustee (together with any successors thereto in such capacity, the "Collateral Trustee") for each of the Secured Parties. W I T N E S S E T H: WHEREAS, the Company intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified, renewed, restated or replaced from time to time, the "Credit Agreement") among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder; WHEREAS, the Company intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Secured Floating Rate Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between the Company and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"); WHEREAS, the Company intends to secure its Secured Obligations, including its obligations under the Credit Agreement and any future Priority Lien Debt, on a priority basis, and, subject to such priority, its obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with security interests in, among other things, all present and future Assigned Collateral (as defined below); WHEREAS, the Company has entered into a Collateral Trust Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among, inter alia, the Company, the Subsidiaries of the Company named therein and the Collateral Trustee which sets forth the terms on which the Company has appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to receive, hold, maintain, administer, enforce and distribute the Existing Security Documents and all other Security Documents, including this Assignment Agreement, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof; WHEREAS, the Company will derive substantial direct and indirect benefit from the making of the extensions of credit under each of the Credit Agreement and the Term Loan Agreement and the offering of each of the 2007 Notes, 2010 Notes and 2013 Notes; WHEREAS, it is a condition precedent to the obligations of the lenders to make their respective extensions of credit to the Company under each of the Credit Agreement and the Term Loan Agreement, and condition precedent to the obligations of the purchasers to purchase each of the 2007 Notes, the 2010 Notes and the 2013 Notes, that the Company shall have executed and delivered this Assignment Agreement to the Collateral Trustee for the benefit of the Secured Parties; and WHEREAS, this Assignment Agreement amends and restates in its entirety the Assignment and Security Agreement dated as of March 8, 2002 made by the Company in favor of The Bank of Nova Scotia, as agent; NOW, THEREFORE, in consideration of the premises contained herein and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Assignment Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Assigned Agreement" is defined in Section 2.1. "Assigned Collateral" is defined in Section 2.1. "Assignment Agreement" is defined in the preamble. "Calpine Gilroy" means Calpine Gilroy Cogen L.P., a Delaware limited partnership. "Collateral Trust Agreement" is defined in the recitals. "Collateral Trustee" is defined in the preamble. "Company" is defined in the preamble. "Secured Parity Lien Parties" means any Person who is holding a Parity Lien Obligation (including any Parity Debt Representative), at any time. 2 "Secured Priority Lien Parties" means any Person who is holding a Priority Lien Obligation (including any Priority Lien Agent), at any time. "Secured Parties" means any Person who is holding a Secured Obligation (including any Secured Debt Representative), at any time. "U.C.C." means the Uniform Commercial Code, as in effect in the State of Delaware. SECTION 1.2. Collateral Trust Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Assignment Agreement, including its preamble and recitals, have the meanings provided in the Collateral Trust Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Assignment Agreement, including its preamble and recitals, with such meanings. ARTICLE II ASSIGNMENT, ETC. SECTION 2.1. Assignment. The Company hereby (i) collaterally assigns to the Collateral Trustee for its benefit and the benefit of the Secured Priority Lien Parties, and hereby grants to the Collateral Trustee for its benefit and the benefit of the Secured Priority Lien Parties a first priority security interest in, all of the Company's right, title and interest, whether now existing or hereafter arising or acquired, in and to the following (the "Assigned Collateral") and (ii) collaterally assigns to the Collateral Trustee for its benefit and the benefit of the Secured Parity Lien Parties, and hereby grants to the Collateral Trustee for its benefit and the benefit of the Secured Parity Lien Parties a second priority security interest in, all of the Assigned Collateral: Purchase Agreement, between Calpine Corporation and Calpine Gilroy Cogen L.P., a Delaware limited partnership, dated as of March 8, 2002, as it may be amended or otherwise modified from time to time (as so amended or modified, the "Assigned Agreement"), including, without limitation, (a) all rights of the Company to receive moneys due and to become due under or pursuant to the Assigned Agreement, (b) all rights of the Company to receive proceeds of any insurance, indemnity, warranty, guaranty or collateral security with respect to the Assigned Agreement, (c) all claims of the Company for damages arising out of or for breach of or default under the Assigned Agreement, (d) the right of the Company to terminate the Assigned Agreement, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder, and (e) to the extent not included in the foregoing, all proceeds of any and all of the foregoing collateral. 3 SECTION 2.2. Security for Obligations; Separate Liens. This Assignment Agreement and the security interests and Liens granted and created herein secures the payment and performance of all Secured Obligations of the Company now or hereafter, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest (including any interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, premiums, penalties, indemnifications, expenses or otherwise, and including all amounts that constitute part of the Secured Obligations and would be owed by the Company but for the fact that they are unenforceable or not allowed due to a pending Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the foregoing, it is the intent of the parties that (i) the Liens securing the Parity Lien Obligations are subject and subordinate to the Liens securing the Priority Lien Obligations up to the Priority Lien Cap and (ii) this Assignment Agreement creates two separate and distinct Liens: the first Lien securing the payment and performance of the Priority Lien Obligations and the second Lien securing the payment and performance of the Parity Lien Obligations. SECTION 2.3. Continuing Assignment and Security Interest; Transfer of Notes. This Assignment Agreement shall create a continuing security interest in the Assigned Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the other Secured Debt Documents, shall (a) remain in full force and effect until payment in full of all Secured Obligations and the termination or expiration of all commitments to extend credit under all Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt, (b) be binding upon the Company, its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Collateral Trustee hereunder, to the benefit of the Collateral Trustee and each other Secured Party. Without limiting the foregoing clause (c), any Secured Party may assign or otherwise transfer (in whole or in part) any right or obligation under the Secured Debt Documents to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Secured Party under any Secured Debt Document (including this Assignment Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the applicable provisions of each of the Secured Debt Documents. Upon the payment in full and discharge of all Secured Obligations that are then outstanding, due and payable and the termination or expiration of all commitments to extend credit under all Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt, the security interest granted herein shall terminate and all rights to the Assigned Collateral shall revert to the Company. Upon any such termination or any release of the Lien provided for hereunder in accordance with the Secured Debt Documents, the Collateral Trustee will, at the 4 Company's sole expense, execute and deliver to the Company such documents as the Company shall reasonably request to evidence such termination or release. SECTION 2.4. Company Remains Liable. Anything herein to the contrary notwithstanding (a) the Company shall remain liable under the contracts and agreements included in the Assigned Collateral to the extent set forth therein, and shall perform all of its duties and obligations under such contracts and agreements to the same extent as if this Assignment Agreement had not been executed, (b) the exercise by the Collateral Trustee of any of its rights hereunder shall not release the Company from any of its duties or obligations under any such contracts or agreements included in the Assigned Collateral, and (c) neither the Collateral Trustee nor any other Secured Party shall have any obligation or liability under any such contracts or agreements included in the Assigned Collateral by reason of this Assignment Agreement or by the exercise by the Collateral Trustee of its rights hereunder or under any other Secured Debt Document, nor shall the Collateral Trustee or any other Secured Party be obligated to perform any of the obligations or duties of the Company thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. The Company represents and warrants unto the Collateral Trustee and each Secured Party as set forth in this Article. SECTION 3.1.1. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Company of this Assignment Agreement, is within the Company's powers, has been duly authorized by all necessary corporate action, and does not (a) contravene the Company's certificate of incorporation or bylaws; (b) contravene any contractual restriction (including, without limitation, the Assigned Agreement), law or governmental regulation or court decree or order binding on or affecting the Company; or (c) except for the Lien created hereunder, result in, or require the creation or imposition of, any Lien on any of the Company's properties. SECTION 3.1.2. Validity of Assigned Agreement. The Assigned Agreement, a true and complete copy of which has been furnished to the Collateral Trustee, has been duly authorized, executed and delivered by the parties thereto, has not been amended or otherwise modified and is in full force and effect and is binding upon and enforceable against the parties thereto in accordance with its terms. The Company has fully performed all of its obligations under the 5 Assigned Agreement and, to the best of the Company's knowledge, Calpine Gilroy has no defense, setoff or counterclaim arising under the Assigned Agreement. There exists no default under the Assigned Agreement by the Company and, to the best of the Company's knowledge, by Calpine Gilroy. SECTION 3.1.3. Location of Assigned Collateral, etc. The place of business and chief executive office of the Company and the office where the Company keeps its records concerning the Assigned Collateral is the address specified for the Company on the signature page hereto. The Company has no trade name. The Company has not been known by any legal name different from the one set forth on the signature page hereto, nor has the Company been the subject of any merger or other corporate reorganization. None of the Assigned Collateral is evidenced by a promissory note or other instrument. SECTION 3.1.4. Ownership, No Liens, etc. The Company owns the Assigned Collateral free and clear of any Lien, security interest, charge or encumbrance except for the security interest created by this Assignment Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Assigned Collateral is on file in any recording office, except such as may have been filed in favor of the Collateral Trustee relating to this Assignment Agreement. SECTION 3.1.5. Validity, etc. This Assignment Agreement creates a valid and, upon filing of a proper financing statement with the Delaware Secretary of State, first priority or second priority, as the case may be, security interest in the Assigned Collateral, securing the payment of the Secured Obligations, subject in each case to the provisions of Section 3.4 of the Collateral Trust Agreement, and, upon the filing of such financing statement, all filings and other actions necessary or desirable to perfect and protect such security interest will have been duly taken. SECTION 3.1.6. Authorization, Approval, etc. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (a) for the grant by the Company of the security interest granted hereby or for the execution, delivery and performance of this Assignment Agreement by the Company, or (b) for the perfection of or the exercise by the Collateral Trustee of its rights and remedies hereunder. SECTION 3.1.7. Compliance with Laws. The Company is in compliance with the requirements of all applicable laws, rules, regulations and orders of every governmental authority, the non-compliance with which might materially adversely affect the business, properties, assets, operations, condition (financial or otherwise) or prospects of the Company or the value of the Assigned Collateral or the worth of the Assigned Collateral as collateral security. 6 ARTICLE IV COVENANTS SECTION 4.1. Certain Covenants. The Company covenants and agrees that, so long as any portion of the Secured Obligations shall remain unpaid or any commitment to extend credit under any Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt shall have not been permanently terminated or expired, the Company will, perform the obligations set forth in this Section. SECTION 4.1.1. As to Assigned Agreement. The Company, at its expense, shall or shall cause Calpine Gilroy, as applicable, to: (a) perform and observe all the terms and provisions of the Assigned Agreement to be performed or observed by Company or Calpine Gilroy, maintain the Assigned Agreement in full force and effect, enforce the Assigned Agreement in accordance with its terms, and take all such necessary action to such end; and (b) furnish to the Collateral Trustee promptly upon receipt thereof copies of all material notices, requests and other documents received by the Company or Calpine Gilroy under or pursuant to the Assigned Agreement, and from time to time (i) furnish to the Collateral Trustee such information and reports regarding the Assigned Collateral as the Collateral Trustee or any Secured Debt Representative may reasonably request and (ii) upon request of the Collateral Trustee or any Secured Debt Representative make to Calpine Gilroy such demands and requests for information and reports or for action as the Company is entitled to make under the Assigned Agreement. SECTION 4.1.2. [Intentionally Omitted.]. SECTION 4.1.3. Further Assurances, etc. The Company agrees that, from time to time, at the expense of the Company, the Company will and will cause Calpine Gilroy to promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Trustee or any Secured Debt Representative may reasonably request, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Collateral Trustee to exercise and enforce its rights and remedies hereunder with respect to any Assigned Collateral. Without limiting the generality of the foregoing, the Company will and will cause Calpine Gilroy to (a) if any Assigned Collateral shall become evidenced by a promissory note or other instrument, negotiable document or chattel paper, deliver and pledge to the Collateral Trustee hereunder such promissory note or instrument, negotiable document or chattel paper duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance reasonably satisfactory to the Collateral Trustee; and (b) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Collateral Trustee or any Secured Debt Representative may reasonably request, in order 7 to perfect and preserve the security interests and other rights granted or purported to be granted to the Collateral Trustee hereby. With respect to the foregoing and the grant of the security interest hereunder, the Company hereby authorizes the Collateral Trustee to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Assigned Collateral without the signature of the Company where permitted by law. A carbon, photographic or other reproduction of this Assignment Agreement or any financing statement covering the Assigned Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 4.1.4. State of Incorporation. The Company agrees to give the Collateral Trustee and each Secured Debt Representative prior written notice of any change in its state of incorporation in the state of Delaware. The Company agrees promptly to provide the Collateral Trustee and each Secured Debt Representative with certified organizational documents reflecting any change to such state of incorporation. ARTICLE V THE COLLATERAL TRUSTEE SECTION 5.1. Collateral Trustee Appointed Attorney-in-Fact. Company hereby irrevocably appoints the Collateral Trustee the Company's attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Collateral Trustee's discretion, but only after the occurrence and during the continuance of an Actionable Default, to take any action (including any action under the Assigned Agreement that the Company is entitled to take) and to execute any instrument which the Collateral Trustee may deem necessary or advisable to accomplish the purposes of this Assignment Agreement, including, without limitation: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Assigned Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; (c) to file any claims or take any action or institute any proceedings which the Collateral Trustee may deem necessary or desirable for the collection thereof or to enforce compliance with the terms and conditions of the Assigned Agreement; and (d) to perform the affirmative obligations of the Company hereunder (including all obligations of the Company pursuant to Section 4.1.1 and Section 4.1.3). The Company hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. Collateral Trustee May Perform. If the Company fails to perform any agreement contained herein, the Collateral Trustee may itself perform, or cause performance of, 8 such agreement, and the expenses of the Collateral Trustee incurred in connection therewith shall be payable by the Company pursuant to Section 6.2. SECTION 5.3 Collateral Trustee's Rights and Duties Subject to Collateral Trust Agreement. Notwithstanding anything to the contrary contained in this Assignment Agreement, in acting under and by virtue of this Assignment Agreement, the Collateral Trustee shall be entitled to all of the rights, privileges and immunities provided to it in the Collateral Trust Agreement, and the rights and duties of the Collateral Trustee hereunder are subject in all respects to the terms, conditions and limitations set forth in the Collateral Trust Agreement (including, without limitation, the provisions of Article 5 thereof), reference to which is made for all purposes; provided, however, that any forbearance by the Collateral Trustee in exercising any right or remedy available to it under the Collateral Trust Agreement shall not give rise to a defense on the part of the Company with respect to the Collateral Trustee's exercise of any right or remedy pursuant to this Assignment Agreement or as otherwise afforded by applicable law. ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If an Actionable Default shall have occurred and be continuing: (a) The Collateral Trustee may exercise in respect of the Assigned Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Assigned Collateral) and also may exercise any and all rights and remedies of the Company under or in connection with the Assigned Agreement or otherwise in respect of the Assigned Collateral, including, without limitation, any and all rights of the Company to demand or otherwise require payment of any amount under, or performance of any provision of, the Assigned Agreement, in each case subject to the terms and provisions of the Collateral Trust Agreement; (b) all payments received by the Company under or in connection with the Assigned Agreement or otherwise in respect of the Assigned Collateral shall be received in trust for the benefit of the Collateral Trustee, shall be segregated from other funds of the Company and shall be forthwith paid over to the Collateral Trustee in the same form as so received (with any necessary indorsement); and (c) all payments made under or in connection with the Assigned Agreement or otherwise in respect of the Assigned Collateral and received by the Collateral Trustee may, in the discretion of the Collateral Trustee, be held by the Collateral Trustee as collateral for, and/or then or at any time thereafter applied in whole or in part by the Collateral Trustee in accordance with Section 3.4 of the Collateral Trust Agreement. SECTION 6.2. Indemnity and Expenses. (a) The Company agrees to indemnify the Collateral Trustee from and against any and all Indemnified Liabilities with respect to the execution, delivery, performance, 9 administration or enforcement of this Assignment Agreement to the extent provided in Section 7.8 of the Collateral Trust Agreement. (b) The Company agrees to reimburse the Collateral Trustee for all costs, fees and expenses relating to this Assignment Agreement to the extent provided in Section 7.7 of the Collateral Trust Agreement. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Security Document. This Assignment Agreement is a Security Document executed pursuant to the Collateral Trust Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments; etc. No amendment to or waiver of any provision of this Assignment Agreement nor consent to any departure by the Company herefrom, shall in any event be effective unless the same shall be in writing and signed by the Collateral Trustee in accordance with Section 7.1 of the Collateral Trust Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.3. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic communication) and shall be effected in the manner provided for in Section 7.5 of the Collateral Trust Agreement. SECTION 7.4. Section Captions. Section captions used in this Assignment Agreement are for convenience of reference only, and shall not affect the construction of this Assignment Agreement. SECTION 7.5. Severability. Wherever possible each provision of this Assignment Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Assignment Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Assignment Agreement. SECTION 7.6. Governing Law, Entire Agreement, etc. THIS ASSIGNMENT AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Assignment Agreement constitutes the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. 10 IN WITNESS WHEREOF, the Company has caused this Assignment Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. CALPINE CORPORATION, a Delaware corporation By: /s/ Michael Thomas ------------------------------------- Name: Michael Thomas Title: Address: 50 West San Fernando Street San Jose, CA 95113 Attention: Treasurer Telecopier: (408) 995-0505 11 THE BANK OF NEW YORK, NOT IN ITS INDIVIDUAL CAPACITY, BUT SOLELY AS COLLATERAL TRUSTEE By: /s/ Michael Pitfick ------------------------------------- Name: Michael Pitfick Title: Assistant Vice President 12 EX-10.22 14 f92357exv10w22.txt EXHIBIT 10.22 Exhibit 10.22 EXECUTION COPY Calpine Corporation Stock Pledge SECOND AMENDMENT PLEDGE AGREEMENT THIS SECOND AMENDMENT PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of July 16, 2003, made by Calpine Corporation, a Delaware corporation (the "Company"), in favor of The Bank of New York, as Collateral Trustee (together with any successor(s) thereto in such capacity, the "Collateral Trustee") for the benefit of the Secured Parties. W I T N E S S E T H WHEREAS, the Company intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified, renewed, restated or replaced from time to time, the "Credit Agreement") among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder; WHEREAS, the Company intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Secured Floating Rate Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between the Company and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"); WHEREAS, the Company intends to secure its Secured Obligations, including its obligations under the Credit Agreement and any future Priority Lien Debt, on a priority basis, and, subject to such priority, its obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with security interests in, and pledge of, among other things, all present and future Pledged Collateral (as defined below); WHEREAS, the Company has entered into a Collateral Trust Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among, inter alia, the Company, the Subsidiaries of the Company named therein and the Collateral Trustee which sets forth the terms on which the Company has appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to receive, hold, maintain, administer, enforce and distribute the Existing Security Documents and all other Security Documents, including this Pledge Agreement, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof; WHEREAS, the Company will derive substantial direct and indirect benefit from the making of the extensions of credit under each of the Credit Agreement and the Term Loan Agreement and the offering of each of the 2007 Notes, 2010 Notes and 2013 Notes; WHEREAS, it is a condition precedent to the obligation of the lenders to make their respective extensions of credit to the Company under each of the Credit Agreement and the Term Loan Agreement, and condition precedent to the obligation of the purchasers to purchase each of the 2007 Notes, the 2010 Notes and the 2013 Notes, that the Company shall have executed and delivered this Pledge Agreement to the Collateral Trustee for the benefit of the Secured Parties; and WHEREAS, this Pledge Agreement amends and restates in its entirety the First Amendment Pledge Agreement dated as of May 9, 2002 made by the Company in favor of The Bank of Nova Scotia, as agent; NOW, THEREFORE, in consideration of the premises contained herein and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Collateral Trustee" is defined in the preamble. "Collateral Trust Agreement" is defined in the recitals. "Company" is defined in the preamble. "Distributions" means all stock dividends, liquidating dividends, shares of stock resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash dividends, mergers, consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares or other shares of capital stock constituting Pledged Collateral, but shall not include Dividends. "Dividends" means cash dividends and cash distributions with respect to any Pledged Shares or other Pledged Property made in the ordinary course of business and not a liquidating dividend. "Pledge Agreement" is defined in the preamble. 2 "Pledged Collateral" is defined in Section 2.1. "Pledged Property" means all Pledged Shares and all other pledged shares of capital stock, all other securities, all assignments of any amounts due or to become due, all other instruments which are now being delivered by the Company to the Collateral Trustee or may from time to time hereafter be delivered by the Company to the Collateral Trustee for the purpose of pledge under this Pledge Agreement or any other Secured Debt Document, and all proceeds of any of the foregoing. "Pledged Share Issuer" means each Person identified in Attachment 1 hereto as the issuer of the Pledged Shares identified opposite the name of such Person, and each Person that is the issuer of any shares of capital stock that are obtained by the Company in the future and pledged hereunder. "Pledged Shares" means all shares of capital stock of any Pledged Share Issuer which are owned by the Company on the date hereof or obtained by the Company in the future and in each case delivered by the Company to the Collateral Trustee as Pledged Property hereunder. "Secured Parity Lien Parties" means any Person who is holding a Parity Lien Obligation (including any Parity Debt Representative), at any time. "Secured Parties" means any Person who is holding a Secured Obligation (including any Secured Debt Representative), at any time. "Secured Priority Lien Parties" means any Person who is holding a Priority Lien Obligation (including any Priority Lien Agent), at any time. "Securities Act" is defined in Section 6.2. "U.C.C." means the Uniform Commercial Code as in effect in the State of New York. SECTION 1.2. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Collateral Trust Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II PLEDGE SECTION 2.1. Grant of Security Interest. The Company hereby (i) pledges, hypothecates, assigns, charges, mortgages, delivers and transfers to the Collateral Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, a continuing first priority security interest in, all of the following property (the "Pledged Collateral") and (ii) pledges, hypothecates, assigns, charges, mortgages, delivers and transfers to the Collateral 3 Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, a continuing second priority security interest in, all of the Pledged Collateral: (a) all issued and outstanding shares of capital stock of each Pledged Share Issuer identified in Attachment 1 hereto; (b) and the certificates representing the Pledged Shares and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (c) all additional shares of stock of any issuer of the Pledged Shares from time to time acquired by the Company in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (d) all other Pledged Shares issued from time to time; (e) all other Pledged Property, whether now or hereafter delivered to the Collateral Trustee in connection with this Pledge Agreement; (f) all Dividends, Distributions, interest, and other payments and rights with respect to any Pledged Property; and (g) all proceeds of any of the foregoing. SECTION 2.2. Security for Obligations; Separate Liens. This Pledge Agreement and the security interests and Liens granted and created herein secures the payment an performance of all Secured Obligations of the Company now or hereafter, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest (including any interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, premiums, penalties, indemnifications, expenses or otherwise, and including all amounts that constitute part of the Secured Obligations and would be owed by the Company but for the fact that they are unenforceable or not allowed due to a pending Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the foregoing, it is the intent of the parties that (i) the Liens securing the Parity Lien Obligations are subject and subordinate to the Liens securing the Priority Lien Obligations up to the Priority Lien Cap and (ii) this Pledge Agreement creates two separate and distinct Liens: the first Lien securing the payment and performance of the Priority Lien Obligations and the second Lien securing the payment and performance of the Parity Lien Obligations. SECTION 2.3. Delivery of Pledged Property. All certificates or instruments representing or evidencing any Pledged Collateral, including all Pledged Shares, shall be 4 delivered to and held by or on behalf of the Collateral Trustee pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION 2.4. Intentionally Omitted. SECTION 2.5. Continuing Security Interest; Transfer of Note. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the other Secured Debt Documents, shall (a) remain in full force and effect until payment in full of all Secured Obligations and the termination or expiration of all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt, (b) be binding upon the Company and its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Collateral Trustee hereunder, to the benefit of the Collateral Trustee and each other Secured Party. Without limiting the foregoing clause (c), any Secured Party may assign or otherwise transfer (in whole or in part) any right or obligation under the Secured Debt Documents to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Secured Party under any Secured Debt Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the applicable provisions of each of the Secured Debt Documents. Upon the payment in full and discharge of all Secured Obligations that are then outstanding, due and payable and the termination or expiration of all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt, the security interest granted herein shall terminate and all rights to the Pledged Collateral shall revert to the Company. Upon any such termination or release of the Lien provided for hereunder in accordance with the Secured Debt Documents, the Collateral Trustee will, at the Company's sole expense, deliver to the Company, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Shares, together with all other Pledged Collateral held by the Collateral Trustee hereunder, and execute and deliver to the Company such documents as the Company shall reasonably request to evidence such termination or release. SECTION 2.6. Security Interest Absolute. All rights of the Collateral Trustee and the security interests granted to the Collateral Trustee hereunder, and all obligations of the Company hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of any of the Secured Debt Documents, (b) the failure of any Secured Party or any holder of any Secured Obligation 5 (i) to assert any claim or demand or to enforce any right or remedy against the Company, any other Obligor or any other Person under the provisions of any of the Secured Debt Documents or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Secured Obligations of the Company or any other Obligor, (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other extension, compromise or renewal of any Secured Obligation of the Company or any other Obligor, (d) any reduction, limitation, impairment or termination of any Secured Obligations of the Company or any other Obligor for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Company hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Secured Obligations of the Company, any other Obligor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of any of the Secured Debt Documents, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Pledged Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Secured Obligations, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Company, any other Obligor, any surety or any guarantor. SECTION 2.7. [Intentionally Omitted.] SECTION 2.8. Waiver of Subrogation. Until such time as the Secured Obligations have been paid in full and discharged and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have been permanently terminated or expired, the Company hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company or any other Obligor that arise from the existence, payment, performance or enforcement of the Company's obligations under this Pledge Agreement or any other Secured Debt Document, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Collateral Trustee against the Company or any other Obligor or any collateral which the Collateral Trustee now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Company or any other Obligor, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any 6 amount shall be paid to the Company in violation of the preceding sentence and the Secured Obligations shall not have been indefeasibly paid in full, in cash, and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have not been permanently terminated or expired, such amount shall be deemed to have been paid to the Company for the benefit of, and held in trust for, the Collateral Trustee, and shall forthwith be paid to the Collateral Trustee to be credited and applied upon the Secured Obligations, whether matured or unmatured, in accordance with the terms of the Collateral Trust Agreement. The Company acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Secured Debt Documents and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Warranties, etc. The Company represents and warrants unto the Collateral Trustee and each Secured Party, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Shares) by the Company to the Collateral Trustee of any Pledged Collateral, as set forth in this Article. SECTION 3.1.1 Ownership, No Liens, etc. The Company is the legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign) such Pledged Collateral, free and clear of all liens, security interests, options, or other charges or encumbrances, except any lien or security interest granted pursuant hereto in favor of the Collateral Trustee. SECTION 3.1.2 Valid Security Interest. The delivery of such Pledged Collateral to the Collateral Trustee is effective to create a valid, perfected, first priority or second priority, as the case may be, security interest in such Pledged Collateral and all proceeds thereof, securing the Secured Obligations, subject in each case to the provisions of Section 3.4 of the Collateral Trust Agreement. No filing or other action will be necessary to perfect or protect such security interest. SECTION 3.1.3 As to Pledged Shares. In the case of any Pledged Shares constituting such Pledged Collateral, all of such Pledged Shares are duly authorized and validly issued, fully paid, and non-assessable, and constitute all of the issued and outstanding shares of capital stock entitled to vote in the election of the Board of Directors of each Pledged Share Issuer. ARTICLE IV COVENANTS SECTION 4.1. Protect Collateral; Further Assurances, etc. The Company will not sell, assign, transfer, pledge, or encumber in any other manner the Pledged Collateral (except in favor of the Collateral Trustee hereunder and as otherwise expressly permitted by the Secured Debt Documents). The Company will warrant and defend the right and title herein granted unto the Collateral Trustee in and to the Pledged Collateral (and all right, title, and interest represented by the Pledged Collateral) against the claims and demands of all Persons whomsoever. The Company agrees that at any time, and from time to time, at the expense of the Company, the 7 Company will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Collateral Trustee or any Secured Debt Representative may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. SECTION 4.2. Stock Powers, etc. The Company agrees that all Pledged Shares (and all other shares of capital stock constituting Pledged Collateral) delivered by the Company pursuant to this Pledge Agreement will be accompanied by duly executed undated blank stock powers, or other equivalent instruments of transfer acceptable to the Collateral Trustee. The Company will, from time to time upon the request of the Collateral Trustee or any Secured Debt Representative, promptly deliver to the Collateral Trustee such stock powers, instruments, and similar documents, satisfactory in form and substance to the Collateral Trustee, with respect to the Pledged Collateral as the Collateral Trustee or any Secured Debt Representative may reasonably request and will, from time to time upon the request of the Collateral Trustee after the occurrence of any Actionable Default, promptly transfer any Pledged Shares or other shares of common stock constituting Pledged Collateral into the name of any nominee designated by the Collateral Trustee. SECTION 4.3. Continuous Pledge. Subject to Section 2.5, the Company will, at all times, keep pledged to the Collateral Trustee pursuant hereto all Pledged Shares and all other shares of capital stock constituting Pledged Collateral, all Dividends and Distributions with respect thereto, and all other Pledged Collateral and other securities, instruments, proceeds, and rights from time to time received by or distributable to the Company in respect of any Pledged Collateral. SECTION 4.4. Voting Rights; Dividends, etc. The Company agrees after any Actionable Default shall have occurred and be continuing and the Collateral Trustee has notified the Company of the Collateral Trustee's intention to exercise its voting power under this Section 4.4 (i) the Collateral Trustee may exercise (to the exclusion of the Company) the voting power and all other incidental rights of ownership with respect to any Pledged Shares or other shares of capital stock constituting Pledged Collateral and the Company hereby grants the Collateral Trustee an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Shares and such other Pledged Collateral; and (ii) promptly to deliver to the Collateral Trustee such additional proxies and other documents as may be necessary to allow the Collateral Trustee to exercise such voting power. The Collateral Trustee agrees that unless an Actionable Default shall have occurred and be continuing and the Collateral Trustee shall have given the notice referred to in Section 4.4(b), the Company shall have the exclusive voting power with respect to any shares of capital stock (including any of the Pledged Shares) constituting Pledged Collateral and the Collateral Trustee shall, upon the written request of the Company, promptly deliver such proxies and other 8 documents, if any, as shall be reasonably requested by the Company which are necessary to allow the Company to exercise voting power with respect to any such share of capital stock (including any of the Pledged Shares) constituting Pledged Collateral; provided, however, that no vote shall be cast, or consent, waiver, or ratification given, or action taken by the Company that would materially impair any Pledged Collateral or be inconsistent with or violate any material provision of any of the Secured Debt Documents (including this Pledge Agreement). SECTION 4.5. Additional Undertakings. The Company will not take or omit to take any action the taking or the omission of which would result in any material impairment or material adverse alteration of any obligation of the maker of any instrument constituting Pledged Collateral. ARTICLE V THE COLLATERAL TRUSTEE SECTION 5.1. Collateral Trustee Appointed Attorney-in-Fact. The Company hereby irrevocably appoints the Collateral Trustee the Company's attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Collateral Trustee's discretion, to take any action and to execute any instrument which the Collateral Trustee may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) after the occurrence and continuance of an Actionable Default, to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) after the occurrence and continuance of an Actionable Default to file any claims or take any action or institute any proceedings which the Collateral Trustee may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of the Collateral Trustee with respect to any of the Pledged Collateral. The Company hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. Collateral Trustee May Perform. If the Company fails to perform any agreement contained herein, the Collateral Trustee may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Collateral Trustee incurred in connection therewith shall be payable by the Company pursuant to Section 6.4. SECTION 5.3 Collateral Trustee's Rights and Duties Subject to Collateral Trust Agreement. Notwithstanding anything to the contrary contained in this Pledge Agreement, in acting under and by virtue of this Pledge Agreement, the Collateral Trustee shall be entitled to all of the rights, privileges and immunities provided to it in the Collateral Trust Agreement, and the rights of the Collateral Trustee hereunder are subject in all respects to the terms, conditions and 9 limitations set forth in the Collateral Trust Agreement (including, without limitation, the provisions of Article 5 thereof), reference to which is made for all purposes; provided, however, that any forbearance by the Collateral Trustee in exercising any right or remedy available to it under the Collateral Trust Agreement shall not give rise to a defense on the part of the Company with respect to the Collateral Trustee's exercise of any right or remedy pursuant to this Pledge Agreement or as otherwise afforded by applicable law. ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If an Actionable Default shall have occurred and be continuing: (a) The Collateral Trustee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Pledged Collateral) and also may, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Trustee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Trustee may deem commercially reasonable in each case subject to the terms and provisions of the Collateral Trust Agreement. The Company agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Trustee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Collateral Trustee may, in each case subject to the terms and provisions of the Collateral Trust Agreement, (i) transfer all or any part of the Pledged Collateral into the name of the Collateral Trustee or its nominee, with or without disclosing that such Pledged Collateral is subject to the lien and security interest hereunder, (ii) notify the parties obligated on any of the Pledged Collateral to make payment to the Collateral Trustee of any amount due or to become due thereunder, (iii) enforce collection of any of the Pledged Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in the Company's name to allow collection of the Pledged Collateral, 10 (v) take control of any proceeds of the Pledged Collateral, and (vi) execute (in the name, place and stead of the Company) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral. SECTION 6.2. Securities Laws. If the Collateral Trustee shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to Section 6.1, the Company agrees that, upon request of the Collateral Trustee, the Company will, at its own expense: (a) execute and deliver, and cause each issuer of the Pledged Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or advisable to register such Pledged Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Pledged Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. SECTION 6.3. Compliance with Restrictions. The Company agrees that in any sale of any of the Pledged Collateral whenever an Actionable Default shall have occurred and be continuing, the Collateral Trustee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Pledged Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Company further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Trustee be liable nor accountable to the Company for 11 any discount allowed by the reason of the fact that such Pledged Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4. Application of Proceeds. All cash proceeds received by the Collateral Trustee in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral shall thereafter be applied in accordance with Section 3.4 of the Collateral Trust Agreement. SECTION 6.5. Indemnity and Expenses. (a) The Company agrees to indemnify the Collateral Trustee from and against any and all Indemnified Liabilities with respect to the execution, delivery, performance, administration or enforcement of this Pledge Agreement to the extent provided in Section 7.8 of the Collateral Trust Agreement. (a) The Company agrees to reimburse the Collateral Trustee for all costs, fees and expenses relating to this Pledge Agreement to the extent provided in Section 7.7 of the Collateral Trust Agreement. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Security Document. This Pledge Agreement is a Security Document executed pursuant to the Collateral Trust Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by the Company herefrom shall in any event be effective unless the same shall be in writing and signed by the Collateral Trustee in accordance with Section 7.1 of the Collateral Trust Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3. Protection of Collateral. The Collateral Trustee may from time to time, at its option, perform any act which the Company agrees hereunder to perform and which the Company shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Actionable Default) and the Collateral Trustee may from time to time take any other action which the Collateral Trustee or any Secured Debt Representative reasonably deems necessary for the maintenance, preservation or protection of any of the Pledged Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic communication) and shall be effected in the manner provided for in Section 7.5 of the Collateral Trust Agreement. SECTION 7.5. Section Captions. Section captions used in this Pledge Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. 12 SECTION 7.6. Severability. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. SECTION 7.7. Governing Law, Entire Agreement, etc. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER SECURITY DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL TRUSTEE'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF 13 EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT. SECTION 7.9. Waiver of Jury Trial. THE COLLATERAL TRUSTEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY. THE COMPANY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER SECURED DEBT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO EACH SUCH SECURED DEBT DOCUMENT. 14 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. CALPINE CORPORATION By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: Address: 50 West San Fernando Street San Jose, CA 95113 Facsimile No.: (408) 995-0505 Attention: Treasurer 15 THE BANK OF NEW YORK, not in its individual capacity, but solely as Collateral Trustee By: /s/ Michael Pitfick ----------------------------------------- Name: Michael Pitfick Title: Assistant Vice President 16 ATTACHMENT 1 to Second Amendment Pledge Agreement PLEDGED SHARES

Pledged Share Issuer: Common Stock - -------------------- ------------ Outstanding % of Pledged Shares Shares ------ ------ CPN Energy Services, GP, Inc. 1000 100% CPN Energy Services, LP, Inc. 1000 100% Calpine CCFC II Holdings, Inc. 1000 100% Calpine Central, Inc. 1000 100% Calpine Eastern Corporation 1000 100% Calpine Dighton, Inc. 1000 100% CPN Auburndale, Inc. 1000 100% Calpine Auburndale, Inc. 1000 100% Calpine Gordonsville, Inc. 1000 100% Calpine Rumford, Inc. 100 100% Calpine Rumford I, Inc. 1000 100% Calpine Tiverton, Inc. 100 100% Calpine Tiverton I, Inc. 100 100% Calpine Northeast Marketing, Inc. 100 100% Venture Acquisition Company 1000 100% Calpine Northbrook Corporation of Maine, Inc. 1000 100% Androscoggin Energy, Inc. 1000 100% Calpine Project Holdings, Inc. 1000 100% Calpine Sumas, Inc. 1000 100% Northwest Cogeneration, Inc. 1000 100% Calpine King City, Inc. 1000 100% Calpine Gilroy 1, Inc. 1000 100% Calpine Gilroy 2, Inc. 1000 100% Sutter Dryers, Inc. 1000 100% Calpine Metcalf EPC, Inc. 1000 100% Bellingham Cogen, Inc. 1000 100% GATX/Calpine-Agnews, Inc. 3000 100% Calpine Agnews, Inc. 1000 100% Calpine Power Company 1000 100% Calpine Vapor, Inc. 1000 100% Modoc Power, Inc. 1000 100%

Santa Rosa Energy Company 1000 100% Geysers Finance Company 100,000 100% Calpine Thermal Power, Inc. 1000 100% Calpine Operations Management Company, Inc. 1000 100% Calpine Fuels Corporation 1000 100% CPN Pipeline Company 1000 100% Calpine Eastern Holdings, Inc. 1000 100% Calpine c*Power, Inc. 1000 100% WRMS Engineering, Inc. 100,000 100% CPN Cascade, Inc. 1000 100% CPN Telephone Flat, Inc. 1000 100% Anderson Springs Energy Company 1000 100% Calpine Sonoma, Inc. 1000 100% Calpine California Holdings, Inc. 1000 100% EX-10.23 15 f92357exv10w23.txt EXHIBIT 10.23 Exhibit 10.23 EXECUTION COPY Calpine Corporation LLC Pledge SECOND AMENDMENT PLEDGE AGREEMENT (Membership Interests) THIS SECOND AMENDMENT PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of July 16, 2003, made by Calpine Corporation, a Delaware corporation (the "Company"), in favor of The Bank of New York, as Collateral Trustee (together with any successor(s) thereto in such capacity, the "Collateral Trustee") for the benefit of the Secured Parties. W I T N E S S E T H WHEREAS, the Company intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified, renewed, restated or replaced from time to time, the "Credit Agreement") among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder; WHEREAS, the Company intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Secured Floating Rate Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between the Company and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"); WHEREAS, the Company intends to secure its Secured Obligations, including its obligations under the Credit Agreement and any future Priority Lien Debt, on a priority basis, and, subject to such priority, its obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with security interests in, and pledge of, among other things, all present and future Pledged Collateral (as defined below); WHEREAS, the Company has entered into a Collateral Trust Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among, inter alia, the Company, the Subsidiaries of the Company named therein and the Collateral Trustee which sets forth the terms on which the Company has appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to receive, hold, maintain, administer, enforce and distribute the Existing Security Documents and all other Security Documents, including this Pledge Agreement, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof; WHEREAS, the Company will derive substantial direct and indirect benefit from the making of the extensions of credit under each of the Credit Agreement and the Term Loan Agreement and the offering of each of the 2007 Notes, 2010 Notes and 2013 Notes; WHEREAS, it is a condition precedent to the obligation of the lenders to make their respective extensions of credit to the Company under each of the Credit Agreement and the Term Loan Agreement, and condition precedent to the obligation of the purchasers to purchase each of the 2007 Notes, the 2010 Notes and the 2013 Notes, that the Company shall have executed and delivered this Pledge Agreement to the Collateral Trustee for the benefit of the Secured Parties; and WHEREAS, this Pledge Agreement amends and restates in its entirety the First Amendment Pledge Agreement (Membership Interests) dated as of May 9, 2002 made by the Company in favor of The Bank of Nova Scotia, as agent; NOW, THEREFORE, in consideration of the premises contained herein and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Collateral Trustee" is defined in the preamble. "Collateral Trust Agreement" is defined in the recitals. "Company" is defined in the preamble. "Distributions" means all cash distributions made in respect of the Pledged Interests, whether of net income, return of capital or otherwise, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Interests or other rights or interests constituting Pledged Collateral. "Pledge Agreement" is defined in the preamble. "Pledged Collateral" is defined in Section 2.1. "Pledged Interests Issuer" means each Person identified in Attachment 1 hereto as the issuer of the Pledged Interests identified opposite the name of such Person, and each Person that 2 is the issuer of any membership interests that are obtained by the Company in the future and pledged hereunder. "Pledged Interests" means all membership interests in the Pledged Interests Issuer, as such interests are amended, modified or supplemented from time to time and together with any interest in the Pledged Interests Issuer taken in extension or renewal thereof or substitution therefor. "Pledged Property" means all Pledged Interests, all securities, all assignments of any amounts due or to become due, all other instruments which are now being delivered by the Company to the Collateral Trustee or may from time to time hereafter be delivered by the Company to the Collateral Trustee for the purpose of pledge under this Pledge Agreement or any other Secured Debt Document, and all proceeds of any of the foregoing. "Secured Parity Lien Parties" means any Person who is holding a Parity Lien Obligation (including any Parity Debt Representative), at any time. "Secured Parties" means any Person who is holding a Secured Obligation (including any Secured Debt Representative), at any time. "Secured Priority Lien Parties" means any Person who is holding a Priority Lien Obligation (including any Priority Lien Agent), at any time. "Securities Act" is defined in Section 6.2. "U.C.C." means the Uniform Commercial Code as in effect in the State of New York. SECTION 1.2. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Collateral Trust Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II PLEDGE SECTION 2.1. Grant of Security Interest. The Company hereby (i) pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to the Collateral Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, a continuing first priority security interest in, all of the following property (the "Pledged Collateral") and (ii) pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to the Collateral Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, a continuing second priority security interest in, all of the Pledged Collateral: 3 (a) all Pledged Interests identified in Attachment 1 hereto; (b) and the certificates representing the Pledged Interests and all dividends, distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Interests; (c) all additional membership interests of any issuer of the Pledged Interests from time to time acquired by the Company in any manner, and the certificates representing such additional membership interests, and all dividends, distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such membership interests; (d) all other Pledged Interests issued from time to time; (e) all other Pledged Property, whether now or hereafter delivered to the Collateral Trustee in connection with this Pledge Agreement; (f) all Distributions, interest, and other payments and rights with respect to any Pledged Property; and (g) all proceeds of any of the foregoing. SECTION 2.2. Security for Obligations; Separate Liens. This Pledge Agreement and the security interests and Liens granted and created herein secures the payment and performance of all Secured Obligations of the Company now or hereafter, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest (including any interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, premiums, penalties, indemnifications, expenses or otherwise, and including all amounts that constitute part of the Secured Obligations and would be owed by the Company but for the fact that they are unenforceable or not allowed due to a pending Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the foregoing, it is the intent of the parties that (i) the Liens securing the Parity Lien Obligations are subject and subordinate to the Liens securing the Priority Lien Obligations up to the Priority Lien Cap and (ii) this Pledge Agreement creates two separate and distinct Liens: the first Lien securing the payment and performance of the Priority Lien Obligations and the second Lien securing the payment and performance of the Parity Lien Obligations. SECTION 2.3. Delivery of Pledged Property. All certificates or instruments representing or evidencing any Pledged Collateral, including all Pledged Interests, shall be delivered to and held by or on behalf of the Collateral Trustee pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. 4 SECTION 2.4. Intentionally Omitted. SECTION 2.5. Continuing Security Interest; Transfer of Note. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the other Secured Debt Documents, shall (a) remain in full force and effect until payment in full of all Secured Obligations and the termination or expiration of all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt, (b) be binding upon the Company and its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Collateral Trustee hereunder, to the benefit of the Collateral Trustee and each other Secured Party. Without limiting the foregoing clause (c), any Secured Party may assign or otherwise transfer (in whole or in part) any right or obligation under the Secured Debt Documents to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Secured Party under any Secured Debt Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the applicable provisions of each of the Secured Debt Documents. Upon the payment in full and discharge of all Secured Obligations that are then outstanding, due and payable and the termination or expiration of all commitments to extend credit under all Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt, the security interest granted herein shall terminate and all rights to the Pledged Collateral shall revert to the Company. Upon any such termination or release of the Lien provided for hereunder in accordance with the Secured Debt Documents, the Collateral Trustee will, at the Company's sole expense, deliver to the Company, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Interests, together with all other Pledged Collateral held by the Collateral Trustee hereunder, and execute and deliver to the Company such documents as the Company shall reasonably request to evidence such termination or release. SECTION 2.6. Security Interest Absolute. All rights of the Collateral Trustee and the security interests granted to the Collateral Trustee hereunder, and all obligations of the Company hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of any of the Secured Debt Documents, (b) the failure of any Secured Party or any holder of any Secured Obligation (i) to assert any claim or demand or to enforce any right or remedy against the Company, any other Obligor or any other Person under the provisions of any of the Secured Debt Documents or otherwise, or 5 (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Secured Obligations of the Company or any other Obligor, (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other extension, compromise or renewal of any Secured Obligation of the Company or any other Obligor, (d) any reduction, limitation, impairment or termination of any Secured Obligations of the Company or any other Obligor for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Company hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Secured Obligations of the Company, any other Obligor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of any of the Secured Debt Documents, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Pledged Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Secured Obligations, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Company, any other Obligor, any surety or any guarantor. SECTION 2.7. [Intentionally Omitted.] SECTION 2.8. Waiver of Subrogation. Until such time as the Secured Obligations have been indefeasibly paid in full and discharged and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have been permanently terminated or expired, the Company hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company or any other Obligor that arise from the existence, payment, performance or enforcement of the Company's obligations under this Pledge Agreement or any other Secured Debt Document, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Collateral Trustee against the Company or any other Obligor or any collateral which the Collateral Trustee now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Company or any other Obligor, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Company in violation of the preceding sentence and the Secured Obligations shall not have been indefeasibly paid in full, in cash, and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt 6 shall have not been permanently terminated or expired, such amount shall be deemed to have been paid to the Company for the benefit of, and held in trust for, the Collateral Trustee, and shall forthwith be paid to the Collateral Trustee to be credited and applied upon the Secured Obligations, whether matured or unmatured, in accordance with the terms of the Collateral Trust Agreement. The Company acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Secured Debt Documents and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Warranties, etc. The Company represents and warrants unto the Collateral Trustee and each Secured Party, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Interests) by the Company to the Collateral Trustee of any Pledged Collateral, as set forth in this Article. SECTION 3.1.1 Ownership, No Liens, etc. The Company is the legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign) such Pledged Collateral, free and clear of all liens, security interests, options, or other charges or encumbrances, except any lien or security interest granted pursuant hereto in favor of the Collateral Trustee. SECTION 3.1.2 Valid Security Interest. The delivery of such Pledged Collateral to the Collateral Trustee is effective to create a valid, perfected, first priority or second priority, as the case may be, security interest in such Pledged Collateral and all proceeds thereof, securing the Secured Obligations, subject in each case to the provisions of Section 3.4 of the Collateral Trust Agreement. No filing or other action will be necessary to perfect or protect such security interest. SECTION 3.1.3 As to Pledged Interests. In the case of any Pledged Interests constituting such Pledged Collateral, all of such Pledged Interests are duly authorized and validly issued, fully paid, and non-assessable, and constitute all of the issued and outstanding shares of capital stock entitled to vote in the election of the Board of Directors of each Pledged Share Issuer. SECTION 3.1.4 Nature of Membership Interests. No right, title and interest of the Company in the Pledged Interests Issuers are represented by a certificate of interest or instrument, except such certificates or instruments, if any, as have been delivered to the Collateral Trustee and are held in its possession, together with transfer documents as required in this Pledge Agreement (and the Company covenants and agrees that any such certificates or instruments hereafter received by the Company with respect to any of the Pledged Collateral will be held in trust for the Collateral Trustee and promptly delivered to the Collateral Trustee). 7 ARTICLE IV COVENANTS SECTION 4.1. Protect Collateral; Further Assurances, etc. The Company will not sell, assign, transfer, pledge, or encumber in any other manner the Pledged Collateral (except in favor of the Collateral Trustee hereunder and as otherwise expressly permitted by the Secured Debt Documents). The Company will warrant and defend the right and title herein granted unto the Collateral Trustee in and to the Pledged Collateral (and all right, title, and interest represented by the Pledged Collateral) against the claims and demands of all Persons whomsoever. The Company agrees that at any time, and from time to time, at the expense of the Company, the Company will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Collateral Trustee or any Secured Debt Representative may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. The Company hereby authorizes the Collateral Trustee to cause the filing of any financing statement that (i) indicates the Pledged Collateral and (ii) contains any other information required by Section 5 of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed regarding the sufficiency or filing office acceptance of any financing statement or amendment, including whether the Company is an organization, the type of organization and any organization identification number issued to the Company; provided that this sentence shall not be interpreted as requiring the Collateral Trustee to file any such financing statements, continuation statements or other instruments. SECTION 4.2. Certificates, etc. The Company agrees that all certificates evidencing Pledged Interests, if any, delivered by the Company pursuant to this Pledge Agreement will be accompanied by duly executed undated blank stock powers, or other equivalent instruments of transfer reasonably acceptable to the Collateral Trustee. The Company will, from time to time upon the reasonable request of the Collateral Trustee or any Secured Debt Representative, promptly deliver to the Collateral Trustee such stock powers, instruments, and similar documents, reasonably satisfactory in form and substance to the Collateral Trustee, with respect to the Pledged Collateral as the Collateral Trustee or any Secured Debt Representative may reasonably request and will, from time to time upon the reasonable request of the Collateral Trustee after the occurrence of any Actionable Default, promptly transfer any Pledged Interests into the name of any nominee designated by the Collateral Trustee. SECTION 4.3. Continuous Pledge. Subject to Section 2.5, the Company will, at all times, keep pledged to the Collateral Trustee pursuant hereto all Pledged Interests and all other shares of capital stock constituting Pledged Collateral, all Distributions with respect thereto, and all other Pledged Collateral and other securities, instruments, proceeds, and rights from time to time received by or distributable to the Company in respect of any Pledged Collateral. SECTION 4.4. Voting Rights. The Company agrees after any Actionable Default shall have occurred and be continuing and the Collateral Trustee has notified the Company of the Collateral Trustee's intention to exercise its voting power under this Section 4.4 8 (i) the Collateral Trustee may exercise (to the exclusion of the Company) the voting power and all other incidental rights of ownership with respect to any Pledged Interests or other shares of capital stock constituting Pledged Collateral and the Company hereby grants the Collateral Trustee an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Interests and such other Pledged Collateral; and (ii) promptly to deliver to the Collateral Trustee such additional proxies and other documents as may be necessary to allow the Collateral Trustee to exercise such voting power. The Collateral Trustee agrees that unless an Actionable Default shall have occurred and be continuing and the Collateral Trustee shall have given the notice referred to in this Section 4.4, the Company shall have the exclusive voting power with respect to any membership interests (including any of the Pledged Interests) constituting Pledged Collateral and the Collateral Trustee shall, upon the written request of the Company, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by the Company which are necessary to allow the Company to exercise voting power with respect to any such membership interests (including any of the Pledged Interests) constituting Pledged Collateral; provided, however, that no vote shall be cast, or consent, waiver, or ratification given, or action taken by the Company that would materially impair any Pledged Collateral or be inconsistent with or violate any material provision of any of the Secured Debt Documents (including this Pledge Agreement). SECTION 4.5. Additional Undertakings. The Company will not take or omit to take any action the taking or the omission of which would result in any material impairment or alteration of any obligation of the maker of any instrument constituting Pledged Collateral. ARTICLE V THE COLLATERAL TRUSTEE SECTION 5.1. Collateral Trustee Appointed Attorney-in-Fact. The Company hereby irrevocably appoints the Collateral Trustee the Company's attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Collateral Trustee's discretion, to take any action and to execute any instrument which the Collateral Trustee may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) after the occurrence and continuance of an Actionable Default, to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) after the occurrence and continuance of an Actionable Default, to file any claims or take any action or institute any proceedings which the Collateral Trustee may deem necessary or desirable for the collection of any of the Pledged Collateral or 9 otherwise to enforce the rights of the Collateral Trustee with respect to any of the Pledged Collateral or The Company hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. Collateral Trustee May Perform. If the Company fails to perform any agreement contained herein, the Collateral Trustee may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Collateral Trustee incurred in connection therewith shall be payable by the Company pursuant to Section 6.4. SECTION 5.3. Collateral Trustee's Rights and Duties Subject to Collateral Trust Agreement. Notwithstanding anything to the contrary contained in this Pledge Agreement, in acting under and by virtue of this Pledge Agreement, the Collateral Trustee shall be entitled to all of the rights, privileges and immunities provided to it in the Collateral Trust Agreement, and the rights and duties of the Collateral Trustee hereunder are subject in all respects to the terms, conditions and limitations set forth in the Collateral Trust Agreement (including, without limitation, the provisions of Article 5 thereof), reference to which is made for all purposes; provided, however, that any forbearance by the Collateral Trustee in exercising any right or remedy available to it under the Collateral Trust Agreement shall not give rise to a defense on the part of the Company with respect to the Collateral Trustee's exercise of any right or remedy pursuant to this Pledge Agreement or as otherwise afforded by applicable law. ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If an Actionable Default shall have occurred and be continuing: (a) The Collateral Trustee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Pledged Collateral) and also may, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Trustee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Trustee may deem commercially reasonable in each case subject to the terms and provisions of the Collateral Trust Agreement. The Company agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Trustee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Collateral Trustee may, in each case subject to the terms and provisions of the Collateral Trust Agreement, 10 (i) transfer all or any part of the Pledged Collateral into the name of the Collateral Trustee or its nominee, with or without disclosing that such Pledged Collateral is subject to the lien and security interest hereunder, (ii) notify the parties obligated on any of the Pledged Collateral to make payment to the Collateral Trustee of any amount due or to become due thereunder, (iii) enforce collection of any of the Pledged Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in the Company's name to allow collection of the Pledged Collateral, (v) take control of any proceeds of the Pledged Collateral, and (vi) execute (in the name, place and stead of the Company) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral. SECTION 6.2. Securities Laws. If the Collateral Trustee shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to Section 6.1, the Company agrees that, upon request of the Collateral Trustee, the Company will, at its own expense: (a) execute and deliver, and cause each Pledged Interests Issuer of the Pledged Collateral contemplated to be sold and the members thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or advisable to register such Pledged Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Pledged Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; and 11 (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. SECTION 6.3. Compliance with Restrictions. The Company agrees that in any sale of any of the Pledged Collateral whenever an Actionable Default shall have occurred and be continuing, the Collateral Trustee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Pledged Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Company further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Trustee be liable nor accountable to the Company for any discount allowed by the reason of the fact that such Pledged Collateral is sold in compliance with any such limitation or restriction. SECTION 6.4. Application of Proceeds. All cash proceeds received by the Collateral Trustee in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral shall thereafter be applied in accordance with Section 3.4 of the Collateral Trust Agreement. SECTION 6.5. Indemnity and Expenses. (a) The Company agrees to indemnify the Collateral Trustee from and against any and all Indemnified Liabilities with respect to the execution, delivery, performance, administration or enforcement of this Pledge Agreement to the extent provided in Section 7.8 of the Collateral Trust Agreement. The Company agrees to reimburse the Collateral Trustee for all costs, fees and expenses relating to this Pledge Agreement to the extent provided in Section 7.7 of the Collateral Trust Agreement. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Security Document. This Pledge Agreement is a Security Document executed pursuant to the Collateral Trust Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by the Company herefrom shall in any event be effective unless the same shall be in writing and signed by the Collateral Trustee in accordance 12 with Section 7.1 of the Collateral Trust Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3. Protection of Collateral. The Collateral Trustee may from time to time, at its option, perform any act which the Company agrees hereunder to perform and which the Company shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Actionable Default) and the Collateral Trustee may from time to time take any other action which the Collateral Trustee or any Secured Debt Representative reasonably deems necessary for the maintenance, preservation or protection of any of the Pledged Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic communication) and shall be effected in the manner provided for in Section 7.5 of the Collateral Trust Agreement. SECTION 7.5. Section Captions. Section captions used in this Pledge Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. SECTION 7.6. Severability. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. SECTION 7.7. Governing Law, Entire Agreement, etc. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER SECURITY DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL TRUSTEE'S OPTION, IN THE 13 COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT. SECTION 7.9. Waiver of Jury Trial. THE COLLATERAL TRUSTEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY. THE COMPANY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER SECURED DEBT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO EACH SUCH SECURED DEBT DOCUMENT. 14 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. CALPINE CORPORATION By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: Address: 50 West San Fernando Street San Jose, CA 95113 Facsimile No.: (408) 995-0505 Attention: Treasurer 15 THE BANK OF NEW YORK, not in its individual capacity, but solely as Collateral Trustee By: /s/ Michael Pitfick ----------------------------------------- Name: Michael Pitfick Title: Assistant Vice President 16 EXECUTION COPY Calpine Corporation LLC Pledge ATTACHMENT 1 to Second Amendment Pledge Agreement (Membership Interest) PLEDGED MEMBERSHIP INTERESTS

% of Membership Interest Pledged Interest Issuer: Pledged - ----------------------- ------- Calpine Natural Gas Holdings, LLC 100% Calpine Marketing, LLC 100% Anacapa Land Company LLC 100% Calpine Pittsburgh, LLC 100% CPN Blue Spruce Holdings, LLC 100% Calpine Calistoga Holdings, LLC 100% Chippokes Energy Center, LLC 100% Palmetto Energy Center, LLC 100% Blue Heron Energy Center, LLC 100% South Point Energy Center, LLC 100% Calpine Sonoran Pipeline, LLC 100% Los Esteros Critical Energy Center, LLC 100% Calpine Natural Gas GP, LLC 100%

EX-10.24 16 f92357exv10w24.txt EXHIBIT 10.24 Exhibit 10.24 EXECUTION COPY Calpine Corporation Note Pledge FIRST AMENDMENT NOTE PLEDGE AGREEMENT THIS FIRST AMENDMENT NOTE PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of July 16, 2003, made by Calpine Corporation, a Delaware corporation (the "Company"), in favor of The Bank of New York, as Collateral Trustee (together with any successor(s) thereto in such capacity, the "Collateral Trustee") for the benefit of the Secured Parties. W I T N E S S E T H WHEREAS, the Company intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified, renewed, restated or replaced from time to time, the "Credit Agreement") among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder; WHEREAS, the Company intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Secured Floating Rate Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between the Company and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"); WHEREAS, the Company intends to secure its Secured Obligations, including its obligations under the Credit Agreement and any future Priority Lien Debt, on a priority basis, and, subject to such priority, its obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with security interests in, and pledge of, among other things, all present and future Pledged Collateral (as defined below); WHEREAS, the Company has entered into a Collateral Trust Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among, inter alia, the Company, the Subsidiaries of the Company named therein and the Collateral Trustee which sets forth the terms on which the Company has appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to receive, hold, maintain, administer, enforce and distribute the Existing Security Documents and all other Security Documents, including this Pledge Agreement, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof; WHEREAS, the Company will derive substantial direct and indirect benefit from the making of the extensions of credit under each of the Credit Agreement and the Term Loan Agreement and the offering of each of the 2007 Notes, 2010 Notes and 2013 Notes; WHEREAS, it is a condition precedent to the obligation of the lenders to make their respective extensions of credit to the Company under each of the Credit Agreement and the Term Loan Agreement, and condition precedent to the obligation of the purchasers to purchase each of the 2007 Notes, the 2010 Notes and the 2013 Notes, that the Company shall have executed and delivered this Pledge Agreement to the Collateral Trustee for the benefit of the Secured Parties; and WHEREAS, this Pledge Agreement amends and restates in its entirety the Note Pledge Agreement dated as of May 9, 2002 made by the Company in favor of The Bank of Nova Scotia, as agent; NOW, THEREFORE, in consideration of the premises contained herein and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Collateral Trustee" is defined in the preamble. "Collateral Trust Agreement" is defined in the recitals. "Company" is defined in the preamble. "Pledge Agreement" is defined in the preamble. "Pledged Collateral" is defined in Section 2.1. "Pledged Note Issuer" means each Person identified in Attachment 1 hereto as the issuer of the Pledged Notes identified opposite the name of such Person, and each Person that is the issuer of any Pledged Notes that are obtained by the Company in the future. "Pledged Notes" means all promissory notes of any Pledged Note Issuer which are delivered by the Company to the Collateral Trustee as Pledged Property hereunder, as such promissory notes, in accordance with Section 4.5, are amended, modified or supplemented from 2 time to time and together with any promissory notes of any Pledged Note Issuer taken in extension or renewal. "Pledged Property" means all Pledged Notes and all other assignments of any amounts due or to become due, all other instruments which are now being delivered by the Company to the Collateral Trustee or may from time to time hereafter be delivered by the Company to the Collateral Trustee for the purpose of pledge under this Pledge Agreement or any other Secured Debt Document, and all instruments, proceeds and rights from time to time received by or distributable to the Company in respect of any of the foregoing. "Secured Parity Lien Parties" means any Person who is holding a Parity Lien Obligation (including any Parity Debt Representative), at any time. "Secured Parties" means any Person who is holding a Secured Obligation (including any Secured Debt Representative), at any time. "Secured Priority Lien Parties" means any Person who is holding a Priority Lien Obligation (including any Priority Lien Agent), at any time. "U.C.C." means the Uniform Commercial Code as in effect in the State of New York. SECTION 1.2. Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Collateral Trust Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II PLEDGE SECTION 2.1. Grant of Security Interest. The Company hereby (i) pledges, hypothecates, assigns, charges, mortgages, delivers and transfers to the Collateral Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, a continuing first priority security interest in, all of the following property (the "Pledged Collateral") and (ii) pledges, hypothecates, assigns, charges, mortgages, delivers and transfers to the Collateral Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, a continuing second priority security interest in, all of the Pledged Collateral (a) all promissory notes of each Pledged Note Issuer identified in Attachment 1 hereto; (b) all other Pledged Notes issued from time to time; 3 (c) all other Pledged Property, whether now or hereafter delivered to the Collateral Trustee in connection with this Pledge Agreement; (d) all interest and other payments and rights with respect to any Pledged Property; and (e) all proceeds of any of the foregoing. SECTION 2.2. Security for Obligations; Separate Liens. This Pledge Agreement and the security interests and Liens granted and created herein secures the payment and performance of all Secured Obligations of the Company now or hereafter, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest (including any interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, premiums, penalties, indemnifications, expenses or otherwise, and including all amounts that constitute part of the Secured Obligations and would be owed by the Company but for the fact that they are unenforceable or not allowed due to a pending Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the foregoing, it is the intent of the parties that (i) the Liens securing the Parity Lien Obligations are subject and subordinate to the Liens securing the Priority Lien Obligations up to the Priority Lien Cap and (ii) this Pledge Agreement creates two separate and distinct Liens: the first Lien securing the payment and performance of the Priority Lien Obligations and the second Lien securing the payment and performance of the Parity Lien Obligations. SECTION 2.3. Delivery of Pledged Property. All instruments representing or evidencing any Pledged Collateral, including all Pledged Notes, shall be delivered to and held by or on behalf of (and, in the case of Pledged Notes, endorsed to the order of) the Collateral Trustee pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION 2.4. Payment on Pledged Notes. In the event that any payment of principal or interest is to be made on any Pledged Note at a time when no Actionable Default has occurred and is continuing, such payment may be paid directly to the Company. If an Actionable Default has occurred and is continuing, then any such payment shall be paid directly to the Collateral Trustee. SECTION 2.5. Continuing Security Interest; Transfer of Note. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the other Secured Debt Documents, shall (a) remain in full force and effect until payment in full of all Secured Obligations and the termination or expiration of all commitments to extend credit under all Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt, 4 (b) be binding upon the Company and its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Collateral Trustee hereunder, to the benefit of the Collateral Trustee and each other Secured Party. Without limiting the foregoing clause (c), any Secured Party may assign or otherwise transfer (in whole or in part) any right or obligation under the Secured Debt Documents to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Secured Party under any Secured Debt Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the applicable provisions of each of the Secured Debt Documents. Upon the payment in full and discharge of all Secured Obligations that are then outstanding, due and payable and the termination or expiration of all commitments to extend credit under all Credit Facilities, the Indebtedness under which constitutes Priority Lien Debt, the security interest granted herein shall terminate and all rights to the Pledged Collateral shall revert to the Company. Upon any such termination or any release of the Lien provided for hereunder in accordance with the Secured Debt Documents, the Collateral Trustee will, at the Company's sole expense, deliver to the Company, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Notes, together with all other Pledged Collateral held by the Collateral Trustee hereunder, and execute and deliver to the Company such documents as the Company shall reasonably request to evidence such termination or release. It is understood and agreed that (i) the Company may convert the Indebtedness underlying the Pledged Notes to equity and, upon the conversion to equity of all Indebtedness from a Pledged Note Issuer to the Company, the promissory note of such Pledged Note Issuer shall be released from the Security Documents and cancelled and (ii) the Company may substitute new non-recourse secured promissory notes for promissory notes previously pledged to the Collateral Trustee. SECTION 2.6. Security Interest Absolute. All rights of the Collateral Trustee and the security interests granted to the Collateral Trustee hereunder, and all obligations of the Company hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of any of the Secured Debt Documents, (b) the failure of any Secured Party or any holder of any Secured Obligation (i) to assert any claim or demand or to enforce any right or remedy against the Company, any other Obligor or any other Person under the provisions of any of the Secured Debt Documents or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Secured Obligations of the Company or any other Obligor, 5 (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other extension, compromise or renewal of any Secured Obligation of the Company or any other Obligor, (d) any reduction, limitation, impairment or termination of any Secured Obligations of the Company or any other Obligor for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Company hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Secured Obligations of the Company, any other Obligor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of any of the Secured Debt Documents, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Pledged Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the Secured Obligations, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Company, any other Obligor, any surety or any guarantor. SECTION 2.7. [Intentionally Omitted]. SECTION 2.8. Waiver of Subrogation. Until such time as the Secured Obligations have been indefeasibly paid in full and discharged, and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have been permanently terminated or expired, the Company hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company or any other Obligor that arise from the existence, payment, performance or enforcement of the Company's obligations under this Pledge Agreement or any other Secured Debt Document, including any right of subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Collateral Trustee against the Company or any other Obligor or any collateral which the Collateral Trustee now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Company or any other Obligor, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to the Company in violation of the preceding sentence and the Secured Obligations shall not have been indefeasibly paid in full, in cash, and all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes Priority Lien Debt shall have not been permanently terminated or expired, such amount shall be deemed to have been paid to the Company for the benefit of, and held in trust for, the Collateral Trustee, and shall forthwith be paid to the Collateral Trustee to be credited and applied upon the Secured Obligations, whether matured or unmatured, in accordance with the terms of the Collateral Trust 6 Agreement. The Company acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Secured Debt Documents and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Warranties, etc. The Company represents and warrants unto the Collateral Trustee and each Secured Party, as at the date of each pledge and delivery hereunder (including each pledge and delivery of a Pledged Note) by the Company to the Collateral Trustee of any Pledged Collateral, as set forth in this Article. SECTION 3.1.1 Ownership, No Liens, etc. The Company is the legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign) such Pledged Collateral, free and clear of all liens, security interests, options, or other charges or encumbrances, except any lien or security interest granted pursuant hereto in favor of the Collateral Trustee. SECTION 3.1.2 Valid Security Interest. The delivery of such Pledged Collateral to the Collateral Trustee is effective to create a valid, perfected, first priority or second priority, as the case may be, security interest in such Pledged Collateral and the proceeds thereof, securing the Secured Obligations, subject in each case to the provisions of Section 3.4 of the Collateral Trust Agreement. No other filing or other action will be necessary to perfect or protect such security interest. SECTION 3.1.3 As to Pledged Notes. In the case of each Pledged Note constituting such Pledged Collateral, all of such Pledged Notes are duly authorized, executed, endorsed, issued and delivered, and are the legal, valid and binding obligations of the issuers thereof, and are not in default. ARTICLE IV COVENANTS SECTION 4.1. Protect Collateral; Further Assurances, etc. The Company will not sell, assign, transfer, pledge, or encumber in any other manner the Pledged Collateral (except in favor of the Collateral Trustee hereunder and as otherwise expressly permitted by the Secured Debt Documents) and the Company will warrant and defend the right and title herein granted unto the Collateral Trustee in and to the Pledged Collateral (and all right, title, and interest represented by the Pledged Collateral) against the claims and demands of all Persons whomsoever. The Company agrees that at any time, and from time to time, at the expense of the Company, the Company will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Collateral Trustee or any Secured Debt Representative may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. The Company hereby authorizes the Collateral Trustee to cause the filing of any financing statement that (i) indicates the Pledged Collateral and (ii) contains any other information required by Section 5 of 7 Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed regarding the sufficiency or filing office acceptance of any financing statement or amendment, including whether the Company is an organization, the type of organization and any organization identification number issued to the Company; provided that this sentence shall not be interpreted as requiring the Collateral Trustee to file any such financing statements, continuation statements or other instruments. SECTION 4.2. [Intentionally Omitted]. SECTION 4.3. Continuous Pledge. Subject to Section 2.5, the Company will, at all times, keep pledged to the Collateral Trustee pursuant hereto all Pledged Notes, all interest, principal and other proceeds received by the Collateral Trustee with respect to the Pledged Notes and all other Pledged Collateral. SECTION 4.4. [Intentionally Omitted]. SECTION 4.5. Additional Undertakings. Except as otherwise contemplated by the terms of each applicable Secured Debt Document and the provisions hereof (including the last paragraph of Section 2.5), the Company will not: (a) enter into any agreement amending, supplementing, or waiving any material provision of any Pledged Note (including any underlying instrument pursuant to which such Pledged Note is issued) or materially compromising or releasing or extending the time for payment or any obligation of the maker thereof, in either case which would result in any material impairment or material adverse alteration of any obligation of the maker of any Pledged Note or other instrument constituting Pledged Collateral; or (b) take or omit to take any action the taking of the omission of which would result in any material impairment or material adverse alteration of any obligation of the maker of any Pledged Note or other instrument constituting Pledged Collateral. ARTICLE V THE COLLATERAL TRUSTEE SECTION 5.1. Collateral Trustee Appointed Attorney-in-Fact. The Company hereby irrevocably appoints the Collateral Trustee the Company's attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Collateral Trustee's discretion, to take any action and to execute any instrument which the Collateral Trustee may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) after the occurrence and continuance of an Actionable Default, to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and 8 (c) to file any claims or take any action or institute any proceedings which the Collateral Trustee may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of the Collateral Trustee with respect to any of the Pledged Collateral. The Company hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION 5.2. Collateral Trustee May Perform. If the Company fails to perform any agreement contained herein, the Collateral Trustee may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Collateral Trustee incurred in connection therewith shall be payable by the Company pursuant to Section 6.4. SECTION 5.3. Trustee's Rights and Duties Subject to Collateral Trust Agreement. Notwithstanding anything to the contrary contained in this Pledge Agreement, in acting under and by virtue of this Pledge Agreement, the Collateral Trustee shall be entitled to all of the rights, privileges and immunities provided to it in the Collateral Trust Agreement, and the rights and duties of the Collateral Trustee hereunder are subject in all respects to the terms, conditions and limitations set forth in the Collateral Trust Agreement (including, without limitation, the provisions of Article 5 thereof), reference to which is made for all purposes; provided, however, that any forbearance by the Collateral Trustee in exercising any right or remedy available to it under the Collateral Trust Agreement shall not give rise to a defense on the part of the Company with respect to the Collateral Trustee's exercise of any right or remedy pursuant to this Pledge Agreement or as otherwise afforded by applicable law. ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If an Actionable Default shall have occurred and be continuing: (a) The Collateral Trustee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Pledged Collateral) and also may, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Trustee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Trustee may deem commercially reasonable in each case subject to the terms and provisions of the Collateral Trust Agreement. The Company agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Trustee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 9 (b) The Collateral Trustee may, in each case subject to the terms and provisions of the Collateral Trust Agreement, (i) transfer all or any part of the Pledged Collateral into the name of the Collateral Trustee or its nominee, with or without disclosing that such Pledged Collateral is subject to the lien and security interest hereunder, (ii) notify the parties obligated on any of the Pledged Collateral to make payment to the Collateral Trustee of any amount due or to become due thereunder, (iii) enforce collection of any of the Pledged Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in the Company's name to allow collection of the Pledged Collateral, (v) take control of any proceeds of the Pledged Collateral, and (vi) execute (in the name, place and stead of the Company) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Pledged Collateral. SECTION 6.2 [Intentionally Omitted]. SECTION 6.2. Compliance with Restrictions. The Company agrees that in any sale of any of the Pledged Collateral whenever an Actionable Default shall have occurred and be continuing, the Collateral Trustee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Pledged Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Company further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Trustee be liable nor accountable to the Company for any discount allowed by the reason of the fact that such Pledged Collateral is sold in compliance with any such limitation or restriction. SECTION 6.3. Application of Proceeds. All cash proceeds received by the Collateral Trustee in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral shall thereafter be applied in accordance with Section 3.4 of the Collateral Trust Agreement. 10 SECTION 6.4. Indemnity and Expenses. (a) The Company agrees to indemnify the Collateral Trustee from and against any and all Indemnified Liabilities with respect to the execution, delivery, performance, administration or enforcement of this Pledge Agreement to the extent provided in Section 7.8 of the Collateral Trust Agreement. (b) The Company agrees to reimburse the Collateral Trustee for all costs, fees and expenses relating to this Pledge Agreement to the extent provided in Section 7.7 of the Collateral Trust Agreement. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Security Document. This Pledge Agreement is a Security Document executed pursuant to the Collateral Trust Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement nor consent to any departure by the Company herefrom shall in any event be effective unless the same shall be in writing and signed by the Collateral Trustee in accordance with Section 7.1 of the Collateral Trust Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3. Protection of Collateral. The Collateral Trustee may from time to time, at its option, perform any act which the Company agrees hereunder to perform and which the Company shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Actionable Default) and the Collateral Trustee may from time to time take any other action which the Collateral Trustee or any Secured Debt Representative reasonably deems necessary for the maintenance, preservation or protection of any of the Pledged Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic communication) and shall be effected in the manner provided for in Section 7.5 of the Collateral Trust Agreement. SECTION 7.5. Section Captions. Section captions used in this Pledge Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. SECTION 7.6. Severability. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. 11 SECTION 7.7. Governing Law, Entire Agreement, etc. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER SECURITY DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL TRUSTEE'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT. SECTION 7.9. Waiver of Jury Trial. THE COLLATERAL TRUSTEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY 12 LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY. THE COMPANY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER SECURED DEBT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO EACH SUCH SECURED DEBT DOCUMENT. 13 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. CALPINE CORPORATION By: /s/ Michael Thomas --------------------------------------- Name: Michael Thomas Title: Address: 50 West San Fernando Street San Jose, CA 95113 Facsimile No.: (408) 995-0505 Attention: Treasurer 14 THE BANK OF NEW YORK, not in its individual capacity, but solely as Collateral Trustee By: /s/ Michael Pitfick --------------------------------------- Name: Michael Pitfick Title: Assistant Vice President 15 ATTACHMENT 1 to First Amendment Note Pledge Agreement PLEDGED PROMISSORY NOTES Pledged Note Issuers: 1. $99,750,000 Promissory Note from Calpine Eastern Corporation, dated June 1998. 2. $85,6000,000 Term Note from Calpine Morris, LLC, dated May 31, 2001. 3. $27,541,145 Subordinated Note from Calpine Morris, LLC, dated May 31, 2001. 4. $24,892,976 Promissory Note from Calpine Newark, LLC & Calpine Parlin, Inc. dated December 20, 2002. 5. Note from all of Calpine Corporation's wholly owned domestic subsidiaries listed on the schedule attached thereto, dated May 17, 2002. EX-10.25 17 f92357exv10w25.txt EXHIBIT 10.25 Exhibit 10.25 EXECUTION COPY COLLATERAL TRUST AGREEMENT DATED AS OF JULY 16, 2003 AMONG CALPINE CORPORATION, QUINTANA MINERALS (USA), INC., JOQ CANADA, INC., QUINTANA CANADA HOLDINGS LLC, THE BANK OF NOVA SCOTIA, AS AGENT UNDER THE CREDIT AGREEMENT, WILMINGTON TRUST COMPANY, AS TRUSTEE UNDER THE 2007 INDENTURE, WILMINGTON TRUST COMPANY, AS TRUSTEE UNDER THE 2010 INDENTURE, WILMINGTON TRUST COMPANY, AS TRUSTEE UNDER THE 2013 INDENTURE, GOLDMAN SACHS CREDIT PARTNERS L.P., AS ADMINISTRATIVE AGENT UNDER THE TERM LOAN AGREEMENT, AND THE BANK OF NEW YORK, AS COLLATERAL TRUSTEE TABLE OF CONTENTS

PAGE ARTICLE 1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION............................................................... 2 1.1. Defined Terms.................................................................................... 2 1.2. Rules of Interpretation.......................................................................... 22 ARTICLE 2. THE TRUST ESTATE...................................................................................... 23 2.1. Declaration of Trust............................................................................. 23 ARTICLE 3. OBLIGATIONS AND POWERS OF COLLATERAL TRUSTEE.......................................................... 24 3.1. Undertaking of the Collateral Trustee............................................................ 24 3.2. Release or Subordination of Liens................................................................ 25 3.3. Remedies Upon Actionable Default................................................................. 25 3.4. Application of Proceeds.......................................................................... 26 3.5. Powers of the Collateral Trustee................................................................. 27 3.6. Documents and Communications..................................................................... 27 3.7. For Sole and Exclusive Benefit of Holders of Secured Obligations................................. 27 3.8. Additional Secured Debt.......................................................................... 27 ARTICLE 4. OBLIGATIONS ENFORCEABLE BY THE COMPANY AND THE CANADIAN GUARANTORS.................................... 29 4.1. Release of Liens................................................................................. 29 4.2. Delivery of Copies to Secured Debt Representatives............................................... 31 4.3. Collateral Trustee not Required to Serve, File or Record......................................... 31 ARTICLE 5. IMMUNITIES OF THE COLLATERAL TRUSTEE.................................................................. 31 5.1. No Implied Duty.................................................................................. 31 5.2. Appointment of Agents and Advisors............................................................... 31 5.3. Other Agreements................................................................................. 32 5.4. Solicitation of Instructions..................................................................... 32 5.5. Limitation of Liability.......................................................................... 32 5.6. Documents in Satisfactory Form................................................................... 32 5.7. Entitled to Rely................................................................................. 32 5.8. Secured Debt Default............................................................................. 33 5.9. Actions by Collateral Trustee.................................................................... 33 5.10. Security or Indemnity in favor of the Collateral Trustee........................................ 33 5.11. Rights of the Collateral Trustee................................................................ 33 5.12. Limitations on Duty of Collateral Trustee in Respect of Collateral.............................. 33 5.13. Assumption of Rights, Not Assumption of Duties.................................................. 34 5.14. No Liability for Clean Up of Hazardous Materials................................................ 34 ARTICLE 6. RESIGNATION AND REMOVAL OF THE COLLATERAL TRUSTEE..................................................... 34 6.1. Resignation or Removal of Collateral Trustee..................................................... 34 6.2. Appointment of Successor Collateral Trustee...................................................... 35 6.3. Succession....................................................................................... 35 6.4. Limitation....................................................................................... 35 ARTICLE 7. MISCELLANEOUS PROVISIONS.............................................................................. 35

i 7.1. Amendment........................................................................................ 35 7.2. Further Assurances............................................................................... 36 7.3. Successors and Assigns........................................................................... 37 7.4. Delay and Waiver................................................................................. 37 7.5. Notices.......................................................................................... 37 7.6. Entire Agreement................................................................................. 39 7.7. Compensation; Expenses........................................................................... 39 7.8. Indemnity........................................................................................ 40 7.9. Severability..................................................................................... 41 7.10. Headings........................................................................................ 41 7.11. Obligations Secured............................................................................. 41 7.12. Governing Law................................................................................... 41 7.13. Consent to Jurisdiction......................................................................... 41 7.14. Waiver of Jury Trial............................................................................ 41 7.15. Counterparts.................................................................................... 42 7.16. Effectiveness................................................................................... 42 7.17. Additional Obligors............................................................................. 42 7.18. Appointment of Sub-Agent for Control Agreements................................................. 42 7.19. Transfer of the Existing Security Documents..................................................... 43 List of Exhibits and Schedules Exhibit A Collateral Trust Joinder Exhibit B Notice of Advance Schedule 1 Existing Security Documents Schedule 2 Instruments of Transfer for Existing Security Documents ii COLLATERAL TRUST AGREEMENT This Collateral Trust Agreement, dated as of July 16, 2003 (this "Agreement"), is entered into by and among Calpine Corporation, a Delaware corporation (the "Company"), Quintana Minerals (USA), Inc., a Delaware corporation, JOQ Canada, Inc., a Delaware corporation, Quintana Canada Holdings LLC, a Delaware limited liability company, The Bank of Nova Scotia, as Credit Agreement Agent, Wilmington Trust Company, as Trustee under the 2007 Indenture, Wilmington Trust Company, as Trustee under the 2010 Indenture, Wilmington Trust Company, as Trustee under the 2013 Indenture, Goldman Sachs Credit Partners L.P., as Term Loan Administrative Agent, and The Bank of New York, as Collateral Trustee (together with its successors in such capacity, the "Collateral Trustee"). RECITALS 1. The Company is party to a Credit Agreement dated as of March 8, 2002 (as amended, the "Existing Credit Agreement") among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent, relating to (i) an approximately $570 million revolving credit facility and (ii) a $1.0 billion term loan facility. The payment of the principal of and interest on the loans and the payment of all other obligations under the Existing Credit Agreement are secured by Liens held by The Bank of Nova Scotia, as Agent under the Existing Credit Agreement (the "Existing Collateral Agent") pursuant to the security documents listed on Schedule 1 (the "Existing Security Documents"). All Obligations under the Existing Credit Agreement (as defined therein) are guaranteed by each of the Canadian Guarantors. The obligations of each of the Canadian Guarantors under their respective Guarantees are limited to such Canadian Guarantor's ownership interest in Calpine Canada Energy Ltd., a Nova Scotia limited liability company ("CCEC"), that has been pledged to the Existing Collateral Agent. 2. The Company intends to enter into an Amended and Restated Credit Agreement dated as of July 16, 2003 among, inter alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia, as Administrative Agent, relating to a $500,000,000 senior secured credit facility to be made available in the form of revolving loans and term loans, including letters of credit to be issued thereunder. 3. The Company intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Secured Floating Rate Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans pursuant to a Credit Agreement dated as of July 16, 2003 between the Company and Goldman Sachs Credit Partners L.P., as Administrative Agent. The proceeds from the offering of the 2007 Notes, the 2010 Notes and the 2013 Notes and the borrowing of the Term Loans will be used, among other things, to refinance the loans outstanding under the Existing Credit Agreement. 4. The Company intends to secure its Secured Obligations, including its obligations under the Credit Agreement and any future Priority Lien Debt, on a priority basis, and, subject to such priority, its obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with security interests in all present and future property of the Company, except Excluded Assets. The Canadian Guarantors intend to Guarantee all Secured Obligations and to secure such Guarantees by pledging 65% of the aggregate outstanding voting stock of CCEC. The obligations of each of the Canadian Guarantors under their respective Guarantees are limited to such Canadian Guarantor's ownership interest in CCEC that has been pledged to the Collateral Trustee. 5. This Agreement sets forth the terms on which the Company has appointed the Collateral Trustee as trustee for the present and future holders of the Secured Obligations to accept transfer of the Existing Security Documents and to receive, hold, maintain, administer, enforce and distribute the Security Documents, including all Guarantees granted thereunder, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof. NOW THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION 1.1. DEFINED TERMS. (a) The following terms shall have the following meanings: "Act of Instructing Debtholders" means, as to any matter at any time, a direction in writing delivered to the Collateral Trustee by or with the written consent of the holders of Priority Lien Debt or Parity Lien Debt holding more than 50% of the aggregate outstanding principal amount of all Priority Lien Debt and Parity Lien Debt that is then due and payable, voting together as a single class. For this purpose, Parity Lien Debt or Priority Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding. "Act of Secured Debtholders" means, as to any matter, a direction in writing delivered to the Collateral Trustee by or with the written consent of: 2 (1) the Required Parity Debtholders accompanied by written confirmation from each Parity Debt Representative in respect of each Series of Parity Lien Debt then outstanding (in form reasonably satisfactory to such Parity Debt Representative and the Collateral Trustee) as to the principal amount of Parity Lien Debt registered by that Parity Debt Representative as outstanding in the name of any consenting holder of Parity Lien Debt who is a holder of such Series of Parity Lien Debt; and (2) the Required Priority Debtholders. "Actionable Default" means (1) the failure to pay any principal of or interest on any Series of Secured Debt outstanding in the amount of $50.0 million or more resulting in an event of default under the applicable Series of Secured Debt after payment is due, including payments that are due (or if any required offer had been timely made would be due) in respect of any mandatory offer to purchase Secured Debt resulting in an event of default under the applicable Series of Secured Debt, (2) the failure to pay in full, when due and payable in full (whether at maturity, upon acceleration or otherwise), any Series of Secured Debt outstanding in the amount of $50.0 million or more, (3) the exercise by the Collateral Trustee or any of its co-trustees or agents (including the Priority Lien Agent) of any right or power that is exercisable by it only upon default to take sole and exclusive dominion and control over any Collateral consisting of a deposit in a deposit account, commodity contract in a commodity account or financial asset in a securities account constituting Collateral or the delivery of any instructions to the Collateral Trustee directing it to foreclose or otherwise enforce, or to distribute the proceeds of enforcement of, any Lien upon any Collateral or (4) the occurrence of any event of default under any indenture or agreement governing any Series of Secured Debt arising from the commencement of any Bankruptcy Case or Insolvency Proceeding. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation." 3 "Bankruptcy Case" means any case under Title 11 of the United States Code or any successor bankruptcy law commenced voluntarily or involuntarily against the Company or any other Obligor. "Board of Directors" means: (1) with respect to a corporation, the Board of Directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. "Canadian Guarantors" means Quintana Minerals (USA), Inc., a Delaware corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana Canada Holdings LLC, a Delaware limited liability company, and any successor to any of the foregoing. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. 4 "Cash Equivalents" means: (1) the lawful currency of any country where the Company owns or operates a Facility; (2) securities issued or directly and fully guaranteed or insured by the United States government or any state thereof (or any agency or instrumentality thereof), by the Canadian government (or any agency or instrumentality thereof), or by the government of a member state of the European Union (or any agency or instrumentality thereof), in each case the payment of which is backed by the full faith and credit of the United States, Canada or the relevant member state of the European Union, as the case may be, and having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch or successor rating agency rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having one of the two highest ratings obtainable from Moody's or S&P and maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Collateral" means all properties and assets at any time owned or acquired by the Company, except the Excluded Assets, and the Canadian Guarantors' ownership interest in 65% of the aggregate outstanding voting stock of CCEC. "Collateral Trust Joinder" means an agreement substantially in the form of Exhibit A hereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus 5 (4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business; in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; and (3) the cumulative effect of a change in accounting principles will be excluded. "Control Agreement" means an agreement granting control over a deposit account or deposits therein, a commodity account or commodity contracts carried therein or a securities account or financial assets credited thereto, as security for any Secured Obligations. "Credit Agreement" means that certain Amended and Restated Credit Agreement, dated as of July 16, 2003, by and among the Company and the Credit Agreement Agent, providing for up to $500.0 million of revolving credit and term loan borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Credit Agreement Agent" means, at any time, the Person serving at such time as the "Agent" or "Administrative Agent" under the Credit Agreement or any other representative of the Lenders then most recently designated by a majority of the Lenders, in a written notice 6 delivered to each Parity Debt Representative and the Collateral Trustee, as the Credit Agreement Agent for the purposes of each of the Parity Lien Debt Documents. "Credit Facilities" means one or more debt facilities (including the Credit Agreement) with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Designated Assets" means all geothermal energy assets (including any related extraction, processing or similar equipment and geothermal power plants) and all natural gas assets (including any related extraction, processing or similar equipment, other than natural gas power plants) owned by the Company or any of its Restricted Subsidiaries from time to time, including the equity interests of any Restricted Subsidiary owning any Designated Assets, but excluding (i) any geothermal energy assets that are both unproven and undeveloped and (ii) contracts for the purchase or sale of natural gas and natural gas supplied under such contracts. "Disqualified Stock" means, with respect to any indenture, any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes issued pursuant to such indenture mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of the applicable indenture will be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Environmental Laws" means all applicable federal, state, local and foreign laws, statutes, ordinances, codes, rules, standards and regulations, now or hereafter in effect, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Hazardous Materials Transportation Authorization Act of 1994, the Federal Insecticide, Fungicide, and Rodenticide Act, the Solid Waste Disposal Act, the Toxic Substance Control Act, the Clean Air Act, the Federal Water Pollution Control Act, the Occupational Safety and Health Act and the Safe Drinking Water Act, and any and all regulations promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents. 7 "Environmental Liabilities" means, with respect to any Person, all liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants), fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law arising under or related to any Environmental Laws (including any permits or other authorizations required under any Environmental Laws) or in connection with any Release or threatened Release or presence of a Hazardous Material whether on, at, in, under, from or about or in the vicinity of any real or personal property of the Company and its Subsidiaries. "equally and ratably" means, in reference to sharing of Liens or proceeds thereof as between the holders of Parity Lien Obligations with respect to each outstanding Series of Parity Lien Debt, that such Liens or proceeds: (1) shall be allocated and distributed first to each Parity Debt Representative for each outstanding series of Parity Lien Debt, for account of the holders of such Series of Parity Lien Debt, ratably in proportion to the principal of and interest and premium (if any) outstanding on each outstanding Series of Parity Lien Debt when the allocation or distribution is made, and thereafter (2) shall be allocated and distributed (if any remain after payment in full of all of the principal of and interest and premium (if any) on all outstanding Parity Lien Debt) to each Parity Debt Representative for each outstanding series of Parity Lien Debt, for account of the holders of any remaining Parity Lien Obligations with respect to such outstanding Series of Parity Lien Debt, ratably in proportion to the aggregate unpaid amount of such remaining Parity Lien Obligations due and demanded (with written notice to the applicable Parity Debt Representative and the Collateral Trustee) prior to the date such distribution is made. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Excluded Assets" means (1) any lease of property other than (i) a lease of a geothermal energy or natural gas interest or property, (ii) a lease of real estate underlying a power generation property or (iii) a capital lease; (2) all deposit accounts (as defined in Article 9 of the Uniform Commercial Code of any relevant jurisdiction) and deposits therein to the extent not exceeding $50.0 million in the aggregate, except for the Designated Assets Sale Proceeds Account (as defined in each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture) and any deposit account and deposits therein holding amounts referred to in clause (7) of this definition; 8 (3) the fixtures and equipment relating to any pipeline if, to the extent that and for so long as (i) the ownership or operation of such pipeline is regulated by any federal or state regulatory authority and (ii) under the law applicable to such regulatory authority the grant of a security interest in such fixtures and equipment is prohibited or a security interest in such fixtures and equipment may be granted only after completion of a filing with, or receipt of consent from, such regulatory authority which has not been effectively completed or received; provided, that (a) such fixtures and equipment will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) in this clause (3) are and remain satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Trustee under the Security Documents immediately and automatically at such time as such conditions cease to exist, including by reason of the effective completion of any required filing or effective receipt of any required regulatory approval, and (b) unless prohibited by law, the proceeds of any sale, lease or other disposition of any such fixtures or equipment that are Excluded Assets shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents, except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with the applicable terms and provisions of each of the Secured Debt Documents; (4) all easements, rights-of-way, licenses and other real property interests for or pertaining to the construction, operation, use or maintenance of any pipeline over, upon or under land owned by another Person; (5) with respect to personal property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as (i) the grant of a security interest therein constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed and (ii) such abandonment, invalidation, unenforceability, termination or default is not rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provisions) of any relevant jurisdiction or any other applicable law (including the United States bankruptcy code); provided, that (a) such lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for so long as the conditions set forth in clauses (i) and (ii) of this clause (5) are and remain satisfied and to the extent that such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Trustee under the Security Documents immediately and automatically at such time as such conditions cease to exist, including by reason of any waiver or consent under the applicable instrument or agreement, and (b) the proceeds of any sale, lease or other disposition of any such lease, license, permit, franchise, power, authority or right that is or becomes an Excluded Asset shall not be an Excluded Asset and shall at all times be and remain subject to the security interests granted to the Collateral Trustee under the Security Documents, except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with the applicable terms and provisions of each of the Secured Debt Documents; 9 (6) with respect to any real property, any lease, license, permit, franchise, power, authority or right if, to the extent that and for so long as the grant of a security interest therein (i) requires a third party consent which has not been obtained or (ii) constitutes or would result in the abandonment, invalidation or unenforceability of such lease, license, permit, franchise, power, authority or right or the termination of or a default under the instrument or agreement by which such lease, license, permit, franchise, power, authority or right is governed; provided, that such lease, license, permit, franchise, power, authority or right will be an Excluded Asset only to the extent and for as long as the conditions set forth in clause (i) or (ii) of this clause (6) are and remain satisfied and to the extent such assets otherwise constitute Collateral, will cease to be an Excluded Asset, and will become subject to the security interests granted to the Collateral Trustee under the Security Documents immediately and automatically at such time as such conditions cease to exist, except as such proceeds are applied and used by the Company in the ordinary course of business and applied in accordance with the applicable terms and provisions of each of the Secured Debt Documents; (7) any cash proceeds (including any earnings thereon) of Priority Lien Debt that are pledged to cash collateralize letters of credit; (8) any turbines which serve as collateral pursuant to that certain General Agreement dated as of January 31, 2002 among the Company, various Subsidiaries of the Company and Siemens Westinghouse Power Corporation relating to various purchase contracts and letters of intent for gas turbine generators, steam turbine generators and related accessories; (9) proved oil and gas reserves located in Oklahoma and undeveloped reserves and unproven acreage located in California, Texas, Wyoming, Montana, Colorado, New Mexico and offshore Louisiana; provided that such reserves and acreage has a Fair Market Value not exceeding $20.0 million in the aggregate; (10) Capital Stock of Subsidiaries designated by the Company, but only for so long as (i) the Capital Stock of such Subsidiaries is not pledged to any Person (other than the Collateral Trustee on behalf of all holders of all Secured Debt) and (ii) such Subsidiaries collectively own less than 5.0% of the Company's total consolidated assets and collectively account for less than 5.0% of the Company's Consolidated Cash Flow; and (11) any other property in which a security interest cannot be perfected by the filing of a financing statement under the Uniform Commercial Code of the relevant jurisdiction; provided that such property has a Fair Market Value not exceeding $25.0 million in the aggregate. "Facility" means a power generation facility or energy producing facility, including any related fuel reserves. "Fair Market Value" means the value that would be paid by a willing buyer to a willing seller in a transaction not involving distress or necessity of either party, determined 10 in good faith by the Board of Directors of the Company (unless otherwise provided in the 2007 Indenture, the 2010 Indenture or the 2013 Indenture). "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates, plus one-third of all payments with respect to operating leases; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, except interest on Indebtedness incurred to finance the development or construction of a Facility; plus (3) any interest accruing on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon, but excluding any such Guarantee or Lien in effect on the date of the indentures unless the same is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the effective combined federal, state and local statutory tax rate of such Person for the immediately preceding fiscal year, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect and, to the extent optional, adopted by the Company, on the applicable date of determination. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, 11 securities or services, to take or pay or to maintain financial statement conditions or otherwise). "Hazardous Material" means any substance, material or waste that is regulated by, or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance that is (i) defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant," "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, or (ii) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. 12 The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (A) the Fair Market Value of such asset at such date of determination, and (B) the amount of the Indebtedness of such other Person. Notwithstanding anything to the contrary in this definition of Indebtedness, with respect to any contingent obligations (other than with respect to contractual obligations to repurchase goods sold or distributed, which shall be included to the extent reflected on the balance sheet of such Person in accordance with GAAP) of a Person, the maximum liability of such Indebtedness shall be as determined by such Person's Board of Directors, in good faith, as, in light of the facts and circumstances existing at the time, reasonably likely to be incurred upon the occurrence of the contingency giving rise to such obligation. "Indemnified Liabilities" means any and all liabilities (including all Environmental Liabilities), obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, performance, administration or enforcement of this Agreement or any of the other Security Documents, including any of the foregoing relating to the use of proceeds of any Secured Debt or the violation of, noncompliance with or liability under, any law (including Environmental Laws) applicable to or enforceable against the Company or any of its Subsidiaries or any of the Collateral and all reasonable costs and expenses (including reasonable fees and expenses of legal counsel selected by the Indemnitee) incurred by any Indemnitee in connection with claim, action, investigation or proceeding in any respect relating to any of the foregoing, whether or not suit is brought. "Indemnitee" has the meaning given in Section 7.8(a). "Insolvency Proceeding" means: (1) any proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Company or any other Obligor, any receivership or assignment for the benefit of creditors relating to the Company or any other Obligor or any similar case or proceeding relative to the Company or any other Obligor or its creditors, as such, in each case whether or not voluntary; 13 (2) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Company or any other Obligor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or (3) any other proceeding of any type or nature in which substantially all claims of creditors of the Company or any other Obligor are determined and any payment or distribution is or may be made on account of such claims. "Lenders" means, at any time, the parties to the Credit Agreement then holding (or committed to provide) loans, letters of credit or other extensions of credit that constitute (or when provided will constitute) Priority Lien Debt outstanding under the Credit Agreement. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Moody's" means Moody's Investors Service, Inc. (or, if such entity ceases to rate the applicable notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, without duplication: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" mean the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any 14 reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary that is incurred to finance the exploration, drilling, development, construction or purchase of or by, or repairs, improvements or additions to, property or assets of the Company or any Restricted Subsidiary; provided that such Indebtedness is without recourse to the Company (except as permitted by clause (8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any property or assets of the Company or any Restricted Subsidiary other than property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of the definition of Permitted Liens or property or assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause (19) of the definition of Permitted Liens. "Note Documents" means each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture, each of the 2007 Notes, the 2010 Notes and the 2013 Notes, each Sharing Confirmation and the Security Documents. "Notice of Actionable Default" means a written notice given to the Collateral Trustee by the Required Parity Debtholders or any Parity Debt Representative, or the Required Priority Debtholders, stating that an Actionable Default has occurred and is continuing. "Notice of Advance" means a written notice substantially in the form of Exhibit B hereto. "Obligations" means any principal, interest (including any interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Secured Debt Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Obligor" means the Company, the Canadian Guarantors and each other Restricted Subsidiary of the Company (if any) that at any time guarantees or provides collateral security or credit support for any Secured Obligations. "Officer's Certificate" means a written certificate signed by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of the Company. "Opinion of Company Counsel" means a written opinion from independent legal counsel who is reasonably acceptable to the Collateral Trustee or the Company's chief legal officer or deputy chief legal officer. The opinion may include exceptions and qualifications 15 consistent with customary practice for written third party legal opinions relating to the subject matter of the opinion. "Parity Debt Representative" means: (1) in the case of the 2007 Notes, the 2007 Trustee; in the case of the 2010 Notes, the 2010 Trustee; in the case of the 2013 Notes, the 2013 Trustee; (2) in the case of the Term Loans, the Term Loan Administrative Agent; or (3) in the case of any other Series of Parity Debt, the trustee, agent or representative of the holders of such Series of Parity Lien Debt who maintains the transfer register for such Series of Parity Lien Debt and is appointed as a Parity Debt Representative (for purposes related to the administration of the security documents) pursuant to the indenture or other agreement governing such Series of Parity Lien Debt. "Parity Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Parity Lien Obligations. "Parity Lien Debt" means: (1) the 2007 Notes, the 2010 Notes and the 2013 Notes; (2) the Term Loans; and (3) any other Indebtedness (including additional notes and Term Loans) that: (A) is permitted to be incurred by the covenant described in Section 4.12 of each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture; and (B) is permitted to be secured by Parity Liens by clause (2) of the definition of Permitted Liens set forth in each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture; provided, in the case of each issue or series of Indebtedness referred to in this clause (3), that: (i) on or before the date on which such Indebtedness was incurred by the Company such Indebtedness is designated by the Company, in an officer's certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Parity Lien Debt for the purposes of each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture and this Agreement, (ii) such Indebtedness is governed by an indenture or other agreement that includes a Sharing Confirmation and 16 (iii) all requirements set forth in this Agreement as to the confirmation, grant or perfection of the Collateral Trustee's Liens to secure such Indebtedness or Obligations in respect thereof are satisfied (and the satisfaction of such requirements and the other provisions of this clause (3) shall be conclusively established, for purposes of entitling the holders of such Indebtedness to share equally and ratably with the other holders of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's Liens on the Collateral, if the Company complies with all of the provisions set forth in Section 3.8 of this Agreement, and the holders of such Indebtedness and Obligations in respect thereof will be entitled to rely conclusively thereon). "Parity Lien Debt Documents" means, collectively, the Term Loan Documents, the Note Documents, and the indenture or agreement governing each other Series of Parity Lien Debt and all agreements binding on any Obligor related thereto. "Parity Lien Obligations" means Parity Lien Debt and all other Obligations in respect thereof. "Permitted Prior Liens" means (a) Liens securing Priority Lien Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses (5), (6), (10) or (11) of the definition of "Permitted Liens" (as defined in the Parity Lien Debt Documents) and (c) Liens that arise by operation of law and are not voluntarily granted, to the extent entitled by law to priority over the security interests created by the Security Documents. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Pledged Power Project" means the power generation property and related equipment at each of the following locations: (1) the Goldendale Energy Center in Goldendale, Washington; (2) the Otay Mesa Energy Center near San Diego, California; (3) the Metcalf Energy Center near San Jose, California; (4) the Santa Rosa Energy Center in Santa Rosa County, Florida; (5) the Washington Parish Energy Center near Bogalusa, Louisiana; (6) the Deer Park Energy Center in Deer Park, Texas; and (7) the Augusta Energy Center in Augusta, Georgia. 17 "Priority Foreclosure Event" means the failure to pay at maturity or upon acceleration of maturity all outstanding Priority Lien Debt at any time when no Bankruptcy Case or Insolvency Proceeding is pending. "Priority Lien" means a Lien granted by a Security Document to the Collateral Trustee upon any property of the Company or any other Obligor to secure Priority Lien Obligations not exceeding the Priority Lien Cap. "Priority Lien Agent" means the Credit Agreement Agent or any other agent for holders of Priority Lien Debt. "Priority Lien Cap" means an amount equal to (a) the Indebtedness outstanding under the Credit Agreement or any other Credit Facility in an aggregate principal amount not exceeding the greater of (1) $500.0 million, less the amount of any Net Proceeds of a Sale of Designated Assets applied to repay Priority Lien Debt and/or cash collateralize letters of credit that constitute Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for the then most recent four-quarter period for which financial information is available, plus (b) any interest (including any interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the maturity of the loans and reimbursement obligations therein and interest accruing at the then applicable rate provided in any applicable Priority Lien Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), penalties, premiums, fees, costs, expenses or other Obligations in respect of such Indebtedness. For purposes of this definition of Priority Lien Cap, all letters of credit shall be valued at face amount, whether or not drawn, and all letters of credit denominated in a currency other than U.S. dollars shall be valued at all times at the Equivalent Amount (as defined in the Credit Agreement) thereof on the date of issue thereof. "Priority Lien Debt" means Indebtedness under (a) the Credit Agreement or (b) any other Credit Facility that is secured by a Priority Lien that was permitted to be incurred under clause (1) of the definition of "Permitted Liens" but only if on or before the day on which such Indebtedness under a Credit Facility described in clause (b) above is incurred by the Company such Indebtedness is designated by the Company, in an officer's certificate delivered to each Parity Debt Representative and the Collateral Trustee on or before such date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt Documents and this Agreement. "Priority Lien Documents" means the Credit Agreement or any other Credit Facility pursuant to which any Priority Lien Debt is incurred and all other agreements governing, securing or relating to any Priority Lien Obligations. "Priority Lien Obligations" means the Priority Lien Debt and all other Obligations in respect of Priority Lien Debt. "Release" means any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment, 18 including the movement of Hazardous Material through or in the air, soil, surface water, ground water or property. "Required Parity Debtholders" means, at any time in respect of any action or matter, holders of a majority in aggregate outstanding principal amount of all Parity Lien Debt then outstanding, voting together as a single class. For this purpose, Parity Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding. "Required Priority Debtholders" means, at any time in respect of any action or matter, (1) holders of the outstanding principal amount of, or commitments with respect to, the applicable Priority Lien Debt then outstanding required pursuant to the terms of the applicable Credit Facility, voting as a single class, to approve such action or matter or (2) the Priority Lien Agent acting upon the authorization or consent of the holders referred to in the immediately preceding clause (1). For this purpose, Priority Lien Debt registered in the name of, or beneficially owned by, the Company or any Affiliate of the Company will be deemed not to be outstanding. "Responsible Officer," means, with respect to the Collateral Trustee, any officer within the corporate trust department of the Collateral Trustee including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Collateral Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Agreement. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "S&P" means Standard & Poor's Ratings Group (or, if such entity ceases to rate the applicable notes for reasons outside of the control of the Company, the equivalent investment grade credit rating from any other "nationally recognized statistical rating organization" (or successor concept) within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by the Company as a replacement agency). "Sale of Designated Assets" means any Asset Sale involving a sale or other disposition of Designated Assets. "Secured Debt" means Parity Lien Debt and Priority Lien Debt. "Secured Debt Default" means (i) the failure to pay any Secured Debt at maturity or (ii) any event or condition which, under the terms of any indenture or agreement governing any Series of Secured Debt causes, or permits holders of Secured Debt outstanding thereunder (with or without the giving of notice or lapse of time, or both, and whether or not notice has been given or time has lapsed) to cause, the Secured Debt outstanding thereunder to become immediately due and payable. 19 "Secured Debt Documents" means the Parity Lien Debt Documents and the Priority Lien Documents. "Secured Debtholder" means, at any time, a Person which then is the holder of, or has any commitment with respect to, any Secured Debt. "Secured Debt Representative" means each Parity Debt Representative and the Priority Lien Agent. "Secured Obligations" means the Parity Lien Obligations and the Priority Lien Obligations. "Security Documents" means this Agreement and one or more security agreements, pledge agreements, collateral assignments, mortgages, collateral agency agreements, deeds of trust or other grants or transfers for security executed and delivered by the Company or any other Obligor creating (or purporting to create) a Lien upon Collateral in favor of the Collateral Trustee (including the Existing Security Documents, as assigned to the Collateral Trustee), in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time, in accordance with its terms. "Series of Parity Lien Debt" means, severally, each of the 2007 Notes, the 2010 Notes, the 2013 Notes, the Term Loans and each other issue or series of Parity Lien Debt for which a single transfer register is maintained. "Series of Secured Debt" means, severally, each of the 2007 Notes, the 2010 Notes, the 2013 Notes, the Term Loans, each other issue or series of Parity Lien Debt for which a single transfer register is maintained and each issue or series of Priority Lien Debt for which a single register is maintained. "Sharing Confirmation" means, as to any Series of Parity Lien Debt, the written agreement of the holders of such Series of Parity Lien Debt, as set forth in the indenture or agreement governing such Series of Parity Lien Debt, for the enforceable benefit of all holders of each other existing and future Series of Parity Lien Debt and each existing and future Parity Debt Representative, that all Parity Lien Obligations shall be and are secured equally and ratably by all Liens at any time granted by the Company or any other Obligor to secure any Obligations in respect of such Series of Parity Lien Debt, whether or not upon property otherwise constituting Collateral, that all such Liens shall be enforceable by the Collateral Trustee for the benefit of all holders of Parity Lien Obligations equally and ratably, and that the holders of Obligations in respect of such Series of Parity Lien Debt are bound by the provisions in this Agreement relating to the order of application of proceeds from enforcement of the Collateral Trustee's Liens upon the Collateral, and consent to and direct the Collateral Trustee to perform its obligations under this Agreement. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of the 20 indenture, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, as applied to any Person, any corporation, limited or general partnership, trust, association or other business entity of which an aggregate of at least 50% of the outstanding Voting Shares, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. "Term Loan Administrative Agent" means Goldman Sachs Credit Partners L.P., as administrative agent under the Term Loan Agreement, together with its successors in such capacity. "Term Loan Agreement" means that certain Term Loan Agreement dated the date hereof between the Company and the Term Loan Administrative Agent, relating to $750.0 million in aggregate principal amount of Term Loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, as amended, modified, increased, renewed, restated or replaced, in whole or in part, from time to time. "Term Loan Documents" means the Term Loan Agreement, each Sharing Confirmation and the Security Documents. "Term Loans" means the principal of and interest and premium (if any) on Indebtedness of the Company incurred under the Term Loan Agreement. "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary (and any subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed after the date of each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. 21 Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the 2007 Trustee, the 2010 Trustee and the 2013 Trustee, as applicable, by filing with the applicable trustee(s) a certified copy of the Board Resolution giving effect to such designation and an officer's certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described under Section 4.07 of each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture, as the case may be, and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under Section 4.09 of each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture, the Company will be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under Section 4.09 of each of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. (b) All capitalized terms used in this Agreement that are defined in Article 9 of the UCC, as in effect on the date of this Agreement in the State of New York, and not otherwise defined herein shall have the meanings therein set forth. 1.2. RULES OF INTERPRETATION. (a) Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. (b) Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. (c) Unless otherwise indicated, any reference to any agreement or instrument shall be deemed to include a reference to such agreement or instrument as assigned, amended, amended and restated, supplemented, otherwise modified from time to time or replaced in accordance with the terms of this Agreement. (d) The use in this Agreement or any of the other Security Documents of the word "include" or "including," when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting 22 language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. The word "will" shall be construed to have the same meaning and effect as the word "shall." (e) References to "Sections" and "clauses" shall be to Sections and clauses, respectively, of this Agreement unless otherwise specifically provided. (f) References to "Articles" shall be to Articles of this Agreement unless otherwise specifically provided. (g) References to "Exhibits" and "Schedules" shall be to Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. (h) The use in this Agreement of the words "herein," "hereof," and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof. (i) This Agreement, the other Security Documents and any documents or instruments delivered pursuant hereto shall be construed without regard to the identity of the party who drafted the various provisions of the same. Each and every provision of this Agreement, the other Security Documents and instruments and documents entered into and delivered in connection therewith shall be construed as though the parties participated equally in the drafting of the same. Consequently, each of the parties acknowledges and agrees that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or the other Security Documents and instruments and documents entered into and delivered in connection therewith. ARTICLE 2. THE TRUST ESTATE 2.1. DECLARATION OF TRUST. To Secure the payment of the Secured Obligations and in consideration of the premises and the mutual agreements set forth herein, each of the Company and the Canadian Guarantors hereby grants to the Collateral Trustee, and the Collateral Trustee hereby accepts and agrees to hold, in trust under this Agreement for the benefit of all present and future holders of Secured Obligations, all of the Collateral Trustee's right, title and interest in, to and under the Existing Security Documents, as assigned to the Collateral Trustee pursuant to Section 7.19, and all other Security Documents, including all Guarantees thereunder, at any time delivered to the Collateral Trustee and all interests, rights, powers and remedies of the Collateral Trustee thereunder or in respect thereof and all cash and non-cash proceeds thereof (collectively, the "Trust Estate"), To Have and to Hold the Trust Estate unto the Collateral Trustee and its successors and assigns in trust under this Agreement, 23 In Trust, Nevertheless, for the benefit solely and exclusively of all present and future holders of Secured Obligations as security for the payment of all present and future Secured Obligations, Provided, that if at any time (i) all Liens granted by, and all Guarantees made under, any of the Security Documents have been released as provided in Section 4.1, (ii) the Collateral Trustee holds no other property in trust as part of the Trust Estate, (iii) no monetary obligation is outstanding and payable under this Agreement to the Collateral Trustee or any of its co-trustees, agents or sub-agents (whether in an individual or representative capacity) and (iv) the Company delivers to the Collateral Trustee an Officer's Certificate stating that all Liens of, and all Guarantees made in favor of, the Collateral Trustee have been released in compliance with all applicable provisions of the Secured Debt Documents and that the Company and the Canadian Guarantors are not required by any Secured Debt Document to grant any Lien upon any property to secure, or make any Guarantee to support, the Secured Obligations, then the trust arising hereunder shall terminate, except that, notwithstanding such termination, all provisions set forth in Sections 7.7 and 7.8 hereof enforceable by the Collateral Trustee or any of its co-trustees, agents or sub-agents (whether in an individual or representative capacity) shall remain enforceable in accordance with their terms, And the Parties Further Declare and Covenant that the Trust Estate shall be held and distributed by the Collateral Trustee subject to the further agreements herein. ARTICLE 3. OBLIGATIONS AND POWERS OF COLLATERAL TRUSTEE 3.1. UNDERTAKING OF THE COLLATERAL TRUSTEE. (a) Subject to, and in accordance with, this Agreement, the Collateral Trustee will, as trustee for the benefit solely and exclusively of the present and future holders of Secured Obligations: (i) accept transfer of the Existing Security Documents and receive, accept, enter into, hold, maintain, administer and enforce all other Security Documents, including all Guarantees thereunder, at any time delivered to it and all security interests created thereunder, perform its obligations under the Security Documents and protect, exercise and enforce the interests, rights, powers and remedies granted or available to it under, pursuant to or in connection with the Security Documents; (ii) take all lawful and commercially reasonable actions permitted under the Security Documents that it may deem necessary or advisable to protect or preserve its interest in the Collateral and any such Guarantees and such interests, rights, powers and remedies; (iii) deliver and receive notices pursuant to the Security Documents; (iv) sell, assign, collect, assemble, foreclose on, institute legal proceedings with respect to, or otherwise exercise or enforce the rights and remedies of a secured party (including a mortgagee, trust deed beneficiary and insurance beneficiary or 24 loss payee) with respect to the Collateral and any such Guarantees and its other interests, rights, powers and remedies; (v) remit as provided in Section 3.4 all cash proceeds received by the Collateral Trustee from the collection, foreclosure or enforcement of its interest in the Collateral or any such Guarantees or any of its other interests, rights, powers or remedies; (vi) execute and deliver amendments to the Security Documents as from time to time authorized by an Act of Secured Debtholders; and (vii) release any Lien granted to it by any Security Document upon any Collateral or release and terminate any Guarantee granted to it by any Security Document, in each case if and as required by Section 4.1(b). (b) Each party to this Agreement acknowledges and consents to the undertaking of the Collateral Trustee set forth in Section 3.1(a) and agrees to each of the other provisions of this Agreement applicable to it. (c) Notwithstanding anything to the contrary contained in this Agreement, the Collateral Trustee shall not commence any exercise of remedies, any foreclosure actions or otherwise take any action or proceeding against any of the Collateral unless and until it shall have received a Notice of Actionable Default or a Responsible Officer of the Collateral Trustee has actual knowledge that an Actionable Default has occurred and is continuing and then only in accordance with the provisions of this Agreement. 3.2. RELEASE OR SUBORDINATION OF LIENS. The Collateral Trustee will not release or subordinate any Lien of the Collateral Trustee or consent to the release or subordination of any Lien of the Collateral Trustee, except (a) as directed by an Act of Secured Debtholders, (b) as required by Article 4 or (c) as ordered pursuant to applicable law by a court of competent jurisdiction. 3.3. REMEDIES UPON ACTIONABLE DEFAULT. If the Collateral Trustee at any time receives a Notice of Actionable Default or has actual knowledge that an Actionable Default has occurred and is continuing, it will promptly deliver written notice thereof to each Secured Debt Representative. Thereafter, the Collateral Trustee may await direction by an Act of Instructing Debtholders and will act, or decline to act, as directed by an Act of Instructing Debtholders, in the exercise and enforcement of the Collateral Trustee's interests, rights, powers and remedies in respect of the Collateral or under the Security Documents or the Guarantees of the Canadian Guarantors or applicable law. Notwithstanding the foregoing, at any time when a Priority Foreclosure Event is continuing, the Collateral Trustee will act as directed in writing by the Required Priority Debtholders to initiate the exercise of remedies in respect of the Collateral and the Guarantees of the Canadian Guarantors and, following the initiation of such exercise of remedies, the Collateral Trustee will act, or decline to act, with respect to the manner of such exercise of remedies as directed by an Act of Instructing Debtholders (provided that no Act of Instructing Debtholders shall countermand the initiation of such exercise of remedies by the Required Priority Debtholders). Unless it has been directed to the contrary by an Act of Instructing Debtholders, the Collateral Trustee in any event may (but shall not be obligated to) 25 take or refrain from taking such action with respect to any Actionable Default as it may deem advisable and in the best interest of the holders of Secured Obligations. 3.4. APPLICATION OF PROCEEDS. (a) The Collateral Trustee shall apply the proceeds of any collection, sale, foreclosure or other realization upon any Collateral, or any realization upon any Guarantee of the Canadian Guarantors, in the following order of application (the "Order of Application"): FIRST, to the payment of all amounts payable under this Agreement on account of the Collateral Trustee's fees or any reasonable legal fees, costs and expenses or other liabilities of any kind incurred by the collateral trustee or any co-trustee or agent in connection with any Security Document; SECOND, to the Priority Lien Agent for application to the payment of Priority Lien Obligations in an amount not to exceed the Priority Lien Cap, or to be held by the Priority Lien Agent pending such application, until all Priority Lien Obligations have been paid in full in cash or the cash amount held by the Priority Lien Agent in respect of all Priority Lien Obligations is sufficient to pay all Priority Lien Obligations in full in cash; THIRD, to the respective Parity Debt Representatives for application to the Parity Lien Obligations equally and ratably until all Parity Lien Obligations have been paid in full in cash; and FOURTH, any surplus remaining after the payment in full in cash of all of the Secured Obligations shall be paid to the Company or the applicable Canadian Guarantor, as the case may be, its successors or assigns, or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct. For this purpose, "proceeds" of Collateral or any Guarantee of the Canadian Guarantors includes any and all cash, securities and other property realized from collection, foreclosure or enforcement of the Collateral Trustee's Liens upon the Collateral (including distributions of Collateral in satisfaction of any Secured Obligations) or any Guarantee of the Canadian Guarantors made in favor of the Collateral Trustee. (b) If any Parity Debt Representative or any holder of a Parity Lien Obligation collects or receives any proceeds in respect of the Parity Lien Obligations that should have been applied to the payment of the Priority Lien Obligations in accordance with clause (a) above, whether after the commencement of a Bankruptcy Case or otherwise, such Parity Debt Representative or such holder of a Parity Lien Obligation, as the case may be, will forthwith deliver the same to the Priority Lien Agent, for the account of the holders of the Priority Lien Obligations, in the form received, duly indorsed to the Priority Lien Agent, for the account of the holders of the Priority Lien Obligations, if required, to be applied in accordance with clause (a) above. Until so delivered, such proceeds will be held by such Parity Debt Representative or such holder of a Parity Lien Obligation, as the case may be, for the benefit of the holders of the Priority Lien Obligations and shall be deemed to be held segregated from other funds and property held by such Parity Debt Representative or such holder of a Parity Lien Obligation. 26 3.5. POWERS OF THE COLLATERAL TRUSTEE. (a) The Collateral Trustee is irrevocably authorized and empowered to enter into and perform its obligations and protect, perfect, exercise and enforce its interest, rights, powers and remedies under the Security Documents, including any Guarantees thereunder, and applicable law and to act as set forth in this Article 3 or as requested in any lawful directions given to it from time to time in respect of any matter by an Act of Secured Debtholders. (b) Subject to Article 4 and Section 3.3, the Collateral Trustee shall take direction only pursuant to an Act of Secured Debtholders. (c) Each Secured Debt Representative has, and each future Secured Debt Representative will, become party to this Agreement, solely to confirm consent to the undertaking of the Collateral Trustee set forth in Sections 2.1 and 3.1(a) and its acceptance of the rights granted to it by this Agreement. No Secured Debt Representative, Secured Debtholder or other holder of Secured Obligations shall have (i) any obligation or liability under or in respect of this Agreement or any Act of Secured Debtholders to which it is not a signatory party; (ii) any responsibility or duty whatsoever in respect of the Collateral or Security Documents, including any Guarantee thereunder, or any other interest, right, power or remedy granted to or enforceable by the Collateral Trustee, it being understood and agreed by the Collateral Trustee and by the Company and the Canadian Guarantors that only the Collateral Trustee shall be bound by the obligations of the Collateral Trustee expressly set forth in the Security Documents to which the Collateral Trustee is a party or (iii) any liability whatsoever for any act or omission of the Collateral Trustee. 3.6. DOCUMENTS AND COMMUNICATIONS. The Collateral Trustee will permit each Secured Debt Representative and each Secured Debtholder upon reasonable written notice or from time to time to inspect and copy any and all Security Documents and other documents, notices, certificates, instructions or communications received by the Collateral Trustee in its capacity as such. 3.7. FOR SOLE AND EXCLUSIVE BENEFIT OF HOLDERS OF SECURED OBLIGATIONS. The Collateral Trustee shall accept, hold, administer and enforce all Liens at any time transferred or delivered to it and all other interests, rights, powers and remedies at any time granted to or enforceable by the Collateral Trustee and all other property of the Trust Estate solely and exclusively for the benefit of the present and future holders of present and future Secured Obligations, and shall distribute all cash proceeds received by it in realization thereon or from enforcement thereof solely and exclusively to the Secured Debt Representatives for the benefit of the Secured Debtholders and to the Company pursuant to the provisions of Section 3.4. 3.8. ADDITIONAL SECURED DEBT. (a) The Collateral Trustee will, as trustee hereunder, perform its undertakings set forth in Section 3.1(a) with respect to each future holder of Secured Obligations that (i) is identified as a holder of Parity Lien Debt or Priority Lien Debt in accordance with the procedures set forth in Section 3.8(b) and (ii) signs, through its designated Secured Debt Representative identified pursuant to Section 3.8(b), a Collateral Trust Joinder. 27 (b) The Company shall be permitted to designate as additional Secured Debtholders hereunder each person who is, or who becomes, the registered holder of Parity Lien Debt or the holder of Priority Lien Debt incurred by the Company after the date of this Agreement. The Company may effect such designation by delivering to the Collateral Trustee, with copies to each previously identified Secured Debt Representative, each of the following: (i) An Officer's Certificate stating that: (A) The Company intends to incur additional Secured Debt ("New Secured Debt") which shall either be (x) Priority Lien Debt permitted by each indenture or agreement governing Secured Debt to be secured with a Priority Lien on a pari passu basis with all previously existing Priority Lien Debt and which, when the principal amount thereof is added to the principal amount of all previously existing Priority Lien Debt, shall be in an aggregate principal amount that is permitted by the terms of the Secured Debt Documents or (y) Parity Lien Debt permitted by each indenture or agreement governing Secured Debt to be secured with a Parity Lien on a pari passu basis with all previously existing Parity Lien Debt and which, when incurred and after giving pro forma effect to the incurrence of such Parity Lien Debt and the application of the proceeds therefrom, shall be in an amount that is permitted by the terms of each Secured Debt Document; (B) After giving pro forma effect to the incurrence of such New Secured Debt and the application of the proceeds therefrom no Secured Debt Default shall have occurred and be continuing and, to the best of the signatory's knowledge after due inquiry, no event or condition shall have occurred which could reasonably be expected to result in a Secured Debt Default; (C) If the incurrence of such New Secured Debt provides, pursuant to the indenture or agreement governing such New Secured Debt, that additional Collateral shall be required as security therefor, the Company has duly authorized, executed and filed or recorded, as applicable, in each appropriate governmental office financing statements and/or mortgages, as applicable, creating in favor of the Collateral Trustee, in its capacity as trustee hereunder, a valid and perfected first priority Lien on such additional Collateral, subject to the provisions of Section 3.4 and any Permitted Prior Liens; and (D) The Company has duly authorized, executed and recorded in each appropriate governmental office a Notice of Advance declaring that the New Secured Debt is secured by the Collateral; (ii) an Opinion of Company Counsel stating that the Officer's Certificate delivered pursuant to clause (i) above has been duly authorized by the Board of Directors of the Company and has been duly executed and delivered; and (iii) a written notice specifying the name and address of the Secured Debt Representative for such series of New Secured Debt for purposes of Section 7.5. 28 ARTICLE 4. OBLIGATIONS ENFORCEABLE BY THE COMPANY AND THE CANADIAN GUARANTORS 4.1. RELEASE OF LIENS. (a) The Collateral Trustee's Liens upon the Collateral will be released pursuant to Section 4.1(b) below: (1) in whole, upon (A) payment in full and discharge of all outstanding Secured Debt and all other Secured Obligations that are outstanding, due and payable at the time all of the Secured Debt is paid in full and discharged and (B) termination or expiration of all commitments to extend credit under all Credit Facilities the Indebtedness under which constitutes or would constitute Priority Lien Debt; (2) as to any Collateral, if consent to the release of such Collateral has been given by an Act of Secured Debtholders or, if such Collateral represents all or substantially all of the Collateral, consent to release of such Collateral has been given by the requisite percentage or number of holders of each Series of Secured Debt under the applicable Secured Debt Document and, in each case such release has become effective in accordance with such consent; (3) as to (i) any Collateral that is sold, transferred or otherwise disposed of or (ii) in the case where the release is to be granted in advance of any sales, transfers or other dispositions, any Collateral to be sold, transferred or otherwise disposed of, by the Company or any Canadian Guarantor in a transaction or other circumstance not prohibited by any of the Secured Debt Documents, at the time of such sale, transfer or other disposition or, in the case of any Collateral to be sold, transferred or otherwise disposed of, at the time specified for such release, to the extent of the interest sold, transferred or otherwise disposed of, or to be sold, transferred or otherwise disposed of; provided that, in the case where the release is to be granted in advance of any sales, transfers or other disposition, (x) such release will only become effective if such Collateral has a Fair Market Value of $5 million or less and the Fair Market Value of such Collateral, together with all other Collateral that has been subject to a release described in this proviso, does not exceed $25 million during any period of 12 consecutive months, (y) no Lien has or will be granted to any Person other than the Collateral Trustee in respect of such Collateral during the period between such release and the consummation of the sale, transfer or other disposition of such Collateral and (z) in the event that the consummation of the sale, transfer or other disposition of such Collateral does not take place (or a definitive binding agreement with respect to such sale, transfer or other disposition is not entered into) within 60 days of such release, the Lien of the Collateral Trustee will immediately and automatically be reinstated on such Collateral; (4) as to any Collateral consisting of a Pledged Power Project, if the Company's interest in such Pledged Power Project is transferred to a Restricted Subsidiary of the Company in a transaction not prohibited by any of the Secured Debt Documents; (5) as to any Collateral in connection with any abandonment, forfeiture, surrender or release of oil and gas assets, or a lease termination, not prohibited by any of the Secured Debt 29 Documents; and (6) as to any Excluded Assets upon request of the Company. In addition, in the case of a release of all Collateral owned by any Canadian Guarantor pursuant to the foregoing provisions, the Guarantee of such Canadian Guarantor will also be automatically released pursuant to the Security Documents. (b) The Collateral Trustee agrees for the benefit of the Company and the Canadian Guarantors that if the Collateral Trustee at any time receives: (i) An Officer's Certificate stating that: (A) (x) such officer has read Article 4 of this Agreement and understands the provisions and the definitions relating hereto, (y) such officer has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not the conditions precedent in this Agreement, if any, relating to the release of the Collateral have been complied with and (z) in the opinion of such officer, such conditions precedent, if any, have been complied with; (B) no Secured Debt Default shall have occurred or is continuing and, to the best of the signatory's knowledge after due inquiry, no event or condition shall have occurred which could reasonably be expected to result in a Secured Debt Default or will result from the release of such Lien and/or Guarantee, as applicable; and (C) for releases effected after the date of this Agreement, as to any release of oil and gas assets permitted pursuant to clause (3) or (5) of Section 4.1(a), that such release shall not adversely affect or impair the Lien of a Security Document with respect to any other portion of the Collateral; (ii) The proposed instrument or instruments releasing such Lien as to such property and/or Guarantee, as applicable, in recordable form, if applicable; (iii) an Opinion of Company Counsel to the effect that: (A) the conditions precedent, if any, in Section 4.1 of this Agreement to be satisfied with respect to the release of such Collateral have been complied with; and (B) with respect to all releases, that the instrument or instruments proposed to be executed will be effective solely to release the Lien of the Security Document as to the property described in such Officer's Certificate and/or the Guaranty described in such Officer's Certificate, as applicable (without requiring the Collateral Trustee to make any representation or warranty in respect thereof), without releasing or satisfying any obligation secured by such Lien 30 and/or guaranteed by such Guarantee, as applicable, and without imposing any obligation or liability upon the Collateral Trustee or any other Person; (iv) for releases effected after the date of this Agreement, the written confirmation of the Credit Agreement Agent and, for so long as the Term Loans shall be outstanding, the Term Loan Administrative Agent that, in its view, such release is permitted by Section 4.1(a); provided that each of the Credit Agreement Agent and the Term Loan Administrative Agent agree that as soon as practicable after receipt of any Officer's Certificate from the Company pursuant to Section 4.2 it will either provide (x) such written confirmation, (y) a written statement that such release is not permitted by Section 4.1(a) or (z) a request for further information regarding the proposed release from the Company; then the Collateral Trustee will execute (with such acknowledgements and/or notarizations as are required) and deliver such release to the Company on or before the later of (x) the date specified in such request for such release and (y) the fifth Business Day after the date of receipt of the items required by Section 4.1(b) by the Collateral Trustee. In the case of any release pursuant to clause (2) or (3) of Section 4.1(a), if the terms of any such sale, transfer or other disposition require the payment of the purchase price to be contemporaneous with the delivery of the applicable release, then, at the request of the Company, the Collateral Trustee shall either be present at the closing of such transaction or shall deliver the release under customary escrow arrangements that permit such contemporaneous payment and delivery of the release. 4.2. DELIVERY OF COPIES TO SECURED DEBT REPRESENTATIVES. The Company will deliver to each Secured Debt Representative a copy of each Officer's Certificate delivered to the Collateral Trustee pursuant to Section 4.1, together with copies of all documents delivered to the Collateral Trustee with such Officer's Certificate. The Secured Debt Representatives will not be obligated to take notice thereof or to act thereon, subject to Section 4.1(b)(iv). 4.3. COLLATERAL TRUSTEE NOT REQUIRED TO SERVE, FILE OR RECORD. The Collateral Trustee is not required to serve, file, register or record any instrument releasing or subordinating its security interest in any Collateral. ARTICLE 5. IMMUNITIES OF THE COLLATERAL TRUSTEE. 5.1. NO IMPLIED DUTY. The Collateral Trustee will not have any duties or responsibilities except those expressly assumed by it in this Agreement and the other Security Documents and shall not be required to take any action which is contrary to applicable law or any provision of this Agreement or the other Security Documents. 5.2. APPOINTMENT OF AGENTS AND ADVISORS. The Collateral Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or thorough agents, attorneys, accountants, appraisers or other experts or advisors as it may reasonably require and shall not be responsible for any misconduct or negligence on the part of any of them. 31 5.3. OTHER AGREEMENTS. The Collateral Trustee has accepted and is bound by the Security Documents executed by the Collateral Trustee as of the date of this Agreement and, subject to Article 4 and, as directed by an Act of Secured Debtholders, the Collateral Trustee may execute additional Security Documents delivered to it after the date of this Agreement, provided, however, that such additional Security Documents do not adversely affect the rights, privileges, benefits and immunities of the Collateral Trustee. The Collateral Trustee shall not otherwise be bound by, or be held obligated by, the provisions of any indenture or agreement governing Secured Debt. 5.4. SOLICITATION OF INSTRUCTIONS. (a) The Collateral Trustee may at any time solicit confirmatory instructions, in the form of an Act of Secured Debtholders or an order of a court of competent jurisdiction, as to any action which it may be requested or required to take, or which it may propose to take, in the performance of any of its obligations under this Agreement. (b) No direction given to the Collateral Trustee by an Act of Secured Debtholders which imposes, purports to impose or might reasonably be expected to impose upon the Collateral Trustee any obligation or liability not set forth in or arising under this Agreement and the other Security Documents accepted by the Collateral Trustee shall be binding upon the Collateral Trustee unless the Collateral Trustee elects, at its sole option, to accept such direction. 5.5. LIMITATION OF LIABILITY. The Collateral Trustee shall not be responsible or liable for any action taken or omitted to be taken by it hereunder or under any other Security Document, except for its own gross negligence or willful misconduct. 5.6. DOCUMENTS IN SATISFACTORY FORM. The Collateral Trustee shall be entitled to require that all agreements, certificates, opinions, instruments and other documents at any time submitted to it, including those expressly provided for in this Agreement, be delivered to it in a form and upon substantive provisions reasonably satisfactory to it. 5.7. ENTITLED TO RELY. The Collateral Trustee may conclusively rely upon any certificate, notice or other document (including any teletransmission) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons and need not investigate any fact or matter stated in any such document. The Collateral Trustee may seek and rely upon any judicial order or judgment, upon any advice, opinion or statement of legal counsel, independent consultants and other experts selected by it in good faith and upon any certification, instruction, notice or other writing delivered to it by the Company in compliance with the provisions of this Agreement or delivered to it by any Secured Debt Representative as to the Secured Debtholders for whom it acts, without being required to determine the authenticity thereof or the correctness of any fact stated therein or the propriety or validity of service thereof. The Collateral Trustee may act in reliance upon any instrument comporting with the provisions of this Agreement or any signature reasonably believed by it to be genuine and may assume that any Person purporting to give notice or receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. To the extent an Officer's Certificate or an Opinion of Company Counsel is required or permitted under this Agreement to be delivered to the Collateral Trustee 32 in respect of any matter, the Collateral Trustee may rely conclusively on such Officer's Certificate or Opinion of Company Counsel as to such matter. 5.8. SECURED DEBT DEFAULT. The Collateral Trustee shall not be required to inquire as to the occurrence or absence of any Secured Debt Default and shall not be affected by or required to act upon any notice or knowledge as to the occurrence of any Secured Debt Default unless and until it receives a Notice of an Actionable Default or a Responsible Officer of the Collateral Trustee has actual knowledge that an Actionable Default has occurred and is continuing. 5.9. ACTIONS BY COLLATERAL TRUSTEE. As to any matter not expressly provided for by this Agreement, the Collateral Trustee shall act or refrain from acting as directed by Act of Secured Debtholders and shall be fully protected if it does so. 5.10. SECURITY OR INDEMNITY IN FAVOR OF THE COLLATERAL TRUSTEE. The Collateral Trustee shall not be required to advance or expend any funds or otherwise incur any financial liability in the performance of its duties or the exercise of its powers or rights hereunder unless it has been provided with security or indemnity reasonably satisfactory to it against any and all liability or expense which may be incurred by it by reason of taking or continuing to take such action. 5.11. RIGHTS OF THE COLLATERAL TRUSTEE.(a) Notwithstanding anything to the contrary contained herein or in any of the other Security Documents, the Collateral Trustee shall be under no obligation to take any action which in its sole discretion, would subject the Collateral Trustee to personal or financial liability. (b) In the event there is any disagreement between the other parties to this Agreement or any of the other Security Documents resulting in adverse claims being made in connection with Collateral held by the Collateral Trustee and the terms of this Agreement or any of the other Security Documents do not unambiguously mandate the action the Collateral Trustee is to take or not to take in connection therewith under the circumstances then existing, or the Collateral Trustee is in doubt as to what action it is required to take or not to take, it shall be entitled to refrain from taking any action until directed otherwise in writing by a request signed jointly by the parties hereto entitled to give such direction or by order of a court of competent jurisdiction. 5.12. LIMITATIONS ON DUTY OF COLLATERAL TRUSTEE IN RESPECT OF COLLATERAL. (a) Beyond the exercise of reasonable care in the custody thereof, the Collateral Trustee shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to preservation of rights against prior parties or any other rights pertaining thereto and the Collateral Trustee shall not be responsible for filing any financing or continuation statements or recording any documents or instruments in any public office at any time or times or otherwise perfecting or maintaining the perfection of any security interest in the Collateral. The Collateral Trustee shall be deemed to have exercised reasonable care in the custody of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property and shall not be liable or responsible for any loss or diminution in the value of any of the Collateral, by reason of the act 33 or omission of any carrier, forwarding agency or other agent or bailee selected by the Collateral Trustee in good faith. (b) The Collateral Trustee shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Liens in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder, except to the extent such action or omission constitutes gross negligence, bad faith or willful misconduct on the part of the Collateral Trustee, for the validity or sufficiency of the Collateral or any agreement or assignment contained therein, for the validity of the title of the Company to the Collateral, for insuring the Collateral or for the payment of taxes, charges, assessments or Liens upon the Collateral or otherwise as to the maintenance of the Collateral. The Collateral Trustee hereby disclaims any representation or warranty to the present and future holders of the Secured Obligations concerning the perfection of the Liens and security interests granted hereunder or in the value of any of the Collateral. 5.13. ASSUMPTION OF RIGHTS, NOT ASSUMPTION OF DUTIES. Anything herein contained to the contrary notwithstanding, (a) each of the parties thereto shall remain liable under each of the Security Documents to the extent set forth therein to perform all of their respective duties and obligations thereunder to the same extent as if this Agreement had not be executed, (b) the exercise by the Collateral Trustee of any of its rights, remedies or powers hereunder shall not release such parties from any of their respective duties or obligations under the Security Documents and (c) the Collateral Trustee shall not be obligated to perform any of the obligations or duties of any of the parties thereunder. 5.14. NO LIABILITY FOR CLEAN UP OF HAZARDOUS MATERIALS. In the event that the Collateral Trustee is required to acquire title to an asset for any reason, or take any managerial action of any kind in regard thereto, in order to carry out any fiduciary or trust obligation for the benefit of another, which in the Collateral Trustee's sole discretion may cause the Collateral Trustee to be considered an "owner or operator" under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. ss.9601, et seq., or otherwise cause the Collateral Trustee to incur liability under CERCLA or any other federal, state or local law, the Collateral Trustee reserves the right to, instead of taking such action, either resign as Collateral Trustee or arrange for the transfer of the title or control of the asset to a court appointed receiver. The Collateral Trustee shall not be liable to any person for any environmental claims or contribution actions under any federal, state or local law, rule or regulation by reason of the Collateral Trustee's actions and conduct as authorized, empowered and directed hereunder or relating to the discharge, release or threatened release of hazardous materials into the environment. ARTICLE 6. RESIGNATION AND REMOVAL OF THE COLLATERAL TRUSTEE. 6.1. RESIGNATION OR REMOVAL OF COLLATERAL TRUSTEE. Subject to the appointment of a successor Collateral Trustee as provided in Section 6.2 and the acceptance of such appointment by the successor Collateral Trustee, (a) the Collateral Trustee may resign at any time by giving not less than 30 days' notice of resignation to each Secured Debt Representative and the 34 Company and (b) the Collateral Trustee may be removed at any time, with or without cause, by an Act of Secured Debtholders. 6.2. APPOINTMENT OF SUCCESSOR COLLATERAL TRUSTEE. Upon any such resignation or removal, a successor Collateral Trustee may be appointed by the Secured Debt Representatives, acting jointly, or by an Act of Secured Debtholders. If no successor Collateral Trustee shall have been so appointed and shall have accepted such appointment within 30 days after the predecessor Collateral Trustee gave notice of resignation or was removed, the retiring Collateral Trustee may (at the expense of the Company), at its option, appoint a successor Collateral Trustee, or petition a court of competent jurisdiction for appointment of a successor Collateral Trustee, which shall be a bank or trust company (a) authorized to exercise corporate trust powers, (b) having a combined capital and surplus of at least $50,000,000 and (c) maintaining an office in New York, New York. The Collateral Trustee shall fulfill its obligations hereunder until a successor Collateral Trustee meeting the requirements of this Section 6.2 has accepted its appointment as Collateral Trustee and the provisions of Section 6.3 have been satisfied. 6.3. SUCCESSION. When the Person so appointed as successor Collateral Trustee accepts such appointment: (i) such Person shall succeed to and become vested with all the rights, powers, privileges and duties of the predecessor Collateral Trustee, and the predecessor Collateral Trustee shall be discharged from its duties and obligations hereunder, and (ii) the predecessor Collateral Trustee shall promptly transfer all Liens and collateral security and other property of the Trust Estate within its possession or control to the possession or control of the successor Collateral Trustee and shall execute instruments and assignments as may be necessary or desirable or reasonably requested by the successor Collateral Trustee to transfer to the successor Collateral Trustee all Liens, interests, rights, powers and remedies of the predecessor Collateral Trustee in respect of the Security Documents or the Trust Estate. Thereafter the predecessor Collateral Trustee shall remain entitled to enforce the immunities granted to it in Article 5 and the provisions of Sections 7.7 and 7.8. 6.4. LIMITATION. The Collateral Trustee shall not be the same Person as, or an Affiliate of, any Secured Debt Representative. If the Collateral Trustee at any time becomes an Affiliate of any Secured Debt Representative, it shall promptly resign subject to appointment of a successor Collateral Trustee and acceptance of such appointment as provided in this Article 6. ARTICLE 7. MISCELLANEOUS PROVISIONS. 7.1. AMENDMENT. No amendment or supplement to the provisions of this Agreement or any other Security Document (to which the Collateral Trustee is a party) will be effective without the approval of the Collateral Trustee acting as directed by an Act of Secured Debtholders and, in the case of this Agreement, the signature of each other party to this Agreement, except that: 35 (1) any amendment or supplement that has the effect solely of adding or maintaining Collateral, securing additional Secured Debt that was otherwise permitted by the terms of the Secured Debt Documents to be secured by the Collateral or preserving or perfecting the Liens thereon or the rights of the Collateral Trustee therein, or adding or maintaining any Guarantee, will become effective when executed and delivered by the Company or any other Obligor party thereto and the Collateral Trustee as directed by the Company or such other Obligor; (2) no amendment or supplement that reduces, impairs or adversely affects the right of any Secured Debtholder (A) to vote its outstanding Secured Debt as to any matter described as subject to an Act of Secured Debtholders, an Act of Instructing Debtholders, an act of the Required Priority Debtholders or an act of the Required Parity Debtholders (or amends the provisions of this clause (2) or the definition of "Act of Secured Debtholders," "Act of Instructing Debtholders," "Required Priority Debtholders," "Required Parity Debtholders," "Priority Foreclosure Event" or "Actionable Default"), (B) to share in the order of application described in Section 3.4 in the proceeds of enforcement of or realization on any Collateral or any Guarantee of the Canadian Guarantors, in each case that has not been released in accordance with the provisions described in Section 4.1 or (C) to require that Liens securing Secured Obligations be released only as set forth in the provisions described in Section 4.1 will become effective without the additional consent of such holder; and (3) no amendment or supplement that imposes any obligation upon the Collateral Trustee or any Secured Debt Representative or adversely affects the rights of the Collateral Trustee or any Secured Debt Representative, respectively, in its individual capacity will become effective without the consent of the Collateral Trustee or such Secured Debt Representative, respectively. The Collateral Trustee shall not enter into any such amendment or supplement unless it shall have received an Officer's Certificate to the effect that such amendment or supplement will not result in a breach of any provision or covenant contained in any of the Secured Debt Documents. Prior to executing any amendment or supplement pursuant to this Section 7.1, the Collateral Trustee shall be entitled to receive an Opinion of Company Counsel to the effect that the execution of such document is authorized or permitted hereunder, and with respect to amendments adding Collateral, an Opinion of Company Counsel addressing customary perfection matters with respect to such additional Collateral. Any amendment or supplement to the provisions of the Security Documents that releases Collateral or any Guarantee of the Canadian Guarantors will be effective only in accordance with the requirements set forth in Section 4.1. 7.2. FURTHER ASSURANCES. The Company and each of the Canadian Guarantors will do or cause to be done all acts and things which may be required, or which the Collateral Trustee from time to time may reasonably request, to assure and confirm that the Collateral Trustee holds, for the benefit of the holders of Secured Obligations, duly created, enforceable and perfected Liens upon the Collateral, including after-acquired Collateral, subject, in the case of Parity Lien Obligations, 36 only to Priority Liens securing Priority Lien Obligations up to the Priority Lien Cap and other Permitted Prior Liens, and duly created and enforceable Guarantees of the Canadian Guarantors, in each case as contemplated by the Secured Debt Documents. The Company and each of the Canadian Guarantors will promptly execute, acknowledge and deliver such security documents, instruments, certificates, notices and other documents, and take such other actions as shall be reasonably required, or which the Collateral Trustee may reasonably request, to create, perfect, protect, assure or enforce the Liens and benefits intended to be conferred, and to create, protect, assure or enforce the Guarantees of the Canadian Guarantors, in each case as contemplated by the Secured Debt Documents for the benefit of the holders of Secured Obligations. Upon the filing of continuation statements (which is expected to be five years from the date hereof and in five year intervals thereafter), the Company shall promptly deliver to the Collateral Trustee an Opinion of Company Counsel reasonably satisfactory to the Collateral Trustee as to the continued perfection of the Liens and security interests created by the Security documents under the Uniform Commercial Code of the State of New York. 7.3. SUCCESSORS AND ASSIGNS. (a) Except as provided in Section 5.2, the Person acting as Collateral Trustee may not, in its individual capacity, delegate any of its duties or assign any of its rights hereunder, and any attempted delegation or assignment of any such duties or rights shall be void. All obligations of the Collateral Trustee hereunder shall inure to the sole and exclusive benefit of, and be enforceable by, each Secured Debt Representative and each present and future holder of Secured Obligations, each of whom shall be entitled to enforce this Agreement as a third party beneficiary hereof, and all of their respective successors and assigns. (b) Neither the Company nor any of the Canadian Guarantors may delegate any of its duties or assign any of its rights hereunder, and any attempted delegation or assignment of any such duties or rights shall be void. All obligations of the Company and the Canadian Guarantors hereunder shall inure to the sole and exclusive benefit of, and be enforceable by, the Collateral Trustee, each Secured Debt Representative and each present and future holder of Secured Obligations, each of whom shall be entitled to enforce this Agreement as a third party beneficiary hereof, and all of their respective successors and assigns. 7.4. DELAY AND WAIVER. No failure to exercise, no course of dealing with respect to the exercise of, and no delay in exercising, any right, power or remedy arising under this Agreement or any of the other Security Documents shall impair any such right, power or remedy or operate as a waiver thereof. No single or partial exercise of any such right, power or remedy shall preclude any other or future exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 7.5. NOTICES. Any communications, including notices and instructions, between the parties hereto or notices provided herein to be given may be given to the following addresses: 37 If to the Collateral Trustee: The Bank of New York 101 Barclay Street Floor 8 West New York, NY 10286 Attention: Corporate Trust Administration If to the Company or any Canadian Guarantor: Calpine Corporation 50 West San Fernando Street San Jose, CA 95113 Attention: General Counsel If to the Credit Agreement Agent: Scotia Capital One Liberty Plaza New York, NY 10006 Attention: Denis P. O'Meara With a copy to: The Bank of Nova Scotia 600 Peachtree Street N.E. Suite 2700 Atlanta, GA 30308 Attention: Hilma Gabbidon If to the 2007 Trustee: Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Attention: James McGinley If to the 2010 Trustee: Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Attention: James McGinley If to the 2013 Trustee: Wilmington Trust Company 520 Madison Avenue, 33rd Floor New York, NY 10022 Attention: James McGinley 38 If to the Term Loan Administrative Agent: Goldman Sachs Credit Partners L.P. 85 Broad Street New York, NY 10004 Attention: Pedro Ramirez and if to any other Secured Debt Representative, to such address as it may specify by written notice to the parties named above. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. Each party may change its address for notice hereunder to any other location within the continental United States by giving written notice thereof to the other parties as set forth in this Section 7.5. 7.6. ENTIRE AGREEMENT. This Agreement states the complete agreement of the parties relating to the undertaking of the Collateral Trustee set forth herein and supersedes all oral negotiations and prior writings in respect of such undertaking. 7.7. COMPENSATION; EXPENSES. Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to pay, promptly upon demand: (i) such compensation to the Collateral Trustee and its agents, co-agents and sub-agents as the Company and the Collateral Trustee shall agree in writing from time to time; (ii) all reasonable costs and expenses incurred in the preparation, execution, delivery, filing, recordation, administration or enforcement of this Agreement or any other Security Document or any consent, amendment, waiver or other modification relating thereto; (iii) all reasonable fees, expenses and disbursements of legal counsel and any auditors, accountants, consultants or appraisers or other professional advisors and agents engaged by the Collateral Trustee or any Secured Debt Representative incurred in connection with the negotiation, preparation, closing, administration, performance or enforcement of this Agreement and the other Security Documents or any consent, amendment, waiver or other modification relating thereto and any other document or matter requested by the Company; (iv) all reasonable costs and expenses of creating, perfecting, releasing or enforcing the Collateral Trustee's security interests in the Collateral, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums; (v) all other reasonable costs and expenses incurred by the Collateral Trustee or any Secured Debt Representative in connection with the negotiation, 39 preparation and execution of the Security Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby or the exercise of rights or performance of obligations by the Collateral Trustee thereunder; and (vi) after the occurrence of any Secured Debt Default, all reasonable costs and expenses incurred by the Collateral Trustee or any Secured Debt Representative in connection with the preservation, collection, foreclosure or enforcement of the Security Documents or any interest, right, power or remedy of the Collateral Trustee or in connection with the collection or enforcement of any of the Secured Obligations or the proof, protection, administration or resolution of any claim based upon the Secured Obligations in any Bankruptcy Case or Insolvency Proceeding, including all reasonable fees and disbursements of attorneys, accountants, auditors, consultants, appraisers and other professionals engaged by the Collateral Trustee or the Secured Debt Representatives. The agreements in this Section 7.7 shall survive repayment of all other Secured Obligations and the removal or resignation of the Collateral Trustee. 7.8. INDEMNITY. (a) Each of the Company and the Canadian Guarantors jointly and severally agrees to defend (subject to Indemnitees' selection of counsel; it being understood that the holders of Priority Lien Debt and the holders of all Parity Lien Debt shall each be entitled to select a single transaction counsel and local counsel), indemnify, pay and hold harmless, the Collateral Trustee, each Secured Debt Representative, each Secured Debtholder and each of their respective Affiliates and each and all of the directors, officers, partners, trustees, employees, attorneys and agents, and (in each case) their respective heirs, representatives, successors and assigns (each of the foregoing, an "Indemnitee") from and against any and all Indemnified Liabilities; provided, no Indemnitee shall be entitled to indemnification hereunder with respect to any Indemnified Liability to the extent such Indemnified Liability is found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. (b) All amounts due under Section 7.8(a) shall be payable upon demand. (c) To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in Section 7.8(a) may be unenforceable in whole or in part because they are violative of any law or public policy, the Company and the Canadian Guarantors shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. (d) Neither the Company nor any Canadian Guarantor shall ever assert any claim against any Indemnitee, on any theory of liability, for any lost profits or special, indirect or consequential damages or (to the fullest extent a claim for punitive damages may lawfully be waived) any punitive damages arising out of, in connection with, or as a result of, this Agreement or any other Secured Debt Document or any agreement or instrument or transaction contemplated hereby or relating in any respect to any Indemnified Liability, and each of the 40 Company and the Canadian Guarantors hereby forever waives, releases and agrees not to sue upon any claim for any such lost profits or special, indirect, consequential or (to the fullest extent lawful) punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor. (e) The agreements in this Section 7.8 shall survive repayment of all other Secured Obligations and the removal or resignation of the Collateral Trustee. 7.9. SEVERABILITY. If any provision of this Agreement is invalid, illegal or unenforceable in any respect or in any jurisdiction, the validity, legality and enforceability of such provision in all other respects and of all remaining provisions, and of such provision in all other jurisdictions, shall not in any way be affected or impaired thereby. 7.10. HEADINGS. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect. 7.11. OBLIGATIONS SECURED. All obligations of the Company and the Canadian Guarantors set forth in or arising under this Agreement shall be Secured Obligations and are secured by all Liens granted by the Security Documents. 7.12. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. 7.13. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PARTY HERETO, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 7.5; (d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (e) AGREES EACH PARTY HERETO RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY PARTY IN THE COURTS OF ANY OTHER JURISDICTION. 7.14. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR THE INTENTS AND PURPOSES OF THE OTHER SECURITY DOCUMENTS. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE OTHER SECURITY DOCUMENTS, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, 41 BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH PARTY HERETO HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH PARTY HERETO WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 7.14 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF OR TO THIS AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING THERETO. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 7.15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 7.16. EFFECTIVENESS. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by each party of written or telephonic notification of such execution and authorization of delivery thereof. 7.17. ADDITIONAL OBLIGORS. The Company will cause each Subsidiary of the Company that becomes an Obligor or is required by any Secured Debt Document to become a party to this Agreement to become party to this Agreement, for all purposes of this Agreement, by causing such Subsidiary to execute and deliver to the parties hereto a Collateral Trust Joinder, whereupon such Subsidiary shall be bound by the terms hereof to the same extent as if it had executed and delivered this Agreement as of the date hereof. 7.18. APPOINTMENT OF SUB-AGENT FOR CONTROL AGREEMENTS. (a) The Collateral Trustee hereby appoints the Credit Agreement Agent as the agent of the Collateral Trustee with power and authority to accept, hold, administer and enforce, for the benefit and subject to the direction of the Collateral Trustee, all interests, rights and remedies under any and all existing and future Control Agreements maintained in the name of the Credit Agreement Agent. (b) The Credit Agreement Agent accepts its appointment as agent for the Collateral Trustee in respect of all Control Agreements which the Credit Agreement Agent may elect to maintain in its name, but without any obligation whatsoever to accept or maintain any Control Agreement. The Credit Agreement Agent may at any time resign as agent for the Collateral Trustee, subject to delivery to the Collateral Trustee of an instrument sufficient, in the reasonable judgment of the Collateral Trustee, to permit the Collateral Trustee to enforce directly, in its own name, all Control Agreements then maintained in the name of the Credit Agreement Agent. 42 (c) If the Company or any other Obligor at any time maintains deposits in a deposit account that are not subject to a Control Agreement maintained in the name of the Credit Agreement Agent while acting as agent for the Collateral Trustee, the Company or such Obligor will cause the depositary bank promptly to execute and deliver to the Collateral Trustee a Control Agreement over such deposit account and deposits therein in customary form. No such Control Agreement will in any event be required, however, as to deposits in deposit accounts consisting of Excluded Assets. (d) Neither the Company nor any other Obligor will be required to deliver to the Collateral Trustee a Control Agreement for any commodity account or commodity contracts carried therein or for any securities account or financial assets credited thereto, so long as the Collateral Trustee's Liens in such securities account and financial assets are and remain otherwise duly perfected. 7.19. TRANSFER OF THE EXISTING SECURITY DOCUMENTS. (a) The Existing Collateral Agent hereby assigns and transfers to the Collateral Trustee, unconditionally, irrevocably and forever, any and all of its Liens, claims, interests, rights, powers and remedies under the Existing Security Documents, effective without further act or condition immediately upon the execution and delivery of this Agreement. Each transfer of Existing Security Documents is made by the Existing Collateral Agent without any representation or warranty whatsoever, except the warranty that it has not assigned or transferred whatever interest or rights (if any) it may have been granted thereby. (b) Promptly upon execution of this Agreement, the Existing Collateral Agent will execute and deliver (and if necessary acknowledge in recordable form) each of the instruments of transfer for the Existing Security Documents set forth on Schedule 2. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Collateral Trust Agreement to be executed by their respective officers or representatives hereunto duly authorized as of the day and year first above written. THE COMPANY: CALPINE CORPORATION By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: 43 THE CANADIAN GUARANTORS: QUINTANA MINERALS (USA), INC. By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: JOQ CANADA, INC. By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: QUINTANA CANADA HOLDINGS LLC By: /s/ Michael Thomas ----------------------------------------- Name: Michael Thomas Title: 44 THE CREDIT AGREEMENT AGENT: THE BANK OF NOVA SCOTIA, as Agent under the Credit Agreement By: /s/ Denis P. O'Meara ----------------------------------------- Name: Denis P. O'Meara Title: Managing Director 45 THE 2007 TRUSTEE: WILMINGTON TRUST COMPANY, as Trustee By: /s/ Michael W. Diaz ----------------------------------------- Name: Michael W. Diaz Title: Authorized Signer THE 2010 TRUSTEE: WILMINGTON TRUST COMPANY, as Trustee By: /s/ Michael W. Diaz ----------------------------------------- Name: Michael W. Diaz Title: Authorized Signer THE 2013 TRUSTEE: WILMINGTON TRUST COMPANY, as Trustee By: /s/ Michael W. Diaz ----------------------------------------- Name: Michael W. Diaz Title: Authorized Signer 46 THE TERM LOAN ADMINISTRATIVE AGENT: GOLDMAN SACHS CREDIT PARTNERS L.P., as Term Loan Administrative Agent By: /s/ R. T. Wagner ------------------------------------------ Name: Robert Wagner Title: Authorized Signatory 47 THE COLLATERAL TRUSTEE: THE BANK OF NEW YORK, as Collateral Trustee By: /s/ Michael Pitfick ----------------------------------------- Name: Michael Pitfick Title: Assistant Vice President 48 EXHIBIT A COLLATERAL TRUST JOINDER The undersigned, _____________________, a _______________, hereby agrees to become party to the Collateral Trust Agreement dated as of [______], 2003, by and among Calpine Corporation, a Delaware corporation, [________________], as Collateral Agent under the Credit Agreement (as defined therein), Wilmington Trust Company, as Trustee under the 2007 Indenture (as defined therein), Wilmington Trust Company, as Trustee under the 2010 Indenture (as defined therein), Wilmington Trust Company, as Trustee under the 2013 Indenture (as defined therein), Goldman Sachs Credit Partners L.P., as Term Loan Administrative Agent under the Term Loan Agreement (as defined therein), and The Bank of New York, as Collateral Trustee, for all purposes thereof on the terms set forth therein, and to be bound by the terms of said Collateral Trust Agreement as fully as if the undersigned had executed and delivered said Collateral Trust Agreement as of the date thereof. The provisions of Article 7 of said Collateral Trust Agreement shall apply with like effect to this Joinder. IN WITNESS WHEREOF, the undersigned has executed and delivered this Joinder as of ___________________, 20____. [_____________________________] By:____________________________ Name: Title: EXHIBIT B Recording requested by and when recorded mail to: The Bank of New York 101 Barclay Street, Floor 8 West New York, New York 10286 Attn: Corporate Trust Administration -------------------------------------------------- NOTICE OF ADDITIONAL ADVANCE -------------------------------------------------- CALPINE CORPORATION a Delaware corporation (Taxpayer I.D. No. 77-0212977), as Mortgagor [and [Trustees, if applicable, as Trustee] in favor of THE BANK OF NEW YORK, (Taxpayer I.D. No. 13-5160382), in its capacity as Collateral Trustee, as Beneficiary Dated as of [_______], 20__ 50 This NOTICE OF ADDITIONAL ADVANCE, dated as of [_______], 20__ (this "Notice"), is made by CALPINE CORPORATION (the "Company"), a Delaware corporation, whose address is 1000 Louisiana Street, Suite 800 Houston, TX 77002, as trustor or mortgagor, in favor of [Trustees, if applicable, as the "Trustee", and] THE BANK OF NEW YORK, a national banking association whose address is 101 Barclay Street, New York, New York 10286, as Collateral Trustee under the Collateral Trust Agreement and as Beneficiary under the Mortgages, as "Beneficiary" hereunder. This Notice relates to that certain [describe existing mortgages - will need a Notice of Additional Advance to be recorded in each county in which the prior mortgages were recorded] (as the same may have been, from time to time, supplemented and/or amended, collectively the "Mortgages") by the Company in favor of [the Trustee and] Beneficiary which (along with any supplements and/or amendments and/or prior Notices of Additional Advance) has been recorded and filed in the public records as set forth on Schedule I hereto. Capitalized terms used, but not otherwise defined herein, shall have the meanings assigned to such terms in the Collateral Trust Agreement dated as of July 16, 2003, among the Company, Beneficiary and others (the "Collateral Trust Agreement"). The Mortgages secure, among other things, (a) Priority Lien Debt pursuant to the Amended and Restated Credit Agreement in an aggregate amount of up to $700,000,000; (b) Parity Lien Debt pursuant to the 2007 Indenture, 2010 Indenture, 2013 Indenture and Term Loan Agreement in an aggregate amount of up to $3,500,000,000, and (iii) any future debt constituting Priority Lien Debt or Parity Lien Debt up to an aggregate amount of Secured Debt of $4,200,000,000. This Notice provides notice that the Company has agreed to issue or incur New Secured Debt as either Priority Lien Debt or Parity Lien Debt. The Company represents and warrants to each of the Secured Debtholders and the Beneficiary that the additional debt, when issued, shall constitute New Secured Debt and that the New Secured Debt, together will all of the obligations of the Company under the Secured Debt Documents executed by the Company in connection therewith, shall be secured in accordance with the terms of the Mortgages, together with all other Secured Debt and obligations secured thereby, without any preference, distinction or priority as to lien or otherwise of any New Secured Debt over any other Secured Debt by reason of any priority in time of the issuance, sale or negotiation thereof, or by reason of the purpose of the issuance, sale or negotiation thereof, or otherwise, except as otherwise expressly provided in the Mortgages. This Notice shall not constitute an amendment or modification of the Mortgages or any other Secured Debt Document or the giving by the Beneficiary of any consent, waiver or approval under the Mortgages or any other Secured Debt Document, and no right of the holders of any Secured Debt shall be affected hereby. The Company hereby affirms and agrees that the Mortgages secure the full payment and performance of each and every obligation stated therein to be secured thereby, and continues to be effective as, and to constitute, a first and prior lien and charge on the Mortgaged Property to the full extent of all obligations secured thereby in accordance with and subject to the terms thereof. Solely for the purpose of such affirmation of the effect of the Mortgages, the Company does hereby re-grant, re-bargain, re-sell, re-warrant, re-alienate, re-remise, re-release, re-convey, re-assign, re-transfer, re-mortgage, re-hypothecate, re-pledge, re-set over and re-confirm, WITH POWER OF SALE, [if applicable, to the Trustee] for the benefit and security of the Beneficiary, the Mortgaged Property, in accordance with and subject to the terms of the Mortgages. The Company agrees that this Notice shall not prejudice any present or future rights, remedies, benefits or powers belonging or accruing to the Beneficiary under the terms of the Mortgages. In the event of any conflict between the terms of the Mortgages and the provisions of this Notice, the terms of the Mortgages shall control. All certifications, representations, warranties and covenants of the Company herein shall apply to and bind the heirs, administrators, executors, legal representatives, successors and assigns of the Company and inure to the benefit of the successors in interest of the Beneficiary. 2 IN WITNESS WHEREOF, the Company has executed this Notice effective as of the date first set forth above. CALPINE CORPORATION, a Delaware corporation By: ________________________________________ Title: _____________________________________ Printed Name: ______________________________ ATTEST: _________________________ Printed Name: The name and mailing address of Mortgagor is: Calpine Corporation 1000 Louisiana Street, Suite 800 Houston, TX 77002 3 SCHEDULE I 4 EX-10.26 18 f92357exv10w26.txt EXHIBIT 10.26 Exhibit 10.26 MULTISTATE FORM - -------------------------------------------------------------------------------- AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING FROM CALPINE CORPORATION, a Delaware corporation (Taxpayer I.D. No. 77-0212977), Trustor and Mortgagor TO DENIS O'MEARA, Trustee AND JAMES TRIMBLE, Trustee AND THE BANK OF NEW YORK, not in its individual capacity but solely as Collateral Trustee, (Taxpayer I.D. No. 13-5160382) as Beneficiary Dated as of July 16, 2003 - -------------------------------------------------------------------------------- "THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS." "THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES." "THOSE PORTIONS OF THE MORTGAGED PROPERTY WHICH ARE AS-EXTRACTED COLLATERAL (INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO, WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS DESCRIBED IN EXHIBIT A HERETO." "SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE." THIS INSTRUMENT WAS PREPARED BY AND WHEN RECORDED AND/OR FILED RETURN TO: MAYER, BROWN, ROWE & MAW LLP 700 Louisiana Street Suite 3600 Houston, Texas 77002 Attn: Kevin L. Shaw, Esq. AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING THIS AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation ("MORTGAGOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to DENIS O'MEARA and JAMES TRIMBLE (whether one or more, collectively called "TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among Mortgagor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Mortgage" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. ARTICLE I. RECITALS AND DEFINITIONS 1.1 Mortgagor has heretofore executed and delivered to The Bank of Nova Scotia, for itself and as agent for the Lender Parties (together with its successors in such capacity, the "CREDIT AGREEMENT AGENT") and John Quick (as predecessor-in-interest to Denis O'Meara) and Kemp Leonard (as predecessor-in-interest to James Trimble), as Trustees, that certain mortgage or deed of trust, dated as of May 1, 2002, as supplemented and amended prior to the date hereof (as so supplemented and amended, herein called the "EXISTING MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2002 LENDERS") pursuant to the terms of that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same may be amended, modified or supplemented from time to time, called the "EXISTING 2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $1,600,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and delivered to the Existing 2002 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002 Loan Notes being payable to the order of the Existing 2002 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorneys' fees and acceleration of maturity in the event of default, as therein set forth; and (ii) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2000 LENDERS", and together with the Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms -1- of that certain Second Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the same may be amended, modified, or supplemented from time to time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing 2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2000 Lenders under the Existing 2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing 2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorney's fees and acceleration of maturity in the event of default, as therein set forth. 1.2 The Existing Mortgage, together with other mortgages and deeds of trust (a) have been filed and recorded, among other places, as set forth in Schedule I hereto; (b) have been supplemented and amended by various instruments that have been filed and recorded, among other places, as set forth in Schedule II hereto; and (c) have been amended and certain items of property mortgaged thereby have been released by various instruments that have been filed and recorded, among other places, as set forth in Schedule III hereto. 1.3 Mortgagor, the Existing Lenders and the Credit Agreement Agent are, (i) terminating the commitments under the Existing 2000 Credit Agreement, and (ii) amending and restating the Existing 2002 Credit Agreement (as so amended and restated, and as the same may, from time to time hereafter, be amended, supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT AGREEMENT". 1.4 Mortgagor is also (a) issuing $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing $1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing $750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and -2- Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the borrowing of the Term Loans will be used to refinance a portion of the loans and other indebtedness outstanding under the Existing Credit Agreements. 1.5 As permitted pursuant to the Secured Debt Documents, Mortgagor may incur future debt which could, together with the obligations under the Amended and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future debt which could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Mortgagor intends to secure the Indebtedness, including its obligations (a) under the Amended and Restated Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, with liens and security interests in, among other collateral, the Mortgaged Property under the Existing Mortgage, as contemplated in the Collateral Trust Agreement. 1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment of Liens of even date herewith, the Credit Agreement Agent has assigned to Beneficiary, all of the Credit Agreement Agent's right, title and interest in and to, and its interest as beneficiary under, the Existing Mortgage. This Mortgage amends and restates the Existing Mortgage. The Collateral Trust Agreement sets forth the terms on which the Collateral Trustee, as trustee for the present and future holders of the Indebtedness, will receive, hold, maintain, administer, maintain, enforce and distribute this Mortgage and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof. 1.7 For all purposes of this Mortgage, unless the context otherwise requires: A. "Actionable Default" is defined in the Collateral Trust Agreement. B. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan (as defined under ERISA)). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. -3- C. "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. D. "Default Interest Rate" means the lesser of (a) ten percent (10%), and (b) the Maximum Lawful Rate. E. "Event of Default" means an Actionable Default. F. "Environmental Laws" means any and all present and future Applicable Laws issued, promulgated or entered thereunder relating to pollution or protection of the environment, including laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. G. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. H. "Hedging Agreements" means: (a) interest rate swap agreements, basis swap agreements, interest rate cap agreements, forward rate agreements, interest rate floor agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates, and (b) forward contracts, options, futures contracts, futures options, commodity swaps, commodity options, commodity collars, commodity caps, commodity floors and all other agreements or arrangements designed to protect such Person against fluctuations in the price of commodities. I. "Hedging Obligations" means with respect to any Person, all liabilities (including without limitation obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement. -4- J. "Hydrocarbons" means collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. K. "Indebtedness" shall have the meaning set forth in Section 2.2 of this Mortgage. L. "Indemnification Claim" is defined in Section 4.6(a) of this Mortgage. M. "Indemnified Person" is defined in Section 3.10(c) of this Mortgage. N. "Joint Operating Agreements" shall mean, with respect to the lands described in Exhibit A, the respective operating agreement burdening the lands described in Exhibit A. O. "lands described in Exhibit A" shall include the real property or other interest in any lands which are either described in Exhibit A attached hereto or the description of which is incorporated in Exhibit A by reference to an instrument or document containing in, or referring to, such a description, and shall also include any lands now or hereafter unitized or pooled with lands which are either described in Exhibit A or the description of which is incorporated in Exhibit A by reference and Fixtures and all rights, titles and interests appurtenant thereto. References to Exhibit A shall include, where applicable, Exhibit A-1 as well. P. "Leases" means any and all leases (including without limitation oil and gas leases and oil, gas and other minerals leases), surface leases or easements, subleases, licenses, concessions, operating rights or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to explore, use, lease, license, possess, produce, process, store and transport Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged Property, together with all amendments, modifications, extensions and renewals thereof. Q. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Mortgagor, or the Mortgaged Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Mortgagor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Mortgagor, or the Mortgaged Property may be bound and (v) any and all -5- restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Mortgaged Property. R. "Losses" is defined in Section 3.10(c) of this Mortgage. S. "Maximum Lawful Rate" means the maximum nonusurious rate of interest that may be received, charged or contracted for under Applicable Law from time to time in effect. T. "Mortgaged Property" means the properties, rights and interests hereinafter described in Section 1.8 and defined as the Mortgaged Property. U. "Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Secured Debt Documents. V. "oil and gas leases" shall include oil, gas and mineral leases, subleases and assignments thereof, operating rights, and shall also include subleases and assignments of operating rights. W. "Operating Equipment" means all surface or subsurface machinery, goods, equipment, fixtures, inventory, facilities, supplies or other property of whatsoever kind or nature (excluding drilling rigs, trucks, automotive equipment or other property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on or under any of the lands described in Exhibit A which are useful for the production, gathering, treatment, processing, storage or transportation of Hydrocarbons (together with all accessions, additions and attachments to any thereof), including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, tubular goods, rods, pumping units and engines, christmas trees, platforms, derricks, separators, compressors, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and injection), steam generation and injection equipment and systems, power plants, poles, lines, transformers, starters and controllers, supervisory control and data acquisition systems, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading docks, loading racks and shipping facilities. X. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. -6- Y. "Parity Lien Debt" is defined in the Collateral Trust Agreement. Z. "Parity Lien Documents" is defined in the Collateral Trust Agreement. AA. "Parity Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Parity Lien Documents. BB. "Permits" means all authorizations, approvals, permits, variances, land use entitlements, consents, licenses, franchises and agreements issued by or entered into with any Governmental Authority now or hereafter required for all stages of exploration, developing, operating, and plugging and abandoning oil and gas wells (including, without limitation, those shown on Exhibit A) on all or any part of the lands described in Exhibit A (or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in the lands described in Exhibit A). CC. "Permitted Encumbrances" means the outstanding liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters as permitted by and defined in the Secured Debt Documents. DD. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. EE. "Personalty" means all of the right, title and interest of Mortgagor now owned or hereafter acquired in and to all furniture, furnishings, Equipment, machinery, Goods, General Intangibles, money, Accounts, receivables, Contract Rights, Inventory, all refundable, returnable or reimbursable fees, deposits or other funds or evidences of credit or indebtedness deposited by or on behalf of Mortgagor with any Governmental Authority, agencies, boards, corporations, providers of utility services, public or private, including specifically, but without limitation, all refundable, returnable or reimbursable tap fees, utility deposits, commitment fees and development costs, and all other personal property (other than the Fixtures) of any kind or character as defined in and subject to the provisions of Article 9 of the Uniform Commercial Code, now or hereafter located upon, within or about, or used in connection with, the lands described in Exhibit A together with all accessories, replacements and substitutions thereto or therefor and the Proceeds thereof. FF. "Priority Lien Debt" is defined in the Collateral Trust Agreement. -7- GG. "Priority Lien Documents" is defined in the Collateral Trust Agreement. HH. "Priority Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Priority Lien Documents. II. "Production Sale Contracts" means contracts now in effect, or hereafter entered into by Mortgagor, or entered into by Mortgagor's predecessors in interest, for the sale, purchase, exchange, gathering, transportation, treating or processing of Hydrocarbons produced from the lands described in Exhibit A. JJ. "Rents and Revenues" means all of the rents, revenues, income, proceeds, profits and other benefits paid or payable by parties to the Leases other than Mortgagor for using, leasing, licensing, possessing, operating, selling or otherwise enjoying the Mortgaged Property, including the proceeds from the sale of Hydrocarbons. KK. "Secured Debt" is defined in the Collateral Trust Agreement. LL. "Secured Debtholder" is defined in the Collateral Trust Agreement. MM. "Secured Debt Documents" is defined in the Collateral Trust Agreement. NN. "Secured Debt Representative" is defined in the Collateral Trust Agreement. OO. "Taxes" means all real property and personal property taxes, production taxes, assessments, permit fees, water, gas, sewer, electricity and other utility rates and charges, charges for any easement, license or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, charges and assessments and any interest, costs or penalties with respect thereto, of any kind and nature whatsoever which at any time prior to or after the execution hereof may be charged, assessed, levied or imposed upon the Mortgaged Property or the Rents and Revenues or the ownership, use, occupancy or enjoyment thereof. PP. "Transportation Agreements" shall mean any contracts or agreements entered into from time to time by Mortgagor, or entered into by Mortgagor's predecessors in interest, relating to the transportation of Hydrocarbons, as any such agreement or contract may be amended, supplemented, restated or otherwise modified from time to time. -8- QQ. "Water Rights" means (including without limitation those described in Exhibit A hereto) all now or hereafter existing or acquired water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights, whether evidenced or initiated by permit, decree, well registration, appropriation not decreed, water court application, shares of stock or other interests in mutual ditch or reservoir companies or carrier ditch or reservoir companies or otherwise, appertaining or appurtenant to or beneficially used or useful in connection with the lands described in Exhibit A, together with all pumps, well casings, wellheads, electrical installations, pumphouses, meters, monitoring wells and systems, measuring devices, pipes, pipelines, and other structures or personal property which are or may be used to produce, regulate, measure, distribute, store, or use water from the said water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights. RR. "Uniform Commercial Code" means the Uniform Commercial Code as in effect from time to time in the State of New York or any other applicable state, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. 1.8 Grant. Grant of Priority Lien NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Priority Lien Indebtedness and the full and timely performance and discharge of the Priority Lien Obligations, has granted, bargained, sold, warranted, mortgaged, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of Equipment, General Intangibles, Accounts, As Extracted Collateral, Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other personal property of a kind or character defined in, or subject to the applicable provisions of, the Uniform Commercial Code (as in effect from time to time in the appropriate jurisdiction with respect to each of said properties, rights and interests), Mortgagor hereby grants to said Beneficiary, a security interest therein to the full extent of Mortgagor's legal and beneficial interest therein, now owned or hereafter acquired, namely: (a) the lands described in Exhibit A, and Leases, the fee, mineral, overriding royalty, royalty and other interests which are described in Exhibit A, -9- (b) the presently existing and (subject to the terms of Section 6.1 hereof) hereafter arising unitization, unit operating, communitization and pooling agreements and the properties covered and the units created thereby (including, without limitation, all units formed under orders, regulations, rules, approvals, decisions or other official acts of any Governmental Authority) which are specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A, (c) the Hydrocarbons which are in, under, upon, produced or to be produced from or which are attributed or allocated to the lands described in Exhibit A, (d) the Production Sale Contracts, (e) the Joint Operating Agreements, (f) the Transportation Agreements, (g) the Operating Equipment, (h) the Permits, (i) the Water Rights, (j) the Hedging Agreements, (k) the Leases, (l) the Personalty, (m) the Rents and Revenues, (n) without duplication of any other provision of this granting clause, Equipment, Fixtures and other Goods necessary or used in connection with, and Inventory, Accounts, As Extracted Collateral, General Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents, Electronic Chattel Paper, Instruments and Proceeds arising from, or relating to, the properties and other interests described in Exhibit A (including Exhibit A-1), (o) any and all liens and security interests in Hydrocarbons securing the payment of proceeds from the sale of Hydrocarbons, including but not limited to those liens and security interests provided for in Section 9.343 of the Texas Business and Commerce Code or similar statutes of other jurisdictions or any successor statutes, together with any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the same, or any instrument relating thereto, and all accounts, contracts, contract rights, options, nominee -10- agreements, unitization or pooling agreements, operating agreements and unit operating agreements, processing agreements, farmin agreements, farmout agreements, joint venture agreements, partnership agreements (including mining partnerships), exploration agreements, bottom hole agreements, dry hole agreements, support agreements, acreage contribution agreements, surface use and surface damage agreements, net profits agreements, production payment agreements, Hedging Agreements, insurance policies, title opinions, title abstracts, title materials and information, files, records, writings, data bases, information, systems, logs, well cores, fluid samples, production data and reports, well testing data and reports, maps, seismic and geophysical, geological and chemical data and information, interpretative and analytical reports of any kind or nature (including, without limitation, reserve studies and reserve evaluations), computer hardware and software and all documentation therefor or relating thereto (including, without limitation, all licenses relating to or covering such computer hardware, software and/or documentation), trade secrets, trademarks, service marks and business names and the goodwill of the business relating thereto, copyrights, copyright registrations, unpatented inventions, patent applications and patents, rights-of-way, franchises, bonds, easements, servitudes, surface leases, permits, licenses, tenements, hereditaments, appurtenances, concessions, occupancy agreements, privileges, development rights, condemnation awards, claims against third parties, general intangibles, rents, royalties, issues, profits, products and proceeds, whether now or hereafter existing or arising, used or useful in connection with, covering, relating to, or arising from or in connection with, any of the aforesaid items (a) through o), inclusive, in this granting clause mentioned, and all other things of value and incident thereto (including, without limitation, any and all liens, lien rights, security interests and other properties, rights and interests) which Mortgagor might at any time have or be entitled to, but excluding any data or contracts with respect to which mortgaging or granting of a lien or a security interest is prohibited by existing third party agreements, all the aforesaid properties, rights and interests, together with any additions thereto which may be subjected to the lien and security interest of this Mortgage by means of supplements hereto, being hereinafter, collectively, called the "Mortgaged Property." Grant of Parity Lien NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Parity Lien Indebtedness and the full and timely performance and discharge of the Parity Lien Obligations, has granted, bargained, sold, warranted, mortgaged, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the Mortgaged Property. Subject, however, in each case to (i) Permitted Encumbrances (including without limitation all presently existing royalties, overriding royalties, payments out of production and other burdens which are referred to in Exhibit A and which are taken into consideration in computing any percentage, decimal or fractional interest as set forth in -11- Exhibit A), (ii) the assignment of production contained in Article IV hereof, but only insofar and so long as said assignment of production is not inoperative under the provisions of Section 4.5 hereof, and (iii) the condition that none of Trustee, Beneficiary nor any Secured Debtholder shall be liable in any respect for the performance of any covenant or obligation (including, without limitation, measures required to comply with Environmental Laws) of Mortgagor in respect of the Mortgaged Property. TO HAVE AND TO HOLD the Mortgaged Property for the benefit of Beneficiary, and forever to secure the payment of the Indebtedness and to secure the performance and discharge of the Obligations of Mortgagor herein and therein contained. As set forth in the separate granting clauses above, it is the intent of Mortgagor that such grants shall create two separate and distinct security interests in all right, title and interest of Mortgagor in the Mortgaged Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Parity Lien Debt. Notwithstanding (i) anything to the contrary contained in this Mortgage or any other document, filing or agreement related to the creation, attachment, perfection or existence of the liens and security interests granted herein, (ii) the time, place, order or method of attachment or perfection of such liens or security interests, (iii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect such security interests, and (iv) the rules for determining priority under any law governing the relative priorities of secured creditors, the lien securing the Parity Lien Indebtedness is subordinated and junior in priority to the lien securing the Priority Lien Indebtedness. Mortgagor, in consideration of the Secured Debt as set forth above, hereby covenants and agrees with each of Trustee and Beneficiary: ARTICLE II. INDEBTEDNESS SECURED 2.1 Items of Indebtedness Secured. The following items of indebtedness are secured hereby: (a) The Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Priority Lien Documents; (b) The Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Parity Lien Documents; (c) All Obligations under any other Priority Lien Debt or Parity Lien Debt; -12- (d) Any sums advanced or expenses or costs incurred by Trustee, Beneficiary or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (e) Any and all other indebtedness of Mortgagor or any Affiliate of Mortgagor to Beneficiary now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (f) Any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (a) through (e) above, whether or not Mortgagor executes any extension agreement or renewal instrument. 2.2 Indebtedness Defined. All the above items of indebtedness described in subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively referred to as the "Priority Lien Indebtedness." And all the above items of indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are hereinafter collectively referred to as the "Parity Lien Indebtedness"; the Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively referred to as the "Indebtedness". 2.3 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and agrees that, except as otherwise provided by the Secured Debt Documents, the Existing Mortgage constitutes a valid and subsisting first lien on the portion of the Mortgaged Property encumbered thereby, and that none of the rights and liens existing thereunder shall be impaired or released hereby, and that the same as amended and restated hereby shall remain in full force and effect, and all rights and liens existing and to exist thereunder are renewed, extended, carried forward, and conveyed to secure all of the Indebtedness hereinabove mentioned. 2.4 Amended and Restated Mortgage. The Existing Mortgage is amended and restated in full hereby in order to, among other things, secure all of the Indebtedness herein described or referred to as if reference to such Indebtedness were fully described in the Existing Mortgage. None of the rights, titles, and interests, existing or to exist under the Existing Mortgage are hereby released, diminished or impaired. 2.5 No Impairment or Discharge of Liens. It is the express intention of all parties hereto that the Secured Debtholders are subrogated to all of the rights, powers, and equities of the original lenders and beneficiary under the Existing Mortgage, that the liens created hereby shall relate back to and be effective as of the effective date of the Existing Mortgage and that nothing contained herein shall be construed to impair or discharge the liens and security interests created thereby. -13- ARTICLE III. PARTICULAR COVENANTS, REPRESENTATIONS AND WARRANTIES OF MORTGAGOR 3.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor will duly and punctually pay the Indebtedness, as and when called for in the Secured Debt Documents and on or before the due dates thereof, and will timely perform and discharge all of the Obligations in full and on or before the dates same are to be performed and discharged. 3.2 Certain Representations and Warranties. Mortgagor represents and warrants (and with respect to those matters set forth in the following subsections (b) and (f), as to those portions of the Mortgaged Property that are operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor makes such representation and warranty to the best of its knowledge) that (a) the oil and gas leases described in Exhibit A hereto are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the properties to which they pertain, (b) all producing wells located on the lands described in Exhibit A (including Exhibit A-1) have been drilled, operated and produced in conformity with all Applicable Laws of all Governmental Authorities having jurisdiction, and are subject to no penalties on account of past production, and such wells are in fact bottomed under and are producing from, and the well bores are wholly within, the lands described in Exhibit A or lands pooled or unitized therewith, (c) Mortgagor, to the extent of the interest specified in Exhibit A (including Exhibit A-1), has valid and indefeasible title to each property right or interest constituting the Mortgaged Property described in Exhibit A (including Exhibit A-1) and has a good and legal right to grant and convey the same to Trustee; such interest entitles Mortgagor to receive not less than the share of Hydrocarbons from such property indicated as its net revenue interest or "NRI" share of such Hydrocarbons, and obligates Mortgagor to pay for not more than the share of operating and other costs, liabilities and expenses associated with such property indicated as its working interest or "Wl" share of such costs, liabilities and expenses, (d) Excepting the Permitted Encumbrances, the Mortgaged Property is free from all encumbrances or liens whatsoever, (e) Mortgagor is not obligated, by virtue of any prepayment under any contract providing for the sale by Mortgagor of Hydrocarbons which contains a "take or pay" clause or under any similar arrangement, to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor, -14- (f) the Mortgaged Property is currently being operated, maintained and developed, in all material respects, in accordance with all applicable currently existing Permits, Legal Requirements and all Applicable Laws (including, without limitation, Environmental Laws), (g) the cover page to this Mortgage lists the correct legal name of Mortgagor and Mortgagor has not been known by any legal name different from the one set forth on the cover page of this Mortgage, (h) the execution, delivery, and performance by Mortgagor of this Mortgage (i) are within Mortgagor's corporate powers and have been duly authorized by Mortgagor's Board of Directors, shareholders and all other requisite corporate action, (ii) have received all (if any) requisite prior governmental approval and consent in order to be legally binding and enforceable in accordance with the terms thereof, and (iii) will not violate, be in conflict with, result in a breach or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property or assets, except as contemplated by the provisions of the Secured Debt Documents, and (i) except as permitted by the Secured Debt Documents, there are no actions, suits or proceedings pending, or to the knowledge of Mortgagor threatened, against or affecting Mortgagor or the Mortgaged Property that could materially adversely affect Mortgagor or the Mortgaged Property, or involving the validity or enforceability of this Mortgage or the priority of the liens and security interests created by the Secured Debt Documents, and no event has occurred (including specifically Mortgagor's execution of this Mortgage which will violate, be in conflict with, result in the breach of, or constitute (with due notice or lapse of time, or both) a material default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property other than the liens and security interests created by the Secured Debt Documents. 3.3 Further Assurances. Mortgagor will warrant and forever defend the Mortgaged Property unto Trustee and Beneficiary, as the case may be, against every person whomsoever lawfully claiming the same or any part thereof, subject to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and security interest hereby created so long as any of the Indebtedness remains unpaid. Mortgagor will execute and deliver such other and further instruments and will do such other and further acts as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Documents to carry out more effectually the purposes of this Mortgage, including, without limiting the generality of the foregoing, (i) prompt correction of any defect which may hereafter be discovered in the title to the Mortgaged Property or in the execution and acknowledgment of this Mortgage, the Secured Debt Documents, or any other document executed in connection herewith, and (ii) at any time a Secured Debt Representative may request and upon such request, promptly execute all notices to -15- parties operating, purchasing or receiving proceeds of production of Hydrocarbons from the Mortgaged Property, and all division orders or transfer orders needed in order to transfer effectually or to assist in transferring effectually to the Beneficiary the assigned proceeds of production from the Mortgaged Property, which notices, division orders and transfer orders shall be held by such Secured Debt Representative and delivered upon an Event of Default. 3.4 Operation of the Mortgaged Property. So long as the Indebtedness or any part thereof remains unpaid, and whether or not Mortgagor is the operator of any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's own expense: (a) Do all things necessary to keep unimpaired Mortgagor's rights in the Mortgaged Property and not abandon any well or forfeit, surrender or release any Lease, except that Mortgagor may, in the ordinary course of business, (i) plug and abandon any well no longer capable of producing Hydrocarbons in paying quantities, (ii) surrender or release any Lease or a portion thereof so long as no well capable of producing Hydrocarbons in paying quantities is located on such Lease or a portion thereof or production from any such well is attributed to such Lease or a portion thereof, (iii) surrender or release any Lease or a portion thereof on which no producing well has ever been drilled or which has never been held by production from another well unless Proven Reserves (as defined in any Secured Debt Document) are attributed to such Lease or a portion thereof and (iv) abandon, forfeit, surrender or release any other portion of the Mortgaged Property to the extent permitted under the then existing Secured Debt Documents; (b) Obtain and maintain all required Permits and cause the lands described in Exhibit A to be maintained, developed, protected against drainage, and operated for the production of Hydrocarbons in a good and workmanlike manner as would a prudent operator, and consistent with industry practices, Joint Operating Agreements, and all Applicable Laws, excepting those being contested in good faith; and plug and abandon wells no longer capable of producing Hydrocarbons in paying quantities in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; and remediate the lands described in Exhibit A and facilities located thereon in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; (c) Duly pay and discharge, or cause to be paid and discharged, promptly as and when due and payable, all rentals and royalties (including shut-in royalties) payable in respect of the Mortgaged Property (other than rentals under Leases that are surrendered pursuant to the foregoing Section 3.4(a)), and all expenses incurred in or arising from the operation or development of the Mortgaged Property not later than the due date thereof, or the day any fine, penalty, interest or cost may be added thereto or imposed, or the day any lien may be filed, for the non-payment thereof (if such day is used to determine the -16- due date of the respective item) except as to such matters which are being contested by Mortgagor in good faith; (d) Cause the Operating Equipment to be kept in good and effective operating condition, ordinary wear and tear excepted, and all repairs, renewals, replacements, additions and improvements thereof or thereto, needful to the production of Hydrocarbons from the lands described in Exhibit A, to be promptly made; (e) Not, except as permitted under the Secured Debt Documents, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien (statutory, constitutional or contractual), security interest, encumbrance or charge, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Secured Debt Documents, with, respect to all or any portion of the Mortgaged Property, the Leases or the Rents and Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting a lien but not due and payable, (3) defects or irregularities in title, and liens, charges or encumbrances, which are customarily viewed in the industry as not interfering materially with the development, operation or value of the Mortgaged Property and not such as to affect materially title thereto, and (4) those being contested by Mortgagor in good faith in such manner as not to jeopardize Beneficiary's rights in and to the Mortgaged Property; (f) Carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Mortgagor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Mortgaged Property, is located, insurance in respect of the Operating Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of Rents and Revenues); provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Beneficiary as its interest may appear, which proceeds are hereby assigned to Beneficiary, it being agreed by Mortgagor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair -17- or replacement of the Mortgaged Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Beneficiary shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Mortgagor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, endorsed, altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer shall have first given Beneficiary and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Beneficiary shall be furnished with a certificate evidencing such coverage in form and content comparable to coverage typically provided in the industry. All policies to be maintained under this Mortgage are to be issued on forms and by companies and with endorsements as are customary in the industry. Mortgagor shall maintain insurance in an amount sufficient to prevent Mortgagor from becoming a co-insurer under any policy required hereunder. If Mortgagor fails to maintain the level of insurance required under this Mortgage, then Mortgagor shall and hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; (g) Furnish to Beneficiary and each Secured Debt Representative, as soon as possible and in any event within five (5) days after the occurrence from time to time of any change in the address of Mortgagor's location (as described on the signature page hereto) or in the name of Mortgagor, notice in writing of such change; (h) Not initiate or acquiesce in any change in any material zoning or other land use or Water Rights classification now or hereafter in effect and affecting the Mortgaged Property or any part thereof; (i) Notify Beneficiary and each Secured Debt Representative in writing, as soon as possible and in any event within five (5) days after it shall become aware of the occurrence of any Event of Default or any event which, with notice, the passage of time or both would be such an Event of Default; (j) Appear and defend, and hold Beneficiary and any Secured Debtholder harmless from, any action, proceeding or claim affecting the Mortgaged Property or the rights and powers of Beneficiary or Secured Debtholders under the Secured Debt Documents, and all costs and expenses incurred by Beneficiary or any Secured Debtholder in protecting its interests hereunder in such an event (including all court costs and attorneys' fees) shall be borne by Mortgagor; -18- (k) Subject to Mortgagor's right to contest the same, promptly pay all Taxes legally imposed upon this instrument or upon the Mortgaged Property or upon the income and profits thereof, or upon the interest of Beneficiary therein; provided that Mortgagor shall not be liable for taxes accruing after a transfer of the Mortgaged Property following a foreclosure; (l) Comply with, conform to and obey, in all material respects, all present and future Legal Requirements and not use, maintain, operate, occupy, or allow the use, maintenance, operation or occupancy of, the Mortgaged Property in any manner which (a) violates any present and future Legal Requirement, (b) may be dangerous unless safeguarded as required by Applicable Law, (c) constitutes a public or private nuisance or (d) makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto; and (m) Not, except as authorized under the Secured Debt Documents, permit any of the Fixtures or Personalty to be removed at any time from the lands described in Exhibit A unless (i) the removed item is removed temporarily for maintenance and repair, (ii) if removed permanently, is replaced by an article of equal suitability and value, owned by Mortgagor, free and clear of any lien or security interest or (iii) such Fixtures or Personalty are removed in connection with the plugging and abandoning of wells, or abandonment of other facilities, in each case as permitted by this Mortgage. 3.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform and comply with any and all representations, warranties, covenants and agreements expressed as binding upon it under each of the Leases; (b) subject to the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel or waive its rights or the obligations of any other party under any of the Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all reasonable efforts to maintain each of the Leases in force and effect during the full term thereof, and (d) appear in and defend (or cause its operator to appear in and defend) any action or proceeding arising under or in any manner connected with any of the Leases or the representations, warranties, covenants and agreements of it or the other party or parties thereto. 3.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense, record, register, deposit and file this and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the lien and security interest hereof as a first lien on and prior perfected security interest in real or personal property, as the case may be, and the rights and remedies of Beneficiary and Secured Debtholders, and otherwise will do and observe all things or matters necessary or expedient to be done or observed by reason of any Applicable Law, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on and in the Mortgaged Property. -19- 3.7 Sale or Mortgage of the Mortgaged Property. Except (a) as set forth in Section 6.1 of this Mortgage; (b) for sales of severed Hydrocarbons in the ordinary course of Mortgagor's business; (c) for sales of or dispositions of surplus, obsolete or worn inventory or equipment; (d) for the lien and security interest created by this Mortgage, (e) for Permitted Encumbrances, and (f) for sales, exchanges or other dispositions of Mortgaged Property permitted under the Secured Debt Documents governing Priority Lien Debt and permitted under the Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell, convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's right, title or interest therein, and Mortgagor will not enter into any arrangement with any gas pipeline company or other consumer of Hydrocarbons regarding the Mortgaged Property whereby said gas pipeline company or consumer may set off any claim against Mortgagor by withholding payment for any Hydrocarbons actually delivered. 3.8 Records, Statements and Reports. Mortgagor will keep proper books of record and account in which complete and correct entries will be made of Mortgagor's transactions in accordance with generally accepted accounting principles and will furnish or cause to be furnished to each Secured Debt Representative such information concerning the business, affairs and financial condition of Mortgagor as required under the Secured Debt Documents. Without limiting the generality of the foregoing, Mortgagor shall furnish to Beneficiary and each Secured Debt Representative, but not more than every six (6) months: (a) reports prepared by a reputable national independent petroleum engineer regularly engaged by Mortgagor for such purposes or other engineering firm acceptable to the Credit Agreement Agent concerning (1) the quantity of Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income and expense attributable to the Mortgaged Property, and (3) the expediency of any change in methods of treatment or operation of all or any wells productive of Hydrocarbons, any new drilling or development, any method of secondary recovery by repressuring or otherwise, or any other action with respect to the Mortgaged Property, the decision as to which may increase or reduce the quantity of Hydrocarbons ultimately recoverable or the rate of production thereof, and (b) reports for the prior period showing the gross proceeds from the sale of Hydrocarbons produced from the lands described in Exhibit A (including any thereof taken by Mortgagor for Mortgagor's own use), the quantity of such Hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of such proceeds and the number of wells operated, drilled or abandoned. 3.9 Right of Entry. (a) Upon at least twenty-four (24) hours notice to Mortgagor, Mortgagor will permit Beneficiary, each Secured Debt Representative and/or the agents of either of them, at the cost and expense of Mortgagor, to enter upon the Mortgaged Property and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof, and shall permit reasonable access to the field offices and other offices (to the fullest extent that Mortgagor -20- may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Mortgaged Property), including the principal place of business, of Mortgagor to inspect and examine the Mortgaged Property and to inspect, review and reproduce as necessary any books, records, accounts, contracts or other documents of Mortgagor, it being understood that any non-public information obtained in connection therewith shall be subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect. (b) Without limiting the generality of the foregoing, Beneficiary shall have the right (but shall not be obligated to), and each Secured Debt Representative and its agents shall have the right (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor to enter the Mortgaged Property to conduct (at the cost and expense of Mortgagor), or to cause Mortgagor to conduct (at the cost and expense of Mortgagor), such tests and investigations as may be necessary to determine whether any hazardous materials or solid waste is being generated, transported, stored, or disposed of in accordance with applicable Environmental Laws. Such tests and investigations may include, without limitation, underground borings, ground water analyses and borings from the floors, ceilings and walls of any improvements located on the Mortgaged Property. This Section 3.9 shall not be construed to affect or limit the obligations of Mortgagor pursuant to Section 3.4 hereof. (c) Neither Beneficiary nor any Secured Debt Representative shall have any duty to visit or observe the Mortgaged Property, or to conduct tests, and no site visit, observation or testing by any such person (or its agents and independent contractors) shall impose any liability on any such person nor shall Mortgagor or any other obligor be entitled to rely on any such visit, observation or testing in any respect. Beneficiary or a Secured Debt Representative may, but shall not be obligated to, disclose to Mortgagor or, subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect, any other Person, including any Governmental Authority, any report or finding made as a result of, or in connection with, any site visit, observation or testing. Mortgagor agrees that neither Beneficiary nor any Secured Debt Representative makes any warranty or representation to Mortgagor or any other obligor regarding the truth, accuracy or completeness of any such report or findings that may be so disclosed. Mortgagor also acknowledges that, depending upon the results of any site visit, observation or testing disclosed to Mortgagor, Mortgagor may have a legal obligation to notify one or more Governmental Authorities of such results, that such reporting requirements are site-specific, and are to be evaluated by Mortgagor without advice or assistance from Beneficiary or any Secured Debt Representative. -21- 3.10 Environmental Laws. (a) Mortgagor represents and warrants, to the best of its knowledge after due inquiry that: (i) except as permitted by the Secured Debt Documents, the Mortgaged Property is in compliance in all material respects with all applicable Environmental Laws and there are no conditions existing currently which would be likely to subject Mortgagor to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or assertions thereof, or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by Mortgagor; and all use, generation, manufacturing, release, discharge, storage, deposit, treatment, recycling or disposal of any materials on, under or at the Mortgaged Property or transported to or from the Mortgaged Property (or tanks or other facilities thereon containing such materials) are being and will be conducted in accordance, in all material respects, with applicable Environmental Laws including without limitation those requiring cleanup, removal or any other remedial action, (ii) Mortgagor is not a party to any litigation or administrative proceedings, nor so far as is known by Mortgagor is any litigation or administrative proceeding threatened against it, which asserts or alleges that Mortgagor has violated or is violating Environmental Laws or that Mortgagor is required to clean up, remove or take remedial or other responsive action due to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials; neither the Mortgaged Property nor Mortgagor is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws and neither has been named or listed as a potentially responsible party by any Governmental Authority in a matter arising under any Environmental Laws; and (iii) Mortgagor has also obtained all Permits required under applicable Environmental Laws which are necessary for its current exploration, production, transportation, storage, use, and development activities at the Mortgaged Property. (b) Mortgagor shall not use or permit the Mortgaged Property or any part thereof to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process any hazardous materials, except in material compliance with all applicable Environmental Laws, nor shall Mortgagor cause or permit, as a result of any intentional or unintentional act or omission on the part of Mortgagor or any tenant or subtenant, any material release of any hazardous materials onto the Mortgaged Property or onto any other property in material violation of any applicable Environmental Laws. Mortgagor shall comply, in all material respects, with all applicable Environmental Laws and shall -22- obtain and comply, in all material respects. with any and all registrations or Permits required thereunder. To the extent any hazardous materials are released or discharged onto the Mortgaged Property on or after the date of this Mortgage, Mortgagor shall conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions necessary to clean up and remove all such hazardous materials on, from, or affecting the Mortgaged Property or any part thereof (i) in accordance, in all material respects, with all applicable Environmental Laws; and (ii) in accordance, in all material respects, with the orders and directives of all Governmental Authorities having jurisdiction over the Mortgaged Property. Mortgagor shall promptly notify Beneficiary and each Secured Debt Representative of its receipt of any notice of a violation of any Environmental Laws. (c) Regardless of whether any site assessments are conducted pursuant to this Mortgage, and without limiting the liability of Mortgagor for the breach of any warranty, representation or covenant contained herein or in any Secured Debt Document, and notwithstanding any limitation of liability contained in the Secured Debt Documents, Mortgagor hereby agrees to unconditionally and absolutely defend, indemnify and hold harmless Beneficiary, Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Mortgage and any successors or substitute trustee under the Mortgage (any person to be indemnified being herein called the "Indemnified Person"), from and against, and be responsible for, any and all liabilities (including strict liability), actions, demands, penalties, fines, taxes, assessments, losses (including, without limitation, diminution in the value of the Mortgaged Property), costs and expenses (including, without limitation, attorneys', paralegals', accountants' and other experts' and consultants' fees and expenses, and remedial costs, including, without limitation, costs of monitoring), suits, damages, including, without limitation, punitive damages and foreseeable and unforeseeable consequential damages, costs of any settlement or judgment and claims (including, without limitation, third-party claims for personal injury or real or personal property damage) of any and every kind whatsoever (hereinafter, collectively, called the "Losses"), which may now or in the future (whether before or after the release, or other termination of the Mortgage and the other Secured Debt Documents) be paid, imposed upon, incurred or suffered by or asserted or awarded against any of the Indemnified Persons or the Mortgaged Property by any person or entity or Governmental Authority for, with respect to, arising out of, or as a direct or indirect result of, any one or more of the following: (i) the presence or suspected presence, release or suspected release of any hazardous materials at, upon, under, within, above, from, by or in connection with the Mortgaged Property or any portion thereof, or elsewhere in connection with the transportation of hazardous materials to or from the Mortgaged Property (including, without limitation, in the air, soil, groundwater or surface water), or the escape, seepage, leakage, spillage, discharge, emission or release from the Mortgaged Property of any hazardous materials; (ii) any violations of any Environmental Laws at, upon, under, within, from, by or in connection with the -23- Mortgaged Property; (iii) the environmental condition of the Mortgaged Property; (iv) the imposition by any Governmental Authority of any lien or so-called "super priority lien" upon the Mortgaged Property as a result of the presence or release of hazardous materials, or any violation of any Environmental Laws, at, upon, under, within, from, by or connection with the Mortgaged Property; (v) obligations to remediate hazardous materials contamination, or to remediate any condition which constitutes a violation of any Environmental Laws; (vi) any site assessments of the Mortgaged Property; (vii) liability for personal injury or property damage or damage to the environment or fines, penalties and punitive damages, resulting from the presence or release of hazardous materials or any violations of any Environmental Laws, at, upon, under, within, from, by or in connection with the Mortgaged Property; and (viii) any environmental matter described in this Mortgage, including, without limitation, matters arising out of any breach of the covenants, representations and warranties set forth herein in each instance described in (i) through (viii) hereof regardless of whether any such Losses arise out of or result from any breach of the covenants, representations and warranties pertaining to environmental matters set forth in this Mortgage or the other Secured Debt Documents, and regardless of whether or not caused by or within the control of Mortgagor or any Indemnified Person; or whether any such matters arise before, during or after any foreclosure of the Mortgage or other taking of title to all or any portion of the Mortgaged Property or the enforcement of any other remedies under the Secured Debt Documents (if any such event occurs). WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT LIABILITY OF ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON. (d) Notwithstanding the foregoing or any contrary provision hereof, Mortgagor's indemnification obligations set forth in this Section 3.10 shall not extend to any such Losses which are attributable solely to contamination by hazardous materials first introduced to the Mortgaged Property after a foreclosure of this Mortgage or other taking of title to the Mortgaged Property by any of Indemnified Persons. (e) The indemnification provided in this Section 3.10 shall specifically apply to and include claims or actions brought by or on behalf of tenants or employees of Mortgagor. Mortgagor hereby expressly waives (with respect to any claims of any Indemnified Person arising under this Section 3.10) any immunity to which Mortgagor may otherwise be entitled under any industrial or worker's compensation laws. -24- (f) In the event any of the Indemnified Persons shall suffer or incur any such Losses, Mortgagor shall pay to such Indemnified Persons the total of all such Losses suffered or incurred within ten (10) days after demand therefore. (g) Mortgagor agrees that the representations, covenants, warranties and indemnifications contained in this Mortgage shall survive the release of the Mortgage, the foreclosure or the taking of a deed in lieu of foreclosure, other termination of the lien of the Mortgage, or the exercise by Beneficiary of any other remedies under the Secured Debt Documents, the discharge of Mortgagor's Obligations under any of the other Secured Debt Documents, or any transfer of the Mortgaged Property, even if as a part of such foreclosure, deed in lieu of foreclosure or other enforcement action, the Indebtedness is satisfied in full. 3.11 Corporate Mortgagor. Mortgagor will continue to be duly qualified to transact business in each state where the conduct of its business requires it to be qualified, and will not, unless permitted pursuant to the Secured Debt Documents, consolidate or merge with any other partnership, company, corporation or other Person. 3.12 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382. ARTICLE IV. ASSIGNMENT OF PRODUCTION 4.1 Assignment. (a) Mortgagor hereby absolutely and irrevocably (a) transfers, assigns, warrants and conveys, to Beneficiary, effective as of July 1, 2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter produced from and which accrue to the Mortgaged Property, and all proceeds therefrom, and (b) gives to and confers upon Beneficiary the right, power and authority to collect such Hydrocarbons and proceeds. Subject to the terms of Section 4.1 (b), all parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, are authorized and directed to treat and regard Beneficiary as the assignee and transferee of Mortgagor and entitled in Mortgagor's place and stead to receive such Hydrocarbons and all proceeds therefrom; and said parties and each of them shall be fully protected in so treating and regarding Beneficiary and shall be under no obligation to see to the application by Beneficiary of any such proceeds or payments received by it; provided, however, that, until Beneficiary or any Secured Debt Representative shall have instructed such parties that an Event of Default has occurred and to deliver such Hydrocarbons and all proceeds therefrom directly to Beneficiary, such parties shall be entitled to deliver such Hydrocarbons and all proceeds therefrom directly to Mortgagor. So long as no -25- Event of Default shall have occurred, Mortgagor shall be entitled to receive directly from such parties, and keep and retain, all such proceeds from the sale of such Hydrocarbons. (b) Upon the occurrence of an Event of Default (provided that the Secured Debt Representative shall not give such instruction and notice under this Article IV unless such Event of Default shall then be continuing), any Secured Debt Representative may at any time (and from time to time) thereafter give notice thereof to any party producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary, directing that said Hydrocarbons and products are to be delivered into pipelines connected with the oil and gas leases, or to the purchaser thereof, free and clear of all Taxes, and the proceeds from the sale of such Hydrocarbons paid directly to Beneficiary in accordance with Section 4.5 of this Mortgage. Said parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, shall be fully protected in relying on any such Secured Debt Representative's determination and notice of the occurrence of an Event of Default. Mortgagor agrees to perform all such acts, and to execute all such further assignments, transfers and division orders, and other instruments as may be required pursuant to the Collateral Trust Agreement or any of the Secured Debt Documents in order to have said revenues and proceeds so paid to Beneficiary, as and when provided in this Article IV. With respect to any funds received by Beneficiary, Beneficiary is fully authorized to (but shall not be obligated to) receive and give receipt for any such revenues and proceeds that are received by Beneficiary; to endorse and cash any and all checks and drafts payable to the order of Mortgagor or Beneficiary for the account of Mortgagor received from or in connection with said revenues or proceeds and apply the proceeds thereof in accordance with Section 4.2 hereof, and to execute transfer and division orders in the name of Mortgagor, or otherwise, with warranties binding Mortgagor. The assignment of the Hydrocarbons and proceeds in this Section 4.1 is intended to be an absolute assignment from Mortgagor to Beneficiary and not merely the passing of a security interest. Such Hydrocarbons and proceeds are hereby assigned absolutely by Mortgagor to Beneficiary. 4.2 Application of Proceeds. All payments received by Beneficiary pursuant to Section 4.1 hereof shall be placed in a cash collateral account to be applied in accordance with the provisions of the Collateral Trust Agreement. 4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby absolved from all liability for failure to enforce collection of any proceeds so assigned (and no such failure shall be deemed to be a waiver of any right of Beneficiary under this Article IV) and from all other responsibility in connection therewith, except the responsibility to account to Mortgagor for funds actually received. -26- 4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein contained shall detract from or limit the absolute obligation of Mortgagor to make payment of the Indebtedness regardless of whether the proceeds assigned by this Article IV are sufficient to pay the same, and the rights under this Article IV shall be in addition to all other security now or hereafter existing to secure the payment of the Indebtedness. 4.5 Status of Assignment. Notwithstanding the other provisions of this Article IV and in addition to the other rights hereunder, Beneficiary or any receiver appointed in judicial proceedings for the enforcement of this Mortgage shall have the right to receive all of the Hydrocarbons herein assigned and the proceeds therefrom after the occurrence and during the continuance of any Event of Default and to apply all of said proceeds as provided in Section 4.2 hereof. Upon any sale of the Mortgaged Property or any part thereof pursuant to Article V, the Hydrocarbons thereafter produced from the property so sold, and the proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment contained in this Article IV. 4.6 Indemnification Obligation. The following provisions shall apply to, and be deemed in each case to modify, each of the provisions of this Mortgage (except those set forth in Section 3.10 hereof) and the other Secured Debt Documents (except to the extent otherwise expressly provided therein) wherein Mortgagor is obligated to indemnify each of the Indemnified Persons: (a) Mortgagor agrees to indemnify Beneficiary, the Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Mortgage and any successors or substitute trustee under the Mortgage, against all legal and administrative proceedings for which a claim for indemnification may be made by the Indemnified Person (herein, collectively, called "Indemnification Claims") made against or incurred by them or any of them as a consequence of the assertion, either before or after the payment in full of the Indebtedness, that they or any of them received Hydrocarbons herein assigned or the proceeds thereof claimed by third persons and Beneficiary, Secured Debtholders, and Trustee shall have the right to defend against any such Indemnification Claims, employing attorneys therefor, and unless furnished with reasonable indemnity, they or any of them shall have the right to pay or compromise and adjust all such Indemnification Claims. Mortgagor will indemnify and pay to Beneficiary, Secured Debtholders and Trustee any and all such amounts as may be paid in respect thereof or as may be successfully adjudged against such persons. The obligations of Mortgagor as hereinabove set forth in this Section 4.6 shall survive the release termination, foreclosure or assignment of this Mortgage or any sale hereunder. (b) Mortgagor shall pay when due any judgments with respect to an Indemnification Claim against any of the Indemnified Persons and which are rendered by a final order or decree of a court of competent jurisdiction from which no further appeal may be taken or has been taken within the applicable appeal period. In the event that such payment is not made, any of the -27- Indemnified Persons at its sole discretion may pay any such judgments, in whole or in part, and look to Mortgagor for reimbursement pursuant to this Mortgage, or may proceed to file suit against Mortgagor to compel such payment. (c) Any amount which Mortgagor is obligated to pay to or for the benefit of an Indemnified Person with respect to an Indemnification Claim, but which is not paid when due, shall bear interest at the applicable rate set forth under the Secured Debt Documents from the date such amount is due until such amount is paid. ARTICLE V. ENFORCEMENT OF THE SECURITY 5.1 Title Examination. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary shall have the right and power to (but shall not be obligated to) cause to be brought down to date a title examination and tax histories of the Mortgaged Property, procure title opinions or title reports or, if necessary, procure new abstracts and tax histories. 5.2 Environmental Audit. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary shall have the right and power to (but shall not be obligated to) procure an updated or entirely new environmental audit of the Mortgaged Property including the lands described in Exhibit A, buildings, soil, ground water and subsurface investigations; have the buildings inspected by an engineer or other qualified inspector; enter upon the Mortgaged Property at any time and from time to time to show the Mortgaged Property to potential purchasers and potential bidders at foreclosure sale; make available to potential purchasers and potential bidders all information obtained pursuant to the foregoing and any other information in the possession of Beneficiary regarding the Mortgaged Property. 5.3 Power of Sale of Real Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee shall have the right and power to sell, to the extent permitted by Applicable Law, at one or more sales, as an entirety or in parcels, as they may elect, the real property constituting a part of the Mortgaged Property, at such place or places and otherwise in such manner and upon such notice as may be required by Applicable Law, or, in the absence of any such requirement, as Trustee may deem appropriate, and to make conveyance to the purchaser or purchasers; and Mortgagor shall warrant title to such real property to such purchaser or purchasers. Trustee may postpone the sale of all or any portion of such real property by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. The right of sale hereunder shall not be exhausted by one or any sale, and Trustee may make other and successive sales until all of the trust estate be legally sold. With respect to that portion, if any, of the Mortgaged Property situated in the State of Wyoming, this Mortgage may be foreclosed by advertisement and sale as provided by -28- applicable Wyoming statutes. With respect to that portion, if any, of the Mortgaged Property situated in the State of Oklahoma, the Beneficiary shall have the right and power to (but shall not be obligated to) declare the Indebtedness secured hereby due and payable and to sell, or direct Trustee to sell, the "real estate," as such term is defined under the provisions of 46 O.S. Supp. 1986, Section 42, constituting a part of the Mortgaged Property, all under the terms of 46 O.S. Supp. 1986, Section 40 et seq., and shall, to the extent permitted by Applicable Law, have the other rights conferred on Trustee under the provisions of this Mortgage. 5.4 Rights of Beneficiary with Respect to Personal Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary will have all rights and remedies granted by Applicable Law, and particularly by the Uniform Commercial Code, including, but not limited to, the right to take possession of all personal property constituting a part of the Mortgaged Property, and for this purpose Beneficiary may enter upon any premises on which any or all of such personal property is situated and take possession of and operate such personal property (or any portion thereof) or remove it therefrom. Beneficiary may require Mortgagor to assemble such personal property and make it available to Beneficiary at a place to be designated by Beneficiary which is reasonably convenient to all parties. Unless such personal property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Beneficiary will give Mortgagor reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of such personal property is to be made. This requirement of sending reasonable notice will be met if the notice is mailed by first-class mail, postage prepaid, to Mortgagor at the address shown below the signatures at the end of this Mortgage at least five (5) days before the time of the sale or disposition. 5.5 Rights with Respect to Fixtures Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary may elect to treat the fixtures constituting a part of the Mortgaged Property as either real property collateral or personal property collateral and then proceed to exercise such rights as apply to such type of collateral. 5.6 Judicial Proceedings. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee, in lieu of or in addition to exercising any power of sale hereinabove given, may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder for each or upon credit in one or more parcels or portions under executory or ordinary process, at Beneficiary's sole option, without appraisement (appraisement being expressly waived), or for the sale of the Mortgaged Property, or for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate legal or equitable remedy. Mortgagor hereby acknowledges the Indebtedness secured hereby, whether now existing or to arise hereafter, and confesses judgment thereon in the full amount of the Indebtedness -29- in favor of Beneficiary and any future holder or holders of Secured Debt if such obligations are not paid at maturity. 5.7 Possession of the Mortgaged Property. It shall not be necessary for Trustee or Beneficiary to have physically present or constructively in their possession at any sale held by Trustee or Beneficiary or by any court, receiver or public officer any or all of the Mortgaged Property; and Mortgagor shall deliver to the purchasers at such sale on the date of sale the Mortgaged Property purchased by such purchasers at such sale, and if it should be impossible or impracticable for any of such purchasers to take actual delivery of the Mortgaged Property, then the title and right of possession to the Mortgaged Property shall pass to such purchaser at such sale as completely as if the same had been actually present and delivered. 5.8 Certain Aspects of a Sale. Beneficiary shall have the right to (but shall not be obligated to) become the purchaser at any sale held by Trustee, Beneficiary or by any court, receiver or public officer, and Beneficiary shall have the right to (but shall not be obligated to) credit upon the amount of the bid made therefor the amount payable out of the net proceeds of such sale to it Recitals contained in any conveyance made to any purchaser at any sale made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, and the interest accrued on, Secured Debt after the same have become due and payable, advertisement and conduct of such sale in the manner provided herein or appointment of any successor Trustee hereunder. 5.9 Receipt to Purchaser. Upon any sale, whether made under the power of sale herein granted and conferred or by virtue of judicial proceedings, the receipt of Trustee, Beneficiary or of the officer making sale under judicial proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for his or their purchase money, and such purchaser or purchasers, or his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of Trustee, Beneficiary, or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. 5.10 Effect of Sale. Any sale or sales of the Mortgaged Property, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever either at law or in equity, of Mortgagor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against Mortgagor, and Mortgagor's successors or assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Mortgagor or Mortgagor's successors or assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. -30- 5.11 Application of Proceeds. The proceeds of any sale of, and the Rents and Revenues and other amounts generated by the holding, leasing, operation or other use of, the Mortgaged Property shall be applied in accordance with the provisions of the Collateral Trust Agreement. 5.12 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights. Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, so far as Mortgagor or those claiming through or under Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such laws; provided, however, that appraisement of any of the Mortgaged Property located in the State of Oklahoma is hereby expressly waived or not, at the option of Beneficiary, such option to be exercised prior to or at the time the judgment is rendered in any foreclosure hereof. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, waives, to the extent that Mortgagor may lawfully do so, any and all right to have the Mortgaged Property marshalled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that Trustee, Beneficiary or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, further waives, to the full extent that Mortgagor may lawfully do so, any requirement for posting a receiver's bond or replevin bond or other similar type of bond if Trustee or Beneficiary commence an action for appointment of a receiver or an action for replevin to recover possession of any of the Mortgaged Property. If any law in this paragraph referred to and now in force, of which Mortgagor or Mortgagor's successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to, constitute any part of the contract herein contained or to preclude the operation or application of the provisions of this paragraph. Pursuant to Section 39-5-19, New Mexico Statutes, Annotated, 1978 Comp., as amended, Mortgagor agrees that as to the Mortgaged Property situated in the State of New Mexico, the redemption period shall be shortened to one (1) month. Mortgagor hereby waives all rights of appraisement, sale, homestead or redemption allowed under any law or laws of the State of Arkansas, and especially redemption under the Act of the General Assembly of the State of Arkansas approved May 8, 1899, and acts amendatory thereto. If Mortgagor is an individual, Mortgagor waives and releases all rights of dower, courtesy and homestead in the Mortgaged Property insofar as such rights may in any way affect the purposes of this Mortgage. 5.13 Costs and Expenses. All costs and expenses (including attorneys' fees) incurred by Trustee or Beneficiary in protecting and enforcing their rights hereunder shall constitute a demand obligation owing by Mortgagor to the party incurring such -31- costs and expenses and shall draw interest at Default Interest Rate, all of which shall constitute a portion of the Indebtedness. 5.14 Sale of the Mortgaged Property in Texas. If Secured Debt is not paid when due, whether by acceleration or otherwise, Trustee is hereby authorized and empowered to (but shall not be obligated to) sell any part of the Mortgaged Property located in the State of Texas at public sale to the highest bidder for cash in the area at the county courthouse of the county in Texas in which the Texas portion of the Mortgaged Property or any part thereof is situated, as herein described, designated by such county's commissioner's court for such proceedings, or if no area is so designated, at the door of the county courthouse of said county, at a time between the hours of 10:00 A.M. and 4:00 P.M. which is no later than three (3) hours after the time stated in the notice described immediately below as the earliest time at which such sale would occur on the first Tuesday of any month, after advertising the earliest time at which said sale would occur, the place, and terms of said sale, and the portion of the Mortgaged Property to be sold, by (a) posting (or by having some person or persons acting for Trustee post) for at least twenty-one (21) days preceding the date of the sale, written or printed notice of the proposed sale at the courthouse door of said county in which the sale is to be made; and if such portion of the Mortgaged Property lies in more than one county, one such notice of sale shall be posted at the courthouse door of each county in which such part of the Mortgaged Property is situated and such part of the Mortgaged Property may be sold in the area at the county courthouse of any one of such counties designated by such county's commissioner's court for such proceedings, or if no area is so designated, at the courthouse door of such county, and the notice so posted shall designate in which county such property shall be sold, and (b) filing in the office of the county clerk of each county in which any part of the Texas portion of the Mortgaged Property which is to be sold at such sale is situated a copy of the notice posted in accordance with the preceding clause (a). In addition to such posting and filing of notice, Beneficiary may or other holder of the Indebtedness shall, at least twenty-one (21) days preceding the date of sale, serve or cause to be served written notice of the proposed sale by certified mail on Mortgagor and on each other debtor, if any, obligated to pay the Indebtedness according to the records of Beneficiary or other holder of the Indebtedness. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper properly addressed to Mortgagor and such other debtors at their most recent address or addresses as shown by the records of Beneficiary or other holder of the Indebtedness in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such a service was completed shall be prima facie evidence of the fact of service. Mortgagor agrees that no notice of any sale, other than as set out in this Section, need be given by Trustee, Beneficiary or any other person, except as may otherwise be required by Applicable Law. Mortgagor hereby designates as its address for the purpose of such notice the address set out on the signature page hereof; and agrees that such address shall be changed only by depositing notice of such change enclosed in a postpaid wrapper in a post office or official depository under the care and custody of the United States Postal Service, certified mail, postage prepaid, return receipt requested, addressed to Beneficiary or other holder of the Indebtedness at the address for Beneficiary set out herein (or to such other address as Beneficiary or -32- other holder of the Indebtedness may have designated by notice given as above provided to Mortgagor and such other debtors). Any such notice of change of address of Mortgagor or other debtors or of Beneficiary or of other holder of the Indebtedness shall be effective three (3) business days after such deposit if such post office or official depository is located in the State of Texas, otherwise to be effective upon receipt. Mortgagor authorizes and empowers Trustee to sell the Texas portion of the Mortgaged Property in lots or parcels or in its entirety as is customary in the industry or Trustee may elect; and to execute and deliver to the purchaser or purchasers thereof good and sufficient deeds of conveyance thereto by fee simple title, with evidence of general warranty by Mortgagor, and the title of such purchaser or purchasers when so made by Trustee, Mortgagor binds itself to warrant and forever defend. Where portions of the Mortgaged Property lie in different counties, sales in such counties may be conducted in any order that Trustee may deem expedient; and one or more such sales may be conducted in the same month, or in successive or different months. Notwithstanding anything to the contrary contained herein, Trustee may postpone the sale provided for in this Section 5.14 at any time without the necessity of a public announcement. The provisions hereof with respect to the posting and giving of notices of sale are intended to comply with the provisions of Section 51.002 of the Property Code of the State of Texas, effective January 1, 1984, and in the event the requirements, or any notice, under such Section 51.002 of the Property Code of the State of Texas shall be eliminated or the prescribed manner of giving such notices modified by future amendment to, or adoption of any statute superseding, Section 51.002 of the Property Code of the State of Texas, the requirement for such particular notices shall be deemed stricken from or modified in this Mortgage in conformity with such amendment or superseding statute, effective as of the effective date thereof. 5.15 Fair Market Value. It is expressly agreed by Mortgagor that to the extent Section 51.003 of the Texas Property Code, or any amendment thereto, requires that the "fair market value" of the Mortgaged Property shall be determined as of the foreclosure date in order to enforce a deficiency against Mortgagor or any other party liable for repayment of the Indebtedness, the term "fair market value" shall include those matters required by Applicable Law and shall also include the additional factors set forth below: (a) The Mortgaged Property is to be valued "AS IS" and "WITH ALL FAULTS" and there shall be no assumption of restoration of or refurbishment of improvements, if any, after the date of the foreclosure; (b) An offset to the fair market value of the Mortgaged Property, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Mortgaged Property, including but not limited to brokerage commissions, title examination and curative expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of property; and -33- (c) After consideration of the factors required by Applicable Law and those required above, an additional discount factor shall be calculated based upon the estimated time it will take to effectuate a sale of the Mortgaged Property so that the "fair market value" as so determined is discounted to be as of the date of the foreclosure sale of the Mortgaged Property. 5.16 Operation of the Mortgaged Property by Beneficiary. Upon the occurrence of an Event of Default and during the continuance of such Event of Default and in addition to all other rights herein conferred on Beneficiary, Beneficiary (or any person, firm or corporation designated by Beneficiary) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property, and to exclude Mortgagor, and Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer, manage and operate the same to the extent that Mortgagor shall be at the time entitled and in its place and stead. Beneficiary, or any person, firm or corporation designated by Beneficiary, may operate the same without any liability to Mortgagor in connection with such operations, except to use ordinary care in the operation of such properties, and Beneficiary or any person, firm or corporation designated by Beneficiary, shall have the right to (but shall not be obligated to) collect, receive and receipt for all Hydrocarbons produced and sold from said properties, to make repairs, purchase machinery and equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of Mortgagor with respect to the Mortgaged Property. When and if the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) paid by Beneficiary or attributable to Mortgagor's undivided interest therein and withheld, or offset against, by an operator or other party have been paid or reimbursed in full by Mortgagor and the Indebtedness paid, said properties shall, if there has been no sale or foreclosure, be returned to Mortgagor. 5.17 Separate Sales. The Mortgaged Property may be sold in one or more parcels and it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales but other and successive sales may be made until all of the Mortgaged Property has been sold or until the Indebtedness has been fully satisfied. 5.18 Remedies Cumulative, Concurrent and Non-Exclusive. Beneficiary shall have all rights, remedies and recourses granted in the Secured Debt Documents and available at law or equity (including specifically those granted by the Uniform Commercial Code in effect and applicable to the Mortgaged Property, or any portion thereof), and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against any one or more of Mortgagor, any Guarantor, or others obligated under the Secured Debt Documents, or against the Mortgaged Property, pursuant to the Collateral Trust Agreement and any Secured Debt Documents, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Mortgagor that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, non-exclusive. -34- 5.19 Release of and Resort to Collateral. Beneficiary may release, regardless of consideration, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interests created in or evidenced by the Secured Debt Documents or their stature as a first and prior lien and security interest in and to the Mortgaged Property. For payment of the Indebtedness, Beneficiary may resort to any other security therefor held in such order and manner as Beneficiary may elect. 5.20 Discontinuance of Proceedings. In case Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under the Secured Debt Documents and shall thereafter elect to discontinue or abandon same for any reason, Beneficiary shall have the unqualified right so to do and, in such an event, Mortgagor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Secured Debt Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Beneficiary shall continue as if same had never been invoked. 5.21 Uniform Commercial Code Remedies. Beneficiary shall have all the rights, remedies and recourses with respect to the Personalty, Fixtures, Leases and Rents and Revenues afforded a Secured Party by the aforesaid Uniform Commercial Code (being Chapter 9 of the Texas Business and Commerce Code, as to property within the scope thereof and situated in the State of Texas) in addition to, and not in limitation of, the other rights, remedies and recourses afforded Beneficiary by the Secured Debt Documents. 5.22 No Obligation of Trustee or Beneficiary. The assignment and security interest herein granted shall not be deemed or construed (a) to constitute Trustee or Beneficiary as a trustee in possession of the Mortgaged Property or, (b) to obligate Trustee or Beneficiary to (i) lease the Mortgaged Property or attempt to do same, (ii) take any action, (iii) incur any expenses or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE VI. MISCELLANEOUS PROVISIONS 6.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby authorized, to pool or unitize all or any part of the lands described in Exhibit A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds and other interests, when, in the reasonable judgment of Mortgagor, it is necessary or advisable to do so in order to form a drilling and/or production unit to facilitate the orderly development of that part of the Mortgaged Property affected thereby, or to comply with the requirements of any Applicable Law or governmental order or regulation relating to the spacing of wells or proration of the production therefrom; provided, however, that any unit so formed for the production of oil shall not substantially exceed 160 acres, and any unit so formed for the production of gas shall not substantially exceed 640 acres, unless a larger area is required to conform to an Applicable Law or governmental order -35- or regulation relating to the spacing of wells or to obtain the maximum allowable production under any Applicable Law or governmental order or regulation relating to the proration of production therefrom; and further provided that the Hydrocarbons produced from any unit so formed shall be allocated among the separately owned tracts or interests comprising the unit in a uniform manner consistently applied. Any unit so formed may relate to one or more zones or horizons, and a unit formed for a particular zone or horizon need not conform in area to any other unit relating to a different zone or horizon, and a unit formed for the production of oil need not conform in area with any unit formed for the production of gas. Promptly after formation of any such unit, Mortgagor shall furnish to Beneficiary and each Secured Debt Representative a true copy of the pooling agreement, declaration of pooling or other instrument creating such unit. The interest in any such unit attributable to the Mortgaged Property (or any part thereof) included therein shall become a part of the Mortgaged Property and shall be subject to the lien hereof in the same manner and with the same effect as though such unit and the interest of Mortgagor therein were specifically described in Exhibit A. Mortgagor is further authorized to amend, modify or terminate any pooling or unitization agreement or order to which Mortgagor is a party or the Mortgaged Property is subject, provided that such action does not conflict with the provisions of this Mortgage, including this Section 6.1. Mortgagor may enter into, or amend, modify or terminate, pooling or unitization agreements not hereinabove authorized only as permitted under the Secured Debt Documents. 6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for their gross negligence or willful misconduct. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Mortgagor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 6.3 Successor Trustee. Any Trustee may resign in writing addressed to Beneficiary or may be removed at any time with or without cause by an instrument in writing duly executed by Beneficiary. In case of the death, resignation or removal of a Trustee, one or more successor Trustee may be appointed by Beneficiary by instrument of substitution complying with any applicable requirements of Applicable Law, and in the absence of any such requirement without formality other than appointment and -36- designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustee, all the estate and title of the prior Trustee in all of the Mortgaged Property, and he or they shall thereupon succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All references herein to Trustee shall be deemed to refer to Trustee from time to time acting hereunder. 6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant herein contained shall be performed and kept by Mortgagor solely at Mortgagor's expense. If Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Mortgage, Beneficiary, or Trustee or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Mortgagor's behalf; provided, however, that concurrently with the taking of such action or making such advances, Beneficiary, Trustee or any Secured Debt Representative, shall deliver notice to Trustor. Mortgagor hereby agrees to repay the expense of such action and such advances upon demand plus interest as set forth in the Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to relieve Mortgagor from any default hereunder. 6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any election by Trustee or Beneficiary not to insist, upon strict performance by Mortgagor of any of the terms, provisions or conditions of the Collateral Trust Agreement or any Secured Debt Documents shall not be deemed to be a waiver of same or of any other term, provision or condition thereof, and Trustee and Beneficiary shall have the right at any time or times thereafter to insist upon strict performance by Mortgagor of any and all of such terms, provisions and conditions. 6.6 Defense of Claims. Mortgagor will notify Beneficiary and each Secured Debt Representative, in writing, promptly of the commencement of any legal proceedings affecting the lien or security interest hereof or the Mortgaged Property, or any part thereof, and will take such action, employing attorneys as set forth in Section 3.4(j), as may be necessary or appropriate to preserve Mortgagor's or Beneficiary's rights affected thereby and/or to hold harmless Beneficiary in respect of such proceedings; and should Mortgagor fail or refuse to take any such action, Beneficiary may, upon giving prior written notice thereof to Mortgagor, take such action in behalf and in the name of Mortgagor and at Mortgagor's expense. Moreover, Beneficiary may take such independent action in connection therewith as it may in its discretion deem proper, Mortgagor hereby agreeing that all sums advanced or all expenses incurred in such actions plus interest thereon at the Default Interest Rate, will, on demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed hereunder or under Applicable Law. The obligations of Mortgagor as hereinabove set forth in this Section 6.6 shall survive the release, termination, foreclosure or assignment of this Mortgage or any sale hereunder. -37- 6.7 The Mortgaged Property to Revert; Release. If the Indebtedness shall be fully paid and the covenants herein contained shall be well and truly performed, then all of the Mortgaged Property shall revert to Mortgagor and the entire estate, right, title and interest of Trustee and Beneficiary shall thereupon cease; and Trustee and Beneficiary in such case shall, upon the request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor proper instruments acknowledging satisfaction of this Mortgage and the release or reconveyance of the lien hereof in accordance with Applicable Law. Notwithstanding anything contained herein to the contrary, the Mortgaged Property, or any part thereof, shall, upon the written request of Mortgagor, be released from the lien of this Mortgage, in accordance with the provisions of the Collateral Trust Agreement, when such a release is permitted by the Collateral Trust Agreement and the other Secured Debt Documents. 6.8 Covenants Running with the Land. All Obligations contained in this Mortgage are intended by the parties to be, and shall be construed as, covenants running with the Mortgaged Property. 6.9 Renewals, Amendments and Other Security. Renewals and extensions of the Indebtedness and modifications of any kind of the Obligations may be given at any time and amendments may be made to agreements with third parties relating to any part of such Indebtedness or the Mortgaged Property and Trustee and Beneficiary may take or may now hold other security from others for the Indebtedness, all without notice to or consent of Mortgagor. Beneficiary may resort first to such other security or any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this Mortgage, which shall continue as a first lien upon and prior perfected security interest in the Mortgaged Property not expressly released until the Secured Debt and all other Indebtedness secured hereby are fully paid. 6.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, or security agreement, and from time to time as any one or more thereof. 6.11 Limitation on Interest. No provision of this Mortgage or the Secured Debt Documents shall require the payment or permit the collection of interest in excess of the Maximum Lawful Rate or which is otherwise contrary to Applicable Law. If any excess of interest in such respect is in the Secured Debt Documents or otherwise herein provided for, or shall be adjudicated to be so provided for herein or in the Secured Debt Documents, Mortgagor shall not be obligated to pay such excess. 6.12 Severability. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which -38- such provision is contained nor the application of such provision to other persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather shall be enforced to the greatest extent permitted by Applicable Law. It is hereby expressly stipulated and agreed to be the intent of Mortgagor and Beneficiary at all times to comply with the usury, and all other, laws relating to the Secured Debt Documents. If, at any time, the applicable Legal Requirements render usurious any amount called for in any Security Document, then it is Mortgagor's, Trustee's and Secured Debtholders' express intent that such document be immediately deemed reformed and the amounts collectible reduced, without the necessity of the execution of any new document, so as to comply with the then Applicable Law but so as to permit the recovery of the fullest amount otherwise called for in such Secured Debt Documents. 6.13 Waiver by Trustee and Beneficiary. Any and all covenants in this Mortgage may from time to time by instrument in writing signed by Trustee and Beneficiary be waived to such extent and in such manner as Trustee and Beneficiary may desire, but no such waiver shall ever affect or impair either Trustee's or Beneficiary's rights or liens or security interests hereunder, except to the extent specifically stated in such written instrument. 6.14 No Partnership. Nothing contained in this Mortgage is intended to, or shall be construed as, creating to any extent and in any manner whatsoever, any partnership, joint venture, or association among Mortgagor, Trustee, Beneficiary and their respective Affiliates, or in any way as to make Beneficiary or Trustee's co-principals with Mortgagor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 6.15 Successors and Assigns. This Mortgage is binding upon Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit of Beneficiary, its successors and assigns, and the provisions hereof shall likewise be covenants running with the land. 6.16 Article and Section Headings. The article and section headings in this Mortgage are inserted for convenience of reference and shall not be considered a part of this Mortgage or used in its interpretation. 6.17 Execution in Counterparts. This Mortgage may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which are identical, except that, to facilitate recordation or filing, in any particular counterpart portions of Exhibit A hereto which describe properties situated in parishes or counties other than the parish or county in which such counterpart is to be recorded or filed may have been omitted. 6.18 Special Filing as Financing Statement. This Mortgage shall likewise be a Security Agreement and a Financing Statement. This Mortgage shall be filed for record, among other places, in the real estate records of each county or parish in which any portion of the real property covered by the oil and gas leases described in Exhibit A -39- hereto is situated, and, when filed in such counties or parishes shall be effective as a financing statement covering Fixtures located on oil and gas properties, which oil and gas properties (and accounts arising therefrom) are to be financed at the wellheads of the wells located on the lands described in Exhibit A. A carbon, photographic or other reproduction of this Mortgage or of any financing statement covering the Mortgaged Property or any portion thereof shall be sufficient as a financing statement and may be filed as such. Mortgagor agrees that any Secured Debt Representative may, in such manner, on such terms and at such times as may be elected by such Secured Debt Representative, and without demand or notice to, or the consent or signature of, Mortgagor, file and/or record such UCC financing statements, fixture filings, and/or amendments to or continuations of any financing statements or fixture filings to evidence, perfect and/or continue the perfection of, any security interests created or to be created pursuant to this Mortgage or any of the other Secured Debt Documents. 6.19 Notices. Except as otherwise required by Sections 5.4 and 5.14 hereof, any notice, request or demand which may be required or permitted to be given or served upon Mortgagor shall be sufficiently given when given or made pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other means and manner of giving of notice as may be required by Applicable Law. 6.20 Reliance. Notwithstanding any reference herein to the Secured Debt Documents, no party shall have any obligation to inquire into the terms or conditions of any such documents and all parties shall be fully authorized to rely upon any statement, certificate, or affidavit of Beneficiary or any future holder of any portion of the Indebtedness as to the occurrence of any event such as the occurrence of any event of default. 6.21 Beneficiary as Agent for the Secured Debtholders. As described above, certain Affiliates of Beneficiary and the Secured Debt Representatives are or may become parties to certain Hedging Agreements with Mortgagor and/or Affiliates of Mortgagor. This Mortgage secures the obligations of Mortgagor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties acknowledge for all purposes that Beneficiary acts for itself and as agent on behalf of such Affiliates of Beneficiary and the Secured Debtholders which are so entitled to share in the rights and benefits accruing to Beneficiary under this Mortgage in respect of the Mortgaged Property. 6.22 Applicable Law. As to any tract or parcel of land comprising a portion of the Mortgaged Property, this Mortgage shall be governed by and construed according to the Applicable Laws of the State where such tract or parcel of land is situated. 6.23 Subrogation. If any or all of the proceeds of Secured Debt have been used to extinguish, extend or renew any indebtedness heretofore existing against the Mortgaged Property, then, to the extent of such funds so used, the Indebtedness and this Mortgage shall be subrogated to all of the rights, claims, liens, titles and interests heretofore existing against the Mortgaged Property to secure the indebtedness so extinguished, extended or renewed and the former rights, claims, liens, titles and -40- interests, if any, are not waived but rather are continued in full force and effect in favor of Beneficiary and are merged with the lien and security interest created herein as cumulative security for the repayment of the Indebtedness and the satisfaction of the Obligations. 6.24 Fixture Filing. Portions of the Mortgaged Property are or are to become fixtures relating to the above described real estate, and Mortgagor herein expressly covenants and agrees that the filing of this Mortgage in the Real Estate Records in the county where the Mortgaged Property is located shall also operate from the time of filing therein as a financing statement filed as a fixture filing in accordance with Section 9.502(c) of the Uniform Commercial Code - Secured Transactions of the State of Texas. -41- IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed this Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing in the presence of the undersigned Notary Public on this 14th day of July, 2003. MORTGAGOR AND DEBTOR CALPINE CORPORATION, a Delaware corporation By:___________________________________ Title: Executive Vice President Printed Name: B.A. Berilgen ATTEST: _________________________________ Printed Name: The name and mailing address of Mortgagor is: Calpine Corporation 1000 Louisiana Street, Suite 800 Houston, TX 77002 [Multistate Mortgage] S-1 STATE OF TEXAS ) ) SECTION COUNTY OF HARRIS ) BE IT REMEMBERED that I, Suzanne B. Snow, a Notary Public duly qualified, commissioned, sworn and acting in and for the County and State aforesaid, hereby certify that, on this 14th day of July, 2003, there appeared before me severally each of the following persons, each being either a Trustee or else the designated officer of the corporation or association set opposite his name, and each such Trustee, corporation and association being a party to the foregoing instrument: B.A. Berilgen, the Executive Vice President, and Michael H. Hickey, the Vice President-Managing Counsel, of Calpine Corporation, a Delaware corporation, which has no corporate seal whose address is 1000 Louisiana Street, Suite 800, Houston, TX 77002. ARKANSAS Before me on this day appeared in person the aforementioned persons, to me personally well known, who stated that they held the offices in the corporation or association set forth opposite their names above (or, in the case of the Trustees, were validly appointed Trustees) and were duly authorized in their respective capacities to execute the foregoing instrument for and in the name and on behalf of said corporation or association (or as Trustees, as the case may be), and further stated and acknowledged that they had so signed, executed and delivered said foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. COLORADO The foregoing instrument was acknowledged before me this day by each such person on behalf of said corporation or association, or himself, as a Trustee, as the case may be. KANSAS On this day before me personally appeared the aforementioned persons, who acknowledged themselves to hold the offices in the corporation set forth opposite their names above (or, in the case of the Trustees, were validly appointed Trustees) and as such officers or Trustees, hereby authorized to do so, executed the foregoing instrument for the purposes therein contained. MISSISSIPPI Personally appeared before me, the undersigned authority in and for the said county and state, on this 14th day of July, 2003, within my jurisdiction the within named B.A. Berilgen who acknowledged that he is the Executive Vice President of CALPINE CORPORATION, a Delaware corporation, and that for and on behalf of said corporation and as its act and deed (he)(she) executed the above and foregoing instrument after first having been duly authorized by said [Multistate Mortgage] S-2 corporation so to do. MONTANA On this day before me personally appeared each such person, each of whom is known to me to be the officer of the corporation that executed the within instrument (or a Trustee, as the case may be), and acknowledged to me that such corporation (or Trustee, as the case may be) executed the same. NEBRASKA The foregoing instrument was acknowledged before me this day and by each such person as the designated officers of the NEW MEXICO corporation or association set opposite their names (or as Trustees, as the case may be) on behalf of said corporation or association, or himself as a Trustee, as the case may be. OKLAHOMA Before me on this day personally appeared the aforementioned persons, to me known to be the identical persons who subscribed the names of the respective makers thereof to the foregoing instrument in the capacities set forth opposite the names of such persons above, and each such person acknowledged to me that he executed the same as his free and voluntary act and deed and as the free and voluntary act and deed of the corporation or association set opposite his name (or of himself as Trustee, as the case may be) for the uses and purposes therein set forth. TEXAS This instrument was acknowledged before me on this day by each such person as the designated officer of the corporation or association set opposite his name (or a Trustee, as the case may be), on behalf of said corporation or association set opposite his name (or of himself as Trustee, as the case may be). WYOMING The foregoing instrument was acknowledged before me by the above individuals on this day. Witness my hand and official seal. _________________________________________ Notary Public Residing at Houston, Harris County, Texas My commission expires: 12/21/2006 [Multistate Mortgage] EXHIBIT A To Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing, dated July 16, 2003, from CALPINE CORPORATION to Denis O'Meara and James Trimble and THE BANK OF NEW YORK List of Properties 1. Depth limitations, unit designations, unit tract descriptions and descriptions (including percentages, decimals or fractions) of undivided leasehold interests, well names, "Operating Interests," "Working Interests" and "Net Revenue Interests" contained in this Exhibit A and the listing of any percentage, decimal or fractional interest in this Exhibit A shall not be deemed to limit or otherwise diminish the interests being subjected to the lien, security interest and encumbrance of this Mortgage. 2. Some of the land descriptions in this Exhibit A may refer only to a portion of the land covered by a particular lease. This Mortgage is not limited to the land described in Exhibit A but is intended to cover the entire interest of Mortgagor in any lease described in Exhibit A even if such interest relates to land not described in Exhibit A. Reference is made to the land descriptions contained in the documents of title recorded as described in this Exhibit A. To the extent that the land descriptions in this Exhibit A are incomplete, incorrect or not legally sufficient, the land descriptions contained in the documents so recorded are incorporated herein by this reference. 3. References in Exhibit A to instruments on file in the public records are made for all purposes. Unless provided otherwise, all recording references in Exhibit A are to the official real property records of the county or counties (or parish or parishes) in which the mortgaged property is located and in which records such documents are or in the past have been customarily recorded, whether Deed Records, Oil and Gas Records, Oil and Gas Lease Records or other records. 4. A statement herein that a certain interest described herein is subject to the terms of certain described or referred to agreements, instruments or other matters shall not operate to subject such interest to any such agreement, instrument or other matter except to the extent that such agreement, instrument or matter is otherwise valid and presently subsisting nor shall such statement be deemed to constitute a recognition by the parties hereto that any such agreement, instrument or other matter is valid and presently subsisting. [Do not detach this page] Ex.A-1 Schedule I Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multi-State) from Calpine Corporation, a Delaware corporation, Trustor and Mortgagor to Kemp Leonard, Trustee, John Quick, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Columbia County, AK Book 334, Page 327 5/14/2002 Miller County, AK Book M-763, Page 58 5/15/2002 Jefferson Davis County, MS 0201602 5/16/2002 Book 475, Page 39 Lawrence County, MS Book 386, Page 46 5/14/2002 Marion County, MS Book 1375, Page 101 5/14/2002 Warren County, MS 184385 5/14/2002 Book 1319, Page 727 Lewis & Clark County, MT 3019331 5/14/2002 Book M26, Page 4622 Sheridan County, MT Book 602, Page 725 5/14/2002 Beckham County, OK 03252 5/14/2002 Book 1738, Page 0237 Caddo County, OK 20023691 5/15/2002 Book 2387, Page 486 Canadian County, OK Book 2573, Page 378 5/28/2002 Custer County, OK Book 1166, Page 418 5/14/2002 Garvin County, OK Book 1632, Page 107 6/19/2002 Grady County, OK 6604 5/15/2002 Book 3378, Page 303 Harper County, OK Book 0575, Page 706 8/12/2002 Love County, OK 1116 5/14/2002 Book 562, Page 472

I-1

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Marshall County, OK I2002-1427 5/14/2002 Book 735, Page 239 McClain County, OK Book 1613, Page 25 5/14/2002 Oklahoma County, OK 2002085739 6/06/2002 Book 8459, Page 3-99 Roger Mills County, OK 2002-2002 5/14/2002 Volume 1678, Page 20 Texas County, OK 2002-662297 5/14/2002 Washita County, OK Book 941, Pages 961-1057 5/14/2002 Woodward County, OK 6162 5/14/2002 Book 1824, Page 001 Woods County, OK Book 935, Page 557 5/14/2002 Cameron County, TX 0026299 5/15/2002 Volume 8004, Page 1 Chambers County, TX 02-557-473 5/15/2002 Duval County, TX 078197 5/16/2002 Volume 326, Page 787 Goliad County, TX 00100688 5/15/2002 Volume 00163, Page 1 Hansford County, TX 62490 5/15/2002 Volume 291, Page 748 Hardin County, TX 02-03596 5/15/2002 Volume 1319, Page 54 Harris County, TX V803613 5/15/2002 Hemphill County, TX 034626 5/15/2002 Volume 547, Page 000272 Houston County, TX 0200000002180 5/15/2002 Jackson County, TX Volume 199, Page 623 5/31/2002 Jefferson County, TX 2002016585 5/6/2002 Jim Hogg County, TX 67248 5/14/2002 Book 32, Pages 725-821

I-2

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Live Oak County, TX 00155319, Vol. 413, 5/7/2002 Page 282 D/T Records Matagorda County, TX 023187 5/14/2002 Volume 659, Page 658 Nueces County, TX 2002022435 5/14/2002 Ochiltree County, TX 65164 5/14/2002 Volume 603, Page 772 Panola County, TX 77340 5/14/2002 Volume 1150, Page 490 Polk County, TX 2002-1266-186 5/14/2002 San Jacinto County, TX 02-3385 5/14/2002 Webb County, TX 760758 5/7/2002 Volume 1210, Page 237 Wharton County, TX 223997 5/14/2002 Volume 458, Page 137 Zapata County, TX 125697 5/7/2002 Volume 668, Pages 001-126 Minerals Management Service n/a 5/08/2002 Gulf of Mexico OCS Region (Jefferson County, TX) Sweetwater County, WY 1360525 5/14/2002 Book 0954, Page 1218 Washakie County, WY 493612 5/16/2002 Book 89, Page 1800-1902

UCC-1 Financing Statement regarding Multi-State Mortgage, naming Calpine Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Minerals Management Service n/a 5/13/2002 Gulf of Mexico OCS Region (Jefferson County, TX)

I-3 Schedule II First Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multi-State) from Calpine Corporation, a Delaware corporation, Trustor and Mortgagor to Dennis O'Meara, Trustee, James Trimble, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows: JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Lewis & Clark County, MT 3029268 11/12/2002 Book M27, Page 3822 Sheridan County, MT Book 603, Page 1464 11/08/2002 Chambers County, TX 8626-B; 02-585-663 10/29/02 Webb County, TX 778732; Vol. 1297, Pg. 544 10/30/02 Second Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement, and Fixture Filing (Multi-State) from Calpine Corporation to Trustees and The Bank of Nova Scotia, filed as follows:

ORIGINAL ORIGINAL SUPPLEMENT SUPPLEMENT JURISDICTION FILE NO. FILE DATE FILE NO. FILE DATE ------------ -------- --------- ---------- --------- Live Oak County, Texas 00155319; 5/7/02 159329; 4/1/03 Vol. 413, Pg. 282 Vol. 430, D/T Records Pg. 55 Panola County, Texas 77340; Vol. 1150, 5/14/02 84148; 4/1/03 Pg. 490 Vol. 1179, Pg. 691 Beckham County, Oklahoma 03252; Book 1738, 5/14/02 1-2003-003102; 4/2/03 Pg. 0237 Book 1769, Pg. 646 Garvin County, Oklahoma Book 1632, Pg. 107 6/19/02 02267; 4/1/03 Book 1658, Pg. 100 Roger Mills County, 2002-2002; 5/14/02 1-2003-001454; 4/1/03 Oklahoma Vol. 1678, Pg. 20 Book 1705, Pg. 466

II-1 Schedule III Partial Release of Lien and Security Interest by The Bank of Nova Scotia in favor of Calpine Corporation (Multi-State Mortgage-partial release) filed as follows:

PARTIAL PARTIAL ORIGINAL ORIGINAL RELEASE FILE RELEASE FILE JURISDICTION FILE NO. FILE DATE NO. DATE ------------ -------- --------- ------------ ------------ Duval County, TX 078197; Vol. 326, 5/16/02 079243; Vol. 334, 9/26/02 (Guerra Prospect) Pg. 787 Pg. 800 Duval County, TX 078197; Vol. 326, 5/16/02 Vol. 335, Pg. 393 10/8/02 (IMPAC) Pg. 787 Webb County, TX 760758; 5/7/02 776680; Vol. 1287, 10/10/02 (Guerra Prospect) Vol. 1210, Pg. 237 Pg. 558 Webb County, TX 760758; 5/7/02 Vol. 1285, Pg. 053 10/7/02 (IMPAC) Vol. 1210, Pg. 237

III-1 EX-10.27 19 f92357exv10w27.txt EXHIBIT 10.27 Exhibit 10.27 MULTISTATE FORM - -------------------------------------------------------------------------------- AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING FROM CALPINE CORPORATION, a Delaware corporation (Taxpayer I.D. No. 77-0212977), Trustor and Mortgagor TO JOHN QUICK, Trustee AND KEMP LEONARD, Trustee AND THE BANK OF NEW YORK, not in its individual capacity but solely as Collateral Trustee, (Taxpayer I.D. No. 13-5160382) as Beneficiary Dated as of July 16, 2003 - -------------------------------------------------------------------------------- "THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS." "THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES." "THOSE PORTIONS OF THE MORTGAGED PROPERTY WHICH ARE AS-EXTRACTED COLLATERAL (INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO, WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS DESCRIBED IN EXHIBIT A HERETO." "SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE." THIS INSTRUMENT WAS PREPARED BY AND WHEN RECORDED AND/OR FILED RETURN TO: MAYER, BROWN, ROWE & MAW LLP 700 Louisiana Street Suite 3600 Houston, Texas 77002 Attn: Kevin L. Shaw, Esq. AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING THIS AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation ("MORTGAGOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to JOHN QUICK and KEMP LEONARD (whether one or more, collectively called "TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among Mortgagor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Mortgage" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. ARTICLE I. RECITALS AND DEFINITIONS 1.1 Mortgagor has heretofore executed and delivered to The Bank of Nova Scotia, for itself and as agent for the Lender Parties (together with its successors in such capacity, the "CREDIT AGREEMENT AGENT") and John Quick and Kemp Leonard, as Trustees, that certain mortgage or deed of trust, dated as of May 1, 2002, as supplemented and amended prior to the date hereof (as so supplemented and amended, herein called the "EXISTING MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2002 LENDERS") pursuant to the terms of that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same may be amended, modified or supplemented from time to time, called the "EXISTING 2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $1,600,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and delivered to the Existing 2002 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002 Loan Notes being payable to the order of the Existing 2002 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorneys' fees and acceleration of maturity in the event of default, as therein set forth; and (ii) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2000 LENDERS", and together with the Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms of that certain Second Amended and Restated Credit Agreement dated as of May 23, -1- 2000 (herein, as the same may be amended, modified, or supplemented from time to time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing 2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2000 Lenders under the Existing 2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing 2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorney's fees and acceleration of maturity in the event of default, as therein set forth. 1.2 The Existing Mortgage, together with other mortgages and deeds of trust (a) have been filed and recorded, among other places, as set forth in Schedule I hereto; (b) have been supplemented and amended by various instruments that have been filed and recorded, among other places, as set forth in Schedule II hereto; and (c) have been amended and certain items of property mortgaged thereby have been released by various instruments that have been filed and recorded, among other places, as set forth in Schedule III hereto. 1.3 Mortgagor, the Existing Lenders and the Credit Agreement Agent are, (i) terminating the commitments under the Existing 2000 Credit Agreement, and (ii) amending and restating the Existing 2002 Credit Agreement (as so amended and restated, and as the same may, from time to time hereafter, be amended, supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT AGREEMENT". 1.4 Mortgagor is also (a) issuing $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing $1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing $750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds -2- from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the borrowing of the Term Loans will be used to refinance a portion of the loans and other indebtedness outstanding under the Existing Credit Agreements. 1.5 As permitted pursuant to the Secured Debt Documents, Mortgagor may incur future debt which could, together with the obligations under the Amended and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future debt which could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Mortgagor intends to secure the Indebtedness, including its obligations (a) under the Amended and Restated Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, with liens and security interests in, among other collateral, the Mortgaged Property under the Existing Mortgage, as contemplated in the Collateral Trust Agreement. 1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment of Liens of even date herewith, the Credit Agreement Agent has assigned to Beneficiary, all of the Credit Agreement Agent's right, title and interest in and to, and its interest as beneficiary under, the Existing Mortgage. This Mortgage amends and restates the Existing Mortgage. The Collateral Trust Agreement sets forth the terms on which the Collateral Trustee, as trustee for the present and future holders of the Indebtedness, will receive, hold, maintain, administer, maintain, enforce and distribute this Mortgage and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof. 1.7 For all purposes of this Mortgage, unless the context otherwise requires: A. "Actionable Default" is defined in the Collateral Trust Agreement. B. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan (as defined under ERISA)). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. C. "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, -3- convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. D. "Default Interest Rate" means the lesser of (a) ten percent (10%), and (b) the Maximum Lawful Rate. E. "Event of Default" means an Actionable Default. F. "Environmental Laws" means any and all present and future Applicable Laws issued, promulgated or entered thereunder relating to pollution or protection of the environment, including laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. G. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. H. "Hedging Agreements" means: (a) interest rate swap agreements, basis swap agreements, interest rate cap agreements, forward rate agreements, interest rate floor agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates, and (b) forward contracts, options, futures contracts, futures options, commodity swaps, commodity options, commodity collars, commodity caps, commodity floors and all other agreements or arrangements designed to protect such Person against fluctuations in the price of commodities. I. "Hedging Obligations" means with respect to any Person, all liabilities (including without limitation obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement. J. "Hydrocarbons" means collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or -4- gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. K. "Indebtedness" shall have the meaning set forth in Section 2.2 of this Mortgage. L. "Indemnification Claim" is defined in Section 4.6(a) of this Mortgage. M. "Indemnified Person" is defined in Section 3.10(c) of this Mortgage. N. "Joint Operating Agreements" shall mean, with respect to the lands described in Exhibit A, the respective operating agreement burdening the lands described in Exhibit A. O. "lands described in Exhibit A" shall include the real property or other interest in any lands which are either described in Exhibit A attached hereto or the description of which is incorporated in Exhibit A by reference to an instrument or document containing in, or referring to, such a description, and shall also include any lands now or hereafter unitized or pooled with lands which are either described in Exhibit A or the description of which is incorporated in Exhibit A by reference and Fixtures and all rights, titles and interests appurtenant thereto. References to Exhibit A shall include, where applicable, Exhibit A-1 as well. P. "Leases" means any and all leases (including without limitation oil and gas leases and oil, gas and other minerals leases), surface leases or easements, subleases, licenses, concessions, operating rights or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to explore, use, lease, license, possess, produce, process, store and transport Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged Property, together with all amendments, modifications, extensions and renewals thereof. Q. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Mortgagor, or the Mortgaged Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Mortgagor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Mortgagor, or the Mortgaged Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Mortgaged Property. -5- R. "Losses" is defined in Section 3.10(c) of this Mortgage. S. "Maximum Lawful Rate" means the maximum nonusurious rate of interest that may be received, charged or contracted for under Applicable Law from time to time in effect. T. "Mortgaged Property" means the properties, rights and interests hereinafter described in Section 1.8 and defined as the Mortgaged Property. U. "Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Secured Debt Documents. U. "Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Secured Debt Documents. V. "oil and gas leases" shall include oil, gas and mineral leases, subleases and assignments thereof, operating rights, and shall also include subleases and assignments of operating rights. W. "Operating Equipment" means all surface or subsurface machinery, goods, equipment, fixtures, inventory, facilities, supplies or other property of whatsoever kind or nature (excluding drilling rigs, trucks, automotive equipment or other property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on or under any of the lands described in Exhibit A which are useful for the production, gathering, treatment, processing, storage or transportation of Hydrocarbons (together with all accessions, additions and attachments to any thereof), including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, tubular goods, rods, pumping units and engines, christmas trees, platforms, derricks, separators, compressors, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and injection), steam generation and injection equipment and systems, power plants, poles, lines, transformers, starters and controllers, supervisory control and data acquisition systems, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading docks, loading racks and shipping facilities. X. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. Y. "Parity Lien Debt" is defined in the Collateral Trust Agreement. Z. "Parity Lien Documents" is defined in the Collateral Trust Agreement. -6- AA. "Parity Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Parity Lien Documents. BB. "Permits" means all authorizations, approvals, permits, variances, land use entitlements, consents, licenses, franchises and agreements issued by or entered into with any Governmental Authority now or hereafter required for all stages of exploration, developing, operating, and plugging and abandoning oil and gas wells (including, without limitation, those shown on Exhibit A) on all or any part of the lands described in Exhibit A (or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in the lands described in Exhibit A). CC. "Permitted Encumbrances" means the outstanding liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters as permitted by and defined in the Secured Debt Documents. DD. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. EE. "Personalty" means all of the right, title and interest of Mortgagor now owned or hereafter acquired in and to all furniture, furnishings, Equipment, machinery, Goods, General Intangibles, money, Accounts, receivables, Contract Rights, Inventory, all refundable, returnable or reimbursable fees, deposits or other funds or evidences of credit or indebtedness deposited by or on behalf of Mortgagor with any Governmental Authority, agencies, boards, corporations, providers of utility services, public or private, including specifically, but without limitation, all refundable, returnable or reimbursable tap fees, utility deposits, commitment fees and development costs, and all other personal property (other than the Fixtures) of any kind or character as defined in and subject to the provisions of Article 9 of the Uniform Commercial Code, now or hereafter located upon, within or about, or used in connection with, the lands described in Exhibit A together with all accessories, replacements and substitutions thereto or therefor and the Proceeds thereof. FF. "Priority Lien Debt" is defined in the Collateral Trust Agreement. GG. "Priority Lien Documents" is defined in the Collateral Trust Agreement. HH. "Priority Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay -7- the Indebtedness) made or undertaken by Mortgagor or others under any of the Priority Lien Documents. II. "Production Sale Contracts" means contracts now in effect, or hereafter entered into by Mortgagor, or entered into by Mortgagor's predecessors in interest, for the sale, purchase, exchange, gathering, transportation, treating or processing of Hydrocarbons produced from the lands described in Exhibit A. JJ. "Rents and Revenues" means all of the rents, revenues, income, proceeds, profits and other benefits paid or payable by parties to the Leases other than Mortgagor for using, leasing, licensing, possessing, operating, selling or otherwise enjoying the Mortgaged Property, including the proceeds from the sale of Hydrocarbons. KK. "Secured Debt" is defined in the Collateral Trust Agreement. LL. "Secured Debtholder" is defined in the Collateral Trust Agreement. MM. "Secured Debt Documents" is defined in the Collateral Trust Agreement. NN. "Secured Debt Representative" is defined in the Collateral Trust Agreement. OO. "Taxes" means all real property and personal property taxes, production taxes, assessments, permit fees, water, gas, sewer, electricity and other utility rates and charges, charges for any easement, license or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, charges and assessments and any interest, costs or penalties with respect thereto, of any kind and nature whatsoever which at any time prior to or after the execution hereof may be charged, assessed, levied or imposed upon the Mortgaged Property or the Rents and Revenues or the ownership, use, occupancy or enjoyment thereof. PP. "Transportation Agreements" shall mean any contracts or agreements entered into from time to time by Mortgagor, or entered into by Mortgagor's predecessors in interest, relating to the transportation of Hydrocarbons, as any such agreement or contract may be amended, supplemented, restated or otherwise modified from time to time. QQ. "Water Rights" means (including without limitation those described in Exhibit A hereto) all now or hereafter existing or acquired water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights, whether evidenced or initiated by permit, decree, well registration, appropriation not decreed, water court application, shares of stock or other interests in mutual ditch or reservoir companies or carrier ditch or reservoir companies or otherwise, appertaining or appurtenant to or beneficially used or -8- useful in connection with the lands described in Exhibit A, together with all pumps, well casings, wellheads, electrical installations, pumphouses, meters, monitoring wells and systems, measuring devices, pipes, pipelines, and other structures or personal property which are or may be used to produce, regulate, measure, distribute, store, or use water from the said water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights. RR. "Uniform Commercial Code" means the Uniform Commercial Code as in effect from time to time in the State of New York or any other applicable state, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. 1.8 Grant. Grant of Priority Lien NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Priority Lien Indebtedness and the full and timely performance and discharge of the Priority Lien Obligations, has granted, bargained, sold, warranted, mortgaged, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of Equipment, General Intangibles, Accounts, As Extracted Collateral, Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other personal property of a kind or character defined in, or subject to the applicable provisions of, the Uniform Commercial Code (as in effect from time to time in the appropriate jurisdiction with respect to each of said properties, rights and interests), Mortgagor hereby grants to said Beneficiary, a security interest therein to the full extent of Mortgagor's legal and beneficial interest therein, now owned or hereafter acquired, namely: (a) the lands described in Exhibit A, and Leases, the fee, mineral, overriding royalty, royalty and other interests which are described in Exhibit A, (b) the presently existing and (subject to the terms of Section 6.1 hereof) hereafter arising unitization, unit operating, communitization and pooling agreements and the properties covered and the units created thereby (including, without limitation, all units formed under orders, regulations, rules, approvals, decisions or other official acts of any Governmental Authority) which are specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A, -9- (c) the Hydrocarbons which are in, under, upon, produced or to be produced from or which are attributed or allocated to the lands described in Exhibit A, (d) the Production Sale Contracts, (e) the Joint Operating Agreements, (f) the Transportation Agreements, (g) the Operating Equipment, (h) the Permits, (i) the Water Rights, (j) the Hedging Agreements, (k) the Leases, (l) the Personalty, (m) the Rents and Revenues, (n) without duplication of any other provision of this granting clause, Equipment, Fixtures and other Goods necessary or used in connection with, and Inventory, Accounts, As Extracted Collateral, General Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents, Electronic Chattel Paper, Instruments and Proceeds arising from, or relating to, the properties and other interests described in Exhibit A (including Exhibit A-1), (o) any and all liens and security interests in Hydrocarbons securing the payment of proceeds from the sale of Hydrocarbons, including but not limited to those liens and security interests provided for in Section 9.343 of the Texas Business and Commerce Code or similar statutes of other jurisdictions or any successor statutes, together with any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the same, or any instrument relating thereto, and all accounts, contracts, contract rights, options, nominee agreements, unitization or pooling agreements, operating agreements and unit operating agreements, processing agreements, farmin agreements, farmout agreements, joint venture agreements, partnership agreements (including mining partnerships), exploration agreements, bottom hole agreements, dry hole agreements, support agreements, acreage contribution agreements, surface use and surface damage agreements, net profits agreements, production payment agreements, Hedging Agreements, insurance policies, title opinions, title abstracts, title materials and information, files, records, writings, data bases, information, systems, logs, well cores, -10- fluid samples, production data and reports, well testing data and reports, maps, seismic and geophysical, geological and chemical data and information, interpretative and analytical reports of any kind or nature (including, without limitation, reserve studies and reserve evaluations), computer hardware and software and all documentation therefor or relating thereto (including, without limitation, all licenses relating to or covering such computer hardware, software and/or documentation), trade secrets, trademarks, service marks and business names and the goodwill of the business relating thereto, copyrights, copyright registrations, unpatented inventions, patent applications and patents, rights-of-way, franchises, bonds, easements, servitudes, surface leases, permits, licenses, tenements, hereditaments, appurtenances, concessions, occupancy agreements, privileges, development rights, condemnation awards, claims against third parties, general intangibles, rents, royalties, issues, profits, products and proceeds, whether now or hereafter existing or arising, used or useful in connection with, covering, relating to, or arising from or in connection with, any of the aforesaid items (a) through o), inclusive, in this granting clause mentioned, and all other things of value and incident thereto (including, without limitation, any and all liens, lien rights, security interests and other properties, rights and interests) which Mortgagor might at any time have or be entitled to, but excluding any data or contracts with respect to which mortgaging or granting of a lien or a security interest is prohibited by existing third party agreements, all the aforesaid properties, rights and interests, together with any additions thereto which may be subjected to the lien and security interest of this Mortgage by means of supplements hereto, being hereinafter, collectively, called the "Mortgaged Property." Grant of Parity Lien NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Parity Lien Indebtedness and the full and timely performance and discharge of the Parity Lien Obligations, has granted, bargained, sold, warranted, mortgaged, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the Mortgaged Property. Subject, however, in each case to (i) Permitted Encumbrances (including without limitation all presently existing royalties, overriding royalties, payments out of production and other burdens which are referred to in Exhibit A and which are taken into consideration in computing any percentage, decimal or fractional interest as set forth in Exhibit A), (ii) the assignment of production contained in Article IV hereof, but only insofar and so long as said assignment of production is not inoperative under the provisions of Section 4.5 hereof, and (iii) the condition that none of Trustee, Beneficiary nor any Secured Debtholder shall be liable in any respect for the performance of any covenant or obligation (including, without limitation, measures required to comply with Environmental Laws) of Mortgagor in respect of the Mortgaged Property. -11- TO HAVE AND TO HOLD the Mortgaged Property for the benefit of Beneficiary, and forever to secure the payment of the Indebtedness and to secure the performance and discharge of the Obligations of Mortgagor herein and therein contained. As set forth in the separate granting clauses above, it is the intent of Mortgagor that such grants shall create two separate and distinct security interests in all right, title and interest of Mortgagor in the Mortgaged Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Parity Lien Debt. Notwithstanding (i) anything to the contrary contained in this Mortgage or any other document, filing or agreement related to the creation, attachment, perfection or existence of the liens and security interests granted herein, (ii) the time, place, order or method of attachment or perfection of such liens or security interests, (iii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect such security interests, and (iv) the rules for determining priority under any law governing the relative priorities of secured creditors, the lien securing the Parity Lien Indebtedness is subordinated and junior in priority to the lien securing the Priority Lien Indebtedness. Mortgagor, in consideration of the Secured Debt as set forth above, hereby covenants and agrees with each of Trustee and Beneficiary: ARTICLE II. INDEBTEDNESS SECURED 2.1 Items of Indebtedness Secured. The following items of indebtedness are secured hereby: (a) The Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Priority Lien Documents; (b) The Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Parity Lien Documents; (c) All Obligations under any other Priority Lien Debt or Parity Lien Debt; (d) Any sums advanced or expenses or costs incurred by Trustee, Beneficiary or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; -12- (e) Any and all other indebtedness of Mortgagor or any Affiliate of Mortgagor to Beneficiary now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (f) Any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (a) through (e) above, whether or not Mortgagor executes any extension agreement or renewal instrument. 2.2 Indebtedness Defined. All the above items of indebtedness described in subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively referred to as the "Priority Lien Indebtedness." And all the above items of indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are hereinafter collectively referred to as the "Parity Lien Indebtedness"; the Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively referred to as the "Indebtedness". 2.3 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and agrees that, except as otherwise provided by the Secured Debt Documents, the Existing Mortgage constitutes a valid and subsisting first lien on the portion of the Mortgaged Property encumbered thereby, and that none of the rights and liens existing thereunder shall be impaired or released hereby, and that the same as amended and restated hereby shall remain in full force and effect, and all rights and liens existing and to exist thereunder are renewed, extended, carried forward, and conveyed to secure all of the Indebtedness hereinabove mentioned. 2.4 Amended and Restated Mortgage. The Existing Mortgage is amended and restated in full hereby in order to, among other things, secure all of the Indebtedness herein described or referred to as if reference to such Indebtedness were fully described in the Existing Mortgage. None of the rights, titles, and interests, existing or to exist under the Existing Mortgage are hereby released, diminished or impaired. 2.5 No Impairment or Discharge of Liens. It is the express intention of all parties hereto that the Secured Debtholders are subrogated to all of the rights, powers, and equities of the original lenders and beneficiary under the Existing Mortgage, that the liens created hereby shall relate back to and be effective as of the effective date of the Existing Mortgage and that nothing contained herein shall be construed to impair or discharge the liens and security interests created thereby. -13- ARTICLE III. PARTICULAR COVENANTS, REPRESENTATIONS AND WARRANTIES OF MORTGAGOR 3.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor will duly and punctually pay the Indebtedness, as and when called for in the Secured Debt Documents and on or before the due dates thereof, and will timely perform and discharge all of the Obligations in full and on or before the dates same are to be performed and discharged. 3.2 Certain Representations and Warranties. Mortgagor represents and warrants (and with respect to those matters set forth in the following subsections (b) and (f), as to those portions of the Mortgaged Property that are operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor makes such representation and warranty to the best of its knowledge) that (a) the oil and gas leases described in Exhibit A hereto are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the properties to which they pertain, (b) all producing wells located on the lands described in Exhibit A (including Exhibit A-1) have been drilled, operated and produced in conformity with all Applicable Laws of all Governmental Authorities having jurisdiction, and are subject to no penalties on account of past production, and such wells are in fact bottomed under and are producing from, and the well bores are wholly within, the lands described in Exhibit A or lands pooled or unitized therewith, (c) Mortgagor, to the extent of the interest specified in Exhibit A (including Exhibit A-1), has valid and indefeasible title to each property right or interest constituting the Mortgaged Property described in Exhibit A (including Exhibit A-1) and has a good and legal right to grant and convey the same to Trustee; such interest entitles Mortgagor to receive not less than the share of Hydrocarbons from such property indicated as its net revenue interest or "NRI" share of such Hydrocarbons, and obligates Mortgagor to pay for not more than the share of operating and other costs, liabilities and expenses associated with such property indicated as its working interest or "WI" share of such costs, liabilities and expenses, (d) Excepting the Permitted Encumbrances, the Mortgaged Property is free from all encumbrances or liens whatsoever, (e) Mortgagor is not obligated, by virtue of any prepayment under any contract providing for the sale by Mortgagor of Hydrocarbons which contains a "take or pay" clause or under any similar arrangement, to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor, -14- (f) the Mortgaged Property is currently being operated, maintained and developed, in all material respects, in accordance with all applicable currently existing Permits, Legal Requirements and all Applicable Laws (including, without limitation, Environmental Laws), (g) the cover page to this Mortgage lists the correct legal name of Mortgagor and Mortgagor has not been known by any legal name different from the one set forth on the cover page of this Mortgage, (h) the execution, delivery, and performance by Mortgagor of this Mortgage (i) are within Mortgagor's corporate powers and have been duly authorized by Mortgagor's Board of Directors, shareholders and all other requisite corporate action, (ii) have received all (if any) requisite prior governmental approval and consent in order to be legally binding and enforceable in accordance with the terms thereof, and (iii) will not violate, be in conflict with, result in a breach or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property or assets, except as contemplated by the provisions of the Secured Debt Documents, and (i) except as permitted by the Secured Debt Documents, there are no actions, suits or proceedings pending, or to the knowledge of Mortgagor threatened, against or affecting Mortgagor or the Mortgaged Property that could materially adversely affect Mortgagor or the Mortgaged Property, or involving the validity or enforceability of this Mortgage or the priority of the liens and security interests created by the Secured Debt Documents, and no event has occurred (including specifically Mortgagor's execution of this Mortgage which will violate, be in conflict with, result in the breach of, or constitute (with due notice or lapse of time, or both) a material default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property other than the liens and security interests created by the Secured Debt Documents. 3.3 Further Assurances. Mortgagor will warrant and forever defend the Mortgaged Property unto Trustee and Beneficiary, as the case may be, against every person whomsoever lawfully claiming the same or any part thereof, subject to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and security interest hereby created so long as any of the Indebtedness remains unpaid. Mortgagor will execute and deliver such other and further instruments and will do such other and further acts as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Documents to carry out more effectually the purposes of this Mortgage, including, without limiting the generality of the foregoing, (i) prompt correction of any defect which may hereafter be discovered in the title to the Mortgaged Property or in the execution and acknowledgment of this Mortgage, the Secured Debt Documents, or any other document executed in connection herewith, and (ii) at any time a Secured Debt Representative may request and upon such request, promptly execute all notices to -15- parties operating, purchasing or receiving proceeds of production of Hydrocarbons from the Mortgaged Property, and all division orders or transfer orders needed in order to transfer effectually or to assist in transferring effectually to the Beneficiary the assigned proceeds of production from the Mortgaged Property, which notices, division orders and transfer orders shall be held by such Secured Debt Representative and delivered upon an Event of Default. 3.4 Operation of the Mortgaged Property. So long as the Indebtedness or any part thereof remains unpaid, and whether or not Mortgagor is the operator of any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's own expense: (a) Do all things necessary to keep unimpaired Mortgagor's rights in the Mortgaged Property and not abandon any well or forfeit, surrender or release any Lease, except that Mortgagor may, in the ordinary course of business, (i) plug and abandon any well no longer capable of producing Hydrocarbons in paying quantities, (ii) surrender or release any Lease or a portion thereof so long as no well capable of producing Hydrocarbons in paying quantities is located on such Lease or a portion thereof or production from any such well is attributed to such Lease or a portion thereof, (iii) surrender or release any Lease or a portion thereof on which no producing well has ever been drilled or which has never been held by production from another well unless Proven Reserves (as defined in any Secured Debt Document) are attributed to such Lease or a portion thereof and (iv) abandon, forfeit, surrender or release any other portion of the Mortgaged Property to the extent permitted under the then existing Secured Debt Documents; (b) Obtain and maintain all required Permits and cause the lands described in Exhibit A to be maintained, developed, protected against drainage, and operated for the production of Hydrocarbons in a good and workmanlike manner as would a prudent operator, and consistent with industry practices, Joint Operating Agreements, and all Applicable Laws, excepting those being contested in good faith; and plug and abandon wells no longer capable of producing Hydrocarbons in paying quantities in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; and remediate the lands described in Exhibit A and facilities located thereon in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; (c) Duly pay and discharge, or cause to be paid and discharged, promptly as and when due and payable, all rentals and royalties (including shut-in royalties) payable in respect of the Mortgaged Property (other than rentals under Leases that are surrendered pursuant to the foregoing Section 3.4(a)), and all expenses incurred in or arising from the operation or development of the Mortgaged Property not later than the due date thereof, or the day any fine, penalty, interest or cost may be added thereto or imposed, or the day any lien may be filed, for the non-payment thereof (if such day is used to determine the -16- due date of the respective item) except as to such matters which are being contested by Mortgagor in good faith; (d) Cause the Operating Equipment to be kept in good and effective operating condition, ordinary wear and tear excepted, and all repairs, renewals, replacements, additions and improvements thereof or thereto, needful to the production of Hydrocarbons from the lands described in Exhibit A, to be promptly made; (e) Not, except as permitted under the Secured Debt Documents, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien (statutory, constitutional or contractual), security interest, encumbrance or charge, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Secured Debt Documents, with, respect to all or any portion of the Mortgaged Property, the Leases or the Rents and Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting a lien but not due and payable, (3) defects or irregularities in title, and liens, charges or encumbrances, which are customarily viewed in the industry as not interfering materially with the development, operation or value of the Mortgaged Property and not such as to affect materially title thereto, and (4) those being contested by Mortgagor in good faith in such manner as not to jeopardize Beneficiary's rights in and to the Mortgaged Property; (f) Carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Mortgagor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Mortgaged Property, is located, insurance in respect of the Operating Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of Rents and Revenues); provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Beneficiary as its interest may appear, which proceeds are hereby assigned to Beneficiary, it being agreed by Mortgagor that such payments shall be applied A) if there be no Event of Default -17- existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Mortgaged Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Beneficiary shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Mortgagor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, endorsed, altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer shall have first given Beneficiary and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Beneficiary shall be furnished with a certificate evidencing such coverage in form and content comparable to coverage typically provided in the industry. All policies to be maintained under this Mortgage are to be issued on forms and by companies and with endorsements as are customary in the industry. Mortgagor shall maintain insurance in an amount sufficient to prevent Mortgagor from becoming a co-insurer under any policy required hereunder. If Mortgagor fails to maintain the level of insurance required under this Mortgage, then Mortgagor shall and hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; (g) Furnish to Beneficiary and each Secured Debt Representative, as soon as possible and in any event within five (5) days after the occurrence from time to time of any change in the address of Mortgagor's location (as described on the signature page hereto) or in the name of Mortgagor, notice in writing of such change; (h) Not initiate or acquiesce in any change in any material zoning or other land use or Water Rights classification now or hereafter in effect and affecting the Mortgaged Property or any part thereof; (i) Notify Beneficiary and each Secured Debt Representative in writing, as soon as possible and in any event within five (5) days after it shall become aware of the occurrence of any Event of Default or any event which, with notice, the passage of time or both would be such an Event of Default; (j) Appear and defend, and hold Beneficiary and any Secured Debtholder harmless from, any action, proceeding or claim affecting the Mortgaged Property or the rights and powers of Beneficiary or Secured Debtholders under the Secured Debt Documents, and all costs and expenses incurred by Beneficiary or any Secured Debtholder in protecting its interests hereunder in such an event (including all court costs and attorneys' fees) shall be borne by Mortgagor; -18- (k) Subject to Mortgagor's right to contest the same, promptly pay all Taxes legally imposed upon this instrument or upon the Mortgaged Property or upon the income and profits thereof, or upon the interest of Beneficiary therein; provided that Mortgagor shall not be liable for taxes accruing after a transfer of the Mortgaged Property following a foreclosure; (l) Comply with, conform to and obey, in all material respects, all present and future Legal Requirements and not use, maintain, operate, occupy, or allow the use, maintenance, operation or occupancy of, the Mortgaged Property in any manner which (a) violates any present and future Legal Requirement, (b) may be dangerous unless safeguarded as required by Applicable Law, (c) constitutes a public or private nuisance or (d) makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto; and (m) Not, except as authorized under the Secured Debt Documents, permit any of the Fixtures or Personalty to be removed at any time from the lands described in Exhibit A unless (i) the removed item is removed temporarily for maintenance and repair, (ii) if removed permanently, is replaced by an article of equal suitability and value, owned by Mortgagor, free and clear of any lien or security interest or (iii) such Fixtures or Personalty are removed in connection with the plugging and abandoning of wells, or abandonment of other facilities, in each case as permitted by this Mortgage. 3.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform and comply with any and all representations, warranties, covenants and agreements expressed as binding upon it under each of the Leases; (b) subject to the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel or waive its rights or the obligations of any other party under any of the Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all reasonable efforts to maintain each of the Leases in force and effect during the full term thereof, and (d) appear in and defend (or cause its operator to appear in and defend) any action or proceeding arising under or in any manner connected with any of the Leases or the representations, warranties, covenants and agreements of it or the other party or parties thereto. 3.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense, record, register, deposit and file this and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the lien and security interest hereof as a first lien on and prior perfected security interest in real or personal property, as the case may be, and the rights and remedies of Beneficiary and Secured Debtholders, and otherwise will do and observe all things or matters necessary or expedient to be done or observed by reason of any Applicable Law, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on and in the Mortgaged Property. -19- 3.7 Sale or Mortgage of the Mortgaged Property. Except (a) as set forth in Section 6.1 of this Mortgage; (b) for sales of severed Hydrocarbons in the ordinary course of Mortgagor's business; (c) for sales of or dispositions of surplus, obsolete or worn inventory or equipment; (d) for the lien and security interest created by this Mortgage, (e) for Permitted Encumbrances, and (f) for sales, exchanges or other dispositions of Mortgaged Property permitted under the Secured Debt Documents governing Priority Lien Debt and permitted under the Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell, convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's right, title or interest therein, and Mortgagor will not enter into any arrangement with any gas pipeline company or other consumer of Hydrocarbons regarding the Mortgaged Property whereby said gas pipeline company or consumer may set off any claim against Mortgagor by withholding payment for any Hydrocarbons actually delivered. 3.8 Records, Statements and Reports. Mortgagor will keep proper books of record and account in which complete and correct entries will be made of Mortgagor's transactions in accordance with generally accepted accounting principles and will furnish or cause to be furnished to each Secured Debt Representative such information concerning the business, affairs and financial condition of Mortgagor as required under the Secured Debt Documents. Without limiting the generality of the foregoing, Mortgagor shall furnish to Beneficiary and each Secured Debt Representative, but not more than every six (6) months: (a) reports prepared by a reputable national independent petroleum engineer regularly engaged by Mortgagor for such purposes or other engineering firm acceptable to the Credit Agreement Agent concerning (1) the quantity of Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income and expense attributable to the Mortgaged Property, and (3) the expediency of any change in methods of treatment or operation of all or any wells productive of Hydrocarbons, any new drilling or development, any method of secondary recovery by repressuring or otherwise, or any other action with respect to the Mortgaged Property, the decision as to which may increase or reduce the quantity of Hydrocarbons ultimately recoverable or the rate of production thereof, and (b) reports for the prior period showing the gross proceeds from the sale of Hydrocarbons produced from the lands described in Exhibit A (including any thereof taken by Mortgagor for Mortgagor's own use), the quantity of such Hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of such proceeds and the number of wells operated, drilled or abandoned. 3.9 Right of Entry. (a) Upon at least twenty-four (24) hours notice to Mortgagor, Mortgagor will permit Beneficiary, each Secured Debt Representative and/or the agents of either of them, at the cost and expense of Mortgagor, to enter upon the Mortgaged Property and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof, and shall permit reasonable access to the field offices and other offices (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and -20- other applicable agreements affecting the Mortgaged Property), including the principal place of business, of Mortgagor to inspect and examine the Mortgaged Property and to inspect, review and reproduce as necessary any books, records, accounts, contracts or other documents of Mortgagor, it being understood that any non-public information obtained in connection therewith shall be subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect. (b) Without limiting the generality of the foregoing, Beneficiary shall have the right (but shall not be obligated to), and each Secured Debt Representative and its agents shall have the right (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor to enter the Mortgaged Property to conduct (at the cost and expense of Mortgagor), or to cause Mortgagor to conduct (at the cost and expense of Mortgagor), such tests and investigations as may be necessary to determine whether any hazardous materials or solid waste is being generated, transported, stored, or disposed of in accordance with applicable Environmental Laws. Such tests and investigations may include, without limitation, underground borings, ground water analyses and borings from the floors, ceilings and walls of any improvements located on the Mortgaged Property. This Section 3.9 shall not be construed to affect or limit the obligations of Mortgagor pursuant to Section 3.4 hereof. (c) Neither Beneficiary nor any Secured Debt Representative shall have any duty to visit or observe the Mortgaged Property, or to conduct tests, and no site visit, observation or testing by any such person (or its agents and independent contractors) shall impose any liability on any such person nor shall Mortgagor or any other obligor be entitled to rely on any such visit, observation or testing in any respect. Beneficiary or a Secured Debt Representative may, but shall not be obligated to, disclose to Mortgagor or, subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect, any other Person, including any Governmental Authority, any report or finding made as a result of, or in connection with, any site visit, observation or testing. Mortgagor agrees that neither Beneficiary nor any Secured Debt Representative makes any warranty or representation to Mortgagor or any other obligor regarding the truth, accuracy or completeness of any such report or findings that may be so disclosed. Mortgagor also acknowledges that, depending upon the results of any site visit, observation or testing disclosed to Mortgagor, Mortgagor may have a legal obligation to notify one or more Governmental Authorities of such results, that such reporting requirements are site-specific, and are to be evaluated by Mortgagor without advice or assistance from Beneficiary or any Secured Debt Representative. -21- 3.10 Environmental Laws. (a) Mortgagor represents and warrants, to the best of its knowledge after due inquiry that: (i) except as permitted by the Secured Debt Documents, the Mortgaged Property is in compliance in all material respects with all applicable Environmental Laws and there are no conditions existing currently which would be likely to subject Mortgagor to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or assertions thereof, or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by Mortgagor; and all use, generation, manufacturing, release, discharge, storage, deposit, treatment, recycling or disposal of any materials on, under or at the Mortgaged Property or transported to or from the Mortgaged Property (or tanks or other facilities thereon containing such materials) are being and will be conducted in accordance, in all material respects, with applicable Environmental Laws including without limitation those requiring cleanup, removal or any other remedial action, (ii) Mortgagor is not a party to any litigation or administrative proceedings, nor so far as is known by Mortgagor is any litigation or administrative proceeding threatened against it, which asserts or alleges that Mortgagor has violated or is violating Environmental Laws or that Mortgagor is required to clean up, remove or take remedial or other responsive action due to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials; neither the Mortgaged Property nor Mortgagor is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws and neither has been named or listed as a potentially responsible party by any Governmental Authority in a matter arising under any Environmental Laws; and (iii) Mortgagor has also obtained all Permits required under applicable Environmental Laws which are necessary for its current exploration, production, transportation, storage, use, and development activities at the Mortgaged Property. (b) Mortgagor shall not use or permit the Mortgaged Property or any part thereof to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process any hazardous materials, except in material compliance with all applicable Environmental Laws, nor shall Mortgagor cause or permit, as a result of any intentional or unintentional act or omission on the part of Mortgagor or any tenant or subtenant, any material release of any hazardous materials onto the Mortgaged Property or onto any other property in material violation of any applicable Environmental Laws. Mortgagor shall comply, in all material respects, with all applicable Environmental Laws and shall -22- obtain and comply, in all material respects. with any and all registrations or Permits required thereunder. To the extent any hazardous materials are released or discharged onto the Mortgaged Property on or after the date of this Mortgage, Mortgagor shall conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions necessary to clean up and remove all such hazardous materials on, from, or affecting the Mortgaged Property or any part thereof (i) in accordance, in all material respects, with all applicable Environmental Laws; and (ii) in accordance, in all material respects, with the orders and directives of all Governmental Authorities having jurisdiction over the Mortgaged Property. Mortgagor shall promptly notify Beneficiary and each Secured Debt Representative of its receipt of any notice of a violation of any Environmental Laws. (c) Regardless of whether any site assessments are conducted pursuant to this Mortgage, and without limiting the liability of Mortgagor for the breach of any warranty, representation or covenant contained herein or in any Secured Debt Document, and notwithstanding any limitation of liability contained in the Secured Debt Documents, Mortgagor hereby agrees to unconditionally and absolutely defend, indemnify and hold harmless Beneficiary, Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Mortgage and any successors or substitute trustee under the Mortgage (any person to be indemnified being herein called the "Indemnified Person"), from and against, and be responsible for, any and all liabilities (including strict liability), actions, demands, penalties, fines, taxes, assessments, losses (including, without limitation, diminution in the value of the Mortgaged Property), costs and expenses (including, without limitation, attorneys', paralegals', accountants' and other experts' and consultants' fees and expenses, and remedial costs, including, without limitation, costs of monitoring), suits, damages, including, without limitation, punitive damages and foreseeable and unforeseeable consequential damages, costs of any settlement or judgment and claims (including, without limitation, third-party claims for personal injury or real or personal property damage) of any and every kind whatsoever (hereinafter, collectively, called the "Losses"), which may now or in the future (whether before or after the release, or other termination of the Mortgage and the other Secured Debt Documents) be paid, imposed upon, incurred or suffered by or asserted or awarded against any of the Indemnified Persons or the Mortgaged Property by any person or entity or Governmental Authority for, with respect to, arising out of, or as a direct or indirect result of, any one or more of the following: (i) the presence or suspected presence, release or suspected release of any hazardous materials at, upon, under, within, above, from, by or in connection with the Mortgaged Property or any portion thereof, or elsewhere in connection with the transportation of hazardous materials to or from the Mortgaged Property (including, without limitation, in the air, soil, groundwater or surface water), or the escape, seepage, leakage, spillage, discharge, emission or release from the Mortgaged Property of any hazardous materials; (ii) any violations of any Environmental Laws at, upon, under, within, from, by or in connection with the Mortgaged Property; (iii) the environmental condition of the Mortgaged Property; -23- (iv) the imposition by any Governmental Authority of any lien or so-called "super priority lien" upon the Mortgaged Property as a result of the presence or release of hazardous materials, or any violation of any Environmental Laws, at, upon, under, within, from, by or connection with the Mortgaged Property; (v) obligations to remediate hazardous materials contamination, or to remediate any condition which constitutes a violation of any Environmental Laws; (vi) any site assessments of the Mortgaged Property; (vii) liability for personal injury or property damage or damage to the environment or fines, penalties and punitive damages, resulting from the presence or release of hazardous materials or any violations of any Environmental Laws, at, upon, under, within, from, by or in connection with the Mortgaged Property; and (viii) any environmental matter described in this Mortgage, including, without limitation, matters arising out of any breach of the covenants, representations and warranties set forth herein in each instance described in (i) through (viii) hereof regardless of whether any such Losses arise out of or result from any breach of the covenants, representations and warranties pertaining to environmental matters set forth in this Mortgage or the other Secured Debt Documents, and regardless of whether or not caused by or within the control of Mortgagor or any Indemnified Person; or whether any such matters arise before, during or after any foreclosure of the Mortgage or other taking of title to all or any portion of the Mortgaged Property or the enforcement of any other remedies under the Secured Debt Documents (if any such event occurs). WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT LIABILITY OF ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON. (d) Notwithstanding the foregoing or any contrary provision hereof, Mortgagor's indemnification obligations set forth in this Section 3.10 shall not extend to any such Losses which are attributable solely to contamination by hazardous materials first introduced to the Mortgaged Property after a foreclosure of this Mortgage or other taking of title to the Mortgaged Property by any of Indemnified Persons. (e) The indemnification provided in this Section 3.10 shall specifically apply to and include claims or actions brought by or on behalf of tenants or employees of Mortgagor. Mortgagor hereby expressly waives (with respect to any claims of any Indemnified Person arising under this Section 3.10) any immunity to which Mortgagor may otherwise be entitled under any industrial or worker's compensation laws. (f) In the event any of the Indemnified Persons shall suffer or incur any such Losses, Mortgagor shall pay to such Indemnified Persons the total of all such Losses suffered or incurred within ten (10) days after demand therefore. -24- (g) Mortgagor agrees that the representations, covenants, warranties and indemnifications contained in this Mortgage shall survive the release of the Mortgage, the foreclosure or the taking of a deed in lieu of foreclosure, other termination of the lien of the Mortgage, or the exercise by Beneficiary of any other remedies under the Secured Debt Documents, the discharge of Mortgagor's Obligations under any of the other Secured Debt Documents, or any transfer of the Mortgaged Property, even if as a part of such foreclosure, deed in lieu of foreclosure or other enforcement action, the Indebtedness is satisfied in full. 3.11 Corporate Mortgagor. Mortgagor will continue to be duly qualified to transact business in each state where the conduct of its business requires it to be qualified, and will not, unless permitted pursuant to the Secured Debt Documents, consolidate or merge with any other partnership, company, corporation or other Person. 3.12 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382. ARTICLE IV. ASSIGNMENT OF PRODUCTION 4.1 Assignment. (a) Mortgagor hereby absolutely and irrevocably (a) transfers, assigns, warrants and conveys, to Beneficiary, effective as of July 1, 2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter produced from and which accrue to the Mortgaged Property, and all proceeds therefrom, and (b) gives to and confers upon Beneficiary the right, power and authority to collect such Hydrocarbons and proceeds. Subject to the terms of Section 4.1 (b), all parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, are authorized and directed to treat and regard Beneficiary as the assignee and transferee of Mortgagor and entitled in Mortgagor's place and stead to receive such Hydrocarbons and all proceeds therefrom; and said parties and each of them shall be fully protected in so treating and regarding Beneficiary and shall be under no obligation to see to the application by Beneficiary of any such proceeds or payments received by it; provided, however, that, until Beneficiary or any Secured Debt Representative shall have instructed such parties that an Event of Default has occurred and to deliver such Hydrocarbons and all proceeds therefrom directly to Beneficiary, such parties shall be entitled to deliver such Hydrocarbons and all proceeds therefrom directly to Mortgagor. So long as no Event of Default shall have occurred, Mortgagor shall be entitled to receive directly from such parties, and keep and retain, all such proceeds from the sale of such Hydrocarbons. -25- (b) Upon the occurrence of an Event of Default (provided that the Secured Debt Representative shall not give such instruction and notice under this Article IV unless such Event of Default shall then be continuing), any Secured Debt Representative may at any time (and from time to time) thereafter give notice thereof to any party producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary, directing that said Hydrocarbons and products are to be delivered into pipelines connected with the oil and gas leases, or to the purchaser thereof, free and clear of all Taxes, and the proceeds from the sale of such Hydrocarbons paid directly to Beneficiary in accordance with Section 4.5 of this Mortgage. Said parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, shall be fully protected in relying on any such Secured Debt Representative's determination and notice of the occurrence of an Event of Default. Mortgagor agrees to perform all such acts, and to execute all such further assignments, transfers and division orders, and other instruments as may be required pursuant to the Collateral Trust Agreement or any of the Secured Debt Documents in order to have said revenues and proceeds so paid to Beneficiary, as and when provided in this Article IV. With respect to any funds received by Beneficiary, Beneficiary is fully authorized to (but shall not be obligated to) receive and give receipt for any such revenues and proceeds that are received by Beneficiary; to endorse and cash any and all checks and drafts payable to the order of Mortgagor or Beneficiary for the account of Mortgagor received from or in connection with said revenues or proceeds and apply the proceeds thereof in accordance with Section 4.2 hereof, and to execute transfer and division orders in the name of Mortgagor, or otherwise, with warranties binding Mortgagor. The assignment of the Hydrocarbons and proceeds in this Section 4.1 is intended to be an absolute assignment from Mortgagor to Beneficiary and not merely the passing of a security interest. Such Hydrocarbons and proceeds are hereby assigned absolutely by Mortgagor to Beneficiary. 4.2 Application of Proceeds. All payments received by Beneficiary pursuant to Section 4.1 hereof shall be placed in a cash collateral account to be applied in accordance with the provisions of the Collateral Trust Agreement. 4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby absolved from all liability for failure to enforce collection of any proceeds so assigned (and no such failure shall be deemed to be a waiver of any right of Beneficiary under this Article IV) and from all other responsibility in connection therewith, except the responsibility to account to Mortgagor for funds actually received. 4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein contained shall detract from or limit the absolute obligation of Mortgagor to make payment of the Indebtedness regardless of whether the proceeds assigned by this Article IV are sufficient to pay the same, and the rights under this Article IV shall be in -26- addition to all other security now or hereafter existing to secure the payment of the Indebtedness. 4.5 Status of Assignment. Notwithstanding the other provisions of this Article IV and in addition to the other rights hereunder, Beneficiary or any receiver appointed in judicial proceedings for the enforcement of this Mortgage shall have the right to receive all of the Hydrocarbons herein assigned and the proceeds therefrom after the occurrence and during the continuance of any Event of Default and to apply all of said proceeds as provided in Section 4.2 hereof. Upon any sale of the Mortgaged Property or any part thereof pursuant to Article V, the Hydrocarbons thereafter produced from the property so sold, and the proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment contained in this Article IV. 4.6 Indemnification Obligation. The following provisions shall apply to, and be deemed in each case to modify, each of the provisions of this Mortgage (except those set forth in Section 3.10 hereof) and the other Secured Debt Documents (except to the extent otherwise expressly provided therein) wherein Mortgagor is obligated to indemnify each of the Indemnified Persons: (a) Mortgagor agrees to indemnify Beneficiary, the Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Mortgage and any successors or substitute trustee under the Mortgage, against all legal and administrative proceedings for which a claim for indemnification may be made by the Indemnified Person (herein, collectively, called "Indemnification Claims") made against or incurred by them or any of them as a consequence of the assertion, either before or after the payment in full of the Indebtedness, that they or any of them received Hydrocarbons herein assigned or the proceeds thereof claimed by third persons and Beneficiary, Secured Debtholders, and Trustee shall have the right to defend against any such Indemnification Claims, employing attorneys therefor, and unless furnished with reasonable indemnity, they or any of them shall have the right to pay or compromise and adjust all such Indemnification Claims. Mortgagor will indemnify and pay to Beneficiary, Secured Debtholders and Trustee any and all such amounts as may be paid in respect thereof or as may be successfully adjudged against such persons. The obligations of Mortgagor as hereinabove set forth in this Section 4.6 shall survive the release termination, foreclosure or assignment of this Mortgage or any sale hereunder. (b) Mortgagor shall pay when due any judgments with respect to an Indemnification Claim against any of the Indemnified Persons and which are rendered by a final order or decree of a court of competent jurisdiction from which no further appeal may be taken or has been taken within the applicable appeal period. In the event that such payment is not made, any of the Indemnified Persons at its sole discretion may pay any such judgments, in whole or in part, and look to Mortgagor for reimbursement pursuant to this Mortgage, or may proceed to file suit against Mortgagor to compel such payment. -27- (c) Any amount which Mortgagor is obligated to pay to or for the benefit of an Indemnified Person with respect to an Indemnification Claim, but which is not paid when due, shall bear interest at the applicable rate set forth under the Secured Debt Documents from the date such amount is due until such amount is paid. ARTICLE V. ENFORCEMENT OF THE SECURITY 5.1 Title Examination. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary shall have the right and power to (but shall not be obligated to) cause to be brought down to date a title examination and tax histories of the Mortgaged Property, procure title opinions or title reports or, if necessary, procure new abstracts and tax histories. 5.2 Environmental Audit. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary shall have the right and power to (but shall not be obligated to) procure an updated or entirely new environmental audit of the Mortgaged Property including the lands described in Exhibit A, buildings, soil, ground water and subsurface investigations; have the buildings inspected by an engineer or other qualified inspector; enter upon the Mortgaged Property at any time and from time to time to show the Mortgaged Property to potential purchasers and potential bidders at foreclosure sale; make available to potential purchasers and potential bidders all information obtained pursuant to the foregoing and any other information in the possession of Beneficiary regarding the Mortgaged Property. 5.3 Power of Sale of Real Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee shall have the right and power to sell, to the extent permitted by Applicable Law, at one or more sales, as an entirety or in parcels, as they may elect, the real property constituting a part of the Mortgaged Property, at such place or places and otherwise in such manner and upon such notice as may be required by Applicable Law, or, in the absence of any such requirement, as Trustee may deem appropriate, and to make conveyance to the purchaser or purchasers; and Mortgagor shall warrant title to such real property to such purchaser or purchasers. Trustee may postpone the sale of all or any portion of such real property by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. The right of sale hereunder shall not be exhausted by one or any sale, and Trustee may make other and successive sales until all of the trust estate be legally sold. With respect to that portion, if any, of the Mortgaged Property situated in the State of Wyoming, this Mortgage may be foreclosed by advertisement and sale as provided by applicable Wyoming statutes. With respect to that portion, if any, of the Mortgaged Property situated in the State of Oklahoma, the Beneficiary shall have the right and power to (but shall not be obligated to) declare the Indebtedness secured hereby due and payable and to sell, or direct Trustee to sell, the "real estate," as such term is -28- defined under the provisions of 46 O.S. Supp. 1986, Section 42, constituting a part of the Mortgaged Property, all under the terms of 46 O.S. Supp. 1986, Section 40 et seq., and shall, to the extent permitted by Applicable Law, have the other rights conferred on Trustee under the provisions of this Mortgage. 5.4 Rights of Beneficiary with Respect to Personal Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary will have all rights and remedies granted by Applicable Law, and particularly by the Uniform Commercial Code, including, but not limited to, the right to take possession of all personal property constituting a part of the Mortgaged Property, and for this purpose Beneficiary may enter upon any premises on which any or all of such personal property is situated and take possession of and operate such personal property (or any portion thereof) or remove it therefrom. Beneficiary may require Mortgagor to assemble such personal property and make it available to Beneficiary at a place to be designated by Beneficiary which is reasonably convenient to all parties. Unless such personal property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Beneficiary will give Mortgagor reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of such personal property is to be made. This requirement of sending reasonable notice will be met if the notice is mailed by first-class mail, postage prepaid, to Mortgagor at the address shown below the signatures at the end of this Mortgage at least five (5) days before the time of the sale or disposition. 5.5 Rights with Respect to Fixtures Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary may elect to treat the fixtures constituting a part of the Mortgaged Property as either real property collateral or personal property collateral and then proceed to exercise such rights as apply to such type of collateral. 5.6 Judicial Proceedings. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee, in lieu of or in addition to exercising any power of sale hereinabove given, may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder for each or upon credit in one or more parcels or portions under executory or ordinary process, at Beneficiary's sole option, without appraisement (appraisement being expressly waived), or for the sale of the Mortgaged Property, or for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate legal or equitable remedy. Mortgagor hereby acknowledges the Indebtedness secured hereby, whether now existing or to arise hereafter, and confesses judgment thereon in the full amount of the Indebtedness in favor of Beneficiary and any future holder or holders of Secured Debt if such obligations are not paid at maturity. 5.7 Possession of the Mortgaged Property. It shall not be necessary for Trustee or Beneficiary to have physically present or constructively in their possession at -29- any sale held by Trustee or Beneficiary or by any court, receiver or public officer any or all of the Mortgaged Property; and Mortgagor shall deliver to the purchasers at such sale on the date of sale the Mortgaged Property purchased by such purchasers at such sale, and if it should be impossible or impracticable for any of such purchasers to take actual delivery of the Mortgaged Property, then the title and right of possession to the Mortgaged Property shall pass to such purchaser at such sale as completely as if the same had been actually present and delivered. 5.8 Certain Aspects of a Sale. Beneficiary shall have the right to (but shall not be obligated to) become the purchaser at any sale held by Trustee, Beneficiary or by any court, receiver or public officer, and Beneficiary shall have the right to (but shall not be obligated to) credit upon the amount of the bid made therefor the amount payable out of the net proceeds of such sale to it Recitals contained in any conveyance made to any purchaser at any sale made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, and the interest accrued on, Secured Debt after the same have become due and payable, advertisement and conduct of such sale in the manner provided herein or appointment of any successor Trustee hereunder. 5.9 Receipt to Purchaser. Upon any sale, whether made under the power of sale herein granted and conferred or by virtue of judicial proceedings, the receipt of Trustee, Beneficiary or of the officer making sale under judicial proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for his or their purchase money, and such purchaser or purchasers, or his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of Trustee, Beneficiary, or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. 5.10 Effect of Sale. Any sale or sales of the Mortgaged Property, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever either at law or in equity, of Mortgagor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against Mortgagor, and Mortgagor's successors or assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Mortgagor or Mortgagor's successors or assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. 5.11 Application of Proceeds. The proceeds of any sale of, and the Rents and Revenues and other amounts generated by the holding, leasing, operation or other use of, the Mortgaged Property shall be applied in accordance with the provisions of the Collateral Trust Agreement. -30- 5.12 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights. Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, so far as Mortgagor or those claiming through or under Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such laws; provided, however, that appraisement of any of the Mortgaged Property located in the State of Oklahoma is hereby expressly waived or not, at the option of Beneficiary, such option to be exercised prior to or at the time the judgment is rendered in any foreclosure hereof. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, waives, to the extent that Mortgagor may lawfully do so, any and all right to have the Mortgaged Property marshalled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that Trustee, Beneficiary or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, further waives, to the full extent that Mortgagor may lawfully do so, any requirement for posting a receiver's bond or replevin bond or other similar type of bond if Trustee or Beneficiary commence an action for appointment of a receiver or an action for replevin to recover possession of any of the Mortgaged Property. If any law in this paragraph referred to and now in force, of which Mortgagor or Mortgagor's successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to, constitute any part of the contract herein contained or to preclude the operation or application of the provisions of this paragraph. Pursuant to Section 39-5-19, New Mexico Statutes, Annotated, 1978 Comp., as amended, Mortgagor agrees that as to the Mortgaged Property situated in the State of New Mexico, the redemption period shall be shortened to one (1) month. Mortgagor hereby waives all rights of appraisement, sale, homestead or redemption allowed under any law or laws of the State of Arkansas, and especially redemption under the Act of the General Assembly of the State of Arkansas approved May 8, 1899, and acts amendatory thereto. If Mortgagor is an individual, Mortgagor waives and releases all rights of dower, courtesy and homestead in the Mortgaged Property insofar as such rights may in any way affect the purposes of this Mortgage. 5.13 Costs and Expenses. All costs and expenses (including attorneys' fees) incurred by Trustee or Beneficiary in protecting and enforcing their rights hereunder shall constitute a demand obligation owing by Mortgagor to the party incurring such costs and expenses and shall draw interest at Default Interest Rate, all of which shall constitute a portion of the Indebtedness. 5.14 Sale of the Mortgaged Property in Texas. If Secured Debt is not paid when due, whether by acceleration or otherwise, Trustee is hereby authorized and empowered to (but shall not be obligated to) sell any part of the Mortgaged Property located in the State of Texas at public sale to the highest bidder for cash in the area at -31- the county courthouse of the county in Texas in which the Texas portion of the Mortgaged Property or any part thereof is situated, as herein described, designated by such county's commissioner's court for such proceedings, or if no area is so designated, at the door of the county courthouse of said county, at a time between the hours of 10:00 A.M. and 4:00 P.M. which is no later than three (3) hours after the time stated in the notice described immediately below as the earliest time at which such sale would occur on the first Tuesday of any month, after advertising the earliest time at which said sale would occur, the place, and terms of said sale, and the portion of the Mortgaged Property to be sold, by (a) posting (or by having some person or persons acting for Trustee post) for at least twenty-one (21) days preceding the date of the sale, written or printed notice of the proposed sale at the courthouse door of said county in which the sale is to be made; and if such portion of the Mortgaged Property lies in more than one county, one such notice of sale shall be posted at the courthouse door of each county in which such part of the Mortgaged Property is situated and such part of the Mortgaged Property may be sold in the area at the county courthouse of any one of such counties designated by such county's commissioner's court for such proceedings, or if no area is so designated, at the courthouse door of such county, and the notice so posted shall designate in which county such property shall be sold, and (b) filing in the office of the county clerk of each county in which any part of the Texas portion of the Mortgaged Property which is to be sold at such sale is situated a copy of the notice posted in accordance with the preceding clause (a). In addition to such posting and filing of notice, Beneficiary may or other holder of the Indebtedness shall, at least twenty-one (21) days preceding the date of sale, serve or cause to be served written notice of the proposed sale by certified mail on Mortgagor and on each other debtor, if any, obligated to pay the Indebtedness according to the records of Beneficiary or other holder of the Indebtedness. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper properly addressed to Mortgagor and such other debtors at their most recent address or addresses as shown by the records of Beneficiary or other holder of the Indebtedness in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such a service was completed shall be prima facie evidence of the fact of service. Mortgagor agrees that no notice of any sale, other than as set out in this Section, need be given by Trustee, Beneficiary or any other person, except as may otherwise be required by Applicable Law. Mortgagor hereby designates as its address for the purpose of such notice the address set out on the signature page hereof; and agrees that such address shall be changed only by depositing notice of such change enclosed in a postpaid wrapper in a post office or official depository under the care and custody of the United States Postal Service, certified mail, postage prepaid, return receipt requested, addressed to Beneficiary or other holder of the Indebtedness at the address for Beneficiary set out herein (or to such other address as Beneficiary or other holder of the Indebtedness may have designated by notice given as above provided to Mortgagor and such other debtors). Any such notice of change of address of Mortgagor or other debtors or of Beneficiary or of other holder of the Indebtedness shall be effective three (3) business days after such deposit if such post office or official depository is located in the State of Texas, otherwise to be effective upon receipt. Mortgagor authorizes and empowers Trustee to -32- sell the Texas portion of the Mortgaged Property in lots or parcels or in its entirety as is customary in the industry or Trustee may elect; and to execute and deliver to the purchaser or purchasers thereof good and sufficient deeds of conveyance thereto by fee simple title, with evidence of general warranty by Mortgagor, and the title of such purchaser or purchasers when so made by Trustee, Mortgagor binds itself to warrant and forever defend. Where portions of the Mortgaged Property lie in different counties, sales in such counties may be conducted in any order that Trustee may deem expedient; and one or more such sales may be conducted in the same month, or in successive or different months. Notwithstanding anything to the contrary contained herein, Trustee may postpone the sale provided for in this Section 5.14 at any time without the necessity of a public announcement. The provisions hereof with respect to the posting and giving of notices of sale are intended to comply with the provisions of Section 51.002 of the Property Code of the State of Texas, effective January 1, 1984, and in the event the requirements, or any notice, under such Section 51.002 of the Property Code of the State of Texas shall be eliminated or the prescribed manner of giving such notices modified by future amendment to, or adoption of any statute superseding, Section 51.002 of the Property Code of the State of Texas, the requirement for such particular notices shall be deemed stricken from or modified in this Mortgage in conformity with such amendment or superseding statute, effective as of the effective date thereof. 5.15 Fair Market Value. It is expressly agreed by Mortgagor that to the extent Section 51.003 of the Texas Property Code, or any amendment thereto, requires that the "fair market value" of the Mortgaged Property shall be determined as of the foreclosure date in order to enforce a deficiency against Mortgagor or any other party liable for repayment of the Indebtedness, the term "fair market value" shall include those matters required by Applicable Law and shall also include the additional factors set forth below: (a) The Mortgaged Property is to be valued "AS IS" and "WITH ALL FAULTS" and there shall be no assumption of restoration of or refurbishment of improvements, if any, after the date of the foreclosure; (b) An offset to the fair market value of the Mortgaged Property, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Mortgaged Property, including but not limited to brokerage commissions, title examination and curative expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of property; and (c) After consideration of the factors required by Applicable Law and those required above, an additional discount factor shall be calculated based upon the estimated time it will take to effectuate a sale of the Mortgaged Property so that the "fair market value" as so determined is discounted to be as of the date of the foreclosure sale of the Mortgaged Property. -33- 5.16 Operation of the Mortgaged Property by Beneficiary. Upon the occurrence of an Event of Default and during the continuance of such Event of Default and in addition to all other rights herein conferred on Beneficiary, Beneficiary (or any person, firm or corporation designated by Beneficiary) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property, and to exclude Mortgagor, and Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer, manage and operate the same to the extent that Mortgagor shall be at the time entitled and in its place and stead. Beneficiary, or any person, firm or corporation designated by Beneficiary, may operate the same without any liability to Mortgagor in connection with such operations, except to use ordinary care in the operation of such properties, and Beneficiary or any person, firm or corporation designated by Beneficiary, shall have the right to (but shall not be obligated to) collect, receive and receipt for all Hydrocarbons produced and sold from said properties, to make repairs, purchase machinery and equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of Mortgagor with respect to the Mortgaged Property. When and if the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) paid by Beneficiary or attributable to Mortgagor's undivided interest therein and withheld, or offset against, by an operator or other party have been paid or reimbursed in full by Mortgagor and the Indebtedness paid, said properties shall, if there has been no sale or foreclosure, be returned to Mortgagor. 5.17 Separate Sales. The Mortgaged Property may be sold in one or more parcels and it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales but other and successive sales may be made until all of the Mortgaged Property has been sold or until the Indebtedness has been fully satisfied. 5.18 Remedies Cumulative, Concurrent and Non-Exclusive. Beneficiary shall have all rights, remedies and recourses granted in the Secured Debt Documents and available at law or equity (including specifically those granted by the Uniform Commercial Code in effect and applicable to the Mortgaged Property, or any portion thereof), and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against any one or more of Mortgagor, any Guarantor, or others obligated under the Secured Debt Documents, or against the Mortgaged Property, pursuant to the Collateral Trust Agreement and any Secured Debt Documents, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Mortgagor that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, non-exclusive. 5.19 Release of and Resort to Collateral. Beneficiary may release, regardless of consideration, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interests created in or evidenced by the Secured Debt Documents or their stature as a first and prior lien and security interest in and to the Mortgaged Property. For payment of the -34- Indebtedness, Beneficiary may resort to any other security therefor held in such order and manner as Beneficiary may elect. 5.20 Discontinuance of Proceedings. In case Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under the Secured Debt Documents and shall thereafter elect to discontinue or abandon same for any reason, Beneficiary shall have the unqualified right so to do and, in such an event, Mortgagor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Secured Debt Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Beneficiary shall continue as if same had never been invoked. 5.21 Uniform Commercial Code Remedies. Beneficiary shall have all the rights, remedies and recourses with respect to the Personalty, Fixtures, Leases and Rents and Revenues afforded a Secured Party by the aforesaid Uniform Commercial Code (being Chapter 9 of the Texas Business and Commerce Code, as to property within the scope thereof and situated in the State of Texas) in addition to, and not in limitation of, the other rights, remedies and recourses afforded Beneficiary by the Secured Debt Documents. 5.22 No Obligation of Trustee or Beneficiary. The assignment and security interest herein granted shall not be deemed or construed (a) to constitute Trustee or Beneficiary as a trustee in possession of the Mortgaged Property or, (b) to obligate Trustee or Beneficiary to (i) lease the Mortgaged Property or attempt to do same, (ii) take any action, (iii) incur any expenses or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE VI. MISCELLANEOUS PROVISIONS 6.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby authorized, to pool or unitize all or any part of the lands described in Exhibit A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds and other interests, when, in the reasonable judgment of Mortgagor, it is necessary or advisable to do so in order to form a drilling and/or production unit to facilitate the orderly development of that part of the Mortgaged Property affected thereby, or to comply with the requirements of any Applicable Law or governmental order or regulation relating to the spacing of wells or proration of the production therefrom; provided, however, that any unit so formed for the production of oil shall not substantially exceed 160 acres, and any unit so formed for the production of gas shall not substantially exceed 640 acres, unless a larger area is required to conform to an Applicable Law or governmental order or regulation relating to the spacing of wells or to obtain the maximum allowable production under any Applicable Law or governmental order or regulation relating to the proration of production therefrom; and further provided that the Hydrocarbons produced from any unit so formed shall be allocated among the separately owned tracts or interests comprising the unit in a uniform manner consistently applied; and further provided that all interests owned by Mortgagor in such unit shall be included within the -35- Mortgaged Property. Any unit so formed may relate to one or more zones or horizons, and a unit formed for a particular zone or horizon need not conform in area to any other unit relating to a different zone or horizon, and a unit formed for the production of oil need not conform in area with any unit formed for the production of gas. Promptly after formation of any such unit, Mortgagor shall furnish to Beneficiary and each Secured Debt Representative a true copy of the pooling agreement, declaration of pooling or other instrument creating such unit. The interest in any such unit attributable to the Mortgaged Property (or any part thereof) included therein shall become a part of the Mortgaged Property and shall be subject to the lien hereof in the same manner and with the same effect as though such unit and the interest of Mortgagor therein were specifically described in Exhibit A. Mortgagor is further authorized to amend, modify or terminate any pooling or unitization agreement or order to which Mortgagor is a party or the Mortgaged Property is subject, provided that such action does not conflict with the provisions of this Mortgage, including this Section 6.1. Mortgagor may enter into, or amend, modify or terminate, pooling or unitization agreements not hereinabove authorized only as permitted under the Secured Debt Documents. 6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for their gross negligence or willful misconduct. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Mortgagor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 6.3 Successor Trustee. Any Trustee may resign in writing addressed to Beneficiary or may be removed at any time with or without cause by an instrument in writing duly executed by Beneficiary. In case of the death, resignation or removal of a Trustee, one or more successor Trustee may be appointed by Beneficiary by instrument of substitution complying with any applicable requirements of Applicable Law, and in the absence of any such requirement without formality other than appointment and designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustee, all the estate and title of the prior Trustee in all of the Mortgaged Property, and he or they shall thereupon succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All -36- references herein to Trustee shall be deemed to refer to Trustee from time to time acting hereunder. 6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant herein contained shall be performed and kept by Mortgagor solely at Mortgagor's expense. If Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Mortgage, Beneficiary, or Trustee or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Mortgagor's behalf; provided, however, that concurrently with the taking of such action or making such advances, Beneficiary, Trustee or any Secured Debt Representative shall deliver notice to Trustor. Mortgagor hereby agrees to repay the expense of such action and such advances upon demand plus interest as set forth in the Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to relieve Mortgagor from any default hereunder. 6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any election by Trustee or Beneficiary not to insist, upon strict performance by Mortgagor of any of the terms, provisions or conditions of the Collateral Trust Agreement or any Secured Debt Documents shall not be deemed to be a waiver of same or of any other term, provision or condition thereof, and Trustee and Beneficiary shall have the right at any time or times thereafter to insist upon strict performance by Mortgagor of any and all of such terms, provisions and conditions. 6.6 Defense of Claims. Mortgagor will notify Beneficiary and each Secured Debt Representative, in writing, promptly of the commencement of any legal proceedings affecting the lien or security interest hereof or the Mortgaged Property, or any part thereof, and will take such action, employing attorneys as set forth in Section 3.4(j), as may be necessary or appropriate to preserve Mortgagor's or Beneficiary's rights affected thereby and/or to hold harmless Beneficiary in respect of such proceedings; and should Mortgagor fail or refuse to take any such action, Beneficiary may, upon giving prior written notice thereof to Mortgagor, take such action in behalf and in the name of Mortgagor and at Mortgagor's expense. Moreover, Beneficiary may take such independent action in connection therewith as it may in its discretion deem proper, Mortgagor hereby agreeing that all sums advanced or all expenses incurred in such actions plus interest thereon at the Default Interest Rate, will, on demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed hereunder or under Applicable Law. The obligations of Mortgagor as hereinabove set forth in this Section 6.6 shall survive the release, termination, foreclosure or assignment of this Mortgage or any sale hereunder. 6.7 The Mortgaged Property to Revert; Release. If the Indebtedness shall be fully paid and the covenants herein contained shall be well and truly performed, then all of the Mortgaged Property shall revert to Mortgagor and the entire estate, right, title and interest of Trustee and Beneficiary shall thereupon cease; and Trustee and Beneficiary in such case shall, upon the request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor proper instruments acknowledging satisfaction of this Mortgage -37- and the release or reconveyance of the lien hereof in accordance with Applicable Law. Notwithstanding anything contained herein to the contrary, the Mortgaged Property, or any part thereof, shall, upon the written request of Mortgagor, be released from the lien of this Mortgage, in accordance with the provisions of the Collateral Trust Agreement, when such a release is permitted by the Collateral Trust Agreement and the other Secured Debt Documents. 6.8 Covenants Running with the Land. All Obligations contained in this Mortgage are intended by the parties to be, and shall be construed as, covenants running with the Mortgaged Property. 6.9 Renewals, Amendments and Other Security. Renewals and extensions of the Indebtedness and modifications of any kind of the Obligations may be given at any time and amendments may be made to agreements with third parties relating to any part of such Indebtedness or the Mortgaged Property and Trustee and Beneficiary may take or may now hold other security from others for the Indebtedness, all without notice to or consent of Mortgagor. Beneficiary may resort first to such other security or any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this Mortgage, which shall continue as a first lien upon and prior perfected security interest in the Mortgaged Property not expressly released until the Secured Debt and all other Indebtedness secured hereby are fully paid. 6.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, or security agreement, and from time to time as any one or more thereof. 6.11 Limitation on Interest. No provision of this Mortgage or the Secured Debt Documents shall require the payment or permit the collection of interest in excess of the Maximum Lawful Rate or which is otherwise contrary to Applicable Law. If any excess of interest in such respect is in the Secured Debt Documents or otherwise herein provided for, or shall be adjudicated to be so provided for herein or in the Secured Debt Documents, Mortgagor shall not be obligated to pay such excess. 6.12 Severability. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained nor the application of such provision to other persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather shall be enforced to the greatest extent permitted by Applicable Law. It is hereby expressly stipulated and agreed to be the intent of Mortgagor and Beneficiary at all times to comply with the usury, and all other, laws relating to the Secured Debt Documents. If, at any time, the applicable Legal Requirements render -38- usurious any amount called for in any Security Document, then it is Mortgagor's, Trustee's and Secured Debtholders' express intent that such document be immediately deemed reformed and the amounts collectible reduced, without the necessity of the execution of any new document, so as to comply with the then Applicable Law but so as to permit the recovery of the fullest amount otherwise called for in such Secured Debt Documents. 6.13 Waiver by Trustee and Beneficiary. Any and all covenants in this Mortgage may from time to time by instrument in writing signed by Trustee and Beneficiary be waived to such extent and in such manner as Trustee and Beneficiary may desire, but no such waiver shall ever affect or impair either Trustee's or Beneficiary's rights or liens or security interests hereunder, except to the extent specifically stated in such written instrument. 6.14 No Partnership. Nothing contained in this Mortgage is intended to, or shall be construed as, creating to any extent and in any manner whatsoever, any partnership, joint venture, or association among Mortgagor, Trustee, Beneficiary and their respective Affiliates, or in any way as to make Beneficiary or Trustee's co-principals with Mortgagor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 6.15 Successors and Assigns. This Mortgage is binding upon Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit of Beneficiary, its successors and assigns, and the provisions hereof shall likewise be covenants running with the land. 6.16 Article and Section Headings. The article and section headings in this Mortgage are inserted for convenience of reference and shall not be considered a part of this Mortgage or used in its interpretation. 6.17 Execution in Counterparts. This Mortgage may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which are identical, except that, to facilitate recordation or filing, in any particular counterpart portions of Exhibit A hereto which describe properties situated in parishes or counties other than the parish or county in which such counterpart is to be recorded or filed may have been omitted. 6.18 Special Filing as Financing Statement. This Mortgage shall likewise be a Security Agreement and a Financing Statement. This Mortgage shall be filed for record, among other places, in the real estate records of each county or parish in which any portion of the real property covered by the oil and gas leases described in Exhibit A hereto is situated, and, when filed in such counties or parishes shall be effective as a financing statement covering Fixtures located on oil and gas properties, which oil and gas properties (and accounts arising therefrom) are to be financed at the wellheads of the wells located on the lands described in Exhibit A. A carbon, photographic or other reproduction of this Mortgage or of any financing statement covering the Mortgaged Property or any portion thereof shall be sufficient as a financing statement and may be -39- filed as such. Mortgagor agrees that any Secured Debt Representative may, in such manner, on such terms and at such times as may be elected by such Secured Debt Representative, and without demand or notice to, or the consent or signature of, Mortgagor, file and/or record such UCC financing statements, fixture filings, and/or amendments to or continuations of any financing statements or fixture filings to evidence, perfect and/or continue the perfection of, any security interests created or to be created pursuant to this Mortgage or any of the other Secured Debt Documents. 6.19 Notices. Except as otherwise required by Sections 5.4 and 5.14 hereof, any notice, request or demand which may be required or permitted to be given or served upon Mortgagor shall be sufficiently given when given or made pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other means and manner of giving of notice as may be required by Applicable Law. 6.20 Reliance. Notwithstanding any reference herein to the Secured Debt Documents, no party shall have any obligation to inquire into the terms or conditions of any such documents and all parties shall be fully authorized to rely upon any statement, certificate, or affidavit of Beneficiary or any future holder of any portion of the Indebtedness as to the occurrence of any event such as the occurrence of any event of default. 6.21 Beneficiary as Agent for the Secured Debtholders. As described above, certain Affiliates of Beneficiary and the Secured Debt Representatives are or may become parties to certain Hedging Agreements with Mortgagor and/or Affiliates of Mortgagor. This Mortgage secures the obligations of Mortgagor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties acknowledge for all purposes that Beneficiary acts for itself and as agent on behalf of such Affiliates of Beneficiary and the Secured Debtholders which are so entitled to share in the rights and benefits accruing to Beneficiary under this Mortgage in respect of the Mortgaged Property. 6.22 Applicable Law. As to any tract or parcel of land comprising a portion of the Mortgaged Property, this Mortgage shall be governed by and construed according to the Applicable Laws of the State where such tract or parcel of land is situated. 6.23 Subrogation. If any or all of the proceeds of Secured Debt have been used to extinguish, extend or renew any indebtedness heretofore existing against the Mortgaged Property, then, to the extent of such funds so used, the Indebtedness and this Mortgage shall be subrogated to all of the rights, claims, liens, titles and interests heretofore existing against the Mortgaged Property to secure the indebtedness so extinguished, extended or renewed and the former rights, claims, liens, titles and interests, if any, are not waived but rather are continued in full force and effect in favor of Beneficiary and are merged with the lien and security interest created herein as cumulative security for the repayment of the Indebtedness and the satisfaction of the Obligations. -40- 6.24 Fixture Filing. Portions of the Mortgaged Property are or are to become fixtures relating to the above described real estate, and Mortgagor herein expressly covenants and agrees that the filing of this Mortgage in the Real Estate Records in the county where the Mortgaged Property is located shall also operate from the time of filing therein as a financing statement filed as a fixture filing in accordance with Section 9.502(c) of the Uniform Commercial Code - Secured Transactions of the State of Texas. -41- IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed this Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing in the presence of the undersigned Notary Public on this 14th day of July, 2003. MORTGAGOR AND DEBTOR CALPINE CORPORATION, a Delaware corporation By:_________________________________________ Title: Executive Vice President Printed Name: B.A. Berilgen ATTEST: ________________________________ Printed Name: The name and mailing address of Mortgagor is: Calpine Corporation 1000 Louisiana Street, Suite 800 Houston, TX 77002 [Multistate Mortgage] S-1 STATE OF TEXAS ) ) SS. COUNTY OF HARRIS ) BE IT REMEMBERED that I, Suzanne B. Snow, a Notary Public duly qualified, commissioned, sworn and acting in and for the County and State aforesaid, hereby certify that, on this 14th day of July, 2003, there appeared before me severally each of the following persons, each being either a Trustee or else the designated officer of the corporation or association set opposite his name, and each such Trustee, corporation and association being a party to the foregoing instrument: B.A. Berilgen, the Executive Vice President, and Michael H. Hickey, the Vice President-Managing Counsel, of Calpine Corporation, a Delaware corporation, which has no corporate seal whose address is 1000 Louisiana Street, Suite 800, Houston, TX 77002. ARKANSAS Before me on this day appeared in person the aforementioned persons, to me personally well known, who stated that they held the offices in the corporation or association set forth opposite their names above (or, in the case of the Trustees, were validly appointed Trustees) and were duly authorized in their respective capacities to execute the foregoing instrument for and in the name and on behalf of said corporation or association (or as Trustees, as the case may be), and further stated and acknowledged that they had so signed, executed and delivered said foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. COLORADO The foregoing instrument was acknowledged before me this day by each such person on behalf of said corporation or association, or himself, as a Trustee, as the case may be. KANSAS On this day before me personally appeared the aforementioned persons, who acknowledged themselves to hold the offices in the corporation set forth opposite their names above (or, in the case of the Trustees, were validly appointed Trustees) and as such officers or Trustees, hereby authorized to do so, executed the foregoing instrument for the purposes therein contained. MISSISSIPPI Personally appeared before me, the undersigned authority in and for the said county and state, on this 14th day of July, 2003, within my jurisdiction the within named B.A. Berilgen who acknowledged that he is the Executive Vice President of CALPINE CORPORATION, a Delaware corporation, and that for and on behalf of said [Multistate Mortgage] corporation and as its act and deed (he)(she) executed the above and foregoing instrument after first having been duly authorized by said corporation so to do. MONTANA On this day before me personally appeared each such person, each of whom is known to me to be the officer of the corporation that executed the within instrument (or a Trustee, as the case may be), and acknowledged to me that such corporation (or Trustee, as the case may be) executed the same. NEBRASKA The foregoing instrument was acknowledged before me this day and by each such person as the designated officers of the NEW MEXICO corporation or association set opposite their names (or as Trustees, as the case may be) on behalf of said corporation or association, or himself as a Trustee, as the case may be. OKLAHOMA Before me on this day personally appeared the aforementioned persons, to me known to be the identical persons who subscribed the names of the respective makers thereof to the foregoing instrument in the capacities set forth opposite the names of such persons above, and each such person acknowledged to me that he executed the same as his free and voluntary act and deed and as the free and voluntary act and deed of the corporation or association set opposite his name (or of himself as Trustee, as the case may be) for the uses and purposes therein set forth. TEXAS This instrument was acknowledged before me on this day by each such person as the designated officer of the corporation or association set opposite his name (or a Trustee, as the case may be), on behalf of said corporation or association set opposite his name (or of himself as Trustee, as the case may be). WYOMING The foregoing instrument was acknowledged before me by the above individuals on this day. Witness my hand and official seal. _________________________________________ Notary Public Residing at Houston, Harris County, Texas My commission expires: 12/21/2006 [Multistate Mortgage] EXHIBIT A To Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing, dated July 16, 2003, from CALPINE CORPORATION to John Quick and Kemp Leonard and THE BANK OF NEW YORK List of Properties 1. Depth limitations, unit designations, unit tract descriptions and descriptions (including percentages, decimals or fractions) of undivided leasehold interests, well names, "Operating Interests," "Working Interests" and "Net Revenue Interests" contained in this Exhibit A and the listing of any percentage, decimal or fractional interest in this Exhibit A shall not be deemed to limit or otherwise diminish the interests being subjected to the lien, security interest and encumbrance of this Mortgage. 2. Some of the land descriptions in this Exhibit A may refer only to a portion of the land covered by a particular lease. This Mortgage is not limited to the land described in Exhibit A but is intended to cover the entire interest of Mortgagor in any lease described in Exhibit A even if such interest relates to land not described in Exhibit A. Reference is made to the land descriptions contained in the documents of title recorded as described in this Exhibit A. To the extent that the land descriptions in this Exhibit A are incomplete, incorrect or not legally sufficient, the land descriptions contained in the documents so recorded are incorporated herein by this reference. 3. References in Exhibit A to instruments on file in the public records are made for all purposes. Unless provided otherwise, all recording references in Exhibit A are to the official real property records of the county or counties (or parish or parishes) in which the mortgaged property is located and in which records such documents are or in the past have been customarily recorded, whether Deed Records, Oil and Gas Records, Oil and Gas Lease Records or other records. 4. A statement herein that a certain interest described herein is subject to the terms of certain described or referred to agreements, instruments or other matters shall not operate to subject such interest to any such agreement, instrument or other matter except to the extent that such agreement, instrument or matter is otherwise valid and presently subsisting nor shall such statement be deemed to constitute a recognition by the parties hereto that any such agreement, instrument or other matter is valid and presently subsisting. [Do not detach this page] Ex. A-1 Schedule I Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multi-State) from Calpine Corporation, a Delaware corporation, Trustor and Mortgagor to Kemp Leonard, Trustee, John Quick, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Columbia County, AK Book 334, Page 327 5/14/2002 Miller County, AK Book M-763, Page 58 5/15/2002 Jefferson Davis County, MS 0201602 5/16/2002 Book 475, Page 39 Lawrence County, MS Book 386, Page 46 5/14/2002 Marion County, MS Book 1375, Page 101 5/14/2002 Warren County, MS 184385 5/14/2002 Book 1319, Page 727 Lewis & Clark County, MT 3019331 5/14/2002 Book M26, Page 4622 Sheridan County, MT Book 602, Page 725 5/14/2002 Beckham County, OK 03252 5/14/2002 Book 1738, Page 0237 Caddo County, OK 20023691 5/15/2002 Book 2387, Page 486 Canadian County, OK Book 2573, Page 378 5/28/2002 Custer County, OK Book 1166, Page 418 5/14/2002 Garvin County, OK Book 1632, Page 107 6/19/2002 Grady County, OK 6604 5/15/2002 Book 3378, Page 303 Harper County, OK Book 0575, Page 706 8/12/2002 Love County, OK 1116 5/14/2002 Book 562, Page 472

I-1

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Marshall County, OK I2002-1427 5/14/2002 Book 735, Page 239 McClain County, OK Book 1613, Page 25 5/14/2002 Oklahoma County, OK 2002085739 6/06/2002 Book 8459, Page 3-99 Roger Mills County, OK 2002-2002 5/14/2002 Volume 1678, Page 20 Texas County, OK 2002-662297 5/14/2002 Washita County, OK Book 941, Pages 961-1057 5/14/2002 Woodward County, OK 6162 5/14/2002 Book 1824, Page 001 Woods County, OK Book 935, Page 557 5/14/2002 Cameron County, TX 0026299 5/15/2002 Volume 8004, Page 1 Chambers County, TX 02-557-473 5/15/2002 Duval County, TX 078197 5/16/2002 Volume 326, Page 787 Goliad County, TX 00100688 5/15/2002 Volume 00163, Page 1 Hansford County, TX 62490 5/15/2002 Volume 291, Page 748 Hardin County, TX 02-03596 5/15/2002 Volume 1319, Page 54 Harris County, TX V803613 5/15/2002 Hemphill County, TX 034626 5/15/2002 Volume 547, Page 000272 Houston County, TX 0200000002180 5/15/2002 Jackson County, TX Volume 199, Page 623 5/31/2002 Jefferson County, TX 2002016585 5/6/2002 Jim Hogg County, TX 67248 5/14/2002 Book 32, Pages 725-821

I-2

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Live Oak County, TX 00155319, Vol. 413, 5/7/2002 Page 282 D/T Records Matagorda County, TX 023187 5/14/2002 Volume 659, Page 658 Nueces County, TX 2002022435 5/14/2002 Ochiltree County, TX 65164 5/14/2002 Volume 603, Page 772 Panola County, TX 77340 5/14/2002 Volume 1150, Page 490 Polk County, TX 2002-1266-186 5/14/2002 San Jacinto County, TX 02-3385 5/14/2002 Webb County, TX 760758 5/7/2002 Volume 1210, Page 237 Wharton County, TX 223997 5/14/2002 Volume 458, Page 137 Zapata County, TX 125697 5/7/2002 Volume 668, Pages 001-126 Minerals Management Service n/a 5/08/2002 Gulf of Mexico OCS Region (Jefferson County, TX) Sweetwater County, WY 1360525 5/14/2002 Book 0954, Page 1218 Washakie County, WY 493612 5/16/2002 Book 89, Page 1800-1902

UCC-1 Financing Statement regarding Multi-State Mortgage, naming Calpine Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Minerals Management Service n/a 5/13/2002 Gulf of Mexico OCS Region (Jefferson County, TX)

I-3 Schedule II First Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Multi-State) from Calpine Corporation, a Delaware corporation, Trustor and Mortgagor to Dennis O'Meara, Trustee, James Trimble, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Lewis & Clark County, MT 3029268 11/12/2002 Book M27, Page 3822 Sheridan County, MT Book 603, Page 1464 11/08/2002 Chambers County, TX 8626-B; 02-585-663 10/29/02 Webb County, TX 778732; Vol. 1297, Pg. 544 10/30/02

Second Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement, and Fixture Filing (Multi-State) from Calpine Corporation to Trustees and The Bank of Nova Scotia, filed as follows:

ORIGINAL ORIGINAL SUPPLEMENT SUPPLEMENT JURISDICTION FILE NO. FILE DATE FILE NO. FILE DATE ------------ -------- --------- ---------- ---------- Live Oak County, Texas 00155319; 5/7/02 159329; 4/1/03 Vol. 413, Vol. 430, Pg. 282 D/T Pg. 55 Records Panola County, Texas 77340; 5/14/02 84148; 4/1/03 Vol. 1150, Vol. 1179, Pg. 490 Pg. 691 Beckham County, 03252; 5/14/02 1-2003-003102; 4/2/03 Oklahoma Book 1738, Book 1769, Pg. 0237 Pg. 646 Garvin County, Book 1632, 6/19/02 02267; 4/1/03 Oklahoma Pg. 107 Book 1658, Pg. 100 Roger Mills County, 2002-2002; 5/14/02 1-2003-001454; 4/1/03 Oklahoma Vol. 1678, Book 1705, Pg. 20 Pg. 466

II-1 Schedule III Partial Release of Lien and Security Interest by The Bank of Nova Scotia in favor of Calpine Corporation (Multi-State Mortgage-partial release) filed as follows:

PARTIAL PARTIAL ORIGINAL ORIGINAL RELEASE RELEASE JURISDICTION FILE NO. FILE DATE FILE NO. FILE DATE ------------ -------- --------- -------- --------- Duval County, TX 078197; 5/16/02 079243; 9/26/02 (Guerra Prospect) Vol. 326, Vol. 334, Pg. 800 Pg. 787 Duval County, TX 078197; 5/16/02 Vol. 335, Pg. 393 10/8/02 (IMPAC) Vol. 326, Pg. 787 Webb County, TX 760758; 5/7/02 776680; 10/10/02 (Guerra Prospect) Vol. 1210, Vol. 1287, Pg. 237 Pg. 558 Webb County, TX 760758; 5/7/02 Vol. 1285, 10/7/02 (IMPAC) Vol. 1210, Pg. 053 Pg. 237

III-1 EX-10.28 20 f92357exv10w28.txt EXHIBIT 10.28 Exhibit 10.28 - -------------------------------------------------------------------------------- AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING FROM CALPINE CORPORATION, a Delaware corporation (Taxpayer I.D. No. 77-0212977), Trustor and Mortgagor TO DENIS O'MEARA, Trustee AND JAMES TRIMBLE, Trustee AND THE BANK OF NEW YORK, not in its individual capacity but solely as Collateral Trustee, (Taxpayer I.D. No. 13-5160382) as Beneficiary Dated as of July 16, 2003 - -------------------------------------------------------------------------------- "THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS." "THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES." "THOSE PORTIONS OF THE MORTGAGED PROPERTY WHICH ARE AS-EXTRACTED COLLATERAL (INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO, WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS DESCRIBED IN EXHIBIT A HERETO." "SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE." THIS INSTRUMENT WAS PREPARED BY AND WHEN RECORDED AND/OR FILED RETURN TO: Kevin L. Shaw, Esq. Mayer, Brown, Rowe & Maw LLP 700 Louisiana Street Suite 3600 Houston, Texas 77002 AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING THIS AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation ("MORTGAGOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to DENIS O'MEARA and JAMES TRIMBLE (whether one or more, collectively called "TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among Mortgagor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Mortgage" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. ARTICLE I. RECITALS AND DEFINITIONS 1.1 Mortgagor has heretofore executed and delivered to The Bank of Nova Scotia, for itself and as agent for the Lender Parties (together with its successors in such capacity, the "CREDIT AGREEMENT AGENT") and John Quick (as predecessor-in-interest to Denis O'Meara) and Kemp Leonard (as predecessor-in-interest to James Trimble), as Trustees, that certain mortgage or deed of trust, dated as of May 1, 2002, as supplemented and amended prior to the date hereof (as so supplemented and amended, herein called the "EXISTING MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2002 LENDERS") pursuant to the terms of that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same may be amended, modified or supplemented from time to time, called the "EXISTING 2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $1,600,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and delivered to the Existing 2002 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002 Loan Notes being payable to the order of the Existing 2002 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorneys' fees and acceleration of maturity in the event of default, as therein set forth; and (ii) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2000 LENDERS", and together with the Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms of that certain Second Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the same may be amended, modified, or supplemented from time to -1- time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing 2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2000 Lenders under the Existing 2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing 2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorney's fees and acceleration of maturity in the event of default, as therein set forth. 1.2 The Existing Mortgage, together with other mortgages and deeds of trust (a) have been filed and recorded, among other places, as set forth in Schedule I hereto; (b) have been supplemented and amended by various instruments that have been filed and recorded, among other places, as set forth in Schedule II hereto; and (c) have been amended and certain items of property mortgaged thereby have been released by various instruments that have been filed and recorded, among other places, as set forth in Schedule III hereto. 1.3 Mortgagor, the Existing Lenders and the Credit Agreement Agent are (i) terminating the commitments under the Existing 2000 Credit Agreement, and (ii) amending and restating the Existing 2002 Credit Agreement (as so amended and restated, and as the same may, from time to time hereafter, be amended, supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT AGREEMENT". 1.4 Mortgagor is also (a) issuing $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing $1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing $750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the -2- borrowing of the Term Loans will be used to refinance a portion of the loans and other indebtedness outstanding under the Existing Credit Agreements. 1.5 As permitted pursuant to the Secured Debt Documents, Mortgagor may incur future debt which could, together with the obligations under the Amended and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future debt which could, together with the 2007 Notes, 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Mortgagor intends to secure the Indebtedness, including its obligations (a) under the Amended and Restated Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, with liens and security interests in, among other collateral, the Mortgaged Property under the Existing Mortgage, as contemplated in the Collateral Trust Agreement. 1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment of Liens of even date herewith, the Credit Agreement Agent has assigned to Beneficiary, all of the Credit Agreement Agent's right, title and interest in and to, and its interest as beneficiary under, the Existing Mortgage. This Mortgage amends and restates the Existing Mortgage. The Collateral Trust Agreement sets forth the terms on which the Collateral Trustee, as trustee for the present and future holders of the Indebtedness, will receive, hold, maintain, administer, maintain, enforce and distribute this Mortgage and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof. 1.7 For all purposes of this Mortgage, unless the context otherwise requires: A. "Actionable Default" is defined in the Collateral Trust Agreement. B. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan (as defined under ERISA)). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. C. "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, -3- determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. D. "Default Interest Rate" means the lesser of (a) ten percent (10%), and (b) the Maximum Lawful Rate. E. "Event of Default" means an Actionable Default. F. "Environmental Laws" means any and all present and future Applicable Laws issued, promulgated or entered thereunder relating to pollution or protection of the environment, including laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. G. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. H. "Hedging Agreements" means: (a) interest rate swap agreements, basis swap agreements, interest rate cap agreements, forward rate agreements, interest rate floor agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates, and (b) forward contracts, options, futures contracts, futures options, commodity swaps, commodity options, commodity collars, commodity caps, commodity floors and all other agreements or arrangements designed to protect such Person against fluctuations in the price of commodities. I. "Hedging Obligations" means with respect to any Person, all liabilities (including without limitation obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement. J. "Hydrocarbons" means collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. -4- K. "Indebtedness" shall have the meaning set forth in Section 2.2 of this Mortgage. L. "Indemnification Claim" is defined in Section 4.6(a) of this Mortgage. M. "Indemnified Person" is defined in Section 3.10(c) of this Mortgage. N. "Joint Operating Agreements" shall mean, with respect to the lands described in Exhibit A, the respective operating agreement burdening the lands described in Exhibit A. O. "lands described in Exhibit A" shall include the real property or other interest in any lands which are either described in Exhibit A attached hereto or the description of which is incorporated in Exhibit A by reference to an instrument or document containing in, or referring to, such a description, and shall also include any lands now or hereafter unitized or pooled with lands which are either described in Exhibit A or the description of which is incorporated in Exhibit A by reference and Fixtures and all rights, titles and interests appurtenant thereto. References to Exhibit A shall include, where applicable, Exhibit A-1 as well. P. "Leases" means any and all leases (including without limitation oil and gas leases and oil, gas and other minerals leases), surface leases or easements, subleases, licenses, concessions, operating rights or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to explore, use, lease, license, possess, produce, process, store and transport Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged Property, together with all amendments, modifications, extensions and renewals thereof. Q. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Mortgagor, or the Mortgaged Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Mortgagor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Mortgagor, or the Mortgaged Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Mortgaged Property. R. "Losses" is defined in Section 3.10(c) of this Mortgage. -5- S. "Maximum Lawful Rate" means the maximum nonusurious rate of interest that may be received, charged or contracted for under Applicable Law from time to time in effect. T. "Mortgaged Property" means the properties, rights and interests hereinafter described in Section 1.8 and defined as the Mortgaged Property. U. "Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Secured Debt Documents. V. "oil and gas leases" shall include oil, gas and mineral leases, subleases and assignments thereof, operating rights, and shall also include subleases and assignments of operating rights. W. "Operating Equipment" means all surface or subsurface machinery, goods, equipment, fixtures, inventory, facilities, supplies or other property of whatsoever kind or nature (excluding drilling rigs, trucks, automotive equipment or other property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on or under any of the lands described in Exhibit A which are useful for the production, gathering, treatment, processing, storage or transportation of Hydrocarbons (together with all accessions, additions and attachments to any thereof), including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, tubular goods, rods, pumping units and engines, christmas trees, platforms, derricks, separators, compressors, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and injection), steam generation and injection equipment and systems, power plants, poles, lines, transformers, starters and controllers, supervisory control and data acquisition systems, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading docks, loading racks and shipping facilities. X. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. Y. "Parity Lien Debt" is defined in the Collateral Trust Agreement. -6- Z. "Parity Lien Documents" is defined in the Collateral Trust Agreement. AA. "Parity Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Parity Lien Documents. BB. "Permits" means all authorizations, approvals, permits, variances, land use entitlements, consents, licenses, franchises and agreements issued by or entered into with any Governmental Authority now or hereafter required for all stages of exploration, developing, operating, and plugging and abandoning oil and gas wells (including, without limitation, those shown on Exhibit A) on all or any part of the lands described in Exhibit A (or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in the lands described in Exhibit A). CC. "Permitted Encumbrances" means the outstanding liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters as permitted by and defined in the Secured Debt Documents. DD. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. EE. "Personalty" means all of the right, title and interest of Mortgagor now owned or hereafter acquired in and to all furniture, furnishings, Equipment, machinery, Goods, General Intangibles, money, Accounts, receivables, Contract Rights, Inventory, all refundable, returnable or reimbursable fees, deposits or other funds or evidences of credit or indebtedness deposited by or on behalf of Mortgagor with any Governmental Authority, agencies, boards, corporations, providers of utility services, public or private, including specifically, but without limitation, all refundable, returnable or reimbursable tap fees, utility deposits, commitment fees and development costs, and all other personal property (other than the Fixtures) of any kind or character as defined in and subject to the provisions of Article 9 of the Uniform Commercial Code, now or hereafter located upon, within or about, or used in connection with, the lands described in Exhibit A together with all accessories, replacements and substitutions thereto or therefor and the Proceeds thereof. FF. "Priority Lien Debt" is defined in the Collateral Trust Agreement. GG. "Priority Lien Documents" is defined in the Collateral Trust Agreement. -7- HH. "Priority Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Priority Lien Documents. II. "Production Sale Contracts" means contracts now in effect, or hereafter entered into by Mortgagor, or entered into by Mortgagor's predecessors in interest, for the sale, purchase, exchange, gathering, transportation, treating or processing of Hydrocarbons produced from the lands described in Exhibit A. JJ. "Rents and Revenues" means all of the rents, revenues, income, proceeds, profits and other benefits paid or payable by parties to the Leases other than Mortgagor for using, leasing, licensing, possessing, operating, selling or otherwise enjoying the Mortgaged Property, including the proceeds from the sale of Hydrocarbons. KK. "Secured Debt" is defined in the Collateral Trust Agreement. LL. "Secured Debtholder" is defined in the Collateral Trust Agreement. MM. "Secured Debt Documents" is defined in the Collateral Trust Agreement. NN. "Secured Debt Representative" is defined in the Collateral Trust Agreement. OO. "Taxes" means all real property and personal property taxes, production taxes, assessments, permit fees, water, gas, sewer, electricity and other utility rates and charges, charges for any easement, license or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, charges and assessments and any interest, costs or penalties with respect thereto, of any kind and nature whatsoever which at any time prior to or after the execution hereof may be charged, assessed, levied or imposed upon the Mortgaged Property or the Rents and Revenues or the ownership, use, occupancy or enjoyment thereof. PP. "Transportation Agreements" shall mean any contracts or agreements entered into from time to time by Mortgagor, or entered into by Mortgagor's predecessors in interest, relating to the transportation of Hydrocarbons, as any such agreement or contract may be amended, supplemented, restated or otherwise modified from time to time. QQ. "Uniform Commercial Code" means the Uniform Commercial Code as in effect from time to time in the State of New York or any other applicable state, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," -8- "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. RR. "Water Rights" means (including without limitation those described in Exhibit A hereto) all now or hereafter existing or acquired water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights, whether evidenced or initiated by permit, decree, well registration, appropriation not decreed, water court application, shares of stock or other interests in mutual ditch or reservoir companies or carrier ditch or reservoir companies or otherwise, appertaining or appurtenant to or beneficially used or useful in connection with the lands described in Exhibit A, together with all pumps, well casings, wellheads, electrical installations, pumphouses, meters, monitoring wells and systems, measuring devices, pipes, pipelines, and other structures or personal property which are or may be used to produce, regulate, measure, distribute, store, or use water from the said water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights. 1.8 Grant. Grant of Priority Lien NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Priority Lien Indebtedness and the full and timely performance and discharge of the Priority Lien Obligations, has granted, bargained, sold, warranted, mortgaged, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of Equipment, General Intangibles, Accounts, As Extracted Collateral, Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other personal property of a kind or character defined in, or subject to the applicable provisions of, the Uniform Commercial Code (as in effect from time to time in the appropriate jurisdiction with respect to each of said properties, rights and interests), Mortgagor hereby grants to said Beneficiary, a security interest therein to the full extent of Mortgagor's legal and beneficial interest therein, now owned or hereafter acquired, namely: (a) the lands described in Exhibit A, and Leases, the fee, mineral, overriding royalty, royalty and other interests which are described in Exhibit A, (b) the presently existing and (subject to the terms of Section 6.1 hereof) hereafter arising unitization, unit operating, communitization and pooling agreements and the properties covered and the units created thereby (including, without limitation, all units formed under orders, regulations, rules, approvals, decisions or other official acts of any Governmental Authority) which are -9- specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A, (c) the Hydrocarbons which are in, under, upon, produced or to be produced from or which are attributed or allocated to the lands described in Exhibit A, (d) the Production Sale Contracts, (e) the Joint Operating Agreements, (f) the Transportation Agreements, (g) the Operating Equipment, (h) the Permits, (i) the Water Rights, (j) the Hedging Agreements, (k) the Leases, (l) the Personalty, (m) the Rents and Revenues, (n) without duplication of any other provision of this granting clause, Equipment, Fixtures and other Goods necessary or used in connection with, and Inventory, Accounts, As Extracted Collateral, General Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents, Electronic Chattel Paper, Instruments and Proceeds arising from, or relating to, the properties and other interests described in Exhibit A (including Exhibit A-1), (o) any and all liens and security interests in Hydrocarbons securing the payment of proceeds from the sale of Hydrocarbons, including but not limited to those liens and security interests provided for in Section 9.343 of the Texas Business and Commerce Code or similar statutes of other jurisdictions or any successor statutes, together with any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the same, or any instrument relating thereto, and all accounts, contracts, contract rights, options, nominee agreements, unitization or pooling agreements, operating agreements and unit operating agreements, processing agreements, farmin agreements, farmout agreements, joint venture agreements, partnership agreements (including mining partnerships), exploration agreements, bottom hole agreements, dry hole agreements, support agreements, acreage contribution agreements, surface use and surface -10- damage agreements, net profits agreements, production payment agreements, Hedging Agreements, insurance policies, title opinions, title abstracts, title materials and information, files, records, writings, data bases, information, systems, logs, well cores, fluid samples, production data and reports, well testing data and reports, maps, seismic and geophysical, geological and chemical data and information, interpretative and analytical reports of any kind or nature (including, without limitation, reserve studies and reserve evaluations), computer hardware and software and all documentation therefor or relating thereto (including, without limitation, all licenses relating to or covering such computer hardware, software and/or documentation), trade secrets, trademarks, service marks and business names and the goodwill of the business relating thereto, copyrights, copyright registrations, unpatented inventions, patent applications and patents, rights-of-way, franchises, bonds, easements, servitudes, surface leases, permits, licenses, tenements, hereditaments, appurtenances, concessions, occupancy agreements, privileges, development rights, condemnation awards, claims against third parties, general intangibles, rents, royalties, issues, profits, products and proceeds, whether now or hereafter existing or arising, used or useful in connection with, covering, relating to, or arising from or in connection with, any of the aforesaid items (a) through o), inclusive, in this granting clause mentioned, and all other things of value and incident thereto (including, without limitation, any and all liens, lien rights, security interests and other properties, rights and interests) which Mortgagor might at any time have or be entitled to, but excluding any data or contracts with respect to which mortgaging or granting of a lien or a security interest is prohibited by existing third party agreements, all the aforesaid properties, rights and interests, together with any additions thereto which may be subjected to the lien and security interest of this Mortgage by means of supplements hereto, being hereinafter, collectively, called the "Mortgaged Property." Grant of Parity Lien NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Parity Lien Indebtedness and the full and timely performance and discharge of the Parity Lien Obligations, has granted, bargained, sold, warranted, mortgaged, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the Mortgaged Property. Subject, however, in each case to (i) Permitted Encumbrances (including without limitation all presently existing royalties, overriding royalties, payments out of production and other burdens which are referred to in Exhibit A and which are taken into consideration in computing any percentage, decimal or fractional interest as set forth in Exhibit A), (ii) the assignment of production contained in Article IV hereof, but only insofar and so long as said assignment of production is not inoperative under the provisions of Section 4.5 hereof, and (iii) the condition that none of Trustee, Beneficiary nor any Secured Debtholder shall be liable in any respect for the performance of any covenant or obligation (including, without limitation, measures required to comply with Environmental Laws) of Mortgagor in respect of the Mortgaged Property. -11- TO HAVE AND TO HOLD the Mortgaged Property for the benefit of Beneficiary, and forever to secure the payment of the Indebtedness and to secure the performance and discharge of the Obligations of Mortgagor herein and therein contained. As set forth in the separate granting clauses above, it is the intent of Mortgagor that such grants shall create two separate and distinct security interests in all right, title and interest of Mortgagor in the Mortgaged Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Parity Lien Debt. Notwithstanding (i) anything to the contrary contained in this Mortgage or any other document, filing or agreement related to the creation, attachment, perfection or existence of the liens and security interests granted herein, (ii) the time, place, order or method of attachment or perfection of such liens or security interests, (iii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect such security interests, and (iv) the rules for determining priority under any law governing the relative priorities of secured creditors, the lien securing the Parity Lien Indebtedness is subordinated and junior in priority to the lien securing the Priority Lien Indebtedness. Mortgagor, in consideration of the Secured Debt as set forth above, hereby covenants and agrees with each of Trustee and Beneficiary: ARTICLE II. INDEBTEDNESS SECURED 2.1 Items of Indebtedness Secured. The following items of indebtedness are secured hereby: (a) The Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Priority Lien Documents; (b) The Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Parity Lien Documents; (c) All Obligations under any other Priority Lien Debt or Parity Lien Debt; (d) Any sums advanced or expenses or costs incurred by Trustee, Beneficiary or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (e) Any and all other indebtedness of Mortgagor or any Affiliate of Mortgagor to Beneficiary now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how -12- evidenced or arising, where the indebtedness provides that it is secured hereby; and (f) Any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (a) through (e) above, whether or not Mortgagor executes any extension agreement or renewal instrument. 2.2 Indebtedness Defined. All the above items of indebtedness described in subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively referred to as the "Priority Lien Indebtedness." And all the above items of indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are hereinafter collectively referred to as the "Parity Lien Indebtedness"; the Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively referred to as the "Indebtedness". 2.3 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and agrees that, except as otherwise provided by the Secured Debt Documents, the Existing Mortgage constitutes a valid and subsisting first lien on the portion of the Mortgaged Property encumbered thereby, and that none of the rights and liens existing thereunder shall be impaired or released hereby, and that the same as amended and restated hereby shall remain in full force and effect, and all rights and liens existing and to exist thereunder are renewed, extended, carried forward, and conveyed to secure all of the Indebtedness hereinabove mentioned. 2.4 Amended and Restated Mortgage. The Existing Mortgage is amended and restated in full hereby in order to, among other things, secure all of the Indebtedness herein described or referred to as if reference to such Indebtedness were fully described in the Existing Mortgage. None of the rights, titles, and interests, existing or to exist under the Existing Mortgage are hereby released, diminished or impaired. 2.5 No Impairment or Discharge of Liens. It is the express intention of all parties hereto that the Secured Debtholders are subrogated to all of the rights, powers, and equities of the original lenders and beneficiary under the Existing Mortgage, that the liens created hereby shall relate back to and be effective as of the effective date of the Existing Mortgage and that nothing contained herein shall be construed to impair or discharge the liens and security interests created thereby. ARTICLE III. PARTICULAR COVENANTS, REPRESENTATIONS AND WARRANTIES OF MORTGAGOR 3.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor will duly and punctually pay the Indebtedness, as and when called for in the Secured Debt Documents and on or before the due dates thereof, and will timely perform and discharge all of the Obligations in full and on or before the dates same are to be performed and discharged. -13- 3.2 Certain Representations and Warranties. Mortgagor represents and warrants (and with respect to those matters set forth in the following subsections (b) and (f), as to those portions of the Mortgaged Property that are operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor makes such representation and warranty to the best of its knowledge) that (a) the oil and gas leases described in Exhibit A hereto are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the properties to which they pertain, (b) all producing wells located on the lands described in Exhibit A (including Exhibit A-1) have been drilled, operated and produced in conformity with all Applicable Laws of all Governmental Authorities having jurisdiction, and are subject to no penalties on account of past production, and such wells are in fact bottomed under and are producing from, and the well bores are wholly within, the lands described in Exhibit A or lands pooled or unitized therewith, (c) Mortgagor, to the extent of the interest specified in Exhibit A (including Exhibit A-1), has valid and indefeasible title to each property right or interest constituting the Mortgaged Property described in Exhibit A (including Exhibit A-1) and has a good and legal right to grant and convey the same to Trustee; such interest entitles Mortgagor to receive not less than the share of Hydrocarbons from such property indicated as its net revenue interest or "NRI" share of such Hydrocarbons, and obligates Mortgagor to pay for not more than the share of operating and other costs, liabilities and expenses associated with such property indicated as its working interest or "Wl" share of such costs, liabilities and expenses, (d) Excepting the Permitted Encumbrances, the Mortgaged Property is free from all encumbrances or liens whatsoever, (e) Mortgagor is not obligated, by virtue of any prepayment under any contract providing for the sale by Mortgagor of Hydrocarbons which contains a "take or pay" clause or under any similar arrangement, to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor, (f) the Mortgaged Property is currently being operated, maintained and developed, in all material respects, in accordance with all applicable currently existing Permits, Legal Requirements and all Applicable Laws (including, without limitation, Environmental Laws), (g) the cover page to this Mortgage lists the correct legal name of Mortgagor and Mortgagor has not been known by any legal name different from the one set forth on the cover page of this Mortgage, (h) the execution, delivery, and performance by Mortgagor of this Mortgage (i) are within Mortgagor's corporate powers and have been duly authorized by Mortgagor's Board of Directors, shareholders and all other -14- requisite corporate action, (ii) have received all (if any) requisite prior governmental approval and consent in order to be legally binding and enforceable in accordance with the terms thereof, and (iii) will not violate, be in conflict with, result in a breach or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property or assets, except as contemplated by the provisions of the Secured Debt Documents, and (i) except as permitted by the Secured Debt Documents, there are no actions, suits or proceedings pending, or to the knowledge of Mortgagor threatened, against or affecting Mortgagor or the Mortgaged Property that could materially adversely affect Mortgagor or the Mortgaged Property, or involving the validity or enforceability of this Mortgage or the priority of the liens and security interests created by the Secured Debt Documents, and no event has occurred (including specifically Mortgagor's execution of this Mortgage which will violate, be in conflict with, result in the breach of, or constitute (with due notice or lapse of time, or both) a material default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property other than the liens and security interests created by the Secured Debt Documents. 3.3 Further Assurances. Mortgagor will warrant and forever defend the Mortgaged Property unto Trustee and Beneficiary as the case may be, against every person whomsoever lawfully claiming the same or any part thereof, subject to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and security interest hereby created so long as any of the Indebtedness remains unpaid. Mortgagor will execute and deliver such other and further instruments and will do such other and further acts as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Documents to carry out more effectually the purposes of this Mortgage, including, without limiting the generality of the foregoing, (i) prompt correction of any defect which may hereafter be discovered in the title to the Mortgaged Property or in the execution and acknowledgment of this Mortgage, the Secured Debt Documents, or, immediately upon the occurrence of an Event of Default, any other document executed in connection herewith, and (ii) at any time a Secured Debt Representative may request and upon such request, promptly execute all notices to parties operating, purchasing or receiving proceeds of production of Hydrocarbons from the Mortgaged Property, and all division orders or transfer orders needed in order to transfer effectually or to assist in transferring effectually to the Beneficiary the assigned proceeds of production from the Mortgaged Property, which notices, division orders and transfer orders shall be held by such Secured Debt Representative and delivered upon an Event of Default. 3.4 Operation of the Mortgaged Property. So long as the Indebtedness or any part thereof remains unpaid, and whether or not Mortgagor is the operator of any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's own expense: -15- (a) Do all things necessary to keep unimpaired Mortgagor's rights in the Mortgaged Property and not abandon any well or forfeit, surrender or release any Lease, except that Mortgagor may, in the ordinary course of business, (i) plug and abandon any well no longer capable of producing Hydrocarbons in paying quantities, (ii) surrender or release any Lease or a portion thereof so long as no well capable of producing Hydrocarbons in paying quantities is located on such Lease or a portion thereof or production from any such well is attributed to such Lease or a portion thereof, (iii) surrender or release any Lease or a portion thereof on which no producing well has ever been drilled or which has never been held by production from another well unless Proven Reserves (as defined in any Secured Debt Document) are attributed to such Lease or a portion thereof and (iv) abandon, forfeit, surrender or release any other portion of the Mortgaged Property to the extent permitted under the then existing Secured Debt Documents; (b) Obtain and maintain all required Permits and cause the lands described in Exhibit A to be maintained, developed, protected against drainage, and operated for the production of Hydrocarbons in a good and workmanlike manner as would a prudent operator, and consistent with industry practices, Joint Operating Agreements, and all Applicable Laws, excepting those being contested in good faith; and plug and abandon wells no longer capable of producing Hydrocarbons in paying quantities in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; and remediate the lands described in Exhibit A and facilities located thereon in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; (c) Duly pay and discharge, or cause to be paid and discharged, promptly as and when due and payable, all rentals and royalties (including shut-in royalties) payable in respect of the Mortgaged Property (other than rentals under Leases that are surrendered pursuant to the foregoing Section 3.4(a)), and all expenses incurred in or arising from the operation or development of the Mortgaged Property not later than the due date thereof, or the day any fine, penalty, interest or cost may be added thereto or imposed, or the day any lien may be filed, for the non-payment thereof (if such day is used to determine the due date of the respective item) except as to such matters which are being contested by Mortgagor in good faith; (d) Cause the Operating Equipment to be kept in good and effective operating condition, ordinary wear and tear excepted, and all repairs, renewals, replacements, additions and improvements thereof or thereto, needful to the production of Hydrocarbons from the lands described in Exhibit A, to be promptly made; (e) Not, except as permitted under the Secured Debt Documents, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien -16- (statutory, constitutional or contractual), security interest, encumbrance or charge, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Secured Debt Documents, with, respect to all or any portion of the Mortgaged Property, the Leases or the Rents and Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting a lien but not due and payable, (3) defects or irregularities in title, and liens, charges or encumbrances, which are customarily viewed in the industry as not interfering materially with the development, operation or value of the Mortgaged Property and not such as to affect materially title thereto, and (4) those being contested by Mortgagor in good faith in such manner as not to jeopardize Beneficiary's rights in and to the Mortgaged Property; (f) Carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Mortgagor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Mortgaged Property, is located, insurance in respect of the Operating Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of Rents and Revenues); provided, that any such insurance may be -------- provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Beneficiary as its interest may appear, which proceeds are hereby assigned to Beneficiary, it being agreed by Mortgagor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Mortgaged Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Beneficiary shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Mortgagor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, endorsed, altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer shall have first given Beneficiary and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the -17- same. Beneficiary shall be furnished with a certificate evidencing such coverage in form and content comparable to coverage typically provided in the industry. All policies to be maintained under this Mortgage are to be issued on forms and by companies and with endorsements as are customary in the industry. Mortgagor shall maintain insurance in an amount sufficient to prevent Mortgagor from becoming a co-insurer under any policy required hereunder. If Mortgagor fails to maintain the level of insurance required under this Mortgage, then Mortgagor shall and hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; (g) Furnish to Beneficiary and each Secured Debt Representative, as soon as possible and in any event within five (5) days after the occurrence from time to time of any change in the address of Mortgagor's location (as described on the signature page hereto) or in the name of Mortgagor, notice in writing of such change; (h) Not initiate or acquiesce in any change in any material zoning or other land use or Water Rights classification now or hereafter in effect and affecting the Mortgaged Property or any part thereof; (i) Notify Beneficiary and each Secured Debt Representative in writing, as soon as possible and in any event within five (5) days after it shall become aware of the occurrence of any Event of Default or any event which, with notice, the passage of time or both would be such an Event of Default; (j) Appear and defend, and hold Beneficiary and any Secured Debtholder harmless from, any action, proceeding or claim affecting the Mortgaged Property or the rights and powers of Beneficiary or Secured Debtholders under the Secured Debt Documents, and all costs and expenses incurred by Beneficiary or any Secured Debtholder in protecting its interests hereunder in such an event (including all court costs and attorneys' fees) shall be borne by Mortgagor; (k) Subject to Mortgagor's right to contest the same, promptly pay all Taxes legally imposed upon this instrument or upon the Mortgaged Property or upon the income and profits thereof, or upon the interest of Beneficiary therein; provided that Mortgagor shall not be liable for taxes accruing after a transfer of the Mortgaged Property following a foreclosure; (l) Comply with, conform to and obey, in all material respects, all present and future Legal Requirements and not use, maintain, operate, occupy, or allow the use, maintenance, operation or occupancy of, the Mortgaged Property in any manner which (a) violates any present and future Legal Requirement, (b) may be dangerous unless safeguarded as required by Applicable Law, (c) constitutes a public or private nuisance or (d) makes void, -18- voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto; and (m) Not, except as authorized under the Secured Debt Documents, permit any of the Fixtures or Personalty to be removed at any time from the lands described in Exhibit A unless (i) the removed item is removed temporarily for maintenance and repair, (ii) if removed permanently, is replaced by an article of equal suitability and value, owned by Mortgagor, free and clear of any lien or security interest or (iii) such Fixtures or Personalty are removed in connection with the plugging and abandoning of wells, or abandonment of other facilities, in each case as permitted by this Mortgage. 3.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform and comply with any and all representations, warranties, covenants and agreements expressed as binding upon it under each of the Leases; (b) subject to the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel or waive its rights or the obligations of any other party under any of the Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all reasonable efforts to maintain each of the Leases in force and effect during the full term thereof, and (d) appear in and defend (or cause its operator to appear in and defend) any action or proceeding arising under or in any manner connected with any of the Leases or the representations, warranties, covenants and agreements of it or the other party or parties thereto. 3.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense, record, register, deposit and file this and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the lien and security interest hereof as a first lien on and prior perfected security interest in real or personal property, as the case may be, and the rights and remedies of Beneficiary and Secured Debt Representatives, and otherwise will do and observe all things or matters necessary or expedient to be done or observed by reason of any Applicable Law, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on and in the Mortgaged Property. 3.7 Sale or Mortgage of the Mortgaged Property. Except (a) as set forth in Section 6.1 of this Mortgage; (b) for sales of severed Hydrocarbons in the ordinary course of Mortgagor's business; (c) for sales of or dispositions of surplus, obsolete or worn inventory or equipment; (d) for the lien and security interest created by this Mortgage, (e) for Permitted Encumbrances, and (f) for sales, exchanges or other dispositions of Mortgaged Property permitted under the Secured Debt Documents governing Priority Lien Debt and permitted under the Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell, convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's right, title or interest therein, and Mortgagor will not enter into any arrangement with any gas pipeline company or other consumer of Hydrocarbons regarding the Mortgaged Property whereby said gas -19- pipeline company or consumer may set off any claim against Mortgagor by withholding payment for any Hydrocarbons actually delivered. 3.8 Records, Statements and Reports. Mortgagor will keep proper books of record and account in which complete and correct entries will be made of Mortgagor's transactions in accordance with generally accepted accounting principles and will furnish or cause to be furnished to each Secured Debt Representative such information concerning the business, affairs and financial condition of Mortgagor as required under the Secured Debt Documents. Without limiting the generality of the foregoing, Mortgagor shall furnish to Beneficiary and each Secured Debt Representative, but not more than every six (6) months: (a) reports prepared by a reputable national independent petroleum engineer regularly engaged by Mortgagor for such purposes or other engineering firm acceptable to the Credit Agreement Agent concerning (1) the quantity of Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income and expense attributable to the Mortgaged Property, and (3) the expediency of any change in methods of treatment or operation of all or any wells productive of Hydrocarbons, any new drilling or development, any method of secondary recovery by repressuring or otherwise, or any other action with respect to the Mortgaged Property, the decision as to which may increase or reduce the quantity of Hydrocarbons ultimately recoverable or the rate of production thereof, and (b) reports for the prior period showing the gross proceeds from the sale of Hydrocarbons produced from the lands described in Exhibit A (including any thereof taken by Mortgagor for Mortgagor's own use), the quantity of such Hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of such proceeds and the number of wells operated, drilled or abandoned. 3.9 Right of Entry. (a) Upon at least twenty-four (24) hours notice to Mortgagor, Mortgagor will permit Beneficiary, each Secured Debt Representative and/or the agents of either of them, at the cost and expense of Mortgagor, to enter upon the Mortgaged Property and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof, and shall permit reasonable access to the field offices and other offices (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Mortgaged Property), including the principal place of business, of Mortgagor to inspect and examine the Mortgaged Property and to inspect, review and reproduce as necessary any books, records, accounts, contracts or other documents of Mortgagor. (b) Without limiting the generality of the foregoing, Beneficiary shall have the right (but shall not be obligated to), and each Secured Debt Representative and its agents shall have the right (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor to enter the Mortgaged Property to conduct (at the cost and expense of Mortgagor), or to cause -20- Mortgagor to conduct (at the cost and expense of Mortgagor), such tests and investigations as may be necessary to determine whether any hazardous materials or solid waste is being generated, transported, stored, or disposed of in accordance with applicable Environmental Laws. Such tests and investigations may include, without limitation, underground borings, ground water analyses and borings from the floors, ceilings and walls of any improvements located on the Mortgaged Property. This Section 3.9 shall not be construed to affect or limit the obligations of Mortgagor pursuant to Section 3.4 hereof. (c) Neither Beneficiary nor any Secured Debt Representative shall have any duty to visit or observe the Mortgaged Property, or to conduct tests, and no site visit, observation or testing by any such person (or its agents and independent contractors) shall impose any liability on any such person nor shall Mortgagor or any other obligor be entitled to rely on any such visit, observation or testing in any respect. Beneficiary or a Secured Debt Representative may, but shall not be obligated to, disclose to Mortgagor or, subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect, any other Person, including any Governmental Authority, any report or finding made as a result of, or in connection with, any site visit, observation or testing. Mortgagor agrees that neither Beneficiary nor any Secured Debt Representative makes any warranty or representation to Mortgagor or any other obligor regarding the truth, accuracy or completeness of any such report or findings that may be so disclosed. Mortgagor also acknowledges that, depending upon the results of any site visit, observation or testing disclosed to Mortgagor, Mortgagor may have a legal obligation to notify one or more Governmental Authorities of such results, that such reporting requirements are site-specific, and are to be evaluated by Mortgagor without advice or assistance from Beneficiary or any Secured Debt Representative. 3.10 Environmental Laws. (a) Mortgagor represents and warrants, to the best of its knowledge after due inquiry that: (i) except as permitted by the Secured Debt Documents, the Mortgaged Property is in compliance in all material respects with all applicable Environmental Laws and there are no conditions existing currently which would be likely to subject Mortgagor to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or assertions thereof, or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by Mortgagor; and all use, generation, manufacturing, release, discharge, storage, deposit, treatment, recycling or disposal of any materials on, under or at the Mortgaged Property or transported to or from the Mortgaged Property (or tanks or other facilities thereon containing such materials) are being and will be conducted in accordance in all -21- material respects with applicable Environmental Laws including without limitation those requiring cleanup, removal or any other remedial action, (ii) Mortgagor is not a party to any litigation or administrative proceedings, nor so far as is known by Mortgagor is any litigation or administrative proceeding threatened against it, which asserts or alleges that Mortgagor has violated or is violating Environmental Laws or that Mortgagor is required to clean up, remove or take remedial or other responsive action due to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials; neither the Mortgaged Property nor Mortgagor is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws and neither has been named or listed as a potentially responsible party by any Governmental Authority in a matter arising under any Environmental Laws; and (iii) Mortgagor has also obtained all Permits required under applicable Environmental Laws which are necessary for its current exploration, production, transportation, storage, use, and development activities at the Mortgaged Property. (b) Mortgagor shall not use or permit the Mortgaged Property or any part thereof to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process any hazardous materials, except in material compliance with all applicable Environmental Laws, nor shall Mortgagor cause or permit, as a result of any intentional or unintentional act or omission on the part of Mortgagor or any tenant or subtenant, any material release of any hazardous materials onto the Mortgaged Property or onto any other property in material violation of any applicable Environmental Laws. Mortgagor shall comply, in all material respects, with all applicable Environmental Laws and shall obtain and comply, in all material respects, with any and all registrations or Permits required thereunder. To the extent any hazardous materials are released or discharged onto the Mortgaged Property on or after the date of this Mortgage, Mortgagor shall conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions necessary to clean up and remove all such hazardous materials on, from, or affecting the Mortgaged Property or any part thereof (i) in accordance, in all material respects, with all applicable Environmental Laws; and (ii) in accordance, in all material respects, with the orders and directives of all Governmental Authorities having jurisdiction over the Mortgaged Property. Mortgagor shall promptly notify Beneficiary and each Secured Debt Representative of its receipt of any notice of a violation of any Environmental Laws. (c) Regardless of whether any site assessments are conducted pursuant to this Mortgage, and without limiting the liability of Mortgagor for the breach of any warranty, representation or covenant contained herein or in any Secured Debt Document, and notwithstanding any limitation of liability contained -22- in the Secured Debt Documents, Mortgagor hereby agrees to unconditionally and absolutely defend, indemnify and hold harmless Beneficiary, Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Mortgage and any successors or substitute trustee under the Mortgage (any person to be indemnified being herein called the "Indemnified Person"), from and against, and be responsible for, any and all liabilities (including strict liability), actions, demands, penalties, fines, taxes, assessments, losses (including, without limitation, diminution in the value of the Mortgaged Property), costs and expenses (including, without limitation, attorneys', paralegals', accountants' and other experts' and consultants' fees and expenses, and remedial costs, including, without limitation, costs of monitoring), suits, damages, including, without limitation, punitive damages and foreseeable and unforeseeable consequential damages, costs of any settlement or judgment and claims (including, without limitation, third-party claims for personal injury or real or personal property damage) of any and every kind whatsoever (hereinafter, collectively, called the "Losses"), which may now or in the future (whether before or after the release, or other termination of the Mortgage and the other Secured Debt Documents) be paid, imposed upon, incurred or suffered by or asserted or awarded against any of the Indemnified Persons or the Mortgaged Property by any person or entity or Governmental Authority for, with respect to, arising out of, or as a direct or indirect result of, any one or more of the following: (i) the presence or suspected presence, release or suspected release of any hazardous materials at, upon, under, within, above, from, by or in connection with the Mortgaged Property or any portion thereof, or elsewhere in connection with the transportation of hazardous materials to or from the Mortgaged Property (including, without limitation, in the air, soil, groundwater or surface water), or the escape, seepage, leakage, spillage, discharge, emission or release from the Mortgaged Property of any hazardous materials; (ii) any violations of any Environmental Laws at, upon, under, within, from, by or in connection with the Mortgaged Property; (iii) the environmental condition of the Mortgaged Property; (iv) the imposition by any Governmental Authority of any lien or so-called "super priority lien" upon the Mortgaged Property as a result of the presence or release of hazardous materials, or any violation of any Environmental Laws, at, upon, under, within, from, by or connection with the Mortgaged Property; (v) obligations to remediate hazardous materials contamination, or to remediate any condition which constitutes a violation of any Environmental Laws; (vi) any site assessments of the Mortgaged Property; (vii) liability for personal injury or property damage or damage to the environment or fines, penalties and punitive damages, resulting from the presence or release of hazardous materials or any violations of any Environmental Laws, at, upon, under, within, from, by or in connection with the Mortgaged Property; and (viii) any environmental matter described in this Mortgage, including, without limitation, matters arising out of any breach of the covenants, representations and warranties set forth herein in each instance described in (i) through (viii) hereof regardless of whether any such Losses arise out of or result from any breach of the covenants, representations and warranties pertaining to environmental matters set forth in this Mortgage or -23- the other Secured Debt Documents, and regardless of whether or not caused by or within the control of Mortgagor or any Indemnified Person; or whether any such matters arise before, during or after any foreclosure of the Mortgage or other taking of title to all or any portion of the Mortgaged Property or the enforcement of any other remedies under the Secured Debt Documents (if any such event occurs). WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT LIABILITY OF ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON. (d) Notwithstanding the foregoing or any contrary provision hereof, Mortgagor's indemnification obligations set forth in this Section 3.10 shall not extend to any such Losses which are attributable solely to contamination by hazardous materials first introduced to the Mortgaged Property after a foreclosure of this Mortgage or other taking of title to the Mortgaged Property by any of Indemnified Persons. (e) The indemnification provided in this Section 3.10 shall specifically apply to and include claims or actions brought by or on behalf of tenants or employees of Mortgagor. Mortgagor hereby expressly waives (with respect to any claims of any Indemnified Person arising under this Section 3.10) any immunity to which Mortgagor may otherwise be entitled under any industrial or worker's compensation laws. (f) In the event any of the Indemnified Persons shall suffer or incur any such Losses, Mortgagor shall pay to such Indemnified Persons the total of all such Losses suffered or incurred within ten (10) days after demand therefore. (g) Mortgagor agrees that the representations, covenants, warranties and indemnifications contained in this Mortgage shall survive the release of the Mortgage, the foreclosure or the taking of a deed in lieu of foreclosure, other termination of the lien of the Mortgage, or the exercise by Beneficiary of any other remedies under the Secured Debt Documents, the discharge of Mortgagor's Obligations under any of the other Secured Debt Documents, or any transfer of the Mortgaged Property, even if as a part of such foreclosure, deed in lieu of foreclosure or other enforcement action, the Indebtedness is satisfied in full. 3.11 Corporate Mortgagor. Mortgagor will continue to be duly qualified to transact business in each state where the conduct of its business requires it to be qualified, and will not, unless permitted pursuant to the Secured Debt Documents, consolidate or merge with any other partnership, company, corporation or other Person. -24- 3.12 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382. ARTICLE IV. ASSIGNMENT OF PRODUCTION 4.1 Assignment. (a) Mortgagor hereby absolutely and irrevocably (a) transfers, assigns, warrants and conveys, to Beneficiary, effective as of July 1, 2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter produced from and which accrue to the Mortgaged Property, and all proceeds therefrom, and (b) gives to and confers upon Beneficiary the right, power and authority to collect such Hydrocarbons and proceeds. Subject to the terms of Section 4.1 (b), all parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, are authorized and directed to treat and regard Beneficiary as the assignee and transferee of Mortgagor and entitled in Mortgagor's place and stead to receive such Hydrocarbons and all proceeds therefrom; and said parties and each of them shall be fully protected in so treating and regarding Beneficiary and shall be under no obligation to see to the application by Beneficiary of any such proceeds or payments received by it; provided, however, that, until Beneficiary or any Secured Debt Representative shall have instructed such parties that an Event of Default has occurred and to deliver such Hydrocarbons and all proceeds therefrom directly to Beneficiary, such parties shall be entitled to deliver such Hydrocarbons and all proceeds therefrom directly to Mortgagor. So long as no Event of Default shall have occurred, Mortgagor shall be entitled to receive directly from such parties, and keep and retain, all such proceeds from the sale of such Hydrocarbons. (b) Upon the occurrence of an Event of Default (provided that the Secured Debt Representative shall not give such instruction and notice under this Article IV unless such Event of Default shall then be continuing), any Secured Debt Representative may at any time (and from time to time) thereafter give notice thereof to any party producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary, directing that said Hydrocarbons and products are to be delivered into pipelines connected with the oil and gas leases, or to the purchaser thereof, free and clear of all Taxes, and the proceeds from the sale of such Hydrocarbons paid directly to Beneficiary in accordance with Section 4.5 of this Mortgage. Said parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, shall be fully protected in relying on any such Secured Debt Representative's determination and notice of the occurrence of an Event of Default. Mortgagor agrees to perform all such acts, and to execute all such further assignments, transfers and division orders, -25- and other instruments as may be required pursuant to the Collateral Trust Agreement or any of the Secured Debt Documents in order to have said revenues and proceeds so paid to Beneficiary, as and when provided in this Article IV. With respect to any funds received by Beneficiary, Beneficiary is fully authorized to (but shall not be obligated to) receive and give receipt for any such revenues and proceeds that are received by Beneficiary; to endorse and cash any and all checks and drafts payable to the order of Mortgagor or Beneficiary for the account of Mortgagor received from or in connection with said revenues or proceeds and apply the proceeds thereof in accordance with Section 4.2 hereof, and to execute transfer and division orders in the name of Mortgagor, or otherwise, with warranties binding Mortgagor. The assignment of the Hydrocarbons and proceeds in this Section 4.1 is intended to be an absolute assignment from Mortgagor to Beneficiary and not merely the passing of a security interest. Such Hydrocarbons and proceeds are hereby assigned absolutely by Mortgagor to Beneficiary. 4.2 Application of Proceeds. All payments received by Beneficiary pursuant to Section 4.1 hereof shall be placed in a cash collateral account to be applied in accordance with the provisions of the Collateral Trust Agreement. 4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby absolved from all liability for failure to enforce collection of any proceeds so assigned (and no such failure shall be deemed to be a waiver of any right of Beneficiary under this Article IV) and from all other responsibility in connection therewith, except the responsibility to account to Mortgagor for funds actually received. 4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein contained shall detract from or limit the absolute obligation of Mortgagor to make payment of the Indebtedness regardless of whether the proceeds assigned by this Article IV are sufficient to pay the same, and the rights under this Article IV shall be in addition to all other security now or hereafter existing to secure the payment of the Indebtedness. 4.5 Status of Assignment. Notwithstanding the other provisions of this Article IV and in addition to the other rights hereunder, Beneficiary or any receiver appointed in judicial proceedings for the enforcement of this Mortgage shall have the right to receive all of the Hydrocarbons herein assigned and the proceeds therefrom after the occurrence and during the continuance of any Event of Default and to apply all of said proceeds as provided in Section 4.2 hereof. Upon any sale of the Mortgaged Property or any part thereof pursuant to Article V, the Hydrocarbons thereafter produced from the property so sold, and the proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment contained in this Article IV. 4.6 Indemnification Obligation. The following provisions shall apply to, and be deemed in each case to modify, each of the provisions of this Mortgage (except those set forth in Section 3.10 hereof) and the other Secured Debt Documents (except to the -26- extent otherwise expressly provided therein) wherein Mortgagor is obligated to indemnify each of the Indemnified Persons: (a) Mortgagor agrees to indemnify Beneficiary, the Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Mortgage and any successors or substitute trustee under the Mortgage, against all legal and administrative proceedings for which a claim for indemnification may be made by the Indemnified Person (herein, collectively, called "Indemnification Claims") made against or incurred by them or any of them as a consequence of the assertion, either before or after the payment in full of the Indebtedness, that they or any of them received Hydrocarbons herein assigned or the proceeds thereof claimed by third persons and Beneficiary, Secured Debtholders, and Trustee shall have the right to defend against any such Indemnification Claims, employing attorneys therefor, and unless furnished with reasonable indemnity, they or any of them shall have the right to pay or compromise and adjust all such Indemnification Claims. Mortgagor will indemnify and pay to Beneficiary, Secured Debtholders and Trustee any and all such amounts as may be paid in respect thereof or as may be successfully adjudged against such persons. The obligations of Mortgagor as hereinabove set forth in this Section 4.6 shall survive the release termination, foreclosure or assignment of this Mortgage or any sale hereunder. (b) Mortgagor shall pay when due any judgments with respect to an Indemnification Claim against any of the Indemnified Persons and which are rendered by a final order or decree of a court of competent jurisdiction from which no further appeal may be taken or has been taken within the applicable appeal period. In the event that such payment is not made, any of the Indemnified Persons at its sole discretion may pay any such judgments, in whole or in part, and look to Mortgagor for reimbursement pursuant to this Mortgage, or may proceed to file suit against Mortgagor to compel such payment. (c) Any amount which Mortgagor is obligated to pay to or for the benefit of an Indemnified Person with respect to an Indemnification Claim, but which is not paid when due, shall bear interest at the applicable rate set forth under the Secured Debt Documents from the date such amount is due until such amount is paid. ARTICLE V. ENFORCEMENT OF THE SECURITY 5.1 Title Examination. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary shall have the right and power to (but shall not be obligated to) cause to be brought down to date a title examination and tax histories of the Mortgaged Property, procure title opinions or title reports or, if necessary, procure new abstracts and tax histories. 5.2 Environmental Audit. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary shall have the right and power to -27- (but shall not be obligated to) procure an updated or entirely new environmental audit of the Mortgaged Property including the lands described in Exhibit A, buildings, soil, ground water and subsurface investigations; have the buildings inspected by an engineer or other qualified inspector; enter upon the Mortgaged Property at any time and from time to time to show the Mortgaged Property to potential purchasers and potential bidders at foreclosure sale; make available to potential purchasers and potential bidders all information obtained pursuant to the foregoing and any other information in the possession of Beneficiary regarding the Mortgaged Property. 5.3 Power of Sale of Real Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee shall have the right and power to sell, to the extent permitted by Applicable Law, at one or more sales, as an entirety or in parcels, as they may elect, the real property constituting a part of the Mortgaged Property, at such place or places and otherwise in such manner and upon such notice as may be required by Applicable Law, or, in the absence of any such requirement, as Trustee may deem appropriate, and to make conveyance to the purchaser or purchasers; and Mortgagor shall warrant title to such real property to such purchaser or purchasers. Trustee may postpone the sale of all or any portion of such real property by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. The right of sale hereunder shall not be exhausted by one or any sale, and Trustee may make other and successive sales until all of the trust estate be legally sold. With respect to that portion, if any, of the Mortgaged Property situated in the State of Wyoming, this Mortgage may be foreclosed by advertisement and sale as provided by applicable Wyoming statutes. With respect to that portion, if any, of the Mortgaged Property situated in the State of Oklahoma, the Beneficiary shall have the right and power to (but shall not be obligated to) declare the Indebtedness secured hereby due and payable and to sell, or direct Trustee to sell, the "real estate," as such term is defined under the provisions of 46 O.S. Supp. 1986, Section 42, constituting a part of the Mortgaged Property, all under the terms of 46 O.S. Supp. 1986, Section 40 et seq., and shall, to the extent permitted by Applicable Law, have the other rights conferred on Trustee under the provisions of this Mortgage. 5.4 Rights of Beneficiary with Respect to Personal Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary will have all rights and remedies granted by Applicable Law, and particularly by the Uniform Commercial Code, including, but not limited to, the right to take possession of all personal property constituting a part of the Mortgaged Property, and for this purpose Beneficiary may enter upon any premises on which any or all of such personal property is situated and take possession of and operate such personal property (or any portion thereof) or remove it therefrom. Beneficiary may require Mortgagor to assemble such personal property and make it available to Beneficiary at a place to be designated by Beneficiary which is reasonably convenient to all parties. Unless such personal property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Beneficiary will give Mortgagor reasonable notice of the time and place of any public -28- sale or of the time after which any private sale or other disposition of such personal property is to be made. This requirement of sending reasonable notice will be met if the notice is mailed by first-class mail, postage prepaid, to Mortgagor at the address shown below the signatures at the end of this Mortgage at least five (5) days before the time of the sale or disposition. 5.5 Rights with Respect to Fixtures Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary may elect to treat the fixtures constituting a part of the Mortgaged Property as either real property collateral or personal property collateral and then proceed to exercise such rights as apply to such type of collateral. 5.6 Judicial Proceedings. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee, in lieu of or in addition to exercising any power of sale hereinabove given, may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder for each or upon credit in one or more parcels or portions under executory or ordinary process, at Beneficiary's sole option, without appraisement (appraisement being expressly waived), or for the sale of the Mortgaged Property, or for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate legal or equitable remedy. Mortgagor hereby acknowledges the Indebtedness secured hereby, whether now existing or to arise hereafter, and confesses judgment thereon in the full amount of the Indebtedness in favor of Beneficiary and any future holder or holders of Secured Debt if such obligations are not paid at maturity. 5.7 Possession of the Mortgaged Property. It shall not be necessary for Trustee or Beneficiary to have physically present or constructively in their possession at any sale held by Trustee or Beneficiary or by any court, receiver or public officer any or all of the Mortgaged Property; and Mortgagor shall deliver to the purchasers at such sale on the date of sale the Mortgaged Property purchased by such purchasers at such sale, and if it should be impossible or impracticable for any of such purchasers to take actual delivery of the Mortgaged Property, then the title and right of possession to the Mortgaged Property shall pass to such purchaser at such sale as completely as if the same had been actually present and delivered. 5.8 Certain Aspects of a Sale. Beneficiary shall have the right to (but shall not be obligated to) become the purchaser at any sale held by Trustee, Beneficiary or by any court, receiver or public officer, and Beneficiary shall have the right to (but shall not be obligated to) credit upon the amount of the bid made therefor the amount payable out of the net proceeds of such sale to it Recitals contained in any conveyance made to any purchaser at any sale made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, and the interest accrued on, Secured Debt after the same have become due and payable, advertisement and -29- conduct of such sale in the manner provided herein or appointment of any successor Trustee hereunder. 5.9 Receipt to Purchaser. Upon any sale, whether made under the power of sale herein granted and conferred or by virtue of judicial proceedings, the receipt of Trustee, Beneficiary or of the officer making sale under judicial proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for his or their purchase money, and such purchaser or purchasers, or his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of Trustee, Beneficiary, or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. 5.10 Effect of Sale. Any sale or sales of the Mortgaged Property, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever either at law or in equity, of Mortgagor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against Mortgagor, and Mortgagor's successors or assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Mortgagor or Mortgagor's successors or assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. 5.11 Application of Proceeds. The proceeds of any sale of, and the Rents and Revenues and other amounts generated by the holding, leasing, operation or other use of, the Mortgaged Property shall be applied in accordance with the provisions of the Collateral Trust Agreement. 5.12 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights. Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, so far as Mortgagor or those claiming through or under Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such laws; provided, however, that appraisement of any of the Mortgaged Property located in the State of Oklahoma is hereby expressly waived or not, at the option of Beneficiary, such option to be exercised prior to or at the time the judgment is rendered in any foreclosure hereof. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, waives, to the extent that Mortgagor may lawfully do so, any and all right to have the Mortgaged Property marshalled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that Trustee, Beneficiary or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. -30- Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, further waives, to the full extent that Mortgagor may lawfully do so, any requirement for posting a receiver's bond or replevin bond or other similar type of bond if Trustee or Beneficiary commence an action for appointment of a receiver or an action for replevin to recover possession of any of the Mortgaged Property. If any law in this paragraph referred to and now in force, of which Mortgagor or Mortgagor's successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to, constitute any part of the contract herein contained or to preclude the operation or application of the provisions of this paragraph. Pursuant to Section 39-5-19, New Mexico Statutes, Annotated, 1978 Comp., as amended, Mortgagor agrees that as to the Mortgaged Property situated in the State of New Mexico, the redemption period shall be shortened to one (1) month. Mortgagor hereby waives all rights of appraisement, sale, homestead or redemption allowed under any law or laws of the State of Arkansas, and especially redemption under the Act of the General Assembly of the State of Arkansas approved May 8, 1899, and acts amendatory thereto. If Mortgagor is an individual, Mortgagor waives and releases all rights of dower, courtesy and homestead in the Mortgaged Property insofar as such rights may in any way affect the purposes of this Mortgage. 5.13 Costs and Expenses. All costs and expenses (including attorneys' fees) incurred by Trustee or Beneficiary in protecting and enforcing their rights hereunder shall constitute a demand obligation owing by Mortgagor to the party incurring such costs and expenses and shall draw interest at Default Interest Rate, all of which shall constitute a portion of the Indebtedness. 5.14 Sale of the Mortgaged Property in Texas. If Secured Debt is not paid when due, whether by acceleration or otherwise, Trustee is hereby authorized and empowered to (but shall not be obligated to) sell any part of the Mortgaged Property located in the State of Texas at public sale to the highest bidder for cash in the area at the county courthouse of the county in Texas in which the Texas portion of the Mortgaged Property or any part thereof is situated, as herein described, designated by such county's commissioner's court for such proceedings, or if no area is so designated, at the door of the county courthouse of said county, at a time between the hours of 10:00 A.M. and 4:00 P.M. which is no later than three (3) hours after the time stated in the notice described immediately below as the earliest time at which such sale would occur on the first Tuesday of any month, after advertising the earliest time at which said sale would occur, the place, and terms of said sale, and the portion of the Mortgaged Property to be sold, by (a) posting (or by having some person or persons acting for Trustee post) for at least twenty-one (21) days preceding the date of the sale, written or printed notice of the proposed sale at the courthouse door of said county in which the sale is to be made; and if such portion of the Mortgaged Property lies in more than one county, one such notice of sale shall be posted at the courthouse door of each county in which such part of the Mortgaged Property is situated and such part of the Mortgaged Property may be sold in the area at the county courthouse of any one of such counties designated by such county's commissioner's court for such proceedings, or if no area is so designated, at the courthouse door of such county, and the notice so posted shall designate in which county such property shall be sold, and (b) filing in the office of the -31- county clerk of each county in which any part of the Texas portion of the Mortgaged Property which is to be sold at such sale is situated a copy of the notice posted in accordance with the preceding clause (a). In addition to such posting and filing of notice, Beneficiary may or other holder of the Indebtedness shall, at least twenty-one (21) days preceding the date of sale, serve or cause to be served written notice of the proposed sale by certified mail on Mortgagor and on each other debtor, if any, obligated to pay the Indebtedness according to the records of Beneficiary or other holder of the Indebtedness. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper properly addressed to Mortgagor and such other debtors at their most recent address or addresses as shown by the records of Beneficiary or other holder of the Indebtedness in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such a service was completed shall be prima facie evidence of the fact of service. Mortgagor agrees that no notice of any sale, other than as set out in this Section, need be given by Trustee, Beneficiary or any other person, except as may otherwise be required by Applicable Law. Mortgagor hereby designates as its address for the purpose of such notice the address set out on the signature page hereof; and agrees that such address shall be changed only by depositing notice of such change enclosed in a postpaid wrapper in a post office or official depository under the care and custody of the United States Postal Service, certified mail, postage prepaid, return receipt requested, addressed to Beneficiary or other holder of the Indebtedness at the address for Beneficiary set out herein (or to such other address as Beneficiary or other holder of the Indebtedness may have designated by notice given as above provided to Mortgagor and such other debtors). Any such notice of change of address of Mortgagor or other debtors or of Beneficiary or of other holder of the Indebtedness shall be effective three (3) business days after such deposit if such post office or official depository is located in the State of Texas, otherwise to be effective upon receipt. Mortgagor authorizes and empowers Trustee to sell the Texas portion of the Mortgaged Property in lots or parcels or in its entirety as is customary in the industry or Trustee may elect; and to execute and deliver to the purchaser or purchasers thereof good and sufficient deeds of conveyance thereto by fee simple title, with evidence of general warranty by Mortgagor, and the title of such purchaser or purchasers when so made by Trustee, Mortgagor binds itself to warrant and forever defend. Where portions of the Mortgaged Property lie in different counties, sales in such counties may be conducted in any order that Trustee may deem expedient; and one or more such sales may be conducted in the same month, or in successive or different months. Notwithstanding anything to the contrary contained herein, Trustee may postpone the sale provided for in this Section 5.14 at any time without the necessity of a public announcement. The provisions hereof with respect to the posting and giving of notices of sale are intended to comply with the provisions of Section 51.002 of the Property Code of the State of Texas, effective January 1, 1984, and in the event the requirements, or any notice, under such Section 51.002 of the Property Code of the State of Texas shall be eliminated or the prescribed manner of giving such notices modified by future amendment to, or adoption of any statute superseding, Section 51.002 of the Property Code of the State of Texas, the requirement for such particular notices shall be deemed stricken from or modified in this -32- Mortgage in conformity with such amendment or superseding statute, effective as of the effective date thereof. 5.15 Fair Market Value. It is expressly agreed by Mortgagor that to the extent Section 51.003 of the Texas Property Code, or any amendment thereto, requires that the "fair market value" of the Mortgaged Property shall be determined as of the foreclosure date in order to enforce a deficiency against Mortgagor or any other party liable for repayment of the Indebtedness, the term "fair market value" shall include those matters required by Applicable Law and shall also include the additional factors set forth below: (a) The Mortgaged Property is to be valued "AS IS" and "WITH ALL FAULTS" and there shall be no assumption of restoration of or refurbishment of improvements, if any, after the date of the foreclosure; (b) An offset to the fair market value of the Mortgaged Property, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Mortgaged Property, including but not limited to brokerage commissions, title examination and curative expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of property; and (c) After consideration of the factors required by Applicable Law and those required above, an additional discount factor shall be calculated based upon the estimated time it will take to effectuate a sale of the Mortgaged Property so that the "fair market value" as so determined is discounted to be as of the date of the foreclosure sale of the Mortgaged Property. 5.16 Operation of the Mortgaged Property by Beneficiary. Upon the occurrence of an Event of Default and during the continuance of such Event of Default and in addition to all other rights herein conferred on Beneficiary, Beneficiary (or any person, firm or corporation designated by Beneficiary) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property, and to exclude Mortgagor, and Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer, manage and operate the same to the extent that Mortgagor shall be at the time entitled and in its place and stead. Beneficiary, or any person, firm or corporation designated by Beneficiary, may operate the same without any liability to Mortgagor in connection with such operations, except to use ordinary care in the operation of such properties, and Beneficiary or any person, firm or corporation designated by Beneficiary, shall have the right to (but shall not be obligated to) collect, receive and receipt for all Hydrocarbons produced and sold from said properties, to make repairs, purchase machinery and equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of Mortgagor with respect to the Mortgaged Property. When and if the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) paid by Beneficiary or attributable to Mortgagor's undivided interest therein and withheld, or offset against, by an operator or other party have been paid or reimbursed -33- in full by Mortgagor and the Indebtedness paid, said properties shall, if there has been no sale or foreclosure, be returned to Mortgagor. 5.17 Separate Sales. The Mortgaged Property may be sold in one or more parcels and it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales but other and successive sales may be made until all of the Mortgaged Property has been sold or until the Indebtedness has been fully satisfied. 5.18 Remedies Cumulative, Concurrent and Non-Exclusive. Beneficiary shall have all rights, remedies and recourses granted in the Secured Debt Documents and available at law or equity (including specifically those granted by the Uniform Commercial Code in effect and applicable to the Mortgaged Property, or any portion thereof), and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against any one or more of Mortgagor, any Guarantor, or others obligated under the Secured Debt Documents, or against the Mortgaged Property, pursuant to the Collateral Trust Agreement and any Secured Debt Documents, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Mortgagor that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, non-exclusive. 5.19 Release of and Resort to Collateral. Beneficiary may release, regardless of consideration, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interests created in or evidenced by the Secured Debt Documents or their stature as a first and prior lien and security interest in and to the Mortgaged Property. For payment of the Indebtedness, Beneficiary may resort to any other security therefor held in such order and manner as Beneficiary may elect. 5.20 Discontinuance of Proceedings. In case Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under the Secured Debt Documents and shall thereafter elect to discontinue or abandon same for any reason, Beneficiary shall have the unqualified right so to do and, in such an event, Mortgagor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Secured Debt Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Beneficiary shall continue as if same had never been invoked. 5.21 Uniform Commercial Code Remedies. Beneficiary shall have all the rights, remedies and recourses with respect to the Personalty, Fixtures, Leases and Rents and Revenues afforded a Secured Party by the aforesaid Uniform Commercial Code (being Chapter 9 of the Texas Business and Commerce Code, as to property within the scope thereof and situated in the State of Texas) in addition to, and not in limitation of, the other rights, remedies and recourses afforded Beneficiary by the Secured Debt Documents. -34- 5.22 No Obligation of Trustee or Beneficiary. The assignment and security interest herein granted shall not be deemed or construed (a) to constitute Trustee or Beneficiary as a trustee in possession of the Mortgaged Property or, (b) to obligate Trustee or Beneficiary to (i) lease the Mortgaged Property or attempt to do same, (ii) take any action, (iii) incur any expenses or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE VI. MISCELLANEOUS PROVISIONS 6.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby authorized, to pool or unitize all or any part of the lands described in Exhibit A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds and other interests, when, in the reasonable judgment of Mortgagor, it is necessary or advisable to do so in order to form a drilling and/or production unit to facilitate the orderly development of that part of the Mortgaged Property affected thereby, or to comply with the requirements of any Applicable Law or governmental order or regulation relating to the spacing of wells or proration of the production therefrom; provided, however, that any unit so formed for the production of oil shall not substantially exceed 160 acres, and any unit so formed for the production of gas shall not substantially exceed 640 acres, unless a larger area is required to conform to an Applicable Law or governmental order or regulation relating to the spacing of wells or to obtain the maximum allowable production under any Applicable Law or governmental order or regulation relating to the proration of production therefrom; and further provided that the Hydrocarbons produced from any unit so formed shall be allocated among the separately owned tracts or interests comprising the unit in a uniform manner consistently applied; and further provided that all interests owned by Mortgagor in such unit shall be included within the Mortgaged Property. Any unit so formed may relate to one or more zones or horizons, and a unit formed for a particular zone or horizon need not conform in area to any other unit relating to a different zone or horizon, and a unit formed for the production of oil need not conform in area with any unit formed for the production of gas. Promptly after formation of any such unit, Mortgagor shall furnish to Beneficiary and each Secured Debt Representative a true copy of the pooling agreement, declaration of pooling or other instrument creating such unit. The interest in any such unit attributable to the Mortgaged Property (or any part thereof) included therein shall become a part of the Mortgaged Property and shall be subject to the lien hereof in the same manner and with the same effect as though such unit and the interest of Mortgagor therein were specifically described in Exhibit A. Mortgagor is further authorized to amend, modify or terminate any pooling or unitization agreement or order to which Mortgagor is a party or the Mortgaged Property is subject, provided that such action does not conflict with the provisions of this Mortgage, including this Section 6.1. Mortgagor may enter into, or amend, modify or terminate, pooling or unitization agreements not hereinabove authorized only as permitted under the Secured Debt Documents. 6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for their gross negligence or willful misconduct. None of -35- Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Mortgagor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 6.3 Successor Trustee. Any Trustee may resign in writing addressed to Beneficiary or may be removed at any time with or without cause by an instrument in writing duly executed by Beneficiary. In case of the death, resignation or removal of a Trustee, one or more successor Trustee may be appointed by Beneficiary by instrument of substitution complying with any applicable requirements of Applicable Law, and in the absence of any such requirement without formality other than appointment and designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustee, all the estate and title of the prior Trustee in all of the Mortgaged Property, and he or they shall thereupon succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All references herein to Trustee shall be deemed to refer to Trustee from time to time acting hereunder. 6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant herein contained shall be performed and kept by Mortgagor solely at Mortgagor's expense. If Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Mortgage, Beneficiary, or Trustee or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Mortgagor's behalf; provided, however, that concurrently with the taking of such action or making such advances, Beneficiary, Trustee or any Secured Debt Representative shall deliver notice to Mortgagor. Mortgagor hereby agrees to repay the expense of such action and such advances upon demand plus interest as set forth in the Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to relieve Mortgagor from any default hereunder. 6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any election by Trustee or Beneficiary not to insist, upon strict performance by Mortgagor of any of the terms, provisions or conditions of the Collateral Trust Agreement or any Secured Debt Documents shall not be deemed to be a waiver of same or of any other term, provision or condition thereof, and Trustee and Beneficiary shall have the right at any -36- time or times thereafter to insist upon strict performance by Mortgagor of any and all of such terms, provisions and conditions. 6.6 Defense of Claims. Mortgagor will notify Beneficiary and each Secured Debt Representative, in writing, promptly of the commencement of any legal proceedings affecting the lien or security interest hereof or the Mortgaged Property, or any part thereof, and will take such action, employing attorneys as set forth in Section 3.4(j), as may be necessary or appropriate to preserve Mortgagor's or Beneficiary's rights affected thereby and/or to hold harmless Beneficiary in respect of such proceedings; and should Mortgagor fail or refuse to take any such action, Beneficiary may, upon giving prior written notice thereof to Mortgagor, take such action in behalf and in the name of Mortgagor and at Mortgagor's expense. Moreover, Beneficiary may take such independent action in connection therewith as it may in its discretion deem proper, Mortgagor hereby agreeing that all sums advanced or all expenses incurred in such actions plus interest thereon at the Default Interest Rate, will, on demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed hereunder or under Applicable Law. The obligations of Mortgagor as hereinabove set forth in this Section 6.6 shall survive the release, termination, foreclosure or assignment of this Mortgage or any sale hereunder. 6.7 The Mortgaged Property to Revert; Release. If the Indebtedness shall be fully paid and the covenants herein contained shall be well and truly performed, then all of the Mortgaged Property shall revert to Mortgagor and the entire estate, right, title and interest of Trustee and Beneficiary shall thereupon cease; and Trustee and Beneficiary in such case shall, upon the request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor proper instruments acknowledging satisfaction of this Mortgage and the release or reconveyance of the lien hereof in accordance with Applicable Law. Notwithstanding anything contained herein to the contrary, the Mortgaged Property, or any part thereof, shall, upon the written request of Mortgagor, be released from the lien of this Mortgage, in accordance with the provisions of the Collateral Trust Agreement, when such a release is permitted by the Collateral Trust Agreement and the other Secured Debt Documents. 6.8 Covenants Running with the Land. All Obligations contained in this Mortgage are intended by the parties to be, and shall be construed as, covenants running with the Mortgaged Property. 6.9 Renewals, Amendments and Other Security. Renewals and extensions of the Indebtedness and modifications of any kind of the Obligations may be given at any time and amendments may be made to agreements with third parties relating to any part of such Indebtedness or the Mortgaged Property and Trustee and Beneficiary may take or may now hold other security from others for the Indebtedness, all without notice to or consent of Mortgagor. Beneficiary may resort first to such other security or any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this Mortgage, which shall continue as a first lien upon and prior perfected security interest in the Mortgaged -37- Property not expressly released until the Secured Debt and all other Indebtedness secured hereby are fully paid. 6.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, or security agreement, and from time to time as any one or more thereof. 6.11 Limitation on Interest. No provision of this Mortgage or the Secured Debt Documents shall require the payment or permit the collection of interest in excess of the Maximum Lawful Rate or which is otherwise contrary to Applicable Law. If any excess of interest in such respect is in the Secured Debt Documents or otherwise herein provided for, or shall be adjudicated to be so provided for herein or in the Secured Debt Documents, Mortgagor shall not be obligated to pay such excess. 6.12 Severability. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained nor the application of such provision to other persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather shall be enforced to the greatest extent permitted by Applicable Law. It is hereby expressly stipulated and agreed to be the intent of Mortgagor and Beneficiary at all times to comply with the usury, and all other, laws relating to the Secured Debt Documents. If, at any time, the applicable Legal Requirements render usurious any amount called for in any Security Document, then it is Mortgagor's, Trustee's and Secured Debtholders' express intent that such document be immediately deemed reformed and the amounts collectible reduced, without the necessity of the execution of any new document, so as to comply with the then Applicable Law but so as to permit the recovery of the fullest amount otherwise called for in such Secured Debt Documents. 6.13 Waiver by Trustee and Beneficiary. Any and all covenants in this Mortgage may from time to time by instrument in writing signed by Trustee and Beneficiary be waived to such extent and in such manner as Trustee and Beneficiary may desire, but no such waiver shall ever affect or impair either Trustee's or Beneficiary's rights or liens or security interests hereunder, except to the extent specifically stated in such written instrument. 6.14 No Partnership. Nothing contained in this Mortgage is intended to, or shall be construed as, creating to any extent and in any manner whatsoever, any partnership, joint venture, or association among Mortgagor, Trustee, Beneficiary and their respective Affiliates, or in any way as to make Beneficiary or Trustee's co-principals with Mortgagor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. -38- 6.15 Successors and Assigns. This Mortgage is binding upon Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit of Beneficiary, its successors and assigns, and the provisions hereof shall likewise be covenants running with the land. 6.16 Article and Section Headings. The article and section headings in this Mortgage are inserted for convenience of reference and shall not be considered a part of this Mortgage or used in its interpretation. 6.17 Execution in Counterparts. This Mortgage may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which are identical, except that, to facilitate recordation or filing, in any particular counterpart portions of Exhibit A hereto which describe properties situated in parishes or counties other than the parish or county in which such counterpart is to be recorded or filed may have been omitted. 6.18 Special Filing as Financing Statement. This Mortgage shall likewise be a Security Agreement and a Financing Statement. This Mortgage shall be filed for record, among other places, in the real estate records of each county or parish in which any portion of the real property covered by the oil and gas leases described in Exhibit A hereto is situated, and, when filed in such counties or parishes shall be effective as a financing statement covering Fixtures located on oil and gas properties, which oil and gas properties (and accounts arising therefrom) are to be financed at the wellheads of the wells located on the lands described in Exhibit A. A carbon, photographic or other reproduction of this Mortgage or of any financing statement covering the Mortgaged Property or any portion thereof shall be sufficient as a financing statement and may be filed as such. Mortgagor agrees that any Secured Debt Representative may, in such manner, on such terms and at such times as may be elected by such Secured Debt Representative, and without demand or notice to, or the consent or signature of, Mortgagor, file and/or record such UCC financing statements, fixture filings, and/or amendments to or continuations of any financing statements or fixture filings to evidence, perfect and/or continue the perfection of, any security interests created or to be created pursuant to this Mortgage or any of the other Secured Debt Documents. 6.19 Notices. Except as otherwise required by Sections 5.4 and 5.14 hereof, any notice, request or demand which may be required or permitted to be given or served upon Mortgagor shall be sufficiently given when given or made pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other means and manner of giving of notice as may be required by Applicable Law. 6.20 Reliance. Notwithstanding any reference herein to the Secured Debt Documents, no party shall have any obligation to inquire into the terms or conditions of any such documents and all parties shall be fully authorized to rely upon any statement, certificate, or affidavit of Beneficiary or any future holder of any portion of the Indebtedness as to the occurrence of any event such as the occurrence of any event of default. -39- 6.21 Beneficiary as Agent for the Secured Debtholders. As described above, certain Affiliates of Beneficiary and the Secured Debt Representatives are or may become parties to certain Hedging Agreements with Mortgagor and/or Affiliates of Mortgagor. This Mortgage secures the obligations of Mortgagor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties acknowledge for all purposes that Beneficiary acts for itself and as agent on behalf of such Affiliates of Beneficiary and the Secured Debtholders which are so entitled to share in the rights and benefits accruing to Beneficiary under this Mortgage in respect of the Mortgaged Property. 6.22 Applicable Law. As to any tract or parcel of land comprising a portion of the Mortgaged Property, this Mortgage shall be governed by and construed according to the Applicable Laws of the State where such tract or parcel of land is situated. 6.23 Subrogation. If any or all of the proceeds of Secured Debt have been used to extinguish, extend or renew any indebtedness heretofore existing against the Mortgaged Property, then, to the extent of such funds so used, the Indebtedness and this Mortgage shall be subrogated to all of the rights, claims, liens, titles and interests heretofore existing against the Mortgaged Property to secure the indebtedness so extinguished, extended or renewed and the former rights, claims, liens, titles and interests, if any, are not waived but rather are continued in full force and effect in favor of Beneficiary and are merged with the lien and security interest created herein as cumulative security for the repayment of the Indebtedness and the satisfaction of the Obligations. 6.24 Fixture Filing. Portions of the Mortgaged Property are or are to become fixtures relating to the above described real estate, and Mortgagor herein expressly covenants and agrees that the filing of this Mortgage in the Real Estate Records in the county where the Mortgaged Property is located shall also operate from the time of filing therein as a financing statement filed as a fixture filing in accordance with Section 9.502(c) of the Uniform Commercial Code - Secured Transactions of the State of Texas. -40- IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed this Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing in the presence of the undersigned Notary Public on this 14th day of July, 2003. MORTGAGOR AND DEBTOR CALPINE CORPORATION, a Delaware corporation By: ------------------------ Title: Executive Vice President Printed Name: B.A. Berilgen ATTEST: - ------------------------------- Printed Name: The name and mailing address of Mortgagor is: Calpine Corporation 1000 Louisiana Street, Suite 800 Houston, TX 77002 S-1 STATE OF TEXAS ) ) SS. COUNTY OF HARRIS ) BE IT REMEMBERED that I, Suzanne B. Snow, a Notary Public duly qualified, commissioned, sworn and acting in and for the County and State aforesaid, hereby certify that, on this 14th day of July, 2003, there appeared before me severally each of the following persons, each being either a Trustee or else the designated officer of the corporation or association set opposite his name, and each such Trustee, corporation and association being a party to the foregoing instrument: B.A. Berilgen, the Executive Vice President, and Michael H. Hickey, the Vice President-Managing Counsel, of Calpine Corporation, a Delaware corporation, which has no corporate seal whose address is 1000 Louisiana Street, Suite 800, Houston, TX 77002. ARKANSAS Before me on this day appeared in person the aforementioned persons, to me personally well known, who stated that they held the offices in the corporation or association set forth opposite their names above (or, in the case of the Trustees, were validly appointed Trustees) and were duly authorized in their respective capacities to execute the foregoing instrument for and in the name and on behalf of said corporation or association (or as Trustees, as the case may be), and further stated and acknowledged that they had so signed, executed and delivered said foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. COLORADO The foregoing instrument was acknowledged before me this day by each such person on behalf of said corporation or association, or himself, as a Trustee, as the case may be. KANSAS On this day before me personally appeared the aforementioned persons, who acknowledged themselves to hold the offices in the corporation set forth opposite their names above (or, in the case of the Trustees, were validly appointed Trustees) and as such officers or Trustees, hereby authorized to do so, executed the foregoing instrument for the purposes therein contained. MISSISSIPPI Personally appeared before me, the undersigned authority in and for the said county and state, on this 14th day of July, 2003, within my jurisdiction the within named B.A. Berilgen who acknowledged that he is the Executive Vice President of CALPINE CORPORATION, a Delaware corporation, and that for and on behalf of said corporation and as its act and deed (he)(she) executed the above and foregoing instrument after first having been duly authorized by said corporation so to do. MONTANA On this day before me personally appeared each such person, each of whom is known to me to be the officer of the corporation that executed the within instrument (or a Trustee, as the case may be), and acknowledged to me that such corporation (or Trustee, as the case may be) executed the same. NEBRASKA The foregoing instrument was acknowledged before me this day and by each such person as the designated officers of the NEW MEXICO corporation or association set opposite their names (or as Trustees, as the case may be) on behalf of said corporation or association, or himself as a Trustee, as the case may be. OKLAHOMA Before me on this day personally appeared the aforementioned persons, to me known to be the identical persons who subscribed the names of the respective makers thereof to the foregoing instrument in the capacities set forth opposite the names of such persons above, and each such person acknowledged to me that he executed the same as his free and voluntary act and deed and as the free and voluntary act and deed of the corporation or association set opposite his name (or of himself as Trustee, as the case may be) for the uses and purposes therein set forth. TEXAS This instrument was acknowledged before me on this day by each such person as the designated officer of the corporation or association set opposite his name (or a Trustee, as the case may be), on behalf of said corporation or association set opposite his name (or of himself as Trustee, as the case may be). WYOMING The foregoing instrument was acknowledged before me by the above individuals on this day. Witness my hand and official seal. ----------------------------------------- Notary Public Residing at Houston, Harris County, Texas My commission expires: 12/21/2006 EXHIBIT A To Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing, dated July 16, 2003, from CALPINE CORPORATION to Denis O'Meara and James Trimble and THE BANK OF NEW YORK List of Properties 1. Depth limitations, unit designations, unit tract descriptions and descriptions (including percentages, decimals or fractions) of undivided leasehold interests, well names, "Operating Interests," "Working Interests" and "Net Revenue Interests" contained in this Exhibit A and the listing of any percentage, decimal or fractional interest in this Exhibit A shall not be deemed to limit or otherwise diminish the interests being subjected to the lien, security interest and encumbrance of this Mortgage. 2. Some of the land descriptions in this Exhibit A may refer only to a portion of the land covered by a particular lease. This Mortgage is not limited to the land described in Exhibit A but is intended to cover the entire interest of Mortgagor in any lease described in Exhibit A even if such interest relates to land not described in Exhibit A. Reference is made to the land descriptions contained in the documents of title recorded as described in this Exhibit A. To the extent that the land descriptions in this Exhibit A are incomplete, incorrect or not legally sufficient, the land descriptions contained in the documents so recorded are incorporated herein by this reference. 3. References in Exhibit A to instruments on file in the public records are made for all purposes. Unless provided otherwise, all recording references in Exhibit A are to the official real property records of the county or counties (or parish or parishes) in which the mortgaged property is located and in which records such documents are or in the past have been customarily recorded, whether Deed Records, Oil and Gas Records, Oil and Gas Lease Records or other records. 4. A statement herein that a certain interest described herein is subject to the terms of certain described or referred to agreements, instruments or other matters shall not operate to subject such interest to any such agreement, instrument or other matter except to the extent that such agreement, instrument or matter is otherwise valid and presently subsisting nor shall such statement be deemed to constitute a recognition by the parties hereto that any such agreement, instrument or other matter is valid and presently subsisting. [Do not detach this page] A-1 SCHEDULE I Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Colorado) from Calpine Corporation, a Delaware corporation, Trustor and Mortgagor to Kemp Leonard, Trustee, John Quick, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Garfield County, Colorado Reception #602924 5/7/2002 Book 1353, Page 8

UCC-1 Financing Statement regarding Multi-State Mortgage, naming Calpine Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party, filed as follows: JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Garfield County, Colorado Reception #603031 5/8/2002 Book 1353, Page 410 Schedule I-1 SCHEDULE II First Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (Colorado) from Calpine Corporation, a Delaware corporation, Trustor and Mortgagor to Dennis O'Meara, Trustee, James Trimble, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Garfield County, CO Book 1405, Page 45 11/08/2002

Second Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement, and Fixture Filing (Colorado) from Calpine Corporation to Trustees and The Bank of Nova Scotia, filed as follows:

ORIGINAL ORIGINAL SUPPLEMENT SUPPLEMENT JURISDICTION FILE NO. FILE DATE FILE NO. FILE DATE ------------ -------- --------- -------- --------- Garfield County, Colorado 602924; 5/7/02 624212; 4/2/03 Book 1353, Book 1453, Pg. 8 Pg. 812

Schedule II-1 SCHEDULE III N/A Schedule III-1 EX-10.29 21 f92357exv10w29.txt EXHIBIT 10.29 Exhibit 10.29 - -------------------------------------------------------------------------------- AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING FROM CALPINE CORPORATION, a Delaware corporation (Taxpayer I.D. No. 77-0212977), Trustor and Mortgagor TO DENIS O'MEARA Trustee AND JAMES TRIMBLE Trustee AND THE BANK OF NEW YORK, not in its individual capacity but solely as Collateral Trustee, (Taxpayer I.D. No. 13-5160382) as Beneficiary Dated as of July 16, 2003 - -------------------------------------------------------------------------------- "THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS." "THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES." "THOSE PORTIONS OF THE MORTGAGED PROPERTY WHICH ARE AS-EXTRACTED COLLATERAL (INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO, WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS DESCRIBED IN EXHIBIT A HERETO." "SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE." "MORTGAGOR AGREES BY EXPRESS LANGUAGE IN THIS MORTGAGE TO SUBJECT THE TRUST REAL ESTATE TO THE TERMS OF THE DEED OF TRUST ACT (SECTIONS 48-10-1 THROUGH 21 NMSA (1978))." THIS INSTRUMENT WAS PREPARED BY AND WHEN RECORDED AND/OR FILED RETURN TO: MAYER, BROWN, ROWE & MAW LLP 700 Louisiana Street Suite 3600 Houston, Texas 77002 Attn: Kevin L. Shaw, Esq. AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING THIS AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation ("MORTGAGOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to DENIS O'MEARA and JAMES TRIMBLE (whether one or more, collectively called "TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among Mortgagor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Mortgage" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. ARTICLE I. RECITALS AND DEFINITIONS 1.1 Mortgagor has heretofore executed and delivered to The Bank of Nova Scotia, for itself and as agent for the Lender Parties (together with its successors in such capacity, the "CREDIT AGREEMENT AGENT") and John Quick (as predecessor-in-interest to Denis O'Meara) and Kemp Leonard (as predecessor-in-interest to James Trimble), as Trustees, that certain mortgage or deed of trust, dated as of May 1, 2002, as supplemented and amended prior to the date hereof (as so supplemented and amended, herein called the "EXISTING MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2002 LENDERS") pursuant to the terms of that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same may be amended, modified or supplemented from time to time, called the "EXISTING 2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $1,600,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and delivered to the Existing 2002 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002 Loan Notes being payable to the order of the Existing 2002 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorneys' fees and acceleration of maturity in the event of default, as therein set forth; and (ii) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2000 LENDERS", and together with the Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms -1- of that certain Second Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the same may be amended, modified, or supplemented from time to time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing 2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2000 Lenders under the Existing 2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing 2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorney's fees and acceleration of maturity in the event of default, as therein set forth. 1.2 The Existing Mortgage, together with other mortgages and deeds of trust (a) have been filed and recorded, among other places, as set forth in Schedule I hereto; (b) have been supplemented and amended by various instruments that have been filed and recorded, among other places, as set forth in Schedule II hereto; and (c) have been amended and certain items of property mortgaged thereby have been released by various instruments that have been filed and recorded, among other places, as set forth in Schedule III hereto. 1.3 Mortgagor, the Existing Lenders and the Credit Agreement Agent are (i) terminating the commitments under the Existing 2000 Credit Agreement, and (ii) amending and restating the Existing 2002 Credit Agreement (as so amended and restated, and as the same may, from time to time hereafter, be amended, supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT AGREEMENT". 1.4 Mortgagor is also (a) issuing $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing $1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing $750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its -2- successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the borrowing of the Term Loans will be used to refinance a portion of the loans and other indebtedness outstanding under the Existing Credit Agreements. 1.5 As permitted pursuant to the Secured Debt Documents, Mortgagor may incur future debt which could, together with the obligations under the Amended and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future debt which could, together with the 2007 Notes, 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Mortgagor intends to secure the Indebtedness, including its obligations (a) under the Amended and Restated Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, with liens and security interests in, among other collateral, the Mortgaged Property under the Existing Mortgage, as contemplated in the Collateral Trust Agreement.. 1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment of Liens of even date herewith, the Credit Agreement Agent has assigned to Beneficiary, all of the Credit Agreement Agent's right, title and interest in and to, and its interest as beneficiary under, the Existing Mortgage. This Mortgage amends and restates the Existing Mortgage. The Collateral Trust Agreement sets forth the terms on which the Collateral Trustee, as trustee for the present and future holders of the Indebtedness, will receive, hold, maintain, administer, maintain, enforce and distribute this Mortgage and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof. 1.7 For all purposes of this Mortgage, unless the context otherwise requires: A. "Actionable Default" is defined in the Collateral Trust Agreement. B. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan (as defined under ERISA)). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. -3- C. "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. D. "Default Interest Rate" means the lesser of (a) ten percent (10%), and (b) the Maximum Lawful Rate. E. "Event of Default" means an Actionable Default. F. "Environmental Laws" means any and all present and future Applicable Laws issued, promulgated or entered thereunder relating to pollution or protection of the environment, including laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. G. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. H. "Hedging Agreements" means: (a) interest rate swap agreements, basis swap agreements, interest rate cap agreements, forward rate agreements, interest rate floor agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates, and (b) forward contracts, options, futures contracts, futures options, commodity swaps, commodity options, commodity collars, commodity caps, commodity floors and all other agreements or arrangements designed to protect such Person against fluctuations in the price of commodities. I. "Hedging Obligations" means with respect to any Person, all liabilities (including without limitation obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement. -4- J. "Hydrocarbons" means collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. K. "Indebtedness" shall have the meaning set forth in Section 2.2 of this Mortgage. L. "Indemnification Claim" is defined in Section 4.6(a) of this Mortgage. M. "Indemnified Person" is defined in Section 3.10(c) of this Mortgage. N. "Joint Operating Agreements" shall mean, with respect to the lands described in Exhibit A, the respective operating agreement burdening the lands described in Exhibit A. O. "lands described in Exhibit A" shall include the real property or other interest in any lands which are either described in Exhibit A attached hereto or the description of which is incorporated in Exhibit A by reference to an instrument or document containing in, or referring to, such a description, and shall also include any lands now or hereafter unitized or pooled with lands which are either described in Exhibit A or the description of which is incorporated in Exhibit A by reference and Fixtures and all rights, titles and interests appurtenant thereto. References to Exhibit A shall include, where applicable, Exhibit A-1 as well. P. "Leases" means any and all leases (including without limitation oil and gas leases and oil, gas and other minerals leases), surface leases or easements, subleases, licenses, concessions, operating rights or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to explore, use, lease, license, possess, produce, process, store and transport Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged Property, together with all amendments, modifications, extensions and renewals thereof. Q. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Mortgagor, or the Mortgaged Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Mortgagor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Mortgagor, or the Mortgaged Property may be bound and (v) any and all -5- restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Mortgaged Property. R. "Losses" is defined in Section 3.10(c) of this Mortgage. S. "Maximum Lawful Rate" means the maximum nonusurious rate of interest that may be received, charged or contracted for under Applicable Law from time to time in effect. T. "Mortgaged Property" means the properties, rights and interests hereinafter described in Section 1.8 and defined as the Mortgaged Property. U. "Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Secured Debt Documents. V. "oil and gas leases" shall include oil, gas and mineral leases, subleases and assignments thereof, operating rights, and shall also include subleases and assignments of operating rights. W. "Operating Equipment" means all surface or subsurface machinery, goods, equipment, fixtures, inventory, facilities, supplies or other property of whatsoever kind or nature (excluding drilling rigs, trucks, automotive equipment or other property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on or under any of the lands described in Exhibit A which are useful for the production, gathering, treatment, processing, storage or transportation of Hydrocarbons (together with all accessions, additions and attachments to any thereof), including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, tubular goods, rods, pumping units and engines, christmas trees, platforms, derricks, separators, compressors, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and injection), steam generation and injection equipment and systems, power plants, poles, lines, transformers, starters and controllers, supervisory control and data acquisition systems, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading docks, loading racks and shipping facilities. X. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. Y. "Parity Lien Debt" is defined in the Collateral Trust Agreement. -6- Z. "Parity Lien Documents" is defined in the Collateral Trust Agreement. AA. "Parity Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Parity Lien Documents. BB. "Permits" means all authorizations, approvals, permits, variances, land use entitlements, consents, licenses, franchises and agreements issued by or entered into with any Governmental Authority now or hereafter required for all stages of exploration, developing, operating, and plugging and abandoning oil and gas wells (including, without limitation, those shown on Exhibit A) on all or any part of the lands described in Exhibit A (or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in the lands described in Exhibit A). CC. "Permitted Encumbrances" means the outstanding liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters as permitted by and defined in the Secured Debt Documents. DD. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. EE. "Personalty" means all of the right, title and interest of Mortgagor now owned or hereafter acquired in and to all furniture, furnishings, Equipment, machinery, Goods, General Intangibles, money, Accounts, receivables, Contract Rights, Inventory, all refundable, returnable or reimbursable fees, deposits or other funds or evidences of credit or indebtedness deposited by or on behalf of Mortgagor with any Governmental Authority, agencies, boards, corporations, providers of utility services, public or private, including specifically, but without limitation, all refundable, returnable or reimbursable tap fees, utility deposits, commitment fees and development costs, and all other personal property (other than the Fixtures) of any kind or character as defined in and subject to the provisions of Article 9 of the Uniform Commercial Code, now or hereafter located upon, within or about, or used in connection with, the lands described in Exhibit A together with all accessories, replacements and substitutions thereto or therefor and the Proceeds thereof. FF. "Priority Lien Debt" is defined in the Collateral Trust Agreement. GG. "Priority Lien Documents" is defined in the Collateral Trust Agreement. -7- HH. "Priority Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Priority Lien Documents. II. "Production Sale Contracts" means contracts now in effect, or hereafter entered into by Mortgagor, or entered into by Mortgagor's predecessors in interest, for the sale, purchase, exchange, gathering, transportation, treating or processing of Hydrocarbons produced from the lands described in Exhibit A. JJ. "Rents and Revenues" means all of the rents, revenues, income, proceeds, profits and other benefits paid or payable by parties to the Leases other than Mortgagor for using, leasing, licensing, possessing, operating, selling or otherwise enjoying the Mortgaged Property, including the proceeds from the sale of Hydrocarbons. KK. "Secured Debt" is defined in the Collateral Trust Agreement. LL. "Secured Debtholder" is defined in the Collateral Trust Agreement. MM. "Secured Debt Documents" is defined in the Collateral Trust Agreement. NN. "Secured Debt Representative" is defined in the Collateral Trust Agreement. OO. "Taxes" means all real property and personal property taxes, production taxes, assessments, permit fees, water, gas, sewer, electricity and other utility rates and charges, charges for any easement, license or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, charges and assessments and any interest, costs or penalties with respect thereto, of any kind and nature whatsoever which at any time prior to or after the execution hereof may be charged, assessed, levied or imposed upon the Mortgaged Property or the Rents and Revenues or the ownership, use, occupancy or enjoyment thereof. PP. "Transportation Agreements" shall mean any contracts or agreements entered into from time to time by Mortgagor, or entered into by Mortgagor's predecessors in interest, relating to the transportation of Hydrocarbons, as any such agreement or contract may be amended, supplemented, restated or otherwise modified from time to time. QQ. "Uniform Commercial Code" means the Uniform Commercial Code as in effect from time to time in the State of New York or any other applicable state, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," -8- "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. RR. "Water Rights" means (including without limitation those described in Exhibit A hereto) all now or hereafter existing or acquired water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights, whether evidenced or initiated by permit, decree, well registration, appropriation not decreed, water court application, shares of stock or other interests in mutual ditch or reservoir companies or carrier ditch or reservoir companies or otherwise, appertaining or appurtenant to or beneficially used or useful in connection with the lands described in Exhibit A, together with all pumps, well casings, wellheads, electrical installations, pumphouses, meters, monitoring wells and systems, measuring devices, pipes, pipelines, and other structures or personal property which are or may be used to produce, regulate, measure, distribute, store, or use water from the said water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights. 1.8 Grant. Grant of Priority Lien NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Priority Lien Indebtedness and the full and timely performance and discharge of the Priority Lien Obligations, has granted, bargained, sold, warranted, mortgaged, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of Equipment, General Intangibles, Accounts, As Extracted Collateral, Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other personal property of a kind or character defined in, or subject to the applicable provisions of, the Uniform Commercial Code (as in effect from time to time in the appropriate jurisdiction with respect to each of said properties, rights and interests), Mortgagor hereby grants to said Beneficiary, a security interest therein to the full extent of Mortgagor's legal and beneficial interest therein, now owned or hereafter acquired, namely: (a) the lands described in Exhibit A, and Leases, the fee, mineral, overriding royalty, royalty and other interests which are described in Exhibit A, (b) the presently existing and (subject to the terms of Section 6.1 hereof) hereafter arising unitization, unit operating, communitization and pooling agreements and the properties covered and the units created thereby (including, without limitation, all units formed under orders, regulations, rules, approvals, decisions or other official acts of any Governmental Authority) which are -9- specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A, (c) the Hydrocarbons which are in, under, upon, produced or to be produced from or which are attributed or allocated to the lands described in Exhibit A, (d) the Production Sale Contracts, (e) the Joint Operating Agreements, (f) the Transportation Agreements, (g) the Operating Equipment, (h) the Permits, (i) the Water Rights, (j) the Hedging Agreements, (k) the Leases, (l) the Personalty, (m) the Rents and Revenues, (n) without duplication of any other provision of this granting clause, Equipment, Fixtures and other Goods necessary or used in connection with, and Inventory, Accounts, As Extracted Collateral, General Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents, Electronic Chattel Paper, Instruments and Proceeds arising from, or relating to, the properties and other interests described in Exhibit A (including Exhibit A-1), (o) any and all liens and security interests in Hydrocarbons securing the payment of proceeds from the sale of Hydrocarbons, including but not limited to those liens and security interests provided for in Section 48-9-1, et seq. NMSA (1978) or similar statutes of other jurisdictions or any successor statutes, together with any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the same, or any instrument relating thereto, and all accounts, contracts, contract rights, options, nominee agreements, unitization or pooling agreements, operating agreements and unit operating agreements, processing agreements, farmin agreements, farmout agreements, joint venture agreements, partnership agreements (including mining partnerships), exploration agreements, bottom hole agreements, dry hole agreements, support agreements, acreage contribution agreements, surface use and surface damage agreements, net profits agreements, production payment agreements, Hedging -10- Agreements, insurance policies, title opinions, title abstracts, title materials and information, files, records, writings, data bases, information, systems, logs, well cores, fluid samples, production data and reports, well testing data and reports, maps, seismic and geophysical, geological and chemical data and information, interpretative and analytical reports of any kind or nature (including, without limitation, reserve studies and reserve evaluations), computer hardware and software and all documentation therefor or relating thereto (including, without limitation, all licenses relating to or covering such computer hardware, software and/or documentation), trade secrets, trademarks, service marks and business names and the goodwill of the business relating thereto, copyrights, copyright registrations, unpatented inventions, patent applications and patents, rights-of-way, franchises, bonds, easements, servitudes, surface leases, permits, licenses, tenements, hereditaments, appurtenances, concessions, occupancy agreements, privileges, development rights, condemnation awards, claims against third parties, general intangibles, rents, royalties, issues, profits, products and proceeds, whether now or hereafter existing or arising, used or useful in connection with, covering, relating to, or arising from or in connection with, any of the aforesaid items (a) through o), inclusive, in this granting clause mentioned, and all other things of value and incident thereto (including, without limitation, any and all liens, lien rights, security interests and other properties, rights and interests) which Mortgagor might at any time have or be entitled to, but excluding any data or contracts with respect to which mortgaging or granting of a lien or a security interest is prohibited by existing third party agreements, all the aforesaid properties, rights and interests, together with any additions thereto which may be subjected to the lien and security interest of this Mortgage by means of supplements hereto, being hereinafter, collectively, called the "Mortgaged Property." Grant of Parity Lien NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Parity Lien Indebtedness and the full and timely performance and discharge of the Parity Lien Obligations, has granted, bargained, sold, warranted, mortgaged, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the Mortgaged Property. Subject, however, in each case to (i) Permitted Encumbrances (including without limitation all presently existing royalties, overriding royalties, payments out of production and other burdens which are referred to in Exhibit A and which are taken into consideration in computing any percentage, decimal or fractional interest as set forth in Exhibit A), (ii) the assignment of production contained in Article IV hereof, but only insofar and so long as said assignment of production is not inoperative under the provisions of Section 4.5 hereof, and (iii) the condition that none of Trustee, Beneficiary nor any Secured Debtholder shall be liable in any respect for the performance of any covenant or obligation (including, without limitation, measures required to comply with Environmental Laws) of Mortgagor in respect of the Mortgaged Property. -11- TO HAVE AND TO HOLD the Mortgaged Property for the benefit of Beneficiary, and forever to secure the payment of the Indebtedness and to secure the performance and discharge of the Obligations of Mortgagor herein and therein contained. As set forth in the separate granting clauses above, it is the intent of Mortgagor that such grants shall create two separate and distinct security interests in all right, title and interest of Mortgagor in the Mortgaged Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Parity Lien Debt. Notwithstanding (i) anything to the contrary contained in this Mortgage or any other document, filing or agreement related to the creation, attachment, perfection or existence of the liens and security interests granted herein, (ii) the time, place, order or method of attachment or perfection of such liens or security interests, (iii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect such security interests, and (iv) the rules for determining priority under any law governing the relative priorities of secured creditors, the lien securing the Parity Lien Indebtedness is subordinated and junior in priority to the lien securing the Priority Lien Indebtedness. Mortgagor, in consideration of the Secured Debt as set forth above, hereby covenants and agrees with each of Trustee and Beneficiary: ARTICLE II. INDEBTEDNESS SECURED 2.1 Items of Indebtedness Secured. The following items of indebtedness are secured hereby: (a) The Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Priority Lien Documents; (b) The Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Parity Lien Documents; (c) All Obligations under any other Priority Lien Debt or Parity Lien Debt; (d) Any sums advanced or expenses or costs incurred by Trustee, Beneficiary or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof or the other loan documents, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (e) Any and all other indebtedness of Mortgagor or any Affiliate of Mortgagor to Beneficiary now or hereafter owing, whether direct or indirect, -12- primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (f) Any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (a) through (e) above, whether or not Mortgagor executes any extension agreement or renewal instrument. 2.2 Indebtedness Defined. All the above items of indebtedness described in subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively referred to as the "Priority Lien Indebtedness." And all the above items of indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are hereinafter collectively referred to as the "Parity Lien Indebtedness"; the Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively referred to as the "Indebtedness". 2.3 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and agrees that, except as otherwise provided by the Secured Debt Documents, the Existing Mortgage constitutes a valid and subsisting first lien on the portion of the Mortgaged Property encumbered thereby, and that none of the rights and liens existing thereunder shall be impaired or released hereby, and that the same as amended and restated hereby shall remain in full force and effect, and all rights and liens existing and to exist thereunder are renewed, extended, carried forward, and conveyed to secure all of the Indebtedness hereinabove mentioned. 2.4 Amended and Restated Mortgage. The Existing Mortgage is amended and restated in full hereby in order to, among other things, secure all of the Indebtedness herein described or referred to as if reference to such Indebtedness were fully described in the Existing Mortgage. None of the rights, titles, and interests, existing or to exist under the Existing Mortgage are hereby released, diminished or impaired. 2.5 No Impairment or Discharge of Liens. It is the express intention of all parties hereto that the Secured Debtholders are subrogated to all of the rights, powers, and equities of the original lenders and beneficiary under the Existing Mortgage, that the liens created hereby shall relate back to and be effective as of the effective date of the Existing Mortgage and that nothing contained herein shall be construed to impair or discharge the liens and security interests created thereby. ARTICLE III. PARTICULAR COVENANTS, REPRESENTATIONS AND WARRANTIES OF MORTGAGOR 3.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor will duly and punctually pay the Indebtedness, as and when called for in the Secured Debt Documents and on or before the due dates thereof, and will timely perform and -13- discharge all of the Obligations in full and on or before the dates same are to be performed and discharged. 3.2 Certain Representations and Warranties. Mortgagor represents and warrants (and with respect to those matters set forth in the following subsections (b) and (f), as to those portions of the Mortgaged Property that are operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor makes such representation and warranty to the best of its knowledge) that (a) the oil and gas leases described in Exhibit A hereto are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the properties to which they pertain, (b) all producing wells located on the lands described in Exhibit A (including Exhibit A-1) have been drilled, operated and produced in conformity with all Applicable Laws of all Governmental Authorities having jurisdiction, and are subject to no penalties on account of past production, and such wells are in fact bottomed under and are producing from, and the well bores are wholly within, the lands described in Exhibit A or lands pooled or unitized therewith, (c) Mortgagor, to the extent of the interest specified in Exhibit A (including Exhibit A-1), has valid and indefeasible title to each property right or interest constituting the Mortgaged Property described in Exhibit A (including Exhibit A-1) and has a good and legal right to grant and convey the same to Trustee; such interest entitles Mortgagor to receive not less than the share of Hydrocarbons from such property indicated as its net revenue interest or "NRI" share of such Hydrocarbons, and obligates Mortgagor to pay for not more than the share of operating and other costs, liabilities and expenses associated with such property indicated as its working interest or "Wl" share of such costs, liabilities and expenses, (d) Excepting the Permitted Encumbrances, the Mortgaged Property is free from all encumbrances or liens whatsoever, (e) Mortgagor is not obligated, by virtue of any prepayment under any contract providing for the sale by Mortgagor of Hydrocarbons which contains a "take or pay" clause or under any similar arrangement, to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor, (f) the Mortgaged Property is currently being operated, maintained and developed, in all material respects, in accordance with all applicable currently existing Permits, Legal Requirements and all Applicable Laws (including, without limitation, Environmental Laws), (g) the cover page to this Mortgage lists the correct legal name of Mortgagor and Mortgagor has not been known by any legal name different from the one set forth on the cover page of this Mortgage, -14- (h) the execution, delivery, and performance by Mortgagor of this Mortgage (i) are within Mortgagor's corporate powers and have been duly authorized by Mortgagor's Board of Directors, shareholders and all other requisite corporate action, (ii) have received all (if any) requisite prior governmental approval and consent in order to be legally binding and enforceable in accordance with the terms thereof, and (iii) will not violate, be in conflict with, result in a breach or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property or assets, except as contemplated by the provisions of the Secured Debt Documents, and (i) except as permitted by the Secured Debt Documents, there are no actions, suits or proceedings pending, or to the knowledge of Mortgagor threatened, against or affecting Mortgagor or the Mortgaged Property that could materially adversely affect Mortgagor or the Mortgaged Property, or involving the validity or enforceability of this Mortgage or the priority of the liens and security interests created by the Secured Debt Documents, and no event has occurred (including specifically Mortgagor's execution of this Mortgage which will violate, be in conflict with, result in the breach of, or constitute (with due notice or lapse of time, or both) a material default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property other than the liens and security interests created by the Secured Debt Documents. 3.3 Further Assurances. Mortgagor will warrant and forever defend the Mortgaged Property unto Trustee and Beneficiary, as the case may be, against every person whomsoever lawfully claiming the same or any part thereof, subject to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and security interest hereby created so long as any of the Indebtedness remains unpaid. Mortgagor will execute and deliver such other and further instruments and will do such other and further acts as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Documents to carry out more effectually the purposes of this Mortgage, including, without limiting the generality of the foregoing, (i) prompt correction of any defect which may hereafter be discovered in the title to the Mortgaged Property or in the execution and acknowledgment of this Mortgage, the Secured Debt Documents, or, immediately upon the occurrence of an Event of Default, any other document executed in connection herewith, and (ii) at any time a Secured Debt Representative may request and upon such request, promptly execute all notices to parties operating, purchasing or receiving proceeds of production of Hydrocarbons from the Mortgaged Property, and all division orders or transfer orders needed in order to transfer effectually or to assist in transferring effectually to the Beneficiary the assigned proceeds of production from the Mortgaged Property, which notices, division orders and transfer orders shall be held by such Secured Debt Representative and delivered upon an Event of Default. -15- 3.4 Operation of the Mortgaged Property. So long as the Indebtedness or any part thereof remains unpaid, and whether or not Mortgagor is the operator of any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's own expense: (a) Do all things necessary to keep unimpaired Mortgagor's rights in the Mortgaged Property and not abandon any well or forfeit, surrender or release any Lease, except that Mortgagor may, in the ordinary course of business, (i) plug and abandon any well no longer capable of producing Hydrocarbons in paying quantities, (ii) surrender or release any Lease or a portion thereof so long as no well capable of producing Hydrocarbons in paying quantities is located on such Lease or a portion thereof or production from any such well is attributed to such Lease or a portion thereof, (iii) surrender or release any Lease or a portion thereof on which no producing well has ever been drilled or which has never been held by production from another well unless Proven Reserves (as defined in any Secured Debt Document) are attributed to such Lease or a portion thereof and (iv) abandon, forfeit, surrender or release any other portion of the Mortgaged Property to the extent permitted under the then existing Secured Debt Documents; (b) Obtain and maintain all required Permits and cause the lands described in Exhibit A to be maintained, developed, protected against drainage, and operated for the production of Hydrocarbons in a good and workmanlike manner as would a prudent operator, and consistent with industry practices, Joint Operating Agreements, and all Applicable Laws, excepting those being contested in good faith; and plug and abandon wells no longer capable of producing Hydrocarbons in paying quantities in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; and remediate the lands described in Exhibit A and facilities located thereon in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; (c) Duly pay and discharge, or cause to be paid and discharged, promptly as and when due and payable, all rentals and royalties (including shut-in royalties) payable in respect of the Mortgaged Property (other than rentals under Leases that are surrendered pursuant to the foregoing Section 3.4(a)), and all expenses incurred in or arising from the operation or development of the Mortgaged Property not later than the due date thereof, or the day any fine, penalty, interest or cost may be added thereto or imposed, or the day any lien may be filed, for the non-payment thereof (if such day is used to determine the due date of the respective item) except as to such matters which are being contested by Mortgagor in good faith; (d) Cause the Operating Equipment to be kept in good and effective operating condition, ordinary wear and tear excepted, and all repairs, renewals, replacements, additions and improvements thereof or thereto, needful to the production of Hydrocarbons from the lands described in Exhibit A, to be promptly made; -16- (e) Not, except as permitted under the Secured Debt Documents, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien (statutory, constitutional or contractual), security interest, encumbrance or charge, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Secured Debt Documents, with, respect to all or any portion of the Mortgaged Property, the Leases or the Rents and Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting a lien but not due and payable, (3) defects or irregularities in title, and liens, charges or encumbrances, which are customarily viewed in the industry as not interfering materially with the development, operation or value of the Mortgaged Property and not such as to affect materially title thereto, and (4) those being contested by Mortgagor in good faith in such manner as not to jeopardize Beneficiary's rights in and to the Mortgaged Property; (f) Carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Mortgagor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Mortgaged Property, is located, insurance in respect of the Operating Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of Rents and Revenues); provided, that any such insurance may be -------- provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Beneficiary as its interest may appear, which proceeds are hereby assigned to Beneficiary, it being agreed by Mortgagor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Mortgaged Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Beneficiary shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Mortgagor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, endorsed, altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer shall have first given Beneficiary and each Secured Debt Representative thirty (30) days prior written -17- notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Beneficiary shall be furnished with a certificate evidencing such coverage in form and content comparable to coverage typically provided in the industry. All policies to be maintained under this Mortgage are to be issued on forms and by companies and with endorsements as are customary in the industry. Mortgagor shall maintain insurance in an amount sufficient to prevent Mortgagor from becoming a co-insurer under any policy required hereunder. If Mortgagor fails to maintain the level of insurance required under this Mortgage, then Mortgagor shall and hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; (g) Furnish to Beneficiary and each Secured Debt Representative, as soon as possible and in any event within five (5) days after the occurrence from time to time of any change in the address of Mortgagor's location (as described on the signature page hereto) or in the name of Mortgagor, notice in writing of such change; (h) Not initiate or acquiesce in any change in any material zoning or other land use or Water Rights classification now or hereafter in effect and affecting the Mortgaged Property or any part thereof; (i) Notify Beneficiary and each Secured Debt Representative in writing, as soon as possible and in any event within five (5) days after it shall become aware of the occurrence of any Event of Default or any event which, with notice, the passage of time or both would be such an Event of Default; (j) Appear and defend, and hold Beneficiary and any Secured Debtholder harmless from, any action, proceeding or claim affecting the Mortgaged Property or the rights and powers of Beneficiary or Secured Debtholders under the Secured Debt Documents, and all costs and expenses incurred by Beneficiary or any Secured Debtholder in protecting its interests hereunder in such an event (including all court costs and attorneys' fees) shall be borne by Mortgagor; (k) Subject to Mortgagor's right to contest the same, promptly pay all Taxes legally imposed upon this instrument or upon the Mortgaged Property or upon the income and profits thereof, or upon the interest of Beneficiary therein; provided that Mortgagor shall not be liable for taxes accruing after a transfer of the Mortgaged Property following a foreclosure; (l) Comply with, conform to and obey, in all material respects, all present and future Legal Requirements and not use, maintain, operate, occupy, or allow the use, maintenance, operation or occupancy of, the Mortgaged Property in any manner which (a) violates any present and future Legal Requirement, (b) may be dangerous unless safeguarded as required by Applicable Law, (c) constitutes a -18- public or private nuisance or (d) makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto; and (m) Not, except as authorized under the Secured Debt Documents, permit any of the Fixtures or Personalty to be removed at any time from the lands described in Exhibit A unless (i) the removed item is removed temporarily for maintenance and repair, (ii) if removed permanently, is replaced by an article of equal suitability and value, owned by Mortgagor, free and clear of any lien or security interest or (iii) such Fixtures or Personalty are removed in connection with the plugging and abandoning of wells, or abandonment of other facilities, in each case as permitted by this Mortgage. 3.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform and comply with any and all representations, warranties, covenants and agreements expressed as binding upon it under each of the Leases; (b) subject to the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel or waive its rights or the obligations of any other party under any of the Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all reasonable efforts to maintain each of the Leases in force and effect during the full term thereof, and (d) appear in and defend (or cause its operator to appear in and defend) any action or proceeding arising under or in any manner connected with any of the Leases or the representations, warranties, covenants and agreements of it or the other party or parties thereto. 3.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense, record, register, deposit and file this and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the lien and security interest hereof as a first lien on and prior perfected security interest in real or personal property, as the case may be, and the rights and remedies of Beneficiary and Secured Debtholders, and otherwise will do and observe all things or matters necessary or expedient to be done or observed by reason of any Applicable Law, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on and in the Mortgaged Property. 3.7 Sale or Mortgage of the Mortgaged Property. Except (a) as set forth in Section 6.1 of this Mortgage; (b) for sales of severed Hydrocarbons in the ordinary course of Mortgagor's business; (c) for sales of or dispositions of surplus, obsolete or worn inventory or equipment; (d) for the lien and security interest created by this Mortgage, (e) for Permitted Encumbrances, and (f) for sales, exchanges or other dispositions of Mortgaged Property permitted under the Secured Debt Documents governing Priority Lien Debt and permitted under the Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell, convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's right, title or interest therein, and Mortgagor will not enter into any arrangement with any gas pipeline company or other consumer of Hydrocarbons regarding the Mortgaged Property whereby said gas -19- pipeline company or consumer may set off any claim against Mortgagor by withholding payment for any Hydrocarbons actually delivered. 3.8 Records, Statements and Reports. Mortgagor will keep proper books of record and account in which complete and correct entries will be made of Mortgagor's transactions in accordance with generally accepted accounting principles and will furnish or cause to be furnished to each Secured Debt Representative such information concerning the business, affairs and financial condition of Mortgagor as required under the Secured Debt Documents. Without limiting the generality of the foregoing, Mortgagor shall furnish to Beneficiary and each Secured Debt Representative, but not more than every six (6) months: (a) reports prepared by a reputable national independent petroleum engineer regularly engaged by Mortgagor for such purposes or other engineering firm acceptable to the Credit Agreement Agent concerning (1) the quantity of Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income and expense attributable to the Mortgaged Property, and (3) the expediency of any change in methods of treatment or operation of all or any wells productive of Hydrocarbons, any new drilling or development, any method of secondary recovery by repressuring or otherwise, or any other action with respect to the Mortgaged Property, the decision as to which may increase or reduce the quantity of Hydrocarbons ultimately recoverable or the rate of production thereof, and (b) reports for the prior period showing the gross proceeds from the sale of Hydrocarbons produced from the lands described in Exhibit A (including any thereof taken by Mortgagor for Mortgagor's own use), the quantity of such Hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of such proceeds and the number of wells operated, drilled or abandoned. 3.9 Right of Entry. (a) Upon at least twenty-four (24) hours notice to Mortgagor, Mortgagor will permit Beneficiary, each Secured Debt Representative and/or the agents of either of them, at the cost and expense of Mortgagor, to enter upon the Mortgaged Property and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof, and shall permit reasonable access to the field offices and other offices (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Mortgaged Property), including the principal place of business, of Mortgagor to inspect and examine the Mortgaged Property and to inspect, review and reproduce as necessary any books, records, accounts, contracts or other documents of Mortgagor, , it being understood that any non-public information obtained in connection therewith shall be subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect. (b) Without limiting the generality of the foregoing, Beneficiary shall have the right (but shall not be obligated to), and each Secured Debt Representative and its agents shall have the right (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and other -20- applicable agreements affecting the Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor to enter the Mortgaged Property to conduct (at the cost and expense of Mortgagor), or to cause Mortgagor to conduct (at the cost and expense of Mortgagor), such tests and investigations as may be necessary to determine whether any hazardous materials or solid waste is being generated, transported, stored, or disposed of in accordance with applicable Environmental Laws. Such tests and investigations may include, without limitation, underground borings, ground water analyses and borings from the floors, ceilings and walls of any improvements located on the Mortgaged Property. This Section 3.9 shall not be construed to affect or limit the obligations of Mortgagor pursuant to Section 3.4 hereof. (c) Neither Beneficiary nor any Secured Debt Representative shall have any duty to visit or observe the Mortgaged Property, or to conduct tests, and no site visit, observation or testing by any such person (or its agents and independent contractors) shall impose any liability on any such person nor shall Mortgagor or any other obligor be entitled to rely on any such visit, observation or testing in any respect. Beneficiary or a Secured Debt Representative may, but shall not be obligated to, disclose to Mortgagor or, subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect, any other Person, including any Governmental Authority, any report or finding made as a result of, or in connection with, any site visit, observation or testing. Mortgagor agrees that neither Beneficiary nor any Secured Debt Representative makes any warranty or representation to Mortgagor or any other obligor regarding the truth, accuracy or completeness of any such report or findings that may be so disclosed. Mortgagor also acknowledges that, depending upon the results of any site visit, observation or testing disclosed to Mortgagor, Mortgagor may have a legal obligation to notify one or more Governmental Authorities of such results, that such reporting requirements are site-specific, and are to be evaluated by Mortgagor without advice or assistance from Beneficiary or any Secured Debt Representative. 3.10 Environmental Laws. (a) Mortgagor represents and warrants, to the best of its knowledge after due inquiry that: (i) except as permitted by the Secured Debt Documents, the Mortgaged Property is in compliance in all material respects with all applicable Environmental Laws and there are no conditions existing currently which would be likely to subject Mortgagor to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or assertions thereof, or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by Mortgagor; and all use, generation, manufacturing, release, discharge, storage, deposit, treatment, recycling or disposal of any materials on, under or at the Mortgaged Property or transported to or from -21- the Mortgaged Property (or tanks or other facilities thereon containing such materials) are being and will be conducted in accordance, in all material respects, with applicable Environmental Laws including without limitation those requiring cleanup, removal or any other remedial action, (ii) Mortgagor is not a party to any litigation or administrative proceedings, nor so far as is known by Mortgagor is any litigation or administrative proceeding threatened against it, which asserts or alleges that Mortgagor has violated or is violating Environmental Laws or that Mortgagor is required to clean up, remove or take remedial or other responsive action due to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials; neither the Mortgaged Property nor Mortgagor is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws and neither has been named or listed as a potentially responsible party by any Governmental Authority in a matter arising under any Environmental Laws; and (iii) Mortgagor has also obtained all Permits required under applicable Environmental Laws which are necessary for its current exploration, production, transportation, storage, use, and development activities at the Mortgaged Property. (b) Mortgagor shall not use or permit the Mortgaged Property or any part thereof to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process any hazardous materials, except in strict compliance with all applicable Environmental Laws, nor shall Mortgagor cause or permit, as a result of any intentional or unintentional act or omission on the part of Mortgagor or any tenant or subtenant, a release of any hazardous materials onto the Mortgaged Property or onto any other property in material violation of any applicable Environmental Laws. Mortgagor shall comply, in all material respects, with all applicable Environmental Laws and shall obtain and comply with any and all registrations or Permits required thereunder. To the extent any hazardous materials are released or discharged onto the Mortgaged Property on or after the date of this Mortgage, Mortgagor shall conduct and complete all investigations, studies, sampling, and testing, and all remedial, removal, and other actions necessary to clean up and remove all such hazardous materials on, from, or affecting the Mortgaged Property or any part thereof (i) in accordance with all applicable Environmental Laws; and (ii) in accordance with the orders and directives of all Governmental Authorities having jurisdiction over the Mortgaged Property. Mortgagor shall promptly notify Beneficiary and each Secured Debt Representative of its receipt of any notice of a violation of any Environmental Laws. (c) Regardless of whether any site assessments are conducted pursuant to this Mortgage, and without limiting the liability of Mortgagor for the breach of any warranty, representation or covenant contained herein or in any Secured -22- Debt Document, and notwithstanding any limitation of liability contained in the Secured Debt Documents, Mortgagor hereby agrees to unconditionally and absolutely defend, indemnify and hold harmless Beneficiary, Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Mortgage and any successors or substitute trustee under the Mortgage (any person to be indemnified being herein called the "Indemnified Person"), from and against, and be responsible for, any and all liabilities (including strict liability), actions, demands, penalties, fines, taxes, assessments, losses (including, without limitation, diminution in the value of the Mortgaged Property), costs and expenses (including, without limitation, attorneys', paralegals', accountants' and other experts' and consultants' fees and expenses, and remedial costs, including, without limitation, costs of monitoring), suits, damages, including, without limitation, punitive damages and foreseeable and unforeseeable consequential damages, costs of any settlement or judgment and claims (including, without limitation, third-party claims for personal injury or real or personal property damage) of any and every kind whatsoever (hereinafter, collectively, called the "Losses"), which may now or in the future (whether before or after the release, or other termination of the Mortgage and the other Secured Debt Documents) be paid, imposed upon, incurred or suffered by or asserted or awarded against any of the Indemnified Persons or the Mortgaged Property by any person or entity or Governmental Authority for, with respect to, arising out of, or as a direct or indirect result of, any one or more of the following: (i) the presence or suspected presence, release or suspected release of any hazardous materials at, upon, under, within, above, from, by or in connection with the Mortgaged Property or any portion thereof, or elsewhere in connection with the transportation of hazardous materials to or from the Mortgaged Property (including, without limitation, in the air, soil, groundwater or surface water), or the escape, seepage, leakage, spillage, discharge, emission or release from the Mortgaged Property of any hazardous materials; (ii) any violations of any Environmental Laws at, upon, under, within, from, by or in connection with the Mortgaged Property; (iii) the environmental condition of the Mortgaged Property; (iv) the imposition by any Governmental Authority of any lien or so-called "super priority lien" upon the Mortgaged Property as a result of the presence or release of hazardous materials, or any violation of any Environmental Laws, at, upon, under, within, from, by or connection with the Mortgaged Property; (v) obligations to remediate hazardous materials contamination, or to remediate any condition which constitutes a violation of any Environmental Laws; (vi) any site assessments of the Mortgaged Property; (vii) liability for personal injury or property damage or damage to the environment or fines, penalties and punitive damages, resulting from the presence or release of hazardous materials or any violations of any Environmental Laws, at, upon, under, within, from, by or in connection with the Mortgaged Property; and (viii) any environmental matter described in this Mortgage, including, without limitation, matters arising out of any breach of the covenants, representations and warranties set forth herein in each instance described in (i) through (viii) hereof regardless of whether any such Losses arise out of or result from any breach of the covenants, representations -23- and warranties pertaining to environmental matters set forth in this Mortgage or the other Secured Debt Documents, and regardless of whether or not caused by or within the control of Mortgagor or any Indemnified Person; or whether any such matters arise before, during or after any foreclosure of the Mortgage or other taking of title to all or any portion of the Mortgaged Property or the enforcement of any other remedies under the Secured Debt Documents (if any such event occurs). WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT LIABILITY OF ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON. THE FOLLOWING SHALL APPLY TO THAT PORTION OF THE MORTGAGED PROPERTY LOCATED IN THE STATE OF NEW MEXICO: TO THE EXTENT THE FOREGOING INDEMNITY IS GOVERNED BY SECTION 56-7-1 NMSA (1978), SAID INDEMNITY SHALL NOT EXTEND TO LIABILITY, CLAIMS, DAMAGES, LOSSES OR EXPENSES, INCLUDING ATTORNEYS FEES, ARISING OUT OF (A) THE PREPARATION OR APPROVAL OF MAPS, DRAWINGS, OPINIONS, REPORTS, SURVEYS, CHANGE ORDERS, DESIGNS OR SPECIFICATIONS BY AN INDEMNIFIED PERSON, OR (B) THE GIVING OF OR THE FAILURE TO GIVE DIRECTIONS OR INSTRUCTIONS BY AN INDEMNIFIED PERSON WHERE SUCH GIVING OR FAILURE TO GIVE DIRECTIONS OR INSTRUCTIONS IS THE PRIMARY CAUSE OF BODILY INJURY TO PERSONS OR DAMAGE TO PROPERTY. TO THE EXTENT THE FOREGOING INDEMNITY IS GOVERNED BY SECTION 56-7-2 NMSA (1978), SAID INDEMNITY SHALL NOT EXTEND TO (A) THE SOLE OR CONCURRENT NEGLIGENCE OF AN INDEMNIFIED PERSON, (B) THE SOLE OR CONCURRENT NEGLIGENCE OF AN INDEPENDENT CONTRACTOR WHO IS DIRECTLY RESPONSIBLE TO AN INDEMNIFIED PERSON, OR (C) AN ACCIDENT THAT OCCURS IN OPERATIONS CARRIED ON, AT THE DIRECTION, OR UNDER THE SUPERVISION OF AN INDEMNIFIED PERSON OR IN ACCORDANCE WITH METHODS AND MEANS SPECIFIED BY AN INDEMNIFIED PERSON. (d) Notwithstanding the foregoing or any contrary provision hereof, Mortgagor's indemnification obligations set forth in this Section 3.10 shall not extend to any such Losses which are attributable solely to contamination by hazardous materials first introduced to the Mortgaged Property after a foreclosure of this Mortgage or other taking of title to the Mortgaged Property by any of Indemnified Persons. (e) The indemnification provided in this Section 3.10 shall specifically apply to and include claims or actions brought by or on behalf of tenants or employees of Mortgagor. Mortgagor hereby expressly waives (with respect to any claims of any Indemnified Person arising under this Section 3.10) any immunity to which Mortgagor may otherwise be entitled under any industrial or worker's compensation laws. (f) In the event any of the Indemnified Persons shall suffer or incur any such Losses, Mortgagor shall pay to such Indemnified Persons the total of all such Losses suffered or incurred within ten (10) days after demand therefore. -24- (g) Mortgagor agrees that the representations, covenants, warranties and indemnifications contained in this Mortgage shall survive the release of the Mortgage, the foreclosure or the taking of a deed in lieu of foreclosure, other termination of the lien of the Mortgage, or the exercise by Beneficiary of any other remedies under the Secured Debt Documents, the discharge of Mortgagor's Obligations under any of the other Secured Debt Documents, or any transfer of the Mortgaged Property, even if as a part of such foreclosure, deed in lieu of foreclosure or other enforcement action, the Indebtedness is satisfied in full. 3.11 Corporate Mortgagor. Mortgagor will continue to be duly qualified to transact business in each state where the conduct of its business requires it to be qualified, and will not, unless permitted pursuant to the Secured Debt Documents, consolidate or merge with any other partnership, company, corporation or other Person. 3.12 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382. ARTICLE IV. ASSIGNMENT OF PRODUCTION 4.1 Assignment. (a) Mortgagor hereby absolutely and irrevocably (a) transfers, assigns, warrants and conveys, to Beneficiary, effective as of July 1, 2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter produced from and which accrue to the Mortgaged Property, and all proceeds therefrom, and (b) gives to and confers upon Beneficiary the right, power and authority to collect such Hydrocarbons and proceeds. Subject to the terms of Section 4.1 (b), all parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, are authorized and directed to treat and regard Beneficiary as the assignee and transferee of Mortgagor and entitled in Mortgagor's place and stead to receive such Hydrocarbons and all proceeds therefrom; and said parties and each of them shall be fully protected in so treating and regarding Beneficiary and shall be under no obligation to see to the application by Beneficiary of any such proceeds or payments received by it; provided, however, that, until Beneficiary or any Secured Debt Representative shall have instructed such parties that an Event of Default has occurred and to deliver such Hydrocarbons and all proceeds therefrom directly to Beneficiary, such parties shall be entitled to deliver such Hydrocarbons and all proceeds therefrom directly to Mortgagor. So long as no Event of Default shall have occurred, Mortgagor shall be entitled to receive directly from such parties, and keep and retain, all such proceeds from the sale of such Hydrocarbons. -25- (b) Upon the occurrence of an Event of Default (provided that the Secured Debt Representative shall not give such instruction and notice under this Article IV unless such Event of Default shall then be continuing), any Secured Debt Representative may at any time (and from time to time) thereafter give notice thereof to any party producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary, directing that said Hydrocarbons and products are to be delivered into pipelines connected with the oil and gas leases, or to the purchaser thereof, free and clear of all Taxes, and the proceeds from the sale of such Hydrocarbons paid directly to Beneficiary in accordance with Section 4.5 of this Mortgage. Said parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, shall be fully protected in relying on any such Secured Debt Representative's determination and notice of the occurrence of an Event of Default. Mortgagor agrees to perform all such acts, and to execute all such further assignments, transfers and division orders, and other instruments as may be required pursuant to the Collateral Trust Agreement or any of the Secured Debt Documents in order to have said revenues and proceeds so paid to Beneficiary, as and when provided in this Article IV. With respect to any funds received by Beneficiary, Beneficiary is fully authorized to (but shall not be obligated to) receive and give receipt for any such revenues and proceeds that are received by Beneficiary; to endorse and cash any and all checks and drafts payable to the order of Mortgagor or Beneficiary for the account of Mortgagor received from or in connection with said revenues or proceeds and apply the proceeds thereof in accordance with Section 4.2 hereof, and to execute transfer and division orders in the name of Mortgagor, or otherwise, with warranties binding Mortgagor. The assignment of the Hydrocarbons and proceeds in this Section 4.1 is intended to be an absolute assignment from Mortgagor to Beneficiary and not merely the passing of a security interest. Such Hydrocarbons and proceeds are hereby assigned absolutely by Mortgagor to Beneficiary. 4.2 Application of Proceeds. All payments received by Beneficiary pursuant to Section 4.1 hereof shall be placed in a cash collateral account to be applied in accordance with the provisions of the Collateral Trust Agreement. 4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby absolved from all liability for failure to enforce collection of any proceeds so assigned (and no such failure shall be deemed to be a waiver of any right of Beneficiary under this Article IV) and from all other responsibility in connection therewith, except the responsibility to account to Mortgagor for funds actually received. 4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein contained shall detract from or limit the absolute obligation of Mortgagor to make payment of the Indebtedness regardless of whether the proceeds assigned by this Article IV are sufficient to pay the same, and the rights under this Article IV shall be in -26- addition to all other security now or hereafter existing to secure the payment of the Indebtedness. 4.5 Status of Assignment. Notwithstanding the other provisions of this Article IV and in addition to the other rights hereunder, Beneficiary or any receiver appointed in judicial proceedings for the enforcement of this Mortgage shall have the right to receive all of the Hydrocarbons herein assigned and the proceeds therefrom after the occurrence and during the continuance of any Event of Default and to apply all of said proceeds as provided in Section 4.2 hereof. Upon any sale of the Mortgaged Property or any part thereof pursuant to Article V, the Hydrocarbons thereafter produced from the property so sold, and the proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment contained in this Article IV. 4.6 Indemnification Obligation. The following provisions shall apply to, and be deemed in each case to modify, each of the provisions of this Mortgage (except those set forth in Section 3.10 hereof) and the other Secured Debt Documents (except to the extent otherwise expressly provided therein) wherein Mortgagor is obligated to indemnify each of the Indemnified Persons: (a) Mortgagor agrees to indemnify Beneficiary, the Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Mortgage and any successors or substitute trustee under the Mortgage, against all legal and administrative proceedings for which a claim for indemnification may be made by the Indemnified Person (herein, collectively, called "Indemnification Claims") made against or incurred by them or any of them as a consequence of the assertion, either before or after the payment in full of the Indebtedness, that they or any of them received Hydrocarbons herein assigned or the proceeds thereof claimed by third persons and Beneficiary, Secured Debtholders, and Trustee shall have the right to defend against any such Indemnification Claims, employing attorneys therefor, and unless furnished with reasonable indemnity, they or any of them shall have the right to pay or compromise and adjust all such Indemnification Claims. Mortgagor will indemnify and pay to Beneficiary, Secured Debtholders and Trustee any and all such amounts as may be paid in respect thereof or as may be successfully adjudged against such persons. The obligations of Mortgagor as hereinabove set forth in this Section 4.6 shall survive the release termination, foreclosure or assignment of this Mortgage or any sale hereunder. (b) Mortgagor shall pay when due any judgments with respect to an Indemnification Claim against any of the Indemnified Persons and which are rendered by a final order or decree of a court of competent jurisdiction from which no further appeal may be taken or has been taken within the applicable appeal period. In the event that such payment is not made, any of the Indemnified Persons at its sole discretion may pay any such judgments, in whole or in part, and look to Mortgagor for reimbursement pursuant to this Mortgage, or may proceed to file suit against Mortgagor to compel such payment. -27- (c) Any amount which Mortgagor is obligated to pay to or for the benefit of an Indemnified Person with respect to an Indemnification Claim, but which is not paid when due, shall bear interest at the applicable rate set forth under the Secured Debt Documents from the date such amount is due until such amount is paid. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT LIABILITY OF ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON. THE FOLLOWING SHALL APPLY TO THAT PORTION OF THE MORTGAGED PROPERTY LOCATED IN THE STATE OF NEW MEXICO: TO THE EXTENT THE FOREGOING INDEMNITY IS GOVERNED BY SECTION 56-7-1 NMSA (1978), SAID INDEMNITY SHALL NOT EXTEND TO LIABILITY, CLAIMS, DAMAGES, LOSSES OR EXPENSES, INCLUDING ATTORNEYS FEES, ARISING OUT OF (A) THE PREPARATION OR APPROVAL OF MAPS, DRAWINGS, OPINIONS, REPORTS, SURVEYS, CHANGE ORDERS, DESIGNS OR SPECIFICATIONS BY AN INDEMNIFIED PERSON, OR (B) THE GIVING OF OR THE FAILURE TO GIVE DIRECTIONS OR INSTRUCTIONS BY AN INDEMNIFIED PERSON WHERE SUCH GIVING OR FAILURE TO GIVE DIRECTIONS OR INSTRUCTIONS IS THE PRIMARY CAUSE OF BODILY INJURY TO PERSONS OR DAMAGE TO PROPERTY. TO THE EXTENT THE FOREGOING INDEMNITY IS GOVERNED BY SECTION 56-7-2 NMSA (1978), SAID INDEMNITY SHALL NOT EXTEND TO (A) THE SOLE OR CONCURRENT NEGLIGENCE OF AN INDEMNIFIED PERSON, (B) THE SOLE OR CONCURRENT NEGLIGENCE OF AN INDEPENDENT CONTRACTOR WHO IS DIRECTLY RESPONSIBLE TO AN INDEMNIFIED PERSON, OR (C) AN ACCIDENT THAT OCCURS IN OPERATIONS CARRIED ON, AT THE DIRECTION, OR UNDER THE SUPERVISION OF AN INDEMNIFIED PERSON OR IN ACCORDANCE WITH METHODS AND MEANS SPECIFIED BY AN INDEMNIFIED PERSON. ARTICLE V. ENFORCEMENT OF THE SECURITY 5.1 Title Examination. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary shall have the right and power to (but shall not be obligated to) cause to be brought down to date a title examination and tax histories of the Mortgaged Property, procure title opinions or title reports or, if necessary, procure new abstracts and tax histories. 5.2 Environmental Audit. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary shall have the right and power to (but shall not be obligated to) procure an updated or entirely new environmental audit of the Mortgaged Property including the lands described in Exhibit A, buildings, soil, ground water and subsurface investigations; have the buildings inspected by an engineer or other qualified inspector; enter upon the Mortgaged Property at any time and from time to time to show the Mortgaged Property to potential purchasers and potential bidders at foreclosure sale; make available to potential purchasers and -28- potential bidders all information obtained pursuant to the foregoing and any other information in the possession of Beneficiary regarding the Mortgaged Property. 5.3 Power of Sale of Real Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee shall have the right and power to sell, to the extent permitted by Applicable Law, at one or more sales, as an entirety or in parcels, as they may elect, the real property constituting a part of the Mortgaged Property, at such place or places and otherwise in such manner and upon such notice as may be required by Applicable Law, or, in the absence of any such requirement, as Trustee may deem appropriate, and to make conveyance to the purchaser or purchasers; and Mortgagor shall warrant title to such real property to such purchaser or purchasers. Trustee may postpone the sale of all or any portion of such real property by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. The right of sale hereunder shall not be exhausted by one or any sale, and Trustee may make other and successive sales until all of the trust estate be legally sold. With respect to that portion, if any, of the Mortgaged Property situated in the State of Wyoming, this Mortgage may be foreclosed by advertisement and sale as provided by applicable Wyoming statutes. With respect to that portion, if any, of the Mortgaged Property situated in the State of Oklahoma, the Beneficiary shall have the right and power to (but shall not be obligated to) declare the Indebtedness secured hereby due and payable and to sell, or direct Trustee to sell, the "real estate," as such term is defined under the provisions of 46 O.S. Supp. 1986, Section 42, constituting a part of the Mortgaged Property, all under the terms of 46 O.S. Supp. 1986, Section 40 et seq., and shall, to the extent permitted by Applicable Law, have the other rights conferred on Trustee under the provisions of this Mortgage. 5.4 Rights of Beneficiary with Respect to Personal Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary will have all rights and remedies granted by Applicable Law, and particularly by the Uniform Commercial Code, including, but not limited to, the right to take possession of all personal property constituting a part of the Mortgaged Property, and for this purpose Beneficiary may enter upon any premises on which any or all of such personal property is situated and take possession of and operate such personal property (or any portion thereof) or remove it therefrom. Beneficiary may require Mortgagor to assemble such personal property and make it available to Beneficiary at a place to be designated by Beneficiary which is reasonably convenient to all parties. Unless such personal property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Beneficiary will give Mortgagor reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of such personal property is to be made. This requirement of sending reasonable notice will be met if the notice is mailed by first-class mail, postage prepaid, to Mortgagor at the address shown below the signatures at the end of this Mortgage at least five (5) days before the time of the sale or disposition. -29- 5.5 Rights with Respect to Fixtures Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Beneficiary may elect to treat the fixtures constituting a part of the Mortgaged Property as either real property collateral or personal property collateral and then proceed to exercise such rights as apply to such type of collateral. 5.6 Judicial Proceedings. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee, in lieu of or in addition to exercising any power of sale hereinabove given, may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder for each or upon credit in one or more parcels or portions under executory or ordinary process, at Beneficiary's sole option, without appraisement (appraisement being expressly waived), or for the sale of the Mortgaged Property, or for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate legal or equitable remedy. Mortgagor hereby acknowledges the Indebtedness secured hereby, whether now existing or to arise hereafter, and confesses judgment thereon in the full amount of the Indebtedness in favor of Beneficiary and any future holder or holders of Secured Debt if such obligations are not paid at maturity. 5.7 Possession of the Mortgaged Property. It shall not be necessary for Trustee or Beneficiary to have physically present or constructively in their possession at any sale held by Trustee or Beneficiary or by any court, receiver or public officer any or all of the Mortgaged Property; and Mortgagor shall deliver to the purchasers at such sale on the date of sale the Mortgaged Property purchased by such purchasers at such sale, and if it should be impossible or impracticable for any of such purchasers to take actual delivery of the Mortgaged Property, then the title and right of possession to the Mortgaged Property shall pass to such purchaser at such sale as completely as if the same had been actually present and delivered. 5.8 Certain Aspects of a Sale. Beneficiary shall have the right to (but shall not be obligated to) become the purchaser at any sale held by Trustee, Beneficiary or by any court, receiver or public officer, and Beneficiary shall have the right to (but shall not be obligated to) credit upon the amount of the bid made therefor the amount payable out of the net proceeds of such sale to it Recitals contained in any conveyance made to any purchaser at any sale made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, and the interest accrued on, Secured Debt after the same have become due and payable, advertisement and conduct of such sale in the manner provided herein or appointment of any successor Trustee hereunder. 5.9 Receipt to Purchaser. Upon any sale, whether made under the power of sale herein granted and conferred or by virtue of judicial proceedings, the receipt of Trustee, Beneficiary or of the officer making sale under judicial proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for his or their purchase -30- money, and such purchaser or purchasers, or his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of Trustee, Beneficiary, or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. 5.10 Effect of Sale. Any sale or sales of the Mortgaged Property, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever either at law or in equity, of Mortgagor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against Mortgagor, and Mortgagor's successors or assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Mortgagor or Mortgagor's successors or assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. 5.11 Application of Proceeds. The proceeds of any sale of, and the Rents and Revenues and other amounts generated by the holding, leasing, operation or other use of, the Mortgaged Property shall be applied in accordance with the provisions of the Collateral Trust Agreement. 5.12 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights. Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, so far as Mortgagor or those claiming through or under Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such laws. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, waives, to the extent that Mortgagor may lawfully do so, any and all right to have the Mortgaged Property marshalled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that Trustee, Beneficiary or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, further waives, to the full extent that Mortgagor may lawfully do so, any requirement for posting a receiver's bond or replevin bond or other similar type of bond if Trustee or Beneficiary commence an action for appointment of a receiver or an action for replevin to recover possession of any of the Mortgaged Property. If any law in this paragraph referred to and now in force, of which Mortgagor or Mortgagor's successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to, constitute any part of the contract herein contained or to preclude the operation or application of the provisions of this paragraph. Pursuant to Section 39-5-19, New Mexico Statutes, Annotated, 1978 Comp., as amended, Mortgagor agrees that as to the Mortgaged Property situated in -31- the State of New Mexico, the redemption period shall be shortened to one (1) month. If Mortgagor is an individual, Mortgagor waives and releases all rights of dower, courtesy and homestead in the Mortgaged Property insofar as such rights may in any way affect the purposes of this Mortgage. 5.13 Costs and Expenses. All costs and expenses (including attorneys' fees) incurred by Trustee or Beneficiary in protecting and enforcing their rights hereunder shall constitute a demand obligation owing by Mortgagor to the party incurring such costs and expenses and shall draw interest at Default Interest Rate, all of which shall constitute a portion of the Indebtedness. 5.14 Intentionally Omitted. 5.15 Intentionally Omitted. 5.16 Operation of the Mortgaged Property by Beneficiary. Upon the occurrence of an Event of Default and during the continuance of such Event of Default and in addition to all other rights herein conferred on Beneficiary, Beneficiary (or any person, firm or corporation designated by Beneficiary) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property, and to exclude Mortgagor, and Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer, manage and operate the same to the extent that Mortgagor shall be at the time entitled and in its place and stead. Beneficiary, or any person, firm or corporation designated by Beneficiary, may operate the same without any liability to Mortgagor in connection with such operations, except to use ordinary care in the operation of such properties, and Beneficiary or any person, firm or corporation designated by Beneficiary, shall have the right to (but shall not be obligated to) collect, receive and receipt for all Hydrocarbons produced and sold from said properties, to make repairs, purchase machinery and equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of Mortgagor with respect to the Mortgaged Property. When and if the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) paid by Beneficiary or attributable to Mortgagor's undivided interest therein and withheld, or offset against, by an operator or other party have been paid or reimbursed in full by Mortgagor and the Indebtedness paid, said properties shall, if there has been no sale or foreclosure, be returned to Mortgagor. 5.17 Separate Sales. The Mortgaged Property may be sold in one or more parcels and it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales but other and successive sales may be made until all of the Mortgaged Property has been sold or until the Indebtedness has been fully satisfied. 5.18 Remedies Cumulative, Concurrent and Non-Exclusive. Beneficiary shall have all rights, remedies and recourses granted in the Secured Debt Documents and available at law or equity (including specifically those granted by the Uniform Commercial Code in effect and applicable to the Mortgaged Property, or any portion -32- thereof), and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against any one or more of Mortgagor, any Guarantor, or others obligated under the Secured Debt Documents, or against the Mortgaged Property, pursuant to the Collateral Trust Agreement and any Secured Debt Documents, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Mortgagor that the exercise or failure to exercise any of same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, non-exclusive. 5.19 Release of and Resort to Collateral. Beneficiary may release, regardless of consideration, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interests created in or evidenced by the Secured Debt Documents or their stature as a first and prior lien and security interest in and to the Mortgaged Property. For payment of the Indebtedness, Beneficiary may resort to any other security therefor held in such order and manner as Beneficiary may elect. 5.20 Discontinuance of Proceedings. In case Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted under the Secured Debt Documents and shall thereafter elect to discontinue or abandon same for any reason, Beneficiary shall have the unqualified right so to do and, in such an event, Mortgagor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Secured Debt Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Beneficiary shall continue as if same had never been invoked. 5.21 Uniform Commercial Code Remedies. Beneficiary shall have all the rights, remedies and recourses with respect to the Personalty, Fixtures, Leases and Rents and Revenues afforded a Secured Party by the aforesaid Uniform Commercial Code (being Chapter 9 of the Texas Business and Commerce Code, as to property within the scope thereof and situated in the State of Texas) in addition to, and not in limitation of, the other rights, remedies and recourses afforded Beneficiary by the Secured Debt Documents. 5.22 No Obligation of Trustee or Beneficiary. The assignment and security interest herein granted shall not be deemed or construed (a) to constitute Trustee or Beneficiary as a trustee in possession of the Mortgaged Property or, (b) to obligate Trustee or Beneficiary to (i) lease the Mortgaged Property or attempt to do same, (ii) take any action, (iii) incur any expenses or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE VI. MISCELLANEOUS PROVISIONS 6.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby authorized, to pool or unitize all or any part of the lands described in Exhibit A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds and other -33- interests, when, in the reasonable judgment of Mortgagor, it is necessary or advisable to do so in order to form a drilling and/or production unit to facilitate the orderly development of that part of the Mortgaged Property affected thereby, or to comply with the requirements of any Applicable Law or governmental order or regulation relating to the spacing of wells or proration of the production therefrom; provided, however, that any unit so formed for the production of oil shall not substantially exceed 160 acres, and any unit so formed for the production of gas shall not substantially exceed 640 acres, unless a larger area is required to conform to an Applicable Law or governmental order or regulation relating to the spacing of wells or to obtain the maximum allowable production under any Applicable Law or governmental order or regulation relating to the proration of production therefrom; and further provided that the Hydrocarbons produced from any unit so formed shall be allocated among the separately owned tracts or interests comprising the unit in a uniform manner consistently applied; and further provided that all interests owned by Mortgagor in such unit shall be included within the Mortgaged Property. Any unit so formed may relate to one or more zones or horizons, and a unit formed for a particular zone or horizon need not conform in area to any other unit relating to a different zone or horizon, and a unit formed for the production of oil need not conform in area with any unit formed for the production of gas. Promptly after formation of any such unit, Mortgagor shall furnish to Beneficiary and each Secured Debt Representative a true copy of the pooling agreement, declaration of pooling or other instrument creating such unit. The interest in any such unit attributable to the Mortgaged Property (or any part thereof) included therein shall become a part of the Mortgaged Property and shall be subject to the lien hereof in the same manner and with the same effect as though such unit and the interest of Mortgagor therein were specifically described in Exhibit A. Mortgagor is further authorized to amend, modify or terminate any pooling or unitization agreement or order to which Mortgagor is a party or the Mortgaged Property is subject, provided that such action does not conflict with the provisions of this Mortgage, including this Section 6.1. Mortgagor may enter into, or amend, modify or terminate, pooling or unitization agreements not hereinabove authorized only as permitted under the Secured Debt Documents. 6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for their gross negligence or willful misconduct. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Mortgagor will, from time to time, pay the compensation due hereunder and reimburse such parties for, -34- and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 6.3 Successor Trustee. Any Trustee may resign in writing addressed to Beneficiary or may be removed at any time with or without cause by an instrument in writing duly executed by Beneficiary. In case of the death, resignation or removal of a Trustee, one or more successor Trustee may be appointed by Beneficiary by instrument of substitution complying with any applicable requirements of Applicable Law, and in the absence of any such requirement without formality other than appointment and designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustee, all the estate and title of the prior Trustee in all of the Mortgaged Property, and he or they shall thereupon succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All references herein to Trustee shall be deemed to refer to Trustee from time to time acting hereunder. 6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant herein contained shall be performed and kept by Mortgagor solely at Mortgagor's expense. If Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Mortgage, Beneficiary, or Trustee or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Mortgagor's behalf; provided, however, that concurrently with the taking of such action or making such advances, Beneficiary, Trustee or any Secured Debt Representative shall deliver notice to Mortgagor. Mortgagor hereby agrees to repay the expense of such action (including all court costs and attorneys' fees) and such advances upon demand plus interest as set forth in the Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to relieve Mortgagor from any default hereunder. 6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any election by Trustee or Beneficiary not to insist, upon strict performance by Mortgagor of any of the terms, provisions or conditions of the Collateral Trust Agreement or any Secured Debt Documents shall not be deemed to be a waiver of same or of any other term, provision or condition thereof, and Trustee and Beneficiary shall have the right at any time or times thereafter to insist upon strict performance by Mortgagor of any and all of such terms, provisions and conditions. 6.6 Defense of Claims. Mortgagor will notify Beneficiary and each Secured Debt Representative, in writing, promptly of the commencement of any legal proceedings affecting the lien or security interest hereof or the Mortgaged Property, or any part thereof, and will take such action, employing attorneys as set forth in Section 3.4(j), as may be necessary or appropriate to preserve Mortgagor's or Beneficiary's rights affected thereby and/or to hold harmless Beneficiary in respect of such proceedings; and should Mortgagor fail or refuse to take any such action, Beneficiary -35- may, upon giving prior written notice thereof to Mortgagor, take such action in behalf and in the name of Mortgagor and at Mortgagor's expense. Moreover, Beneficiary may take such independent action in connection therewith as it may in its discretion deem proper, Mortgagor hereby agreeing that all sums advanced or all expenses incurred in such actions (including all court costs and attorneys' fees) plus interest thereon at the Default Interest Rate, will, on demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed hereunder or under Applicable Law. The obligations of Mortgagor as hereinabove set forth in this Section 6.6 shall survive the release, termination, foreclosure or assignment of this Mortgage or any sale hereunder. 6.7 The Mortgaged Property to Revert; Release. If the Indebtedness shall be fully paid and the covenants herein contained shall be well and truly performed, then all of the Mortgaged Property shall revert to Mortgagor and the entire estate, right, title and interest of Trustee and Beneficiary shall thereupon cease; and Trustee and Beneficiary in such case shall, upon the request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor proper instruments acknowledging satisfaction of this Mortgage and the release or reconveyance of the lien hereof in accordance with Applicable Law. Notwithstanding anything contained herein to the contrary, the Mortgaged Property, or any part thereof, shall, upon the written request of Mortgagor, be released from the lien of this Mortgage, in accordance with the provisions of the Collateral Trust Agreement, when such a release is permitted by the Collateral Trust Agreement and the other Secured Debt Documents. 6.8 Covenants Running with the Land. All Obligations contained in this Mortgage are intended by the parties to be, and shall be construed as, covenants running with the Mortgaged Property. 6.9 Renewals, Amendments and Other Security. Renewals and extensions of the Indebtedness and modifications of any kind of the Obligations may be given at any time and amendments may be made to agreements with third parties relating to any part of such Indebtedness or the Mortgaged Property and Trustee and Beneficiary may take or may now hold other security from others for the Indebtedness, all without notice to or consent of Mortgagor. Beneficiary may resort first to such other security or any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this Mortgage, which shall continue as a first lien upon and prior perfected security interest in the Mortgaged Property not expressly released until the Secured Debt and all other Indebtedness secured hereby are fully paid. 6.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, or security agreement, and from time to time as any one or more thereof. 6.11 Limitation on Interest. No provision of this Mortgage or the Secured Debt Documents shall require the payment or permit the collection of interest in excess of the -36- Maximum Lawful Rate or which is otherwise contrary to Applicable Law. If any excess of interest in such respect is in the Secured Debt Documents or otherwise herein provided for, or shall be adjudicated to be so provided for herein or in the Secured Debt Documents, Mortgagor shall not be obligated to pay such excess. 6.12 Severability. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained nor the application of such provision to other persons or circumstances nor the other instruments referred to hereinabove shall be affected thereby, but rather shall be enforced to the greatest extent permitted by Applicable Law. It is hereby expressly stipulated and agreed to be the intent of Mortgagor and Beneficiary at all times to comply with the usury, and all other, laws relating to the Secured Debt Documents. If, at any time, the applicable Legal Requirements render usurious any amount called for in any Security Document, then it is Mortgagor's, Trustee's and Secured Debtholders' express intent that such document be immediately deemed reformed and the amounts collectible reduced, without the necessity of the execution of any new document, so as to comply with the then Applicable Law but so as to permit the recovery of the fullest amount otherwise called for in such Secured Debt Documents. 6.13 Waiver by Trustee and Beneficiary. Any and all covenants in this Mortgage may from time to time by instrument in writing signed by Trustee and Beneficiary be waived to such extent and in such manner as Trustee and Beneficiary may desire, but no such waiver shall ever affect or impair either Trustee's or Beneficiary's rights or liens or security interests hereunder, except to the extent specifically stated in such written instrument. 6.14 No Partnership. Nothing contained in this Mortgage is intended to, or shall be construed as, creating to any extent and in any manner whatsoever, any partnership, joint venture, or association among Mortgagor, Trustee, Beneficiary and their respective Affiliates, or in any way as to make Beneficiary or Trustee's co-principals with Mortgagor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 6.15 Successors and Assigns. This Mortgage is binding upon Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit of Beneficiary, its successors and assigns, and the provisions hereof shall likewise be covenants running with the land. 6.16 Article and Section Headings. The article and section headings in this Mortgage are inserted for convenience of reference and shall not be considered a part of this Mortgage or used in its interpretation. 6.17 Execution in Counterparts. This Mortgage may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all -37- of which are identical, except that, to facilitate recordation or filing, in any particular counterpart portions of Exhibit A hereto which describe properties situated in parishes or counties other than the parish or county in which such counterpart is to be recorded or filed may have been omitted. 6.18 Special Filing as Financing Statement. This Mortgage shall likewise be a Security Agreement and a Financing Statement. This Mortgage shall be filed for record, among other places, in the real estate records of each county or parish in which any portion of the real property covered by the oil and gas leases described in Exhibit A hereto is situated, and, when filed in such counties or parishes shall be effective as a financing statement covering Fixtures located on oil and gas properties, which oil and gas properties (and accounts arising therefrom) are to be financed at the wellheads of the wells located on the lands described in Exhibit A. A carbon, photographic or other reproduction of this Mortgage or of any financing statement covering the Mortgaged Property or any portion thereof shall be sufficient as a financing statement and may be filed as such. Mortgagor agrees that any Secured Debt Representative may, in such manner, on such terms and at such times as may be elected by such Secured Debt Representative, and without demand or notice to, or the consent or signature of, Mortgagor, file and/or record such UCC financing statements, fixture filings, and/or amendments to or continuations of any financing statements or fixture filings to evidence, perfect and/or continue the perfection of, any security interests created or to be created pursuant to this Mortgage or any of the other Secured Debt Documents. 6.19 Notices. Except as otherwise required by Sections 5.4 and 5.14 hereof, any notice, request or demand which may be required or permitted to be given or served upon Mortgagor shall be sufficiently given when given or made pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other means and manner of giving of notice as may be required by Applicable Law. 6.20 Reliance. Notwithstanding any reference herein to the Secured Debt Documents, no party shall have any obligation to inquire into the terms or conditions of any such documents and all parties shall be fully authorized to rely upon any statement, certificate, or affidavit of Beneficiary or any future holder of any portion of the Indebtedness as to the occurrence of any event such as the occurrence of any event of default. 6.21 Beneficiary as Agent for the Secured Debt Debtholders. As described above, certain Affiliates of Beneficiary and the Secured Debt Representatives are or may become parties to certain Hedging Agreements with Mortgagor and/or Affiliates of Mortgagor. This Mortgage secures the obligations of Mortgagor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties acknowledge for all purposes that Beneficiary acts for itself and as agent on behalf of such Affiliates of Beneficiary and the Secured Debtholders which are so entitled to share in the rights and benefits accruing to Beneficiary under this Mortgage in respect of the Mortgaged Property. -38- 6.22 Applicable Law. As to any tract or parcel of land comprising a portion of the Mortgaged Property, this Mortgage shall be governed by and construed according to the Applicable Laws of the State where such tract or parcel of land is situated. 6.23 Subrogation. If any or all of the proceeds of Secured Debt have been used to extinguish, extend or renew any indebtedness heretofore existing against the Mortgaged Property, then, to the extent of such funds so used, the Indebtedness and this Mortgage shall be subrogated to all of the rights, claims, liens, titles and interests heretofore existing against the Mortgaged Property to secure the indebtedness so extinguished, extended or renewed and the former rights, claims, liens, titles and interests, if any, are not waived but rather are continued in full force and effect in favor of Beneficiary and are merged with the lien and security interest created herein as cumulative security for the repayment of the Indebtedness and the satisfaction of the Obligations. 6.24 Fixture Filing. Portions of the Mortgaged Property are or are to become fixtures relating to the above described real estate, and Mortgagor herein expressly covenants and agrees that the filing of this Mortgage in the Real Estate Records in the county where the Mortgaged Property is located shall also operate from the time of filing therein as a financing statement filed as a fixture filing in accordance with Section 9.502(c) of the Uniform Commercial Code - Secured Transactions of the State of New Mexico. -39- IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed this Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing in the presence of the undersigned Notary Public on this 14th day of July, 2003. MORTGAGOR AND DEBTOR CALPINE CORPORATION, a Delaware corporation By: -------------------------- Title: Executive Vice President Printed Name: B.A. Berilgen ATTEST: - ---------------------------- Printed Name: The name and mailing address of Mortgagor is: Calpine Corporation 1000 Louisiana Street, Suite 800 Houston, TX 77002 STATE OF TEXAS ) ) SS. COUNTY OF HARRIS ) BE IT REMEMBERED that I, Suzanne B. Snow, a Notary Public duly qualified, commissioned, sworn and acting in and for the County and State aforesaid, hereby certify that, on this 14th day of July, 2003, there appeared before me severally each of the following persons, each being either a Trustee or else the designated officer of the corporation or association set opposite his name, and each such Trustee, corporation and association being a party to the foregoing instrument: B.A. Berilgen, the Executive Vice President, and Michael H. Hickey, the Vice President-Managing Counsel, of Calpine Corporation, a Delaware corporation, which has no corporate seal, whose address is 1000 Louisiana Street, Suite 800, Houston, TX 77002; ARKANSAS Before me on this day appeared in person the aforementioned persons, to me personally well known, who stated that they held the offices in the corporation or association set forth opposite their names above (or, in the case of the Trustees, were validly appointed Trustees) and were duly authorized in their respective capacities to execute the foregoing instrument for and in the name and on behalf of said corporation or association (or as Trustees, as the case may be), and further stated and acknowledged that they had so signed, executed and delivered said foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. COLORADO(1) The foregoing instrument was acknowledged before me this day by each such person on behalf of said corporation or association, or himself, as a Trustee, as the case may be. KANSAS On this day before me personally appeared the aforementioned persons, who acknowledged themselves to hold the offices in the corporation set forth opposite their names above (or, in the case of the Trustees, were validly appointed Trustees) and as such officers or Trustees, hereby authorized to do so, executed the foregoing instrument for the purposes therein contained. MISSISSIPPI Personally appeared before me, the undersigned authority in and for the said county and state, on this 14th day of July, 2003, within my jurisdiction the within named B.A. Berilgen who acknowledged that he is the Executive Vice President of CALPINE Corporation, a Delaware corporation, and that for and on behalf of said corporation - ---------- (1) Add blocks for Kansas and Montana. and as its act and deed he executed the above and foregoing instrument after first having been duly authorized by said corporation so to do. MONTANA On this day before me personally appeared each such person, each of whom is known to me to be the officer of the corporation that executed the within instrument (or a Trustee, as the case may be), and acknowledged to me that such corporation (or Trustee, as the case may be) executed the same. NEBRASKA The foregoing instrument was acknowledged before me this day and by each such person as the designated officers of the NEW MEXICO corporation or association set opposite their names (or as Trustees, as the case may be) on behalf of said corporation or association, or himself as a Trustee, as the case may be. OKLAHOMA Before me on this day personally appeared the aforementioned persons, to me known to be the identical persons who subscribed the names of the respective makers thereof to the foregoing instrument in the capacities set forth opposite the names of such persons above, and each such person acknowledged to me that he executed the same as his free and voluntary act and deed and as the free and voluntary act and deed of the corporation or association set opposite his name (or of himself as Trustee, as the case may be) for the uses and purposes therein set forth. TEXAS This instrument was acknowledged before me on this day by each such person as the designated officer of the corporation or association set opposite his name (or a Trustee, as the case may be), on behalf of said corporation or association set opposite his name (or of himself as Trustee, as the case may be). WYOMING The foregoing instrument was acknowledged before me by the above individuals on this day. Witness my hand and official seal. ----------------------------------------- Notary Public Residing at Houston, Harris County, Texas My commission expires: 12/21/2006 EXHIBIT A To Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing, dated July 16, 2003, from CALPINE CORPORATION to Denis O'Meara and James Trimble and THE BANK OF NEW YORK List of Properties 1. Depth limitations, unit designations, unit tract descriptions and descriptions (including percentages, decimals or fractions) of undivided leasehold interests, well names, "Operating Interests," "Working Interests" and "Net Revenue Interests" contained in this Exhibit A and the listing of any percentage, decimal or fractional interest in this Exhibit A shall not be deemed to limit or otherwise diminish the interests being subjected to the lien, security interest and encumbrance of this Mortgage. 2. Some of the land descriptions in this Exhibit A may refer only to a portion of the land covered by a particular lease. This Mortgage is not limited to the land described in Exhibit A but is intended to cover the entire interest of Mortgagor in any lease described in Exhibit A even if such interest relates to land not described in Exhibit A. Reference is made to the land descriptions contained in the documents of title recorded as described in this Exhibit A. To the extent that the land descriptions in this Exhibit A are incomplete, incorrect or not legally sufficient, the land descriptions contained in the documents so recorded are incorporated herein by this reference. 3. References in Exhibit A to instruments on file in the public records are made for all purposes. Unless provided otherwise, all recording references in Exhibit A are to the official real property records of the county or counties (or parish or parishes) in which the mortgaged property is located and in which records such documents are or in the past have been customarily recorded, whether Deed Records, Oil and Gas Records, Oil and Gas Lease Records or other records. 4. A statement herein that a certain interest described herein is subject to the terms of certain described or referred to agreements, instruments or other matters shall not operate to subject such interest to any such agreement, instrument or other matter except to the extent that such agreement, instrument or matter is otherwise valid and presently subsisting nor shall such statement be deemed to constitute a recognition by the parties hereto that any such agreement, instrument or other matter is valid and presently subsisting. [Do not detach this page] A-1 Schedule I Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (New Mexico) from Calpine Corporation, a Delaware corporation, Trustor and Mortgagor to Kemp Leonard, Trustee, John Quick, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows::

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- San Juan County, NM 200208710 5/17/2002 Book 1342, Page 580

UCC-1 Financing Statement regarding Multi-State Mortgage, naming Calpine Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- New Mexico Secretary of State 2002050903023 5/9/2002

Schedule I-1 Schedule II First Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (New Mexico) from Calpine Corporation, a Delaware corporation, Trustor and Mortgagor to Dennis O'Meara, Trustee, James Trimble, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- San Juan County, NM Book 1353, Page 489 11/27/02

Schedule II-1 Schedule III N/A Schedule III-1 EX-10.30 22 f92357exv10w30.txt EXHIBIT 10.30 Exhibit 10.30 - -------------------------------------------------------------------------------- AMENDED AND RESTATED MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING STATEMENT FROM CALPINE CORPORATION, as Mortgagor (Taxpayer I.D. No. 77-0212977), TO THE BANK OF NEW YORK, not in its individual capacity but solely as Collateral Trustee, (TAXPAYER I.D. NO. 13-5160382) as Mortgagee Dated as of July 16, 2003 - -------------------------------------------------------------------------------- "THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES." "THIS FINANCING STATEMENT COVERS AS-EXTRACTED COLLATERAL WHICH WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO." "MORTGAGOR HAS AN INTEREST OF RECORD IN THE IMMOVABLE PROPERTY CONCERNED, WHICH IS DESCRIBED IN EXHIBIT A HERETO." "SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS FINANCING STATEMENT IS TO BE FILED AS A FIXTURE FILING AS DEFINED IN LA. REV. STAT. SECTION 10:9-102(a)(40)." THIS INSTRUMENT WAS PREPARED BY: Kevin L. Shaw, Esq. Mayer, Brown, Rowe & Maw LLP 700 Louisiana Street, 36th Floor Houston, Texas 77002 AMENDED AND RESTATED * MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT * AND FINANCING STATEMENT UNITED STATES OF AMERICA * BY STATE OF TEXAS * CALPINE CORPORATION, COUNTY OF HARRIS A DELAWARE CORPORATION * IN FAVOR OF THE BANK OF NEW YORK, * A NEW YORK BANKING CORPORATION, STATE OF NEW YORK NOT INDIVIDUALLY, BUT SOLELY AS * COLLATERAL TRUSTEE COUNTY OF NEW YORK * * * * * * * * * * * * * * * * BE IT KNOWN, that on this 14th day of July, 2003, before me, the undersigned Notary Public duly commissioned and qualified in and for the State and County first written above, and in the presence of the undersigned witnesses personally came and appeared: CALPINE CORPORATION, a Delaware corporation having a mailing address of 1000 Louisiana Street, Suite 800, Houston TX 77002, and a federal taxpayer identification number of 77-0212977, appearing herein through B.A. Berilgen, its Executive Vice President, duly authorized by resolutions of the Board of Directors of said corporation, a certified copy of which is attached hereto as Exhibit B (herein called "MORTGAGOR"), who declared that Mortgagor does by these presents declare and acknowledge an indebtedness unto The Bank of New York (as hereinafter defined). BE IT KNOWN, that on this 14th day of July, 2003, before me, the undersigned Notary Public duly commissioned and qualified in and for the State and County second written above, and in the presence of the undersigned witnesses personally came and appeared: THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity, but solely as Collateral Trustee under that certain Collateral Trust Agreement (defined below) ("MORTGAGEE"), having a mailing address of 101 Barclay Street, 8 Floor West, New York, New York 10286, and a federal taxpayer identification number of 13-5160382, appearing herein through its undersigned representative, duly authorized hereunto Mortgagor and Mortgagee declares as follows: -1- RECITALS Mortgagor has heretofore executed and delivered to The Bank of Nova Scotia, for itself and as agent for the Lender Parties (together with its successors in such capacity, the "CREDIT AGREEMENT AGENT"), that certain Mortgage, Assignment, Security Agreement and Financing Statement, dated as of May 1, 2002, as recorded, supplemented, amended, and partially released prior to the date hereof as indicated on Schedules I, II and III hereto (as so supplemented and amended, herein called the "EXISTING MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2002 Lenders") pursuant to the terms of that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same may be amended, modified or supplemented from time to time, called the "EXISTING 2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $1,600,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and delivered to the Existing 2002 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002 Loan Notes being payable to the order of the Existing 2002 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorneys' fees and acceleration of maturity in the event of default, as therein set forth; and (ii) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2000 LENDERS", and together with the Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms of that certain Second Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the same may be amended, modified, or supplemented from time to time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing 2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2000 Lenders under the Existing 2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing 2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorney's fees and acceleration of maturity in the event of default, as therein set forth. Mortgagor, the Existing Lenders and the Credit Agreement Agent are (i) terminating the commitments under the Existing 2000 Credit Agreement, and (ii) amending and restating the Existing 2002 Credit Agreement (as so amended and restated, and as the same may, from time to time hereafter, be amended, supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT AGREEMENT." -2- Mortgagor is also (a) issuing $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing $1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013 INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing $750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the borrowing of the Term Loans will be used to refinance a portion of the loans and other indebtedness outstanding under the Existing Credit Agreements. As permitted pursuant to the Secured Debt Documents, Mortgagor may incur future debt which could, together with the obligations under the Amended and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future debt which could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Mortgagor intends to secure the Indebtedness, including its obligations (a) under the Amended and Restated Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, with liens and security interests in, among other collateral, the Mortgaged Property under the Existing Mortgage, as contemplated in that certain Collateral Trust Agreement of even date herewith, by Mortgagor, Mortgagee and the other parties thereto (the "COLLATERAL TRUST AGREEMENT"). Pursuant to the Collateral Trust Agreement and that certain Assignment of Liens of even date herewith, the Credit Agreement Agent has assigned to Mortgagee, all of the Credit Agreement Agent's right, title and interest in and to, and its interest as mortgagee under, the Existing Mortgage. This Mortgage amends and restates the Existing Mortgage. The Collateral Trust Agreement sets forth the terms on which the Collateral Trustee, as trustee for the present and future holders of the Indebtedness, will receive, hold, maintain, administer, maintain, enforce and distribute this Mortgage and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof. -3- Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. For all purposes of this instrument, unless the context otherwise requires: A. "Actionable Default" is defined in the Collateral Trust Agreement. B. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan (as defined under ERISA)). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. C. "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. D. "Default Interest Rate" means the lesser of (a) ten percent (10%), or (b) the Maximum Lawful Rate. E. "Event of Default" means an Actionable Default as defined under the Collateral Trust Agreement. F. "Environmental Laws" shall mean any and all present and future United States federal, state and local laws or regulations, codes, plans, orders, decrees, judgments, injunctions and lawfully imposed requirements issued, promulgated or entered thereunder relating to pollution or protection of the environment, including laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. -4- G. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. H. "Hedging Agreements" means: (a) interest rate swap agreements, basis swap agreements, interest rate cap agreements, forward rate agreements, interest rate floor agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates, and (b) forward contracts, options, futures contracts, futures options, commodity swaps, commodity options, commodity collars, commodity caps, commodity floors and all other agreements or arrangements designed to protect such Person against fluctuations in the price of commodities. I. "Hedging Obligations" means with respect to any Person, all liabilities (including without limitation obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement. J. "Hydrocarbons" means collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. K. "Indebtedness" shall have the respective meanings set forth in Section 1.2 of this instrument. L. "Indemnification Claim" is defined in Section 3.6(a) of this instrument. M. "Indemnified Person" means Mortgagee and each of the Secured Debtholders, their respective employees, affiliates, agents and attorneys, and any other Person to be indemnified under this instrument. N. "Joint Operating Agreements" shall mean, with respect to the lands described in Exhibit A, the respective operating agreement burdening the lands described in Exhibit A. O. "lands described in Exhibit A" shall include the real property or other interest in any lands which are either described in Exhibit A attached hereto or the description of which is incorporated in Exhibit A by reference to an instrument or document containing in, or referring to, such a description, and shall also include any lands now or hereafter unitized or pooled with lands which are either described in Exhibit A or the description of which is incorporated in Exhibit A by reference and Fixtures and all rights, titles and interests appurtenant -5- thereto. References to Exhibit A shall include, where applicable, Exhibit A-1 as well. P. "Leases" means any and all leases (including without limitation oil and gas leases and oil, gas and other minerals leases), surface leases or easements, subleases, licenses, concessions, operating rights or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to explore, use, lease, license, possess, produce, process, store and transport Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged Property, together with all amendments, modifications, extensions and renewals thereof. Q. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Mortgagor, or the Mortgaged Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Mortgagor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Mortgagor, or the Mortgaged Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Mortgaged Property. R. "Maximum Lawful Rate" means the maximum nonusurious rate of interest that may be received, charged or contracted for under Applicable Law from time to time in effect. S. "Mortgaged Property" means the properties, rights and interests hereinafter described and defined as the Mortgaged Property. T. "Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Secured Debt Documents. U. "oil and gas leases" shall include oil, gas and mineral leases, subleases and assignments thereof, operating rights, and shall also include subleases and assignments of operating rights. V. "Operating Equipment" means all surface or subsurface machinery, goods, equipment, fixtures, movable property attached to immovable property and other movable property, inventory, facilities, supplies or other property of whatsoever kind or nature (excluding drilling rigs, trucks, automotive equipment or other property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on or under any of the lands -6- described in Exhibit A which are useful for the production, gathering, treatment, processing, storage or transportation of Hydrocarbons (together with all accessions, additions and attachments to any thereof), including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, tubular goods, rods, pumping units and engines, christmas trees, platforms, derricks, separators, compressors, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and injection), steam generation and injection equipment and systems, power plants, poles, lines, transformers, starters and controllers, supervisory control and data acquisition systems, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading docks, loading racks and shipping facilities. W. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. X. "Parity Lien Debt" is defined in the Collateral Trust Agreement. Y. "Parity Lien Documents" is defined in the Collateral Trust Agreement. Z. "Parity Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Parity Lien Documents. AA. "Permits" means all authorizations, approvals, permits, variances, land use entitlements, consents, licenses, franchises and agreements issued by or entered into with any Governmental Authority now or hereafter required for all stages of exploration, developing, operating, and plugging and abandoning oil and gas wells (including, without limitation, those shown on Exhibit A) on all or any part of the lands described in Exhibit A (or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in the lands described in Exhibit A). BB. "Permitted Encumbrances" means the outstanding liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters as permitted by and defined in the Secured Debt Documents. -7- CC. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. DD. "Personalty" means all of the right, title and interest of Mortgagor now owned or hereafter acquired in and to all furniture, furnishings, Equipment, machinery, Goods, General Intangibles, money, Accounts, receivables, Contract Rights, Inventory, all refundable, returnable or reimbursable fees, deposits or other funds or evidences of credit or indebtedness deposited by or on behalf of Mortgagor with any Governmental Authority, agencies, boards, corporations, providers of utility services, public or private, including specifically, but without limitation, all refundable, returnable or reimbursable tap fees, utility deposits, commitment fees and development costs, and all other personal property (other than the Fixtures) of any kind or character as defined in and subject to the provisions of Article 9 of the Uniform Commercial Code, now or hereafter located upon, within or about, or used in connection with, the lands described in Exhibit A together with all accessories, replacements and substitutions thereto or therefor and the Proceeds thereof. EE. "Priority Lien Debt" is defined in the Collateral Trust Agreement. FF. "Priority Lien Documents" is defined in the Collateral Trust Agreement. GG. "Priority Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Mortgagor or others under any of the Priority Lien Documents. HH. "Production Sale Contracts" means contracts now in effect, or hereafter entered into by Mortgagor, or entered into by Mortgagor's predecessors in interest, for the sale, purchase, exchange, gathering, transportation, treating or processing of Hydrocarbons produced from the lands described in Exhibit A. II. "Rents and Revenues" means all of the rents, revenues, income, proceeds, profits and other benefits paid or payable by parties to the Leases other than Mortgagor for using, leasing, licensing, possessing, operating, selling or otherwise enjoying the Mortgaged Property, including the proceeds from the sale of Hydrocarbons. JJ. "Secured Debt" is defined in the Collateral Trust Agreement. KK. "Secured Debtholder" is defined in the Collateral Trust Agreement. -8- LL. "Secured Debt Documents" is defined in the Collateral Trust Agreement. MM. "Secured Debt Representative" is defined in the Collateral Trust Agreement. NN. "Taxes" means all real property and personal property taxes, production taxes, assessments, permit fees, water, gas, sewer, electricity and other utility rates and charges, charges for any easement, license or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, charges and assessments and any interest, costs or penalties with respect thereto, of any kind and nature whatsoever which at any time prior to or after the execution hereof may be charged, assessed, levied or imposed upon the Mortgaged Property or the Rents and Revenues or the ownership, use, occupancy or enjoyment thereof. OO. "Transportation Agreements" shall mean any contracts or agreements entered into from time to time by Mortgagor, or entered into by Mortgagor's predecessors in interest, relating to the transportation of Hydrocarbons, as any such agreement or contract may be amended, supplemented, restated or otherwise modified from time to time. PP. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of Louisiana (Louisiana Commercial Laws - Louisiana Revised Statutes Title 10) or any other applicable state, and the terms "Accounts", "Account Debtor", "As Extracted Collateral", "Deposit Account", "Chattel Paper", "Documents", "General Intangibles", "Goods", "Equipment", "Fixtures", "Inventory", "Instruments", and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. QQ. "Water Rights" means (including without limitation those described in Exhibit A hereto) all now or hereafter existing or acquired water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights, whether evidenced or initiated by permit, decree, well registration, appropriation not decreed, water court application, shares of stock or other interests in mutual ditch or reservoir companies or carder ditch or reservoir companies or otherwise, appertaining or appurtenant to or beneficially used or useful in connection with the lands described in Exhibit A, together with all pumps, well casings, wellheads, electrical installations, pumphouses, meters, monitoring wells and systems, measuring devices, pipes, pipelines, and other structures or personal property which are or may be used to produce, regulate, measure, distribute, store, or use water from the said water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights. -9- GRANT Grant of Priority Lien NOW, THEREFORE, Mortgagor, for and in consideration of the premises and as security for the Priority Lien Indebtedness as described below by these presents does specially mortgage, collaterally assign, pledge, affect and hypothecate, unto and in favor of Mortgagee, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of Equipment, General Intangibles, Accounts, Deposit Accounts, As-Extracted Collateral, Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other personal property of a kind or character defined in or subject to the applicable provisions of the Uniform Commercial Code (as in effect from time to time in the appropriate jurisdiction with respect to each of said properties, rights and interests), Mortgagor hereby grants to Mortgagee, a continuing security interest therein; namely: (a) the lands described in Exhibit A, and Leases, the fee, mineral, overriding royalty, royalty and other interests which are described in Exhibit A, (b) the presently existing and (subject to the terms of Section 5.1 hereof) hereafter arising unitization, unit operating, communitization and pooling agreements and the properties covered and the units created thereby (including, without limitation, all units formed under orders, regulations, rules, approvals, decisions or other official acts of any Governmental Authority) having jurisdiction which are specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A, (c) the Hydrocarbons which are in, under, upon, produced or to be produced from or which are attributed or allocated to the lands described in Exhibit A, (d) the Production Sale Contracts, (e) the Joint Operating Agreements, (f) the Transportation Agreements, (g) the Operating Equipment, (h) the Permits, (i) the Water Rights, (j) the Hedging Agreements, (k) the Leases, (l) the Personalty, -10- (m) the Rents and Revenues, (n) without duplication of any other provision of this granting clause, all of Mortgagor's now owned or hereafter arising or acquired Equipment, Fixtures and other Goods necessary or used in connection with, and Inventory, Accounts, As Extracted Collateral, Deposit Accounts, General Intangibles, Contract Rights, Chattel Paper, Electronic Chattel Paper, Documents, Instruments and Proceeds arising from, or relating to, the properties and other interests described in Exhibit A (including Exhibit A-1), together with any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the same, or any instrument relating thereto, and all accounts, contracts, contract rights, "take-or-pay" settlements, buy-outs or buy-downs, gas balancing claims, options, nominee agreements, unitization or pooling agreements, operating agreements and unit operating agreements, processing agreements, salt water disposal agreements, farmin agreements, farmout agreements, joint venture agreements, partnership agreements (including mining partnerships), exploration agreements, bottom hole agreements, dry hole agreements, support agreements, acreage contribution agreements, surface use and surface damage agreements, net profits agreements, production payment agreements, Hedging Agreements, insurance policies, title opinions, title abstracts, title materials and information, files, records, writings, data bases, information, systems, logs, well cores, fluid samples, production data and reports, well testing data and reports, maps, seismic and geophysical, geological and chemical data and information, interpretative and analytical reports of any kind or nature (including, without limitation, reserve studies and reserve evaluations), computer hardware and software and all documentation therefor or relating thereto (including, without limitation, all licenses relating to or covering such computer hardware, software and/or documentation), trade secrets, trademarks, service marks and business names and the goodwill of the business relating thereto, copyrights, copyright registrations, unpatented inventions, patent applications and patents, accounting records, rights-of-way, franchises, bonds, easements, servitudes, surface leases, permits, licenses, tenements, hereditaments, appurtenances, concessions, occupancy leases, privileges, development rights, condemnation awards, claims against third parties, general intangibles, rents, royalties, issues, profits, products and proceeds, whether now or hereafter existing or arising, used or useful in connection with, covering, relating to, or arising from or in connection with, any of the aforesaid items (a) through (o), inclusive, in this granting clause mentioned, and all other things of value and incident thereto (including, without limitation, any and all liens, lien rights, security interests and other properties, rights and interests) which Mortgagor might at any time have or be entitled to, but excluding any data or contracts with respect to which mortgaging or granting of a lien or a security interest is prohibited by existing third party agreements, all the aforesaid properties, rights and interests, together with any additions thereto which may be subjected to the lien and security interest of this instrument by means of supplements hereto, being hereinafter, collectively, called the "MORTGAGED PROPERTY." -11- Grant of Parity Lien NOW, THEREFORE, Mortgagor, for and in consideration of the premises and as security for the Parity Lien Indebtedness as described below by these presents does specially mortgage, collaterally assign, pledge, affect and hypothecate, unto and in favor of Mortgagee, all Mortgagor's right, title and interest, whether now owned or hereafter acquired, in and to all of the Mortgaged Property; and, insofar as such properties, rights and interests consist of Equipment, General Intangibles, Accounts, Deposit Accounts, As-Extracted Collateral, Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other personal property of a kind or character defined in or subject to the applicable provisions of the Uniform Commercial Code (as in effect from time to time in the appropriate jurisdiction with respect to each of said properties, rights and interests), Mortgagor hereby grants to Mortgagee, a continuing security interest therein. Subject, however, in each case to (i) Permitted Encumbrances (including without limitation all presently existing royalties, overriding royalties, payments out of production and other burdens which are referred to in Exhibit A and which are taken into consideration in computing any percentage, decimal or fractional interest as set forth in Exhibit A), (ii) the assignment of production contained in Article III hereof, but only insofar and so long as said assignment of production is not inoperative under the provisions of Section 3.5 hereof, and (iii) the condition that neither Mortgagee nor any Secured Debtholder shall be liable in any respect for the performance of any covenant or obligation (including, without limitation, measures required to comply with Environmental Laws) of Mortgagor in respect of the Mortgaged Property. The Mortgaged Property is to remain so specially mortgaged, affected and hypothecated unto and in favor of Mortgagee to secure the payment of the Indebtedness (including the performance of the obligations of Mortgagor herein contained) until the full and final payment or discharge of the Indebtedness, and Mortgagor is herein and hereby bound and obligated not to sell or alienate the Mortgaged Property to the prejudice of this act. As set forth in the separate granting clauses above, it is the intent of Mortgagor that such grants shall create two separate and distinct mortgage liens and security interests in all right, title and interest of Mortgagor in the Mortgaged Property in favor of (a) the Mortgagee, for the benefit of the holders of the Priority Lien Debt, and (b) the Mortgagee, for the benefit of the holders of the Parity Lien Debt. Notwithstanding (i) anything to the contrary contained in this Mortgage or any other document, filing or agreement related to the creation, attachment, perfection or existence of the liens and security interests granted herein, (ii) the time, place, order or method of attachment or perfection of such liens or security interests, (iii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect such security interests, and (iv) the rules for determining priority under any law governing the relative priorities of secured creditors, the lien securing the Parity Lien -12- Indebtedness is subordinated and junior in priority to the lien securing the Priority Lien Indebtedness. Mortgagor, in consideration of the Secured Debt as set forth above, hereby covenants and agrees with Mortgagee: ARTICLE I INDEBTEDNESS SECURED 1.1 Items of Indebtedness Secured. The following items of indebtedness are secured hereby: (a) The Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Priority Lien Documents; (b) The Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Parity Lien Documents; (c) All Obligations under any other Priority Lien Debt or Parity Lien Debt; (d) Any sums advanced or expenses or costs incurred by Mortgagee or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (e) Any and all other indebtedness of Mortgagor or any Affiliate of Mortgagor to Mortgagee now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (f) Any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (a) through (e) above, whether or not Mortgagor executes any extension agreement or renewal instruments. The indebtedness secured hereby further continues with respect to any new obligation arising from any novation (subjective or objective) of the foregoing indebtedness as permitted by Louisiana Civil Code Article 1884. Pursuant to Louisiana Revised Statutes 9:5390, this instrument shall automatically secure payment of any renewal or refinancing note or notes delivered in substitution for or exchange of the note or notes then secured by this instrument evidencing any part of the Indebtedness. -13- 1.2 Indebtedness Defined. All the above items of indebtedness described in subparagraphs (a) of Section 1.1 and subparagraphs (c) through (f) of Section 1.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively referred to as the "Priority Lien Indebtedness." And all the above items of indebtedness described in subparagraphs (b) of Section 1.1 and subparagraphs (c) through (f) of Section 1.1 hereof in respect of the Parity Lien Debt, are hereinafter collectively referred to as the "Parity Lien Indebtedness"; the Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively referred to as the "Indebtedness". 1.3 Maximum Amount. The maximum amount of the Indebtedness that may be outstanding at any time and from time to time that this instrument secures, including without limitation as a mortgage and as a collateral assignment, and including without limitation any expenses, advances or costs incurred by the Mortgagee and all other amounts included within the Indebtedness, is Six Billion ($6,000,000,000.00) dollars. 1.4 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and agrees that, except as otherwise provided by the Secured Debt Documents, the Existing Mortgage constitutes a valid and subsisting first lien on the portion of the Mortgaged Property encumbered thereby, and that none of the rights and liens existing thereunder shall be impaired or released hereby, and that the same as amended and restated hereby shall remain in full force and effect, and all rights and liens existing and to exist thereunder are renewed, extended, carried forward, and conveyed to secure all of the Indebtedness hereinabove mentioned. 1.5 Amended and Restated Mortgage. The Existing Mortgage is amended and restated in full hereby in order to, among other things, secure all of the Indebtedness herein described or referred to as if reference to such Indebtedness were fully described in the Existing Mortgage. None of the rights, titles, and interests, existing or to exist under the Existing Mortgage are hereby released, diminished or impaired. 1.6 No Impairment or Discharge of Liens. It is the express intention of all parties hereto that the Secured Debtholders are subrogated to all of the rights, powers, and equities of the original lenders and beneficiary under the Existing Mortgage, that the liens created hereby shall relate back to and be effective as of the effective date of the Existing Mortgage and that nothing contained herein shall be construed to impair or discharge the liens and security interests created thereby. 1.7 No Paraph. Mortgagor and Mortgagee acknowledge that no note or other evidence of Indebtedness has been paraphed for identification with this instrument. ARTICLE II PARTICULAR COVENANTS, REPRESENTATIONS AND WARRANTIES OF MORTGAGOR -14- 2.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor will duly and punctually pay the Indebtedness, as and when called for in the Secured Debt Documents and on or before the due dates thereof, and will timely perform and discharge all of the Obligations in full and on or before the dates same are to be performed and discharged. 2.2 Certain Representations and Warranties. Mortgagor represents and warrants (and with respect to those matters set forth in the following subsections (b) and (f), as to those portions of the Mortgaged Property that are operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor makes such representation and warranty to the best of its knowledge) that (a) the oil and gas leases described in Exhibit A hereto are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the properties to which they pertain, (b) all producing wells located on the lands described in Exhibit A (including Exhibit A-1) have been drilled, operated and produced in conformity with all Applicable Laws of all Governmental Authorities having jurisdiction, and are subject to no penalties on account of past production, and such wells are in fact bottomed under and are producing from, and the well bores are wholly within, the lands described in Exhibit A or lands pooled or unitized therewith, (c) Mortgagor, to the extent of the interest specified in Exhibit A (including Exhibit A-1), has valid and indefeasible title to each property right or interest constituting the Mortgaged Property described in Exhibit A (including Exhibit A-1) and has a good and legal right to grant and convey the same to Mortgagee; such interest entitles Mortgagor to receive not less than the share of Hydrocarbons from such property indicated as its net revenue interest or "NRI" share of such Hydrocarbons, and obligates Mortgagor to pay for not more than the share of operating and other costs, liabilities and expenses associated with such property indicated as its working interest or "Wl" share of such costs, liabilities and expenses, (d) excepting the Permitted Encumbrances, the Mortgaged Property is free from all encumbrances or liens whatsoever, (e) Mortgagor is not obligated, by virtue of any prepayment under any contract providing for the sale by Mortgagor of Hydrocarbons which contains a "take or pay" clause or under any similar arrangement, to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor, (f) the Mortgaged Property is currently being operated, maintained and developed, in all material respects, in accordance with all applicable currently existing Permits, Legal Requirements and all Applicable Laws (including, without limitation, Environmental Laws), -15- (g) the cover page to this instrument lists the correct legal name of Mortgagor and Mortgagor has not been known by any legal name different from the one set forth on the cover page of this instrument, (h) the execution, delivery, and performance by Mortgagor of this instrument (i) are within Mortgagor's corporate powers and have been duly authorized by Mortgagor's Board of Directors, shareholders and all other requisite corporate action, (ii) have received all (if any) requisite prior governmental approval and consent in order to be legally binding and enforceable in accordance with the terms thereof, and (iii) will not violate, be in conflict with, result in a breach or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property or assets, except as contemplated by the provisions of the Secured Debt Documents, and (i) except as permitted by the Secured Debt Documents, there are no actions, suits or proceedings pending, or to the knowledge of Mortgagor threatened, against or affecting Mortgagor or the Mortgaged Property that could materially adversely affect Mortgagor or the Mortgaged Property, or involving the validity or enforceability of this instrument or the priority of the liens and security interests created by the Secured Debt Documents, and no event has occurred (including specifically Mortgagor's execution of this instrument which will violate, be in conflict with, result in the breach of, or constitute (with due notice or lapse of time, or both) a material default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Mortgagor's property other than the liens and security interests created by the Secured Debt Documents. 2.3 Further Assurances. Mortgagor will warrant and forever defend the Mortgaged Property unto Mortgagee; as the case may be, against every person whomsoever lawfully claiming the same or any part thereof, subject to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and security interest hereby created so long as any of the Indebtedness remains unpaid. Mortgagor will execute and deliver such other and further instruments and will do such other and further acts as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Documents to carry out more effectually the purposes of this instrument, including, without limiting the generality of the foregoing, (i) prompt correction of any defect which may hereafter be discovered in the title to the Mortgaged Property or in the execution and acknowledgment of this instrument, the Secured Debt Documents, or, immediately upon the occurrence of an Event of Default, any other document executed in connection herewith, and (ii) at any time a Secured Debt Representative may request and upon such request, promptly execute all notices to parties operating, purchasing or receiving proceeds of production of Hydrocarbons from the Mortgaged Property, and all division orders or transfer orders needed in order to transfer effectually or to assist in transferring effectually to the Mortgagee the assigned proceeds of production from the -16- Mortgaged Property, which notices, division orders and transfer orders shall be held by such Secured Debt Representative and delivered upon an Event of Default. 2.4 Operation of the Mortgaged Property. So long as the Indebtedness or any part thereof remains unpaid, and whether or not Mortgagor is the operator of any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's own expense: (a) Do all things necessary to keep unimpaired Mortgagor's rights in the Mortgaged Property and not abandon any well or forfeit, surrender or release any Lease, except that Mortgagor may, in the ordinary course of business, (i) plug and abandon any well no longer capable of producing Hydrocarbons in paying quantities, (ii) surrender or release any Lease or a portion thereof so long as no well capable of producing Hydrocarbons in paying quantities is located on such Lease or a portion thereof or production from any such well is attributed to such Lease or a portion thereof, (iii) surrender or release any Lease or a portion thereof on which no producing well has ever been drilled or which has never been held by production from another well unless Proven Reserves (as defined in any Secured Debt Document) are attributed to such Lease or a portion thereof and (iv) abandon, forfeit, surrender or release any other portion of the Mortgaged Property to the extent permitted under all of the then existing Secured Debt Documents; (b) Obtain and maintain all required Permits and cause the lands described in Exhibit A to be maintained, developed, protected against drainage, and operated for the production of Hydrocarbons in a good and workmanlike manner as would a prudent operator, and consistent with industry practices, Joint Operating Agreements, and all Applicable Laws, excepting those being contested in good faith; and plug and abandon wells no longer capable of producing Hydrocarbons in paying quantities in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; and remediate the lands described in Exhibit A and facilities located thereon in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; (c) Duly pay and discharge, or cause to be paid and discharged, promptly as and when due and payable, all rentals and royalties (including shut-in royalties) payable in respect of the Mortgaged Property (other than rentals under Leases that are surrendered pursuant to the foregoing Section 2.4(a)), and all expenses incurred in or arising from the operation or development of the Mortgaged Property not later than the due date thereof, or the day any fine, penalty, interest or cost may be added thereto or imposed, or the day any lien may be filed, for the non-payment thereof (if such day is used to determine the due date of the respective item) except as to such matters which are being contested by Mortgagor in good faith; (d) Cause the Operating Equipment to be kept in good and effective operating condition, ordinary wear and tear excepted, and all repairs, -17- renewals, replacements, additions and improvements thereof or thereto, needful to the production of Hydrocarbons from the lands described in Exhibit A, to be promptly made; (e) Not, except as permitted under the Secured Debt Documents, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien (statutory, constitutional or contractual), security interest, encumbrance or charge, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Secured Debt Documents, with, respect to all or any portion of the Mortgaged Property, the Leases or the Rents and Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting a lien but not due and payable, (3) defects or irregularities in title, and liens, charges or encumbrances, which are customarily viewed in the industry as not interfering materially with the development, operation or value of the Mortgaged Property and not such as to affect materially title thereto, and (4) those being contested by Mortgagor in good faith in such manner as not to jeopardize Mortgagee's rights in and to the Mortgaged Property; (f) Carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Mortgagor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Mortgaged Property, is located, insurance in respect of the Operating Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of Rents and Revenues); provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Mortgagee as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Mortgagee as its interest may appear, which proceeds are hereby assigned to Mortgagee, it being agreed by Mortgagor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Mortgaged Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Mortgagee shall not be terminated, reduced or affected in any -18- manner regardless of any breach or violation by Mortgagor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, endorsed, altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer shall have first given Mortgagee and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Mortgagee may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Mortgagee and each Secured Debt Representative shall be furnished with a certificate evidencing such coverage in form and content comparable to coverage typically provided in the industry. All policies to be maintained under this instrument are to be issued on forms and by companies and with endorsements as are customary in the industry. Mortgagor shall maintain insurance in an amount sufficient to prevent Mortgagor from becoming a co-insurer under any policy required hereunder. If Mortgagor fails to maintain the level of insurance required under this instrument, then Mortgagor shall and hereby agrees to indemnify Mortgagee to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; (g) Furnish to Mortgagee and each Secured Debt Representative, as soon as possible and in any event within five (5) days after the occurrence from time to time of any change in the address of Mortgagor's location (as described on the signature page hereto) or in the name of Mortgagor, notice in writing of such change; (h) Not initiate or acquiesce in any change in any material zoning or other land use or Water Rights classification now or hereafter in effect and affecting the Mortgaged Property or any part thereof; (i) Notify Mortgagee and each Secured Debt Representative in writing, as soon as possible and in any event within five (5) days after it shall become aware of the occurrence of any Event of Default or any event which, with notice, the passage of time or both would be such an Event of Default; (j) Appear and defend, and hold Mortgagee and any Secured Debtholder harmless from, any action, proceeding or claim affecting the Mortgaged Property or the rights and powers of Mortgagee or Secured Debtholders under the Secured Debt Documents, and all costs and expenses incurred by Mortgagee or any Secured Debtholder in protecting its interests hereunder in such an event (including all court costs and attorneys' fees) shall be borne by Mortgagor; (k) Subject to Mortgagor's right to contest the same, promptly pay all Taxes legally imposed upon this instrument or upon the Mortgaged Property or upon the income and profits thereof, or upon the interest of -19- Mortgagee therein; provided that Mortgagor shall not be liable for taxes accruing after a transfer of the Mortgaged Property following a foreclosure; (l) Comply with, conform to and obey, in all material respects, all present and future Legal Requirements and not use, maintain, operate, occupy, or allow the use, maintenance, operation or occupancy of, the Mortgaged Property in any manner which (a) violates any present and future Legal Requirement, (b) may be dangerous unless safeguarded as required by Applicable Law, (c) constitutes a public or private nuisance or (d) makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto; and (m) Not, except as authorized under the Secured Debt Documents, permit any of the Fixtures or Personalty to be removed at any time from the lands described in Exhibit A unless (i) the removed item is removed temporarily for maintenance and repair, (ii) if removed permanently, is replaced by an article of equal suitability and value, owned by Mortgagor, free and clear of any lien or security interest or (iii) such Fixtures or Personalty are removed in connection with the plugging and abandoning of wells, or abandonment of other facilities, in each case as permitted by this instrument. 2.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform and comply with any and all representations, warranties, covenants and agreements expressed as binding upon it under each of the Leases; (b) subject to the exceptions provided for in Section 2.4(a), not voluntarily terminate, cancel or waive its rights or the obligations of any other party under any of the Leases; (c) subject to the exceptions provided for in Section 2.4(a), use all reasonable efforts to maintain each of the Leases in force and effect during the full term thereof, and (d) appear in and defend (or cause its operator to appear in and defend) any action or proceeding arising under or in any manner connected with any of the Leases or the representations, warranties, covenants and agreements of it or the other party or parties thereto. 2.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense, record, register, deposit and file this and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the lien and security interest hereof as a first lien on and prior perfected security interest in real or personal property, as the case may be, and the rights and remedies of Mortgagee and Secured Debtholders, and otherwise will do and observe all things or matters necessary or expedient to be done or observed by reason of any Applicable Law, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on and in the Mortgaged Property. 2.7 Sale or instrument of the Mortgaged Property. Except (a) as set forth in Section 5.1 of this instrument; (b) for sales of severed Hydrocarbons in the ordinary course of Mortgagor's business; (c) sales of or dispositions of surplus, obsolete or worn inventory or equipment; and (d) the lien and security interest created by this -20- instrument; (e) for Permitted Encumbrances; and (f) for sales, exchanges or other dispositions of Mortgaged Property permitted under the Secured Debt Documents governing Priority Lien Debt and permitted under the Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell, convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's right, title or interest therein, and Mortgagor will not enter into any arrangement with any gas pipeline company or other consumer of Hydrocarbons regarding the Mortgaged Property whereby said gas pipeline company or consumer may set off any claim against Mortgagor by withholding payment for any Hydrocarbons actually delivered. 2.8 Records, Statements and Reports. Mortgagor will keep proper books of record and account in which complete and correct entries will be made of Mortgagor's transactions in accordance with generally accepted accounting principles and will furnish or cause to be furnished to each Secured Debt Representative such information concerning the business, affairs and financial condition of Mortgagor as required under the Secured Debt Documents. Without limiting the generality of the foregoing, Mortgagor shall furnish to Mortgagee and each Secured Debt Representative, but not more than every six (6) months: (a) reports prepared by a reputable national independent petroleum engineer regularly engaged by Mortgagor for such purposes or other engineering firm acceptable to the Credit Agreement Agent concerning (1) the quantity of Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income and expense attributable to the Mortgaged Property, and (3) the expediency of any change in methods of treatment or operation of all or any wells productive of Hydrocarbons, any new drilling or development, any method of secondary recovery by repressuring or otherwise, or any other action with respect to the Mortgaged Property, the decision as to which may increase or reduce the quantity of Hydrocarbons ultimately recoverable or the rate of production thereof, and (b) reports for the prior period showing the gross proceeds from the sale of Hydrocarbons produced from the lands described in Exhibit A (including any thereof taken by Mortgagor for Mortgagor's own use), the quantity of such Hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of such proceeds and the number of wells operated, drilled or abandoned. 2.9 Right of Entry. (a) Upon at least twenty-four (24) hours notice to Mortgagor, Mortgagor will permit Mortgagee, each Secured Debt Representative and/or the agents of either of them, at the cost and expense of Mortgagor, to enter upon the Mortgaged Property and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof, and shall permit reasonable access to the field offices and other offices (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Mortgaged Property), including the principal place of business, of Mortgagor to inspect and examine the Mortgaged Property and to inspect, review and reproduce as necessary any books, records, accounts, contracts or other documents of Mortgagor, it being understood that -21- any non-public information obtained in connection therewith shall be subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect. (b) Without limiting the generality of the foregoing, Mortgagee shall have the right (but shall not be obligated to), and each Secured Debt Representative and its agents shall have the right (to the fullest extent that Mortgagor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor to enter the Mortgaged Property to conduct (at the cost and expense of Mortgagor), or to cause Mortgagor to conduct (at the cost and expense of Mortgagor), such tests and investigations as may be necessary to determine whether any hazardous materials or solid waste is being generated, transported, stored, or disposed of in accordance with applicable Environmental Laws. Such tests and investigations may include, without limitation, underground borings, ground water analyses and borings from the floors, ceilings and walls of any improvements located on the Mortgaged Property. This Section 2.9 shall not be construed to affect or limit the obligations of Mortgagor pursuant to Section 2.4 hereof. (c) Neither Mortgagee nor any Secured Debt Representative shall have any duty to visit or observe the Mortgaged Property, or to conduct tests, and no site visit, observation or testing by any such person (or its agents and independent contractors) shall impose any liability on any such person nor shall Mortgagor or any other obligor be entitled to rely on any such visit, observation or testing in any respect. Mortgagee or a Secured Debt Representative may, but shall not be obligated to, disclose to Mortgagor or, subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect, any other Person, including any Governmental Authority, any report or finding made as a result of, or in connection with, any site visit, observation or testing. Mortgagor agrees that neither Mortgagee nor any Secured Debt Representative makes any warranty or representation to Mortgagor or any other obligor regarding the truth, accuracy or completeness of any such report or findings that may be so disclosed. Mortgagor also acknowledges that, depending upon the results of any site visit, observation or testing disclosed to Mortgagor, Mortgagor may have a legal obligation to notify one or more Governmental Authorities of such results, that such reporting requirements are site-specific, and are to be evaluated by Mortgagor without advice or assistance from Mortgagee or any Secured Debt Representative. 2.10 Taxes. Subject to Mortgagor's right to contest the same, Mortgagor will promptly pay all taxes, assessments and governmental charges legally imposed upon this instrument or upon the Mortgaged Property, or upon the interest of Mortgagee therein, or upon the income and profits thereof. 2.11 No Governmental Approvals. Mortgagor represents and warrants that (a) no approval or consent of any regulatory or administrative commission or -22- authority, or of any other governmental body, is necessary to authorize the execution and delivery of this instrument, or to authorize the observance or performance by Mortgagor of the covenants herein contained, or that such approvals as are required have been obtained or will be obtained promptly and (b) Mortgagor has obtained all Permits which are necessary for the operation of the Mortgaged Property. 2.12 Environmental Laws. (a) Mortgagor represents and warrants, to the best of its knowledge after due inquiry that: except as permitted by the Secured Debt Documents the Mortgaged Property is in compliance with all applicable Environmental Laws; there are no conditions existing currently which would be likely to subject Mortgagor to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or assertions thereof, or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by Mortgagor; Mortgagor is not a party to any litigation or administrative proceedings, nor so far as is known by Mortgagor is any litigation or administrative proceeding threatened against it, which asserts or alleges that Mortgagor has violated or is violating Environmental Laws or that Mortgagor is required to clean up, remove or take remedial or other responsive action due to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials; neither Mortgaged Property nor Mortgagor is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws and neither has been named or listed as a potentially responsible party by any governmental body or agency in a matter arising under any Environmental Laws. Mortgagor has also obtained all permits, licenses or approvals required under applicable Environmental Laws which are necessary for its current exploration, use, and development activities at the Mortgaged Property; and to Mortgagor's knowledge after reasonable investigation all use, generation, manufacturing, release, discharge, storage, deposit, treatment, recycling or disposal of any materials on, under or at the Mortgaged Property or transported to or from the Mortgaged Property (or tanks or other facilities thereon containing such materials) are being and will be conducted in accordance, in all material respects, with applicable Environmental Laws including without limitation those requiring cleanup, removal or any other remedial action. 2.13 Corporate Mortgagor. Mortgagor will continue to be duly qualified to transact business in each state where the conduct of its business requires it to be qualified, and will not, unless permitted pursuant to the Secured Debt Documents, consolidate or merge with any other partnership, company, corporation or other Person. 2.14 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor is 77-0212977. The taxpayer identification number of Mortgagee is 13-5160382. -23- ARTICLE III ASSIGNMENT OF PRODUCTION 3.1 Assignment. (a) Mortgagor hereby absolutely and irrevocably (a) transfers, assigns, warrants and conveys, to Mortgagee, effective as of July 1, 2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter produced from and which accrue to the Mortgaged Property, and all proceeds therefrom, and (b) gives to and confers upon Mortgagee the right, power and authority to collect such Hydrocarbons and proceeds. Subject to the terms of Section 3.1 (b), all parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Mortgagee by virtue of the provisions of this Article III, are authorized and directed to treat and regard Mortgagee as the assignee and transferee of Mortgagor and entitled in Mortgagor's place and stead to receive such Hydrocarbons and all proceeds therefrom; and said parties and each of them shall be fully protected in so treating and regarding Mortgagee and shall be under no obligation to see to the application by Mortgagee of any such proceeds or payments received by it; provided, however, that, until Mortgagee or any Secured Debt Representative shall have instructed such parties that an Event of Default has occurred and to deliver such Hydrocarbons and all proceeds therefrom directly to Mortgagee, such parties shall be entitled to deliver such Hydrocarbons and all proceeds therefrom directly to Mortgagor. So long as no Event of Default shall have occurred, Mortgagor shall be entitled to receive directly from such parties, and keep and retain, all such proceeds from the sale of such Hydrocarbons. (b) Upon the occurrence of an Event of Default (provided that the Secured Debt Representative shall not give such instructions and notice under this Article III unless such Event of Default shall be continuing), any Secured Debt Representative may at any time (and from time to time) thereafter give notice thereof any party producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Mortgagee, directing that said Hydrocarbons and products are to be delivered into pipelines connected with the oil and gas leases, or to the purchaser thereof, free and clear of all Taxes, and the proceeds from the sale of such Hydrocarbons paid directly to Mortgagee in accordance with Section 3.5 of this instrument. Said parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Mortgagee by virtue of the provisions of this Article III, shall be fully protected in relying on any such Secured Debt Representative's determination and notice of the occurrence of an Event of Default. Mortgagor agrees to perform all such acts, and to execute all such further assignments, transfers and division orders, and other instruments as may be required pursuant to the Collateral Trust -24- Agreement or any of the Secured Debt Documents in order to have said revenues and proceeds so paid to Mortgagee, as and when provided in this Article III. With respect to any funds received by Mortgagee, Mortgagee is fully authorized to (but shall not be obligated to) receive and give receipt for any such revenues and proceeds that are received by Mortgagee; to endorse and cash any and all checks and drafts payable to the order of Mortgagor or Mortgagee for the account of Mortgagor received from or in connection with said revenues or proceeds and apply the proceeds thereof in accordance with Section 3.2 hereof, and to execute transfer and division orders in the name of Mortgagor, or otherwise, with warranties binding Mortgagor. The assignment of the Hydrocarbons and proceeds in this Section 3.1 is intended to be an absolute assignment from Mortgagor to Mortgagee and not merely the passing of a security interest. Such Hydrocarbons and proceeds are hereby assigned absolutely by Mortgagor to Mortgagee. 3.2 Application of Proceeds. All payments received by Mortgagee pursuant to Section 3.1 hereof shall be placed in a cash collateral account to be applied in accordance with the provisions of the Collateral Trust Agreement. 3.3 No Liability of Mortgagee in Collecting. Mortgagee is hereby absolved from all liability for failure to enforce collection of any proceeds so assigned (and no such failure shall be deemed to be a waiver of any right of Mortgagee under this Article III) and from all other responsibility in connection therewith, except the responsibility to account to Mortgagor for funds actually received. 3.4 Assignment Not a Restriction on Mortgagee's Rights. Nothing herein contained shall detract from or limit the absolute obligation of Mortgagor to make payment of the Indebtedness regardless of whether the proceeds assigned by this Article III are sufficient to pay the same, and the rights under this Article III shall be in addition to all other security now or hereafter existing to secure the payment of the Indebtedness. 3.5 Status of Assignment. Notwithstanding the other provisions of this Article III and in addition to the other rights hereunder, Mortgagee or any receiver or keeper appointed in judicial proceedings for the enforcement of this instrument shall have the right to receive all of the Hydrocarbons herein assigned and the proceeds therefrom after the occurrence and during the continuance of any Event of Default and to apply all of said proceeds as provided in Section 3.2 hereof. Upon any sale of the Mortgaged Property or any part thereof pursuant to Article IV, the Hydrocarbons thereafter produced from the property so sold, and the proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment contained in this Article III. 3.6 Indemnification Obligations. The following provisions shall apply to, and be deemed in each case to modify, each of the provisions of this instrument (except those set forth in Section 2.12 and 5.11 hereof) and the other Secured Debt Documents -25- (except to the extent otherwise expressly provided therein) wherein Mortgagor is obligated to indemnify each of the Indemnified Persons: (a) Mortgagor agrees to indemnify Mortgagee, the Secured Debtholders, and their respective employees, affiliates, agents and attorneys, under the instrument and any successors or substitute trustee under the instrument, against all legal and administrative proceedings for which a claim for indemnification may be made by the Indemnified Person (herein, collectively, called "Indemnification Claims") made against or incurred by them or any of them as a consequence of the assertion, either before or after the payment in full of the Indebtedness, that they or any of them received Hydrocarbons herein assigned or the proceeds thereof claimed by third persons and Mortgagee and Secured Debtholders shall have the right to defend against any such Indemnification Claims, employing attorneys therefor, and unless furnished with reasonable indemnity, they or any of them shall have the right to pay or compromise and adjust all such Indemnification Claims. Mortgagor will indemnify and pay to Mortgagee and Secured Debtholders any and all such amounts as may be paid in respect thereof or as may be successfully adjudged against such persons. The obligations of Mortgagor as hereinabove set forth in this Section 3.6 shall survive the release termination, foreclosure or assignment of this instrument or any sale hereunder. (b) Mortgagor shall pay when due any judgments with respect to an Indemnification Claim against any of the Indemnified Persons and which are rendered by a final order or decree of a court of competent jurisdiction from which no further appeal may be taken or has been taken within the applicable appeal period. In the event that such payment is not made, any of the Indemnified Persons at its sole discretion may pay any such judgments, in whole or in part, and look to Mortgagor for reimbursement pursuant to this instrument, or may proceed to file suit against Mortgagor to compel such payment. (c) Any amount which Mortgagor is obligated to pay to or for the benefit of an Indemnified Person with respect to an Indemnification Claim, but which is not paid when due, shall bear interest at the applicable interest rate set forth under the Secured Debt Documents from the date such amount is due until such amount is paid. ARTICLE IV ENFORCEMENT OF THE SECURITY 4.1 Rights of Mortgagee with Respect to Personal Property Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Mortgagee will have all rights and remedies granted by law, and particularly by the Uniform Commercial Code, including, but not limited to, the right to take possession of all personal property constituting a part of the Mortgaged Property, and for this purpose Mortgagee may enter upon any premises on -26- which any or all of such personal property is situated and take possession of and operate such personal property (or any portion thereof) or remove it therefrom. Mortgagee may require Mortgagor to assemble such personal property and make it available to Mortgagee at a place to be designated by Mortgagee which is reasonably convenient to all parties. Unless such personal property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Mortgagee will give Mortgagor reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of such personal property is to be made. This requirement of sending reasonable notice will be met if the notice is mailed by first-class mail, postage prepaid, to Mortgagor at the address shown below the signatures at the end of this instrument at least five (5) days before the time of the sale or disposition. Further, Mortgagee shall have the right to utilize executory process, as more fully set forth in Section 4.4 hereof and the right to appointment of a keeper, as set forth in Section 4.3 hereof. 4.2 Rights of Mortgagee with Respect to Fixtures Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Mortgagee may elect to treat the fixtures constituting a part of the Mortgaged Property as either real property collateral or personal property collateral and then proceed to exercise such rights as apply to such type of collateral. 4.3 Judicial Proceedings. Upon the occurrence of an Event of Default and if such Event of Default shall be continuing, Trustee, in lieu of or in addition to exercising any power of sale hereinabove given, may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder for cash or upon credit in one or more parcels or portions under executory or ordinary process, at Mortgagee's sole option, without appraisement, appraisement being expressly waived, or for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate legal or equitable remedy. 4.4 Other Remedies. Mortgagor hereby acknowledges the Indebtedness secured hereby, whether now existing or to arise hereafter, and, for the purpose of foreclosure under Louisiana's executory process procedures, confesses judgment thereon in the full amount of the Indebtedness in favor of Mortgagee and any future holder or holders of the Indebtedness if such obligations are not paid at maturity. Mortgagor in accordance with the terms hereof and the Secured Debt Documents does by these presents consent, agree and stipulate that, upon the occurrence of an Event of Default hereunder or under the Secured Debt Documents, Mortgagee or any future holder or holders of any of the Indebtedness, at its (or their) option, without making demand and without notice or putting in default, the same being hereby expressly waived, may cause all and singular the property of Mortgagor herein mortgaged to be seized and sold by executory process issued by any competent court, or to proceed with the enforcement of this instrument and pledge of production in any manner prescribed by law, Mortgagor hereby waiving notice of demand or delay stipulated in Article 2639 of the Code of Civil Procedure of Louisiana and the benefit of any laws, or -27- parts of laws, relating to the appraisement of the property seized and sold under executory process or other legal process, and consenting that the Mortgaged Property situated in the State of Louisiana be sold without appraisement to the highest bidder for cash. 4.5 Certain Aspects of a Sale. Mortgagee shall have the right to become the purchaser at any sale held by Mortgagee or by any court, receiver or public officer, and Mortgagee shall have the right to credit upon the amount of the bid made therefor the amount payable out of the net proceeds of such sale to it. Recitals contained in any conveyance made to any purchaser at any sale made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, and the interest accrued on, Secured Debt after the same have become due and payable, advertisement and conduct of such sale in the manner provided herein. 4.6 Receipt to Purchaser. Upon any sale, the receipt of Mortgagee or the officer making sale under judicial proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for his or their purchase money, and such purchaser or purchasers, or his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of Mortgagee, or of such officer therefor, be obliged to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof. 4.7 Effect of Sale. Any sale or sales of the Mortgaged Property, shall operate to divest all right, title, interest, claim and demand whatsoever either at law or in equity, of Mortgagor of, in and to the premises and the property sold, and shall be a perpetual bar, both at law and in equity, against Mortgagor, and Mortgagor's successors or assigns, and against any and all persons claiming or who shall thereafter claim all or any of the property sold from, through or under Mortgagor or Mortgagor's successors or assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold. 4.8 Application of Proceeds. The proceeds of any sale of the Mortgaged Property, or any part thereof, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall be applied in accordance with the provisions of the Collateral Trust Agreement. 4.9 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights. Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this instrument or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, so far as Mortgagor or those claiming through or under Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such -28- laws. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, waives, to the extent that Mortgagor may lawfully do so, any and all right to have the Mortgaged Property marshalled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that Mortgagee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, further waives, to the full extent that Mortgagor may lawfully do so, any requirement for posting a receiver's bond or replevin bond or other similar type of bond if Mortgagee commence an action for appointment of a receiver or an action for replevin to recover possession of any of the Mortgaged Property. If any law in this paragraph referred to and now in force, of which Mortgagor or Mortgagor's successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to, constitute any part of the contract herein contained or to preclude the operation or application of the provisions of this paragraph. If Mortgagor is an individual, Mortgagor waives and releases all rights of dower, courtesy and homestead in the Mortgaged Property insofar as such rights may in any way affect the purposes of this instrument. 4.10 Costs and Expenses. All costs and expenses (including attorneys' fees) incurred by Mortgagee in protecting and enforcing their rights hereunder shall constitute a demand obligation owing by Mortgagor to the party incurring such costs and expenses and shall draw interest at the Default Interest Rate, all of which shall constitute a portion of the Indebtedness. 4.11 Operation of the Mortgaged Property by Mortgagee. Upon the occurrence of an Event of Default and during the continuance of such Event of Default and in addition to all other rights herein conferred on Mortgagee, Mortgagee (or any person, firm or corporation designated by Mortgagee) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property, and to exclude Mortgagor, and Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer, manage and operate the same to the extent that Mortgagor shall be at the time entitled and in its place and stead. Mortgagee, or any person, firm or corporation designated by Mortgagee, may operate the same without any liability to Mortgagor in connection with such operations, except to use ordinary care in the operation of such properties, and Mortgagee or any person, firm or corporation designated by Mortgagee, shall have the right to (but shall not be obligated to) collect, receive and receipt for all Hydrocarbons produced and sold from said properties, to make repairs, purchase machinery and equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of Mortgagor with respect to the Mortgaged Property. When and if the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) paid by Mortgagee or attributable to Mortgagor's undivided interest therein and withheld, or offset against, by an operator or other party have been paid or reimbursed in full by Mortgagor and the Indebtedness paid, said properties shall, if there has been no sale or foreclosure, be returned to Mortgagor. Further, in the event that any of the Mortgaged Property is seized as an incident to an action for the recognition or the enforcement of this instrument, whether by executory process, ordinary process, -29- writ of fieri facias, sequestration, or otherwise, the court issuing the order under which the seizure is to be effected shall, if such order is petitioned for by the holder or holders of the Secured Debt or other Indebtedness, direct the sheriff or other officer making the seizure to appoint as keeper of the Mortgaged Property, in accordance with Louisiana Revised Statutes 9:5131 through 5135 and/or 9:5136 through 5140.2, as the same may be amended, such person as may be named by Mortgagee at the time the seizure is effected. ARTICLE V MISCELLANEOUS PROVISIONS 5.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby authorized, to pool or unitize all or any part of the lands described in Exhibit A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds and other interests, when, in the reasonable judgment of Mortgagor, it is necessary or advisable to do so in order to form a drilling and/or production unit to facilitate the orderly development of that part of the Mortgaged Property affected thereby, or to comply with the requirements of any Applicable Law or governmental order or regulation relating to the spacing of wells or proration of the production therefrom; provided, however, that any unit so formed for the production of oil shall not substantially exceed 160 acres, and any unit so formed for the production of gas shall not substantially exceed 640 acres, unless a larger area is required to conform to an Applicable Law or governmental order or regulation relating to the spacing of wells or to obtain the maximum allowable production under any Applicable Law or governmental order or regulation relating to the proration of production therefrom; and further provided that the Hydrocarbons produced from any unit so formed shall be allocated among the separately owned tracts or interests comprising the unit in a uniform manner consistently applied. Any unit so formed may relate to one or more zones or horizons, and a unit formed for a particular zone or horizon need not conform in area to any other unit relating to a different zone or horizon, and a unit formed for the production of oil need not conform in area with any unit formed for the production of gas. Promptly after formation of any such unit, Mortgagor shall furnish to Mortgagee and each Secured Debt Representative a true copy of the pooling agreement, declaration of pooling or other instrument creating such unit. The interest in any such unit attributable to the Mortgaged Property (or any part thereof) included therein shall become a part of the Mortgaged Property and shall be subject to the lien hereof in the same manner and with the same effect as though such unit and the interest of Mortgagor therein were specifically described in Exhibit A. Mortgagor is further authorized to amend, modify or terminate any pooling or unitization agreement or order to which Mortgagor is a party or the Mortgaged Property is subject, provided that such action does not conflict with the provisions of this Mortgage, including this Section 5.1. Mortgagor may enter into, or amend, modify or terminate, pooling or unitization agreements not hereinabove authorized only as permitted under the Secured Debt Documents. 5.2 Actions or Advances by Mortgagee. Each and every covenant herein contained shall be performed and kept by Mortgagor solely at Mortgagor's -30- expense. If Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this instrument, Mortgagee, any keeper or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Mortgagor's behalf; provided, however, that concurrently with the taking of such action or making such advances, Mortgagee or any Secured Debt Representative shall deliver notice to Mortgagor. Mortgagor hereby agrees to repay the expense of such action and such advances upon demand plus interest as set forth in the Collateral Trust Agreement. No such advance or action by Mortgagee, any keeper or any receiver appointed hereunder shall be deemed to relieve Mortgagor from any default hereunder. 5.3 Defense of Claims. Mortgagor will notify Mortgagee and each Secured Debt Representative, in writing, promptly of the commencement of any legal proceedings affecting the lien or security interest hereof or the Mortgaged Property, or any part thereof, and will take such action, employing attorneys as set forth in Section 2.4(j), as may be necessary or appropriate to preserve Mortgagor's or Mortgagee's rights affected thereby and/or to hold harmless Mortgagee in respect of such proceedings; and should Mortgagor fail or refuse to take any such action, Mortgagee may (but shall not be obligated to), upon giving prior written notice thereof to Mortgagor, take such action in behalf and in the name of Mortgagor and at Mortgagor's expense. Moreover, Mortgagee may (but shall not be obligated to) take such independent action in connection therewith as it may deem proper, Mortgagor hereby agreeing that all sums advanced or all expenses incurred in such actions plus interest thereon at the Default Interest Rate, will, on demand, be reimbursed, as appropriate, to Mortgagee or any keeper or receiver appointed hereunder. The obligations of Mortgagor as hereinabove set forth in this Section 5.3 shall survive the release, termination, foreclosure or assignment of this instrument or any sale hereunder. 5.4 The Mortgaged Property to Revert; Release. If the Indebtedness shall be fully paid and the covenants herein contained shall be well and truly performed, then all of the Mortgaged Property shall revert to Mortgagor and the entire estate, right, title and interest of Mortgagee shall thereupon cease; and Mortgagee in such case shall, upon the request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor proper instruments acknowledging satisfaction of this Mortgage and the release or reconveyance of the lien hereof in accordance with Applicable Law; Notwithstanding anything contained herein to the contrary, the Mortgaged Property, or any part thereof, shall, upon the written request of Mortgagor, be released from the lien of this Mortgage in accordance with the provisions of the Collateral Trust Agreement, when such a release is permitted by the Collateral Trust Agreement and the other Secured Debt Documents. 5.5 Renewals, Amendments and Other Security. Renewals and extensions of the Indebtedness and modifications of any kind of the Obligations may be given at any time and amendments may be made to agreements with third parties relating to any part of such Indebtedness or the Mortgaged Property and Mortgagee may take or may now hold other security from others for the Indebtedness, all without notice to or consent of Mortgagor. Mortgagee may resort first to such other security or -31- any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this instrument, which shall continue as a first lien upon and prior perfected security interest in the Mortgaged Property not expressly released until the Secured Debt and all other Indebtedness secured hereby are fully paid. 5.6 Instrument, Assignment, etc. This instrument shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, financing statement, real estate (immovable property) mortgage, or security agreement, and from time to time as any one or more thereof. 5.7 Limitation on Interest. No provision of this instrument or the Secured Debt Documents shall require the payment or permit the collection of interest in excess of the Maximum Lawful Rate or which is otherwise contrary to Applicable Law. If any excess of interest in such respect is in the Secured Debt Documents or otherwise herein provided for, or shall be adjudicated to be so provided for herein or in the Secured Debt Documents, Mortgagor shall not be obligated to pay such excess. 5.8 Unenforceable or Inapplicable Provisions. If any provision hereof or of the Secured Debt Documents is invalid or unenforceable in any jurisdiction, the other provisions hereof or of the Secured Debt Documents shall remain in full force and effect in such jurisdiction, and the remaining provisions hereof shall be liberally construed in favor of Mortgagee in order to effectuate the provisions hereof, and the invalidity of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction. Any reference herein contained to a statute or law of a state in which no part of the Mortgaged Property is situated shall be deemed inapplicable to, and not used in, the interpretation hereof. 5.9 Rights Cumulative. Each and every right, power and remedy herein given to Mortgagee shall be cumulative and not exclusive; and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient by Mortgagee, as the case may be, and the exercise, or the beginning of the exercise, of any such right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter, any other right, power or remedy. No delay or omission by Mortgagee in the exercise of any right, power or remedy shall impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing. 5.10 Waiver by Mortgagee. Any and all covenants in this instrument may from time to time by instrument in writing signed by Mortgagee be waived to such extent and in such manner as Mortgagee may desire, but no such waiver shall ever affect or impair either Mortgagee's rights or liens or security interests hereunder, except to the extent specifically stated in such written instrument. -32- 5.11 Environmental Indemnification. Mortgagor will indemnify and hold Mortgagee harmless from and against and reimburse Mortgagee with respect to, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including reasonable attorneys' fees and court costs) of any and every kind or character, known or unknown, fixed or contingent, out-of-pocket or consequential, asserted against or by Mortgagee at any time and from time to time by reason of or arising out of any violation of any Environmental Laws applicable to Mortgagor and/or the Mortgaged Property and any and all matters arising out of any act, omission, event or circumstance existing or occurring (including, without limitation, the presence on the Mortgaged Property or release from the Mortgaged Property of hazardous substances or solid waste disposed of or otherwise released), regardless of whether the act, omission, event or circumstance constituted a violation of any Environmental Law at the time of its existence or occurrence. The terms "hazardous substance" and "release" shall have the meanings specified in the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as subsequently modified, supplemented or amended (herein called "CERCLA"), and for purposes of RCRA (as defined below) compliance the terms "solid waste" and "disposed" shall have the meanings specified in the Federal Resource Conservation and Recovery Act of 1976, as subsequently modified, supplemented or amended (herein called "RCRA"); provided, in the event that either CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and provided further, to the extent the laws of any jurisdiction where the Mortgaged Property is located on the date hereof or on any subsequent date establish a meaning for "hazardous substance," "release," "solid waste," or "disposal" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. If and to the extent that the foregoing undertaking may be unenforceable for any reason, Mortgagor hereby agrees to make the maximum contribution to the payment and satisfaction of the indemnified claims, demands, causes of action, losses, damages, liabilities, costs, expenses and fees which is permissible under applicable law. The obligations of Mortgagor as hereinabove set forth in this Section 5.11 shall survive the release, termination, foreclosure or assignment of this instrument or any sale hereunder. 5.12 No Partnership. Nothing contained in this instrument is intended to, or shall be construed as, creating to any extent and in any manner whatsoever, any partnership, joint venture, or association among Mortgagor, Mortgagee and their respective Affiliates, or in any way as to make Mortgagee or a co-principal with Mortgagor with reference to the Mortgaged Property, and any inferences to the contrary are hereby expressly negated. 5.13 Successors and Assigns. This instrument is binding upon Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit of Mortgagee, its successors and assigns, and the provisions hereof shall likewise be covenants running with the land. -33- 5.14 Article and Section Headings. The article and section headings in this instrument are inserted for convenience of reference and shall not be considered a part of this instrument or used in its interpretation. 5.15 Execution in Counterparts. This instrument may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which are identical, except that, to facilitate recordation or filing, in any particular counterpart portions of Exhibit A hereto which describe properties situated in parishes or counties other than the parish or county in which such counterpart is to be recorded or filed may have been omitted. 5.16 Special Filing as Financing Statement. This instrument shall likewise be a Security Agreement and a Financing Statement. This instrument shall be filed for record, among other places, in the real estate records and in the Uniform Commercial Code records of each parish in which any portion of the immovable property covered by the oil and gas leases described in Exhibit A hereto is situated, and, when filed in such parishes shall be effective as a financing statement covering Fixtures located on oil and gas properties and as-extracted collateral, which as-extracted collateral are to be financed at the wellheads of the wells located on the lands described in Exhibit A. A carbon, photographic or other reproduction of this instrument or of any financing statement covering the Mortgaged Property or any portion thereof shall be sufficient as a financing statement and may be filed as such. Mortgagor agrees that Secured Debt Representative may, in such manner, on such terms and at such times as may be elected by Secured Debt Representative, and without demand or notice to, or the consent or signature of, Mortgagor, file and/or record such UCC financing statements, fixture filings, and/or amendments to or continuations of any financing statements or fixture filings to evidence, perfect and/or continue the perfection of, any security interests created or to be created pursuant to this Mortgage or any of the other Secured Debt Documents. 5.17 Notices. Except as otherwise required by Section 4.1 hereof, any notice, request or demand which may be required or permitted to be given or served upon Mortgagor shall be sufficiently given when given or made pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other means and manner of giving of notice as may be required by Applicable Law. 5.18 Waivers. The parties hereto expressly waive the production of mortgage, conveyance, tax research or other certificates and hereby release and hold the Notary Public whose name is hereunder signed harmless for and by reason of the nonproduction and nonannexation thereof to this instrument. Mortgagor waives in favor of Mortgagee any and all homestead exemptions and other exemptions of seizure or otherwise to which Mortgagor is or may be entitled under the constitution and statutes of the State of Louisiana insofar as the Mortgaged Property is concerned. Mortgagor further waives: (a) the benefit of appraisement as provided in Louisiana Code of Civil Procedure Articles 2332, 2336, 2723 and 2724, and all other laws conferring the same; (b) the demand and three days delay accorded by Louisiana Code of Civil Procedure Articles 2639 and 2721; (c) the notice of seizure required by Louisiana Code of Civil -34- Procedure 2293 and 2721; (d) the three days delay provided by Louisiana Code of Civil Procedure Articles 2331 and 2722; and (e) the benefit of the other provisions of Louisiana Code of Civil Procedure Articles 2331, 2722 and 2723, not specifically mentioned above. 5.19 Transfer of the Notes without Notarial Act. The parties hereto agree that the Secured Debt may be transferred without the necessity for a notarial act of transfer thereof, and that any such transfer without notarial act shall carry with it into the hands of any future holder or holders of the Secured Debt full and entire subrogation of title in and to the Secured Debt to any and all rights and privileges under this instrument herein granted to the Secured Debtholders. This instrument is for the benefit of Mortgagee, Secured Debtholders and for such other person or persons as may from time to time become or be the holders of any of the Indebtedness, and this instrument shall be transferable and negotiable, with the same force and effect and to the same extent as the Indebtedness may be transferable, it being understood that, upon the transfer or assignment by Mortgagee of any of the Indebtedness, the legal holder of such Indebtedness shall have all of the rights granted to Mortgagee under this instrument. Mortgagor specifically agrees that upon any transfer of all or any portion of the Indebtedness, this instrument shall secure with retroactive rank the then existing Indebtedness of Mortgagor to the transferee and any and all Indebtedness to such transferee thereafter arising. 5.20 Authentic Evidence. Any and all declarations of facts made by authentic act before a notary public in the presence of two witnesses by a person declaring that such facts lie within his knowledge, shall constitute authentic evidence of such facts for the purpose of executory process. Mortgagor specifically agrees that such an affidavit by a representative of Mortgagee as to the existence, amount, terms and maturity of the Indebtedness and of a default thereunder shall constitute authentic evidence of such facts for the purpose of executory process. 5.21 Reliance. Notwithstanding any reference herein to the Secured Debt Documents, no party shall have any obligation to inquire into the terms or conditions of any such documents and all parties shall be fully authorized to rely upon any statement, certificate, or affidavit of Mortgagee or any future holder of any portion of the Indebtedness as to the occurrence of any event such as the occurrence of any event of default. 5.22 Governing Law. THIS INSTRUMENT IS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF LOUISIANA. 5.23 Acceptance. Pursuant to Louisiana Civil Code Article 3289, Mortgagor acknowledges that this instrument need not be signed by Mortgagee, whose consent is presumed and is hereby acknowledged by Mortgagor. 5.24 No Liability. Mortgagee shall not be liable for any error of judgment or act done by Mortgagee in good faith, or be otherwise responsible or accountable -35- under any circumstances whatsoever, except for their gross negligence or willful misconduct. Mortgagee shall not be personally liable in case of entry by it, or anyone entering by virtue of the powers herein granted them, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Mortgagee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by it in good faith to be genuine. Mortgagor will, from time to time, pay the compensation due to Mortgagee hereunder and reimburse Mortgagee for, and save it harmless against, any and all liability and expenses which may be incurred by it in the performance of its duties. 5.25 Covenants Running with the Land. All Obligations contained in this instrument are intended by the parties to be, and shall be construed as, real rights and covenants running with the Mortgaged Property. 5.26 Mortgagee as Agent for the Secured Debtholders. As described above, certain Affiliates of Mortgagee and the Secured Debtholders are or may become parties to certain Hedging Agreements with Mortgagor and/or Affiliates of Mortgagor. This instrument secures the obligations of Mortgagor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties acknowledge for all purposes that Mortgagee acts for itself and as agent on behalf of such Affiliates of Mortgagee and the Secured Debtholders which are so entitled to share in the rights and benefits accruing to Mortgagee under this instrument in respect of the Mortgaged Property. 5.27 Subrogation. If any or all of the proceeds of Secured Debt have been used to extinguish, extend or renew any indebtedness heretofore existing against the Mortgaged Property, then, to the extent of such funds so used, the Indebtedness and this instrument shall be subrogated to all of the rights, claims, liens, titles and interests heretofore existing against the Mortgaged Property to secure the indebtedness so extinguished, extended or renewed and the former rights, claims, liens, titles and interests, if any, are not waived but rather are continued in full force and effect in favor of Mortgagee and are merged with the lien and security interest created herein as cumulative security for the repayment of the Indebtedness and the satisfaction of the Obligations. -36- THUS DONE AND PASSED IN MULTIPLE ORIGINALS on the 14th day of July, 2003, effective as of the 16thday of July 2003, in the presence of the undersigned competent witnesses, who hereunto sign their names, together with Mortgagor and me, Notary, after due reading of the whole. CALPINE CORPORATION, a Delaware corporation By:______________________________________ Title: Executive Vice President Printed Name: B.A. Berilgen The name and address of the Mortgagor and Debtor is: Calpine Corporation 1000 Louisiana Street, Suite 800 Houston, TX 77002 WITNESSES TO SIGNATURE: _________________________________ _________________________________ _________________________________________ NOTARY PUBLIC Residing at Houston, Harris County, Texas My Commission Expires 12/21/2006 [LA Mortgage] THUS DONE AND PASSED IN MULTIPLE ORIGINALS on the ____ day of July, 2003 in the presence of the undersigned competent witnesses, who hereunto sign their names, together with Mortgagee and me, Notary, after due reading of the whole. THE BANK OF NEW YORK, as Collateral Trustee By:________________________________ Title:_____________________________ Printed Name:______________________ The name and mailing address of the Secured Party and Agent is: The Bank of New York 101 Barclay Street, 8 Floor West New York, New York 10286 WITNESSES TO SIGNATURE: _________________________________ _________________________________ ___________________________________ NOTARY PUBLIC Residing at________________________ My Commission Expires______________ [LA Mortgage] EXHIBIT A To Amended and Restated Mortgage, Assignment, Security Agreement and Financing Statement, dated July 16, 2003, from CALPINE CORPORATION to BANK OF NEW YORK List of Properties 1. Depth limitations, unit designations, unit tract descriptions and descriptions (including percentages, decimals or fractions) of undivided leasehold interests, well names, "Operating Interests", "Working Interests" and "Net Revenue Interests" contained in this Exhibit A and the listing of any percentage, decimal or fractional interest in this Exhibit A shall not be deemed to limit or otherwise diminish the interests being subjected to the lien, security interest and encumbrance of this instrument. 2. Some of the land descriptions in this Exhibit A may refer only to a portion of the land covered by a particular lease. This instrument is not limited to the land described in Exhibit A but is intended to cover the entire interest of the Mortgagor in any lease described in Exhibit A even if such interest relates to land not described in Exhibit A. Reference is made to the land descriptions contained in the documents of title recorded as described in this Exhibit A. To the extent that the land descriptions in this Exhibit A are incomplete, incorrect or not legally sufficient, the land descriptions contained in the documents so recorded are incorporated herein by this reference. 3. References in Exhibit A to instruments on file in the public records are made for all purposes. Unless provided otherwise, all recording references in Exhibit A are to the official real property records of the parish or parishes in which the mortgaged property is located and in which records such documents are or in the past have been customarily recorded, whether Conveyance Records, Oil and Gas Records, Oil and Gas Lease Records or other records. 4. A statement herein that a certain interest described herein is subject to the terms of certain described or referred to agreements, instruments or other matters shall not operate to subject such interest to any such agreement, instrument or other matter except to the extent that such agreement, instrument or matter is otherwise valid and presently subsisting nor shall such statement be deemed to constitute a recognition by the parties hereto that any such agreement, instrument or other matter is valid and presently subsisting. [Do not detach this page] A-1 EXHIBIT B To Amended and Restated Mortgage, Assignment, Security Agreement and Financing Statement, dated July 16, 2003, from CALPINE CORPORATION to BANK OF NEW YORK Certified Copies of Resolutions [Attached] B-1 Schedule I

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Acadia Parish, LA Original Act No. 699419 5/15/2002 (Conveyance Records) COB W58, Page 589 Acadia Parish, LA Original Act No. 699419 5/15/2002 (Mortgage Records) MOB 627, Page 849 Bienville Parish, LA Registry No. 2002-1571 5/15/2002 (Conveyance Records) COB 943, Page 217 Bienville Parish, LA Registry No. 2002-1570 5/15/2002 (Mortgage Records) MOB 361, Page 100 Calcasieu Parish, LA 2584415 5/15/2002 (Conveyance Records) Calcasieu Parish, LA 2584415 5/15/2002 (Mortgage Records) Cameron Parish, LA 275522 5/07/2002 (offshore only) COB 948 (Conveyance Records) Cameron Parish, LA 275522 5/07/2002 (offshore only) MOB 269 (Mortgage Records) Cameron Parish, LA 275730 5/16/2002 (Conveyance Records) COB 949 Cameron Parish, LA 275730 5/16/2002 (Mortgage Records) MOB 269 Claiborne Parish, LA 404351 5/15/2002 (Conveyance Records) COB 1283, Page 76 Claiborne Parish, LA 404351 5/15/2002 (Mortgage Records) MOB 429, Page 29 East Baton Rouge Parish, LA Original #393, Bundle 11347 5/15/2002 (Conveyance Records) East Baton Rouge Parish, LA Original #393, Bundle 11347 5/15/2002 (Mortgage Records) East Feliciana Parish, LA 170667 5/16/2002 (Conveyance Records)

B-1

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- East Feliciana Parish, LA 170667 5/16/2002 (Mortgage Records) Iberia Parish, LA COB 1237, Entry #02- 5/15/2002 (Conveyance Records) 6520 Iberia Parish, LA MOB A890, Entry #02- 5/15/2002 (Mortgage Records) 6520 Lafayette Parish, LA 02-022356 5/20/2002 (Conveyance Records) Lafayette Parish, LA 02-022356 5/20/2002 (Mortgage Records) Lincoln Parish, LA Entry No. 038312 5/16/2002 (Conveyance Records) COB 1132, Page 85 Lincoln Parish, LA Entry No. 038312 5/16/2002 (Mortgage Records) MOB 782, Page 615 Livingston Parish, LA Entry No. 00493865 5/20/2002 (Conveyance Records) COB 806, Page 237 Livingston Parish, LA Entry No. 00493865 5/20/2002 (Mortgage Records) MOB 786, Page 164 Plaquemines Parish, LA COB 1022, Folio 370 5/17/2002 (Conveyance Records) Plaquemines Parish, LA MOB 338, Folio 344 5/17/2002 (Mortgage Records) St. Bernard Parish, LA 398-029 5/17/2002 (Conveyance Records) COB 717, Folio 754 St. Bernard Parish, LA 398-029 5/17/2002 (Mortgage Records) MOB 1082, Folio 515 St. Martin Parish, LA Entry No. 339381 5/16/2002 (Conveyance Records) COB 1365, Folio 740 St. Martin Parish, LA Entry No. 339382 5/16/2002 (Mortgage Records) MOB 903, Page 394 St. Mary Parish, LA COB 45-A, Page 666 5/16/2002 (Conveyance Records) Entry No. 277,321 St. Mary Parish, LA MOB 912, Page 144 5/16/2002 (Mortgage Records) Entry No. 251,035 Terrebonne Parish, LA COB 1775, Entry No. 5/7/2002 (Conveyance Records) 1119792

B-2

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Terrebonne Parish, LA MOB 1448, Entry No. 5/7/2002 (Mortgage Records) 1119792 Vermilion Parish, LA Entry No. 20205877 5/16/2002 (Conveyance Records) Vermilion Parish, LA Entry No. 20205877 5/16/2002 (Mortgage Records) Webster Parish, LA Registry No. 453232 5/20/2002 (Conveyance Records) COB 937, Page 816 Webster Parish, LA Registry No. 453232 5/20/2002 (Mortgage Records) MOB 519, Page 587 West Feliciana Parish, LA Original No. 83976 5/17/2002 (Conveyance Records) COB 145, Page 877 West Feliciana Parish, LA Original No. 83976 5/17/2002 (Mortgage Records) MOB 117A, Page 691 Minerals Management n/a 5/08/2002 Service Gulf of Mexico OCS Region (Cameron Parish, LA) Minerals Management n/a 5/08/2002 Service Gulf of Mexico OCS Region (Terrebonne Parish, LA)

UCC-1 Financing Statement regarding Louisiana Mortgage, naming Calpine Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Jefferson Parish, LA 26262652 5/7/2002 Minerals Management n/a 5/08/2002 Service Gulf of Mexico OCS Region

B-3 Schedule II N/A B-1 Schedule III Partial Release by The Bank of Nova Scotia in favor of Calpine Corporation (Louisiana-Mortgage) filed as follows:

PARTIAL PARTIAL ORIGINAL ORIGINAL RELEASE FILE RELEASE FILE JURISDICTION FILE NO. FILE DATE NO. DATE ------------ -------- --------- ------------ ----------- Cameron Parish, LA 275522; COB 5/7/02 277541; 9/13/02 (Offshore Only) 948, MOB 269 COB 955, Folio 447; MOB 272, Folio 412 Plaquemines Parish, LA COB 1022, 5/17/02 Entry 11/13/02 (Drakes Bay) Folio 370; 02006812, MOB 338, COB 1034, Folio 344 Folio 794; Entry 2006813, MOB 349, Folio 815

UCC-3 Financing Statement Amendment relating to the Partial Release-Louisiana mortgage naming Calpine Corporation as Debtor and The Bank of Nova Scotia, as Agent, as Secured Party, filed as follows:

PARTIAL PARTIAL ORIGINAL ORIGINAL RELEASE FILE RELEASE FILE JURISDICTION FILE NO. FILE DATE NO. DATE ------------ -------- --------- ------------ ------------ Jefferson Parish, 26262652 5/7/02 26267302 11/13/02 LA (Drakes Bay) Jefferson Parish, 26262652 5/7/02 26265933 9/13/02 LA (OCS-0935 & OCS-14357) MMS (OCS-0935 No file number 5/8/02 no file number 9/13/02 & OCS-14357)

B-1 EX-10.31 23 f92357exv10w31.txt EXHIBIT 10.31 EXHIBIT 10.31 RECORDING REQUESTED BY AND WHEN RECORDED AND/OR FILED RETURN TO: MAYER, BROWN, ROWE & MAW LLP 700 Louisiana Street Suite 3600 Houston, Texas 77002 Attn: Kevin L. Shaw, Esq. Instructions to County Recorder: Index this document as: (1) A deed of trust (2) A fixture filing AMENDED AND RESTATED DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING FROM CALPINE CORPORATION, a Delaware corporation, Trustor (Taxpayer I.D. No. 77-0212977), TO CHICAGO TITLE INSURANCE COMPANY Trustee AND THE BANK OF NEW YORK, not in its individual capacity but solely as Collateral Trustee, (Taxpayer I.D. No. 13-5160382) as Beneficiary Dated as of July 16, 2003 "THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS." "THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES." "OIL AND GAS INTERESTS AND AS-EXTRACTED COLLATERAL INCLUDED IN THE ENCUMBERED PROPERTY WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "TRUSTOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS DESCRIBED IN EXHIBIT A HERETO." "SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE ENCUMBERED PROPERTY IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS FINANCING STATEMENT AND FIXTURE FILING IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS." "THE SECURED PARTIES ARE NOT SELLERS OR PURCHASE MONEY LENDERS OF COLLATERAL." "A POWER OF SALE HAS BEEN GRANTED IN THIS DEED OF TRUST. A POWER OF SALE MAY ALLOW THE TRUSTEE TO TAKE THE ENCUMBERED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY TRUSTOR UNDER THIS DEED OF TRUST." "NOTICE TO JUNIOR LIENHOLDERS: THE OBLIGATIONS SECURED HEREBY PROVIDE FOR THE ACCRUAL OF INTEREST WHICH MAY RESULT IN INCREASES IN THE PRINCIPAL BALANCE ABOVE THE FACE PRINCIPAL AMOUNT OF THE APPLICABLE NOTES." AMENDED AND RESTATED DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING THIS AMENDED AND RESTATED DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "DEED OF TRUST"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation ("TRUSTOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to CHICAGO TITLE INSURANCE COMPANY (whether one or more, collectively called "TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among Trustor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose address is 101 Barclay Street, New York, New York 10286. References to this "DEED OF TRUST" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. ARTICLE I. RECITALS AND DEFINITIONS 1.1 Trustor has heretofore executed and delivered to The Bank of Nova Scotia, for itself and as agent for the Lender Parties (together with its successors in such capacity, the "CREDIT AGREEMENT AGENT") and Chicago Title Insurance Company, as Trustee, that certain mortgage or deed of trust, dated as of May 1, 2002, as supplemented and amended prior to the date hereof (as so supplemented and amended, herein called the "EXISTING MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain institutional lenders (the "EXISTING 2002 LENDERS") pursuant to the terms of that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same may be amended, modified or supplemented from time to time, called the "EXISTING 2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans to Trustor and issued letters of credit for the benefit of Trustor (the "EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $1,600,000,000, and Trustor, to evidence its indebtedness to the Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and delivered to the Existing 2002 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002 Loan Notes being payable to the order of the Existing 2002 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorneys' fees and acceleration of maturity in the event of default, as therein set forth; and (ii) payment of indebtedness 1 owed or to be owing to certain institutional lenders (the "EXISTING 2000 LENDERS", and together with the Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms of that certain Second Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the same may be amended, modified, or supplemented from time to time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing 2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant to which the Existing 2000 Lenders made loans to Trustor and issued letters of credit for the benefit of Trustor (the "EXISTING 2000 LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding $400,000,000, and Trustor, to evidence its indebtedness to the Existing 2000 Lenders under the Existing 2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders its secured promissory notes to mature not later than May 24, 2003 (the "EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing 2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing interest as provided for therein, and containing provisions for payment of attorney's fees and acceleration of maturity in the event of default, as therein set forth. 1.2 The Existing Mortgage, together with other mortgages and deeds of trust (a) have been filed and recorded, among other places, as set forth in Schedule I hereto; (b) have been supplemented and amended by various instruments that have been filed and recorded, among other places, as set forth in Schedule II hereto; and (c) have been amended and certain items of property encumbered thereby have been released by various instruments that have been filed and recorded, among other places, as set forth in Schedule III hereto. 1.3 Trustor, the Existing Lenders and the Credit Agreement Agent are (i) terminating the commitments under the Existing 2000 Credit Agreement, and (ii) amending and restating the Existing 2002 Credit Agreement (as so amended and restated, and as the same may, from time to time hereafter, be amended, supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT AGREEMENT." 1.4 Trustor is also (a) issuing $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007 INDENTURE") between Trustor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing $1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2010 INDENTURE") between Trustor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013 INDENTURE") between Trustor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing $750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Trustor and Goldman 2 Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the borrowing of the Term Loans will be used to refinance a portion of the loans and other indebtedness outstanding under the Existing Credit Agreements. 1.5 As permitted pursuant to the Secured Debt Documents, Trustor may incur future debt which could, together with the obligations under the Amended and Restated Credit Agreement, constitute Priority Lien Debt and Trustor may incur future debt which could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Trustor intends to secure the Indebtedness, including its obligations (a) under the Amended and Restated Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, with liens and security interests in, among other collateral, the Encumbered Property under the Existing Mortgage, as contemplated in the Collateral Trust Agreement. 1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment of Liens of even date herewith, the Credit Agreement Agent has assigned to Beneficiary, all of the Credit Agreement Agent's right, title and interest in and to, and its interest as beneficiary under, the Existing Mortgage. This Deed of Trust amends and restates the Existing Mortgage. The Collateral Trust Agreement sets forth the terms on which the Beneficiary, as collateral trustee for the present and future holders of the Indebtedness, will receive, hold, maintain, administer, maintain, enforce and distribute this Deed of Trust and all interests, rights, powers and remedies of the Collateral Trustee thereunder and the proceeds thereof. 1.7 For all purposes of this Deed of Trust, unless the context otherwise requires: A. "Actionable Default" is defined in the Collateral Trust Agreement. B. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan (as defined under ERISA)). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. 3 C. "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. D. "Default Interest Rate" means the lesser of (a) ten percent (10%), or (b) the Maximum Lawful Rate. E. "Encumbered Property" means the properties, rights and interests hereinafter described in Section 1.8 and defined as the Encumbered Property. F. "Environmental Laws" shall mean any and all present and future United States federal, tribal, state and local laws or regulations, codes, plans, orders, decrees, directives, judgments, injunctions and lawfully imposed requirements issued, promulgated or entered thereunder relating to pollution or protection of the environment, including laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. G. "Event of Default" means an Actionable Default as defined under the Collateral Trust Agreement. H. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. I. "Hedging Agreements" means: (a) interest rate swap agreements, basis swap agreements, interest rate cap agreements, forward rate agreements, interest rate floor agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates, and (b) forward contracts, options, futures contracts, futures options, commodity swaps, commodity options, commodity collars, commodity caps, commodity floors and all other agreements or arrangements designed to protect such Person against fluctuations in the price of commodities. 4 J. "Hedging Obligations" means with respect to any Person, all liabilities (including without limitation obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement. K. "Hydrocarbons" means collectively, oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate and all other liquid or gaseous hydrocarbons and related minerals and all products therefrom, in each case whether in a natural or a processed state. L. "Indebtedness" shall have the meaning set forth in Section 2.2 of this Deed of Trust. M. "Indemnification Claim" is defined in Section 4.6(a) of this Deed of Trust. N. "Indemnified Person" means Trustee, Beneficiary and each of the Secured Debtholders, their respective employees, affiliates, agents and attorneys, and any other Person to be indemnified under this Deed of Trust. O. "Joint Operating Agreements" shall mean, with respect to the lands described in Exhibit A, the respective operating agreement burdening the lands described in Exhibit A. P. "lands described in Exhibit A" shall include the real property or other interest in any lands which are either described in Exhibit A attached hereto or the description of which is incorporated in Exhibit A by reference to an instrument or document containing in, or referring to, such a description, and shall also include any lands now or hereafter unitized or pooled with lands which are either described in Exhibit A or the description of which is incorporated in Exhibit A by reference and Fixtures and all rights, titles and interests appurtenant thereto. References to Exhibit A shall include, where applicable, Exhibit A-1 as well. Q. "Leases" means any and all leases (including without limitation oil and gas leases and oil, gas and other minerals leases), surface leases or easements, subleases, licenses, concessions, operating rights or other agreements (written or verbal, now or hereafter in effect) which grant a possessory interest in and to, or the right to explore, use, lease, license, possess, produce, process, store and transport Hydrocarbons from, operate from, or otherwise enjoy, the Encumbered Property, together with all amendments, modifications, extensions and renewals thereof. R. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Trustor, or the Encumbered Property, including 5 the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Trustor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Trustor, or the Encumbered Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Encumbered Property. S. "Maximum Lawful Rate" means the maximum nonusurious rate of interest that may be received, charged or contracted for under Applicable Law from time to time in effect. T. "Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Trustor or others under any of the Secured Debt Documents. U. "oil and gas leases" shall include oil, gas and mineral leases, subleases and assignments thereof, operating rights, servitudes and shall also include subleases and assignments of operating rights. V. "Operating Equipment" means all surface or subsurface machinery, goods, equipment, fixtures, movable property attached to immovable property and other movable property, inventory, facilities, supplies or other property of whatsoever kind or nature (excluding drilling rigs, trucks, automotive equipment or other property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on or under any of the lands described in Exhibit A which are useful for the production, gathering, treatment, processing, storage or transportation of Hydrocarbons (together with all accessions, additions and attachments to any thereof), including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, tubular goods, rods, pumping units and engines, christmas trees, platforms, derricks, separators, compressors, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and injection), steam generation and injection equipment and systems, power plants, poles, lines, transformers, starters and controllers, supervisory control and data acquisition systems, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading docks, loading racks and shipping facilities. W. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. 6 X. "Parity Lien Debt" is defined in the Collateral Trust Agreement. Y. "Parity Lien Documents" is defined in the Collateral Trust Agreement. Z. "Parity Lien Indebtedness" is defined in Section 2.2 of this Deed of Trust. AA. "Parity Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Trustor or others under any of the Parity Lien Documents. BB. "Permits" means all authorizations, approvals, permits, variances, land use entitlements, consents, licenses, franchises and agreements issued by or entered into with any Governmental Authority now or hereafter required for all stages of exploration, developing, operating, and plugging and abandoning oil and gas wells (including, without limitation, those shown on Exhibit A) on all or any part of the lands described in Exhibit A (or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in the lands described in Exhibit A). CC. "Permitted Encumbrances" means the outstanding liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters as permitted by and defined in the Secured Debt Documents. DD. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. EE. "Personalty" means all of the right, title and interest of Trustor now owned or hereafter acquired in and to all furniture, furnishings, Equipment, machinery, Goods, General Intangibles, money, Accounts, receivables, Contract Rights, Inventory, all refundable, returnable or reimbursable fees, deposits or other funds or evidences of credit or indebtedness deposited by or on behalf of Trustor with any Governmental Authority, agencies, boards, corporations, providers of utility services, public or private, including specifically, but without limitation, all refundable, returnable or reimbursable tap fees, utility deposits, commitment fees and development costs, and all other personal property (other than the Fixtures) of any kind or character as defined in and subject to the provisions of Article 9 of the Uniform Commercial Code, now or hereafter located upon, within or about, or used in connection with, the lands described in Exhibit A together with all accessories, replacements and substitutions thereto or therefor and the Proceeds thereof. FF. "Priority Lien Debt" is defined in the Collateral Trust Agreement. 7 GG. "Priority Lien Documents" is defined in the Collateral Trust Agreement. HH. "Priority Lien Indebtedness" is defined in Section 2.2 of this Deed of Trust. II. "Priority Lien Obligations" means any and all of the covenants, warranties, representations and other obligations (other than to repay the Indebtedness) made or undertaken by Trustor or others under any of the Priority Lien Documents. JJ. "Production Sale Contracts" means contracts now in effect, or hereafter entered into by Trustor, or entered into by Trustor's predecessors in interest, for the sale, purchase, exchange, gathering, transportation, treating or processing of Hydrocarbons produced from the lands described in Exhibit A. KK. "Rents and Revenues" means all of the rents, revenues, income, proceeds, profits and other benefits paid or payable by parties to the Leases other than Trustor for using, leasing, licensing, possessing, operating, selling or otherwise enjoying the Encumbered Property, including the proceeds from the sale of Hydrocarbons. LL. "Secured Debt" is defined in the Collateral Trust Agreement. MM. "Secured Debtholder" is defined in the Collateral Trust Agreement. NN. "Secured Debt Documents" is defined in the Collateral Trust Agreement. OO. "Secured Debt Representative" is defined in the Collateral Trust Agreement. PP. "Taxes" means all real property and personal property taxes, production taxes, assessments, permit fees, water, gas, sewer, electricity and other utility rates and charges, charges for any easement, license or agreement maintained for the benefit of the Encumbered Property, and all other taxes, charges and assessments and any interest, costs or penalties with respect thereto, of any kind and nature whatsoever which at any time prior to or after the execution hereof may be charged, assessed, levied or imposed upon the Encumbered Property or the Rents and Revenues or the ownership, use, occupancy or enjoyment thereof. QQ. "Transportation Agreements" shall mean any contracts or agreements entered into from time to time by Trustor, or entered into by Trustor's predecessors in interest, relating to the transportation of Hydrocarbons, as any such agreement or contract may be amended, supplemented, restated or otherwise modified from time to time. 8 RR. "Uniform Commercial Code" means the Uniform Commercial Code as in effect from time to time in the State of California or any other applicable state, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. SS. "Water Rights" means (including without limitation those described in Exhibit A hereto) all now or hereafter existing or acquired water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights, whether evidenced or initiated by permit, decree, well registration, appropriation not decreed, water court application, shares of stock or other interests in mutual ditch or reservoir companies or carrier ditch or reservoir companies or otherwise, appertaining or appurtenant to or beneficially used or useful in connection with the lands described in Exhibit A, together with all pumps, well casings, wellheads, electrical installations, pumphouses, meters, monitoring wells and systems, measuring devices, pipes, pipelines, and other structures or personal property which are or may be used to produce, regulate, measure, distribute, store, or use water from the said water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights. 1.8 Grant. Grant of Priority Lien NOW, THEREFORE, Trustor, for and in consideration of the premises and of the Priority Lien Indebtedness and trusts hereinafter mentioned, has granted, bargained, sold, warranted, encumbered, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, encumber, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Trustor's right, title and interest, whether now owned or hereafter acquired, in and to all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of equipment, general intangibles, accounts, as extracted collateral, chattel paper, contract rights, deposit accounts, documents, goods, instruments, inventory, fixtures, proceeds of collateral or any other personal property of a kind or character defined in, or subject to the applicable provisions of the California Uniform Commercial Code, Trustor hereby grants to said Beneficiary, a security interest therein to the full extent of Trustor's legal and beneficial interest therein, now owned or hereafter acquired, namely: (a) the lands described in Exhibit A, and Leases, profit a prendre, fee, mineral, overriding royalty, royalty and other interests which are described in Exhibit A, (b) the presently existing and (subject to the terms of Section 6.1 hereof) hereafter arising unitization, unit operating, communitization and pooling 9 agreements and the properties covered and the units created thereby (including, without limitation, all units formed under orders, regulations, rules, approvals, decisions or other official acts of any Governmental Authority) which are specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A, (c) the Hydrocarbons which are in, under, upon, produced or to be produced from or which are attributed or allocated to the lands described in Exhibit A, (d) the Production Sale Contracts, (e) the Joint Operating Agreements, (f) the Transportation Agreements, (g) the Operating Equipment, (h) the Permits, (i) the Water Rights, (j) the Hedging Agreements, (k) the Leases, (l) the Personalty, (m) the Rents and Revenues, (n) without duplication of any other provision of this granting clause, Equipment, Fixtures and other Goods necessary or used in connection with, and Inventory, Accounts, As Extracted Collateral, General Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents, Electronic Chattel Paper, Instruments and Proceeds arising from, or relating to, the properties and other interests described in Exhibit A (including Exhibit A-1), together with any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the same, or any instrument relating thereto, and all accounts, contracts, contract rights, options, nominee agreements, unitization or pooling agreements, operating agreements and unit operating agreements, processing agreements, farmin agreements, farmout agreements, joint venture agreements, partnership agreements (including mining partnerships), exploration agreements, bottom hole agreements, dry hole agreements, support agreements, acreage contribution agreements, surface use and surface damage agreements, net profits agreements, production payment agreements, Hedging Agreements, insurance policies, title opinions, title abstracts, title materials and information, files, records, writings, data bases, information, systems, logs, well cores, 10 fluid samples, production data and reports, well testing data and reports, maps, seismic and geophysical, geological and chemical data and information, interpretative and analytical reports of any kind or nature (including, without limitation, reserve studies and reserve evaluations), computer hardware and software and all documentation therefor or relating thereto (including, without limitation, all licenses relating to or covering such computer hardware, software and/or documentation), trade secrets, trademarks, service marks and business names and the goodwill of the business relating thereto, copyrights, copyright registrations, unpatented inventions, patent applications and patents, rights-of-way, franchises, bonds, easements, servitudes, surface leases, permits, licenses, tenements, hereditaments, appurtenances, concessions, occupancy agreements, privileges, development rights, condemnation awards, claims against third parties, general intangibles, rents, royalties, issues, profits, products and proceeds, whether now or hereafter existing or arising, used or useful in connection with, covering, relating to, or arising from or in connection with, any of the aforesaid items (a) through n), inclusive, in this granting clause mentioned, and all other things of value and incident thereto (including, without limitation, any and all liens, lien rights, security interests and other properties, rights and interests) which Trustor might at any time have or be entitled to, but excluding any data or contracts with respect to which mortgaging or granting of a lien or a security interest is prohibited by existing third party agreements, all the aforesaid properties, rights and interests, together with any additions thereto which may be subjected to the lien and security interest of this Deed of Trust by means of supplements hereto, being hereinafter, collectively, called the "Encumbered Property." Grant of Parity Lien NOW, THEREFORE, Trustor, for and in consideration of the premises and the Parity Lien Obligations and trusts hereafter mentioned, has granted, bargained, sold, warranted, encumbered, assigned, transferred and conveyed, and by these presents does grant, bargain, sell, warrant, encumber, assign, pledge and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all Trustor's right, title and interest, whether now owned or hereafter acquired, in and to all of the Encumbered Property. Subject, however, in each case to (i) Permitted Encumbrances (including without limitation all presently existing royalties, overriding royalties, payments out of production and other burdens which are referred to in Exhibit A and which are taken into consideration in computing any percentage, decimal or fractional interest as set forth in Exhibit A), (ii) the assignment of production contained in Article IV hereof, but only insofar and so long as said assignment of production is not inoperative under the provisions of Section 4.5 hereof, and (iii) the condition that none of Trustee, Beneficiary nor any Secured Debtholder shall be liable in any respect for the performance of any covenant or obligation (including, without limitation, measures required to comply with Environmental Laws) of Trustor in respect of the Encumbered Property. 11 TO HAVE AND TO HOLD the Encumbered Property for the benefit of Beneficiary, and forever to secure the payment of the Indebtedness and to secure the performance and discharge of the Obligations of Trustor herein and therein contained. As set forth in the separate granting clauses above, it is the intent of Trustor that such grants shall create two separate and distinct security interests in all right, title and interest of Trustor in the Encumbered Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the benefit of the Beneficiary, for the benefit of the holders of the Parity Lien Debt. Notwithstanding (i) anything to the contrary contained in this instrument or any other document, filing or agreement related to the creation, attachment, perfection or existence of the liens and security interests granted herein, (ii) the time, place, order or method of attachment or perfection of such liens or security interests, (iii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect such security interests, and (iv) the rules for determining priority under any law governing the relative priorities of secured creditors, the lien securing the Parity Lien Indebtedness is subordinated and junior in priority to the lien securing the Priority Lien Indebtedness. Trustor, in consideration of the Secured Debt as set forth above, hereby covenants and agrees with each of Trustee and Beneficiary: ARTICLE II. INDEBTEDNESS SECURED 2.1 Items of Indebtedness Secured. The following items of indebtedness are secured hereby: (a) The Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Trustor under the Priority Lien Documents; (b) The Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Trustor under the Parity Lien Documents; (c) All Obligations under any other Priority Lien Debt or Parity Lien Debt; (d) Any sums advanced or expenses or costs incurred by Trustee, Beneficiary or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; 12 (e) Any and all other indebtedness of Trustor or any Affiliate of Trustor to Beneficiary now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (f) Any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (a) through (e) above, whether or not Trustor executes any extension agreement or renewal instrument. 2.2 Indebtedness Defined. All the above items of indebtedness described in subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively referred to as the "PRIORITY LIEN INDEBTEDNESS." And all the above items of indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c) through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are hereinafter collectively referred to as the "PARITY LIEN INDEBTEDNESS"; the Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively referred to as the "INDEBTEDNESS". 2.3 Valid and Subsisting First Lien. Trustor hereby acknowledges and agrees that, except as otherwise provided by the Secured Debt Documents, the Existing Mortgage constitutes a valid and subsisting first lien on the portion of the Encumbered Property encumbered thereby, and that none of the rights and liens existing thereunder shall be impaired or released hereby, and that the same as amended and restated hereby shall remain in full force and effect, and all rights and liens existing and to exist thereunder are renewed, extended, carried forward, and conveyed to secure all of the Indebtedness hereinabove mentioned. 2.4 Amended and Restated Deed of Trust. The Existing Mortgage is amended and restated in full hereby in order to, among other things, secure all of the Indebtedness herein described or referred to as if reference to such Indebtedness were fully described in the Existing Mortgage. None of the rights, titles, and interests, existing or to exist under the Existing Mortgage are hereby released, diminished or impaired. 2.5 No Impairment or Discharge of Liens. It is the express intention of all parties hereto that the Secured Debtholders are subrogated to all of the rights, powers, and equities of the original lenders and beneficiary under the Existing Mortgage, that the liens created hereby shall relate back to and be effective as of the effective date of the Existing Mortgage and that nothing contained herein shall be construed to impair or discharge the liens and security interests created thereby. ARTICLE III. PARTICULAR COVENANTS, REPRESENTATIONS AND WARRANTIES OF TRUSTOR 3.1 Payment of the Indebtedness and Performance of Obligations. Trustor will duly and punctually pay the Indebtedness, as and when called for in the Secured 13 Debt Documents and on or before the due dates thereof, and will timely perform and discharge all of the Obligations in full and on or before the dates same are to be performed and discharged. 3.2 Certain Representations and Warranties. Trustor represents and warrants (and with respect to those matters set forth in the following subsections (b) and (f), as to those portions of the Encumbered Property that are operated by persons other than Trustor or a Subsidiary of Trustor, Trustor makes such representation and warranty to the best of its knowledge) that (a) the oil and gas leases described in Exhibit A hereto are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the properties to which they pertain, (b) all producing wells located on the lands described in Exhibit A (including Exhibit A-1) have been drilled, operated and produced in conformity with all Applicable Laws of all Governmental Authorities having jurisdiction, and are subject to no penalties on account of past production, and such wells are in fact bottomed under and are producing from, and the well bores are wholly within, the lands described in Exhibit A or lands pooled or unitized therewith, (c) Trustor, to the extent of the interest specified in Exhibit A (including Exhibit A-1), has valid and indefeasible title to each property right or interest constituting the Encumbered Property described in Exhibit A (including Exhibit A-1) and has a good and legal right to grant and convey the same to Trustee; such interest entitles Trustor to receive not less than the share of Hydrocarbons from such property indicated as its net revenue interest or "NRI" share of such Hydrocarbons, and obligates Trustor to pay for not more than the share of operating and other costs, liabilities and expenses associated with such property indicated as its working interest or "Wl" share of such costs, liabilities and expenses, (d) excepting the Permitted Encumbrances, the Encumbered Property is free from all encumbrances or liens whatsoever, (e) Trustor is not obligated, by virtue of any prepayment under any contract providing for the sale by Trustor of Hydrocarbons which contains a "take or pay" clause or under any similar arrangement, to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor, (f) the Encumbered Property is currently being operated, maintained and developed, in all material respects, in accordance with all applicable currently existing Permits, Legal Requirements and all Applicable Laws (including, without limitation, Environmental Laws), (g) the cover page to this Deed of Trust lists the correct legal name of Trustor and Trustor has not been known by any legal name different from the one set forth on the cover page of this Deed of Trust, 14 (h) the execution, delivery, and performance by Trustor of this Deed of Trust (i) are within Trustor's corporate powers and have been duly authorized by Trustor's Board of Directors, shareholders and all other requisite corporate action, (ii) have received all (if any) requisite prior governmental approval and consent in order to be legally binding and enforceable in accordance with the terms thereof, and (iii) will not violate, be in conflict with, result in a breach or constitute (with due notice or lapse of time, or both) a default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Trustor's property or assets, except as contemplated by the provisions of the Secured Debt Documents, and (i) except as permitted by the Secured Debt Documents, there are no actions, suits or proceedings pending, or to the knowledge of Trustor threatened, against or affecting Trustor or the Encumbered Property that could materially adversely affect Trustor or the Encumbered Property, or involving the validity or enforceability of this Deed of Trust or the priority of the liens and security interests created by the Secured Debt Documents, and no event has occurred (including specifically Trustor's execution of this Deed of Trust which will violate, be in conflict with, result in the breach of, or constitute (with due notice or lapse of time, or both) a material default under, any Legal Requirement or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of Trustor's property other than the liens and security interests created by the Secured Debt Documents. 3.3 Further Assurances. Trustor will warrant and forever defend the Encumbered Property unto Trustee and Beneficiary, as the case may be, against every person whomsoever lawfully claiming the same or any part thereof, subject to Permitted Encumbrances, and Trustor will maintain and preserve the lien and security interest hereby created so long as any of the Indebtedness remains unpaid. Trustor will execute and deliver such other and further instruments and will do such other and further acts as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Documents to carry out more effectually the purposes of this Deed of Trust, including, without limiting the generality of the foregoing, (i) prompt correction of any defect which may hereafter be discovered in the title to the Encumbered Property or in the execution and acknowledgment of this Deed of Trust, the Secured Debt Documents, or any other document executed in connection herewith, and (ii) at any time a Secured Debt Representative may request and upon such request, promptly execute all notices to parties operating, purchasing or receiving proceeds of production of Hydrocarbons from the Encumbered Property, and all division orders or transfer orders needed in order to transfer effectually or to assist in transferring effectually to the Beneficiary the assigned proceeds of production from the Encumbered Property, which notices, division orders and transfer orders shall be held by such Secured Debt Representative and delivered upon an Event of Default. 3.4 Operation of the Encumbered Property. So long as the Indebtedness or any part thereof remains unpaid, and whether or not Trustor is the operator of any particular part of the Encumbered Property, Trustor shall, at Trustor's own expense: 15 (a) Do all things necessary to keep unimpaired Trustor's rights in the Encumbered Property and not abandon any well or forfeit, surrender or release any Lease, except that Trustor may, in the ordinary course of business, (i) plug and abandon any well no longer capable of producing Hydrocarbons in paying quantities, (ii) surrender or release any Lease or a portion thereof so long as no well capable of producing Hydrocarbons in paying quantities is located on such Lease or a portion thereof or production from any such well is attributed to such Lease or a portion thereof, (iii) surrender or release any Lease or a portion thereof on which no producing well has ever been drilled or which has never been held by production from another well unless Proven Reserves (as defined in any Secured Debt Document) are attributed to such Lease or a portion thereof and (iv) abandon, forfeit, surrender or release any other portion of the Encumbered Property to the extent permitted under the then existing Secured Debt Documents; (b) Obtain and maintain all required Permits and cause the lands described in Exhibit A to be maintained, developed, protected against drainage, and operated for the production of Hydrocarbons in a good and workmanlike manner as would a prudent operator, and consistent with industry practices, Joint Operating Agreements, and all Applicable Laws, excepting those being contested in good faith; and plug and abandon wells no longer capable of producing Hydrocarbons in paying quantities in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; and remediate the lands described in Exhibit A and facilities located thereon in accordance with all Applicable Laws, Legal Requirements and the terms and conditions of applicable Leases; (c) Duly pay and discharge, or cause to be paId and discharged, promptly as and when due and payable, all rentals and royalties (including shut-in royalties) payable in respect of the Encumbered Property (other than rentals under Leases that are surrendered pursuant to the foregoing Section 3.4(a)), and all expenses incurred in or arising from the operation or development of the Encumbered Property not later than the due date thereof, or the day any fine, penalty, interest or cost may be added thereto or imposed, or the day any lien may be filed, for the non-payment thereof (if such day is used to determine the due date of the respective item) except as to such matters which are being contested by Trustor in good faith; (d) Cause the Operating Equipment to be kept in good and effective operating condition, ordinary wear and tear excepted, and all repairs, renewals, replacements, additions and improvements thereof or thereto, needful to the production of Hydrocarbons from the lands described in Exhibit A, to be promptly made; (e) Not, except as permitted under the Secured Debt Documents, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any mortgage, pledge, lien 16 (statutory, constitutional or contractual), security interest, encumbrance or charge, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Secured Debt Documents, with, respect to all or any portion of the Encumbered Property, the Leases or the Rents and Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting a lien but not due and payable, (3) defects or irregularities in title, and liens, charges or encumbrances, which are customarily viewed in the industry as not interfering materially with the development, operation or value of the Encumbered Property and not such as to affect materially title thereto, and (4) those being contested by Trustor in good faith in such manner as not to jeopardize Beneficiary's rights in and to the Encumbered Property; (f) Carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Trustor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Encumbered Property, is located, insurance in respect of the Operating Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of Rents and Revenues); provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Beneficiary as its interest may appear, which proceeds are hereby assigned to Beneficiary, it being agreed by Trustor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Encumbered Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Beneficiary shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Trustor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, endorsed, altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer shall have first given Beneficiary and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the 17 same. Beneficiary and each Secured Debt Representative shall be furnished with a certificate evidencing such coverage in form and content comparable to coverage typically provided in the industry. All policies to be maintained under this Deed of Trust are to be issued on forms and by companies and with endorsements as are customary in the industry. Trustor shall maintain insurance in an amount sufficient to prevent Trustor from becoming a co-insurer under any policy required hereunder. If Trustor fails to maintain the level of insurance required under this Deed of Trust, then Trustor shall and hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; (g) Furnish to Beneficiary and each Secured Debt Representative, as soon as possible and in any event within five (5) days after the occurrence from time to time of any change in the address of Trustor's location (as described on the signature page hereto) or in the name of Trustor, notice in writing of such change; (h) Not initiate or acquiesce in any change in any material zoning or other land use or Water Rights classification now or hereafter in effect and affecting the Encumbered Property or any part thereof; (i) Notify Beneficiary and each Secured Debt Representative in writing, as soon as possible and in any event within five (5) days after it shall become aware of the occurrence of any Event of Default or any event which, with notice, the passage of time or both would be such an Event of Default; (j) Appear and defend, and hold Beneficiary and any Secured Debtholder harmless from, any action, proceeding or claim affecting the Encumbered Property or the rights and powers of Beneficiary or Secured Debtholders under the Secured Debt Documents, and all costs and expenses incurred by Beneficiary or any Secured Debtholder in protecting its interests hereunder in such an event (including all court costs and attorneys' fees) shall be borne by Trustor; (k) Subject to Trustor's right to contest the same, promptly pay all Taxes legally imposed upon this instrument or upon the Encumbered Property or upon the income and profits thereof, or upon the interest of Beneficiary therein; provided that Trustor shall not be liable for taxes accruing after a transfer of the Encumbered Property following a foreclosure; (l) Comply with, conform to and obey, in all material respects, all present and future Legal Requirements and not use, maintain, operate, occupy, or allow the use, maintenance, operation or occupancy of, the Encumbered Property in any manner which (a) violates any present and future Legal Requirement, (b) may be dangerous unless safeguarded as required by Applicable Law, (c) constitutes a public or private nuisance or (d) makes void, 18 voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto; and (m) Not, except as authorized under the Secured Debt Documents, permit any of the Fixtures or Personalty to be removed at any time from the lands described in Exhibit A unless (i) the removed item is removed temporarily for maintenance and repair, (ii) if removed permanently, is replaced by an article of equal suitability and value, owned by Trustor, free and clear of any lien or security interest or (iii) such Fixtures or Personalty are removed in connection with the plugging and abandoning of wells, or abandonment of other facilities, in each case as permitted by this Deed of Trust. 3.5 Performance of Leases. Trustor will: (a) duly and punctually perform and comply with any and all representations, warranties, covenants and agreements expressed as binding upon it under each of the Leases; (b) subject to the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel or waive its rights or the obligations of any other party under any of the Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all reasonable efforts to maintain each of the Leases in force and effect during the full term thereof, and (d) appear in and defend (or cause its operator to appear in and defend) any action or proceeding arising under or in any manner connected with any of the Leases or the representations, warranties, covenants and agreements of it or the other party or parties thereto. 3.6 Recording, etc. Trustor will promptly, and at Trustor's expense, record, register, deposit and file this and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the lien and security interest hereof as a first lien on and prior perfected security interest in real or personal property, as the case may be, and the rights and remedies of Beneficiary and Secured Debtholders, and otherwise will do and observe all things or matters necessary or expedient to be done or observed by reason of any Applicable Law, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on and in the Encumbered Property. 3.7 Sale or Deed of Trust of the Encumbered Property. Except (a) as set forth in Section 6.1 of this Deed of Trust; (b) for sales of severed Hydrocarbons in the ordinary course of Trustor's business; (c) for sales of or dispositions of surplus, obsolete or worn inventory or equipment; (d) for the lien and security interest created by this Deed of Trust; (e) for Permitted Encumbrances; and (f) for sales, exchanges or other dispositions of Encumbered Property permitted under the Secured Debt Documents governing Priority Lien Debt and permitted under the Secured Debt Documents governing Parity Lien Debt, Trustor will not sell, convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or encumber the Encumbered Property nor any portion thereof, nor any of Trustor's right, title or interest therein, and Trustor will not enter into any arrangement with any gas pipeline company or other consumer of Hydrocarbons regarding the Encumbered Property whereby said gas pipeline company or consumer may set off any claim against Trustor by withholding payment for any Hydrocarbons actually delivered. 19 3.8 Records, Statements and Reports. Trustor will keep proper books of record and account in which complete and correct entries will be made of Trustor's transactions in accordance with generally accepted accounting principles and will furnish or cause to be furnished to each Secured Debt Representative such information concerning the business, affairs and financial condition of Trustor as required under the Secured Debt Documents. Without limiting the generality of the foregoing, Trustor shall furnish to Beneficiary and each Secured Debt Representative, but not more than every six (6) months: (a) reports prepared by a reputable national independent petroleum engineer regularly engaged by Trustor or other engineering firm acceptable to the Credit Agreement Agent concerning (1) the quantity of Hydrocarbons recoverable from the Encumbered Property, (2) the projected income and expense attributable to the Encumbered Property, and (3) the expediency of any change in methods of treatment or operation of all or any wells productive of Hydrocarbons, any new drilling or development, any method of secondary recovery by repressuring or otherwise, or any other action with respect to the Encumbered Property, the decision as to which may increase or reduce the quantity of Hydrocarbons ultimately recoverable or the rate of production thereof, and (b) reports for the prior period showing the gross proceeds from the sale of Hydrocarbons produced from the lands described in Exhibit A (including any thereof taken by Trustor for Trustor's own use), the quantity of such Hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of such proceeds and the number of wells operated, drilled or abandoned. 3.9 Right of Entry. (a) Upon at least twenty-four (24) hours notice to Trustor, Trustor will permit Beneficiary, each Secured Debt Representative and/or the agents of either of them, at the cost and expense of Trustor, to enter upon the Encumbered Property and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof, and shall permit reasonable access to the field offices and other offices (to the fullest extent that Trustor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Encumbered Property), including the principal place of business, of Trustor to inspect and examine the Encumbered Property and to inspect, review and reproduce as necessary any books, records, accounts, contracts or other documents of Trustor, it being understood that any non-public information obtained in connection therewith shall be subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect. (b) Without limiting the generality of the foregoing, Beneficiary shall have the right (but shall not be obligated to), and each Secured Debt Representative and its agents shall have the right (to the fullest extent that Trustor may do so under the terms of the applicable Joint Operating Agreements and other applicable agreements affecting the Encumbered Property), on twenty-four (24) hours prior notice to Trustor to enter the Encumbered Property to conduct (at the cost and expense of Trustor), or to cause Trustor to conduct (at the cost and expense of Trustor), such tests and investigations as may be necessary to determine whether any hazardous materials or solid waste is being 20 generated, transported, stored, or disposed of in accordance with applicable Environmental Laws. Such tests and investigations may include, without limitation, underground borings, ground water analyses and borings from the floors, ceilings and walls of any improvements located on the Encumbered Property. This Section 3.9 shall not be construed to affect or limit the obligations of Trustor pursuant to Section 3.4 hereof. (c) Neither Beneficiary nor any Secured Debt Representative shall have any duty to visit or observe the Encumbered Property, or to conduct tests, and no site visit, observation or testing by any such person (or its agents and independent contractors) shall impose any liability on any such person nor shall Trustor or any other obligor be entitled to rely on any such visit, observation or testing in any respect. Beneficiary or a Secured Debt Representative may, but shall not be obligated to, disclose to Trustor or, subject to the relevant confidentiality provisions of the Secured Debt Documents then in effect, any other Person, including any Governmental Authority, any report or finding made as a result of, or in connection with, any site visit, observation or testing. Trustor agrees that neither Beneficiary nor any Secured Debt Representative makes any warranty or representation to Trustor or any other obligor regarding the truth, accuracy or completeness of any such report or findings that may be so disclosed. Trustor also acknowledges that, depending upon the results of any site visit, observation or testing disclosed to Trustor, Trustor may have a legal obligation to notify one or more Governmental Authorities of such results, that such reporting requirements are site-specific, and are to be evaluated by Trustor without advice or assistance from Beneficiary or any Secured Debt Representative. 3.10 Taxes. Subject to Trustor's right to contest the same, Trustor will promptly pay all taxes, assessments and governmental charges legally imposed upon this instrument or upon the Encumbered Property, or upon the interest of Beneficiary therein, or upon the income and profits thereof. 3.11 No Governmental Approvals. Trustor represents and warrants that (a) no approval or consent of any regulatory or administrative commission or authority, or of any other governmental body, is necessary to authorize the execution and delivery of this Deed of Trust, or to authorize the observance or performance by Trustor of the covenants herein, or that such approvals as are required have been obtained or will be obtained promptly and (b) Trustor has obtained all Permits which are necessary for the operation of the Encumbered Property. 3.12 Environmental Laws. Trustor represents and warrants, to the best of its knowledge after due inquiry that, except as permitted by the Secured Debt Documents, the Encumbered Property is in material compliance with all applicable Environmental Laws; there are no conditions existing currently which would be likely to subject Trustor to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or assertions thereof, or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by Trustor; Trustor is not a 21 party to any litigation or administrative proceedings, nor so far as is known by Trustor is any litigation or administrative proceeding threatened against it, which asserts or alleges that Trustor has violated or is violating Environmental Laws or that Trustor is required to clean up, remove or take remedial or other responsive action due to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials; neither the Encumbered Property nor Trustor is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws and neither has been named or listed as a potentially responsible party by any governmental body or agency in a matter arising under any Environmental Laws. Trustor has also obtained all permits, licenses or approvals required under applicable Environmental Laws which are necessary for its current exploration, use, and development activities at the Encumbered Property; and to Trustor's knowledge after reasonable investigation all use, generation, manufacturing, release, discharge, storage, deposit, treatment, recycling or disposal of any materials on, under or at the Encumbered Property or transported to or from the Encumbered Property (or tanks or other facilities thereon containing such materials) are being and will be conducted in accordance, in all material respects, with applicable Environmental Laws including without limitation those requiring cleanup, removal or any other remedial action. 3.13 Corporate Status. Trustor will continue to be duly qualified to transact business in California and each state where the conduct of its business requires it to be qualified, and will not, unless permitted pursuant to the Secured Debt Documents, consolidate or merge with any other partnership, company, corporation or other Person. 3.14 Taxpayer I.D. Number. The taxpayer identification number of Trustor is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382. ARTICLE IV. ASSIGNMENT OF PRODUCTION 4.1 Assignment. (a) Trustor hereby absolutely and irrevocably (a) transfers, assigns, warrants and conveys, to Beneficiary, effective as of July 1, 2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter produced from and which accrue to the Encumbered Property, and all proceeds therefrom, and (b) gives to and confers upon Beneficiary the right, power and authority to collect such Hydrocarbons and proceeds. Subject to the terms of Section 4.1 (b), all parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, are authorized and directed to treat and regard Beneficiary as the assignee and transferee of Trustor and entitled in Trustor's place and stead to receive such Hydrocarbons and all proceeds therefrom; and said parties and each of them shall be fully protected in so treating and regarding Beneficiary and shall be under no obligation to see to the application by Beneficiary of any such proceeds or payments received by it; 22 provided, however, that, until Beneficiary or any Secured Debt Representative shall have instructed such parties that an Event of Default has occurred and to deliver such Hydrocarbons and all proceeds therefrom directly to Beneficiary, such parties shall be entitled to deliver such Hydrocarbons and all proceeds therefrom directly to Trustor. So long as no Event of Default has occurred, Trustor shall be entitled to receive directly from such parties, and keep and retain, all such proceeds from the sale of such Hydrocarbons. (b) Upon the occurrence of an Event of Default (provided that the Secured Debt Representative shall not give such instructions and notice under this Article IV unless such Event of Default shall then be continuing) any Secured Debt Representative may at any time (and from time to time) thereafter give notice thereof to any party producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary, that said Hydrocarbons and products are to be delivered into pipelines connected with the oil and gas leases, or to the purchaser thereof, free and clear of all Taxes, and the proceeds from the sale of such Hydrocarbons paid directly to Beneficiary in accordance with Section 4.5 of this Deed of Trust. Said parties producing, purchasing or receiving any such Hydrocarbons, or having such, or proceeds therefrom, in their possession for which they or others are accountable to Beneficiary by virtue of the provisions of this Article IV, shall be fully protected in relying on any such Secured Debt Representative's determination and notice of the occurrence of an Event of Default. Trustor agrees to perform all such acts, and to execute all such further assignments, transfers and division orders, and other instruments as may be required pursuant to the Collateral Trust Agreement or any of the Secured Debt Documents in order to have said revenues and proceeds so paid to Beneficiary, as and when provided in this Article IV. With respect to any funds received by Beneficiary, Beneficiary is fully authorized to (but shall not be obligated to) receive and give receipt for any such revenues and proceeds that are received by Beneficiary; to endorse and cash any and all checks and drafts payable to the order of Trustor or Beneficiary for the account of Trustor received from or in connection with said revenues or proceeds and apply the proceeds thereof in accordance with Section 4.2 hereof, and to execute transfer and division orders in the name of Trustor, or otherwise, with warranties binding Trustor. The assignment of the Hydrocarbons and proceeds in this Section 4.1 is intended to be an absolute assignment from Trustor to Beneficiary and not merely the passing of a security interest. Such Hydrocarbons and proceeds are hereby assigned absolutely by Trustor to Beneficiary. 4.2 Application of Proceeds. All payments received by Beneficiary pursuant to Section 4.1 hereof shall be placed in a cash collateral account to be applied in accordance with the provisions of the Collateral Trust Agreement. 4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby absolved from all liability for failure to enforce collection of any proceeds so assigned (and no such failure shall be deemed to be a waiver of any right of Beneficiary under this Article 23 IV) and from all other responsibility in connection therewith, except the responsibility to account to Trustor for funds actually received. 4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein contained shall detract from or limit the absolute obligation of Trustor to make payment of the Indebtedness regardless of whether the proceeds assigned by this Article IV are sufficient to pay the same, and the rights under this Article IV shall be in addition to all other security now or hereafter existing to secure the payment of the Indebtedness. 4.5 Status of Assignment. Notwithstanding the other provisions of this Article IV and in addition to the other rights hereunder, Beneficiary or any receiver appointed in judicial proceedings for the enforcement of this Deed of Trust shall have the right to receive all of the Hydrocarbons herein assigned and the proceeds therefrom after the occurrence and during the continuance of any Event of Default and to apply all of said proceeds as provided in Section 4.2 hereof. Upon any sale of the Encumbered Property or any part thereof pursuant to Article V, the rents, issues, profits and Hydrocarbons thereafter produced from the property so sold, and the proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment contained in this Article IV. 4.6 Indemnification Obligation. The following provisions shall apply to, and be deemed in each case to modify, each of the provisions of this Deed of Trust (except those set forth in Section 3.10 hereof) and the other Secured Debt Documents (except to the extent otherwise expressly provided therein) wherein Trustor is obligated to indemnify each of the Indemnified Persons: (a) Trustor agrees to indemnify Beneficiary, the Secured Debtholders, Trustee and their respective employees, affiliates, agents and attorneys, under the Deed of Trust and any successors or substitute trustee under the Deed of Trust, against all legal and administrative proceedings for which a claim for indemnification may be made by the Indemnified Person (herein, collectively, called "Indemnification Claims") made against or incurred by them or any of them as a consequence of the assertion, either before or after the payment in full of the Indebtedness, that they or any of them received Hydrocarbons herein assigned or the proceeds thereof claimed by third persons and Beneficiary, Secured Debtholders, and Trustee shall have the right to defend against any such Indemnification Claims, employing attorneys therefor, and unless furnished with reasonable indemnity, they or any of them shall have the right to pay or compromise and adjust all such Indemnification Claims. Trustor will indemnify and pay to Beneficiary, Secured Debtholders and Trustee any and all such amounts as may be paid in respect thereof or as may be successfully adjudged against such persons. The obligations of Trustor as hereinabove set forth in this Section 4.6 shall survive the release termination, foreclosure or assignment of this Deed of Trust or any sale hereunder. (b) Trustor shall pay when due any judgments with respect to an Indemnification Claim against any of the Indemnified Persons and which are 24 rendered by a final order or decree of a court of competent jurisdiction from which no further appeal may be taken or has been taken within the applicable appeal period. In the event that such payment is not made, any of the Indemnified Persons at its sole discretion may pay any such judgments, in whole or in part, and look to Trustor for reimbursement pursuant to this Deed of Trust, or may proceed to file suit against Trustor to compel such payment. (c) Any amount which Trustor is obligated to pay to or for the benefit of an Indemnified Person with respect to an Indemnification Claim, but which is not paid when due, shall bear interest at the applicable rate set forth under the Secured Debt Documents from the date such amount is due until such amount is paid. ARTICLE V. ENFORCEMENT OF THE SECURITY 5.1 REMEDIES. Upon the occurrence of an Event of Default, the Beneficiary may: (a) Commence an action to foreclose this instrument as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof. (b) Exercise any or all of the remedies available to a secured party under the Uniform Commercial Code of the State of California, including, but not limited to: (i) Either personally or by means of a court appointed receiver, take possession of all or any of the personal property constituting a part of the Encumbered Property and exclude therefrom the Trustor and all others claiming under the Trustor, and thereafter hold, store, use, operate, manage, maintain and control, make repairs, replacements, alterations, additions and improvements to and exercise all rights and powers of the Trustor in respect of such personal property or any part thereof. In the event the Secured Debt Representative demands or attempts to take possession of such personal property in the exercise of any rights under the Secured Debt Documents or any document executed in connection therewith, the Trustor promises and agrees promptly to turn over and deliver complete possession thereof to the Secured Debt Representative; (ii) Without notice to or demand upon the Trustor, make such payments and do such acts as the Secured Debt Representative may deem necessary to protect its security interest in such personal property, including without limitation, paying, purchasing, contesting or compromising any encumbrance, charge or lien which is prior to or superior to the security interest granted hereunder, and in exercising any 25 such powers or authority to pay all expenses incurred in connection therewith; (iii) Require the Trustor to assemble such personal property or any portion thereof, at a place designated by the Secured Debt Representative and reasonably convenient to both parties, and promptly to deliver such personal property to the Secured Debt Representative, or an agent or representative designated by it. The Secured Debt Representative, and its agents and representatives shall have the right to enter upon any or all of the Trustor's premises and property to exercise the Secured Debt Representative's rights hereunder; (iv) Elect to treat the fixtures constituting a part of the Encumbered Property as either real property collateral or personal property collateral and then proceed to exercise such rights as apply to such type of collateral; and (v) Sell, lease or otherwise dispose of such personal property at public sale, with or without having such personal property at the place of sale, and upon such terms and in such manner as the Secured Debt Representative may determine, and the Secured Debt Representative may be a purchaser at any such sale. Unless such personal property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Secured Debt Representative shall give the Trustor at least ten (10) days prior written notice of the time and place of any public sale of such personal property or other intended disposition thereof. Such notice may be mailed to the Trustor at the address set forth on the signature page(s) of this instrument. (c) Deliver to the Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause the Trustor's interest in the Encumbered Property to be sold, which notice the Trustee or the Secured Debt Representative shall cause to be duly filed for record in the Official Records of the county or counties in which the Encumbered Property is located. (d) Any other remedy permitted to be exercised by the beneficiary of a deed of trust or a secured party or both under the laws of the State of California. 5.2 Foreclosure By Power of Sale. Should Beneficiary elect to foreclose by exercise of the power of sale herein contained, Beneficiary shall notify Trustee and shall deposit with Trustee this instrument and such receipts and evidence of expenditures made and secured hereby as Trustee may require. (a) Upon receipt of such notice from Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Default and Election to Sell as then required by law and by this instrument. Trustee shall, without demand on Trustor, after lapse of such time as may then be required by 26 law and after recordation of such Notice of Default and after Notice of Sale having been given as required by law, sell the Encumbered Property at the time and place of sale fixed by it in said Notice of Sale, either as a whole, or in separate lots or parcels or items as Trustee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale and Trustor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all costs, fees and expenses of Trustee and of this Trust, including costs of evidence of title in connection with sale, Trustee shall apply the proceeds of sale to payment of: all sums expended under the terms hereof, not then repaid, with accrued interest at the highest rate of interest from time-to-time accruing under and as provided in the Secured Debt Documents; all other sums then secured hereby and the remainder, if any, to the person or persons legally entitled thereto. (c) Trustee may postpone sale of all or any portion of the Encumbered Property by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement or subsequently noticed sale, and without further notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. 5.3 Appointment of Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of right and without notice to Trustor or anyone claiming under Trustor, and without regard to the then value of the Encumbered Property or the interest of Trustor therein, shall have the right to (but shall not be obligated to) apply to any court having jurisdiction to appoint a receiver or receivers of the Encumbered Property, and Trustor hereby irrevocably consents to such appointment and waives notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases and all the powers and duties of Beneficiary in case of entry as provided in Section 5.4 of this instrument and shall continue as such and exercise all such powers until the date of confirmation of sale of the Encumbered Property unless such receivership is sooner terminated. 5.4 Operation of the Encumbered Property by Beneficiary. If an Event of Default shall have occurred and be continuing, and in addition to all other rights herein conferred on Beneficiary, Beneficiary (or any person, firm or corporation designated by Beneficiary) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Encumbered Property, and to exclude Trustor, and 27 Trustor's agents or servants, wholly therefrom, and to hold, use, administer, manage and operate the same to the extent that Trustor shall be at the time entitled and in its place and stead. Beneficiary, or any person, firm or corporation designated by Beneficiary, may operate the same without any liability to Trustor in connection with such operations, except to use ordinary care in the operation of such properties, and Beneficiary or any person, firm or corporation designated by Beneficiary, shall have the right to (but shall not be obligated to) collect, receive and receipt for all rents, issues, profits and Hydrocarbons from said properties, to make repairs, purchase machinery and equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of Trustor with respect to the Encumbered Property. When and if the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) have been paid and the Indebtedness paid, said properties shall, if there has been no sale or foreclosure, be returned to Trustor. 5.5 Trustor's Waiver of Rights. Trustor waives the benefit of all laws now existing or that hereafter may be enacted providing for (i) any appraisement before sale of any portion of the Encumbered Property, and (ii) the benefit of all laws that may be hereafter enacted in any way extending the time for the enforcement of the collection of the Secured Debt or creating or extending a period of redemption from any sale made in collecting said debt. To the full extent Trustor may do so, Trustor agrees that Trustor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, and Trustor, for Trustor, Trustor's heirs, devisees, representatives, successors and assigns, and for any and all persons ever claiming any interest in the Encumbered Property, to the extent permitted by law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution, notice of election to mature or declare due the whole of the secured indebtedness and marshalling in the event of foreclosure of the liens hereby created. If any law referred to in this Section and now in force, of which Trustor, Trustor's heirs, devisees, representatives, successors and assigns or other person might take advantage despite this Section, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the application of this Section. Trustor expressly waives and relinquishes any and all rights and remedies which Trustor may have or be able to assert by reason of the laws of the State of California pertaining to the rights and remedies of sureties. 5.6 Remedies Not Exclusive. Trustee and Beneficiary, and each of them, shall be entitled to enforce payment and performance of any Indebtedness or obligations secured hereby and to exercise all rights and powers under this Deed of Trust or under the Collateral Trust Agreement or any other Secured Debt Document or any laws now or hereafter in force, notwithstanding some or all of the Indebtedness and obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this instrument nor its enforcement whether by court action or pursuant to the power of sale or other powers herein contained, shall prejudice or in any manner affect Trustee's or Beneficiary's right to realize upon or enforce any other security now or 28 hereafter held by Trustee or Beneficiary, it being agreed that Trustee and Beneficiary, and each of them, shall be entitled to enforce this instrument and any other security now or hereafter held by Beneficiary or Trustee in such order and manner as they or either of them may in their absolute discretion determine. No remedy herein conferred upon or reserved to Trustee or Beneficiary is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by the Collateral Trust Agreement or any other Secured Debt Document to Trustee or Beneficiary or to which either of them may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Trustee or Beneficiary and either of them may pursue inconsistent remedies. ARTICLE VI. MISCELLANEOUS PROVISIONS 6.1 Pooling and Unitization. Trustor shall have the right, and is hereby authorized, to pool or unitize all or any part of the lands described in Exhibit A, insofar as relates to the Encumbered Property, with adjacent lands, leaseholds and other interests, when, in the reasonable judgment of Trustor, it is necessary or advisable to do so in order to form a drilling and/or production unit to facilitate the orderly development of that part of the Encumbered Property affected thereby, or to comply with the requirements of any Applicable Law or governmental order or regulation relating to the spacing of wells or proration of the production therefrom; provided, however, that any unit so formed for the production of oil shall not substantially exceed 160 acres, and any unit so formed for the production of gas shall not substantially exceed 640 acres, unless a larger area is required to conform to an Applicable Law or governmental order or regulation relating to the spacing of wells or to obtain the maximum allowable production under any Applicable Law or governmental order or regulation relating to the proration of production therefrom; and further provided that the Hydrocarbons produced from any unit so formed shall be allocated among the separately owned tracts or interests comprising the unit in a uniform manner consistently applied; and further provided that all interests owned by Trustor in such unit shall be included within the Encumbered Property. Any unit so formed may relate to one or more zones or horizons, and a unit formed for a particular zone or horizon need not conform in area to any other unit relating to a different zone or horizon, and a unit formed for the production of oil need not conform in area with any unit formed for the production of gas. Promptly after formation of any such unit, Trustor shall furnish to Beneficiary and each Secured Debt Representative a true copy of the pooling agreement, declaration of pooling or other instrument creating such unit. The interest in any such unit attributable to the Encumbered Property (or any part thereof) included therein shall become a part of the Encumbered Property and shall be subject to the lien hereof in the same manner and with the same effect as though such unit and the interest of Trustor therein were specifically described in Exhibit A. Trustor is further authorized to amend, modify or terminate any pooling or unitization agreement or order to which Trustor is a party or the Encumbered Property is subject, provided that such action does not conflict with the 29 provisions of this Deed of Trust, including this Section 6.1. Trustor may enter into, or amend, modify or terminate, pooling or unitization agreements not hereinabove authorized only as permitted under the Secured Debt Documents. 6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for their gross negligence or willful misconduct. None of Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Encumbered Property for debts contracted or liability or damages incurred in the management or operation of the Encumbered Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Trustor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 6.3 Successor Trustee. Any Trustee may resign in writing addressed to Beneficiary or may be removed at any time with or without cause by an instrument in writing duly executed by Beneficiary. In case of the death, resignation or removal of a Trustee, one or more successor Trustee may be appointed by Beneficiary by instrument of substitution complying with any applicable requirements of Applicable Law, and in the absence of any such requirement without formality other than appointment and designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustee, all the estate and title of the prior Trustee in all of the Encumbered Property, and he or they shall thereupon succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All references herein to Trustee shall be deemed to refer to Trustee from time to time acting hereunder. 6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant herein contained shall be performed and kept by Trustor solely at Trustor's expense. If Trustor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Deed of Trust, Beneficiary, or Trustee or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Trustor's behalf; provided, however, that concurrently with the taking of such action or making such advances, Beneficiary, Trustee or any Secured Debt Representative shall deliver notice to Trustor. Trustor hereby agrees to repay the expense of such action and such advances upon demand plus interest at the Default Interest Rate. No such advance or action by Beneficiary, 30 Trustee or any receiver appointed hereunder shall be deemed to relieve Trustor from any default hereunder. 6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any election by Trustee or Beneficiary not to insist, upon strict performance by Trustor of any of the terms, provisions or conditions of the Collateral Trust Agreement or any Secured Debt Documents shall not be deemed to be a waiver of same or of any other term, provision or condition thereof, and Trustee and Beneficiary shall have the right at any time or times thereafter to insist upon strict performance by Trustor of any and all of such terms, provisions and conditions. 6.6 Defense of Claims. Trustor will notify Beneficiary and each Secured Debt Representative, in writing, promptly of the commencement of any legal proceedings affecting the lien or security interest hereof or the Encumbered Property, or any part thereof, and will take such action, employing attorneys as set forth in Section 3.4(j), as may be necessary or appropriate to preserve Trustor's, the Trustee's or Beneficiary's rights affected thereby and/or to hold harmless the Trustee and Beneficiary in respect of such proceedings; and should Trustor fail or refuse to take any such action, Beneficiary may, upon giving prior written notice thereof to Trustor, take such action in behalf and in the name of Trustor and at Trustor's expense. Moreover, Beneficiary may take such independent action in connection therewith as it may in its discretion deem proper, Trustor hereby agreeing that all sums advanced or all expenses incurred in such actions plus interest thereon at the Default Interest Rate, will, on demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed hereunder or under Applicable Law. The obligations of Trustor as hereinabove set forth in this Section 6.6 shall survive the release, termination, foreclosure or assignment of this Deed of Trust or any sale hereunder. 6.7 Trustee's Powers. At any time, or from time to time, without liability therefor and without notice, upon written request of Beneficiary and presentation of this instrument and the Secured Debt secured hereby for endorsement, and without affecting Trustor's personal liability or the effect of this instrument upon the remainder of the Encumbered Property, Trustee may (a) reconvey any part of the Encumbered Property, (b) consent in writing to the making of any map or plat thereof, (c) join in granting any easement thereon, or (d) join in any extension agreement or any agreement subordinating the lien or security interest hereof. 6.8 Beneficiary's Powers. Without affecting the liability of any other person liable for the payment of the Indebtedness herein mentioned, and without affecting perfection or priority of the lien or security interest of this instrument against or in any portion of the Encumbered Property not then or theretofore released as security for the full amount of all unpaid obligations, Beneficiary may, from time to time and without notice (a) release any person so liable, (b) extend the maturity or alter any of the terms of any such obligation, (c) grant other indulgences, (d) release or reconvey, or cause to be released or reconveyed at any time at Beneficiary's option, any parcel, portion or all of the Encumbered Property, (e) take or release any other or additional security for any 31 obligation herein mentioned, or (f) make compositions or other arrangements with debtors in relation thereto. 6.9 Reconveyance by Trustee. Upon written request of Beneficiary stating that all sums secured hereby have been paid, and upon surrender of this instrument and the Secured Debt to Trustee for cancellation and retention and upon payment by Trustor of Trustee's fees, Trustee shall reconvey to Trustor, or the person or persons legally entitled thereto, without representation or warranty, any portion of the Encumbered Property then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in any reconveyance may be described as "the person or persons legally entitled thereto". 6.10 Effect of Partial Release or Reconveyance. If there is a partial release or reconveyance by Trustee of any portion of the Encumbered Property, Trustee and Beneficiary may look to the remainder of the Encumbered Property as security for the full payment of the Secured Debt and all other Indebtedness secured by this instrument. 6.11 Subrogation. To the extent that proceeds of the Indebtedness are owed to pay any outstanding lien, charge or prior encumbrance against the Encumbered Property, such proceeds may be advanced by Beneficiary at Trustor's request and Beneficiary may be subrogated to any and all rights and liens owed by any owner or holder of such outstanding liens, charges and prior encumbrances, irrespective of whether said liens, charges or encumbrances are released. 6.12 No Merger. If both the lessor's and lessee's estates under any lease or any portion thereof which constitutes a part of the Encumbered Property shall at any time become vested in one owner, this instrument and the lien and security interest created hereby shall not be destroyed or terminated by application of the doctrine of merger and, in such event, Beneficiary shall continue to have and enjoy all of the rights and privileges of Beneficiary as to the separate estates. In addition, upon the foreclosure of the lien and security interest created by this instrument on the Encumbered Property pursuant to the provisions hereof, any leases or subleases then existing and created by Trustor shall not be destroyed or terminated by application of the law of merger or as a matter of law or as a result of such foreclosure unless Beneficiary or any purchaser at any such foreclosure sale shall so elect. No act by or on behalf of Beneficiary or any such purchaser shall constitute a termination of any lease or sublease unless Beneficiary or such purchaser shall give written notice thereof to such tenant or subtenant. 6.13 The Encumbered Property to Revert; Release. If the Indebtedness shall be fully paid and the covenants herein contained shall be well and truly performed, then all of the Encumbered Property shall revert to Trustor and the entire estate, right, title and interest of Trustee and Beneficiary shall thereupon cease; and Trustee and Beneficiary in such case shall, upon the request of Trustor and at Trustor's cost and expense, deliver to Trustor proper instruments acknowledging satisfaction of this Deed of Trust and the release or reconveyance of the lien hereof in accordance with Applicable Law. Notwithstanding any provision herein to the contrary, the Encumbered 32 Property, or any part thereof, shall, upon the written request of Trustor, be released from the lien of this Deed of Trust in accordance with the provisions of the Collateral Trust Agreement, when such a release is permitted by the Collateral Trust Agreement and the other Secured Debt Documents. 6.14 Renewals, Amendments and Other Security. Renewals and extensions of the Indebtedness and modifications of any kind of the Obligations may be given at any time and amendments may be made to agreements with third parties relating to any part of such Indebtedness or the Encumbered Property and Trustee and Beneficiary may take or may now hold other security from others for the Indebtedness, all without notice to or consent of Trustor. Beneficiary may resort first to such other security or any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this Deed of Trust, which shall continue as a first lien upon and prior perfected security interest in the Encumbered Property not expressly released until the Secured Debt and all other Indebtedness secured hereby are fully paid. 6.15 Deed of Trust, Assignment, etc. This Deed of Trust shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, or security agreement, and from time to time as any one or more thereof. 6.16 Limitation on Interest. It is the intent of Trustor and Secured Debtholders in the execution of this instrument and the Secured Debt Documents to contract in strict compliance with the usury laws of the State of California and any other jurisdiction whose laws may govern the Secured Debt. In furtherance thereof, it is agreed that none of the terms and provisions contained in the Collateral Trust Agreement or any other Secured Debt Document shall ever be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate in excess of the Maximum Lawful Rate. Trustor or any guarantor, endorser or other party now or hereafter becoming liable for the payment of the Secured Debt shall never be liable for unearned interest on the Secured Debt and shall never be required to pay interest on the Secured Debt at a rate in excess of the Maximum Lawful Rate, and the provisions of this Section shall control over all other provisions of the Secured Debt and any other instrument executed in connection herewith which may be in apparent conflict herewith. In the event any Secured Debtholder shall collect monies which are deemed to constitute interest which would otherwise increase the effective interest rate on the Secured Debt to a rate in excess of Maximum Lawful Rate, all such sums deemed to constitute interest in excess of the legal rate shall be immediately returned to Trustor upon such determination. 6.17 Unenforceable Provisions. If any provision hereof or of the Secured Debt Documents is invalid or unenforceable in the State of California or otherwise, the other provisions hereof or of the Secured Debt Documents shall remain in full force and effect, and the remaining provisions hereof shall be liberally construed in favor of Trustee and Beneficiary in order to effectuate the provisions hereof. 33 6.18 Waiver by Trustee and Beneficiary. Any and all covenants in this Deed of Trust may from time to time by instrument in writing signed by Trustee and Beneficiary be waived to such extent and in such manner as Trustee and Beneficiary may desire, but no such waiver shall ever affect or impair either Trustee's or Beneficiary's rights or liens or security interests hereunder, except to the extent specifically stated in such written instrument. 6.19 Successors and Assigns. This Deed of Trust is binding upon Trustor, Trustor's successors and assigns, and shall inure to the benefit of Beneficiary, its successors and assigns, and the provisions hereof shall likewise be covenants running with the land. 6.20 Article and Section Headings. The article and section headings in this Deed of Trust are inserted for convenience of reference and shall not be considered a part of this Deed of Trust or used in its interpretation. 6.21 Execution in Counterparts. This Deed of Trust may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original and all of which are identical, except that, to facilitate recordation or filing, in any particular counterpart portions of Exhibit A hereto which describe properties situated in counties other than the county in which such counterpart is to be recorded or filed may have been omitted. 6.22 Special Filing as Financing Statement. This Deed of Trust shall likewise be a security agreement and a financing statement. This Deed of Trust shall be filed for record, among other places, in the real estate records of each county in which any part of the real property covered by the oil and gas leases described in Exhibit A hereto is situated, and, when filed in such counties shall be effective as a financing statement covering fixtures located on oil and gas properties, which oil and gas properties (and accounts arising therefrom) are to be financed at the wellheads of the wells located on the real property described in Exhibit A, hereto. A portion of the goods encumbered hereby are, or are to become, fixtures as that term is defined in Section 9313 of the Uniform Commercial Code of the State of California. A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement covering the Encumbered Property or any portion thereof shall be sufficient as a financing statement and may be filed as such. Trustor agrees that any Secured Debt Representative may, in such manner, on such terms and at such times as may be elected by such Secured Debt Representative, and without demand or notice to, or the consent or signature of, Trustor, file and/or record such UCC financing statements, fixture filings, and/or amendments to or continuations of any financing statements or fixture filings to evidence, perfect and/or continue the perfection of, any security interests created or to be created pursuant to this Deed of Trust or any of the other Secured Debt Documents. 6.23 Notices. Except as otherwise required by Section 5.1 hereof, any notice, request or demand which may be required or permitted to be given or served upon Trustor shall be sufficiently given when given or made pursuant to (a) the terms of the 34 Collateral Trust Agreement, or (b) such other means and manner of giving of notice as may be required by Applicable Law. 6.24 Request for Notice. Trustor hereby requests a copy of any notice of default and that any notice of sale hereunder be mailed to it at the address set forth on the signature page(s) of this instrument. 6.25 Acceptance by the Trustee. The Trustee accepts this trust when this instrument, duly executed and acknowledged, is made a public record as provided by law. 6.26 Release and Waiver. Trustor hereby waives and releases any and all rights of contribution, reimbursement or indemnity it has or may hereafter have against Trustee and/or Beneficiary arising from or relating to this instrument and/or the Encumbered Property, including without limitation claims or liabilities relating to Environmental Laws. Notwithstanding anything to the contrary set forth in this instrument or any other Secured Debt Document, the obligations and liabilities of Trustor under and pursuant to the Hazardous Materials Undertaking and Unsecured Indemnity are not secured by this instrument. 6.27 No Partnership. Nothing contained in this instrument is intended to, or shall be construed as, creating to any extent and in any manner whatsoever, any partnership, mining partnership, joint venture, or association among Trustor, Trustee and Beneficiary, or in any way as to make Beneficiary or Trustee co-principals with Trustor with reference to the Encumbered Property, and any inferences to the contrary are hereby expressly negated. 6.28 Beneficiary as Agent for the Secured Debtholders. As described above, certain Affiliates of Credit Agreement Agent and the Secured Debtholders are or may become parties to certain Hedging Agreements with Trustor and/or Affiliates of Trustor. This Deed of Trust secures the obligations of Trustor and such Affiliates, as the case may be, under such Hedging Agreements, and the parties acknowledge for all purposes that Beneficiary acts for itself and as agent on behalf of such Affiliates of Credit Agreement Agent and the Secured Debtholders which are so entitled to share in the rights and benefits accruing to Beneficiary under this Deed of Trust in respect of the Encumbered Property. 35 IN WITNESS WHEREOF, Trustor has executed or caused to be executed this Amended and Restated Deed of Trust with Power of Sale, Assignment of Production, Security Agreement, Financing Statement and Fixture Filing in the presence of the undersigned Notary Public on this 14th day of July, 2003. TRUSTOR AND DEBTOR CALPINE CORPORATION, a Delaware corporation By: ____________________________________ Title: Executive Vice President Printed Name: B.A. Berilgen CALIFORNIA ACKNOWLEDGMENT STATE OF TEXAS ) COUNTY OF HARRIS ) On July 14, 2003, before me, Suzanne B. Snow, a Notary Public in and for said County and State, personally appeared B.A. Berilgen, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and office seal. (SEAL) Signature: ______________________________ Suzanne B. Snow, Notary Public I-1 Schedule I Existing Mortgage Deed of Trust with Power of Sale, Assignment of Production, Security Agreement, Financing Statement and Fixture Filing (California) from Calpine Corporation, a Delaware corporation, Trustor to Chicago Title Insurance Company, Trustee and The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Colusa County, CA 02-2145 5/17/2002 Contra Costa County, CA 2002-0170008-00 5/13/2002 Fresno County, CA 2002-0085593 5/23/2002 Kern County, CA 0202084536 5/24/2002 Kings County, CA 0210874 5/20/2002 Sacramento County, CA Book 20020507, Page 5/7/2002 0611 Solano County, CA 2002-00058871 5/9/2002 Sutter County, CA 2002-0009817 5/17/2002 Tulare County, CA 2002-0045392 6/14/2002 Yolo County, CA 2002-0019210-00 5/7/2002

UCC-1 Financing Statement regarding California Deed of Trust, naming Calpine Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party, filed as follows:

JURISDICTION FILE NO. FILE DATE ------------ -------- --------- Colusa County, CA 02-2146 5/17/2002 Contra Costa County, CA 2002-0170009-00 5/13/2002 Fresno County, CA 2002-0085594 5/23/2002 Kern County, CA 0202084537 5/24/2002 Kings County, CA 0210875 5/20/2002 Sacramento County, CA Book 20020507, Page 5/7/2002 0614 Solano County, CA 2002-00058870 5/9/2002 Sutter County, CA 2002-0009818 5/17/2002 Tulare County, CA 2002-0045393 6/14/2002 Yolo County, CA 2002-0019211-00 5/7/2002

I-2 Schedule II Supplements and Amendments N/A II-1 Schedule III Partial Releases Substitution of Trustee and Partial Reconveyance by The Bank of Nova Scotia, as Agent, in favor of Calpine Corporation (California-Deed of Trust) filed as follows:

JURISDICTION ORIGINAL ORIGINAL PARTIAL PARTIAL ------------ FILE NO. FILE DATE RELEASE FILE RELEASE FILE -------- --------- NO. DATE --- ---- Solano County, 2002- 5/9/02 2002-00127329 10/7/02 CA (Church 1-11) 00058871

UCC-3 Financing Statement Amendment relating to the Partial Release-California Deed of Trust naming Calpine Corporation as Debtor and The Bank of Nova Scotia, as Agent, as Secured Party, filed as follows:

JURISDICTION ORIGINAL ORIGINAL PARTIAL PARTIAL ------------ FILE NO. FILE DATE RELEASE FILE RELEASE FILE -------- --------- NO. DATE --- ---- Solano County, 2002- 5/9/02 2002-00132521 10/17/02 CA (Church 1-11) 00058870

III-1 EXHIBIT A To Amended and Restated Deed of Trust with Power of Sale, Assignment of Production, Security Agreement, Financing Statement and Fixture Filing, dated July 16, 2003, from Calpine Corporation, As Trustor, to Chicago Title Insurance Company, As Trustee and The Bank of New York, As Beneficiary List of Properties 1. Depth limitations, unit designations, unit tract descriptions and descriptions (including percentages, decimals or fractions) of undivided leasehold interests, well names, "Operating Interests", "Working Interests" and "Net Revenue Interests" contained in this Exhibit A and the listing of any percentage, decimal or fractional interest in this Exhibit A shall not be deemed to limit or otherwise diminish the interests being subjected to the lien, security interest and encumbrance of this instrument. 2. Some of the land descriptions in this Exhibit A may refer only to a portion of the land covered by a particular lease. This instrument is not limited to the land described in Exhibit A but is intended to cover the entire interest of Trustor in any lease described in Exhibit A even if such interest relates to land not described in Exhibit A. Reference is made to the land descriptions contained in the documents of title recorded as described in this Exhibit A. To the extent that the land descriptions in this Exhibit A are incomplete, incorrect or not legally sufficient, the land descriptions contained in the documents so recorded are incorporated herein by this reference. 3. References in Exhibit A to instruments on file in the public records are made for all purposes. Unless provided otherwise, all recording references in Exhibit A are to the official real property records of the county or counties in which the encumbered property is located and in which records such documents are or in the past have been customarily recorded, whether Deed Records, Oil and Gas Records, Oil and Gas Lease Records, Official Records or other records. 4. A statement herein that a certain interest described herein is subject to the terms of certain described or referred to agreements, instruments or other matters shall not operate to subject such interest to any such agreement, instrument or other matter except to the extent that such agreement, instrument or matter is otherwise valid and presently subsisting nor shall such statement be deemed to constitute a recognition by the parties hereto that any such agreement, instrument or other matter is valid and presently subsisting. [Do not detach this page] III-2 EX-10.32 24 f92357exv10w32.txt EXHIBIT 10.32 EXHIBIT 10.32 ____________________SPACE ABOVE THIS LINE FOR RECORDER'S USE____________________ STATE OF _________________ AFTER RECORDING RETURN TO: ANE C. PRIESTER COUNTY OF ________________ LATHAM & WATKINS LLP 633 W. 5TH STREET, SUITE 4000 LOS ANGELES, CA 90071 - -------------------------------------------------------------------------------- DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT DATED AS OF JULY 16, 2003 BY CALPINE CORPORATION, A DELAWARE CORPORATION, AS GRANTOR TO THE BANK OF NEW YORK, A NEW YORK BANKING CORPORATION, AS GRANTEE - -------------------------------------------------------------------------------- PURSUANT TO O.C.G.A. SECTION 48-6-61, GEORGIA INTANGIBLE RECORDING TAX IN THE MAXIMUM AMOUNT OF $25,000 IS BEING PAID WITH RESPECT TO THE SECURED OBLIGATIONS UPON THE RECORDATION OF THIS SECURITY DEED. TABLE OF CONTENTS

Page ---- ARTICLE 1 - DEFINITIONS .......................................................................... 5 1.1 DEFINED TERMS ........................................................................... 5 1.2 ACCOUNTING TERMS ........................................................................ 7 ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS ..................................................... 7 2.1 GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS ........................................... 7 2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES ....................................... 7 2.3 COMPLIANCE WITH LEGAL REQUIREMENTS ...................................................... 7 2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS .... 7 2.5 ASSIGNMENT OF RENTS ..................................................................... 8 2.6 REJECTION OF GROUND LEASE BY LESSOR ..................................................... 9 2.7 EXPENSES ................................................................................ 9 2.8 GRANTEE ASSUMES NO OBLIGATIONS .......................................................... 9 2.9 FURTHER ASSURANCES ...................................................................... 10 2.10 ACTS OF GRANTOR ......................................................................... 10 2.11 AFTER-ACQUIRED PROPERTY ................................................................. 10 2.12 MORTGAGED PROPERTY ...................................................................... 11 2.13 POWER OF ATTORNEY ....................................................................... 13 2.14 COVENANT TO PAY ......................................................................... 13 2.15 SECURITY AGREEMENT ...................................................................... 14 ARTICLE 3 - REMEDIES ............................................................................. 15 3.1 PROTECTIVE ADVANCES ..................................................................... 15 3.2 INSTITUTION OF EQUITY PROCEEDINGS ....................................................... 15 3.3 GRANTEE'S POWER OF ENFORCEMENT .......................................................... 15 3.4 GRANTEE'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME .................. 17 3.5 SEPARATE SALES .......................................................................... 18 3.6 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ...... 18 3.7 RECEIVER ................................................................................ 18 3.8 SUITS TO PROTECT THE MORTGAGED PROPERTY ................................................. 19 3.9 PROOFS OF CLAIM ......................................................................... 19 3.10 GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY GRANTEE ....................................................................... 19 3.11 DELAY OR OMISSION; NO WAIVER ............................................................ 20 3.12 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER .............................................. 20 3.13 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED ............................. 20 3.14 REMEDIES CUMULATIVE ..................................................................... 21 3.15 INTEREST AFTER EVENT OF DEFAULT ......................................................... 21 3.16 FORECLOSURE; EXPENSES OF LITIGATION ..................................................... 21 3.17 DEFICIENCY JUDGMENTS .................................................................... 21 3.18 WAIVER OF JURY TRIAL .................................................................... 22 3.19 EXCULPATION OF GRANTEE .................................................................. 22 ARTICLE 4 - GENERAL .............................................................................. 22 4.1 DISCHARGE ............................................................................... 22 4.2 NO WAIVER ............................................................................... 22 4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ...................................... 22 4.4 FORCIBLE DETAINER ....................................................................... 23

i 4.5 WAIVER OF STAY OR EXTENSION ............................................................. 24 4.6 NOTICES ................................................................................. 23 4.7 SEVERABILITY ............................................................................ 23 4.8 APPLICATION OF PAYMENTS ................................................................. 23 4.9 GOVERNING LAW ........................................................................... 24 4.10 AMENDMENTS .............................................................................. 24 4.11 SUCCESSORS AND ASSIGNS .................................................................. 24 4.12 RENEWAL, ETC ............................................................................ 24 4.13 FUTURE ADVANCES ......................................................................... 24 4.14 LIABILITY ............................................................................... 25 4.15 SEVERABILITY AND COMPLIANCE WITH USURY LAW .............................................. 25 4.16 RELEASE OF COLLATERAL ................................................................... 26 4.17 TIME OF THE ESSENCE ..................................................................... 26 4.18 COUNTERPART EXECUTION ................................................................... 26 4.19 WAIVER OF GRANTOR'S RIGHTS .............................................................. 26 4.20 ATTORNEYS' FEES ......................................................................... 27 ii AUGUSTA, GA DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT This DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (this "Security Deed"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation ("Grantor"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among Grantor, Grantee, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("Grantee"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Security Deed" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. Recitals A. Grantor has entered into an Amended and Restated Credit Agreement dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Grantor, the Lenders referred to therein and The Bank of Nova Scotia as Administrative Agent, relating to a $500,000,000 senior secured credit facility made available in the form of revolving loans and term loans, including letters of credit issued thereunder. B. Grantor also intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 Notes"), with a maturity date of July 15, 2007, pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 Notes"), with a maturity date of July 15, 2010, pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes"), with a maturity date of July 15, 2013, pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans"), with a maturity date of July 15, 2007, pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between Grantor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"). C. As permitted pursuant to the Secured Debt Documents, Grantor may incur future debt which could, together with the obligations under the Credit Agreement, constitute Priority Lien Debt and Grantor may incur future debt which could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Grantor intends to secure the obligations, including the obligations (a) under the Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, as contemplated in the Collateral Trust Agreement. D. Grantor (i) is the owner of the interests in the lands described in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to use all of the buildings, improvements, structures and fixtures located on the lands described in Exhibit A and is executing and delivering this instrument in order to secure its Obligations (as defined below). Agreement NOW, THEREFORE, to secure the prompt and complete payment and performance when and as required, due and/or payable of all of the obligations and liabilities of Grantor, by acceleration or otherwise, arising out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010 Indenture, the 2013 Indenture, the Term Loan Agreement and other Secured Debt Documents, and the obligations of Grantor set forth herein (collectively, the "Obligations") and in consideration of the covenants herein and therein, Grantor, intending to be legally bound, does hereby grant, bargain, sell, convey, warrant, assign, transfer, pledge, set-over and confirm unto Grantee as set forth in this Security Deed, for the use and benefit of Grantee, all of Grantor's estate, right, title, interest, property, claim and demand, now or hereinafter arising, in and to the following property and rights (herein collectively called the "Mortgaged Property"): (a) Grantor's interest under the Ground Lease executed as of February 22, 2001, between DSM Chemicals North America, Inc. and Grantor, as amended by that First Amendment to Land Lease Agreement dated October 16, 2001 (as modified, supplemented or amended from time to time, the "Ground Lease"), and the leasehold estate created thereby in and to the lands and premises more particularly described in Exhibit A hereto (the "Site"); (b) any and all easements, leases, licenses, option rights, rights-of-way and other rights used in connection with the Site or as a means of access thereto (including, without limitation, all rights of Grantor to exercise any election or option, to make any determination or to give any notice, consent, waiver or approval, or to take any other action under the Ground Lease), all easements for ingress and egress and easements for water, natural gas and sewage pipelines, running in favor of Grantor, or appurtenant to the Site or arising out of the Ground Lease, and any and all sidewalks, alleys, strips and gores of land adjacent thereto or used in connection therewith together with all and singular the tenements, 2 hereditaments and appurtenances thereto, and with any land lying within the right-of-way of any streets, open or proposed, adjoining the same (including, without limitation, the easements, leases, licenses and other instruments described in Exhibit B hereto) (collectively, the "Easements"; and the Site and the Easements collectively referred to herein as the "Real Property"); (c) all buildings, structures, fixtures and other improvements now or hereafter erected on the Real Property, including the Project (collectively, the "Improvements"); (d) all machinery, apparatus, equipment, fittings, fixtures, boilers, turbines and other articles of personal property, including all goods and all goods which become fixtures, now owned or hereafter acquired by Grantor and now or hereafter located on, attached to or used in the operation of or in connection with the Real Property and/or the Improvements, and all replacements thereof, additions thereto and substitutions therefor, to the fullest extent permitted by applicable law (all of the foregoing being hereinafter collectively called the "Equipment"); (e) all raw materials, work in process and other materials used or consumed in the construction of, or now or hereafter located on or used in connection with, the Real Property, the Improvements and/or the Equipment, (including, without limitation, fuel and fuel deposits, now or hereafter located on the Real Property or elsewhere or otherwise owned by Grantor) (the above items, together with the Equipment, being hereinafter collectively called the "Tangible Collateral"); (f) all rights, powers, privileges and other benefits of Grantor (to the extent assignable) now or hereafter obtained by Grantor under the Ground Lease and/or from any Governmental Authority, including, without limitation, permits issued in the name of Grantor, governmental actions relating to the ownership, operation, management and use of the Real Property, Improvements, Equipment or Tangible Collateral, the development and financing of the Project, the Improvements and the Equipment, and any improvements, modifications or additions thereto; (g) any right of Grantor to elect to terminate the Ground Lease or remain in possession of the Real Property pursuant to 11 U.S.C. section 365(h)(1) or any similar provision of applicable law and any possessory rights of Grantor in the Real Property pursuant to 11 U.S.C. section 365(h)(2) or any other similar provision of applicable law; (h) all the lands and interests in lands, tenements and hereditaments hereafter acquired by Grantor in connection with or appurtenant to the Real Property and/or any other property or rights subject to the lien hereof, including (without limitation) all interests of Grantor, whether as lessor or lessee, in any leases of land hereafter made and all rights of Grantor thereunder; (i) any and all other property in any way associated or used in connection with or appurtenant to the Real Property, Improvements, Equipment or Tangible Collateral that 3 may from time to time, by delivery or by writing of any kind, be subjected to the lien hereof by Grantor or by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Grantee pursuant to this Security Deed, being hereby collaterally assigned to Grantee and subjected or added to the lien or estate created by this Security Deed forthwith upon the acquisition thereof by Grantor, as fully as if such property were now owned by Grantor and were specifically described in this Security Deed and subjected to the lien and security interest hereof; and Grantee is hereby authorized to receive any and all such property as and for additional security hereunder; and (j) all the remainder or remainders, reversion or reversions, rents, revenues, issues, profits, royalties, income and other benefits derived from any of the foregoing, all of which are hereby assigned to Grantee, who is hereby authorized to collect and receive the same, to give proper receipts and acquittances therefor and to apply the same in accordance with the provisions of this Security Deed. Notwithstanding any provision herein to the contrary, the Mortgaged Property or any part thereof may be released from conveyance created by this Security Deed in accordance with the provisions in the Collateral Trust Agreement. TO HAVE AND TO HOLD the said Mortgaged Property, whether now owned or held or hereafter acquired, unto Grantee, its successors and assigns, pursuant to the provisions of this Security Deed. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security title, security interest or estate created by this Security Deed to secure the payment of the Obligations, both present and future, shall be first, prior and superior to any Lien, security interest, reservation of title or other interest (other than superior Permitted Liens) heretofore, contemporaneously or subsequently suffered or granted by Grantor, its legal representatives, successors or assigns, except only those, if any, expressly hereinafter referred to and that the Mortgaged Property is to be held, dealt with and disposed of by Grantee, upon and subject to the terms, covenants, conditions, uses and agreements set forth in this Security Deed. PROVIDED ALWAYS, that upon payment in full of the Obligations in accordance with the terms and provisions hereof and of the other Secured Debt Documents and the observance and performance by Grantor of its covenants and agreements set forth herein and therein, then this Security Deed and the estate hereby and therein granted shall be cancelled and surrendered and shall be reconveyed as provided herein below. THIS CONVEYANCE is intended to operate and is to be construed as a deed passing title to the Mortgaged Property to Grantee and is made under those provisions of the existing laws of the State of Georgia relating to deeds to secure debt, and not as a mortgage, and is given to secure the Obligations. 4 ARTICLE 1 - DEFINITIONS 1.1 Defined Terms. 11 Capitalized terms used in this Security Deed and not otherwise defined herein shall have the meanings assigned to them in the Collateral Trust Agreement. Any term defined by reference to an agreement, instrument or other document shall have the meaning so assigned to it whether or not such document is in effect. In addition, for purposes of this Security Deed, the following definitions shall apply: "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. "Default Rate" has the meaning ascribed to it in the Secured Debt Documents. "Easements" has the meaning ascribed to it in the Granting Clauses. "Equipment" has the meaning ascribed to it in the Granting Clauses. "Event of Default" means an Actionable Default as defined under the Collateral Trust Agreement. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. "Ground Lease" has the meaning ascribed to it in the Granting Clauses. "Improvements" has the meaning ascribed to it in the Granting Clauses. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Grantor, or the Mortgaged Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Grantor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Grantor, or the Mortgaged Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Mortgaged Property. "Mortgaged Property" has the meaning ascribed to it in the Granting Clauses. 5 "Obligations" has the meaning ascribed to it in the Granting Clauses. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. "Permitted Lien" means the liens, easements, building lines, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters (if any) as permitted in the Secured Debt Documents. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Proceeds" has the meaning assigned to it under the UCC and, in any event, shall include, without limitation, (i) any and all proceeds of any insurance (including, without limitation, property casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Mortgaged Property; (ii) any and all proceeds in the form of accounts (as such term is defined in the UCC), security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, letters of credit, chattel paper, liens and security instruments, guaranties or general intangibles relating in whole or in part to the Mortgaged Property and all rights and remedies of whatever kind or nature Grantor may hold or acquire for the purpose of securing or enforcing any obligation due Grantor thereunder. "Project" means that certain 500 MW (approximately) power generating facility located on the Real Property. "Real Property" has the meaning ascribed to it in the Granting Clauses. "Secured Debt Documents" has the meaning ascribed it in the Collateral Trust Agreement. "Site" has the meaning ascribed to it in the Granting Clauses. "State" means that state in which the Site is located. "Tangible Collateral" has the meaning ascribed to it in the Granting Clauses. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of Georgia, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General 6 Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. 1.2 Accounting Terms. As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined herein shall have the respective meanings given to them under GAAP. ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS 2.1 Grantor Performance of Secured Debt Documents. Grantor shall perform, observe and comply with each and every provision hereof, and with each and every provision contained in the Secured Debt Documents and shall promptly pay, when payment shall become due, the principal with interest thereon and all other sums required to be paid by Grantor under this Security Deed and the other Secured Debt Documents at the time and in the manner provided in the Secured Debt Documents. 2.2 General Representations, Covenants and Warranties. Grantor, to the best of its knowledge, represents, covenants and warrants that as of the date hereof: (a) Grantor has good and marketable title to that portion of the Real Property which constitutes real property interests including the Ground Lease and the leasehold estate created thereby, free and clear of all encumbrances except Permitted Liens with respect to the Site, the Ground Lease and other matters which, individually and in the aggregate, do not have a materially adverse effect upon the ownership or operation of the Site; (b) Grantor has the right to hold, occupy and enjoy its interest in the Real Property on and subject to the terms and conditions of the Ground Lease, and has good right, full power and lawful authority to grant the same as provided herein, and Grantee may at all times peaceably and quietly enter upon, hold, occupy and enjoy the Real Property in accordance with the terms hereof; (c) except as otherwise disclosed in the Secured Debt Documents, all costs arising from construction of any improvements, the performance of any labor and the purchase of all Mortgaged Property have been or shall be paid when due; (d) the Site has access for ingress and egress to dedicated street(s); and (e) no material part of the Mortgaged Property has been damaged, destroyed, condemned or abandoned. 2.3 Compliance with Legal Requirements. Grantor shall promptly comply in all material respects with all Legal Requirements relating to its use and occupancy of the Mortgaged Property, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Mortgaged Property. 2.4 Insurance; Application of Insurance Proceeds; Application of Eminent Domain Proceeds. 2.4.1 Grantor shall carry, with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Grantor might incur personal liability for the death of or injury to an employee or third person, or damage 7 to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Mortgaged Property, is located, insurance in respect of the Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of revenues) with limits and sublimits as appropriate; provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Grantee as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Grantee as its interest may appear, which proceeds are hereby assigned to Grantee, it being agreed by Grantor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Mortgaged Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Grantee shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Grantor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, materially endorsed, materially altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer, their authorized representative or Grantor shall have first given Grantee and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Grantee may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Grantee shall be furnished with a certificate evidencing such coverage in form and content as are customary in the industry. All policies to be maintained under this Mortgage are to be issued on forms and by companies and with endorsements as are customary in the industry. Grantor shall maintain insurance in an amount sufficient to prevent Grantor from becoming a co-insurer under any policy required hereunder. If Grantor fails to maintain the level of insurance required under this Mortgage, then Grantor shall and hereby agrees to indemnify Grantee to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; 2.4.2 All insurance proceeds and all eminent domain proceeds shall be paid and/or shall be applied in accordance with the provisions of the Secured Debt Documents. 2.5 Assignment of Rents. Grantor unconditionally and absolutely assigns to Grantee all of Grantor's right, title and interest in and to: all leases, subleases, occupancy agreements, licenses, rental contracts and other similar agreements now or hereafter existing relating to the use or occupancy of the Mortgaged Property, together with all guarantees, modifications, extensions and renewals thereof; and all rents, issues, profits, income and proceeds due or to become due from tenants of the Mortgaged Property (the "Leases"), including rentals and all other payments of any kind under any leases now existing or hereafter entered into, together with all deposits (including security deposits) of tenants thereunder. This is an absolute assignment to Grantee and not an assignment as security for the performance of the obligations under the Secured Debt Documents, or any other indebtedness. Subject to the provisions of herein below, Grantee shall have the right, 8 power and authority to, but shall not be obligated to: notify any person that the Leases have been assigned to Grantee and that all rents and other obligations are to be paid directly to Grantee, whether or not Grantee has commenced or completed foreclosure or taken possession of the Mortgaged Property; settle compromise, release, extend the time of payment of, and make allowances, adjustments and discounts of any rents or other obligations under the Leases; enforce payment of rents and other rights under the Leases, prosecute any action or proceeding , and defend against any claim with respect to rents and Leases; enter upon, take possession of and operate the Mortgaged Property; lease all or any part of the Mortgaged Property; and/or perform any and all obligations of Grantor under the Leases and exercise any and all rights of Grantor therein contained to the full extent of Grantor's rights and obligations thereunder, with or without the bringing of any action or the appointment of a receiver. At Grantee's request, Grantor shall deliver a copy of this Security Deed to each tenant under a Lease. Grantor irrevocably directs any tenant, without any requirement for notice to or consent by Grantor, to comply with all demands of Grantee under this Section 2.5 and to turn over to Grantee on demand all rents which it receives. Grantee shall have the right, but not the obligation, to use and apply all rents received hereunder in such order and such manner as Grantee may determine in accordance with the Collateral Trust Agreement. Notwithstanding that this is an absolute assignment of the rents and Leases and not merely the collateral assignment of, or the grant of a lien or security interest in the rents and Leases, Grantee grants to Grantor a revocable license to collect and receive the rents and to retain, use and enjoy such rents. Such license may be revoked by Grantee only upon the occurrence of any Event of Default. Grantor shall apply any rents which it receives to the payment due under the Obligations, taxes, assessments, water charges, sewer rents and other governmental charges levied, assessed or imposed against the Mortgaged Property, insurance premiums, and other obligations of lessor under the Leases before using such proceeds for any other purpose. 2.6 Rejection of Ground Lease by Lessor. To the extent applicable, if the lessor under the Ground Lease rejects or disaffirms the Ground Lease or purports or seeks to disaffirm the Ground Lease pursuant to any bankruptcy law, then: 2.6.1 To the extent permitted by law, Grantor shall remain in possession of the Real Property demised under the Ground Lease and shall perform all acts reasonably necessary for Grantor to remain in such possession for the unexpired term of such Ground Lease (including all renewals), whether the then existing terms and provisions of such Ground Lease require such acts or otherwise; and 2.6.2 All the terms and provisions of this Security Deed and the lien created by this Security Deed shall remain in full force and effect and shall extend automatically to all of Grantor's rights and remedies arising at any time under, or pursuant to, any bankruptcy or insolvency laws, including all of Grantor's rights to remain in possession of the Real Property. 2.7 Expenses. Grantor shall indemnify Grantee with respect to any transaction or matter in any way connected with any portion of the Mortgaged Property, or Grantor's use, occupancy, or operation of the Mortgaged Property in accordance with the Collateral Trust Agreement. 2.8 Grantee Assumes No Obligations. It is expressly agreed that, anything herein contained to the contrary notwithstanding, Grantor shall remain obligated under all agreements 9 which are included in the definition of "Mortgaged Property" and shall perform all of its obligations thereunder in accordance with the provisions thereof, and neither Grantee nor any of the Secured Debtholders shall have any obligation or liability with respect to such obligations of Grantor, nor shall Grantee or any of the Secured Debtholders be required or obligated in any manner to perform or fulfill any obligations or duties of Grantor under such agreements, or to make any payment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or take any action to collect or enforce the payment of any amounts which have been assigned to Grantee hereunder or to which Grantee or the Secured Debtholders may be entitled at any time or times. 2.9 Further Assurances. Grantor shall, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Grantee may reasonably request, in order to perfect and continue the lien and security interest granted hereby and to enable Grantee to obtain the full benefits of the lien and security interest granted or intended to be granted hereby. Grantor shall keep the Mortgaged Property free and clear of all Liens, other than Permitted Liens. Without limiting the generality of the foregoing, Grantor shall execute and record or file this Security Deed and each amendment hereto, and such financing or continuation statements, or amendments thereto, and such other instruments, endorsements or notices, as may be necessary, or as Grantee may reasonably request, in order to perfect and preserve the lien and security interest granted or purported to be granted hereby. Grantor hereby authorizes Grantee to file one or more financing statements or continuation statements, and amendments thereto, relative to all or any part of the Mortgaged Property necessary to preserve or protect the lien and security interest granted hereby without the signature of Grantor where permitted by law. 2.10 Acts of Grantor. Except as provided in or permitted by the Secured Debt Documents, Grantor hereby represents and warrants that it has not granted, mortgaged, hypothecated, assigned or pledged and hereby covenants that it will not grant, mortgage, hypothecate, assign or pledge, so long as this Security Deed shall remain in effect, any of its right, title or interest in and to the Mortgaged Property or any part thereof, other than Permitted Liens, to anyone other than Grantee. 2.11 After-Acquired Property. Any and all of the Mortgaged Property which is hereafter acquired shall immediately, without any further conveyance, assignment or act on the part of Grantor or Grantee, become and be subject to the lien and security interest of this Security Deed as fully and completely as though specifically described herein, but nothing contained in this Section 2.11 shall be deemed to modify or change the obligations of Grantor under Section 2.9 hereof. If and whenever from time to time Grantor shall hereafter acquire any real property or interest therein which constitutes or is intended to constitute part of the Mortgaged Property hereunder, Grantor shall promptly give notice thereof to Grantee and Grantor shall forthwith execute, acknowledge and deliver to Grantee a supplement to this Security Deed subjecting the property so acquired to the lien of this Security Deed. 10 2.12 Mortgaged Property. 2.12.1 Grantor shall pay or cause to be paid all rent and other charges required under the Ground Lease as and when the same are due and shall promptly and faithfully perform or cause to be performed all other material terms, obligations, covenants, conditions, agreements, indemnities and liabilities of Grantor under the Ground Lease. Grantor shall observe all applicable covenants, easements and other restrictions of record with respect to the Site, the Easements or to any other part of the Mortgaged Property, in all material respects. 2.12.2 Grantor shall do, or cause to be done, all things necessary to preserve and keep unimpaired all rights of Grantor as lessee under the Ground Lease, and to prevent any default under the Ground Lease, or any termination, surrender, cancellation, forfeiture, subordination or impairment thereof. Grantor does hereby authorize and irrevocably appoint and constitute Grantee as its true and lawful attorney-in-fact, which appointment is coupled with an interest, in its name, place and stead, to take any and all actions deemed necessary or desirable by Grantee to perform and comply with all the obligations of Grantor under the Ground Lease, and to do and take upon the occurrence and during continuation of an Event of Default, but without any obligation so to do or take, any action which Grantee deems reasonably necessary to prevent or cure any default by Grantor under the Ground Lease, to enter into and upon the Real Property and Improvements or any part thereof as provided in the Secured Debt Documents in order to prevent or cure any default of Grantor pursuant thereto, to the end that the rights of Grantor in and to the leasehold estate created by the Ground Lease shall be kept free from default. 2.12.3 Grantor shall use all reasonable efforts to enforce the obligations of the lessor under the Ground Lease in a commercially reasonable manner. 2.12.4 Grantor shall not voluntarily surrender its leasehold estate and interest under the Ground Lease or modify, change, supplement, alter or amend the Ground Lease or affirmatively waive any provisions thereof, either orally or in writing, except as permitted in the Secured Debt Documents, and any attempt on the part of Grantor to do any of the foregoing without the written consent of Grantee shall be null and void. 2.12.5 If any action or proceeding shall be instituted to evict Grantor or to recover possession of the Mortgaged Property or any part thereof or interest therein from Grantor or any action or proceeding otherwise affecting the Mortgaged Property or this Security Deed shall be instituted, then Grantor shall, immediately after receipt, deliver to Grantee a true and complete copy of each petition, summons, complaint, notice of motion, order to show cause and all other pleadings and papers, however designated, served in any such action or proceeding. 2.12.6 Grantor covenants and agrees that the fee title to the Real Property and Improvements and the leasehold estate created under the Ground Lease shall not merge but shall always remain separate and distinct, notwithstanding the union of said estates either in Grantor or a third party by purchase or otherwise and, in case Grantor acquires the fee title or any other estate, title or interest in and to the Real Property and Improvements, the lien of this Security Deed shall, without further conveyance, simultaneously with such acquisition, be spread to cover 11 and attach to such acquired estate and as so spread and attached shall be prior to the lien of any security deed placed on the acquired estate after the date of this Security Deed. 2.12.7 No release or forbearance of any of Grantor's obligations under the Ground Lease by the lessor thereunder, shall release Grantor from any of its obligations under this Security Deed. 2.12.8 Grantor shall, within ten days after written demand from Grantee, deliver to Grantee proof of payment of all items that are required to be paid by Grantor under the Ground Lease, including, without limitation, rent, taxes, operating expenses and other charges. 2.12.9 The lien of this Security Deed shall attach to all of Grantor's rights and remedies at any time arising under or pursuant to bankruptcy or insolvency law, including, without limitation, all of Grantor's rights to remain in possession of the Mortgaged Property. Grantor shall not elect to treat the Ground Lease as terminated under bankruptcy or insolvency law, and any such election shall be void. 2.12.9.1 If pursuant to bankruptcy or insolvency law, Grantor shall seek to offset against the rent reserved in the Ground Lease the amount of any damages caused by the nonperformance by the lessor or any other party of any of their respective obligations thereunder after the rejection by the lessor or such other party of the Ground Lease under any bankruptcy or insolvency law, then Grantor shall, prior to effecting such offset, notify Grantee of its intent to do so, setting forth the amount proposed to be so offset and the basis therefor. Grantee shall have the right to object to all or any part of such offset that, in the reasonable judgment of Grantee, would constitute a breach of the Ground Lease, and in the event of such objection, Grantor shall not effect any offset of the amounts found objectionable by Grantee. Neither Grantee's failure to object as aforesaid nor any objection relating to such offset shall constitute an approval of any such offset by Grantee. 2.12.9.2 If any action, proceeding, motion or notice shall be commenced or filed in respect of the lessor under the Ground Lease or any other party or in respect of the Ground Lease in connection with any case under any bankruptcy or insolvency law, then Grantee shall have the option to intervene in any such litigation with counsel of Grantee's choice. Grantee may proceed in its own name in connection with any such litigation, and Grantor agrees to execute any and all powers, authorizations, consents or other documents required by Grantee in connection therewith. 2.12.9.3 Grantor shall, after obtaining knowledge thereof, promptly notify Grantee of any filing by or against the lessor or other party with an interest in the Mortgaged Property of a petition under any bankruptcy or insolvency law. Grantor shall promptly deliver to Grantee, following receipt, copies of any and all notices, summonses, pleadings, applications and other documents received by Grantor in connection with any such petition and any proceedings relating thereto. 2.12.9.4 If there shall be filed by or against Grantor a petition under any bankruptcy or insolvency law, and Grantor, as lessee under the Ground Lease, shall determine to 12 reject the Ground Lease pursuant to any bankruptcy or insolvency law, then Grantor shall give Grantee a notice of the date on which Grantor shall apply to the bankruptcy court for authority to reject the Ground Lease (such notice to be no later than twenty (20) days prior to such date). Grantee shall have the right, but not the obligation, to serve upon Grantor at any time prior to the date on which Grantor shall so apply to the bankruptcy court a notice stating that Grantee demands that Grantor assume and assign the Ground Lease to Grantee pursuant to any bankruptcy or insolvency law. If Grantee shall serve upon Grantor the notice described in the preceding sentence, to the extent permitted by law or Governmental Authority, Grantor shall not seek to reject the Ground Lease and shall comply with the demand provided for in the preceding sentence. In addition, effective upon the entry of an order for relief with respect to Grantor under any bankruptcy or insolvency law, Grantor hereby assigns and transfers to Grantee a non-exclusive right to apply to the bankruptcy court under any bankruptcy or insolvency law for an order extending the period during which the Ground Lease may be rejected or assumed; and shall (a) promptly notify Grantee of any default by Grantor in the performance or observance of any of the terms, covenants or conditions on the part of Grantor to be performed or observed under the Ground Lease and of the giving of any written notice by the lessor thereunder to Grantor of any such default, and (b) promptly cause a copy of each written notice given to Grantor by the lessor under the Ground Lease to be delivered to Grantee. Grantee may rely on any notice received by it from any such lessor of any default by Grantor under the Ground Lease and may take such action as may be permitted by law or Governmental Authority to cure such default even though the existence of such default or the nature thereof shall be questioned or denied by Grantor or by any Person on its behalf. 2.13 Power of Attorney. Grantor does hereby irrevocably constitute and appoint Grantee, its true and lawful attorney (which appointment is coupled with an interest), with full power of substitution, for Grantor and in the name, place and stead of Grantor or in Grantee's own name, for so long as any of the Obligations are outstanding, to ask, demand, collect, receive, receipt for and sue for any and all rents, income and other sums which are assigned hereunder with full power to endorse the name of Grantor on all instruments given in payment or in part payment thereof, to settle, adjust or compromise any claims thereunder as fully as Grantor itself could do and file any claim or take any action or proceeding, either in its own name or in the name of Grantor or otherwise, as are necessary or appropriate to protect and preserve the right, title and interest of Grantee in and to such rents, income and other sums and the security intended to be afforded hereby; provided that Grantee shall not exercise such rights unless an Event of Default has occurred and is continuing. 2.14 Covenant to Pay. If an Event of Default has occurred and is continuing and such Event of Default could reasonably be expected to materially and adversely affect Grantee's interest hereunder in the Mortgaged Property or result in personal injury, then Grantee, among its other rights and remedies, shall have the right, but not the obligation, to pay, observe or perform the same, in whole or in part, and with such modifications as Grantee reasonably shall deem advisable. To the extent provided in the Secured Debt Documents, all sums, including, without limitation, reasonable attorneys fees, so expended or incurred by Grantee by reason of the default of Grantor, or by reason of the bankruptcy or insolvency of Grantor, as well as, without limitation, sums expended or incurred to sustain the lien or estate of this Security Deed or its priority, or to protect or enforce any rights of Grantee hereunder, or to recover any of the Obligations, or to complete construction of the Project for which the Secured Debt Documents are intended as financing, or for repairs, 13 maintenance, alterations, replacements or improvements thereto or for the protection thereof, or for real estate taxes or other governmental assessments or charges against any part of the Mortgaged Property, or premiums for insurance of the Mortgaged Property, shall be entitled to the benefit of the lien on the Mortgaged Property as of the date of the recording of this Security Deed, shall be deemed to be added to and be part of the Obligations secured hereby, whether or not the result thereof causes the total amount of the Obligations to exceed the stated amount set forth in the second introductory paragraph of this Security Deed, and shall be repaid by Grantor as provided in the Secured Debt Documents. 2.15 Security Agreement. 2.15.1 This Security Deed shall also be a security agreement between Grantor and Grantee covering the Mortgaged Property constituting personal property or fixtures (hereinafter collectively called "UCC Collateral") governed by the UCC in effect in the State as the same may be more specifically set forth in any financing statement delivered in connection with this Security Deed, and as further security for the payment and performance of the Obligations, Grantor hereby grants to Grantee a security interest in such portion of the Mortgaged Property to the full extent that the Mortgaged Property may be subject to the UCC. In addition to Grantee's other rights hereunder, Grantee shall have all rights of a secured party under the UCC. Grantor shall execute and deliver to Grantee all financing statements and such further assurances that may be required to establish, create, perfect (to the extent the same can be achieved by the filing of a financing statement) and maintain the validity and priority of Grantee's security interests, and Grantor shall bear all reasonable costs thereof, including all UCC searches. Except as otherwise provided in the Secured Debt Documents, if Grantee should dispose of any of the Mortgaged Property comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written notice by Grantee to Grantor shall be deemed to be reasonable notice; provided, however, Grantee may dispose of such property in accordance with the foreclosure procedures of this Security Deed in lieu of proceeding under the UCC. Grantee may, but shall not be obligated to, from time to time, execute and deliver at Grantor's expense, all continuation statements, termination statements, amendments, partial releases, or other instruments relating to all financing statements by and between Grantor and Grantee. Except as otherwise provided in the Secured Debt Documents, if an Event of Default shall occur and is continuing, (a) Grantee, in addition to any other rights and remedies which it may have, may exercise immediately and without demand to the extent permitted by law, any and all rights and remedies granted to a secured party under the UCC including, without limiting the generality of the foregoing, the right to take possession of the UCC Collateral or any part thereof, and to take such other measures as may be necessary for the care, protection and preservation of such collateral and (b) upon request or demand of Grantee, Grantor shall at its expense, assemble the UCC Collateral and make it available to Grantee at a convenient place acceptable to Grantee. Grantor shall pay to Grantee on demand, any and all expenses, including reasonable attorneys' fees and disbursements incurred or paid by Grantee in protecting the interest in the UCC Collateral and in enforcing the rights hereunder with respect to such UCC Collateral. 2.15.2 Grantor agrees, to the extent permitted by law, that: (i) all or a part of the Mortgaged Property are or are to become fixtures; and (ii) the address of Grantor is as set forth on the first page of this Security Deed. 14 ARTICLE 3 - REMEDIES 3.1 Protective Advances. If an Event of Default shall have occurred and is continuing, then without thereby limiting Grantee's other rights or remedies, waiving or releasing any of Grantor's obligations, or imposing any obligation on Grantee, Grantee may, but shall not be obligated to, either advance any amount owing or perform any or all actions as may be necessary or appropriate to cure such default. All such advances shall constitute "Protective Advances." No sums advanced or performance rendered by Grantee shall cure, or be deemed a waiver of any Event of Default. 3.2 Institution of Equity Proceedings. If an Event of Default occurs and is continuing, Grantee may institute an action, suit or proceeding in equity for specific performance of this Security Deed or any other Secured Debt Document, all of which shall be specifically enforceable by injunction or other equitable remedy. 3.3 Grantee's Power of Enforcement. 3.3.1 If an Event of Default shall have occurred, Grantee may, but shall not be obligated to, sell the Mortgaged Property or any part of the Mortgaged Property at public sale or sales before the door of the courthouse of the county in which the Mortgaged Property or any part of the Mortgaged Property is situated, to the highest bidder for cash, in order to pay the indebtedness secured hereby and accrued interest thereon and insurance premiums, liens, assessments, taxes and charges, including utility charges, if any, with accrued interest thereon, and all expenses of the sale and of all proceedings in connection therewith, including reasonable attorneys' fees actually incurred, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff's sales are advertised in said county. At any such public sale, Grantee may, but shall not be obligated to, execute and deliver to the purchaser a conveyance of the Mortgaged Property or any part of the Mortgaged Property in fee simple, with full warranties of title (or without warranties if Grantee shall so elect) and to this end, Grantor hereby constitutes and appoints Grantee the agent and attorney-in-fact of Grantor to make such sale and conveyance, and thereby to divest Grantor of all right, title, interest, equity and equity of redemption that Grantor may have in and to the Mortgaged Property and to vest the same in the purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Grantor. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by dissolution, insolvency or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the indebtedness secured hereby and shall not be exhausted by one exercise thereof but may be exercised until full payment of all indebtedness secured hereby. In the event of any such foreclosure sale by Grantee, Grantor shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. 3.3.2 Grantee may adjourn from time to time any sale by it to be made under or by virtue of this Security Deed by announcement at the time and place appointed for such sale or 15 for such adjourned sale or sales; and, except as otherwise provided by any applicable provision of law, Grantee, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned. 3.3.3 Upon any sale made under or by virtue of this Section 3.3 (whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale), Grantee may bid for and acquire the Mortgaged Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the indebtedness the net sales price after deducting therefrom the expenses of the sale and the costs of the action and any other sums which Grantee is authorized to deduct under this Security Deed. 3.3.4 No recovery of any judgment by Grantee and no levy of an execution under any judgment upon the Mortgaged Property or upon any other property of Grantor shall affect in any manner or to any extent, the lien and title of this Security Deed upon the Mortgaged Property or any part thereof, or any liens, titles, rights, powers or remedies of Grantee hereunder, but such liens, titles, rights, powers and remedies of Grantee shall continue unimpaired as before. 3.3.5 Grantee is authorized, but shall not be obligated, to foreclose this Security Deed subject to the rights of any tenants of the Mortgaged Property, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Grantor, a defense to any proceedings instituted by Grantee to collect the sums secured hereby. 3.3.6 After deducting all costs, fees and expenses of Grantee and of this Security Deed, including, without limitation, costs of evidence of title and reasonable attorneys' fees of Grantee in connection with a sale, Grantee shall apply the proceeds of such sale to payment of all sums expended under the terms hereof not then repaid, with accrued interest at the Default Rate then to the payment of all other sums then secured hereby and the remainder, if any, to the person or persons legally entitled thereto. 3.3.7 If any Event of Default occurs and is continuing, Grantee may, either with or without entry or taking possession of the Mortgaged Property, and without regard to whether or not the indebtedness and other sums secured hereby shall be due and without prejudice to the right of Grantee thereafter to bring an action or proceeding to foreclose or any other action for any default existing at the time such earlier action was commenced, proceed by any appropriate action or proceeding: (1) to enforce payment of the Obligations, to the extent permitted by law, or the performance of any term hereof or any other right; (2) to foreclose this Security Deed in any manner provided by law for the foreclosure of mortgages or deeds of trust or deeds to secure debt on real property and to sell, as an entirety or in separate lots or parcels, the Mortgaged Property or any portion thereof pursuant to the laws of the State or under the judgment or decree of a court or courts of competent jurisdiction, and Grantee shall be entitled to recover in any such proceeding all costs and expenses incident thereto, including reasonable attorneys' fees in such amount as shall be awarded by the court; (3) to exercise any or all of the rights and remedies available to it under the Secured Debt Documents; and (4) to pursue any other remedy available 16 to it. Grantee may take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, or both, as Grantee may determine. 3.3.8 The remedies described in this Section 3.3 may be exercised with respect to all or any portion of the UCC Collateral, either simultaneously with the sale of any real property encumbered hereby or independent thereof. Grantee may at any time be permitted to proceed with respect to all or any portion of the UCC Collateral in any manner permitted by the UCC. Grantor agrees that Grantee's inclusion of all or any portion of the UCC Collateral in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. 3.4 Grantee's Right to Enter and Take Possession, Operate and Apply Income. (a) If an Event of Default occurs and is continuing, Grantor, upon demand of Grantee, shall forthwith surrender to Grantee the actual possession and, if and to the extent permitted by law, Grantee itself, or by such officers or agents as it may appoint, may enter and take possession of all of the Mortgaged Property, including the Tangible Collateral, without liability for trespass, damages or otherwise, and may exclude Grantor and its agents and employees wholly therefrom and may have joint access with Grantor to the books, papers and accounts of Grantor. (b) If an Event of Default has occurred and is continuing and Grantor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after Grantee's demand, Grantee may obtain a judgment or decree conferring on Grantee the right to immediate possession or requiring Grantor to deliver immediate possession of all or part of such property to Grantee and Grantor hereby specifically consents to the entry of such judgment or decree. Grantor shall pay to Grantee, upon demand, all costs and expenses of obtaining such judgment or decree and reasonable compensation to Grantee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien, security title and security interest of this Security Deed. (c) Upon every such entering upon or taking of possession, Grantee may hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof, and, from time to time and without being under any duty to so act: (1) make all necessary and proper maintenance, repairs, renewals and replacements thereto and thereon, and all necessary additions, betterments and improvements thereto and thereon and purchase or otherwise acquire fixtures, personalty and other property in connection therewith; (2) insure or keep the Mortgaged Property insured; (3) manage and operate the Mortgaged Property and exercise all the rights and powers of Grantor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Grantee, all as Grantee from time to time may determine; and shall apply the monies so received by Grantee in such priority as provided by the Secured Debt Documents to (1) the payment 17 of interest and principal due and payable to the Grantee, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Mortgaged Property or any part thereof; (4) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Grantee as allowed under this Security Deed; and (5) any other charges or costs required to be paid by Grantor under the terms of the Secured Debt Documents. (5) rent or sublet the Mortgaged Property or any portion thereof for any purpose permitted by this Security Deed. Grantee shall surrender possession of the Mortgaged Property to Grantor (i) as may be required by law or court order, or (ii) when all amounts under any of the terms of the Secured Debt Documents, including this Security Deed, shall have been paid current and all Events of Default have been cured or waived. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. 3.5 Separate Sales. To the extent permitted by law or Governmental Rule, the Mortgaged Property may be sold in one or more parcels and in such manner and order as Grantee, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. 3.6 Waiver of Appraisement, Moratorium, Valuation, Stay, Extension and Redemption Laws. Grantor agrees to the full extent permitted by law that if an Event of Default occurs and is continuing, neither Grantor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, moratorium, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Security Deed or the absolute sale of the Mortgaged Property or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Grantor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Mortgaged Property marshaled upon any foreclosure of the lien hereof and agrees that Grantee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property in part or as an entirety. 3.7 Receiver. If an Event of Default occurs and is continuing, Grantee, to the extent permitted by law, and without regard to the value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, shall be entitled as a matter of right, but shall not be obligated to, if it so elects to the appointment of a receiver to enter upon and take possession of the Mortgaged Property and to collect all earnings, revenues and receipts and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Grantee. To the extent permitted by law, Grantee may have a receiver appointed without notice to Grantor or any third party, and Grantee may waive any requirement that the receiver post a bond. To the extent permitted by law, Grantee shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. To the extent permitted by law, any receiver appointed on Grantee's behalf may be an Affiliate of Grantee. The reasonable expenses, including receiver's 18 fees, reasonable attorneys' fees, costs and agents' compensation, incurred pursuant to the powers herein contained shall be secured by this Security Deed. The right to enter and take possession of and to manage and operate the Mortgaged Property and to collect all earnings, revenues and receipts, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Grantee under this Security Deed, the other Secured Debt Documents or otherwise available to Grantee and may be exercised concurrently therewith or independently thereof, but such rights shall be exercised in a manner which is otherwise in accordance with and consistent with the Secured Debt Documents. Grantee shall be liable to account only for such earnings, revenues and receipts (including, without limitation, security deposits) actually received by Grantee, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Grantee shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Security Deed to, Grantee. 3.8 Suits to Protect the Mortgaged Property. Grantee shall have the power and authority to institute and maintain any suits and proceedings as may be advisable (a) to prevent any impairment of the Mortgaged Property by any acts which may be unlawful or in violation of this Security Deed, (b) to preserve or protect its interest in the Mortgaged Property, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Grantee's interest 3.9 Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Grantor, any Affiliate or any guarantor, co-maker or endorser of any of Grantor's obligations, its creditors or its property, Grantee, to the extent permitted by law, shall be entitled, but not obligated to file such proofs of claim or other documents as may be necessary or advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Grantor under the Secured Debt Documents, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Grantor after such date. 3.10 Grantor to Pay Amounts Secured Hereby on Any Default in Payment; Application of Monies by Grantee. (a) In case of a foreclosure sale of all or any part of the Mortgaged Property and of the application of the proceeds of sale to the payment of the sums secured hereby, to the extent permitted by law, the Secured Debtholders shall be entitled to enforce payment from Grantor of any additional amounts then remaining due and unpaid and to recover judgment against Grantor for any portion thereof remaining unpaid, with interest at the Default Rate. (b) Grantor hereby agrees to the extent permitted by law, that no recovery of any such judgment by the Secured Debtholders or other action by the Secured Debtholders and no attachment or levy of any execution upon any of the Mortgaged Property or any other property shall in any way affect the Lien and security interest of this Security Deed upon the Mortgaged Property or any part thereof or any Lien, rights, powers or remedies of Grantee hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. 19 (c) Any monies collected or received by Grantee under this Section 3.10 shall be first applied to the payment of compensation, expenses and disbursements of the agents, attorneys and other representatives of the Grantee and the Secured Debtholders, and the balance remaining shall be applied as provided in the Collateral Trustee Agreement. 3.11 Delay or Omission; No Waiver. No delay or omission of Grantee or the Secured Debtholders to exercise any right, power or remedy upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Grantee whether contained herein or in the other Secured Debt Documents or otherwise available to Grantee may be exercised from time to time and as often as may be deemed expedient by Grantee. 3.12 No Waiver of One Default to Affect Another. No waiver of any defaults hereunder shall extend to or affect any subsequent or any other defaults then existing, or impair any rights, powers or remedies consequent thereon. If Grantee (a) grants forbearance or an extension of time for the payment of any sums secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in this Security Deed or any other Secured Debt Document; (d) releases any part of the Mortgaged Property from the lien or security interest of this Security Deed or any other instrument securing the Obligations; (e) consents to the filing of any map, plat or replat of the Real Property or any part thereof; (f) consents to the granting of any easement on the Real Property; or (g) makes or consents to any agreement changing the terms of this Security Deed or any other Secured Debt Document subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the liability under this Security Deed or any other Secured Debt Document or otherwise of Grantor, or any subsequent purchaser of the Mortgaged Property or any part thereof or any maker, co-signer, surety or guarantor with respect to any other matters not addressed by such act or omission. No such act or omission shall preclude Grantee from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Grantee, shall the lien or security interest of this Security Deed be altered thereby, except to the extent expressly provided in such acts or omissions. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Mortgaged Property, Grantee, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Mortgaged Property or the indebtedness secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any of the liabilities or undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Security Deed or any other Secured Debt Document, (i) in the case of any non-monetary default, Grantee may continue to accept payments due hereunder without thereby waiving the existence of such or any other default and (ii) in the case of any monetary Event of Default, Grantee may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. 3.13 Discontinuance of Proceedings; Position of Parties Restored. If Grantee shall have proceeded to enforce any right or remedy under this Security Deed by foreclosure, entry of 20 judgment or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Grantee, then and in every such case Grantor and Grantee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Grantee shall continue as if no such proceedings had occurred or had been taken. 3.14 Remedies Cumulative. Subject to the provisions of Section 4.15 hereof, no right, power or remedy, including without limitation remedies with respect to any security for the Obligations, conferred upon or reserved to Grantee by this Security Deed or any other Secured Debt Document is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under any other Secured Debt Document, now or hereafter existing at law, in equity or by statute, and Grantee shall be entitled to resort to such rights, powers, remedies or security as Grantee may deem advisable. 3.15 Interest After Event of Default. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Secured Debt Documents, including this Security Deed, may bear interest at the Default Rate until such Event of Default has been cured. Grantor's obligation to pay such interest shall be secured by this Security Deed. 3.16 Foreclosure; Expenses of Litigation. If Grantee forecloses, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be allowed to the Grantee as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Grantee for attorneys' fees, appraisers' fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guarantees, and similar data and assurances with respect to title as are necessary either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Mortgaged Property or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Mortgaged Property and the maintenance of the lien and security interest of this Security Deed, including the reasonable fees of any attorney employed by Grantee in any litigation or proceeding affecting this Security Deed or any other Secured Debt Document, the Mortgaged Property or any portion thereof, including, without limitation, civil, probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Grantor, with interest thereon at the Default Rate, and shall be secured by this Security Deed. Grantee waives its right to any statutory fee in connection with any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee for such services. 3.17 Deficiency Judgments. If after foreclosure of this Security Deed, there shall remain any deficiency with respect to any amounts payable under the Secured Debt Documents, including hereunder, or any amounts secured hereby, and Grantee may institute any proceedings to recover such deficiency or deficiencies, all such amounts shall continue to bear interest at the Default Rate. 21 Grantor waives any defense to Grantee's recovery against Grantor of any deficiency after any foreclosure sale of the Mortgaged Property. To the extent permitted by law, Grantor expressly waives any defense or benefits that may be derived from any statute granting Grantor any defense to any such recovery by Grantee. In addition, Grantee shall be entitled to recovery of all of its reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including their reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 3.16 above. This provision shall survive any foreclosure or sale of the Mortgaged Property, any portion thereof and/or the extinguishment of the lien hereof. 3.18 Waiver of Jury Trial. Grantee and Grantor each waive any right to have a jury participate in resolving any dispute whether sounding in contract, tort or otherwise arising out of, connected with, related to or incidental to the relationship established between them in connection with this Security Deed or any other Secured Debt Document. Any such disputes shall be resolved in a bench trial without a jury. 3.19 Exculpation of Grantee. The acceptance by Grantee of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Mortgaged Property by Grantee, be deemed or construed to make Grantee a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Grantee to appear in or defend any action or proceeding relating to the Mortgaged Property, nor shall Grantee, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Mortgaged Property. ARTICLE 4 - GENERAL 4.1 Discharge. When all of the Obligations shall have been paid in full, then this Security Deed and the lien and security interest created hereby shall be of no further force and effect, Grantor shall be released from the covenants, agreements and obligations of Grantor contained in this Security Deed and all right, title and interest in and to the Mortgaged Property shall revert to Grantor. Grantee, at the request and the expense of Grantor, shall promptly execute a deed of reconveyance and such other documents as may be reasonably requested by Grantor to evidence the discharge and satisfaction of this Security Deed and the release of Grantor from its obligations hereunder. 4.2 No Waiver. The exercise of the privileges granted in this Security Deed to perform Grantor's obligations under the agreements which constitute the Mortgaged Property shall in no event be considered or constitute a waiver of any right which Grantee may have at any time, after an Event of Default shall have occurred and be continuing, to declare the Obligations to be immediately due and payable. No delay or omission to exercise any right, remedy or power accruing upon any default shall impair any such right, remedy or power or shall be construed to be a waiver of any such default or acquiescence therein; and every such right, remedy and power may be exercised from time to time and as often as may be deemed expedient. 4.3 Extension, Rearrangement or Renewal of Obligations. It is expressly agreed that any of the Obligations at any time secured hereby may be from time to time extended for any 22 period, or with the consent of Grantor rearranged or renewed, and that any part of the security herein described, or any other security for the Obligations, may be waived or released, without altering, varying or diminishing the force, effect or lien or security interest of this Security Deed; and the lien and security interest granted by this Security Deed shall continue as a prior lien and security interest on all of the Mortgaged Property not expressly so released, until the Obligations are fully paid and this Security Deed is terminated in accordance with the provisions hereof; and no other security now existing or hereafter taken to secure the payment of the Obligations or any part thereof or the performance of any obligation or liability of Grantor whatever shall in any manner impair or affect the security given by this Security Deed; and all security for the payment of the Obligations or any part thereof and the performance of any obligation or liability shall be taken, considered and held as cumulative. 4.4 Forcible Detainer. Grantor agrees for itself and all Persons claiming by, through or under it, that subsequent to foreclosure hereunder in accordance with this Security Deed and applicable law if Grantor shall hold possession of the Mortgaged Property or any part thereof, Grantor or the Persons so holding possession shall be guilty of trespass; and any such Person (including Grantor) failing or refusing to surrender possession upon demand shall be guilty of forcible detainer and shall be liable to Grantee or any purchaser in foreclosure, as applicable, for reasonable rental on said premises, and shall be subject to eviction and removal in accordance with law. 4.5 Waiver of Stay or Extension. To the extent permitted to be waived by law, Grantor shall not at any time insist upon or plead or in any manner whatever claim the benefit or advantage of any stay, extension or moratorium law now or at any time hereafter in force in any locality where the Mortgaged Property or any part thereof may or shall be situated, nor shall Grantor claim any benefit or advantage from any law now or hereafter in force providing for the valuation or appraisement of the Mortgaged Property or any part thereof prior to any sale thereof to be made pursuant to any provision of this Security Deed or to a decree of any court of competent jurisdiction, nor after any such sale shall Grantor claim or exercise any right conferred by any law now or at any time hereafter in force to redeem the Mortgaged Property so sold or any part thereof; and Grantor hereby expressly waives all benefit or advantage of any such law or laws and the appraisement of the Mortgaged Property or any part thereof, and covenants that Grantor shall not hinder or delay the execution of any power herein granted and delegated to Grantee but that Grantor shall permit the execution of every such power as though no such law had been made. 4.6 Notices. Except where certified or registered mail notice is required by applicable law, any notice to Grantor or Grantee required or permitted hereunder shall be deemed to be given when given in the manner prescribed in the Collateral Trust Agreement. 4.7 Severability. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Security Deed invalid, unenforceable or not entitled to be recorded, registered or filed under any applicable law. In the event any term or provision contained in this Security Deed is in conflict, or may hereafter be held to be in conflict, with the laws of the State or of the United States of America, this Security Deed 23 shall be affected only as to such particular term or provision, and shall in all other respects remain in full force and effect. 4.8 Application of Payments. In the event that any part of the Obligations cannot lawfully be secured hereby, or in the event that the lien and security interest hereof cannot be lawfully enforced to pay any part of the Obligations, or in the event that the lien or security interest created by this Security Deed shall be invalid or unenforceable as to any part of the Obligations, then all payments on the Obligations shall be deemed to have been first applied to the complete payment and liquidation of that part of the Obligations which is not secured by this Security Deed and the unsecured portion of the Obligations shall be completely paid and liquidated prior to the payment and liquidation of the remaining secured portion of the Obligations. 4.9 GOVERNING LAW. THIS SECURITY DEED IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA. 4.10 Amendments. This Security Deed may be amended, supplemented or otherwise modified only by an instrument in writing signed by Grantor and Grantee. 4.11 Successors and Assigns. All terms of this Security Deed shall run with the land and bind each of Grantor and Grantee and their respective successors and assigns, and all Persons claiming under or through Grantor or Grantee, as the case may be, or any such successor or assign, and shall inure to the benefit of Grantee and Grantor, and their respective successors and assigns. 4.12 Renewal, Etc. To the extent permitted under the other Secured Debt Documents, Grantee may, but shall not be obligated to, at any time and from time to time renew or extend this Security Deed, or alter or modify the same in any way, or waive any of the terms, covenants or conditions hereof in whole or in part and may release any portion of the Mortgaged Property or any other security, and grant such extensions and indulgences in relation to the Obligations as Grantee may determine, without the consent of any junior lienor or encumbrancer and without any obligation to give notice of any kind thereto and without in any manner affecting the priority of the lien and security interest hereof on any part of the Mortgaged Property; provided that nothing in this Section 4.12 shall grant Grantee the right to alter or modify the Security Deed without the consent of the Grantor unless otherwise specifically permitted in this Security Deed. 4.13 Future Advances. It is understood and agreed that this Security Deed secures, among other things, (i) the Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Grantor under the Priority Lien Documents; (ii) the Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Grantor under the Parity Lien Documents; (iii) all Obligations under any other Priority Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs incurred by Grantee or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate therein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (v) any and all other indebtedness of Grantor to Grantee now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or 24 arising, where the indebtedness provides that it is secured hereby; and (vi) any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (i) through (iv) above, whether or not Grantor executes any extension agreement or renewal instrument, and that the lien of any such future advances shall relate to the date of this Security Deed. 4.14 Liability. Notwithstanding any provision in this Security Deed to the contrary, none of Grantee or any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever. None of Grantee or any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Grantee or any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Grantor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 4.15 Severability and Compliance With Usury Law. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Applicable Laws and Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained, nor the application of such provision to other persons or circumstances, nor the other instruments referred to hereinabove, shall be affected thereby, but rather shall be enforceable to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of Grantor at all times to comply with the applicable State law governing the maximum rate or amount of interest payable on or in connection with the Obligations. If the Applicable Law is ever judicially interpreted so as to render usurious any amount called for under the Secured Debt Documents, or contracted for, charged, taken, reserved or received with respect to the extension of credit evidenced by the Secured Debt Documents or if acceleration of the maturity of the Obligations or if any prepayment by Grantor results in Grantor having paid any interest in excess of that permitted by law, then it is Grantor's express intent that all excess amounts theretofore collected by Grantee be credited on the principal balance due under the Secured Debt Documents (or, if the Secured Debt Documents have been or would thereby be paid in full, refunded to Grantor), and the provisions of the Secured Debt Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. The right to accelerate maturity of Obligations does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Grantee may not collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Grantee for the use, forbearance or detention of the Obligations 25 may, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Obligations until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the applicable usury ceiling. 4.16 Release of Collateral. Notwithstanding any provision herein to the contrary, the Mortgaged Property or any part thereof shall be released from the security interest created by this Mortgage in accordance with the provisions of the Collateral Trust Agreement. 4.17 Time of the Essence. Grantor acknowledges that time is of the essence in performing all of Grantor's obligations set forth herein. 4.18 Counterpart Execution. This Security Deed may be executed by the parties hereto in any number of counterparts (and be each of the parties hereof on separate counterparts), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 4.19 WAIVER OF GRANTOR'S RIGHTS. BY EXECUTION OF THIS SECURITY DEED AND BY INITIALING THIS SECTION 4.19, GRANTOR EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTES AND THE POWER OF ATTORNEY GIVEN HEREIN TO GRANTEE TO SELL THE MORTGAGED PROPERTY BY NONJUDICIAL FORECLOSURE UPON DEFAULT BY GRANTOR WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE (EXCEPT AS OTHERWISE PROVIDED HEREIN); (B) EXCEPT TO THE EXTENT PROVIDED OTHERWISE HEREIN, WAIVES ANY AND ALL RIGHTS WHICH GRANTOR MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY GRANTEE OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO GRANTEE; (C) ACKNOWLEDGES THAT GRANTOR HAS READ THIS SECURITY DEED AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO GRANTOR AND GRANTOR HAS CONSULTED WITH COUNSEL OF GRANTOR'S CHOICE PRIOR TO EXECUTING THIS SECURITY DEED; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY GRANTOR AS PART OF A BARGAINED FOR LOAN TRANSACTION: INITIALED BY GRANTOR: ______________________________________ By:______________________________ 26 4.20 Attorneys' Fees. Notwithstanding anything contained herein to the contrary, (i) "reasonable attorneys' fees" are not, and shall not be, statutory attorneys' fees under the Official Code of Georgia Annotated ("O.C.G.A"), (ii) if, under any circumstances Grantor is required hereunder to pay any or all of Grantee's attorneys' fees and expenses, Grantor shall be responsible only for actual legal fees and out of pocket expenses actually incurred by Grantee at customary hourly rates for the work done, and (iii) Grantor shall not be liable under any circumstances for additional attorneys' fees or expenses under the O.C.G.A Section 13-1-11. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 27 AUGUSTA, GA IN WITNESS WHEREOF, Grantor has caused this Security Deed to be duly executed under seal and delivered as of the day and year first above written. Signed, sealed and delivered GRANTOR: in the presence of: CALPINE CORPORATION, ______________________________ a Delaware corporation Witness By: ___________________________ ________________________ Name: Notary Public Title: My Commission Expires ________________________ [NOTARY SEAL] [corporate seal] AUGUSTA, GA EXHIBIT A (LEGAL DESCRIPTION) AUGUSTA, GA EXHIBIT B (ACCESS EASEMENT DESCRIPTION) All that tract or parcel of land situate, lying in the 86th G.M.D. of Richmond County, Georgia, designated as "INGRESS-EGRESS EASEMENT (0.99 AC.)" on a plat dated June 15, 2000 (last revised on October 3, 2001) by Cranston, Robertson & Whitehurst, P.C. for AUGUSTA ENERGY LLC, AUGUSTA ENERGY CENTER. Said access easement has a uniform width of Fifty (50') feet and begins on the Northern boundary of an UNNAMED ROAD (C.R. #1028-having a 60' Right of Way) as much UNNAMED ROAD is extended in a Westerly direction from its intersection with Columbia Nitrogen Drive to and over the property now or formerly of DSM CHEMICALS NORTH AMERICA, INC. and from said Northern boundary extends in a Southerly direction over said uniform width of Fifty feet to the intersection of the Northern boundary of the property designated as "COGENERATION PLANT SITE 22.02 AC." on the aforesaid plat to which reference is made by incorporation herein for a more accurate description of the metes bounds and location of the said Easement. LAYDOWN YARD "A" EASEMENT AREA (GRAVEL AREA=4.16 AC) All that tract or parcel of land situate, lying and being in the 86th G.M.D. of Richmond County, Georgia known and designated as "LAYDOWN YARD "A" EASEMENT AREA" (GRAVEL AREA = 4.16 AC) on a plat dated June 15, 2000 (last revised on October 3, 2001) by Cranston, Robertson & Whitehurst, P.C. for AUGUSTA ENERGY LLC, AUGUSTA ENERGY CENTER, to which plat reference is made by incorporation herein for a more accurate description of the metes, bounds and location of said Easement. LAYDOWN YARD "B" EASEMENT AREA (GRAVEL AREA = 12.80 AC.) All that tract or parcel of land situate, lying and being in the 86th G.M.D. of Richmond County, Georgia known and designated as "LAYDOWN YARD "B" EASEMENT AREA" (GRAVEL AREA = 12.80 AC.) on a plat dated June 15, 2000 (last revised on October 3, 2001) by Cranston, Robertson & Whitehurst, P.C. for AUGUSTA ENERGY LLC, AUGUSTA ENERGY CENTER, to which plat reference is made by incorporation herein for a more accurate description of the metes, bounds and location of said Easement. (30' GAS LINE EASEMENT) All that tract or parcel of land situate lying and being in the 86th G.M.D. of Richmond County, Georgia known and designated as "Proposed 30' Gas Line Easement" on a plat dated June 15, 2000 (last revised on October 3, 2001) by Cranston, Robertson, & Whitehurst, P.C. to which plat reference is made by incorporation herein for a more accurate description of the 28 metes, bounds and location of said Easement. Said Easement is located within the bounds of that parcel of land shown on the aforesaid plat as "Lay Down Yard "B" Easement Area" and extends from the southern boundary of the "90' Southern Natural Gas Easement" in a southerly direction to its intersection with the northern boundary of the "Cogeneration Plant site 22.02 Ac." all as shown on the aforesaid plat. The purpose of this easement is to provide access to Natural Gas supply and service from said pipeline to the Cogeneration Plant to be constructed on said 22.02 acre tract. (EASEMENT FOR PIPE RACK) All that tract or parcel of land situate, lying and being in the 86th G.M.D. of Richmond County, Georgia, designated as "EASEMENT FOR PIPE RACK" on a plat dated June 15, 2000 (last revised on October 3, 2001) by Cranston, Robertson & Whitehurst, P.C. for AUGUSTA ENERGY LLC, AUGUSTA ENERGY CENTER. Said Easement is 75 feet in width and begins on the Eastern Boundary of the COGENERATION PLANT SITE-22.02 AC, as shown on the aforesaid plat and extents in an Easterly Direction to the property of DSM CHEMICALS NORTH AMERICA, INC. located on the Eastern right of way of. Columbia Nitrogen Drive. Reference is made to the aforesaid plat which is incorporated herein for a more accurate description of the metes, bounds and location of said Easement. EX-10.33 25 f92357exv10w33.txt EXHIBIT 10.33 EXHIBIT 10.33 SANTA ROSA, FL RECORDING REQUESTED BY AND WHEN RECORDED, RETURN TO: Ane C. Priester LATHAM & WATKINS LLP 633 W. FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90017 ================================================================================ MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT DATED AS OF JULY 16, 2003 BY CALPINE CORPORATION, A DELAWARE CORPORATION, AS MORTGAGOR TO THE BANK OF NEW YORK, A NEW YORK BANKING CORPORATION, AS MORTGAGEE ================================================================================ THIS MORTGAGE IS GIVEN IN CONNECTION WITH A MULTISTATE TRANSACTION. THE INDEBTEDNESS SECURED HEREBY IS EVIDENCED BY A PROMISSORY NOTE EXECUTED OUTSIDE THE STATE OF FLORIDA. RECOVERY UNDER THIS MORTGAGE IS LIMITED TO SEVENTY FIVE MILLION DOLLARS $75,000,000 IN PRINCIPAL PLUS INTEREST, PROTECTIVE ADVANCES AND COSTS OF COLLECTION IN CONNECTION THEREWITH. THIS MORTGAGE IS GIVEN TO SECURE A DEBT IN THE AMOUNT OF $75,000,000.00 ONLY. DOCUMENTARY STAMP TAX IN THE AMOUNT OF $262,500.00 IS PAID IN ACCORDANCE WITH FLORIDA ADMINISTRATIVE CODE RULE 12B-4.053(31)(b). INTANGIBLES TAX IN THE AMOUNT OF $150,000.00 IS PAID IN ACCORDANCE WITH FLORIDA ADMINISTRATIVE CODE RULE 12C-2.004(2)(b). SANTA ROSA, FL TABLE OF CONTENTS

Page ---- ARTICLE 1 - DEFINITIONS .......................................................................... 4 1.1 DEFINED TERMS ........................................................................... 4 1.2 ACCOUNTING TERMS ........................................................................ 6 ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS ..................................................... 6 2.1 MORTGAGOR PERFORMANCE OF SECURED DEBT DOCUMENTS ......................................... 6 2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES ....................................... 7 2.3 COMPLIANCE WITH LEGAL REQUIREMENTS ...................................................... 7 2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS .... 7 2.5 ASSIGNMENT OF RENTS ..................................................................... 8 2.6 REJECTION OF GROUND LEASE BY LESSOR ..................................................... 9 2.7 EXPENSES ................................................................................ 9 2.8 MORTGAGEE ASSUMES NO OBLIGATIONS ........................................................ 9 2.9 FURTHER ASSURANCES ...................................................................... 10 2.10 ACTS OF MORTGAGOR ....................................................................... 10 2.11 AFTER-ACQUIRED PROPERTY ................................................................. 10 2.12 MORTGAGED PROPERTY ...................................................................... 10 2.13 POWER OF ATTORNEY ....................................................................... 13 2.14 COVENANT TO PAY ......................................................................... 13 2.15 SECURITY AGREEMENT ...................................................................... 13 ARTICLE 3 - REMEDIES ............................................................................. 14 3.1 PROTECTIVE ADVANCES ..................................................................... 14 3.2 INSTITUTION OF EQUITY PROCEEDINGS ....................................................... 14 3.3 MORTGAGEE'S POWER OF ENFORCEMENT ........................................................ 15 3.4 MORTGAGEE'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME ................ 17 3.5 SEPARATE SALES .......................................................................... 18 3.6 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ...... 18 3.7 RECEIVER ................................................................................ 18 3.8 SUITS TO PROTECT THE MORTGAGED PROPERTY ................................................. 19 3.9 PROOFS OF CLAIM ......................................................................... 19 3.10 MORTGAGOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY MORTGAGEE ..................................................................... 19 3.11 DELAY OR OMISSION; NO WAIVER ............................................................ 20 3.12 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER .............................................. 20 3.13 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED ............................. 21 3.14 REMEDIES CUMULATIVE ..................................................................... 21 3.15 INTEREST AFTER EVENT OF DEFAULT ......................................................... 21 3.16 FORECLOSURE; EXPENSES OF LITIGATION ..................................................... 21 3.17 DEFICIENCY JUDGMENTS .................................................................... 22 3.18 WAIVER OF JURY TRIAL .................................................................... 22 3.19 EXCULPATION OF MORTGAGEE ................................................................ 22 ARTICLE 4 - GENERAL .............................................................................. 22 4.1 DISCHARGE ............................................................................... 22

i 4.2 NO WAIVER ............................................................................... 23 4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ...................................... 23 4.4 FORCIBLE DETAINER ....................................................................... 23 4.5 WAIVER OF STAY OR EXTENSION ............................................................. 23 4.6 NOTICES ................................................................................. 24 4.7 SEVERABILITY ............................................................................ 24 4.8 APPLICATION OF PAYMENTS ................................................................. 24 4.9 GOVERNING LAW ........................................................................... 24 4.10 AMENDMENTS .............................................................................. 24 4.11 SUCCESSORS AND ASSIGNS .................................................................. 24 4.12 RENEWAL, ETC ............................................................................ 24 4.13 FUTURE ADVANCES ......................................................................... 24 4.14 LIABILITY ............................................................................... 25 4.15 SEVERABILITY AND COMPLIANCE WITH USURY LAW .............................................. 25 4.16 RELEASE OF COLLATERAL ................................................................... 26 4.17 TIME OF THE ESSENCE ..................................................................... 26 4.18 COUNTERPART EXECUTION ................................................................... 26 4.19 RESERVED ................................................................................ 26 4.20 ATTORNEYS' FEES ......................................................................... 26 4.21 FIXTURE FILING UNDER UNIFORM COMMERCIAL CODE ............................................ 26 ii SANTA ROSA, FL MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT This MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (this "Mortgage"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation ("Mortgagor"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among Mortgagor, Mortgagee, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("Mortgagee"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Mortgage" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. Recitals A. Mortgagor has entered into an Amended and Restated Credit Agreement dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Mortgagor, the Lenders referred to therein and The Bank of Nova Scotia as Administrative Agent, relating to a $500,000,000 senior secured credit facility made available in the form of revolving loans and term loan, including letters of credit issued thereunder. B. Mortgagor also will (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between Mortgagor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"). C. As permitted pursuant to the Secured Debt Documents, Mortgagor may incur future debt which could, together with the obligations under the Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future debt which could, together with the 2007 Notes, 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $75,000,000. Mortgagor intends to secure the obligations, including the obligations (a) under the Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, as contemplated in the Collateral Trust Agreement. D. Mortgagor (i) is the owner of the interests in the lands described in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to use all of the buildings, improvements, structures and fixtures located on the lands described in Exhibit A and is executing and delivering this instrument in order to secure its Obligations (as defined below). Agreement NOW, THEREFORE, to secure the prompt and complete payment when and as due and payable of all of the obligations and liabilities of Mortgagor to Mortgagee, by acceleration or otherwise, arising out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010 Indenture, the 2013 Indenture and the Term Loan Agreement and the obligations of Mortgagor set forth herein (collectively, the "Obligations"); however, granted, bargained, sold, warranted, mortgaged, and in consideration of the covenants herein and therein, Mortgagor, intending to be legally bound, does hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage, pledge, set over hypothecate, transfer and confirm unto Mortgagee as set forth in this Mortgage, all of Mortgagor's estate, right, title, interest, property, claim and demand, now or hereafter arising, in and to the following property and rights (herein collectively called the "Mortgaged Property"): (a) Mortgagor's interest under the Ground Lease (as modified, supplemented or amended from time to time, the "Ground Lease") executed as of July 16, 1999 between Sterling Fibers, Inc. and Mortgagor, and the leasehold estate created thereby in and to the lands and premises more particularly described in Exhibit A hereto (the "Site"); (b) any and all easements, leases, licenses, option rights, rights-of-way and other rights used in connection with the Site or as a means of access thereto (including, without limitation, all rights of Mortgagor to exercise any election or option, to make any determination or to give any notice, consent, waiver or approval, or to take any other action under the Ground Lease), all easements for ingress and egress and easements for water, natural gas and sewage pipelines, running in favor of Mortgagor, or appurtenant to the Site or arising out of the Ground Lease, and any and all sidewalks, alleys, strips and gores of land adjacent thereto or used in connection therewith together with all and singular the tenements, hereditaments and appurtenances thereto, and with any land lying within the right-of-way of any streets, open or proposed, adjoining the same (including, without limitation, the easements, leases, licenses and other instruments described in Exhibit B 2 hereto) (collectively, the "Easements"; and the Site and the Easements collectively referred to herein as the "Real Property"); (c) all buildings, structures, fixtures and other improvements now or hereafter erected on the Real Property, including the Project (collectively, the "Improvements"); (d) all machinery, apparatus, equipment, fittings, fixtures, boilers, turbines and other articles of personal property, including all goods and all goods which become fixtures, now owned or hereafter acquired by Mortgagor and now or hereafter located on, attached to or used in the operation of or in connection with the Real Property and/or the Improvements, and all replacements thereof, additions thereto and substitutions therefor, to the fullest extent permitted by applicable law (all of the foregoing being hereinafter collectively called the "Equipment"); (e) all raw materials, work in process and other materials used or consumed in the construction of, or now or hereafter located on or used in connection with, the Real Property, the Improvements and/or the Equipment, (including, without limitation, fuel and fuel deposits, now or hereafter located on the Real Property or elsewhere or otherwise owned by Mortgagor) (the above items, together with the Equipment, being hereinafter collectively called the "Tangible Collateral"); (f) all rights, powers, privileges and other benefits of Mortgagor (to the extent assignable) now or hereafter obtained by Mortgagor under the Ground Lease and/or from any Governmental Authority, including, without limitation, permits issued in the name of Mortgagor, governmental actions relating to the ownership, operation, management and use of the Real Property, Improvements, Equipment or Tangible Collateral, the development and financing of the Project, the Improvements and the Equipment, and any improvements, modifications or additions thereto; (g) any right of Mortgagor to elect to terminate the Ground Lease or remain in possession of the Real Property pursuant to 11 U.S.C. section 365(h)(1) or any similar provision of applicable law and any possessory rights of Mortgagor in the Real Property pursuant to 11 U.S.C section 365(h)(2) or any other similar provision of applicable law; (h) all the lands and interests in lands, tenements and hereditaments hereafter acquired by Mortgagor in connection with or appurtenant to the Real Property and/or any other property or rights subject to the lien hereof, including (without limitation) all interests of Mortgagor, whether as lessor or lessee, in any leases of land hereafter made and all rights of Mortgagor thereunder; (i) any and all other property in any way associated or used in connection with or appurtenant to the Real Property, Improvements, Equipment or Tangible Collateral that may from time to time, by delivery or by writing of any kind, be subjected to the lien hereof by Mortgagor or by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Mortgagee pursuant to this Mortgage, being hereby 3 collaterally assigned to Mortgagee and subjected or added to the lien or estate created by this Mortgage forthwith upon the acquisition thereof by Mortgagor, as fully as if such property were now owned by Mortgagor and were specifically described in this Mortgage and subjected to the lien and security interest hereof; and Mortgagee is hereby authorized to receive any and all such property as and for additional security hereunder; and (j) all the remainder or remainders, reversion or reversions, rents, revenues, issues, profits, royalties, income and other benefits derived from any of the foregoing, all of which are hereby assigned to Mortgagee, who is hereby authorized to collect and receive the same, to give proper receipts and acquittances therefor and to apply the same in accordance with the provisions of this Mortgage. Notwithstanding any provision herein to the contrary, the Mortgaged Property or any part thereof may be released from the conveyance created by this Mortgage in accordance with the provisions of the Collateral Trust Agreement. TO HAVE AND TO HOLD the said Mortgaged Property, whether now owned or held or hereafter acquired, unto Mortgagee, its successors and assigns, pursuant to the provisions of this Mortgage. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security title, security interest or estate created by this Mortgage to secure the payment of the Obligations, both present and future, shall be first, prior and superior to any Lien, security interest, reservation of title or other interest (other than superior Permitted Liens) heretofore, contemporaneously or subsequently suffered or granted by Mortgagor, its legal representatives, successors or assigns, except only those, if any, expressly hereinafter referred to and that the Mortgaged Property is to be held, dealt with and disposed of by Mortgagee, upon and subject to the terms, covenants, conditions, uses and agreements set forth in this Mortgage. PROVIDED ALWAYS, that upon payment in full of the Obligations in accordance with the terms and provisions hereof and of the other Secured Debt Documents and the observance and performance by Mortgagor of its covenants and agreements set forth herein and therein, then this Mortgage and the estate hereby and therein granted shall be cancelled and surrendered and shall be reconveyed as provided herein below. ARTICLE 1 - DEFINITIONS 1.1 Defined Terms. 11 Capitalized terms used in this Mortgage and not otherwise defined herein shall have the meanings assigned to them in the Collateral Trust Agreement. Any term defined by reference to an agreement, instrument or other document shall have the meaning so assigned to it whether or not such document is in effect. In addition, for purposes of this Mortgage, the following definitions shall apply: "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the 4 force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. "Default Rate" has the meaning ascribed to it in the Secured Debt Documents. "Easements" has the meaning ascribed to it in the Granting Clauses. "Equipment" has the meaning ascribed to it in the Granting Clauses. "Event of Default" means an Actionable Default as defined under the Collateral Trust Agreement. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. "Ground Lease" has the meaning ascribed to it in the Granting Clauses. "Improvements" has the meaning ascribed to it in the Granting Clauses. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Mortgagor, or the Mortgaged Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Mortgagor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Mortgagor, or the Mortgaged Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Mortgaged Property. "Mortgaged Property" has the meaning ascribed to it in the Granting Clauses. "Obligations" has the meaning ascribed to it in the Granting Clauses. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. "Permitted Lien" means the outstanding liens, easements, building lines, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters (if any) as set forth in the Secured Debt Documents. 5 "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Proceeds" has the meaning assigned to it under the UCC and, in any event, shall include, without limitation, (i) any and all proceeds of any insurance (including, without limitation, property casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Mortgaged Property; (ii) any and all proceeds in the form of accounts (as such term is defined in the UCC), security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, letters of credit, chattel paper, liens and security instruments, guaranties or general intangibles relating in whole or in part to the Mortgaged Property and all rights and remedies of whatever kind or nature Mortgagor may hold or acquire for the purpose of securing or enforcing any obligation due Mortgagor thereunder. "Project" means that certain 500 MW (approximately) power generating facility located on the Real Property. "Real Property" has the meaning ascribed to it in the Granting Clauses. "Secured Debt Documents" has the meaning ascribed it in the Collateral Trust Agreement. "Site" has the meaning ascribed to it in the Granting Clauses. "State" means that state in which the Site is located. "Tangible Collateral" has the meaning ascribed to it in the Granting Clauses. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of Florida, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. 1.2 Accounting Terms. As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined herein shall have the respective meanings given to them under GAAP. ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS 2.1 Mortgagor Performance of Secured Debt Documents. Mortgagor shall perform, observe and comply with each and every provision hereof, and with each and every provision contained in the Secured Debt Documents and shall promptly pay, when payment shall become due, the principal with interest thereon and all other sums required to be paid by Mortgagor under this 6 Mortgage and the other Secured Debt Documents at the time and in the manner provided in the Secured Debt Documents. 2.2 General Representations, Covenants and Warranties. Mortgagor, to the best of its knowledge, represents, covenants and warrants that as of the date hereof: (a) Mortgagor has good and marketable title to that portion of the Real Property which constitutes real property interests including the Ground Lease and the leasehold estate created thereby, free and clear of all encumbrances except Permitted Liens with respect to the Site, the Ground Lease and other matters which, individually and in the aggregate, do not have a materially adverse effect upon the ownership or operation of the Site; (b) Mortgagor has the right to hold, occupy and enjoy its interest in the Real Property on and subject to the terms and conditions of the Ground Lease, and has good right, full power and lawful authority to grant the same as provided herein, and Mortgagee may at all times peaceably and quietly enter upon, hold, occupy and enjoy the Real Property in accordance with the terms hereof; (c) except as otherwise disclosed in the Secured Debt Documents, all costs arising from construction of any improvements, the performance of any labor and the purchase of all Mortgaged Property have been or shall be paid when due; (d) the Site has access for ingress and egress to dedicated street(s); and (e) no material part of the Mortgaged Property has been damaged, destroyed, condemned or abandoned. 2.3 Compliance with Legal Requirements. Mortgagor shall promptly comply in all material respects with all Legal Requirements relating to its use and occupancy of the Mortgaged Property, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Mortgaged Property. 2.4 Insurance; Application of Insurance Proceeds; Application of Eminent Domain Proceeds. 2.4.1 Mortgagor shall carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Mortgagor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Mortgaged Property, is located, insurance in respect of the Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of revenues) with limits and sublimits as appropriate; provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Mortgagee as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Mortgagee as its interest may appear, which proceeds are hereby assigned to Mortgagee, it being agreed by Mortgagor that such payments shall be applied A) if there be no Event of Default existing or which would exist 7 but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Mortgaged Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Mortgagee shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Mortgagor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, materially endorsed, materially altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer, their authorized representative or Mortgagor shall have first given Mortgagee and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Mortgagee may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Mortgagee shall be furnished with a certificate evidencing such coverage in form and content as are customary in the industry. All policies to be maintained under this Mortgage are to be issued on forms and by companies and with endorsements as are customary in the industry. Mortgagor shall maintain insurance in an amount sufficient to prevent Mortgagor from becoming a co-insurer under any policy required hereunder. If Mortgagor fails to maintain the level of insurance required under this Mortgage, then Mortgagor shall and hereby agrees to indemnify Mortgagee to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; 2.4.2 All insurance proceeds and all eminent domain proceeds shall be paid and/or shall be applied in accordance with the provisions of the Secured Debt Documents. 2.5 Assignment of Rents. Mortgagor unconditionally and absolutely assigns to Mortgagee all of Mortgagor's right, title and interest in and to: all leases, subleases, occupancy agreements, licenses, rental contracts and other similar agreements now or hereafter existing relating to the use or occupancy of the Mortgaged Property, together with all guarantees, modifications, extensions and renewals thereof; and all rents, issues, profits, income and proceeds due or to become due from tenants of the Mortgaged Property (the "Leases"), including rentals and all other payments of any kind under any leases now existing or hereafter entered into, together with all deposits (including security deposits) of tenants thereunder. This is an absolute assignment to Mortgagee and not an assignment as security for the performance of the obligations under the Secured Debt Documents, or any other indebtedness. Subject to the provisions of herein below, Mortgagee shall have the right, power and authority to, but shall not be obligated to: notify any person that the Leases have been assigned to Mortgagee and that all rents and other obligations are to be paid directly to Mortgagee, whether or not Mortgagee has commenced or completed foreclosure or taken possession of the Mortgaged Property; settle compromise, release, extend the time of payment of, and make allowances, adjustments and discounts of any rents or other obligations under the Leases; enforce payment of rents and other rights under the Leases, prosecute any action or proceeding, and defend against any claim with respect to rents and Leases; enter upon, take possession of and operate the Mortgaged Property; lease all or any part of the Mortgaged Property; and/or perform any and all obligations of Mortgagor under the Leases and exercise any and all rights of Mortgagor therein contained to the full extent of Mortgagor's rights and obligations thereunder, with or without the bringing of any action or the appointment of a receiver. At Mortgagee's request, Mortgagor shall deliver a copy of this Mortgage to each tenant under a Lease. 8 Mortgagor irrevocably directs any tenant, without any requirement for notice to or consent by Mortgagor, to comply with all demands of Mortgagee under this Section 2.5 and to turn over to Mortgagee on demand all rents which it receives. Mortgagee shall have the right, but not the obligation, to use and apply all rents received hereunder in such order and such manner as Mortgagee may determine in accordance with the Collateral Trust Agreement. Notwithstanding that this is an absolute assignment of the rents and Leases and not merely the collateral assignment of, or the grant of a lien or security interest in the rents and Leases, Mortgagee grants to Mortgagor a revocable license to collect and receive the rents and to retain, use and enjoy such rents. Such license may be revoked by Mortgagee only upon the occurrence of any Event of Default. Mortgagor shall apply any rents which it receives to the payment due under the Obligations, taxes, assessments, water charges, sewer rents and other governmental charges levied, assessed or imposed against the Mortgaged Property, insurance premiums, and other obligations of lessor under the Leases before using such proceeds for any other purpose. 2.6 Rejection of Ground Lease by Lessor. To the extent applicable, if the lessor under the Ground Lease rejects or disaffirms the Ground Lease or purports or seeks to disaffirm the Ground Lease pursuant to any bankruptcy law, then: 2.6.1 To the extent permitted by law, Mortgagor shall remain in possession of the Real Property demised under the Ground Lease and shall perform all acts reasonably necessary for Mortgagor to remain in such possession for the unexpired term of such Ground Lease (including all renewals), whether the then existing terms and provisions of such Ground Lease require such acts or otherwise; and 2.6.2 All the terms and provisions of this Mortgage and the lien created by this Mortgage shall remain in full force and effect and shall extend automatically to all of Mortgagor's rights and remedies arising at any time under, or pursuant to, any bankruptcy or insolvency laws, including all of Mortgagor's rights to remain in possession of the Real Property. 2.7 Expenses. Mortgagor shall indemnify Mortgagee with respect to any transaction or matter in any way connected with any portion of the Mortgaged Property, or Mortgagor's use, occupancy, or operation of the Mortgaged Property in accordance with the Collateral Trust Agreement. 2.8 Mortgagee Assumes No Obligations. It is expressly agreed that, anything herein contained to the contrary notwithstanding, Mortgagor shall remain obligated under all agreements which are included in the definition of "Mortgaged Property" and shall perform all of its obligations thereunder in accordance with the provisions thereof, and neither Mortgagee nor any of the Secured Debtholders shall have any obligation or liability with respect to such obligations of Mortgagor, nor shall Mortgagee or any of the Secured Debtholders be required or obligated in any manner to perform or fulfill any obligations or duties of Mortgagor under such agreements, or to make any payment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or take any action to collect or enforce the payment of any amounts which have been assigned to Mortgagee hereunder or to which Mortgagee or the Secured Debtholders may be entitled at any time or times. 9 2.9 Further Assurances. Mortgagor shall, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Mortgagee may reasonably request, in order to perfect and continue the lien and security interest granted hereby and to enable Mortgagee to obtain the full benefits of the lien and security interest granted or intended to be granted hereby. Mortgagor shall keep the Mortgaged Property free and clear of all Liens, other than Permitted Liens. Without limiting the generality of the foregoing, Mortgagor shall execute and record or file this Mortgage and each amendment hereto, and such financing or continuation statements, or amendments thereto, and such other instruments, endorsements or notices, as may be necessary, or as Mortgagee may reasonably request, in order to perfect and preserve the lien and security interest granted or purported to be granted hereby. Mortgagor hereby authorizes Mortgagee to file one or more financing statements or continuation statements, and amendments thereto, relative to all or any part of the Mortgaged Property necessary to preserve or protect the lien and security interest granted hereby without the signature of Mortgagor where permitted by law. 2.10 Acts of Mortgagor. Except as provided in or permitted by the Secured Debt Documents, Mortgagor hereby represents and warrants that it has not granted, mortgaged, hypothecated, assigned or pledged and hereby covenants that it will not grant, mortgage, hypothecate, assign or pledge, so long as this Mortgage shall remain in effect, any of its right, title or interest in and to the Mortgaged Property or any part thereof, other than Permitted Liens, to anyone other than Mortgagee. 2.11 After-Acquired Property. Any and all of the Mortgaged Property which is hereafter acquired shall immediately, without any further conveyance, assignment or act on the part of Mortgagor or Mortgagee, become and be subject to the lien and security interest of this Mortgage as fully and completely as though specifically described herein, but nothing contained in this Section 2.11 shall be deemed to modify or change the obligations of Mortgagor under Section 2.9 hereof. If and whenever from time to time Mortgagor shall hereafter acquire any real property or interest therein which constitutes or is intended to constitute part of the Mortgaged Property hereunder, Mortgagor shall promptly give notice thereof to Mortgagee and Mortgagor shall forthwith execute, acknowledge and deliver to Mortgagee a supplement to this Mortgage subjecting the property so acquired to the lien of this Mortgage. 2.12 Mortgaged Property. 2.12.1 Mortgagor shall pay or cause to be paid all rent and other charges required under the Ground Lease as and when the same are due and shall promptly and faithfully perform or cause to be performed all other material terms, obligations, covenants, conditions, agreements, indemnities and liabilities of Mortgagor under the Ground Lease. Mortgagor shall observe all applicable covenants, easements and other restrictions of record with respect to the Site, the Easements or to any other part of the Mortgaged Property, in all material respects. 2.12.2 Mortgagor shall do, or cause to be done, all things necessary to preserve and keep unimpaired all rights of Mortgagor as lessee under the Ground Lease, and to prevent any default under the Ground Lease, or any termination, surrender, cancellation, forfeiture, subordination or impairment thereof. Mortgagor does hereby authorize and irrevocably appoint and 10 constitute Mortgagee as its true and lawful attorney-in-fact, which appointment is coupled with an interest, in its name, place and stead, to take any and all actions deemed necessary or desirable by Mortgagee to perform and comply with all the obligations of Mortgagor under the Ground Lease, and to do and take upon the occurrence and during continuation of an Event of Default, but without any obligation so to do or take, any action which Mortgagee deems reasonably necessary to prevent or cure any default by Mortgagor under the Ground Lease, to enter into and upon the Real Property and Improvements or any part thereof as provided in the Secured Debt Documents in order to prevent or cure any default of Mortgagor pursuant thereto, to the end that the rights of Mortgagor in and to the leasehold estate created by the Ground Lease shall be kept free from default. 2.12.3 Mortgagor shall use all reasonable efforts to enforce the obligations of the lessor under the Ground Lease in a commercially reasonable manner. 2.12.4 Mortgagor shall not voluntarily surrender its leasehold estate and interest under the Ground Lease or modify, change, supplement, alter or amend the Ground Lease or affirmatively waive any provisions thereof, either orally or in writing, except as permitted in the Secured Debt Documents, and any attempt on the part of Mortgagor to do any of the foregoing without the written consent of Mortgagee shall be null and void. 2.12.5 If any action or proceeding shall be instituted to evict Mortgagor or to recover possession of the Mortgaged Property or any part thereof or interest therein from Mortgagor or any action or proceeding otherwise affecting the Mortgaged Property or this Mortgage shall be instituted, then Mortgagor shall, immediately after receipt, deliver to Mortgagee a true and complete copy of each petition, summons, complaint, notice of motion, order to show cause and all other pleadings and papers, however designated, served in any such action or proceeding. 2.12.6 Mortgagor covenants and agrees that the fee title to the Real Property and Improvements and the leasehold estate created under the Ground Lease shall not merge but shall always remain separate and distinct, notwithstanding the union of said estates either in Mortgagor or a third party by purchase or otherwise and, in case Mortgagor acquires the fee title or any other estate, title or interest in and to the Real Property and Improvements, the lien of this Mortgage shall, without further conveyance, simultaneously with such acquisition, be spread to cover and attach to such acquired estate and as so spread and attached shall be prior to the lien of any mortgage placed on the acquired estate after the date of this Mortgage. 2.12.7 No release or forbearance of any of Mortgagor's obligations under the Ground Lease by the lessor thereunder, shall release Mortgagor from any of its obligations under this Mortgage. 2.12.8 Mortgagor shall, within ten days after written demand from Mortgagee, deliver to Mortgagee proof of payment of all items that are required to be paid by Mortgagor under the Ground Lease, including, without limitation, rent, taxes, operating expenses and other charges. 2.12.9 The lien of this Mortgage shall attach to all of Mortgagor's rights and remedies at any time arising under or pursuant to bankruptcy or insolvency law, including, without limitation, all of Mortgagor's rights to remain in possession of the Mortgaged Property. Mortgagor 11 shall not elect to treat the Ground Lease as terminated under bankruptcy or insolvency law, and any such election shall be void. 2.12.9.1 If pursuant to bankruptcy or insolvency law, Mortgagor shall seek to offset against the rent reserved in the Ground Lease the amount of any damages caused by the nonperformance by the lessor or any other party of any of their respective obligations thereunder after the rejection by the lessor or such other party of the Ground Lease under any bankruptcy or insolvency law, then Mortgagor shall, prior to effecting such offset, notify Mortgagee of its intent to do so, setting forth the amount proposed to be so offset and the basis therefor. Mortgagee shall have the right to object to all or any part of such offset that, in the reasonable judgment of Mortgagee, would constitute a breach of the Ground Lease, and in the event of such objection, Mortgagor shall not effect any offset of the amounts found objectionable by Mortgagee. Neither Mortgagee's failure to object as aforesaid nor any objection relating to such offset shall constitute an approval of any such offset by Mortgagee. 2.12.9.2 If any action, proceeding, motion or notice shall be commenced or filed in respect of the lessor under the Ground Lease or any other party or in respect of the Ground Lease in connection with any case under any bankruptcy or insolvency law, then Mortgagee shall have the option to intervene in any such litigation with counsel of Mortgagee's choice. Mortgagee may proceed in its own name in connection with any such litigation, and Mortgagor agrees to execute any and all powers, authorizations, consents or other documents required by Mortgagee in connection therewith. 2.12.9.3 Mortgagor shall, after obtaining knowledge thereof, promptly notify Mortgagee of any filing by or against the lessor or other party with an interest in the Mortgaged Property of a petition under any bankruptcy or insolvency law. Mortgagor shall promptly deliver to Mortgagee, following receipt, copies of any and all notices, summonses, pleadings, applications and other documents received by Mortgagor in connection with any such petition and any proceedings relating thereto. 2.12.9.4 If there shall be filed by or against Mortgagor a petition under any bankruptcy or insolvency law, and Mortgagor, as lessee under the Ground Lease, shall determine to reject the Ground Lease pursuant to any bankruptcy or insolvency law, then Mortgagor shall give Mortgagee a notice of the date on which Mortgagor shall apply to the bankruptcy court for authority to reject the Ground Lease (such notice to be no later than twenty (20) days prior to such date). Mortgagee shall have the right, but not the obligation, to serve upon Mortgagor at any time prior to the date on which Mortgagor shall so apply to the bankruptcy court a notice stating that Mortgagee demands that Mortgagor assume and assign the Ground Lease to Mortgagee pursuant to any bankruptcy or insolvency law. If Mortgagee shall serve upon Mortgagor the notice described in the preceding sentence, to the extent permitted by law or Governmental Authority, Mortgagor shall not seek to reject the Ground Lease and shall comply with the demand provided for in the preceding sentence. In addition, effective upon the entry of an order for relief with respect to Mortgagor under any bankruptcy or insolvency law, Mortgagor hereby assigns and transfers to Mortgagee a non-exclusive right to apply to the bankruptcy court under any bankruptcy or insolvency law for an order extending the period during which the Ground Lease may be rejected or assumed; and shall (a) promptly notify Mortgagee of any default by Mortgagor in the performance or observance of 12 any of the terms, covenants or conditions on the part of Mortgagor to be performed or observed under the Ground Lease and of the giving of any written notice by the lessor thereunder to Mortgagor of any such default, and (b) promptly cause a copy of each written notice given to Mortgagor by the lessor under the Ground Lease to be delivered to Mortgagee. Mortgagee may rely on any notice received by it from any such lessor of any default by Mortgagor under the Ground Lease and may take such action as may be permitted by law or Governmental Authority to cure such default even though the existence of such default or the nature thereof shall be questioned or denied by Mortgagor or by any Person on its behalf. 2.13 Power of Attorney. Mortgagor does hereby irrevocably constitute and appoint Mortgagee, its true and lawful attorney (which appointment is coupled with an interest), with full power of substitution, for Mortgagor and in the name, place and stead of Mortgagor or in Mortgagee's own name, for so long as any of the Obligations are outstanding, to ask, demand, collect, receive, receipt for and sue for any and all rents, income and other sums which are assigned hereunder with full power to endorse the name of Mortgagor on all instruments given in payment or in part payment thereof, to settle, adjust or compromise any claims thereunder as fully as Mortgagor itself could do and file any claim or take any action or proceeding, either in its own name or in the name of Mortgagor or otherwise, as are necessary or appropriate to protect and preserve the right, title and interest of Mortgagee in and to such rents, income and other sums and the security intended to be afforded hereby; provided that Mortgagee shall not exercise such rights unless an Event of Default has occurred and is continuing. 2.14 Covenant to Pay. If an Event of Default has occurred and is continuing and such Event of Default could reasonably be expected to materially and adversely affect Mortgagee's interest hereunder in the Mortgaged Property or result in personal injury, then Mortgagee, among its other rights and remedies, shall have the right, but not the obligation, to pay, observe or perform the same, in whole or in part, and with such modifications as Mortgagee reasonably shall deem advisable. To the extent provided in the Secured Debt Documents, all sums, including, without limitation, reasonable attorneys fees, so expended or incurred by Mortgagee by reason of the default of Mortgagor, or by reason of the bankruptcy or insolvency of Mortgagor, as well as, without limitation, sums expended or incurred to sustain the lien or estate of this Mortgage or its priority, or to protect or enforce any rights of Mortgagee hereunder, or to recover any of the Obligations, or to complete construction of the Project for which the Secured Debt Documents are intended as financing, or for repairs, maintenance, alterations, replacements or improvements thereto or for the protection thereof, or for real estate taxes or other governmental assessments or charges against any part of the Mortgaged Property, or premiums for insurance of the Mortgaged Property, shall be entitled to the benefit of the lien on the Mortgaged Property as of the date of the recording of this Mortgage, shall be deemed to be added to and be part of the Obligations secured hereby, whether or not the result thereof causes the total amount of the Obligations to exceed the stated amount set forth in the second introductory paragraph of this Mortgage, and shall be repaid by Mortgagor as provided in the Secured Debt Documents. 2.15 Security Agreement. 2.15.1 This Mortgage shall also be a security agreement between Mortgagor and Mortgagee covering the Mortgaged Property constituting personal property or fixtures (hereinafter 13 collectively called "UCC Collateral") governed by the UCC in effect in the State as the same may be more specifically set forth in any financing statement delivered in connection with this Mortgage, and as further security for the payment and performance of the Obligations, Mortgagor hereby grants to Mortgagee a security interest in such portion of the Mortgaged Property to the full extent that the Mortgaged Property may be subject to the UCC. In addition to Mortgagee's other rights hereunder, Mortgagee shall have all rights of a secured party under the UCC. Mortgagor shall execute and deliver to Mortgagee all financing statements and such further assurances that may be required to establish, create, perfect (to the extent the same can be achieved by the filing of a financing statement) and maintain the validity and priority of Mortgagee's security interests, and Mortgagor shall bear all reasonable costs thereof, including all UCC searches. Except as otherwise provided in the Secured Debt Documents, if Mortgagee should dispose of any of the Mortgaged Property comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written notice by Mortgagee to Mortgagor shall be deemed to be reasonable notice; provided, however, Mortgagee may dispose of such property in accordance with the foreclosure procedures of this Mortgage in lieu of proceeding under the UCC. Mortgagee may, but shall not be obligated to, from time to time execute and deliver at Mortgagor's expense, all continuation statements, termination statements, amendments, partial releases, or other instruments relating to all financing statements by and between Mortgagor and Mortgagee. Except as otherwise provided in the Secured Debt Documents, if an Event of Default shall occur and is continuing, (a) Mortgagee, in addition to any other rights and remedies which it may have, may exercise immediately and without demand to the extent permitted by law, any and all rights and remedies granted to a secured party under the UCC including, without limiting the generality of the foregoing, the right to take possession of the UCC Collateral or any part thereof, and to take such other measures as may be necessary for the care, protection and preservation of such collateral and (b) upon request or demand of Mortgagee, Mortgagor shall at its expense, assemble the UCC Collateral and make it available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on demand, any and all expenses, including reasonable attorneys' fees and disbursements incurred or paid by Mortgagee in protecting the interest in the UCC Collateral and in enforcing the rights hereunder with respect to such UCC Collateral. 2.15.2 Mortgagor agrees, to the extent permitted by law, that: (i) all or a part of the Mortgaged Property are or are to become fixtures; and (ii) the address of Mortgagor is as set forth on the first page of this Mortgage. ARTICLE 3 - REMEDIES 3.1 Protective Advances. If an Event of Default shall have occurred and is continuing, then without thereby limiting Mortgagee's other rights or remedies, waiving or releasing any of Mortgagor's obligations, or imposing any obligation on Mortgagee, Mortgagee may, but shall not be obligated to, either advance any amount owing or perform any or all actions as may be necessary or appropriate to cure such default. All such advances shall constitute "Protective Advances." No sums advanced or performance rendered by Mortgagee shall cure, or be deemed a waiver of any Event of Default. 3.2 Institution of Equity Proceedings. If an Event of Default occurs and is continuing, Mortgagee may institute an action, suit or proceeding in equity for specific performance of this 14 Mortgage or any other Secured Debt Document, all of which shall be specifically enforceable by injunction or other equitable remedy. 3.3 Mortgagee's Power of Enforcement. 3.3.1 If an Event of Default occurs and is continuing, Mortgagee may, but shall not be obligated to, with respect to Mortgagee's equitable remedies set forth herein and as permitted under Florida law, subject to the terms and provisions of the Secured Debt Documents, exercise any or all of the following rights, remedies and recourses: 3.3.2 Declare the Obligations to be immediately due and payable, and upon such declaration such principal and interest and other sums shall immediately become due and payable without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Mortgagor); provided, however, that such acceleration shall be automatic if the Event of Default is caused by a bankruptcy of Mortgagor. 3.3.3 Enter the Mortgaged Property and take exclusive possession thereof and may have joint access with Mortgagor to the books, records and accounts relating thereto, without liability for trespass, damages or otherwise. If Mortgagor remains in possession of the Mortgaged Property after an Event of Default and without Mortgagee's prior written consent, Mortgagee may invoke any legal remedies to dispossess Mortgagor. Mortgagor shall pay to Mortgagee, upon demand, all costs and expenses of invoking such legal remedies and reasonable compensation to Mortgagee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien of this Mortgage. 3.3.4 Hold, lease, control, develop, manage, operate or otherwise use the Mortgaged Property upon such terms and conditions as reasonable under the circumstances but without being under any duty to so act: (a) make all necessary and proper maintenance, repairs, renewals and replacements thereto and thereon, and all necessary additions, betterments and improvements thereto and thereon and purchase or otherwise acquire fixtures, personalty and other property in connection therewith; (b) insure or keep the Mortgaged Property insured; (c) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor in its name or otherwise with respect to the same; (d) enter into agreements with others to exercise the powers herein granted Mortgagee, all as Mortgagee from time to time may determine; and shall apply the monies so received by Mortgagee in such priority as provided by Secured Debt Documents payable to the; (e) rent or sublet the Mortgaged Property or any portion thereof for any purpose permitted by this Mortgage. 15 Mortgagee shall surrender possession of the Mortgaged Property to Mortgagor (i) as may be required by law or court order, or (ii) when all amounts under any of the terms of the Secured Debt Documents, including this Mortgage, shall have been paid current and all Events of Default have been cured or waived. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. 3.3.5 Institute proceedings for the complete foreclosure of this Mortgage, in which case the Mortgaged Property may be sold for cash or credit in one or more parcels. With respect to any notices required or permitted under the UCC, Mortgagor agrees that ten (10) days prior written notice shall be deemed commercially reasonable. At any such sale by virtue of any judicial proceedings or any other legal right, remedy or recourse, the title to and right of possession of any such property shall pass to the purchaser thereof, and to the fullest extent permitted by law, Mortgagor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against Mortgagor, and against all other persons claiming or to claim the property sold or any part thereof, by, through or under Mortgagor. Mortgagee, the Secured Debtholders or their nominee may be a purchaser at such sale and if Mortgagee, the Secured Debtholders or such nominee is the highest bidder, may credit the portion of the purchase price that would be distributed to Mortgagee (on behalf of the Secured Debtholders) against the Obligations in lieu of paying cash. 3.3.6 Mortgagee, to the extent permitted by law, and without regard to the value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, may elect to the appoint a receiver to enter upon and take possession of the Mortgaged Property and to collect all earnings, revenues and receipts and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Mortgagee. To the extent permitted by law, or governmental rule or the Secured Debt Documents, Mortgagee may have a receiver appointed without notice to Mortgagor or any third party, and Mortgagee may waive any requirement that the receiver post a bond. To the extent permitted by law, or governmental rule or the Secured Debt Documents, Mortgagee shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. To the extent permitted by law, or governmental rule or the Secured Debt Documents, any receiver appointed on Mortgagee's behalf may be an affiliate of Mortgagee. The reasonable expenses, including receiver's fees, reasonable attorneys' fees, costs and agent's compensation, incurred pursuant to the powers herein contained shall be secured by this Mortgage. The right to enter and take possession of and to manage and operate the Mortgaged Property and to collect all earnings, revenues and receipts, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Mortgagee under this Mortgage, the other Secured Debt Documents or otherwise available to Mortgagee and may be exercised concurrently therewith or independently thereof, but such rights shall be exercised in a manner which is otherwise in accordance with and consistent with the Secured Debt Documents. Mortgagee shall be liable to account only for such earnings, revenues and receipts (including, without limitation, security deposits) actually received by Mortgagee, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Mortgagee shall be entitled 16 as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Mortgage to, Mortgagee. 3.3.7 If an Event of Default occurs and is continuing, Mortgagee may institute an action, suit or proceeding in equity for specific performance of this Mortgage or any other Secured Debt Document, all of which shall be specifically enforceable by injunction or other equitable remedy Mortgagee may determine. 3.3.8 The remedies described in this Section 3.3 may be exercised with respect to all or any portion of the UCC Collateral, either simultaneously with the judicial foreclosure of any real property encumbered hereby or independent thereof. Mortgagee may at any time be permitted to proceed with respect to all or any portion of the UCC Collateral in any manner permitted by the UCC. Mortgagor agrees that Mortgagee's inclusion of all or any portion of the UCC Collateral in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. 3.4 Mortgagee's Right to Enter and Take Possession, Operate and Apply Income. (a) If an Event of Default occurs and is continuing, Mortgagor, upon demand of Mortgagee, shall forthwith surrender to Mortgagee the actual possession and, if and to the extent permitted by law, Mortgagee itself, or by such officers or agents as it may appoint, may enter and take possession of all of the Mortgaged Property, including the Tangible Collateral, without liability for trespass, damages or otherwise, and may exclude Mortgagor and its agents and employees wholly therefrom and may have joint access with Mortgagor to the books, papers and accounts of Mortgagor. (b) If an Event of Default has occurred and is continuing and Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after Mortgagee's demand, Mortgagee may obtain a judgment or decree conferring on Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of all or part of such property to Mortgagee and Mortgagor hereby specifically consents to the entry of such judgment or decree. Mortgagor shall pay to Mortgagee, upon demand, all costs and expenses of obtaining such judgment or decree and reasonable compensation to Mortgagee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien, security title and security interest of this Mortgage. (c) Upon every such entering upon or taking of possession, Mortgagee may hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof, and, from time to time without being under any duty to so act, may: (1) make all necessary and proper maintenance, repairs, renewals and replacements thereto and thereon, and all necessary additions, betterments and improvements thereto and thereon and purchase or otherwise acquire fixtures, personalty and other property in connection therewith; (2) insure or keep the Mortgaged Property insured; 17 (3) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Mortgagee, all as Mortgagee from time to time may determine; and shall apply the monies so received by Mortgagee in such priority as provided by the Secured Debt Documents to (1) the payment of interest and principal due and payable to the Mortgagee, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Mortgaged Property or any part thereof; (4) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Mortgagee as allowed under this Mortgage; and (5) any other charges or costs required to be paid by Mortgagor under the terms of the Secured Debt Documents. (5) rent or sublet the Mortgaged Property or any portion thereof for any purpose permitted by this Mortgage. Mortgagee shall surrender possession of the Mortgaged Property to Mortgagor (i) as may be required by law or court order, or (ii) when all amounts under any of the terms of the Secured Debt Documents, including this Mortgage, shall have been paid current and all Events of Default have been cured or waived. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. 3.5 Separate Sales. To the extent permitted by law or Governmental Authority, the Mortgaged Property may be sold in one or more parcels and in such manner and order as Mortgagee, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. 3.6 Waiver of Appraisement, Moratorium, Valuation, Stay, Extension and Redemption Laws. Mortgagor agrees to the full extent permitted by law that if an Event of Default occurs and is continuing, neither Mortgagor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, moratorium, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Mortgagor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Mortgaged Property marshalled upon any foreclosure of the lien hereof and agrees that Mortgagee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property in part or as an entirety. 3.7 Receiver. If an Event of Default occurs and is continuing, Mortgagee, to the extent permitted by law, and without regard to the value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, shall be entitled as a matter of right, but shall not be obligated to, if it so elects to the appointment of a receiver to enter upon and take possession of the Mortgaged Property and to collect all earnings, revenues and receipts and apply the same as the 18 court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Mortgagee. To the extent permitted by law, Mortgagee may have a receiver appointed without notice to Mortgagor or any third party, and Mortgagee may waive any requirement that the receiver post a bond. To the extent permitted by law, Mortgagee shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. To the extent permitted by law, any receiver appointed on Mortgagee's behalf may be an Affiliate of Mortgagee. The reasonable expenses, including receiver's fees, reasonable attorneys' fees, costs and agents' compensation, incurred pursuant to the powers herein contained shall be secured by this Mortgage. The right to enter and take possession of and to manage and operate the Mortgaged Property and to collect all earnings, revenues and receipts, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Mortgagee under this Mortgage, the other Secured Debt Documents or otherwise available to Mortgagee and may be exercised concurrently therewith or independently thereof, but such rights shall be exercised in a manner which is otherwise in accordance with and consistent with the Secured Debt Documents. Mortgagee shall be liable to account only for such earnings, revenues and receipts (including, without limitation, security deposits) actually received by Mortgagee, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Mortgagee shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Mortgage to, Mortgagee. 3.8 Suits to Protect the Mortgaged Property. Mortgagee shall have the power and authority but shall not be obligated to institute and maintain any suits and proceedings as may be advisable (a) to prevent any impairment of the Mortgaged Property by any acts which may be unlawful or in violation of this Mortgage, (b) to preserve or protect its interest in the Mortgaged Property, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Mortgagee's interest. 3.9 Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Mortgagor, any Affiliate or any guarantor, co-maker or endorser of any of Mortgagor's obligations, its creditors or its property, Mortgagee, to the extent permitted by law, shall be entitled but shall not be obligated to file such proofs of claim or other documents as may be necessary or advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Mortgagor under the Secured Debt Documents, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Mortgagor after such date. 3.10 Mortgagor to Pay Amounts Secured Hereby on Any Default in Payment; Application of Monies by Mortgagee. (a) In case of a foreclosure sale of all or any part of the Mortgaged Property and of the application of the proceeds of sale to the payment of the sums secured hereby, to the extent permitted by law, the Secured Debtholders shall be entitled to enforce payment from Mortgagor of 19 any additional amounts then remaining due and unpaid and to recover judgment against Mortgagor for any portion thereof remaining unpaid, with interest at the Default Rate. (b) Mortgagor hereby agrees to the extent permitted by law, that no recovery of any such judgment by the Secured Debtholders or other action by the Secured Debtholders and no attachment or levy of any execution upon any of the Mortgaged Property or any other property shall in any way affect the Lien and security interest of this Mortgage upon the Mortgaged Property or any part thereof or any Lien, rights, powers or remedies of Mortgagee hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. (c) Any monies collected or received by Mortgagee under this Section 3.10 shall be first applied to the payment of compensation, expenses and disbursements of the agents, attorneys and other representatives of the Mortgagee and the Secured Debtholders, and the balance remaining shall be applied as provided in the Collateral Trustee Agreement. 3.11 Delay or Omission; No Waiver. No delay or omission of Mortgagee or the Secured Debtholders to exercise any right, power or remedy upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Mortgagee whether contained herein or in the other Secured Debt Documents or otherwise available to Mortgagee may be exercised from time to time and as often as may be deemed expedient by Mortgagee. 3.12 No Waiver of One Default to Affect Another. No waiver of any defaults hereunder shall extend to or affect any subsequent or any other defaults then existing, or impair any rights, powers or remedies consequent thereon. If Mortgagee (a) grants forbearance or an extension of time for the payment of any sums secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in this Mortgage or any other Secured Debt Document; (d) releases any part of the Mortgaged Property from the lien or security interest of this Mortgage or any other instrument securing the Obligations; (e) consents to the filing of any map, plat or replat of the Real Property or any part thereof; (f) consents to the granting of any easement on the Real Property; or (g) makes or consents to any agreement changing the terms of this Mortgage or any other Secured Debt Document subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the liability under this Mortgage or any other Secured Debt Document or otherwise of Mortgagor, or any subsequent purchaser of the Mortgaged Property or any part thereof or any maker, co-signer, surety or guarantor with respect to any other matters not addressed by such act or omission. No such act or omission shall preclude Mortgagee from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Mortgagee, shall the lien or security interest of this Mortgage be altered thereby, except to the extent expressly provided in such acts or omissions. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Mortgaged Property, Mortgagee, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Mortgaged Property or the indebtedness secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any of the liabilities or 20 undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Mortgage or any other Secured Debt Document, (i) in the case of any non-monetary default, Mortgagee may continue to accept payments due hereunder without thereby waiving the existence of such or any other default and (ii) in the case of any monetary Event of Default, Mortgagee may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. 3.13 Discontinuance of Proceedings; Position of Parties Restored. If Mortgagee shall have proceeded to enforce any right or remedy under this Mortgage by foreclosure, entry of judgment or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Mortgagee, then and in every such case Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Mortgagee shall continue as if no such proceedings had occurred or had been taken. 3.14 Remedies Cumulative. Subject to the provisions of Section 4.15 hereof, no right, power or remedy, including without limitation remedies with respect to any security for the Obligations, conferred upon or reserved to Mortgagee by this Mortgage or any other Secured Debt Document is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under any other Secured Debt Document, now or hereafter existing at law, in equity or by statute, and Mortgagee shall be entitled to resort to such rights, powers, remedies or security as Mortgagee may deem advisable. 3.15 Interest After Event of Default. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Secured Debt Documents, including this Mortgage, may bear interest at the Default Rate until such Event of Default has been cured. Mortgagor's obligation to pay such interest shall be secured by this Mortgage. 3.16 Foreclosure; Expenses of Litigation. If Mortgagee forecloses, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be allowed to the Mortgagee as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Mortgagee for attorneys' fees, appraisers' fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guarantees, and similar data and assurances with respect to title as are necessary either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Mortgaged Property or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Mortgaged Property and the maintenance of the lien and security interest of this Mortgage, including the reasonable fees of any attorney employed by Mortgagee in any litigation or proceeding affecting this Mortgage or any other Secured Debt Document, the Mortgaged Property or any portion thereof, including, without limitation, civil, 21 probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Mortgagor, with interest thereon at the Default Rate, and shall be secured by this Mortgage. Mortgagee waives its right to any statutory fee in connection with any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee for such services. 3.17 Deficiency Judgments. If after foreclosure of this Mortgage, there shall remain any deficiency with respect to any amounts payable under the Secured Debt Documents, including hereunder, or any amounts secured hereby, and Mortgagee may institute any proceedings to recover such deficiency or deficiencies, all such amounts shall continue to bear interest at the Default Rate. Mortgagor waives any defense to Mortgagee's recovery against Mortgagor of any deficiency after any foreclosure sale of the Mortgaged Property. To the extent permitted by law, Mortgagor expressly waives any defense or benefits that may be derived from any statute granting Mortgagor any defense to any such recovery by Mortgagee. In addition, Mortgagee shall be entitled to recovery of all of its reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including their reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 3.16 above. This provision shall survive any foreclosure or sale of the Mortgaged Property, any portion thereof and/or the extinguishment of the lien hereof. 3.18 Waiver of Jury Trial. Mortgagee and Mortgagor each waive any right to have a jury participate in resolving any dispute whether sounding in contract, tort or otherwise arising out of, connected with, related to or incidental to the relationship established between them in connection with this Mortgage or any other Secured Debt Document. Any such disputes shall be resolved in a bench trial without a jury. 3.19 Exculpation of Mortgagee. The acceptance by Mortgagee of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Mortgaged Property by Mortgagee, be deemed or construed to make Mortgagee a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Mortgagee to appear in or defend any action or proceeding relating to the Mortgaged Property, nor shall Mortgagee, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Mortgaged Property. ARTICLE 4 - GENERAL 4.1 Discharge. When all of the Obligations shall have been paid in full, then this Mortgage and the lien and security interest created hereby shall be of no further force and effect, Mortgagor shall be released from the covenants, agreements and obligations of Mortgagor contained in this Mortgage and all right, title and interest in and to the Mortgaged Property shall revert to Mortgagor. Mortgagee, at the request and the expense of Mortgagor, shall promptly execute a deed of reconveyance and such other documents as may be reasonably requested by Mortgagor to evidence the discharge and satisfaction of this Mortgage and the release of Mortgagor from its obligations hereunder. 22 4.2 No Waiver. The exercise of the privileges granted in this Mortgage to perform Mortgagor's obligations under the agreements which constitute the Mortgaged Property shall in no event be considered or constitute a waiver of any right which Mortgagee may have at any time, after an Event of Default shall have occurred and be continuing, to declare the Obligations to be immediately due and payable. No delay or omission to exercise any right, remedy or power accruing upon any default shall impair any such right, remedy or power or shall be construed to be a waiver of any such default or acquiescence therein; and every such right, remedy and power may be exercised from time to time and as often as may be deemed expedient. 4.3 Extension, Rearrangement or Renewal of Obligations. It is expressly agreed that any of the Obligations at any time secured hereby may be from time to time extended for any period, or with the consent of Mortgagor rearranged or renewed, and that any part of the security herein described, or any other security for the Obligations, may be waived or released, without altering, varying or diminishing the force, effect or lien or security interest of this Mortgage; and the lien and security interest granted by this Mortgage shall continue as a prior lien and security interest on all of the Mortgaged Property not expressly so released, until the Obligations are fully paid and this Mortgage is terminated in accordance with the provisions hereof; and no other security now existing or hereafter taken to secure the payment of the Obligations or any part thereof or the performance of any obligation or liability of Mortgagor whatever shall in any manner impair or affect the security given by this Mortgage; and all security for the payment of the Obligations or any part thereof and the performance of any obligation or liability shall be taken, considered and held as cumulative. 4.4 Forcible Detainer. Mortgagor agrees for itself and all Persons claiming by, through or under it, that subsequent to foreclosure hereunder in accordance with this Mortgage and applicable law if Mortgagor shall hold possession of the Mortgaged Property or any part thereof, Mortgagor or the Persons so holding possession shall be guilty of trespass; and any such Person (including Mortgagor) failing or refusing to surrender possession upon demand shall be guilty of forcible detainer and shall be liable to Mortgagee or any purchaser in foreclosure, as applicable, for reasonable rental on said premises, and shall be subject to eviction and removal in accordance with law. 4.5 Waiver of Stay or Extension. To the extent permitted to be waived by law, Mortgagor shall not at any time insist upon or plead or in any manner whatever claim the benefit or advantage of any stay, extension or moratorium law now or at any time hereafter in force in any locality where the Mortgaged Property or any part thereof may or shall be situated, nor shall Mortgagor claim any benefit or advantage from any law now or hereafter in force providing for the valuation or appraisement of the Mortgaged Property or any part thereof prior to any sale thereof to be made pursuant to any provision of this Mortgage or to a decree of any court of competent jurisdiction, nor after any such sale shall Mortgagor claim or exercise any right conferred by any law now or at any time hereafter in force to redeem the Mortgaged Property so sold or any part thereof; and Mortgagor hereby expressly waives all benefit or advantage of any such law or laws and the appraisement of the Mortgaged Property or any part thereof, and covenants that Mortgagor shall not hinder or delay the execution of any power herein granted and delegated to Mortgagee but that Mortgagor shall permit the execution of every such power as though no such law had been made. 23 4.6 Notices. Except where certified or registered mail notice is required by applicable law, any notice to Mortgagor or Mortgagee required or permitted hereunder shall be deemed to be given when given in the manner prescribed in the Collateral Trust Agreement. 4.7 Severability. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Mortgage invalid, unenforceable or not entitled to be recorded, registered or filed under any applicable law. In the event any term or provision contained in this Mortgage is in conflict, or may hereafter be held to be in conflict, with the laws of the State or of the United States of America, this Mortgage shall be affected only as to such particular term or provision, and shall in all other respects remain in full force and effect. 4.8 Application of Payments. In the event that any part of the Obligations cannot lawfully be secured hereby, or in the event that the lien and security interest hereof cannot be lawfully enforced to pay any part of the Obligations, or in the event that the lien or security interest created by this Mortgage shall be invalid or unenforceable as to any part of the Obligations, then all payments on the Obligations shall be deemed to have been first applied to the complete payment and liquidation of that part of the Obligations which is not secured by this Mortgage and the unsecured portion of the Obligations shall be completely paid and liquidated prior to the payment and liquidation of the remaining secured portion of the Obligations. 4.9 GOVERNING LAW. THIS MORTGAGE IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA. 4.10 Amendments. This Mortgage may be amended, supplemented or otherwise modified only by an instrument in writing signed by Mortgagor and Mortgagee. 4.11 Successors and Assigns. All terms of this Mortgage shall run with the land and bind each of Mortgagor and Mortgagee and their respective successors and assigns, and all Persons claiming under or through Mortgagor or Mortgagee, as the case may be, or any such successor or assign, and shall inure to the benefit of Mortgagee and Mortgagor, and their respective successors and assigns. 4.12 Renewal, Etc. To the extent permitted under the other Secured Debt Documents, Mortgagee may, but shall not be obligated to, at any time and from time to time renew or extend this Mortgage, or alter or modify the same in any way, or waive any of the terms, covenants or conditions hereof in whole or in part and may release any portion of the Mortgaged Property or any other security, and grant such extensions and indulgences in relation to the Obligations as Mortgagee may determine, without the consent of any junior lienor or encumbrancer and without any obligation to give notice of any kind thereto and without in any manner affecting the priority of the lien and security interest hereof on any part of the Mortgaged Property; provided that nothing in this Section 4.12 shall grant Mortgagee the right to alter or modify the Mortgage without the consent of the Mortgagor unless otherwise specifically permitted in this Mortgage. 4.13 Future Advances. It is understood and agreed that this Mortgage secures, among other things, (i) the Priority Lien Debt (including future advances to be made with respect thereto), 24 and all other Obligations of Mortgagor under the Priority Lien Documents; (ii) the Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Parity Lien Documents; (iii) all Obligations under any other Priority Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs incurred by Mortgagee or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate therein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (v) any and all other indebtedness of Mortgagor to Mortgagee now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (vi) any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (i) through (iv) above, whether or not Mortgagor executes any extension agreement or renewal instrument, and that the lien of any such future advances shall relate to the date of this Mortgage. The maximum amount of future advances secured by this Mortgage is $75,000,000. 4.14 Liability. Notwithstanding any provision in this Mortgage to the contrary, none of Mortgagee or any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever. None of Mortgagee or any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Mortgagee or any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Mortgagor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 4.15 Severability and Compliance With Usury Law. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Applicable Laws and Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained, nor the application of such provision to other persons or circumstances, nor the other instruments referred to hereinabove, shall be affected thereby, but rather shall be enforceable to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of Mortgagor at all times to comply with the applicable State law governing the maximum rate or amount of interest payable on or in connection with the Obligations. If the Applicable Law is ever judicially interpreted so as to render usurious any amount called for under the Secured Debt Documents, or contracted for, charged, taken, reserved or received with respect to the extension of credit evidenced by the Secured Debt Documents or if acceleration of the maturity of the Obligations or if any prepayment by Mortgagor results in Mortgagor having paid any interest in excess of that permitted by law, then it is Mortgagor's express intent that all excess amounts theretofore collected by 25 Mortgagee be credited on the principal balance due under the Secured Debt Documents (or, if the Secured Debt Documents have been or would thereby be paid in full, refunded to Mortgagor), and the provisions of the Secured Debt Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. The right to accelerate maturity of Obligations does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Mortgagee may not collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Mortgagee for the use, forbearance or detention of the Obligations may, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Obligations until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the applicable usury ceiling. 4.16 Release of Collateral. Notwithstanding any provision herein to the contrary, the Mortgaged Property or any part thereof shall be released from the security interest created by this Mortgage in accordance with the provisions of the Collateral Trust Agreement. 4.17 Time of the Essence. Mortgagor acknowledges that time is of the essence in performing all of Mortgagor's obligations set forth herein. 4.18 Counterpart Execution. This Mortgage may be executed by the parties hereto in any number of counterparts (and be each of the parties hereof on separate counterparts), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 4.19 Reserved 4.20 Attorneys' Fees. Notwithstanding anything contained herein to the contrary, (i) "reasonable attorneys' fees" are not, and shall not be, statutory attorneys' fees under State law, (ii) if, under any circumstances Mortgagor is required hereunder to pay any or all of Mortgagee's attorneys' fees and expenses, Mortgagor shall be responsible only for actual legal fees and out of pocket expenses actually incurred by Mortgagee at customary hourly rates for the work done, and (iii) Mortgagor shall not be liable under any circumstances for additional attorneys' fees or expenses under the State law. 4.21 Fixture Filing Under Uniform Commercial Code. Mortgagor and Mortgagee agree, to the extent permitted by law, that: (i) this Mortgage upon recording or registration in the real estate records of the proper office shall constitute a financing statement filed as a "fixture filing" within the meaning of Sections 9-313 and 9-402 of the UCC; and (ii) the addresses of Mortgagor and Mortgagee are as set forth on the first page of this Mortgage. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 26 IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be duly executed and delivered as of the day and year first above written. MORTGAGOR: CALPINE CORPORATION, a Delaware corporation By: ____________________________________ Name: __________________________________ Title: _________________________________ 27 THE STATE OF ss. ss. COUNTY OF ss. This instrument was acknowledged before me on ___________________, 2003, by ___________________, as ___________________ of Calpine Corporation, a Delaware corporation. ________________________________________ Notary Public, State of ________________ My Commission Expires: _________________ ________________________________________ Printed Name of Notary 28 SANTA ROSA, FL EXHIBIT A (DESCRIPTION OF PREMISES) SANTA ROSA, FL EXHIBIT B (ACCESS EASEMENT DESCRIPTION) Grant of Easements, dated as of May 7, 2001, executed by Sterling Fibers, Inc., in favor of Santa Rosa Energy LLC, recorded on May 29, 2001 with the Public Records of Santa Rosa County, Florida in Book 1906, Page 1675. EX-10.34 26 f92357exv10w34.txt EXHIBIT 10.34 EXHIBIT 10.34 DEER PARK - TX RECORDING REQUESTED BY AND WHEN RECORDED, RETURN TO: Ane C. Priester LATHAM & WATKINS LLP 633 W. FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90017 ================================================================================ DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT AND FIXTURE FILING DATED AS OF JULY 16, 2003 BY CALPINE CORPORATION, A DELAWARE CORPORATION, AS TRUSTOR TO MALCOLM S. MORRIS, AS TRUSTEE FOR THE BENEFIT OF BANK OF NEW YORK, A NEW YORK BANKING CORPORATION, AS BENEFICIARY ================================================================================ THIS DEED OF TRUST IS GIVEN IN CONNECTION WITH A MULTISTATE TRANSACTION. THE INDEBTEDNESS SECURED HEREBY IS EVIDENCED BY A PROMISSORY NOTE EXECUTED OUTSIDE THE STATE OF TEXAS. RECOVERY UNDER THIS DEED OF TRUST IS LIMITED TO TWO BILLION FIVE HUNDRED MILLION DOLLARS ($2,500,000,000) IN PRINCIPAL PLUS INTEREST, PROTECTIVE ADVANCES AND COSTS OF COLLECTION IN CONNECTION THEREWITH. TABLE OF CONTENTS

Page ---- ARTICLE 1 - DEFINITIONS .......................................................................... 4 1.1 DEFINED TERMS ........................................................................... 4 1.2 ACCOUNTING TERMS ........................................................................ 6 ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS ..................................................... 7 2.1 TRUSTOR PERFORMANCE OF SECURED DEBT DOCUMENTS ........................................... 7 2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES ....................................... 7 2.3 COMPLIANCE WITH LEGAL REQUIREMENTS ...................................................... 7 2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS .... 7 2.5 ASSIGNMENT OF RENTS ..................................................................... 8 2.6 REJECTION OF GROUND LEASE BY LESSOR ..................................................... 9 2.7 EXPENSES ................................................................................ 9 2.8 BENEFICIARY ASSUMES NO OBLIGATIONS ...................................................... 9 2.9 FURTHER ASSURANCES ...................................................................... 10 2.10 ACTS OF TRUSTOR ......................................................................... 10 2.11 AFTER-ACQUIRED PROPERTY ................................................................. 10 2.12 TRUST ESTATE ............................................................................ 10 2.13 POWER OF ATTORNEY ....................................................................... 13 2.14 COVENANT TO PAY ......................................................................... 13 2.15 SECURITY AGREEMENT ...................................................................... 14 ARTICLE 3 - REMEDIES ............................................................................. 14 3.1 ACCELERATION OF MATURITY ................................................................ 14 3.2 PROTECTIVE ADVANCES ..................................................................... 15 3.3 INSTITUTION OF EQUITY PROCEEDINGS ....................................................... 15 3.4 BENEFICIARY'S POWER OF ENFORCEMENT ...................................................... 15 3.5 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME .............. 17 3.6 SEPARATE SALES .......................................................................... 18 3.7 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ...... 18 3.8 RECEIVER ................................................................................ 18 3.9 SUITS TO PROTECT THE TRUST ESTATE ....................................................... 19 3.10 PROOFS OF CLAIM ......................................................................... 19 3.11 TRUSTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY BENEFICIARY ................................................................... 19 3.12 DELAY OR OMISSION; NO WAIVER ............................................................ 20 3.13 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER .............................................. 20 3.14 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED ............................. 21 3.15 REMEDIES CUMULATIVE ..................................................................... 21 3.16 INTEREST AFTER EVENT OF DEFAULT ......................................................... 21 3.17 FORECLOSURE; EXPENSES OF LITIGATION ..................................................... 21 3.18 DEFICIENCY JUDGMENTS .................................................................... 22 3.19 WAIVER OF JURY TRIAL .................................................................... 22 3.20 EXCULPATION OF BENEFICIARY .............................................................. 22 3.21 FAIR MARKET VALUE DETERMINATION ......................................................... 22 ARTICLE 4 - GENERAL .............................................................................. 23

i 4.1 DISCHARGE ............................................................................... 23 4.2 NO WAIVER ............................................................................... 23 4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ...................................... 23 4.4 FORCIBLE DETAINER ....................................................................... 24 4.5 WAIVER OF STAY OR EXTENSION ............................................................. 24 4.6 NOTICES ................................................................................. 24 4.7 SEVERABILITY ............................................................................ 24 4.8 APPLICATION OF PAYMENTS ................................................................. 24 4.9 GOVERNING LAW ........................................................................... 25 4.10 ENTIRE AGREEMENT ........................................................................ 25 4.11 AMENDMENTS .............................................................................. 25 4.12 SUCCESSORS AND ASSIGNS .................................................................. 25 4.13 RENEWAL, ETC ............................................................................ 26 4.14 FUTURE ADVANCES ......................................................................... 26 4.15 LIABILITY ............................................................................... 26 4.16 SUCCESSOR TRUSTEE ....................................................................... 27 4.17 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE ........................................... 27 4.18 SEVERABILITY AND COMPLIANCE WITH USURY LAW .............................................. 27 4.19 RELEASE OF COLLATERAL ................................................................... 28 4.20 TIME OF THE ESSENCE ..................................................................... 28 4.21 COUNTERPART EXECUTION ................................................................... 28 4.22 LANDLORD'S INTEREST IN TRUST ESTATE ..................................................... 28 ii DEER PARK - TX DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT AND FIXTURE FILING This DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT AND FIXTURE FILING, dated as of July 16, 2003 (this "Deed of Trust") by CALPINE CORPORATION, a Delaware corporation ("Trustor"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to MALCOLM S. MORRIS, as trustee ("Trustee"), whose address is c/o Stewart Title Guaranty Company, 1980 Post Oak Blvd., Suite 110, Houston, Texas 77056, in favor of THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among Trustor, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("Beneficiary"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Deed of Trust" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. Recitals A. Trustor has entered into an Amended and Restated Credit Agreement dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Trustor, the Lenders referred to therein and The Bank of Nova Scotia as Administrative Agent, relating to a $500,000,000 senior secured credit facility made available in the form of revolving loans and term loans, including letters of credit issued thereunder. B. Trustor has (a) issued $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between Trustor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issued $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between Trustor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issued $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between Trustor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrowed $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between Trustor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"). C. As permitted pursuant to the Secured Debt Documents, Trustor may incur future debt which could, together with the obligations under the Credit Agreement, constitute Priority Lien Debt and Trustor may incur future debt which could, together with the 2007 Notes, 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Trustor intends to secure the obligations, including the obligations (a) under the Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, with liens and security interests in, among other collateral, the Trust Estate under the Existing Deed of Trust, as contemplated in the Collateral Trust Agreement. D. Trustor (i) is the owner of the interests in the lands described in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to use all of the buildings, improvements, structures and fixtures located on the lands described in Exhibit A and is executing and delivering this instrument in order to secure its Obligations (as defined below). Agreement NOW, THEREFORE, to secure the full performance and prompt and complete payment and performance when and as due and payable of all of the obligations and liabilities of Trustor to Beneficiary, by acceleration or otherwise, arising out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010 Indenture, the 2013 Indenture, the Term Loan Agreement and the obligations of Trustor set forth herein (collectively, the "Obligations,") and in consideration of the covenants herein and therein, Trustor, intending to be legally bound, does hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage, pledge, set-over and confirm unto Trustee, for the use and benefit of Beneficiary, all of Trustor's estate, right, title, interest, property, claim and demand, now or hereinafter arising, in and to the following property and rights (herein collectively called the "Trust Estate"): (a) Trustor's interest under the Ground Lease and Easement Agreement (as modified, supplemented or amended from time to time, the "Ground Lease") executed on March 8, 2001 between Shell Chemical, LP, a Delaware limited partnership ("Landlord"), as lessor, and Deer Park Energy Center, L.P., as lessee, and the leasehold estate created thereby in and to the lands and premises more particularly described in Exhibit A hereto (the "Site"); (b) any and all easements, leases, licenses, option rights, rights-of-way and other rights used in connection with the Site or as a means of access thereto (including, without limitation, all rights of Trustor to exercise any election or option, to make any determination or to give any notice, consent, waiver or approval, or to take any other action under the Ground Lease), all easements for ingress and egress and easements for water, natural gas and sewage pipelines, running in favor of Trustor, or appurtenant to the Site or arising under the Ground Lease, and any and all sidewalks, alleys, strips and gores of land adjacent thereto 2 or used in connection therewith together with all and singular the tenements, hereditaments and appurtenances thereto, and with any land lying within the right-of-way of any streets, open or proposed, adjoining the same (including, without limitation, the easements, leases, licenses and other instruments described in Exhibit B hereto) (collectively, the "Easements"; and the Site and the Easements collectively referred to herein as the "Real Property"); (c) all buildings, structures, fixtures and other improvements now or hereafter erected on the Real Property, including the Project (collectively, the "Improvements"); (d) all machinery, apparatus, equipment, fittings, fixtures, boilers, turbines and other articles of personal property, including all goods and all goods which become fixtures, now owned or hereafter acquired by Trustor and now or hereafter located on, attached to or used in the operation of or in connection with the Real Property and/or the Improvements, and all replacements thereof, additions thereto and substitutions therefor, to the fullest extent permitted by Applicable Law (all of the foregoing being hereinafter collectively called the "Equipment"); (e) all raw materials, work in process and other materials used or consumed in the construction of, or now or hereafter located on or used in connection with, the Real Property, the Improvements and/or the Equipment, (including, without limitation, fuel and fuel deposits, now or hereafter located on the Real Property or elsewhere or otherwise owned by Trustor) (the above items, together with the Equipment, being hereinafter collectively called the "Tangible Collateral"); (f) all rights, powers, privileges and other benefits of Trustor (to the extent assignable) now or hereafter obtained by Trustor under the Ground Lease and/or from any Governmental Authority, including, without limitation, permits issued in the name of Trustor, governmental actions relating to the ownership, operation, management and use of the Real Property, Improvements, Equipment or Tangible Collateral, the development and financing of the Project (hereinafter defined), the Improvements and the Equipment, and any improvements, modifications or additions thereto; (g) any right of Trustor to elect to terminate the Ground Lease or remain in possession of the Real Property pursuant to 11 U.S.C. Section 365(h)(1) or any similar provision of Applicable Law and any possessory rights of Trustor in the Real Property pursuant to 11 U.S.C. Section 365(h)(2) or any other similar provision of Applicable Law; (h) all the lands and interests in lands, tenements and hereditaments hereafter acquired by Trustor in connection with or appurtenant to the Real Property and/or any other property or rights subject to the lien hereof, including (without limitation) all interests of Trustor, whether as lessor or lessee, in any leases of land hereafter made and all rights of Trustor thereunder; (i) any and all other property in any way associated or used in connection with or appurtenant to the Real Property, Improvements, Equipment or Tangible Collateral that 3 may from time to time, by delivery or by writing of any kind, be subjected to the lien hereof by Trustor or by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Trustee or Beneficiary pursuant to this Deed of Trust, being hereby collaterally assigned to Beneficiary and subjected or added to the lien or estate created by this Deed of Trust forthwith upon the acquisition thereof by Trustor, as fully as if such property were now owned by Trustor and were specifically described in this Deed of Trust and subjected to the lien and security interest hereof; and Trustee and Beneficiary are hereby authorized to receive any and all such property as and for additional security hereunder; and (j) all the remainder or remainders, reversion or reversions, rents, revenues, issues, profits, royalties, income and other benefits derived from any of the foregoing, all of which are hereby assigned to Beneficiary, who is hereby authorized to collect and receive the same, to give proper receipts and acquittances therefor and to apply the same in accordance with the provisions of this Deed of Trust. TO HAVE AND TO HOLD the said Trust Estate, whether now owned or held or hereafter acquired, unto Beneficiary, its successors and assigns, pursuant to the provisions of this Deed of Trust. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security title, security interest or estate created by this Deed of Trust to secure the payment of the Obligations, both present and future, shall be first, prior and superior to any Lien, security interest, reservation of title or other interest (other than superior Permitted Liens) heretofore, contemporaneously or subsequently suffered or granted by Trustor, its legal representatives, successors or assigns, except only those, if any, expressly hereinafter referred to and that the Trust Estate is to be held, dealt with and disposed of by Beneficiary, upon and subject to the terms, covenants, conditions, uses and agreements set forth in this Deed of Trust. PROVIDED ALWAYS, that upon payment in full of the Obligations in accordance with the terms and provisions hereof and of the other Secured Debt Documents and the observance and performance by Trustor of its covenants and agreements set forth herein and therein, then this Deed of Trust and the estate hereby and therein granted shall be cancelled and surrendered and shall be reconveyed as provided herein below. ARTICLE 1 - DEFINITIONS 1.1 DEFINED TERMS. 11 Capitalized terms used in this Deed of Trust and not otherwise defined herein shall have the meanings assigned to them in the Collateral Trust Agreement. Any term defined by reference to an agreement, instrument or other document shall have the meaning so assigned to it whether or not such document is in effect. In addition, for purposes of this Deed of Trust, the following definitions shall apply: "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, 4 consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. "Default Rate" has the meaning ascribed to it in the Secured Debt Documents. "Easements" has the meaning ascribed to it in the Granting Clauses. "Equipment" has the meaning ascribed to it in the Granting Clauses. "Event of Default" means an Actionable Default as defined under the Collateral Trust Agreement. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. "Ground Lease" has the meaning ascribed to it in the Granting Clauses. "Improvements" has the meaning ascribed to it in the Granting Clauses. "Leases" has the meaning ascribed to it in Section 2.5. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Trustor, or the Trust Estate, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Trustor's presently or subsequently effective Organic Documents, (iii) any and all Leases (as defined herein), (iv) any and all leases and other contracts (written or oral) of any nature to which Trustor, or the Trust Estate may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Trust Estate. "Obligations" has the meaning ascribed to it in the Granting Clauses. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. 5 "Permitted Lien" means the liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters (if any) as permitted in the Secured Debt Documents. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Proceeds" has the meaning assigned to it under the UCC and, in any event, shall include, without limitation, (i) any and all proceeds of any insurance (including, without limitation, property casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Trust Estate; (ii) any and all proceeds in the form of accounts (as such term is defined in the UCC), security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, letters of credit, chattel paper, liens and security instruments, guaranties or general intangibles relating in whole or in part to the Trust Estate and all rights and remedies of whatever kind or nature Trustor may hold or acquire for the purpose of securing or enforcing any obligation due Trustor thereunder. "Project" means that certain electric and steam production facility located on the Real Property. "Real Property" has the meaning ascribed to it in the Granting Clauses. "Secured Debt Documents" has the meaning ascribed to it in the Collateral Trust Agreement. "Site" has the meaning ascribed to it in the Granting Clauses. "State" means that state in which the Site is located. "Tangible Collateral" has the meaning ascribed to it in the Granting Clauses. "Trust Estate" has the meaning ascribed to it in the Granting Clauses. "UCC" means the Uniform Commercial Code as in effect from time to time in the State, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the UCC. 1.2 ACCOUNTING TERMS. As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined herein shall have the respective meanings given to them under GAAP. 6 ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS 2.1 TRUSTOR PERFORMANCE OF SECURED DEBT DOCUMENTS. Trustor shall perform, observe and comply with each and every provision hereof, and with each and every provision contained in the Secured Debt Documents and shall promptly pay, when payment shall become due, the principal with interest thereon and all other sums required to be paid by Trustor under this Deed of Trust and the other Secured Debt Documents at the time and in the manner provided in the Secured Debt Documents. 2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES. Trustor, to the best of its knowledge, represents, covenants and warrants that as of the date hereof: (a) Trustor has good and indefeasible title to that portion of the Real Property which constitutes real property interests including the Ground Lease and the leasehold estate created thereby, free and clear of all encumbrances except Permitted Liens with respect to the Site, the Ground Lease and other matters which, individually and in the aggregate, do not have a materially adverse effect upon the ownership or operation of the Site; (b) Trustor has the right to hold, occupy and enjoy its interest in the Real Property on and subject to the terms and conditions of the Ground Lease, and has good right, full power and lawful authority to grant the same as provided herein, and Beneficiary may, subject to the Permitted Liens and the terms of the Ground Lease, at all times peaceably and quietly enter upon, hold, occupy and enjoy the Real Property in accordance with the terms hereof; (c) except as otherwise discussed in the Secured Debt Documents, all costs arising from construction of any Improvements, the performance of any labor and the purchase of all Tangible Collateral and Improvements have been or shall be paid when due; (d) the Site has access for ingress and egress to dedicated street(s); and (e) no material part of the Trust Estate has been damaged, destroyed, condemned or abandoned. 2.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Trustor shall promptly comply in all material respects with all Legal Requirements relating to its use and occupancy of the Trust Estate, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Trust Estate. 2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS. Trustor shall carry, with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Trustor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Trust Estate, is located, insurance in respect of the Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of revenues) with limits and sublimits as appropriate; provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in 7 similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Beneficiary as its interest may appear, which proceeds are hereby assigned to Beneficiary, it being agreed by Trustor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Trust Estate, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Obligations; (ii) the coverage of Beneficiary shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Trustor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, materially endorsed, materially altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer, their authorized representative or Trustor shall have first given Beneficiary and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Beneficiary shall be furnished with a certificate evidencing such coverage in form and content as are customary in the industry. All policies to be maintained under this Deed of Trust are to be issued on forms and by companies and with endorsements as are customary in the industry. Trustor shall maintain insurance in an amount sufficient to prevent Trustor from becoming a co-insurer under any policy required hereunder. If Trustor fails to maintain the level of insurance required under this Deed of Trust, then Trustor shall and hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; All insurance proceeds and all eminent domain proceeds shall be paid and/or shall be applied in accordance with the provisions of the Secured Debt Documents. 2.5 ASSIGNMENT OF RENTS. Trustor unconditionally and absolutely assigns to Beneficiary all of Trustor's right, title and interest in and to: all leases, subleases, occupancy agreements, licenses, rental contracts and other similar agreements now or hereafter existing relating to the use or occupancy of the Trust Estate, arising by, through or under Trustor, together with all guarantees, modifications, extensions and renewals thereof; and all rents, issues, profits, income and proceeds due or to become due from tenants of the Trust Estate (the "Leases"), including rentals and all other payments of any kind under any leases now existing or hereafter entered into, together with all deposits (including security deposits) of tenants thereunder. This is an absolute assignment to Beneficiary and not an assignment as security for the performance of the obligations under the Secured Debt Documents, or any other indebtedness. Subject to the provisions herein, Beneficiary shall have the right, power and authority to, but shall not be obligated to: notify any person that the Leases have been assigned to Beneficiary and that all rents and other obligations are to be paid directly to Beneficiary, whether or not Beneficiary has commenced or completed foreclosure or taken possession of the Trust Estate; settle, compromise, release, extend the time of payment of, and make allowances, adjustments and discounts of any rents or other obligations under the Leases; enforce payment of rents and other rights under the Leases, prosecute any action or proceeding, and 8 defend against any claim with respect to rents and Leases; enter upon, take possession of and operate the Trust Estate; lease all or any part of the Trust Estate; and/or perform any and all obligations of Trustor under the Leases and exercise any and all rights of Trustor therein contained to the full extent of Trustor's rights and obligations thereunder, with or without the bringing of any action or the appointment of a receiver. At Beneficiry's request, Trustor shall deliver a copy of this Deed of Trust to each tenant under a Lease. Trustor irrevocably directs any tenant, without any requirement for notice to or consent by Trustor, to comply with all demands of Beneficiary under this Section 2.5 and to turn over to Beneficiary on demand all rents which it receives. Beneficiary shall have the right, but not the obligation, to use and apply all rents received hereunder in such order and such manner as Beneficiary may determine in accordance with the Collateral Trust Agreement. Notwithstanding that this is an absolute assignment of the rents and Leases and not merely the collateral assignment of, or the grant of a lien or security interest in the rents and Leases, Beneficiary grants to Trustor a revocable license to collect and receive the rents and to retain, use and enjoy such rents. Such license may be revoked by Beneficiary only upon the occurrence of any Event of Default. Trustor shall apply any rents which it receives to the payment due under the Obligations, taxes, assessments, water charges, sewer rents and other governmental charges levied, assessed or imposed against the Trust Estate, insurance premiums, and other obligations of lessor under the Leases before using such proceeds for any other purpose. 2.6 REJECTION OF GROUND LEASE BY LESSOR. To the extent applicable, if the lessor under the Ground Lease rejects or disaffirms the Ground Lease or purports or seeks to disaffirm the Ground Lease pursuant to any bankruptcy law, then: 2.6.1 To the extent permitted by law, Trustor shall remain in possession of the Real Property demised under the Ground Lease and shall perform all acts reasonably necessary for Trustor to remain in such possession for the unexpired term of such Ground Lease (including all renewals), whether the then existing terms and provisions of such Ground Lease require such acts or otherwise; and 2.6.2 All the terms and provisions of this Deed of Trust and the lien created by this Deed of Trust shall remain in full force and effect and shall extend automatically to all of Trustor's rights and remedies arising at any time under, or pursuant to, any bankruptcy or insolvency laws, including all of Trustor's rights to remain in possession of the Real Property. 2.7 EXPENSES. Trustor shall indemnify Beneficiary with respect to any transaction or matter in any way connected with any portion of the Trust Estate, or Trustor's use, occupancy, or operation of the Trust Estate in accordance with the Collateral Trust Agreement. 2.8 BENEFICIARY ASSUMES NO OBLIGATIONS. It is expressly agreed that, anything herein contained to the contrary notwithstanding, Trustor shall remain obligated under all agreements which are included in the definition of "Trust Estate" and shall perform all of its obligations thereunder in accordance with the provisions thereof, and neither Beneficiary, Trustee nor any of the Secured Debtholders shall have any obligation or liability with respect to such obligations of Trustor, nor shall Beneficiary, Trustee or any of the Secured Debtholders be required or obligated in any manner to perform or fulfill any obligations or duties of Trustor under such agreements, or to make any payment or to make any inquiry as to the nature or sufficiency of any payment received 9 by it, or to present or file any claim or take any action to collect or enforce the payment of any amounts which have been assigned to Beneficiary hereunder or to which Beneficiary or the Secured Debtholders may be entitled at any time or times. 2.9 FURTHER ASSURANCES. Trustor shall, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further action, that may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Document, in order to perfect and continue the lien and security interest granted hereby and to enable Beneficiary to obtain the full benefits of the lien and security interest granted or intended to be granted hereby. Trustor shall keep the Trust Estate free and clear of all Liens, other than Permitted Liens. Without limiting the generality of the foregoing, Trustor shall execute and record or file this Deed of Trust and each amendment hereto, and such financing or continuation statements, or amendments thereto, and such other instruments, endorsements or notices, as may be necessary, or as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Document, in order to perfect and preserve the lien and security interest granted or purported to be granted hereby. Trustor hereby authorizes Beneficiary to file one or more financing statements or continuation statements, and amendments thereto, relative to all or any part of the Trust Estate necessary to preserve or protect the lien and security interest granted hereby without the signature of Trustor where permitted by law. 2.10 ACTS OF TRUSTOR. Except as provided in or permitted by the Secured Debt Documents, Trustor hereby represents and warrants that it has not granted, mortgaged, hypothecated, assigned or pledged and hereby covenants that it will not grant, mortgage, hypothecate, assign or pledge, so long as this Deed of Trust shall remain in effect, any of its right, title or interest in and to the Trust Estate or any part thereof, other than Permitted Liens, to anyone other than Beneficiary. 2.11 AFTER-ACQUIRED PROPERTY. Any and all of the Trust Estate which is hereafter acquired shall immediately, without any further conveyance, assignment or act on the part of Trustor or Beneficiary, become and be subject to the lien and security interest of this Deed of Trust as fully and completely as though specifically described herein, but nothing contained in this Section 2.11 shall be deemed to modify or change the obligations of Trustor under Section 2.9 hereof. If and whenever from time to time Trustor shall hereafter acquire any real property or interest therein which constitutes or is intended to constitute part of the Trust Estate hereunder, Trustor shall promptly give notice thereof to Beneficiary and Trustor shall forthwith execute, acknowledge and deliver to Beneficiary a supplement to this Deed of Trust subjecting the property so acquired to the lien of this Deed of Trust. 2.12 TRUST ESTATE. 2.12.1 Trustor shall pay or cause to be paid all rent and other charges required under the Ground Lease as and when the same are due and shall promptly and faithfully perform or cause to be performed all other material terms, obligations, covenants, conditions, agreements, indemnities and liabilities of Trustor under the Ground Lease. Trustor shall observe all applicable covenants, easements and other restrictions of record with respect to the Site, the Easements or to any other part of the Trust Estate, in all material respects. 10 2.12.2 Trustor shall do, or cause to be done, all things necessary to preserve and keep unimpaired all rights of Trustor as lessee under the Ground Lease, and to prevent any default under the Ground Lease, or any termination, surrender, cancellation, forfeiture, subordination or impairment thereof. Trustor does hereby authorize and irrevocably appoint and constitute Beneficiary as its true and lawful attorney-in-fact, which appointment is coupled with an interest, in its name, place and stead, to take any and all actions deemed necessary or desirable by Beneficiary to perform and comply with all the obligations of Trustor under the Ground Lease, and to do and take upon the occurrence and during continuation of an Event of Default, but without any obligation so to do or take, any action which Beneficiary deems reasonably necessary to prevent or cure any default by Trustor under the Ground Lease, to enter into and upon the Real Property and Improvements or any part thereof as provided in the Secured Debt Documents in order to prevent or cure any default of Trustor pursuant thereto, to the end that the rights of Trustor in and to the leasehold estate created by the Ground Lease shall be kept free from default. 2.12.3 Trustor shall use all reasonable efforts to enforce the obligations of the lessor under the Ground Lease in a commercially reasonable manner. 2.12.4 Trustor shall not voluntarily surrender its leasehold estate and interest under the Ground Lease or modify, change, supplement, alter or amend the Ground Lease or affirmatively waive any provisions thereof, either orally or in writing, except as permitted in the Secured Debt Documents, and any attempt on the part of Trustor to do any of the foregoing without the written consent of Beneficiary shall be null and void. 2.12.5 If any action or proceeding shall be instituted to evict Trustor or to recover possession of the Trust Estate or any part thereof or interest therein from Trustor or any action or proceeding otherwise affecting the Trust Estate or this Deed of Trust shall be instituted, then Trustor shall, immediately after receipt, deliver to Beneficiary a true and complete copy of each petition, summons, complaint, notice of motion, order to show cause and all other pleadings and papers, however designated, served in any such action or proceeding. 2.12.6 Trustor covenants and agrees that the fee title to the Real Property and Improvements and the leasehold estate created under the Ground Lease shall not merge but shall always remain separate and distinct, notwithstanding the union of said estates either in Trustor or a third party by purchase or otherwise and, in case Trustor acquires the fee title or any other estate, title or interest in and to the Real Property and Improvements, the lien of this Deed of Trust shall, without further conveyance, simultaneously with such acquisition, be spread to cover and attach to such acquired estate and as so spread and attached shall be prior to the lien of any deed of trust placed on the acquired estate by Trustor or its successors in title after the date of this Deed of Trust. 2.12.7 No release or forbearance of any of Trustor's obligations under the Ground Lease by the lessor thereunder, shall release Trustor from any of its obligations under this Deed of Trust. 2.12.8 Trustor shall, within ten days after written demand from Beneficiary, deliver to Beneficiary proof of payment of all items that are required to be paid by Trustor under the Ground Lease, including, without limitation, rent, taxes, operating expenses and other charges. 11 2.12.9 The lien of this Deed of Trust shall attach to all of Trustor's rights and remedies at any time arising under or pursuant to bankruptcy or insolvency law, including, without limitation, all of Trustor's rights to remain in possession of the Trust Estate. Trustor shall not elect to treat the Ground Lease as terminated under bankruptcy or insolvency law, and any such election shall be void. 2.12.9.1 If pursuant to bankruptcy or insolvency law, Trustor shall seek to offset against the rent reserved in the Ground Lease the amount of any damages caused by the nonperformance by the lessor or any other party of any of their respective obligations thereunder after the rejection by the lessor or such other party of the Ground Lease under any bankruptcy or insolvency law, then Trustor shall, prior to effecting such offset, notify Beneficiary of its intent to do so, setting forth the amount proposed to be so offset and the basis therefor. Beneficiary shall have the right to object to all or any part of such offset that would constitute a breach of the Ground Lease, and in the event of such objection, Trustor shall not effect any offset of the amounts found objectionable by Beneficiary. Neither Beneficiary's failure to object as aforesaid nor any objection relating to such offset shall constitute an approval of any such offset by Beneficiary. 2.12.9.2 If any action, proceeding, motion or notice shall be commenced or filed in respect of the lessor under the Ground Lease or any other party or in respect of the Ground Lease in connection with any case under any bankruptcy or insolvency law, then Beneficiary shall have the option to intervene in any such litigation with counsel of Beneficiary's choice. Beneficiary may proceed in its own name in connection with any such litigation, and Trustor agrees to execute any and all powers, authorizations, consents or other documents required by Beneficiary in connection therewith. 2.12.9.3 Trustor shall, after obtaining knowledge thereof, promptly notify Beneficiary of any filing by or against the lessor or other party with an interest in the Trust Estate of a petition under any bankruptcy or insolvency law. Trustor shall promptly deliver to Beneficiary, following receipt, copies of any and all notices, summonses, pleadings, applications and other documents received by Trustor in connection with any such petition and any proceedings relating thereto. 2.12.9.4 If there shall be filed by or against Trustor a petition under any bankruptcy or insolvency law, and Trustor, as lessee under the Ground Lease, shall determine to reject the Ground Lease pursuant to any bankruptcy or insolvency law, then Trustor shall give Beneficiary a notice of the date on which Trustor shall apply to the bankruptcy court for authority to reject the Ground Lease (such notice to be no later than twenty (20) days prior to such date). Beneficiary shall have the right, but not the obligation, to serve upon Trustor at any time prior to the date on which Trustor shall so apply to the bankruptcy court a notice stating that Beneficiary demands that Trustor assume and assign the Ground Lease to Beneficiary pursuant to any bankruptcy or insolvency law. If Beneficiary shall serve upon Trustor the notice described in the preceding sentence, to the extent permitted by law or Governmental Authority Trustor shall not seek to reject the Ground Lease and shall comply with the demand provided for in the preceding sentence. In addition, effective upon the entry of an order for relief with respect to Trustor under any bankruptcy or insolvency law, Trustor hereby assigns and transfers to Beneficiary a non-exclusive right to apply to the bankruptcy court under any bankruptcy or insolvency law for an 12 order extending the period during which the Ground Lease may be rejected or assumed; and shall (a) promptly notify Beneficiary of any default by Trustor in the performance or observance of any of the terms, covenants or conditions on the part of Trustor to be performed or observed under the Ground Lease and of the giving of any written notice by the lessor thereunder to Trustor of any such default, and (b) promptly cause a copy of each written notice given to Trustor by the lessor under the Ground Lease to be delivered to Beneficiary. Beneficiary may rely on any notice received by it from any such lessor of any default by Trustor under the Ground Lease and may take such action as may be permitted by law or Governmental Authority to cure such default even though the existence of such default or the nature thereof shall be questioned or denied by Trustor or by any Person on its behalf. 2.13 POWER OF ATTORNEY. Trustor does hereby irrevocably constitute and appoint Beneficiary, its true and lawful attorney (which appointment is coupled with an interest), with full power of substitution, for Trustor and in the name, place and stead of Trustor or in Beneficiary's own name, for so long as any of the Obligations are outstanding, to ask, demand, collect, receive, receipt for and sue for any and all rents, income and other sums which are assigned hereunder with full power to endorse the name of Trustor on all instruments given in payment or in part payment thereof, to settle, adjust or compromise any claims thereunder as fully as Trustor itself could do and file any claim or take any action or proceeding, either in its own name or in the name of Trustor or otherwise, as is necessary or appropriate to protect and preserve the right, title and interest of Beneficiary in and to such rents, income and other sums and the security intended to be afforded hereby; provided that Beneficiary shall not exercise such rights unless an Event of Default has occurred and is continuing. 2.14 COVENANT TO PAY. If an Event of Default has occurred and is continuing and such Event of Default could reasonably be expected to materially and adversely affect Beneficiary's interest hereunder in the Trust Estate or result in personal injury, then Beneficiary, among its other rights and remedies, shall have the right, but not the obligation, to pay, observe or perform the same, in whole or in part, and with such modifications as Beneficiary reasonably shall deem advisable. To the extent provided in the Secured Debt Documents, all sums, including, without limitation, reasonable attorneys fees, so expended or incurred by Beneficiary by reason of the default of Trustor, or by reason of the bankruptcy or insolvency of Trustor, as well as, without limitation, sums expended or incurred to sustain the lien or estate of this Deed of Trust or its priority, or to protect or enforce any rights of Beneficiary hereunder, or to recover any of the Obligations, or to complete construction of the Project for which the Secured Debt Documents are intended as financing, or for repairs, maintenance, alterations, replacements or improvements thereto or for the protection thereof, or for real estate taxes or other governmental assessments or charges against any part of the Trust Estate, or premiums for insurance of the Trust Estate, shall be entitled to the benefit of the lien on the Trust Estate as of the date of the recording of this Deed of Trust, shall be deemed to be added to and be part of the Obligations secured hereby, whether or not the result thereof causes the total amount of the Obligations to exceed the stated amount set forth in the second introductory paragraph of this Deed of Trust, and shall be repaid by Trustor as provided in the Secured Debt Documents. 13 2.15 SECURITY AGREEMENT. 2.15.1 This Deed of Trust shall also be a security agreement between Trustor and Beneficiary covering the Trust Estate constituting personal property or fixtures (hereinafter collectively called "UCC Collateral") governed by the UCC in effect in the State as the same may be more specifically set forth in any financing statement delivered in connection with this Deed of Trust, and as further security for the payment and performance of the Obligations, Trustor hereby grants to Beneficiary a security interest in such portion of the Trust Estate to the full extent that the Trust Estate may be subject to the UCC. In addition to Beneficiary's other rights hereunder, Beneficiary shall have all rights of a secured party under the UCC. Trustor shall execute and deliver to Beneficiary all financing statements and such further assurances that may be required to establish, create, perfect (to the extent the same can be achieved by the filing of a financing statement) and maintain the validity and priority of Beneficiary's security interests, and Trustor shall bear all reasonable costs thereof, including all UCC searches. Except as otherwise provided in the Secured Debt Documents, if Beneficiary should dispose of any of the Trust Estate comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written notice by Beneficiary to Trustor shall be deemed to be reasonable notice; provided, however, Beneficiary may dispose of such property in accordance with the foreclosure procedures of this Deed of Trust in lieu of proceeding under the UCC. Beneficiary may, but shall not be obligated to, from time to time execute and deliver at Trustor's expense, all continuation statements, termination statements, amendments, partial releases, or other instruments relating to all financing statements by and between Trustor and Beneficiary. Except as otherwise provided in the Secured Debt Documents, if an Event of Default shall occur and is continuing, (a) Beneficiary, in addition to any other rights and remedies which it may have, may exercise immediately and without demand to the extent permitted by law, any and all rights and remedies granted to a secured party under the UCC including, without limiting the generality of the foregoing, the right to take possession of the UCC Collateral or any part thereof, and to take such other measures may be necessary for the care, protection and preservation of such collateral and (b) upon request or demand of Beneficiary, Trustor shall at its expense, assemble the UCC Collateral and make it available to Beneficiary at a convenient place acceptable to Beneficiary. Trustor shall pay to Beneficiary on demand, any and all expenses, including reasonable attorneys' fees and disbursements incurred or paid by Beneficiary in protecting the interest in the UCC Collateral and in enforcing the rights hereunder with respect to such UCC Collateral. 2.15.2 To the extent permitted by law: (i) this Deed of Trust upon recording or registration in the real estate records of the proper office shall constitute a financing statement filed as a "fixture filing" within the meaning of Sections 9.334, 9.502 and 9.604 of the UCC; (ii) all or a part of the Trust Estate are or are to become fixtures; and (iii) the address of Trustor is as set forth on the first page of this Deed of Trust. ARTICLE 3 - REMEDIES 3.1 ACCELERATION OF MATURITY. If an Event of Default occurs and is continuing, Beneficiary may declare the Obligations to be due and payable immediately, and upon such declaration such principal and interest and other sums shall immediately become due and payable without demand, presentment, notice or other requirements of any kind (all of which Trustor waives). 14 3.2 PROTECTIVE ADVANCES. If an Event of Default shall have occurred and is continuing, then without thereby limiting Beneficiary's other rights or remedies, waiving or releasing any of Trustor's obligations, or imposing any obligation on Beneficiary, Beneficiary may, but shall not be obligated to, either advance any amount owing or perform any or all actions as may be necessary or appropriate to cure such default. All such advances shall constitute "Protective Advances." No sums advanced or performance rendered by Beneficiary shall cure, or be deemed a waiver of any Event of Default. 3.3 INSTITUTION OF EQUITY PROCEEDINGS. If an Event of Default occurs and is continuing, Beneficiary may, but shall not be obligated to, institute an action, suit or proceeding in equity for specific performance of this Deed of Trust or any other Secured Debt Document, all of which shall be specifically enforceable by injunction or other equitable remedy. 3.4 BENEFICIARY'S POWER OF ENFORCEMENT. 3.4.1 If an Event of Default occurs and is continuing, Beneficiary may, but shall not be obligated to, sell or offer for sale the Trust Estate (i) in such portions, order and parcels as Beneficiary may determine, with or without having first taken possession of same, to the highest bidder for cash at public auction at the county courthouse of any county in which any of the Trust Estate to be sold is situated, in the area in such courthouse designated for real property foreclosure sales in accordance with Applicable Law (or in the absence of any such designation, in the area set forth in the notice of sale hereinafter described), on the first Tuesday of any month between the hours of 10:00 A.M. and 4:00 P.M. (commencing no earlier than such time as may be designated in the hereinafter described notice of sale), after giving legally adequate notice of the time, place and terms of sale and that portion of the Trust Estate to be sold, by (1) posting or causing to be posted written or printed notices thereof for at least 21 consecutive days prior to the date of said sale at the county courthouse door of each county in which the Trust Estate is situated, (2) filing or causing to be filed a copy of such notice in the office of the county clerk of each county in which the Trust Estate is situated at least 21 days preceding the date of such sale, and (3) at least 21 days preceding the date of such sale, serving written notice (by the Beneficiary or any person chosen by the Beneficiary) of such proposed sale by certified mail on each debtor obligated to pay the Obligations according to the records of Beneficiary; service of such notice to each debtor to be made in the manner provided in the Credit Agreement, or (ii) in such manner as permitted or required by Section 51.002 of the Property Code of the State of Texas relating to the sale of real estate or by the UCC relating to the sale of collateral after default by a debtor (as the UCC now exists or as may be hereafter amended), or by any other present or subsequent articles or enactments relating to same but in a manner consistent with Trustor's rights and the manner of giving notices under the Credit Agreement; provided, however, that nothing contained in this Section 3.4 shall be construed so as to limit in any way Trustee's rights to sell the Trust Estate, or any portion thereof, by private sale if, and to the extent that, such private sale is permitted under the laws of the State of Texas or by public or private sale after entry of a judgment by any court of competent jurisdiction ordering same. At any such sale (i) whether made under the power herein contained, the aforesaid Property Code Section 51.002, the UCC or any other legal enactment, or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for Trustee to have physically present, or to have constructive possession of, the Trust Estate (Trustor hereby covenanting and agreeing to deliver to Trustee any portion of the Trust Estate not actually or constructively 15 possessed by Trustee immediately upon demand by Trustee) and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale, (ii) each instrument of conveyance executed by Trustee shall contain a special warranty of title, binding upon Trustor and its successors and assigns, (iii) each and every recital contained in any instrument of conveyance made by Trustee shall establish the truth and accuracy of the matters recited therein, including, without limitation, nonpayment of the Obligations, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor Trustee hereunder, (iv) any and all prerequisites to the validity thereof shall be presumed to have been performed, (v) the receipt of Trustee or of such other party or officer making the sale shall be a sufficient discharge to the purchaser or purchasers for its purchase money and no such purchaser or purchasers, or its assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money, or be in any way answerable for any loss, misapplication or nonapplication thereof, (vi) to the fullest extent permitted by law, Trustor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against Trustor, and against any and all other persons claiming or to claim the property sold or any part thereof, by, through or under Trustor, and (vii) to the extent and under such circumstances as are permitted by law, Beneficiary may bid for and acquire the Trust Estate or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the Obligations the net sales price after deducting therefrom the expenses of the sale and the costs of the action and any other sums which Beneficiary is authorized to deduct under this Deed of Trust. 3.4.2 Beneficiary may adjourn from time to time any sale by it to be made under or by virtue of this Deed of Trust by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and, except as otherwise provided by any Applicable Law, Beneficiary, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned. 3.4.3 No recovery of any judgment by Beneficiary and no levy of an execution under any judgment upon the Trust Estate or upon any other property of Trustor shall affect in any manner or to any extent, the lien and title of this Deed of Trust upon the Trust Estate or any part thereof, or any liens, titles, rights, powers or remedies of Beneficiary hereunder, but such liens, titles, rights, powers and remedies of Beneficiary shall continue unimpaired as before. 3.4.4 Beneficiary is authorized but shall not be obligated to foreclose this Deed of Trust subject to the rights of any tenants of the Trust Estate, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Trustor, a defense to any proceedings instituted by Beneficiary to collect the sums secured hereby. 3.4.5 After deducting all costs, fees and expenses of Beneficiary and of this Deed of Trust, including, without limitation, costs of evidence of title and reasonable attorneys' fees of Beneficiary in connection with a sale, Beneficiary shall apply the proceeds of such sale to payment of all sums expended under the terms hereof not then repaid, with accrued interest at the 16 Default Rate then to the payment of all other sums then secured hereby and the remainder, if any, to the person or persons legally entitled thereto. 3.4.6 If any Event of Default occurs and is continuing, Beneficiary may, either with or without entry or taking possession of the Trust Estate, and without regard to whether or not the indebtedness and other sums secured hereby shall be due and without prejudice to the right of Beneficiary thereafter to bring an action or proceeding to foreclose or any other action for any Event of Default existing at the time such earlier action was commenced, proceed by any appropriate action or proceeding: (1) to enforce payment of the Obligations, to the extent permitted by law, or the performance of any term hereof or any other right; (2) to foreclose this Deed of Trust in any manner provided by law for the foreclosure of mortgages or deeds of trust or deeds to secure debt on real property and to sell, as an entirety or in separate lots or parcels, the Trust Estate or any portion thereof pursuant to the laws of the State or under the judgment or decree of a court or courts of competent jurisdiction, and Beneficiary shall be entitled to recover in any such proceeding all costs and expenses incident thereto, including reasonable attorneys' fees in such amount as shall be awarded by the court; (3) to exercise any or all of the rights and remedies available to it under the Secured Debt Documents; and (4) to pursue any other remedy available to it. Beneficiary may take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, or both, as Beneficiary may determine. 3.4.7 The remedies described in this Section 3.4 may be exercised with respect to all or any portion of the UCC Collateral, either simultaneously with the sale of any real property encumbered hereby or independent thereof. Beneficiary may at any time be permitted to proceed with respect to all or any portion of the UCC Collateral in any manner permitted by the UCC. Trustor agrees that Beneficiary's inclusion of all or any portion of the UCC Collateral in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. 3.5 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME. (a) If an Event of Default occurs and is continuing, Trustor, upon demand of Beneficiary, shall forthwith surrender to Beneficiary the actual possession and, if and to the extent permitted by law, Beneficiary itself, or by such officers or agents as it may appoint, may enter and take possession of all of the Trust Estate, including the Tangible Collateral, without liability for trespass, damages or otherwise, and may exclude Trustor and its agents and employees wholly therefrom and may have joint access with Trustor to the books, papers and accounts of Trustor. (b) Upon every such entering upon or taking of possession, if and to the extent permitted by law, Beneficiary may hold, store, use, operate, manage and control the Trust Estate and conduct the business thereof, and, from time to time and without being under any duty to so act: (1) make all necessary and proper maintenance, repairs, renewals and replacements thereto and thereon, and all necessary additions, betterments and improvements thereto and thereon and purchase or otherwise acquire fixtures, personalty and other property in connection therewith; 17 (2) insure or keep the Trust Estate insured; (3) manage and operate the Trust Estate and exercise all the rights and powers of Trustor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Beneficiary and Trustee, all as Beneficiary or Trustee from time to time may determine; and shall apply the monies so received by Beneficiary in such priority as provided by the Secured Debt Documents to (1) the payment of interest and principal due and payable to the Beneficiary, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Trust Estate or any part thereof; (4) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Beneficiary or Trustee as allowed under this Deed of Trust; and (5) any other charges or costs required to be paid by Trustor under the terms of the Secured Debt Documents. (5) rent or sublet the Trust Estate or any portion thereof for any purpose permitted by this Deed of Trust; subject, however, to the Permitted Liens and the terms of the Ground Lease. Beneficiary shall surrender possession of the Trust Estate to Trustor (i) as may be required by law or court order, or (ii) when all amounts under any of the terms of the Secured Debt Documents, including this Deed of Trust, shall have been paid current and all Events of Default have been cured or waived. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. 3.6 SEPARATE SALES. To the extent permitted by law or Governmental Authority, the Trust Estate may be sold in one or more parcels and in such manner and order as Beneficiary or Trustee, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. 3.7 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS. Trustor agrees to the full extent permitted by law that if an Event of Default occurs and is continuing, neither Trustor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, moratorium, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust or the absolute sale of the Trust Estate or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Trustor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Trust Estate marshalled upon any foreclosure of the lien hereof and agrees that Beneficiary, Trustee or any court having jurisdiction to foreclose such lien may sell the Trust Estate in part or as an entirety. 3.8 RECEIVER. If an Event of Default occurs and is continuing, Beneficiary, to the extent permitted by law, and without regard to the value, adequacy or occupancy of the security for the Obligations and other sums secured hereby, shall be entitled as a matter of right, but shall not be 18 obligated to, if it so elects to the appointment of a receiver to enter upon and take possession of the Trust Estate and to collect all earnings, revenues and receipts and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Beneficiary. To the extent permitted by law, Beneficiary may have a receiver appointed without notice to Trustor or any third party, and Beneficiary may waive any requirement that the receiver post a bond. To the extent permitted by law, Beneficiary shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. To the extent permitted by law, any receiver appointed on Beneficiary's behalf may be an Affiliate of Beneficiary. The reasonable expenses, including receiver's fees, reasonable attorneys' fees, costs and agents' compensation, incurred pursuant to the powers herein contained shall be secured by this Deed of Trust. The right to enter and take possession of and to manage and operate the Trust Estate and to collect all earnings, revenues and receipts, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Beneficiary under this Deed of Trust, the other Secured Debt Documents or otherwise available to Beneficiary and may be exercised concurrently therewith or independently thereof, but such rights shall be exercised in a manner which is otherwise in accordance with and consistent with the Secured Debt Documents. Beneficiary shall be liable to account only for such earnings, revenues and receipts (including, without limitation, security deposits) actually received by Beneficiary, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Beneficiary shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Deed of Trust to, Beneficiary. 3.9 SUITS TO PROTECT THE TRUST ESTATE. Beneficiary shall have the power and authority but shall not be obligated to institute and maintain any suits and proceedings as may be advisable (a) to prevent any impairment of the Trust Estate by any acts which may be unlawful or in violation of this Deed of Trust, (b) to preserve or protect its interest in the Trust Estate, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Beneficiary's interest 3.10 PROOFS OF CLAIM. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Trustor, any Affiliate or any guarantor, co-maker or endorser of any of Trustor's obligations, its creditors or its property, Beneficiary, to the extent permitted by law, shall be entitled but shall not be obligated to file such proofs of claim or other documents as may be necessary or advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Trustor under the Secured Debt Documents, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Trustor after such date. 3.11 TRUSTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY BENEFICIARY. (a) In case of a foreclosure sale of all or any part of the Trust Estate and of the application of the proceeds of sale to the payment of the sums secured hereby, to the extent permitted by law, the Secured Debtholders shall be entitled to enforce payment from Trustor of any 19 additional amounts then remaining due and unpaid and to recover judgment against Trustor for any portion thereof remaining unpaid, with interest at the Default Rate. (b) Trustor hereby agrees to the extent permitted by law, that no recovery of any such judgment by the Secured Debtholders or other action by the Secured Debtholders and no attachment or levy of any execution upon any of the Trust Estate or any other property shall in any way affect the Lien and security interest of this Deed of Trust upon the Trust Estate or any part thereof or any Lien, rights, powers or remedies of Beneficiary hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. (c) Any monies collected or received by Beneficiary under this Section 3.11 shall be first applied to the payment of compensation, expenses and disbursements of the agents, attorneys and other representatives of the Beneficiary and the Secured Debtholders, and the balance remaining shall be applied as provided in the Collateral Trustee Agreement. 3.12 DELAY OR OMISSION; NO WAIVER. No delay or omission of Beneficiary or the Secured Debtholders to exercise any right, power or remedy upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Beneficiary whether contained herein or in the other Secured Debt Documents or otherwise available to Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. 3.13 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER. No waiver of any defaults hereunder shall extend to or affect any subsequent or any other defaults then existing, or impair any rights, powers or remedies consequent thereon. If Beneficiary (a) grants forbearance or an extension of time for the payment of any sums secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in this Deed of Trust or any other Secured Debt Document; (d) releases any part of the Trust Estate from the lien or security interest of this Deed of Trust or any other instrument securing the Obligations; (e) consents to the filing of any map, plat or replat of the Real Property or any part thereof; (f) consents to the granting of any easement on the Real Property; or (g) makes or consents to any agreement changing the terms of this Deed of Trust or any other Secured Debt Document subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the liability under this Deed of Trust or any other Secured Debt Document or otherwise of Trustor, or any subsequent purchaser of the Trust Estate or any part thereof or any maker, co-signer, surety or guarantor with respect to any other matters not addressed by such act or omission. No such act or omission shall preclude Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Beneficiary, shall the lien or security interest of this Deed of Trust be altered thereby, except to the extent expressly provided in such acts or omissions. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Trust Estate, Beneficiary, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Trust Estate or the Obligations secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties 20 hereto and without in any way releasing or discharging any of the liabilities or undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Deed of Trust or any other Secured Debt Document, (i) in the case of any non-monetary default, Beneficiary may continue to accept payments due hereunder without thereby waiving the existence of such or any other default and (ii) in the case of any monetary Event of Default, Beneficiary may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. 3.14 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED. If Beneficiary shall have proceeded to enforce any right or remedy under this Deed of Trust by foreclosure, whether by the power of sale created in this Deed of Trust, by judicial foreclosure or otherwise, and such proceedings shall have been discontinued or abandoned prior to completion for any reason, then and in every such case Trustor and Beneficiary shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Beneficiary shall continue as if no such proceedings had occurred or had been taken. 3.15 REMEDIES CUMULATIVE. Subject to the provisions of Section 4.17 hereof, no right, power or remedy, including without limitation remedies with respect to any security for the Obligations, conferred upon or reserved to Beneficiary by this Deed of Trust or any other Secured Debt Document is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under any other Secured Debt Document, now or hereafter existing at law, in equity or by statute, and Beneficiary shall be entitled to resort to such rights, powers, remedies or security as Beneficiary may deem advisable. 3.16 INTEREST AFTER EVENT OF DEFAULT. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Secured Debt Documents, including this Deed of Trust, may bear interest at the Default Rate until such Event of Default has been cured. Trustor's obligation to pay such interest shall be secured by this Deed of Trust. 3.17 FORECLOSURE; EXPENSES OF LITIGATION. If Beneficiary or Trustee foreclose, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be allowed to the Beneficiary or Trustee as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Beneficiary for attorneys' fees, appraisers' fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guarantees, and similar data and assurances with respect to title as are necessary either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Trust Estate or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Trust Estate and the maintenance of the lien and security interest of this Deed of Trust, including the reasonable fees of any attorney employed by Beneficiary in any litigation or proceeding affecting this Deed of Trust or any other 21 Secured Debt Document, the Trust Estate or any portion thereof, including, without limitation, civil, probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Trustor, with interest thereon at the Default Rate, and shall be secured by this Deed of Trust. Trustee waives its right to any statutory fee in connection with any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee for such services. 3.18 DEFICIENCY JUDGMENTS. If after foreclosure of this Deed of Trust, there shall remain any deficiency with respect to any amounts payable under the Secured Debt Documents, including hereunder, or any amounts secured hereby, and Beneficiary may institute any proceedings to recover such deficiency or deficiencies, all such amounts shall continue to bear interest at the Default Rate. To the extent permitted by law, Trustor waives any defense to Beneficiary's recovery against Trustor of any deficiency after any foreclosure sale of the Trust Estate. To the extent permitted by law, Trustor expressly waives any defense or benefits that may be derived from any statute granting Trustor any defense to any such recovery by Beneficiary. In addition, and to the extent permitted by law, Beneficiary and Trustee shall be entitled to recovery of all of its reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including their reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 3.17 above. This provision shall survive any foreclosure or sale of the Trust Estate, any portion thereof and/or the extinguishment of the lien hereof. 3.19 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BENEFICIARY AND TRUSTOR EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS DEED OF TRUST OR ANY OTHER SECURED DEBT DOCUMENT. ANY SUCH DISPUTES SHALL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. 3.20 EXCULPATION OF BENEFICIARY. The acceptance by Beneficiary of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Trust Estate by Beneficiary, be deemed or construed to make Beneficiary a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Beneficiary to appear in or defend any action or proceeding relating to the Trust Estate, nor shall Beneficiary, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Trust Estate. 3.21 FAIR MARKET VALUE DETERMINATION. To the extent Section 51.003 of the Texas Property Code, or any amendment thereto or judicial interpretation thereof, requires that the "fair market value" of the Trust Estate shall be determined as of the foreclosure date in order to enforce a deficiency against Trustor, the term "fair market value" shall include those matters required by law and shall also include the following additional factors: 22 (a) The Trust Estate is to be valued "AS IS, WHERE IS" and "WITH ALL FAULTS" and there shall be no assumption of restoration of or refurbishment of the Improvements after the date of foreclosure; (b) There shall be an assumption of a prompt resale of the Trust Estate for an all cash sales price by the purchaser at the foreclosure so that no extensive holding period should be factored into the determination of "fair market value" of Trust Estate; (c) An offset to the fair market value of the Trust Estate, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Trust Estate including but not limited to brokerage commissions, title policy expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of real property similar to the Trust Estate; and (d) After consideration of the factors required by law and those required above, an additional discount factor shall be calculated based upon the estimated time it will take to effectuate a sale of the Trust Estate so that the "fair market value" as so determined is discounted to be as of the date of the foreclosure of the Trust Estate. ARTICLE 4 - GENERAL 4.1 DISCHARGE. When all of the Obligations shall have been paid in full, then this Deed of Trust and the lien and security interest created hereby shall be of no further force and effect, Trustor shall be released from the covenants, agreements and obligations of Trustor contained in this Deed of Trust and all right, title and interest in and to the Trust Estate shall revert to Trustor. Beneficiary, at the request and the expense of Trustor, shall promptly execute a deed of reconveyance and such other documents as may be reasonably requested by Trustor to evidence the discharge and satisfaction of this Deed of Trust and the release of Trustor from its obligations hereunder. 4.2 NO WAIVER. The exercise of the privileges granted in this Deed of Trust to perform Trustor's obligations under the agreements which constitute the Trust Estate shall in no event be considered or constitute a waiver of any right which Beneficiary may have at any time, after an Event of Default shall have occurred and be continuing, to declare the Obligations to be immediately due and payable. No delay or omission to exercise any right, remedy or power accruing upon any default shall impair any such right, remedy or power or shall be construed to be a waiver of any such default or acquiescence therein; and every such right, remedy and power may be exercised from time to time and as often as may be deemed expedient. 4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS. It is expressly agreed that any of the Obligations at any time secured hereby may be from time to time extended for any period, or with the consent of Trustor rearranged or renewed, and that any part of the security herein described, or any other security for the Obligations, may be waived or released, without altering, varying or diminishing the force, effect or lien or security interest of this Deed of Trust; and the lien and security interest granted by this Deed of Trust shall continue as a prior lien and security interest on all of the Trust Estate not expressly so released, until the Obligations are fully paid and this Deed 23 of Trust is terminated in accordance with the provisions hereof; and no other security now existing or hereafter taken to secure the payment of the Obligations or any part thereof or the performance of any obligation or liability of Trustor whatever shall in any manner impair or affect the security given by this Deed of Trust; and all security for the payment of the Obligations or any part thereof and the performance of any obligation or liability shall be taken, considered and held as cumulative. 4.4 FORCIBLE DETAINER. Trustor agrees for itself and all Persons claiming by, through or under it, that subsequent to foreclosure hereunder in accordance with this Deed of Trust and applicable law if Trustor shall hold possession of the Trust Estate or any part thereof, Trustor or the Persons so holding possession shall be guilty of trespass; and any such Person (including Trustor) failing or refusing to surrender possession upon demand shall be guilty of forcible detainer and shall be liable to Beneficiary or any purchaser in foreclosure, as applicable, for reasonable rental on said premises, and shall be subject to eviction and removal in accordance with law. 4.5 WAIVER OF STAY OR EXTENSION. To the extent permitted to be waived by law, Trustor shall not at any time insist upon or plead or in any manner whatever claim the benefit or advantage of any stay, extension or moratorium law now or at any time hereafter in force in any locality where the Trust Estate or any part thereof may or shall be situated, nor shall Trustor claim any benefit or advantage from any law now or hereafter in force providing for the valuation or appraisement of the Trust Estate or any part thereof prior to any sale thereof to be made pursuant to any provision of this Deed of Trust or to a decree of any court of competent jurisdiction, nor after any such sale shall Trustor claim or exercise any right conferred by any law now or at any time hereafter in force to redeem the Trust Estate so sold or any part thereof; and Trustor hereby expressly waives all benefit or advantage of any such law or laws and the appraisement of the Trust Estate or any part thereof, and covenants that Trustor shall not hinder or delay the execution of any power herein granted and delegated to Beneficiary but that Trustor shall permit the execution of every such power as though no such law had been made. 4.6 NOTICES. Except where certified or registered mail notice is required by Applicable Law, and subject to the terms of Section 3.4, any notice to Trustor or Beneficiary required or permitted hereunder shall be deemed to be given when given in the manner prescribed in the Collateral Trust Agreement. 4.7 SEVERABILITY. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Deed of Trust invalid, unenforceable or not entitled to be recorded, registered or filed under any applicable law. In the event any term or provision contained in this Deed of Trust is in conflict, or may hereafter be held to be in conflict, with the laws of the State or of the United States of America, this Deed of Trust shall be affected only as to such particular term or provision, and shall in all other respects remain in full force and effect. 4.8 APPLICATION OF PAYMENTS. In the event that any part of the Obligations cannot lawfully be secured hereby, or in the event that the lien and security interest hereof cannot be lawfully enforced to pay any part of the Obligations, or in the event that the lien or security interest created by this Deed of Trust shall be invalid or unenforceable as to any part of the Obligations, 24 then all payments on the Obligations shall be deemed to have been first applied to the complete payment and liquidation of that part of the Obligations which is not secured by this Deed of Trust and the unsecured portion of the Obligations shall be completely paid and liquidated prior to the payment and liquidation of the remaining secured portion of the Obligations. 4.9 GOVERNING LAW. THIS DEED OF TRUST SHALL BE GOVERNED BY, AND ALL THE RIGHTS AND OBLIGATIONS OF TRUSTOR, TRUSTEE AND BENEFICIARY HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF THE STATE OF NEW YORK) AND THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF THE STATE OF NEW YORK) SHALL GOVERN (I) ALL ISSUES RELATING TO THIS TRANSACTION, INCLUDING THE VALIDITY OR ENFORCEABILITY OF THIS DEED OF TRUST OR ANY PROVISION OF THIS DEED OF TRUST AND (II) THE INTERPRETATION AND CONSTRUCTION OF THIS DEED OF TRUST, EXCEPT TO THE EXTENT SECTIONS 1.105 AND 35.51 OF THE TEXAS BUSINESS & COMMERCE CODE REQUIRE TEXAS LAW TO APPLY NOTWITHSTANDING THE FOREGOING CHOICE OF LAWS OF THE STATE OF NEW YORK. TO THE EXTENT AND ONLY TO THE EXTENT REQUIRED BY SECTIONS 1.105 AND 35.51 OF THE TEXAS BUSINESS & COMMERCE CODE, TEXAS LAW SHALL GOVERN (A) THIS DEED OF TRUST TO THE EXTENT NECESSARY FOR BENEFICIARY TO PERFECT, PROTECT OR ENFORCE THE RIGHTS AND REMEDIES GRANTED TO IT IN THIS DEED OF TRUST AND TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO THE TRUST ESTATE LOCATED IN TEXAS AND (B) PROCEDURAL REQUIREMENTS WHICH MUST BE GOVERNED BY THE LAW OF THE STATE IN WHICH THE TRUST ESTATE IS LOCATED. 4.10 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER SECURED DEBT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. AS OF THE DATE HEREOF, THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. _______________________ _______________________ TRUSTOR BENEFICIARY 4.11 AMENDMENTS. This Deed of Trust may be amended, supplemented or otherwise modified only by an instrument in writing signed by Trustor and Beneficiary. 4.12 SUCCESSORS AND ASSIGNS. All terms of this Deed of Trust shall run with the land and bind each of Trustor and Beneficiary and their respective successors and assigns, and all 25 Persons claiming under or through Trustor or Beneficiary, as the case may be, or any such successor or assign, and shall inure to the benefit of Beneficiary and Trustor, and their respective successors and assigns. 4.13 RENEWAL, ETC. To the extent permitted under the other Secured Debt Documents, Beneficiary may, but shall not be obligated to, at any time and from time to time renew or extend this Deed of Trust, or alter or modify the same in any way, or waive any of the terms, covenants or conditions hereof in whole or in part and may release any portion of the Trust Estate or any other security, and grant such extensions and indulgences in relation to the Obligations as Beneficiary may determine, without the consent of any junior lienor or encumbrancer and without any obligation to give notice of any kind thereto and without in any manner affecting the priority of the lien and security interest hereof on any part of the Trust Estate; provided that nothing in this Section 4.13 shall grant Beneficiary the right to alter or modify the Deed of Trust without the consent of the Trustor unless otherwise specifically permitted in this Deed of Trust. 4.14 FUTURE ADVANCES. It is understood and agreed that this Deed of Trust secures, among other things, (i) the Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Trustor under the Priority Lien Documents; (ii) the Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Trustor under the Parity Lien Documents; (iii) all Obligations under any other Priority Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs incurred by Beneficiary or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate therein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (v) any and all other indebtedness of Trustor to Beneficiary now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (vi) any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (i) through (iv) above, whether or not Trustor executes any extension agreement or renewal instrument, and that the lien of any such future advances shall relate to the date of this Deed of Trust. 4.15 LIABILITY. Notwithstanding any provision in this Deed of Trust to the contrary, none of Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever. None of Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Trust Estate for debts contracted or liability or damages incurred in the management or operation of the Trust Estate. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Trustor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless 26 against, any and all liability and expenses which may be incurred by them in the performance of their duties. 4.16 SUCCESSOR TRUSTEE. Any Trustee may resign in writing addressed to Beneficiary or may be removed at any time with or without cause by an instrument in writing duly executed by Beneficiary. In case of the death, resignation or removal of a Trustee, one or more successor Trustee may be appointed by Beneficiary by instrument of substitution complying with any applicable requirements of Applicable Law, and in the absence of any such requirement without formality other than appointment and designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustee, all the estate and title of the prior Trustee in all of the Trust Estate, and he or they shall thereupon succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All references herein to Trustee shall be deemed to refer to Trustee from time to time acting hereunder. 4.17 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE. Each and every covenant herein contained shall be performed and kept by Trustor solely at Trustor's expense. If Trustor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Deed of Trust, Beneficiary, or Trustee or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Trustor's behalf, and Trustor hereby agrees to repay the expense of such action and such advances upon demand plus interest as set forth in the Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to relieve Trustor from any default hereunder. 4.18 SEVERABILITY AND COMPLIANCE WITH USURY LAW. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all Applicable Laws and Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained, nor the application of such provision to other persons or circumstances, nor the other instruments referred to hereinabove, shall be affected thereby, but rather shall be enforceable to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of Trustor at all times to comply with the Applicable Law governing the maximum rate or amount of interest payable on or in connection with the Obligations. If the Applicable Law is ever judicially interpreted so as to render usurious any amount called for under the Secured Debt Documents, or contracted for, charged, taken, reserved or received with respect to the extension of credit evidenced by the Secured Debt Documents or if acceleration of the maturity of the Obligations or if any prepayment by Trustor results in Trustor having paid any interest in excess of that permitted by law, then it is Trustor's express intent that all excess amounts theretofore collected by Beneficiary be credited on the principal balance due under the Secured Debt Documents (or, if the Secured Debt Documents have been or would thereby be paid in full, refunded to Trustor), and the provisions of the Secured Debt Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with the Applicable Law, but so as to permit the recovery of the fullest amount otherwise called for 27 hereunder and thereunder. The right to accelerate maturity of Obligations does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Beneficiary may not collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Beneficiary for the use, forbearance or detention of the Obligations may, to the extent permitted by Applicable Law, be amortized, prorated, allocated and spread throughout the full term of the Obligations until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the applicable usury ceiling. 4.19 RELEASE OF COLLATERAL. Notwithstanding any provision herein to the contrary, the Trust Estate or any part thereof may be released from the security interest created by this Deed of Trust in accordance with the provisions of the Collateral Trust Agreement. 4.20 TIME OF THE ESSENCE. Trustor acknowledges that time is of the essence in performing all of Trustor's obligations set forth herein. 4.21 COUNTERPART EXECUTION. This Deed of Trust may be executed by the parties hereto in any number of counterparts (and be each of the parties hereof on separate counterparts), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 4.22 LANDLORD'S INTEREST IN TRUST ESTATE. For purposes of clarification, the lien of this Deed of Trust shall in no way attach to any of the rights, titles or interests of Landlord in the "Project Site" (as defined in the Ground Lease). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 28 EXHIBIT 10.34 DEER PARK - TX IN WITNESS WHEREOF, Trustor has caused this Deed of Trust to be duly executed and delivered on the date set forth in their respective acknowledgements below, to be effective as of the day and year first above written. TRUSTOR: CALPINE CORPORATION, a Delaware corporation By: ____________________________________ Name: __________________________________ Title: _________________________________ THE STATE OF ss. ss. COUNTY OF ss. This instrument was acknowledged before me on ____________, 2003, by ________________ of ____________, on behalf of such corporation. ________________________________________ Notary Public, State of ________________ My Commission Expires: _________________ ________________________________________ Printed Name of Notary S-2 EXHIBIT 10.34 DEER PARK - TX EXHIBIT A DESCRIPTION OF SITE SEE ATTACHED. EXHIBIT 10.34 DEER PARK - TX EXHIBIT B DESCRIPTION OF EASEMENTS [LEGAL DESCRIPTIONS TO BE INSERTED AT A LATER DATE] EX-10.35 27 f92357exv10w35.txt EXHIBIT 10.35 EXHIBIT 10.35 GOLDENDALE (WA) After Filing Return To: Latham & Watkins LLP 633 West Fifth Street, Suite 4000 Los Angeles, California 90071-2007 Attn: Ane C. Priester DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY AGREEMENT GRANTOR(S): 1. CALPINE CORPORATION | | Additional names on page _____ of document GRANTEE(S): 1. THE BANK OF NEW YORK 2. CHICAGO TITLE INSURANCE COMPANY, as Trustee | | Additional names on page _____ of document ABBREVIATED LEGAL DESCRIPTION (lot, block and plat name, or section-township-range): 1. S 1/2 SE 1/4 12-3N-R15E N 1/2 NE 1/4 13-3N-R15E 2. S 1/2 7-3N-R16E 3. N 1/2 SE 1/4 , and SE 1/4 NE 1/4 12-3N-15E 4. SW 1/4 SE 1/4 20-4N-R16E 5. N 1/2 NE 1/4 NE 1/4 NW 1/4 N 1/2 SE 1/4 NE 1/4 29-4N-R16E. |X| Additional legal description is on Schedule A ASSESSOR'S PROPERTY TAX PARCEL ACCOUNT NUMBER(S): 04-16-2034-000/100; 04-16-2033-0001/00; 04-16-2040-002/00 REFERENCE NUMBERS OF DOCUMENTS ASSIGNED OR RELEASED (IF APPLICABLE): | | Additional reference numbers on page _____ of document NOTICE: Certain of the Secured Debt Documents evidence revolving credits, and within the amount and time specified in such documents, Grantor may borrow, repay and reborrow sums thereunder. TABLE OF CONTENTS

Page ---- ARTICLE 1 - DEFINITIONS .......................................................................... 4 1.1 DEFINED TERMS ........................................................................... 4 1.2 ACCOUNTING TERMS ........................................................................ 6 ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS ..................................................... 6 2.1 GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS ........................................... 6 2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES ....................................... 7 2.3 COMPLIANCE WITH LEGAL REQUIREMENTS ...................................................... 7 2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS .... 7 2.5 ASSIGNMENT OF RENTS ..................................................................... 8 2.6 [RESERVED.] ............................................................................. 9 2.7 EXPENSES ................................................................................ 9 2.8 BENEFICIARY ASSUMES NO OBLIGATIONS ...................................................... 9 2.9 FURTHER ASSURANCES ...................................................................... 9 2.10 ACTS OF GRANTOR ......................................................................... 10 2.11 AFTER-ACQUIRED PROPERTY ................................................................. 10 2.12 ENCUMBERED PROPERTY ..................................................................... 10 2.13 POWER OF ATTORNEY ....................................................................... 10 2.14 COVENANT TO PAY ......................................................................... 10 2.15 SECURITY AGREEMENT ...................................................................... 11 ARTICLE 3 - REMEDIES ............................................................................. 12 3.1 PROTECTIVE ADVANCES ..................................................................... 12 3.2 INSTITUTION OF EQUITY PROCEEDINGS ....................................................... 12 3.3 BENEFICIARY'S POWER OF ENFORCEMENT ...................................................... 12 3.4 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME .............. 14 3.5 SEPARATE SALES .......................................................................... 15 3.6 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ...... 15 3.7 RECEIVER ................................................................................ 16 3.8 SUITS TO PROTECT THE ENCUMBERED PROPERTY ................................................ 16 3.9 PROOFS OF CLAIM ......................................................................... 16 3.10 GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY BENEFICIARY ................................................................... 17 3.11 DELAY OR OMISSION; NO WAIVER ............................................................ 17 3.12 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER .............................................. 17 3.13 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED ............................. 18 3.14 REMEDIES CUMULATIVE ..................................................................... 18 3.15 INTEREST AFTER EVENT OF DEFAULT ......................................................... 18 3.16 FORECLOSURE; EXPENSES OF LITIGATION ..................................................... 18 3.17 DEFICIENCY JUDGMENTS .................................................................... 19 3.18 WAIVER OF JURY TRIAL .................................................................... 19 3.19 EXCULPATION OF BENEFICIARY .............................................................. 19 ARTICLE 4 - GENERAL .............................................................................. 20 4.1 DISCHARGE ............................................................................... 20 4.2 NO WAIVER ............................................................................... 20 4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ...................................... 20 4.4 FORCIBLE DETAINER ....................................................................... 20

4.5 WAIVER OF STAY OR EXTENSION ............................................................. 21 4.6 NOTICES ................................................................................. 21 4.7 SEVERABILITY ............................................................................ 21 4.8 APPLICATION OF PAYMENTS ................................................................. 21 4.9 GOVERNING LAW ........................................................................... 21 4.10 AMENDMENTS .............................................................................. 22 4.11 SUCCESSORS AND ASSIGNS .................................................................. 22 4.12 RENEWAL, ETC ............................................................................ 22 4.13 FUTURE ADVANCES ......................................................................... 22 4.14 LIABILITY ............................................................................... 22 4.15 SUCCESSOR TRUSTEE ....................................................................... 23 4.16 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE ........................................... 23 4.17 SEVERABILITY AND COMPLIANCE WITH USURY LAW .............................................. 23 4.18 RELEASE OF COLLATERAL ................................................................... 24 4.19 TIME OF THE ESSENCE ..................................................................... 24 4.20 COUNTERPART EXECUTION ................................................................... 24 4.21 WAIVER OF GRANTOR'S RIGHTS .............................................................. 24 4.22 ATTORNEYS' FEES ......................................................................... 25 4.23 FIXTURE FILING UNDER UNIFORM COMMERCIAL CODE ............................................ 25 GOLDENDALE (WA) DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY AGREEMENT This DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT, dated as of July 16, 2003 (this "Deed of Trust") by CALPINE CORPORATION, a Delaware corporation, successor by merger to Goldendale Energy, Inc., a Washington corporation ("Grantor"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to CHICAGO TITLE INSURANCE COMPANY, whose address is 701 Fifth Avenue, Suite 1800, Seattle, WA 98104 ("Trustee"), in favor of THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among Grantor, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("Beneficiary"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Deed of Trust" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. Recitals A. Grantor has entered into an Amended and Restated Credit Agreement dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Grantor, the Lenders referred to therein and The Bank of Nova Scotia as Administrative Agent, relating to a $500,000,000 senior secured credit facility, made available in the form of revolving loans and term loans, including letters of credit issued thereunder. B. Grantor has (a) issued $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issued $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issued $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrowed $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between Grantor and Goldman Sachs Credit Partners L.P., as 1 Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"). C. As permitted pursuant to the Secured Debt Documents, Grantor may incur future debt which could, together with the obligations under the Credit Agreement, constitute Priority Lien Debt and Grantor may incur future debt which could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Grantor intends to secure the obligations, including the obligations (a) under the Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with liens and security interests in, among other collateral, the Encumbered Property under the Existing Deed of Trust, as contemplated in the Collateral Trust Agreement. D. Grantor (i) is the owner of the interests in the lands described in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to use all of the buildings, improvements, structures and fixtures located on the lands described in Exhibit A and is executing and delivering this instrument in order to secure its Obligations (as defined below). Agreement NOW THEREFORE, to secure the full performance and prompt and complete payment and performance when and as due and payable of all of the obligations and liabilities of Grantor to Beneficiary, by acceleration or otherwise, arising out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010 Indenture, the 2013 Indenture, the Term Loan Agreement and the obligations of Grantor set forth herein (collectively, the "Obligations") and in consideration of the covenants herein and therein, Grantor, intending to be legally bound, does hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage, pledge, set-over and confirm unto Trustee, in trust with power of sale, for the use and benefit of Beneficiary, all of Grantor's estate, right, title, interest, property, claim and demand, now or hereinafter arising, in and to the following property and rights (herein collectively called the "Encumbered Property"): (a) Grantor's interest in the lands and premises more particularly described in Exhibit A hereto (the "Site"). (b) any and all easements, leases, licenses, option rights, rights-of-way and other rights used in connection with the Site or as a means of access thereto, all easements for ingress and egress and easements for water, natural gas and sewage pipelines, running in favor of Grantor, or appurtenant to the Site, and any and all sidewalks, alleys, strips and gores of land adjacent thereto or used in connection therewith together with all and singular the tenements, hereditaments and appurtenances thereto, and with any land lying within the right-of-way of any streets, open or proposed, adjoining the same (including, without limitation, the easements, leases, licenses and 2 other instruments described in Exhibit B hereto) (collectively, the "Easements"; and the Site and the Easements collectively referred to herein as the "Real Property"); (c) all buildings, structures, fixtures and other improvements now or hereafter erected on the Real Property, including the Project (collectively, the "Improvements"); (d) all machinery, apparatus, equipment, fittings, fixtures, boilers, turbines and other articles of personal property, including all goods and all goods which become fixtures, now owned or hereafter acquired by Grantor and now or hereafter located on, attached to or used in the operation of or in connection with the Real Property and/or the Improvements, and all replacements thereof, additions thereto and substitutions therefor, to the fullest extent permitted by applicable law (all of the foregoing being hereinafter collectively called the "Equipment"); (e) all raw materials, work in process and other materials used or consumed in the construction of, or now or hereafter located on or used in connection with, the Real Property, the Improvements and/or the Equipment, (including, without limitation, fuel and fuel deposits, now or hereafter located on the Real Property or elsewhere or otherwise owned by Grantor) (the above items, together with the Equipment, being hereinafter collectively called the "Tangible Collateral"); (f) all rights, powers, privileges and other benefits of Grantor (to the extent assignable) now or hereafter obtained by Grantor and/or from any Governmental Authority, including, without limitation, permits issued in the name of Grantor, governmental actions relating to the ownership, operation, management and use of the Real Property, Improvements, Equipment or Tangible Collateral, the development and financing of the Project, the Improvements and the Equipment, and any improvements, modifications or additions thereto; (g) all the lands and interests in lands, tenements and hereditaments hereafter acquired by Grantor in connection with or appurtenant to the Real Property and/or any other property or rights subject to the lien hereof, including (without limitation) all interests of Grantor, whether as lessor or lessee, in any leases of land hereafter made and all rights of Grantor thereunder; (h) any and all other property in any way associated or used in connection with or appurtenant to the Real Property, Improvements, Equipment or Tangible Collateral that may from time to time, by delivery or by writing of any kind, be subjected to the lien hereof by Grantor or by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Trustee or Beneficiary pursuant to this Deed of Trust, being hereby collaterally assigned to Beneficiary and subjected or added to the lien or estate created by this Deed of Trust forthwith upon the acquisition thereof by Grantor, as fully as if such property were now owned by Grantor and were specifically described in this Deed of Trust and subjected to the lien and security interest 3 hereof; and Trustee and Beneficiary are hereby authorized to receive any and all such property as and for additional security hereunder; and (i) all the remainder or remainders, reversion or reversions, rents, revenues, issues, profits, royalties, income and other benefits derived from any of the foregoing, all of which are hereby assigned to Beneficiary, who is hereby authorized to collect and receive the same, to give proper receipts and acquittances therefor and to apply the same in accordance with the provisions of this Deed of Trust. Notwithstanding the foregoing, the Encumbered Property shall not include that certain turbine on the Site that is encumbered by the Siemans' lien as of the date hereof. TO HAVE AND TO HOLD the said Encumbered Property, whether now owned or held or hereafter acquired, unto Beneficiary, its successors and assigns, pursuant to the provisions of this Deed of Trust. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security title, security interest or estate created by this Deed of Trust to secure the payment of the Obligations, both present and future, shall be first, prior and superior to any Lien, security interest, reservation of title or other interest (other than superior Permitted Liens) heretofore, contemporaneously or subsequently suffered or granted by Grantor, its legal representatives, successors or assigns, except only those, if any, expressly hereinafter referred to and that the Deed of Trust Property is to be held, dealt with and disposed of by Beneficiary, upon and subject to the terms, covenants, conditions, uses and agreements set forth in this Deed of Trust. PROVIDED ALWAYS, that upon payment in full of the Obligations in accordance with the terms and provisions hereof and of the other Secured Debt Documents and the observance and performance by Grantor of its covenants and agreements set forth herein and therein, then this Deed of Trust and the estate hereby and therein granted shall be cancelled and surrendered and shall be reconveyed as provided herein below. ARTICLE 1 - DEFINITIONS 1.1 DEFINED TERMS. 11 Capitalized terms used in this Deed of Trust and not otherwise defined herein shall have the meanings assigned to them in the Collateral Trust Agreement. Any term defined by reference to an agreement, instrument or other document shall have the meaning so assigned to it whether or not such document is in effect. In addition, for purposes of this Deed of Trust, the following definitions shall apply: "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. 4 "Default Rate" has the meaning ascribed to it in the Secured Debt Documents. "Easements" has the meaning ascribed to it in the Granting Clauses. "Encumbered Property" has the meaning ascribed to it in the Granting Clauses. "Equipment" has the meaning ascribed to it in the Granting Clauses. "Event of Default" means an Actionable Default as defined under the Collateral Trust Agreement. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. "Improvements" has the meaning ascribed to it in the Granting Clauses. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Grantor, or the Encumbered Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Grantor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Grantor, or the Encumbered Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Encumbered Property. "Obligations" has the meaning ascribed to it in the Granting Clauses. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. "Permitted Lien" means the liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters (if any) as permitted in the Secured Debt Documents. "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. 5 "Proceeds" has the meaning assigned to it under the UCC and, in any event, shall include, without limitation, (i) any and all proceeds of any insurance (including, without limitation, property casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Encumbered Property; (ii) any and all proceeds in the form of accounts (as such term is defined in the UCC), security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, letters of credit, chattel paper, liens and security instruments, guaranties or general intangibles relating in whole or in part to the Encumbered Property and all rights and remedies of whatever kind or nature Grantor may hold or acquire for the purpose of securing or enforcing any obligation due Grantor thereunder. "Project" means that certain power generating facility located on the Real Property. "Real Property" has the meaning ascribed to it in the Granting Clauses. "Secured Debt Documents" has the meaning ascribed to it in the Collateral Trust Agreement. "Site" has the meaning ascribed to it in the Granting Clauses. "State" means that state in which the Site is located. "Tangible Collateral" has the meaning ascribed to it in the Granting Clauses. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of Washington, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. 1.2 ACCOUNTING TERMS. As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined herein shall have the respective meanings given to them under GAAP. ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS 2.1 GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS. Grantor shall perform, observe and comply with each and every provision hereof, and with each and every provision contained in the Secured Debt Documents and shall promptly pay, when payment shall become due, the principal with interest thereon and all other sums required to be paid by Grantor under this Deed of Trust and the other Secured Debt Documents at the time and in the manner provided in the Secured Debt Documents. 6 2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES. Grantor, to the best of its knowledge, represents, covenants and warrants that as of the date hereof: (a) Grantor has good and marketable title to that portion of the Real Property which constitutes real property interests free and clear of all encumbrances except Permitted Liens with respect to the Site, and other matters which, individually and in the aggregate, do not have a materially adverse effect upon the ownership or operation of the Site; (b) Grantor has the right to hold, occupy and enjoy its interest in the Real Property and has good right, full power and lawful authority to grant the same as provided herein, and Beneficiary may at all times peaceably and quietly enter upon, hold, occupy and enjoy the Real Property in accordance with the terms hereof; (c) except as otherwise discussed in the Secured Debt Documents, all costs arising from construction of any improvements, the performance of any labor and the purchase of all Encumbered Property have been or shall be paid when due; (d) the Site has access for ingress and egress to dedicated street(s); (e) the Encumbered Property is not used principally for agricultural purposes; and (f) no material part of the Encumbered Property has been damaged, destroyed, condemned or abandoned. 2.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Grantor shall promptly comply in all material respects with all Legal Requirements relating to its use and occupancy of the Encumbered Property, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Encumbered Property. 2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS. 2.4.1 Grantor shall carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Grantor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Encumbered Property, is located, insurance in respect of the Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of revenues) with limits and sublimits as appropriate; provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Beneficiary as its interest may appear, which proceeds are hereby assigned to Beneficiary, it being agreed by Grantor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Encumbered Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in 7 accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Beneficiary shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Grantor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, materially endorsed, materially altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer, their authorized representative or Grantor shall have first given Beneficiary and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Beneficiary shall be furnished with a certificate evidencing such coverage in form and content as are customary in the industry. All policies to be maintained under this Deed of Trust are to be issued on forms and by companies and with endorsements as are customary in the industry. Grantor shall maintain insurance in an amount sufficient to prevent Grantor from becoming a co-insurer under any policy required hereunder. If Grantor fails to maintain the level of insurance required under this Deed of Trust, then Grantor shall and hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; 2.4.2 All insurance proceeds and all eminent domain proceeds shall be paid and/or shall be applied in accordance with the provisions of the Secured Debt Documents. 2.5 ASSIGNMENT OF RENTS. Grantor unconditionally and absolutely assigns to Beneficiary all of Grantor's right, title and interest in and to: all leases, subleases, occupancy agreements, licenses, rental contracts and other similar agreements now or hereafter existing relating to the use or occupancy of the Encumbered Property, together with all guarantees, modifications, extensions and renewals thereof; and all rents, issues, profits, income and proceeds due or to become due from tenants of the Encumbered Property (the "Leases"), including rentals and all other payments of any kind under any leases now existing or hereafter entered into, together with all deposits (including security deposits) of tenants thereunder. This is an absolute assignment to Beneficiary and not an assignment as security for the performance of the obligations under the Secured Debt Documents, or any other indebtedness. Subject to the provisions of herein below, Beneficiary shall have the right, power and authority to, but shall not be obligated to: notify any person that the Leases have been assigned to Beneficiary and that all rents and other obligations are to be paid directly to Beneficiary, whether or not Beneficiary has commenced or completed foreclosure or taken possession of the Encumbered Property; settle compromise, release, extend the time of payment of, and make allowances, adjustments and discounts of any rents or other obligations under the Leases; enforce payment of rents and other rights under the Leases, prosecute any action or proceeding , and defend against any claim with respect to rents and Leases; enter upon, take possession of and operate the Encumbered Property; lease all or any part of the Encumbered Property; and/or perform any and all obligations of Grantor under the Leases and exercise any and all rights of Grantor therein contained to the full extent of Grantor's rights and obligations thereunder, with or without the bringing of any action or the appointment of a receiver. At Beneficiary's request, Grantor shall deliver a copy of this Deed of Trust to each tenant under a Lease. Grantor irrevocably directs any tenant, without any requirement for notice to or consent by Grantor, to comply with all demands of Beneficiary 8 under this Section 2.5 and to turn over to Beneficiary on demand all rents which it receives. Beneficiary shall have the right, but not the obligation, to use and apply all rents received hereunder in such order and such manner as Beneficiary may determine in accordance with the Collateral Trust Agreement. Notwithstanding that this is an absolute assignment of the rents and Leases and not merely the collateral assignment of, or the grant of a lien or security interest in the rents and Leases, Beneficiary grants to Grantor a revocable license to collect and receive the rents and to retain, use and enjoy such rents. Such license may be revoked by Beneficiary only upon the occurrence of any Event of Default. Grantor shall apply any rents which it receives to the payment due under the Obligations, taxes, assessments, water charges, sewer rents and other governmental charges levied, assessed or imposed against the Encumbered Property, insurance premiums, and other obligations of lessor under the Leases before using such proceeds for any other purpose. 2.6 [Reserved.] 2.7 EXPENSES. Grantor shall indemnify Beneficiary with respect to any transaction or matter in any way connected with any portion of the Encumbered Property, or Grantor's use, occupancy, or operation of the Encumbered Property in accordance with the Collateral Trust Agreement. 2.8 BENEFICIARY ASSUMES NO OBLIGATIONS. It is expressly agreed that, anything herein contained to the contrary notwithstanding, Grantor shall remain obligated under all agreements which are included in the definition of "Encumbered Property" and shall perform all of its obligations thereunder in accordance with the provisions thereof, and neither Beneficiary, Trustee nor any of the Secured Debtholders shall have any obligation or liability with respect to such obligations of Grantor, nor shall Beneficiary, Trustee or any of the Secured Debtholders be required or obligated in any manner to perform or fulfill any obligations or duties of Grantor under such agreements, or to make any payment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or take any action to collect or enforce the payment of any amounts which have been assigned to Beneficiary hereunder or to which Beneficiary or the Secured Debtholders may be entitled at any time or times. 2.9 FURTHER ASSURANCES. Grantor shall, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further action, that may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Document, in order to perfect and continue the lien and security interest granted hereby and to enable Beneficiary to obtain the full benefits of the lien and security interest granted or intended to be granted hereby. Grantor shall keep the Encumbered Property free and clear of all Liens, other than Permitted Liens. Without limiting the generality of the foregoing, Grantor shall execute and record or file this Deed of Trust and each amendment hereto, and such financing or continuation statements, or amendments thereto, and such other instruments, endorsements or notices, as may be necessary, or as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Document, in order to perfect and preserve the lien and security interest granted or purported to be granted hereby. Grantor hereby authorizes Beneficiary to file one or more financing statements or continuation statements, and amendments thereto, relative to all or any 9 part of the Encumbered Property necessary to preserve or protect the lien and security interest granted hereby without the signature of Grantor where permitted by law. 2.10 ACTS OF GRANTOR. Except as provided in or permitted by the Secured Debt Documents, Grantor hereby represents and warrants that it has not granted, mortgaged, hypothecated, assigned or pledged and hereby covenants that it will not grant, mortgage, hypothecate, assign or pledge, so long as this Deed of Trust shall remain in effect, any of its right, title or interest in and to the Encumbered Property or any part thereof, other than Permitted Liens, to anyone other than Beneficiary. 2.11 AFTER-ACQUIRED PROPERTY. Any and all of the Encumbered Property which is hereafter acquired shall immediately, without any further conveyance, assignment or act on the part of Grantor or Beneficiary, become and be subject to the lien and security interest of this Deed of Trust as fully and completely as though specifically described herein, but nothing contained in this Section 2.11 shall be deemed to modify or change the obligations of Grantor under Section 2.9 hereof. If and whenever from time to time Grantor shall hereafter acquire any real property or interest therein which constitutes or is intended to constitute part of the Encumbered Property hereunder, Grantor shall promptly give notice thereof to Beneficiary and Grantor shall forthwith execute, acknowledge and deliver to Beneficiary a supplement to this Deed of Trust subjecting the property so acquired to the lien of this Deed of Trust. 2.12 ENCUMBERED PROPERTY. Grantor shall observe all applicable covenants, easements and other restrictions of record with respect to the Site, the Easements or to any other part of the Encumbered Property, in all material respects. 2.13 POWER OF ATTORNEY. Grantor does hereby irrevocably constitute and appoint Beneficiary, its true and lawful attorney (which appointment is coupled with an interest), with full power of substitution, for Grantor and in the name, place and stead of Grantor or in Beneficiary's own name, for so long as any of the Obligations are outstanding, to ask, demand, collect, receive, receipt for and sue for any and all rents, income and other sums which are assigned hereunder with full power to endorse the name of Grantor on all instruments given in payment or in part payment thereof, to settle, adjust or compromise any claims thereunder as fully as Grantor itself could do and file any claim or take any action or proceeding, either in its own name or in the name of Grantor or otherwise, as are necessary or appropriate to protect and preserve the right, title and interest of Beneficiary in and to such rents, income and other sums and the security intended to be afforded hereby; provided that Beneficiary shall not exercise such rights unless an Event of Default has occurred and is continuing. 2.14 COVENANT TO PAY. If an Event of Default has occurred and is continuing and such Event of Default could reasonably be expected to materially and adversely affect Beneficiary's interest hereunder in the Encumbered Property or result in personal injury, then Beneficiary, among its other rights and remedies, shall have the right, but not the obligation, to pay, observe or perform the same, in whole or in part, and with such modifications as Beneficiary reasonably shall deem advisable. To the extent provided in the Secured Debt Documents, all sums, including, without limitation, reasonable attorneys fees, so expended or incurred by Beneficiary by reason of the default of Grantor, or by reason of the bankruptcy or 10 insolvency of Grantor, as well as, without limitation, sums expended or incurred to sustain the lien or estate of this Deed of Trust or its priority, or to protect or enforce any rights of Beneficiary hereunder, or to recover any of the Obligations, or to complete construction of the Project for which the Secured Debt Documents are intended as financing, or for repairs, maintenance, alterations, replacements or improvements thereto or for the protection thereof, or for real estate taxes or other governmental assessments or charges against any part of the Encumbered Property, or premiums for insurance of the Encumbered Property, shall be entitled to the benefit of the lien on the Encumbered Property as of the date of the recording of this Deed of Trust, shall be deemed to be added to and be part of the Obligations secured hereby, whether or not the result thereof causes the total amount of the Obligations to exceed the stated amount set forth in the second introductory paragraph of this Deed of Trust, and shall be repaid by Grantor as provided in the Secured Debt Documents. 2.15 SECURITY AGREEMENT. 2.15.1 This Deed of Trust shall also be a security agreement between Grantor and Beneficiary covering the Encumbered Property constituting personal property or fixtures (hereinafter collectively called "UCC Collateral") governed by the UCC in effect in the State as the same may be more specifically set forth in any financing statement delivered in connection with this Deed of Trust, and as further security for the payment and performance of the Obligations, Grantor hereby grants to Beneficiary a security interest in such portion of the Encumbered Property to the full extent that the Encumbered Property may be subject to the UCC. In addition to Beneficiary's other rights hereunder, Beneficiary shall have all rights of a secured party under the UCC. Grantor shall execute and deliver to Beneficiary all financing statements and such further assurances that may be required to establish, create, perfect (to the extent the same can be achieved by the filing of a financing statement) and maintain the validity and priority of Beneficiary's security interests, and Grantor shall bear all reasonable costs thereof, including all UCC searches. Except as otherwise provided in the Secured Debt Documents, if Beneficiary should dispose of any of the Encumbered Property comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written notice by Beneficiary to Grantor shall be deemed to be reasonable notice; provided, however, Beneficiary may dispose of such property in accordance with the foreclosure procedures of this Deed of Trust in lieu of proceeding under the UCC. Beneficiary may, but shall not be obligated to, from time to time execute and deliver at Grantor's expense, all continuation statements, termination statements, amendments, partial releases, or other instruments relating to all financing statements by and between Grantor and Beneficiary. Except as otherwise provided in the Secured Debt Documents, if an Event of Default shall occur and is continuing, (a) Beneficiary, in addition to any other rights and remedies which it may have, may exercise immediately and without demand to the extent permitted by law, any and all rights and remedies granted to a secured party under the UCC including, without limiting the generality of the foregoing, the right to take possession of the UCC Collateral or any part thereof, and to take such other measures as may be necessary for the care, protection and preservation of such collateral and (b) upon request or demand of Beneficiary, Grantor shall at its expense, assemble the UCC Collateral and make it available to Beneficiary at a convenient place acceptable to Beneficiary. Grantor shall pay to Beneficiary on demand, any and all expenses, including reasonable attorneys' fees and disbursements incurred or paid by Beneficiary in protecting the interest in the UCC Collateral and in enforcing the rights 11 hereunder with respect to such UCC Collateral. 2.15.2 Grantor agrees, to the extent permitted by law, that: (i) all or a part of the Encumbered Property are or are to become fixtures; and (ii) the address of Grantor is as set forth on the first page of this Deed of Trust. ARTICLE 3 - REMEDIES 3.1 PROTECTIVE ADVANCES. If an Event of Default shall have occurred and is continuing, then without thereby limiting Beneficiary's other rights or remedies, waiving or releasing any of Grantor's obligations, or imposing any obligation on Beneficiary, Beneficiary may, but shall not be obligated to, either advance any amount owing or perform any or all actions as may be necessary or appropriate to cure such default. All such advances shall constitute "Protective Advances." No sums advanced or performance rendered by Beneficiary shall cure, or be deemed a waiver of any Event of Default. 3.2 INSTITUTION OF EQUITY PROCEEDINGS. If an Event of Default occurs and is continuing, Beneficiary may, but shall not be obligated to, institute an action, suit or proceeding in equity for specific performance of this Deed of Trust or any other Secured Debt Document, all of which shall be specifically enforceable by injunction or other equitable remedy. 3.3 BENEFICIARY'S POWER OF ENFORCEMENT. 3.3.1 If an Event of Default shall have occurred, Beneficiary may, but shall not be obligated to, cause Trustee to sell, in accordance with the applicable law of the state in which the Encumbered Property or any part of the Encumbered Property is situated, the Encumbered Property or any part of the Encumbered Property at public sale or sales before the door of the courthouse of the county in which the Encumbered Property or any part of the Encumbered Property is situated, to the highest bidder for cash, in order to pay the indebtedness secured hereby and accrued interest thereon and insurance premiums, liens, assessments, taxes and charges, including utility charges, if any, with accrued interest thereon, and all expenses of the sale and of all proceedings in connection therewith, including reasonable attorneys' fees actually incurred, after advertising the time, place and terms of the sale. Trustee shall deliver to the purchaser at the sale of the Site, its deed, without warranty, which shall convey to the purchaser the interest in the Site which Grantor had or had the power to convey at the time of its execution of this Deed of Trust, or such as it may have acquired thereafter. The Trustee's deed shall recite the facts showing that the sale was conducted in compliance with all the requirements of law and this Deed of Trust, which recital shall be prima facie evidence of such compliance and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value. The power of sale conferred by this Deed of Trust and by applicable law is not an exclusive remedy, and when not being exercised, Beneficiary may, but shall not be obligated to, foreclose this Deed of Trust as a mortgage and Grantor shall pay all costs incurred by Beneficiary in any suit, or appeal therefrom, brought by Beneficiary to foreclose this Deed of Trust, including without limitation costs of guaranty of title and reasonable attorneys' fees. Trustee is not obligated to notify any party hereto of a pending sale under any other deed of trust or of any action or proceeding in which Grantor, Trustee or Beneficiary shall be a party, unless such action or 12 proceeding is brought by Trustee. In the event of any such foreclosure sale by Trustee, Grantor shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. 3.3.2 Beneficiary may cause Trustee to adjourn from time to time any sale by it to be made under or by virtue of this Deed of Trust by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and, except as otherwise provided by any applicable provision of law, Beneficiary, without further notice or publication, may cause Trustee to make such sale at the time and place to which the same shall be so adjourned. 3.3.3 Upon any sale made under or by virtue of this Section 3.3 (whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale), Beneficiary may bid for and acquire the Encumbered Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the indebtedness the net sales price after deducting therefrom the expenses of the sale, including a reasonable Trustee's fee and Trustee's attorneys' fees, and the costs of the action and any other sums which Beneficiary is authorized to deduct under this Deed of Trust. 3.3.4 No recovery of any judgment by Beneficiary and no levy of an execution under any judgment upon the Encumbered Property or upon any other property of Grantor shall affect in any manner or to any extent, the lien and title of this Deed of Trust upon the Encumbered Property or any part thereof, or any liens, titles, rights, powers or remedies of Beneficiary hereunder, but such liens, titles, rights, powers and remedies of Beneficiary shall continue unimpaired as before. 3.3.5 Beneficiary is authorized, but shall not be obligated, to cause Trustee to foreclose this Deed of Trust subject to the rights of any tenants of the Encumbered Property, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Grantor, a defense to any proceedings instituted by Beneficiary to collect the sums secured hereby. 3.3.6 After deducting all costs, fees and expenses of Trustee and of this Deed of Trust, including, without limitation, costs of evidence of title and reasonable attorneys' fees of Beneficiary in connection with a sale, Beneficiary shall cause Trustee to apply the proceeds of such sale to payment of all sums expended under the terms hereof not then repaid, with accrued interest at the Default Rate then to the payment of all other sums then secured hereby and the remainder, if any, to the person or persons legally entitled thereto. 3.3.7 If any Event of Default occurs and is continuing, Beneficiary may, either with or without entry or taking possession of the Encumbered Property, and without regard to whether or not the indebtedness and other sums secured hereby shall be due and without prejudice to the right of Beneficiary thereafter to bring an action or proceeding to foreclose or any other action for any default existing at the time such earlier action was 13 commenced, proceed by any appropriate action or proceeding: (1) to enforce payment of the Obligations, to the extent permitted by law, or the performance of any term hereof or any other right; (2) to foreclose this Deed of Trust in any manner provided by law for the foreclosure of mortgages or deeds of trust or deeds to secure debt on real property and to sell, as an entirety or in separate lots or parcels, the Encumbered Property or any portion thereof pursuant to the laws of the State or under the judgment or decree of a court or courts of competent jurisdiction, and Beneficiary shall be entitled to recover in any such proceeding all costs and expenses incident thereto, including reasonable attorneys' fees in such amount as shall be awarded by the court; (3) to exercise any or all of the rights and remedies available to it under the Secured Debt Documents; and (4) to pursue any other remedy available to it. Beneficiary may take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, or both, as Beneficiary may determine. 3.3.8 The remedies described in this Section 3.3 may be exercised with respect to all or any portion of the UCC Collateral, either simultaneously with the sale of any real property encumbered hereby or independent thereof. Beneficiary may at any time be permitted to proceed with respect to all or any portion of the UCC Collateral in any manner permitted by the UCC. Grantor agrees that Beneficiary's inclusion of all or any portion of the UCC Collateral in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. 3.4 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME. (a) If an Event of Default occurs and is continuing, Grantor, upon demand of Beneficiary, shall forthwith surrender to Beneficiary the actual possession and, if and to the extent permitted by law, Beneficiary itself, or by such officers or agents as it may appoint, may enter and take possession of all of the Encumbered Property, including the Tangible Collateral, without liability for trespass, damages or otherwise, and may exclude Grantor and its agents and employees wholly therefrom and may have joint access with Grantor to the books, papers and accounts of Grantor. (b) If an Event of Default has occurred and is continuing and Grantor shall for any reason fail to surrender or deliver the Encumbered Property or any part thereof after Beneficiary's demand, Beneficiary may obtain a judgment or decree conferring on Beneficiary or Trustee the right to immediate possession or requiring Grantor to deliver immediate possession of all or part of such property to Beneficiary or Trustee and Grantor hereby specifically consents to the entry of such judgment or decree. Grantor shall pay to Beneficiary or Trustee, upon demand, all costs and expenses of obtaining such judgment or decree and reasonable compensation to Beneficiary or Trustee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien, security title and security interest of this Deed of Trust. (c) Upon every such entering upon or taking of possession, Beneficiary may hold, store, use, operate, manage and control the Encumbered Property and conduct the business 14 thereof, and, from time to time and without being under any duty to so act: (1) make all necessary and proper maintenance, repairs, renewals and replacements thereto and thereon, and all necessary additions, betterments and improvements thereto and thereon and purchase or otherwise acquire fixtures, personalty and other property in connection therewith; (2) insure or keep the Encumbered Property insured; (3) manage and operate the Encumbered Property and exercise all the rights and powers of Grantor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Beneficiary and Trustee, all as Beneficiary or Trustee from time to time may determine; and shall apply the monies so received by Beneficiary in such priority as provided by the Secured Debt Documents to (1) the payment of interest and principal due and payable to the Beneficiary, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Encumbered Property or any part thereof; (4) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Beneficiary or Trustee as allowed under this Deed of Trust; and (5) any other charges or costs required to be paid by Grantor under the terms of the Secured Debt Documents. (5) rent or sublet the Encumbered Property or any portion thereof for any purpose permitted by this Deed of Trust. Beneficiary shall surrender possession of the Encumbered Property to Grantor (i) as may be required by law or court order, or (ii) when all amounts under any of the terms of the Secured Debt Documents, including this Deed of Trust, shall have been paid current and all Events of Default have been cured or waived. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. 3.5 SEPARATE SALES. To the extent permitted by law or Governmental Authority, the Encumbered Property may be sold in one or more parcels and in such manner and order as Beneficiary or Trustee, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. 3.6 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS. Grantor agrees to the full extent permitted by law that if an Event of Default occurs and is continuing, neither Grantor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, moratorium, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust or the absolute sale of the Encumbered Property or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Grantor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all 15 such laws, and any and all right to have the assets comprising the Encumbered Property marshalled upon any foreclosure of the lien hereof and agrees that Beneficiary, Trustee or any court having jurisdiction to foreclose such lien may sell the Encumbered Property in part or as an entirety. 3.7 RECEIVER. If an Event of Default occurs and is continuing, Beneficiary, to the extent permitted by law, and without regard to the value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, shall be entitled as a matter of right, but shall not be obligated to, if it so elects to the appointment of a receiver to enter upon and take possession of the Encumbered Property and to collect all earnings, revenues and receipts and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Beneficiary. To the extent permitted by law, Beneficiary may have a receiver appointed without notice to Grantor or any third party, and Beneficiary may waive any requirement that the receiver post a bond. To the extent permitted by law, Beneficiary shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. To the extent permitted by law, any receiver appointed on Beneficiary's behalf may be an Affiliate of Beneficiary. The reasonable expenses, including receiver's fees, reasonable attorneys' fees, costs and agents' compensation, incurred pursuant to the powers herein contained shall be secured by this Deed of Trust. The right to enter and take possession of and to manage and operate the Encumbered Property and to collect all earnings, revenues and receipts, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Beneficiary under this Deed of Trust, the other Secured Debt Documents or otherwise available to Beneficiary and may be exercised concurrently therewith or independently thereof, but such rights shall be exercised in a manner which is otherwise in accordance with and consistent with the Secured Debt Documents. Beneficiary shall be liable to account only for such earnings, revenues and receipts (including, without limitation, security deposits) actually received by Beneficiary, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Beneficiary shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Deed of Trust to, Beneficiary. 3.8 SUITS TO PROTECT THE ENCUMBERED PROPERTY. Beneficiary shall have the power and authority, but shall not be obligated, to institute and maintain any suits and proceedings as may be advisable (a) to prevent any impairment of the Encumbered Property by any acts which may be unlawful or in violation of this Deed of Trust, (b) to preserve or protect its interest in the Encumbered Property, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Beneficiary's interest 3.9 PROOFS OF CLAIM. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Grantor, any Affiliate or any guarantor, co-maker or endorser of any of Grantor's obligations, its creditors or its property, Beneficiary, to the extent permitted by law, shall be entitled, but shall not be obligated, to file such proofs of claim or other documents as may be necessary or 16 advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Grantor under the Secured Debt Documents, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Grantor after such date. 3.10 GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY BENEFICIARY. (a) In case of a foreclosure sale of all or any part of the Encumbered Property and of the application of the proceeds of sale to the payment of the sums secured hereby, to the extent permitted by law, the Secured Debtholders shall be entitled to enforce payment from Grantor of any additional amounts then remaining due and unpaid and to recover judgment against Grantor for any portion thereof remaining unpaid, with interest at the Default Rate. (b) Grantor hereby agrees to the extent permitted by law, that no recovery of any such judgment by the Secured Debtholders or other action by the Secured Debtholders and no attachment or levy of any execution upon any of the Encumbered Property or any other property shall in any way affect the Lien and security interest of this Deed of Trust upon the Encumbered Property or any part thereof or any Lien, rights, powers or remedies of Beneficiary hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. (c) Any monies collected or received by Beneficiary under this Section 3.10 shall be first applied to the payment of compensation, expenses and disbursements of the agents, attorneys and other representatives of the Beneficiary and the Secured Debtholders, and the balance remaining shall be applied as provided in the Collateral Trustee Agreement. 3.11 DELAY OR OMISSION; NO WAIVER. No delay or omission of Beneficiary or the Secured Debtholders to exercise any right, power or remedy upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Beneficiary whether contained herein or in the other Secured Debt Documents or otherwise available to Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. 3.12 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER. No waiver of any defaults hereunder shall extend to or affect any subsequent or any other defaults then existing, or impair any rights, powers or remedies consequent thereon. If Beneficiary (a) grants forbearance or an extension of time for the payment of any sums secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in this Deed of Trust or any other Secured Debt Document; (d) releases any part of the Encumbered Property from the lien or security interest of this Deed of Trust or any other instrument securing the Obligations; (e) consents to the filing of any map, plat or replat of the Real Property or any part thereof; (f) consents to the granting of any easement on the Real Property; or (g) makes or consents to any agreement changing the terms of this Deed of Trust or any other Secured Debt Document subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the liability under this Deed of Trust or any other Secured 17 Debt Document or otherwise of Grantor, or any subsequent purchaser of the Encumbered Property or any part thereof or any maker, co-signer, surety or guarantor with respect to any other matters not addressed by such act or omission. No such act or omission shall preclude Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Beneficiary, shall the lien or security interest of this Deed of Trust be altered thereby, except to the extent expressly provided in such acts or omissions. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Encumbered Property, Beneficiary, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Encumbered Property or the indebtedness secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any of the liabilities or undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Deed of Trust or any other Secured Debt Document, (i) in the case of any non-monetary default, Beneficiary may continue to accept payments due hereunder without thereby waiving the existence of such or any other default and (ii) in the case of any monetary Event of Default, Beneficiary may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. 3.13 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED. If Beneficiary shall have proceeded to enforce any right or remedy under this Deed of Trust by foreclosure, entry of judgment or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Beneficiary, then and in every such case Grantor and Beneficiary shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Beneficiary shall continue as if no such proceedings had occurred or had been taken. 3.14 REMEDIES CUMULATIVE. Subject to the provisions of Section 4.17 hereof, no right, power or remedy, including without limitation remedies with respect to any security for the Obligations, conferred upon or reserved to Beneficiary by this Deed of Trust or any other Secured Debt Document is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under any other Secured Debt Document, now or hereafter existing at law, in equity or by statute, and Beneficiary shall be entitled to resort to such rights, powers, remedies or security as Beneficiary may deem advisable. 3.15 INTEREST AFTER EVENT OF DEFAULT. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Secured Debt Documents, including this Deed of Trust, may bear interest at the Default Rate until such Event of Default has been cured. Grantor's obligation to pay such interest shall be secured by this Deed of Trust. 3.16 FORECLOSURE; EXPENSES OF LITIGATION. If Beneficiary or Trustee foreclose, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be 18 allowed to the Beneficiary or Trustee as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Beneficiary for attorneys' fees, appraisers' fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guarantees, and similar data and assurances with respect to title as necessary either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Encumbered Property or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Encumbered Property and the maintenance of the lien and security interest of this Deed of Trust, including the reasonable fees of any attorney employed by Beneficiary in any litigation or proceeding affecting this Deed of Trust or any other Secured Debt Document, the Encumbered Property or any portion thereof, including, without limitation, civil, probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Grantor, with interest thereon at the Default Rate, and shall be secured by this Deed of Trust. Trustee waives its right to any statutory fee in connection with any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee for such services. 3.17 DEFICIENCY JUDGMENTS. If after foreclosure of this Deed of Trust, there shall remain any deficiency with respect to any amounts payable under the Secured Debt Documents, including hereunder, or any amounts secured hereby, and Beneficiary may institute any proceedings to recover such deficiency or deficiencies, all such amounts shall continue to bear interest at the Default Rate. Grantor waives any defense to Beneficiary's recovery against Grantor of any deficiency after any foreclosure sale of the Encumbered Property. To the extent permitted by law, Grantor expressly waives any defense or benefits that may be derived from any statute granting Grantor any defense to any such recovery by Beneficiary. In addition, Beneficiary and Trustee shall be entitled to recovery of all of its reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including their reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 3.16 above. This provision shall survive any foreclosure or sale of the Encumbered Property, any portion thereof and/or the extinguishment of the lien hereof. 3.18 WAIVER OF JURY TRIAL. Beneficiary and Grantor each waive any right to have a jury participate in resolving any dispute whether sounding in contract, tort or otherwise arising out of, connected with, related to or incidental to the relationship established between them in connection with this Deed of Trust or any other Secured Debt Document. Any such disputes shall be resolved in a bench trial without a jury. 3.19 EXCULPATION OF BENEFICIARY. The acceptance by Beneficiary of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Encumbered Property by Beneficiary, be deemed or construed to make Beneficiary a "mortgagee in possession"; nor thereafter or at any 19 time or in any event obligate Beneficiary to appear in or defend any action or proceeding relating to the Encumbered Property, nor shall Beneficiary, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Encumbered Property. ARTICLE 4 - GENERAL 4.1 DISCHARGE. When all of the Obligations shall have been paid in full, then this Deed of Trust and the lien and security interest created hereby shall be of no further force and effect, Grantor shall be released from the covenants, agreements and obligations of Grantor contained in this Deed of Trust and all right, title and interest in and to the Encumbered Property shall revert to Grantor. Beneficiary, at the request and the expense of Grantor, shall promptly execute a deed of reconveyance and such other documents as may be reasonably requested by Grantor to evidence the discharge and satisfaction of this Deed of Trust and the release of Grantor from its obligations hereunder. 4.2 NO WAIVER. The exercise of the privileges granted in this Deed of Trust to perform Grantor's obligations under the agreements which constitute the Encumbered Property shall in no event be considered or constitute a waiver of any right which Beneficiary may have at any time, after an Event of Default shall have occurred and be continuing, to declare the Obligations to be immediately due and payable. No delay or omission to exercise any right, remedy or power accruing upon any default shall impair any such right, remedy or power or shall be construed to be a waiver of any such default or acquiescence therein; and every such right, remedy and power may be exercised from time to time and as often as may be deemed expedient. 4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS. It is expressly agreed that any of the Obligations at any time secured hereby may be from time to time extended for any period, or with the consent of Grantor rearranged or renewed, and that any part of the security herein described, or any other security for the Obligations, may be waived or released, without altering, varying or diminishing the force, effect or lien or security interest of this Deed of Trust; and the lien and security interest granted by this Deed of Trust shall continue as a prior lien and security interest on all of the Encumbered Property not expressly so released, until the Obligations are fully paid and this Deed of Trust is terminated in accordance with the provisions hereof; and no other security now existing or hereafter taken to secure the payment of the Obligations or any part thereof or the performance of any obligation or liability of Grantor whatever shall in any manner impair or affect the security given by this Deed of Trust; and all security for the payment of the Obligations or any part thereof and the performance of any obligation or liability shall be taken, considered and held as cumulative. 4.4 FORCIBLE DETAINER. Grantor agrees for itself and all Persons claiming by, through or under it, that subsequent to foreclosure hereunder in accordance with this Deed of Trust and applicable law if Grantor shall hold possession of the Encumbered Property or any part thereof, Grantor or the Persons so holding possession shall be guilty of trespass; and any such Person (including Grantor) failing or refusing to surrender possession upon demand shall be guilty of forcible detainer and shall be liable to Beneficiary or any purchaser in foreclosure, as 20 applicable, for reasonable rental on said premises, and shall be subject to eviction and removal in accordance with law. 4.5 WAIVER OF STAY OR EXTENSION. To the extent permitted to be waived by law, Grantor shall not at any time insist upon or plead or in any manner whatever claim the benefit or advantage of any stay, extension or moratorium law now or at any time hereafter in force in any locality where the Encumbered Property or any part thereof may or shall be situated, nor shall Grantor claim any benefit or advantage from any law now or hereafter in force providing for the valuation or appraisement of the Encumbered Property or any part thereof prior to any sale thereof to be made pursuant to any provision of this Deed of Trust or to a decree of any court of competent jurisdiction, nor after any such sale shall Grantor claim or exercise any right conferred by any law now or at any time hereafter in force to redeem the Encumbered Property so sold or any part thereof; and Grantor hereby expressly waives all benefit or advantage of any such law or laws and the appraisement of the Encumbered Property or any part thereof, and covenants that Grantor shall not hinder or delay the execution of any power herein granted and delegated to Beneficiary but that Grantor shall permit the execution of every such power as though no such law had been made. 4.6 NOTICES. Except where certified or registered mail notice is required by applicable law, any notice to Grantor or Beneficiary required or permitted hereunder shall be deemed to be given when given in the manner prescribed in the Collateral Trust Agreement. 4.7 SEVERABILITY. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Deed of Trust invalid, unenforceable or not entitled to be recorded, registered or filed under any applicable law. In the event any term or provision contained in this Deed of Trust is in conflict, or may hereafter be held to be in conflict, with the laws of the State or of the United States of America, this Deed of Trust shall be affected only as to such particular term or provision, and shall in all other respects remain in full force and effect. 4.8 APPLICATION OF PAYMENTS. In the event that any part of the Obligations cannot lawfully be secured hereby, or in the event that the lien and security interest hereof cannot be lawfully enforced to pay any part of the Obligations, or in the event that the lien or security interest created by this Deed of Trust shall be invalid or unenforceable as to any part of the Obligations, then all payments on the Obligations shall be deemed to have been first applied to the complete payment and liquidation of that part of the Obligations which is not secured by this Deed of Trust and the unsecured portion of the Obligations shall be completely paid and liquidated prior to the payment and liquidation of the remaining secured portion of the Obligations. 4.9 GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 21 4.10 AMENDMENTS. This Deed of Trust may be amended, supplemented or otherwise modified only by an instrument in writing signed by Grantor and Beneficiary. 4.11 SUCCESSORS AND ASSIGNS. All terms of this Deed of Trust shall run with the land and bind each of Grantor and Beneficiary and their respective successors and assigns, and all Persons claiming under or through Grantor or Beneficiary, as the case may be, or any such successor or assign, and shall inure to the benefit of Beneficiary and Grantor, and their respective successors and assigns. 4.12 RENEWAL, ETC. To the extent permitted under the other Secured Debt Documents, Beneficiary may, but shall not be obligated to, at any time and from time to time renew or extend this Deed of Trust, or alter or modify the same in any way, or waive any of the terms, covenants or conditions hereof in whole or in part and may release any portion of the Encumbered Property or any other security, and grant such extensions and indulgences in relation to the Obligations as Beneficiary may determine, without the consent of any junior lienor or encumbrancer and without any obligation to give notice of any kind thereto and without in any manner affecting the priority of the lien and security interest hereof on any part of the Encumbered Property; provided that nothing in this Section 4.12 shall grant Beneficiary the right to alter or modify the Deed of Trust without the consent of the Grantor unless otherwise specifically permitted in this Deed of Trust. 4.13 FUTURE ADVANCES. It is understood and agreed that this Deed of Trust secures, among other things, (i) the Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Grantor under the Priority Lien Documents; (ii) the Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Grantor under the Parity Lien Documents; (iii) all Obligations under any other Priority Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs incurred by Beneficiary or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate therein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (v) any and all other indebtedness of Grantor to Beneficiary now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (vi) any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (i) through (iv) above, whether or not Grantor executes any extension agreement or renewal instrument, and that the lien of any such future advances shall relate to the date of this Deed of Trust. 4.14 LIABILITY. Notwithstanding any provision in this Deed of Trust to the contrary, none of Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever. None of Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Encumbered Property for debts contracted or liability or damages incurred in the management or operation of the Encumbered Property. Such persons shall have the right to rely on any instrument, document or 22 signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Grantor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 4.15 SUCCESSOR TRUSTEE. Any Trustee may resign in writing addressed to Beneficiary or may be removed at any time with or without cause by an instrument in writing duly executed by Beneficiary. In case of the death, resignation or removal of a Trustee, one or more successor Trustee may be appointed by Beneficiary by instrument of substitution complying with any applicable requirements of Applicable Law, and in the absence of any such requirement without formality other than appointment and designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustee, all the estate and title of the prior Trustee in all of the Encumbered Property, and he or they shall thereupon succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All references herein to Trustee shall be deemed to refer to Trustee from time to time acting hereunder. 4.16 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE. Each and every covenant herein contained shall be performed and kept by Grantor solely at Grantor's expense. If Grantor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Deed of Trust, Beneficiary, or Trustee or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Grantor's behalf, and Grantor hereby agrees to repay the expense of such action and such advances upon demand plus interest as set forth in the Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to relieve Grantor from any default hereunder. 4.17 SEVERABILITY AND COMPLIANCE WITH USURY LAW. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Applicable Laws and Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained, nor the application of such provision to other persons or circumstances, nor the other instruments referred to hereinabove, shall be affected thereby, but rather shall be enforceable to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of Grantor at all times to comply with the applicable State law governing the maximum rate or amount of interest payable on or in connection with the Obligations. If the Applicable Law is ever judicially interpreted so as to render usurious any amount called for under the Secured Debt Documents, or contracted for, charged, taken, reserved or received with respect to the extension of credit evidenced by the Secured Debt Documents or if acceleration of the maturity of the Obligations or if any prepayment by Grantor results in Grantor having paid any interest in excess of that permitted by law, then it is Grantor's express intent that all excess 23 amounts theretofore collected by Beneficiary be credited on the principal balance due under the Secured Debt Documents (or, if the Secured Debt Documents have been or would thereby be paid in full, refunded to Grantor), and the provisions of the Secured Debt Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. The right to accelerate maturity of Obligations does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Beneficiary may not collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Beneficiary for the use, forbearance or detention of the Obligations may, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Obligations until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the applicable usury ceiling. 4.18 RELEASE OF COLLATERAL. Notwithstanding any provision herein to the contrary, the Encumbered Property or any part thereof may be released from the security interest created by this Deed of Trust in accordance with the provisions of the Collateral Trust Agreement. 4.19 TIME OF THE ESSENCE. Grantor acknowledges that time is of the essence in performing all of Grantor's obligations set forth herein. 4.20 COUNTERPART EXECUTION. This Deed of Trust may be executed by the parties hereto in any number of counterparts (and be each of the parties hereof on separate counterparts), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 4.21 WAIVER OF GRANTOR'S RIGHTS. BY EXECUTION OF THIS DEED OF TRUST AND BY INITIALING THIS SECTION 4.21, GRANTOR EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTES AND THE POWER OF ATTORNEY GIVEN HEREIN TO BENEFICIARY TO SELL THE ENCUMBERED PROPERTY BY NONJUDICIAL FORECLOSURE UPON DEFAULT BY GRANTOR WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE (EXCEPT AS OTHERWISE PROVIDED HEREIN); (B) EXCEPT TO THE EXTENT PROVIDED OTHERWISE HEREIN, WAIVES ANY AND ALL RIGHTS WHICH GRANTOR MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY BENEFICIARY OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO BENEFICIARY; (C) ACKNOWLEDGES THAT GRANTOR HAS READ THIS DEED OF TRUST AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO GRANTOR AND GRANTOR HAS CONSULTED WITH COUNSEL OF GRANTOR'S CHOICE PRIOR TO EXECUTING THIS DEED OF TRUST; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY GRANTOR AS PART OF A BARGAINED FOR LOAN TRANSACTION: 24 INITIALED BY GRANTOR: ______________________________________ By:______________________________ 4.22 ATTORNEYS' FEES. Notwithstanding anything contained herein to the contrary, (i) "reasonable attorneys' fees" are not, and shall not be, statutory attorneys' fees under State law, (ii) if, under any circumstances Grantor is required hereunder to pay any or all of Beneficiary's attorneys' fees and expenses, Grantor shall be responsible only for actual legal fees and out of pocket expenses actually incurred by Beneficiary at customary hourly rates for the work done, and (iii) Grantor shall not be liable under any circumstances for additional attorneys' fees or expenses under the State law. 4.23 FIXTURE FILING UNDER UNIFORM COMMERCIAL CODE. Grantor and Beneficiary agree, to the extent permitted by law, that: (i) this Deed of Trust upon recording or registration in the real estate records of the proper office shall constitute a financing statement filed as a "fixture filing" within the meaning of Section 9-502 of the UCC; and (ii) the addresses of Grantor and Beneficiary are as set forth on the first page of this Deed of Trust. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 25 IN WITNESS WHEREOF, Grantor has caused this Deed of Trust to be duly executed and delivered as of the day and year first above written. GRANTOR: CALPINE CORPORATION, a Delaware corporation By: ____________________________________ Name: __________________________________ Title: _________________________________ THE STATE OF ss. ss. COUNTY OF ss. This instrument was acknowledged before me on _______________, 2003, by ___________________ of_____________, on behalf of such corporation. ________________________________________ Notary Public, State of ________________ My Commission Expires: _________________ ________________________________________ Printed Name of Notary THE STATE OF ss. ss. COUNTY OF ss. This instrument was acknowledged before me on _______________, 2003, by ___________________ of_____________, on behalf of such corporation. ________________________________________ Notary Public, State of ________________ My Commission Expires: _________________ ________________________________________ Printed Name of Notary EXHIBIT A DESCRIPTION OF PREMISES SEE ATTACHED. EXHIBIT B DESCRIPTION OF EASEMENTS [legal descriptions to be inserted at a later date] EX-10.36 28 f92357exv10w36.txt EXHIBIT 10.36 EXHIBIT 10.36 [OTAY MESA/METCALF], CALIFORNIA RECORDING REQUESTED BY AND WHEN RECORDED, RETURN TO: Ane C. Priester LATHAM & WATKINS LLP 633 W. FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90017 ================================================================================ DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY AGREEMENT DATED AS OF JULY 16, 2003 BY CALPINE CORPORATION, A DELAWARE CORPORATION, AS GRANTOR TO CHICAGO TITLE COMPANY, AS TRUSTEE FOR THE BENEFIT OF THE BANK OF NEW YORK, A NEW YORK BANKING CORPORATION, AS BENEFICIARY ================================================================================ TABLE OF CONTENTS

Page ---- ARTICLE 1 - DEFINITIONS .......................................................................... 4 1.1 DEFINED TERMS ........................................................................... 4 1.2 ACCOUNTING TERMS ........................................................................ 6 ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS ..................................................... 6 2.1 GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS ........................................... 6 2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES ....................................... 7 2.3 COMPLIANCE WITH LEGAL REQUIREMENTS ...................................................... 7 2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS .... 7 2.5 ASSIGNMENT OF RENTS ..................................................................... 8 2.6 REJECTION OF GROUND LEASE BY LESSOR ..................................................... 9 2.7 EXPENSES ................................................................................ 9 2.8 BENEFICIARY ASSUMES NO OBLIGATIONS ...................................................... 9 2.9 FURTHER ASSURANCES ...................................................................... 9 2.10 ACTS OF GRANTOR ......................................................................... 10 2.11 AFTER-ACQUIRED PROPERTY ................................................................. 10 2.12 ENCUMBERED PROPERTY ..................................................................... 10 2.13 POWER OF ATTORNEY ....................................................................... 13 2.14 COVENANT TO PAY ......................................................................... 13 2.15 SECURITY AGREEMENT ...................................................................... 13 ARTICLE 3 - REMEDIES ............................................................................. 14 3.1 PROTECTIVE ADVANCES ..................................................................... 14 3.2 INSTITUTION OF EQUITY PROCEEDINGS ....................................................... 14 3.3 BENEFICIARY'S POWER OF ENFORCEMENT ...................................................... 14 3.4 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME .............. 16 3.5 SEPARATE SALES .......................................................................... 17 3.6 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ...... 18 3.7 RECEIVER ................................................................................ 18 3.8 SUITS TO PROTECT THE ENCUMBERED PROPERTY ................................................ 18 3.9 PROOFS OF CLAIM ......................................................................... 19 3.10 GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY BENEFICIARY.19 3.11 DELAY OR OMISSION; NO WAIVER ............................................................ 19 3.12 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER .............................................. 19 3.13 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED ............................. 20 3.14 REMEDIES CUMULATIVE ..................................................................... 20 3.15 INTEREST AFTER EVENT OF DEFAULT ......................................................... 20 3.16 FORECLOSURE; EXPENSES OF LITIGATION ..................................................... 21 3.17 DEFICIENCY JUDGMENTS .................................................................... 21 3.18 WAIVER OF JURY TRIAL .................................................................... 21 3.19 EXCULPATION OF BENEFICIARY .............................................................. 21 ARTICLE 4 - GENERAL .............................................................................. 22 4.1 DISCHARGE ............................................................................... 22 4.2 NO WAIVER ............................................................................... 22 4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ...................................... 22

i 4.4 FORCIBLE DETAINER ....................................................................... 22 4.5 WAIVER OF STAY OR EXTENSION ............................................................. 23 4.6 NOTICES ................................................................................. 23 4.7 SEVERABILITY ............................................................................ 23 4.8 APPLICATION OF PAYMENTS ................................................................. 23 4.9 GOVERNING LAW ........................................................................... 23 4.10 AMENDMENTS .............................................................................. 23 4.11 SUCCESSORS AND ASSIGNS .................................................................. 23 4.12 RENEWAL, ETC ............................................................................ 24 4.13 FUTURE ADVANCES ......................................................................... 24 4.14 LIABILITY ............................................................................... 24 4.15 SUCCESSOR TRUSTEE ....................................................................... 25 4.16 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE ........................................... 25 4.17 SEVERABILITY AND COMPLIANCE WITH USURY LAW .............................................. 25 4.18 RELEASE OF COLLATERAL ................................................................... 26 4.19 TIME OF THE ESSENCE ..................................................................... 26 4.20 COUNTERPART EXECUTION ................................................................... 26 4.21 FIXTURE FILING .......................................................................... 26 ii [OTAY MESA/METCALF], CALIFORNIA DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY AGREEMENT This DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY AGREEMENT, dated as of July 16, 2003 (this "Deed of Trust") by CALPINE CORPORATION, a Delaware corporation ("Grantor"), whose address is 50 West San Fernando Street, San Jose, CA 95113, to CHICAGO TITLE COMPANY ("Trustee"),whose address is 700 South Flower Street #900, Los Angeles, CA 90017, in favor of THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among Grantor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent ("Beneficiary"), whose address is 101 Barclay Street, New York, New York 10286. References to this "Deed of Trust" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. Recitals A. Grantor has entered into an Amended and Restated Credit Agreement dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Grantor, the Lenders referred to therein and The Bank of Nova Scotia as Administrative Agent relating to a $500,000,000 senior secured credit facility, made available in the form of revolving loans and term loans, including letters of credit issued thereunder. B. Grantor has (a) issued $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issued $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issued $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between Grantor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrowed $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between Grantor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"). C. As permitted pursuant to the Secured Debt Documents, Grantor may incur future debt which could, together with the obligations under the Credit Agreement, constitute Priority Lien Debt and Grantor may incur future debt which could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Grantor intends to secure the obligations, including the obligations (a) under the Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and ratably, with liens and security interests in, among other collateral, the Encumbered Property under the Existing Deed of Trust, as contemplated in the Collateral Trust Agreement. D. Grantor (i) is the owner of the leasehold in the lands or other interest described in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to use all of the buildings, improvements, structures and fixtures located on the lands described in Exhibit A and is executing and delivering this instrument in order to secure its Obligations (as defined below). Agreement NOW THEREFORE, to secure the full performance and prompt and complete payment and performance when and as due and payable of all of the obligations and liabilities of Grantor to Beneficiary, by acceleration or otherwise, arising out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010 Indenture, the 2013 Indenture, the Term Loan Agreement and the obligations of Grantor set forth herein (collectively, the "Obligations,") and in consideration of the covenants herein and therein, Grantor, intending to be legally bound, does hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage, pledge, set-over and confirm unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of Beneficiary, all of Grantor's estate, right, title, interest, property, claim and demand, now or hereinafter arising, in and to the following property and rights (herein collectively called the "Encumbered Property"): (a) Grantor's interest in the lands and premises including Grantor's interest in the leasehold estate created thereby in and to the lands and premises more particularly described in Exhibit A attached hereto (the "Site"). (b) any and all easements, leases, licenses, option rights, rights-of-way and other rights used in connection with the Site or as a means of access thereto (including, without limitation, all rights of Grantor to exercise any election or option, to make any determination or give any notice, consent, waiver or approval, or to take any other action under the Ground Lease), all easements for ingress and egress and easements for water, natural gas and sewage pipelines, running in favor of Grantor, or appurtenant to the Site or arising under the Ground Lease, and any and all sidewalks, alleys, strips and gores of land adjacent thereto or used in connection therewith together with all and singular the tenements, hereditaments and appurtenances thereto, and with any land lying within the right-of-way of any streets, open 2 or proposed, adjoining the same (including, without limitation, the easements, leases, licenses and other instruments described in Exhibit B hereto) (collectively, the "Easements"; and the Site and the Easements collectively referred to herein as the "Real Property"); (c) all buildings, structures, fixtures and other improvements now or hereafter erected on the Real Property, including the Project (collectively, the "Improvements"); (d) all machinery, apparatus, equipment, fittings, fixtures, boilers, turbines and other articles of personal property, including all goods and all goods which become fixtures, now owned or hereafter acquired by Grantor and now or hereafter located on, attached to or used in the operation of or in connection with the Real Property and/or the Improvements, and all replacements thereof, additions thereto and substitutions therefor, to the fullest extent permitted by applicable law (all of the foregoing being hereinafter collectively called the "Equipment"); (e) all raw materials, work in process and other materials used or consumed in the construction of, or now or hereafter located on or used in connection with, the Real Property, the Improvements and/or the Equipment, (including, without limitation, fuel and fuel deposits, now or hereafter located on the Real Property or elsewhere or otherwise owned by Grantor) (the above items, together with the Equipment, being hereinafter collectively called the "Tangible Collateral"); (f) all rights, powers, privileges and other benefits of Grantor (to the extent assignable) now or hereafter obtained by Grantor and/or from any Governmental Authority, including, without limitation, permits issued in the name of Grantor, governmental actions relating to the ownership, operation, management and use of the Real Property, Improvements, Equipment or Tangible Collateral, the development and financing of the Project, the Improvements and the Equipment, and any improvements, modifications or additions thereto; (g) all the lands and interests in lands, tenements and hereditaments hereafter acquired by Grantor in connection with or appurtenant to the Real Property and/or any other property or rights subject to the lien hereof, including (without limitation) all interests of Grantor, whether as lessor or lessee, in any leases of land hereafter made and all rights of Grantor thereunder; (h) any and all other property in any way associated or used in connection with or appurtenant to the Real Property, Improvements, Equipment or Tangible Collateral that may from time to time, by delivery or by writing of any kind, be subjected to the lien hereof by Grantor or by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Trustee or Beneficiary pursuant to this Deed of Trust, being hereby collaterally assigned to Beneficiary and subjected or added to the lien or estate created by this Deed of Trust forthwith upon the acquisition thereof by Grantor, as fully as if such property were now owned by Grantor and were specifically described in this Deed of Trust and subjected to the lien and security interest hereof; and Trustee and 3 Beneficiary are hereby authorized to receive any and all such property as and for additional security hereunder; and (i) any right of Grantor to elect to terminate the Ground Lease or remain in possession of the Real Property pursuant to 11 U.S.C. section 365(h)(1) or any similar provision of applicable law and any possessory rights of Grantor in the Real Property pursuant to 11 U.S.C section 365(h)(2) or any other similar provision of applicable law; (j) all the remainder or remainders, reversion or reversions, rents, revenues, issues, profits, royalties, income and other benefits derived from any of the foregoing, all of which are hereby assigned to Beneficiary, who is hereby authorized to collect and receive the same, to give proper receipts and acquittances therefor and to apply the same in accordance with the provisions of this Deed of Trust. Notwithstanding the foregoing, the Encumbered Property shall not include that certain turbine that is currently on the Site that is encumbered by the Siemans' lien as of the date hereof. TO HAVE AND TO HOLD the said Encumbered Property, whether now owned or held or hereafter acquired, unto Beneficiary, its successors and assigns, pursuant to the provisions of this Deed of Trust. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security interest or estate created by this Deed of Trust to secure the payment of the Obligations, both present and future, shall be first, prior and superior to any Lien, security interest, reservation of title or other interest (other than superior Permitted Liens) heretofore, contemporaneously or subsequently suffered or granted by Grantor, its legal representatives, successors or assigns, except only those, if any, expressly hereinafter referred to and that the Deed of Trust Property is to be held, dealt with and disposed of by Beneficiary, upon and subject to the terms, covenants, conditions, uses and agreements set forth in this Deed of Trust. PROVIDED ALWAYS, that upon payment in full of the Obligations in accordance with the terms and provisions hereof and of the other Secured Debt Documents and the observance and performance by Grantor of its covenants and agreements set forth herein and therein, then this Deed of Trust and the estate hereby and therein granted shall be cancelled and surrendered and shall be reconveyed as provided herein below. ARTICLE 1 - DEFINITIONS 1.1 DEFINED TERMS. 11 Capitalized terms used in this Deed of Trust and not otherwise defined herein shall have the meanings assigned to them in the Collateral Trust Agreement. Any term defined by reference to an agreement, instrument or other document shall have the meaning so assigned to it whether or not such document is in effect. In addition, for purposes of this Deed of Trust, the following definitions shall apply: "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, 4 consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. "Default Rate" has the meaning ascribed to it in the Secured Debt Documents. "Easements" has the meaning ascribed to it in the Granting Clauses. "Encumbered Property" has the meaning ascribed to it in the Granting Clauses. "Equipment" has the meaning ascribed to it in the Granting Clauses. "Event of Default" means an Actionable Default as defined under the Collateral Trust Agreement. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. "Improvements" has the meaning ascribed to it in the Granting Clauses. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Grantor, or the Encumbered Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Grantor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all contracts (written or oral) of any nature to which Grantor, or the Encumbered Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Encumbered Property. "Obligations" has the meaning ascribed to it in the Granting Clauses. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. "Permitted Lien" means the liens, easements, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters (if any) as permitted in the Secured Debt Documents . 5 "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Proceeds" has the meaning assigned to it under the UCC and, in any event, shall include, without limitation, (i) any and all proceeds of any insurance (including, without limitation, property casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Encumbered Property; (ii) any and all proceeds in the form of accounts (as such term is defined in the UCC), security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, letters of credit, chattel paper, liens and security instruments, guaranties or general intangibles relating in whole or in part to the Encumbered Property and all rights and remedies of whatever kind or nature Grantor may hold or acquire for the purpose of securing or enforcing any obligation due Grantor thereunder. "Project" means that certain electric and steam production facility located on the Site. "Real Property" has the meaning ascribed to it in the Granting Clauses. "Secured Debt Documents" has the meaning ascribed to it in the Collateral Trust Agreement. "Obligations" has the meaning ascribed to it in the Granting Clauses. "Site" has the meaning ascribed to it in the Granting Clauses. "State" means the State of California. "Tangible Collateral" has the meaning ascribed to it in the Granting Clauses. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of California, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. 1.2 ACCOUNTING TERMS. As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined herein shall have the respective meanings given to them under GAAP. ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS 2.1 GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS. Grantor shall perform, observe and comply with each and every provision hereof, and with each and every provision contained in the Secured Debt Documents and shall promptly pay, when payment shall become due, 6 the principal with interest thereon and all other sums required to be paid by Grantor under this Deed of Trust and the other Secured Debt Documents at the time and in the manner provided in the Secured Debt Documents. 2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES. Grantor, to the best of its knowledge, represents, covenants and warrants that as of the date hereof: (a) Grantor has good and marketable title to that portion of the Real Property which constitutes real property interests including the Ground Lease and the leasehold estate created thereby, free and clear of all encumbrances except Permitted Liens with respect to the Site, the Ground Lease and other matters which, individually and in the aggregate, do not have a materially adverse effect upon the ownership or operation of the Site; (b) Grantor has the right to hold, occupy and enjoy its interest in the Real Property on and subject to the terms and conditions of the Ground Lease, and has good right, full power and lawful authority to mortgage the same as provided herein, and Beneficiary may at all times peaceably and quietly enter upon, hold, occupy and enjoy the Real Property in accordance with the terms hereof; (c) except as otherwise permitted in the Secured Debt Documents, all costs arising from construction of any improvements, the performance of any labor and the purchase of all Encumbered Property have been or shall be paid when due (except as permitted (including permitted contests) in the Secured Debt Documents; (d) the Site has access for ingress and egress to dedicated street(s); and (e) no material part of the Encumbered Property has been damaged, destroyed, condemned or abandoned. 2.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Grantor shall promptly comply in all material respects with all Legal Requirements relating to its use and occupancy of the Encumbered Property, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Encumbered Property (except as permitted (including permitted contests) in the Secured Debt Documents). 2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS. 2.4.1 Grantor shall carry, with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Grantor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Encumbered Property, is located, insurance in respect of the Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of revenues) with limits and sublimits as appropriate; provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Beneficiary as its interest may 7 appear, which proceeds are hereby assigned to Beneficiary, it being agreed by Grantor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Encumbered Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Beneficiary shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Grantor of any warranties, declarations or conditions in such policy; (iii) no such insurance policy shall be canceled, materially endorsed, materially altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer, their authorized representative or Grantor shall have first given Beneficiary and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Beneficiary shall be furnished with a certificate evidencing such coverage in form and content as are customary in the industry. All policies to be maintained under this Deed of Trust are to be issued on forms and by companies and with endorsements as are customary in the industry. Grantor shall maintain insurance in an amount sufficient to prevent Grantor from becoming a co-insurer under any policy required hereunder. If Grantor fails to maintain the level of insurance required under this Deed of Trust, then Grantor shall and hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; All insurance proceeds and all eminent domain proceeds shall be paid and/or shall be applied in accordance with the provisions of the Secured Debt Documents. 2.5 ASSIGNMENT OF RENTS. Grantor unconditionally and absolutely assigns to Beneficiary all of Grantor's right, title and interest in and to: all leases, subleases, occupancy agreements, licenses, rental contracts and other similar agreements now or hereafter existing relating to the use or occupancy of the Encumbered Property, together with all guarantees, modifications, extensions and renewals thereof; and all rents, issues, profits, income and proceeds due or to become due from tenants of the Encumbered Property (the "Leases"), including rentals and all other payments of any kind under any Leases now existing or hereafter entered into, together with all deposits (including security deposits) of tenants thereunder. This is an absolute assignment to Beneficiary and not an assignment as security for the performance of the obligations under the Secured Debt Documents, or any other indebtedness. Subject to the provisions of herein below, Beneficiary shall have the right, power and authority to, but shall not be obligated to: notify any person that the Leases have been assigned to Beneficiary and that all rents and other obligations are to be paid directly to Beneficiary, whether or not Beneficiary has commenced or completed foreclosure or taken possession of the Encumbered Property; settle compromise, release, extend the time of payment of, and make allowances, adjustments and discounts of any rents or other obligations under the Leases; enforce payment of rents and other rights under the Leases, prosecute any action or proceeding , and defend against any claim with respect to rents and Leases; enter upon, take possession of and operate the Encumbered Property; lease all or any part of the Encumbered Property; and/or perform any and all obligations of Grantor under the Leases and exercise any and all rights of Grantor therein contained to the full extent of Grantor's rights and obligations thereunder, with or without the bringing of any action or the appointment of a receiver. 8 At Beneficiary's request, Grantor shall deliver a copy of this Deed of Trust to each tenant under a Lease. Grantor irrevocably directs any tenant, without any requirement for notice to or consent by Grantor, to comply with all demands of Beneficiary under this Section 2.5 and to turn over to Beneficiary on demand all rents which it receives. Beneficiary shall have the right, but not the obligation, to use and apply all rents received hereunder in such order and such manner as Beneficiary may determine in accordance with the Collateral Trust Agreement. Notwithstanding that this is an absolute assignment of the rents and Leases and not merely the collateral assignment of, or the grant of a lien or security interest in the rents and Leases, Beneficiary grants to Grantor a revocable license to collect and receive the rents and to retain, use and enjoy such rents. Such license may be revoked by Beneficiary only upon the occurrence of any Event of Default. Grantor shall apply any rents which it receives to the payment due under the Obligations, taxes, assessments, water charges, sewer rents and other governmental charges levied, assessed or imposed against the Encumbered Property, insurance premiums, and other obligations of lessor under the Leases before using such proceeds for any other purpose. 2.6 REJECTION OF GROUND LEASE BY LESSOR. To the extent applicable, if the lessor under the Ground Lease rejects or disaffirms the Ground Lease or purports or seeks to disaffirm the Ground Lease pursuant to any bankruptcy law, then: 2.6.1 To the extent permitted by law, Grantor shall remain in possession of the Real Property demised under the Ground Lease and shall perform all acts reasonably necessary for Grantor to remain in such possession for the unexpired term of such Ground Lease (including all renewals), whether the then existing terms and provisions of such Ground Lease require such acts or otherwise; and 2.6.2 All the terms and provisions of this Deed of Trust and the lien created by this Deed of Trust shall remain in full force and effect and shall extend automatically to all of Grantor's rights and remedies arising at any time under, or pursuant to, any bankruptcy or insolvency laws, including all of Grantor's rights to remain in possession of the Real Property. 2.7 EXPENSES. Grantor shall indemnify Beneficiary with respect to any transaction or matter in any way connected with any portion of the Encumbered Property, or Grantor's use, occupancy, or operation of the Encumbered Property in accordance with the Collateral Trust Agreement. 2.8 BENEFICIARY ASSUMES NO OBLIGATIONS. It is expressly agreed that, anything herein contained to the contrary notwithstanding, Grantor shall remain obligated under all agreements which are included in the definition of "Encumbered Property" and shall perform all of its obligations thereunder in accordance with the provisions thereof, and neither Beneficiary, Trustee nor any of the Secured Debtholders shall have any obligation or liability with respect to such obligations of Grantor, nor shall Beneficiary, Trustee or any of the Secured Debtholders be required or obligated in any manner to perform or fulfill any obligations or duties of Grantor under such agreements, or to make any payment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or take any action to collect or enforce the payment of any amounts which have been assigned to Beneficiary hereunder or to which Beneficiary or the Secured Debtholders may be entitled at any time or times. 9 2.9 FURTHER ASSURANCES. Grantor shall, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further action, that may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Document, in order to perfect and continue the lien and security interest granted hereby and to enable Beneficiary to obtain the full benefits of the lien and security interest granted or intended to be granted hereby. Grantor shall keep the Encumbered Property free and clear of all Liens, other than Permitted Liens. Without limiting the generality of the foregoing, Grantor shall execute and record or file this Deed of Trust and each amendment hereto, and such financing or continuation statements, or amendments thereto, and such other instruments, endorsements or notices, as may be necessary, or as may be required pursuant to the Collateral Trust Agreement and/or any Secured Debt Document, in order to perfect and preserve the lien and security interest granted or purported to be granted hereby. Grantor hereby authorizes Beneficiary to file one or more financing statements or continuation statements, and amendments thereto, relative to all or any part of the Encumbered Property necessary to preserve or protect the lien and security interest granted hereby without the signature of Grantor where permitted by law. 2.10 ACTS OF GRANTOR. Except as provided in or permitted by the Secured Debt Documents, Grantor hereby represents and warrants that it has not granted, mortgaged, hypothecated, assigned or pledged and hereby covenants that it will not grant, mortgage, hypothecate, assign or pledge, so long as this Deed of Trust shall remain in effect, any of its right, title or interest in and to the Encumbered Property or any part thereof, other than Permitted Liens, to anyone other than Beneficiary. 2.11 AFTER-ACQUIRED PROPERTY. Any and all of the Encumbered Property which is hereafter acquired shall immediately, without any further conveyance, assignment or act on the part of Grantor or Beneficiary, become and be subject to the lien and security interest of this Deed of Trust as fully and completely as though specifically described herein, but nothing contained in this Section 2.11 shall be deemed to modify or change the obligations of Grantor under Section 2.9 hereof. If and whenever from time to time Grantor shall hereafter acquire any real property or interest therein which constitutes or is intended to constitute part of the Encumbered Property hereunder, Grantor shall promptly give notice thereof to Beneficiary and Grantor shall forthwith execute, acknowledge and deliver to Beneficiary a supplement to this Deed of Trust subjecting the property so acquired to the lien of this Deed of Trust. 2.12 ENCUMBERED PROPERTY. 2.12.1 Grantor shall pay or cause to be paid all rent and other charges required under the Ground Lease as and when the same are due and shall promptly and faithfully perform or cause to be performed all other material terms, obligations, covenants, conditions, agreements, indemnities and liabilities of Grantor under the Ground Lease. Grantor shall observe all applicable covenants, easements and other restrictions of record with respect to the Site, the Easements or to any other part of the Encumbered Property, in all material respects. 2.12.2 Grantor shall do, or cause to be done, all things necessary to preserve and keep unimpaired all rights of Grantor as lessee under the Ground Lease, and to prevent any default under the Ground Lease, or any termination, surrender, cancellation, forfeiture, subordination or impairment thereof. Grantor does hereby authorize and irrevocably appoint and 10 constitute Beneficiary as its true and lawful attorney-in-fact, which appointment is coupled with an interest, in its name, place and stead, to take any and all actions deemed necessary or desirable by Beneficiary to perform and comply with all the obligations of Grantor under the Ground Lease, and to do and take upon the occurrence and during continuation of an Event of Default, but without any obligation so to do or take, any action which Beneficiary deems reasonably necessary to prevent or cure any default by Grantor under the Ground Lease, to enter into and upon the Real Property and Improvements or any part thereof as provided in the Secured Debt Documents in order to prevent or cure any default of Grantor pursuant thereto, to the end that the rights of Grantor in and to the leasehold estate created by the Ground Lease shall be kept free from default. 2.12.3 Grantor shall use all reasonable efforts to enforce the obligations of the lessor under the Ground Lease in a commercially reasonable manner. 2.12.4 Grantor shall not voluntarily surrender its leasehold estate and interest under the Ground Lease or modify, change, supplement, alter or amend the Ground Lease or affirmatively waive any provisions thereof, either orally or in writing, except as permitted in the Secured Debt Documents, and any attempt on the part of Grantor to do any of the foregoing without the written consent of Beneficiary shall be null and void. 2.12.5 If any action or proceeding shall be instituted to evict Grantor or to recover possession of the Encumbered Property or any part thereof or interest therein from Grantor or any action or proceeding otherwise affecting the Encumbered Property or this Deed of Trust shall be instituted, then Grantor shall, immediately after receipt, deliver to Beneficiary a true and complete copy of each petition, summons, complaint, notice of motion, order to show cause and all other pleadings and papers, however designated, served in any such action or proceeding. 2.12.6 Grantor covenants and agrees that the fee title to the Real Property and Improvements and the leasehold estate created under the Ground Lease shall not merge but shall always remain separate and distinct, notwithstanding the union of said estates either in Grantor or a third party by purchase or otherwise and, in case Grantor acquires the fee title or any other estate, title or interest in and to the Real Property and Improvements, the lien of this Deed of Trust shall, without further conveyance, simultaneously with such acquisition, be spread to cover and attach to such acquired estate and as so spread and attached shall be prior to the lien of any deed of trust placed on the acquired estate after the date of this Deed of Trust. 2.12.7 No release or forbearance of any of Grantor's obligations under the Ground Lease by the lessor thereunder, shall release Grantor from any of its obligations under this Deed of Trust. 2.12.8 Grantor shall, within ten days after written demand from Beneficiary, deliver to Beneficiary proof of payment of all items that are required to be paid by Grantor under the Ground Lease, including, without limitation, rent, taxes, operating expenses and other charges. 11 2.12.9 The lien of this Deed of Trust shall attach to all of Grantor's rights and remedies at any time arising under or pursuant to bankruptcy or insolvency law, including, without limitation, all of Grantor's rights to remain in possession of the Encumbered Property. Grantor shall not elect to treat the Ground Lease as terminated under bankruptcy or insolvency law, and any such election shall be void. 2.12.9.1 If pursuant to bankruptcy or insolvency law, Grantor shall seek to offset against the rent reserved in the Ground Lease the amount of any damages caused by the nonperformance by the lessor or any other party of any of their respective obligations thereunder after the rejection by the lessor or such other party of the Ground Lease under any bankruptcy or insolvency law, then Grantor shall, prior to effecting such offset, notify Beneficiary of its intent to do so, setting forth the amount proposed to be so offset and the basis therefor. Beneficiary shall have the right to object to all or any part of such offset that would constitute a breach of the Ground Lease, and in the event of such objection, Grantor shall not effect any offset of the amounts found objectionable by Beneficiary. Neither Beneficiary's failure to object as aforesaid nor any objection relating to such offset shall constitute an approval of any such offset by Beneficiary. 2.12.9.2 If any action, proceeding, motion or notice shall be commenced or filed in respect of the lessor under the Ground Lease or any other party or in respect of the Ground Lease in connection with any case under any bankruptcy or insolvency law, then Beneficiary shall have the option to intervene in any such litigation with counsel of Beneficiary's choice. Beneficiary may proceed in its own name in connection with any such litigation, and Grantor agrees to execute any and all powers, authorizations, consents or other documents required by Beneficiary in connection therewith. 2.12.9.3 Grantor shall, after obtaining knowledge thereof, promptly notify Beneficiary of any filing by or against the lessor or other party with an interest in the Encumbered Property of a petition under any bankruptcy or insolvency law. Grantor shall promptly deliver to Beneficiary, following receipt, copies of any and all notices, summonses, pleadings, applications and other documents received by Grantor in connection with any such petition and any proceedings relating thereto. 2.12.9.4 If there shall be filed by or against Grantor a petition under any bankruptcy or insolvency law, and Grantor, as lessee under the Ground Lease, shall determine to reject the Ground Lease pursuant to any bankruptcy or insolvency law, then Grantor shall give Beneficiary a notice of the date on which Grantor shall apply to the bankruptcy court for authority to reject the Ground Lease (such notice to be no later than twenty (20) days prior to such date). Beneficiary shall have the right, but not the obligation, to serve upon Grantor at any time prior to the date on which Grantor shall so apply to the bankruptcy court a notice stating that Beneficiary demands that Grantor assume and assign the Ground Lease to Beneficiary pursuant to any bankruptcy or insolvency law. If Beneficiary shall serve upon Grantor the notice described in the preceding sentence, to the extent permitted by law or Governmental Authority Grantor shall not seek to reject the Ground Lease and shall comply with the demand provided for in the preceding sentence. In addition, effective upon the entry of an order for relief with respect to Grantor under any bankruptcy or insolvency law, Grantor hereby assigns and transfers to Beneficiary a non-exclusive right to apply to the bankruptcy court under any bankruptcy or insolvency law for an 12 order extending the period during which the Ground Lease may be rejected or assumed; and shall (a) promptly notify Beneficiary of any default by Grantor in the performance or observance of any of the terms, covenants or conditions on the part of Grantor to be performed or observed under the Ground Lease and of the giving of any written notice by the lessor thereunder to Grantor of any such default, and (b) promptly cause a copy of each written notice given to Grantor by the lessor under the Ground Lease to be delivered to Beneficiary. Beneficiary may rely on any notice received by it from any such lessor of any default by Grantor under the Ground Lease and may take such action as may be permitted by law or Governmental Authority to cure such default even though the existence of such default or the nature thereof shall be questioned or denied by Grantor or by any Person on its behalf. 2.13 POWER OF ATTORNEY. Grantor does hereby irrevocably constitute and appoint Beneficiary, its true and lawful attorney (which appointment is coupled with an interest), with full power of substitution, for Grantor and in the name, place and stead of Grantor or in Beneficiary's own name, for so long as any of the Obligations are outstanding, to ask, demand, collect, receive, receipt for and sue for any and all rents, income and other sums which are assigned hereunder with full power to endorse the name of Grantor on all instruments given in payment or in part payment thereof, to settle, adjust or compromise any claims thereunder as fully as Grantor itself could do and file any claim or take any action or proceeding, either in its own name or in the name of Grantor or otherwise, as are necessary or appropriate to protect and preserve the right, title and interest of Beneficiary in and to such rents, income and other sums and the security intended to be afforded hereby; provided that Beneficiary shall not exercise such rights unless an Event of Default has occurred and is continuing. 2.14 COVENANT TO PAY. If an Event of Default has occurred and is continuing and such Event of Default could reasonably be expected to materially and adversely affect Beneficiary's interest hereunder in the Encumbered Property or result in personal injury, then Beneficiary, among its other rights and remedies, shall have the right, but not the obligation, to pay, observe or perform the same, in whole or in part, and with such modifications as Beneficiary reasonably shall deem advisable. To the extent provided in the Secured Debt Documents, all sums, including, without limitation, reasonable attorneys fees, so expended or incurred by Beneficiary by reason of the default of Grantor, or by reason of the bankruptcy or insolvency of Grantor, as well as, without limitation, sums expended or incurred to sustain the lien or estate of this Deed of Trust or its priority, or to protect or enforce any rights of Beneficiary hereunder, or to recover any of the Obligations, or to complete construction of the Project for which the Secured Debt Documents are intended as financing, or for repairs, maintenance, alterations, replacements or improvements thereto or for the protection thereof, or for real estate taxes or other governmental assessments or charges against any part of the Encumbered Property, or premiums for insurance of the Encumbered Property, shall be entitled to the benefit of the lien on the Encumbered Property as of the date of the recording of this Deed of Trust, shall be deemed to be added to and be part of the Obligations secured hereby, whether or not the result thereof causes the total amount of the Obligations to exceed the stated amount set forth in the Recital B of this Deed of Trust, and shall be repaid by Grantor as provided in the Secured Debt Documents. 2.15 SECURITY AGREEMENT. 2.15.1 This Deed of Trust shall also be a security agreement between Grantor and 13 Beneficiary covering the Encumbered Property constituting personal property or fixtures (hereinafter collectively called "UCC Collateral") governed by the UCC in effect in the State as the same may be more specifically set forth in any financing statement delivered in connection with this Deed of Trust, and as further security for the payment and performance of the Obligations, Grantor hereby grants to Beneficiary a security interest in such portion of the Encumbered Property to the full extent that the Encumbered Property may be subject to the UCC. In addition to Beneficiary's other rights hereunder, Beneficiary shall have all rights of a secured party under the UCC. Grantor shall execute and deliver to Beneficiary all financing statements and such further assurances that may be required to establish, create, perfect (to the extent the same can be achieved by the filing of a financing statement) and maintain the validity and priority of Beneficiary's security interests, and Grantor shall bear all reasonable costs thereof, including all UCC searches. Except as otherwise provided in the Secured Debt Documents, if Beneficiary should dispose of any of the Encumbered Property comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written notice by Beneficiary to Grantor shall be deemed to be reasonable notice; provided, however, Beneficiary may, but shall not obligated to, dispose of such property in accordance with the foreclosure procedures of this Deed of Trust in lieu of proceeding under the UCC. Beneficiary may, but shall not be obligated, from time to time, execute and deliver at Grantor's expense, all continuation statements, termination statements, amendments, partial releases, or other instruments relating to all financing statements by and between Grantor and Beneficiary. Except as otherwise provided in the Secured Debt Documents, if an Event of Default shall occur and is continuing, (a) Beneficiary, in addition to any other rights and remedies which it may have, may exercise immediately and without demand to the extent permitted by law, any and all rights and remedies granted to a secured party under the UCC including, without limiting the generality of the foregoing, the right to take possession of the UCC Collateral or any part thereof, and to take such other measures as may be necessary for the care, protection and preservation of such collateral and (b) upon request or demand of Beneficiary, Grantor shall at its expense, assemble the UCC Collateral and make it available to Beneficiary at a convenient place acceptable to Beneficiary. Grantor shall pay to Beneficiary on demand, any and all expenses, including reasonable attorneys' fees and disbursements incurred or paid by Beneficiary in protecting the interest in the UCC Collateral and in enforcing the rights hereunder with respect to such UCC Collateral. ARTICLE 3 - REMEDIES 3.1 PROTECTIVE ADVANCES. If an Event of Default shall have occurred and is continuing, then without thereby limiting Beneficiary's other rights or remedies, waiving or releasing any of Grantor's obligations, or imposing any obligation on Beneficiary, Beneficiary may, but shall not be obligated to, either advance any amount owing or perform any or all actions as may be necessary or appropriate to cure such default. All such advances shall constitute "Protective Advances." No sums advanced or performance rendered by Beneficiary shall cure, or be deemed a waiver of any Event of Default. 3.2 INSTITUTION OF EQUITY PROCEEDINGS. If an Event of Default occurs and is continuing, Beneficiary may, but shall not be obligated to, institute an action, suit or proceeding in equity for specific performance of this Deed of Trust or any other Secured Debt Document, all of which shall be specifically enforceable by injunction or other equitable remedy. 14 3.3 BENEFICIARY'S POWER OF ENFORCEMENT. 3.3.1 If an Event of Default occurs and is continuing, Beneficiary may, but shall not be obligated to, prepare and record on its own behalf, or to deliver to Trustee for recording, if appropriate, written declaration of default and demand for sale and written notice of breach and election to sell (or other statutory notice) to cause the Encumbered Property to be sold to satisfy the obligations hereof, and in the case of delivery to Trustee, Trustee shall cause said notice to be filed for record. 3.3.2 After the lapse of such time as may then be required by law following the recordation of said notice of breach of election to sell, and notice of sale having been given as then required by law, Trustee without demand on Grantor, shall sell the Encumbered Property or any portion thereof at the time and place fixed by it in said notice, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder, of cash in lawful money of the United States payable at the time of sale. Trustee may, for any cause it deems expedient, postpone the sale of all or any portion of said property until it shall be completed and, in every case, notice of postponement shall be given by public announcement thereof at the time and place last appointed for the sale and from time to time thereafter Trustee may postpone such sale by public announcement at the time fixed by the preceding postponement; provided that Trustee shall give Grantor notice of such postponement to the extent required by law. Trustee shall execute and deliver to the purchaser its deed, bill of sale, or other instrument conveying said property so sold, but without any covenant or warranty, express or implied. The recitals in such instrument of conveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Beneficiary, may bid at the sale. 3.3.3 After deducting all costs, fees and expenses of Trustee and of this Deed of Trust, including, without limitation, costs of evidence of title and reasonable attorneys' fees of Trustee or Beneficiary in connection with a sale, Trustee shall apply the proceeds of such sale to payment of all sums expended under the terms hereof not then repaid, with accrued interest at the interest rate on the Obligations, then to the payment of all other sums then secured hereby, and the remainder, if any, to the person or persons legally entitled thereto. 3.3.4 If any Event of Default occurs and is continuing, Beneficiary may, but shall not be obligated, to the extent permitted by law, either with or without entry or taking possession of the Encumbered Property, and without regard to whether or not the indebtedness and other sums secured hereby shall be due and without prejudice to the right of Beneficiary thereafter to bring an action or proceeding to foreclose or any other action for any other Event of Default existing at the time such earlier action was commended, proceed by any appropriate action or proceeding: (1) to enforce payment of the Obligations, to the extent permitted by law, or the performance of any term hereof or any other right; (2) to foreclose this Deed of Trust in any manner provided by law for the foreclosure of mortgages or deeds of trust on real property and to sell, as an entirety or in separate lots or parcels, the Encumbered Property or any portion thereof pursuant to the laws of the State of or under the judgment or decree of a court or courts of competent jurisdiction, and Beneficiary shall be entitled to recover in any such proceeding all costs and expenses incident thereto, including reasonable attorneys' fees in such amount as shall be awarded by the court; (3) to exercise any or all of the rights and remedies available to it under the Secured Debt Documents; and (4) to pursue any other remedy available to it. Beneficiary may take action either by such proceedings or by the 15 exercise of its powers with respect to entry or taking possession, or both, as Beneficiary may in its sole discretion, determine. 3.3.5 The remedies described in this Section 3.3 may be exercised with respect to all or any portion of the UCC Collateral, either simultaneously with the sale of any real property encumbered hereby or independent thereof. Beneficiary may, at any time, proceed with respect to all or any portion of the UCC Collateral in any manner permitted by the UCC. Trustor agrees that Beneficiary's inclusion of all or any portion of the UCC Collateral in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. 3.3.6 Where the Encumbered Property consists of real property and personal property, any reinstatement of the Obligations, following the occurrence of an Event of Default and an election by the Beneficiary to accelerate the maturity of the Obligations, which is made by Trustor or any other person or entity permitted to exercise the right of reinstatement under Section 2924c of the California Civil Code, or any successor statute, shall, in accordance with the terms of UCC Section 9604, not prohibit the Beneficiary from conducting a sale or other disposition of any personally property or from otherwise proceeding against or continuing to proceed against any personal property in any manner permitted by the UCC; nor shall any such reinstatement invalidate, rescind or otherwise affect any sale, disposition or other proceeding held, conducted or instituted with respect to any personal property prior to such reinstatement. Any sums paid to Beneficiary, in effecting any reinstatement pursuant to Section 2924c of the California Civil Code shall be applied to the Obligations and to Beneficiary's and Trustee's reasonable costs and expenses in the manner required by Section 2924c. 3.3.7 Beneficiary is authorized, but shall not be obligated, to foreclose this Deed of Trust subject to the rights of any tenants of the Encumbered Property, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Grantor, a defense to any proceedings instituted by Beneficiary to collect the sums secured hereby. 3.3.8 After deducting all costs, fees and expenses of Beneficiary and of this Deed of Trust, including, without limitation, costs of evidence of title and reasonable attorneys' fees of Beneficiary in connection with a sale, Beneficiary may, but shall not be obligated to, apply the proceeds of such sale to payment of all sums expended under the terms hereof not then repaid, with accrued interest at the Default Rate then to the payment of all other sums then secured hereby and the remainder, if any, to the person or persons legally entitled thereto. 3.4 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME. (a) If an Event of Default occurs and is continuing, Grantor, upon demand of Beneficiary, shall forthwith surrender to Beneficiary the actual possession and, if and to the extent permitted by law, Beneficiary itself, or by such officers or agents as it may appoint, may enter and take possession of all of the Encumbered Property, including the Tangible Collateral, without liability for trespass, damages or otherwise, and may exclude Grantor and its agents and employees wholly therefrom and may have joint access with Grantor to the books, papers and accounts of 16 Grantor. (b) If an Event of Default has occurred and is continuing and Grantor shall for any reason fail to surrender or deliver the Encumbered Property or any part thereof after Beneficiary's demand, Beneficiary may obtain a judgment or decree conferring on Beneficiary or Trustee the right to immediate possession or requiring Grantor to deliver immediate possession of all or part of such property to Beneficiary or Trustee and Grantor hereby specifically consents to the entry of such judgment or decree. Grantor shall pay to Beneficiary or Trustee, upon demand, all costs and expenses of obtaining such judgment or decree and reasonable compensation to Beneficiary or Trustee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien, security title and security interest of this Deed of Trust. (c) Upon every such entering upon or taking of possession, Beneficiary may hold, store, use, operate, manage and control the Encumbered Property and conduct the business thereof, and, from time to time and without being under any duty to so act: (1) make all necessary and proper maintenance, repairs, renewals and replacements thereto and thereon, and all necessary additions, betterments and improvements thereto and thereon and purchase or otherwise acquire fixtures, personalty and other property in connection therewith; (2) insure or keep the Encumbered Property insured; (3) manage and operate the Encumbered Property and exercise all the rights and powers of Grantor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Beneficiary and Trustee, all as Beneficiary or Trustee from time to time may determine; and shall apply the monies so received by Beneficiary in such priority as provided by the Secured Debt Documents to (1) the payment of interest and principal due and payable to the Beneficiary, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Encumbered Property or any part thereof; (4) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Beneficiary or Trustee as allowed under this Deed of Trust; and (5) any other charges or costs required to be paid by Grantor under the terms of the Secured Debt Documents. (5) rent or sublet the Encumbered Property or any portion thereof for any purpose permitted by this Deed of Trust. Beneficiary shall surrender possession of the Encumbered Property to Grantor (i) as may be required by law or court order, or (ii) when all amounts under any of the terms of the Secured Debt Documents, including this Deed of Trust, shall have been paid current and all Events of Default have been cured or waived. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. 17 3.5 SEPARATE SALES. To the extent permitted by law or Governmental Authority, the Encumbered Property may be sold in one or more parcels and in such manner and order as Beneficiary or Trustee, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. 3.6 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS. Grantor agrees to the full extent permitted by law that if an Event of Default occurs and is continuing, neither Grantor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, moratorium, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust or the absolute sale of the Encumbered Property or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Grantor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Encumbered Property marshaled upon any foreclosure of the lien hereof and agrees that Beneficiary, Trustee or any court having jurisdiction to foreclose such lien may sell the Encumbered Property in part or as an entirety. 3.7 RECEIVER. If an Event of Default occurs and is continuing, Beneficiary, to the extent permitted by law, and without regard to the value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, shall be entitled but not obligated to, if it so elects to the appointment of a receiver to enter upon and take possession of the Encumbered Property and to collect all earnings, revenues and receipts and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Beneficiary. To the extent permitted by law, Beneficiary may have a receiver appointed without notice to Grantor or any third party, and Beneficiary may waive any requirement that the receiver post a bond. To the extent permitted by law, Beneficiary shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. To the extent permitted by law, any receiver appointed on Beneficiary's behalf may be an Affiliate of Beneficiary. The reasonable expenses, including receiver's fees, reasonable attorneys' fees, costs and agents' compensation, incurred pursuant to the powers herein contained shall be secured by this Deed of Trust. The right to enter and take possession of and to manage and operate the Encumbered Property and to collect all earnings, revenues and receipts, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Beneficiary under this Deed of Trust, the other Secured Debt Documents or otherwise available to Beneficiary and may be exercised concurrently therewith or independently thereof, but such rights shall be exercised in a manner which is otherwise in accordance with and consistent with the Secured Debt Documents. Beneficiary shall be liable to account only for such earnings, revenues and receipts (including, without limitation, security deposits) actually received by Beneficiary, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Beneficiary shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Deed of Trust to, Beneficiary. 3.8 SUITS TO PROTECT THE ENCUMBERED PROPERTY. Beneficiary shall have the power and authority to institute and maintain any suits and proceedings as may be advisable (a) to prevent 18 any impairment of the Encumbered Property by any acts which may be unlawful or in violation of this Deed of Trust, (b) to preserve or protect its interest in the Encumbered Property, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Beneficiary's interest. 3.9 PROOFS OF CLAIM. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Grantor, any Affiliate or any guarantor, co-maker or endorser of any of Grantor's obligations, its creditors or its property, Beneficiary, to the extent permitted by law, shall be entitled, but shall not be obligated, to file such proofs of claim or other documents as may be necessary or advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Grantor under the Secured Debt Documents, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Grantor after such date. 3.10 GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF MONIES BY BENEFICIARY. (a) In case of a foreclosure sale of all or any part of the Encumbered Property and of the application of the proceeds of sale to the payment of the sums secured hereby, to the extent permitted by law, the Secured Debtholders shall be entitled to enforce payment from Grantor of any additional amounts then remaining due and unpaid and to recover judgment against Grantor for any portion thereof remaining unpaid, with interest at the Default Rate. (b) Grantor hereby agrees to the extent permitted by law, that no recovery of any such judgment by the Secured Debtholders or other action by the Secured Debtholders and no attachment or levy of any execution upon any of the Encumbered Property or any other property shall in any way affect the Lien and security interest of this Deed of Trust upon the Encumbered Property or any part thereof or any Lien, rights, powers or remedies of Beneficiary hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. (c) Any monies collected or received by Beneficiary under this Section 3.10 shall be first applied to the payment of compensation, expenses and disbursements of the agents, attorneys and other representatives of the Beneficiary and the Secured Debtholders, and the balance remaining shall be applied as provided in the Collateral Trustee Agreement. 3.11 DELAY OR OMISSION; NO WAIVER. No delay or omission of Beneficiary or the Secured Debtholders to exercise any right, power or remedy upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Beneficiary whether contained herein or in the other Secured Debt Documents or otherwise available to Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. 3.12 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER. No waiver of any defaults hereunder shall extend to or affect any subsequent or any other defaults then existing, or impair any rights, powers or remedies consequent thereon. If Beneficiary (a) grants forbearance or an 19 extension of time for the payment of any sums secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in this Deed of Trust or any other Secured Debt Document; (d) releases any part of the Encumbered Property from the lien or security interest of this Deed of Trust or any other instrument securing the Obligations; (e) consents to the filing of any map, plat or replat of the Real Property or any part thereof; (f) consents to the granting of any easement on the Real Property; or (g) makes or consents to any agreement changing the terms of this Deed of Trust or any other Secured Debt Document subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the liability under this Deed of Trust or any other Secured Debt Document or otherwise of Grantor, or any subsequent purchaser of the Encumbered Property or any part thereof or any maker, co-signer, surety or guarantor with respect to any other matters not addressed by such act or omission. No such act or omission shall preclude Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Beneficiary, shall the lien or security interest of this Deed of Trust be altered thereby, except to the extent expressly provided in such acts or omissions. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Encumbered Property, Beneficiary, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Encumbered Property or the indebtedness secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any of the liabilities or undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Deed of Trust or any other Secured Debt Document, (i) in the case of any non-monetary default, Beneficiary may continue to accept payments due hereunder without thereby waiving the existence of such or any other default and (ii) in the case of any monetary Event of Default, Beneficiary may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. 3.13 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED. If Beneficiary shall have proceeded to enforce any right or remedy under this Deed of Trust by foreclosure, entry of judgment or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Beneficiary, then and in every such case Grantor and Beneficiary shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Beneficiary shall continue as if no such proceedings had occurred or had been taken. 3.14 REMEDIES CUMULATIVE. Subject to the provisions of Section 4.17 hereof, no right, power or remedy, including without limitation remedies with respect to any security for the Obligations, conferred upon or reserved to Beneficiary by this Deed of Trust or any other Secured Debt Document is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under any other Secured Debt Document, now or hereafter existing at law, in equity or by statute, and Beneficiary shall be entitled to resort to such rights, powers, remedies or security as Beneficiary may deem advisable. 20 3.15 INTEREST AFTER EVENT OF DEFAULT. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Secured Debt Documents, including this Deed of Trust, may bear interest at the Default Rate until such Event of Default has been cured. Grantor's obligation to pay such interest shall be secured by this Deed of Trust. 3.16 FORECLOSURE; EXPENSES OF LITIGATION. If Beneficiary or Trustee foreclose, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be allowed to the Beneficiary or Trustee as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Beneficiary for attorneys' fees, appraisers' fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guarantees, and similar data and assurances with respect to title as are necessary either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Encumbered Property or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Encumbered Property and the maintenance of the lien and security interest of this Deed of Trust, including the reasonable fees of any attorney employed by Beneficiary in any litigation or proceeding affecting this Deed of Trust or any other Secured Debt Document, the Encumbered Property or any portion thereof, including, without limitation, civil, probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Grantor, with interest thereon at the Default Rate, and shall be secured by this Deed of Trust. Trustee waives its right to any statutory fee in connection with any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee for such services. 3.17 DEFICIENCY JUDGMENTS. If after foreclosure of this Deed of Trust, there shall remain any deficiency with respect to any amounts payable under the Secured Debt Documents, including hereunder, or any amounts secured hereby, and Beneficiary may institute, to the extent permitted by law, any proceedings to recover such deficiency or deficiencies, all such amounts shall continue to bear interest at the Default Rate. Grantor waives any defense to Beneficiary's recovery against Grantor, to the extent permitted by law, of any deficiency after any foreclosure sale of the Encumbered Property. To the extent permitted by law, Grantor expressly waives any defense or benefits that may be derived from any statute granting Grantor any defense to any such recovery by Beneficiary. In addition, Beneficiary and Trustee shall be entitled to recovery of all of its reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including their reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 3.16 above. This provision shall survive any foreclosure or sale of the Encumbered Property, any portion thereof and/or the extinguishment of the lien hereof. 3.18 WAIVER OF JURY TRIAL. Beneficiary and Grantor each waive any right to have a jury participate in resolving any dispute whether sounding in contract, tort or otherwise arising out of, connected with, related to or incidental to the relationship established between them in connection with this Deed of Trust or any other Secured Debt Document. Any such disputes shall be resolved in a bench trial without a jury. 21 3.19 EXCULPATION OF BENEFICIARY. The acceptance by Beneficiary of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Encumbered Property by Beneficiary, be deemed or construed to make Beneficiary a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Beneficiary to appear in or defend any action or proceeding relating to the Encumbered Property, nor shall Beneficiary, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Encumbered Property. ARTICLE 4 - GENERAL 4.1 DISCHARGE. When all of the Obligations shall have been paid in full, then this Deed of Trust and the lien and security interest created hereby shall be of no further force and effect, Grantor shall be released from the covenants, agreements and obligations of Grantor contained in this Deed of Trust and all right, title and interest in and to the Encumbered Property shall revert to Grantor. Beneficiary, at the request and the expense of Grantor, shall promptly execute a deed of reconveyance and such other documents as may be reasonably requested by Grantor to evidence the discharge and satisfaction of this Deed of Trust and the release of Grantor from its obligations hereunder. 4.2 NO WAIVER. The exercise of the privileges granted in this Deed of Trust to perform Grantor's obligations under the agreements which constitute the Encumbered Property shall in no event be considered or constitute a waiver of any right which Beneficiary may have at any time, after an Event of Default shall have occurred and be continuing, to declare the Obligations to be immediately due and payable. No delay or omission to exercise any right, remedy or power accruing upon any default shall impair any such right, remedy or power or shall be construed to be a waiver of any such default or acquiescence therein; and every such right, remedy and power may be exercised from time to time and as often as may be deemed expedient. 4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS. It is expressly agreed that any of the Obligations at any time secured hereby may be from time to time extended for any period, or with the consent of Grantor rearranged or renewed, and that any part of the security herein described, or any other security for the Obligations, may be waived or released, without altering, varying or diminishing the force, effect or lien or security interest of this Deed of Trust; and the lien and security interest granted by this Deed of Trust shall continue as a prior lien and security interest on all of the Encumbered Property not expressly so released, until the Obligations are fully paid and this Deed of Trust is terminated in accordance with the provisions hereof; and no other security now existing or hereafter taken to secure the payment of the Obligations or any part thereof or the performance of any obligation or liability of Grantor whatever shall in any manner impair or affect the security given by this Deed of Trust; and all security for the payment of the Obligations or any part thereof and the performance of any obligation or liability shall be taken, considered and held as cumulative. 4.4 FORCIBLE DETAINER. Grantor agrees for itself and all Persons claiming by, through or under it, that subsequent to foreclosure hereunder in accordance with this Deed of Trust and applicable law if Grantor shall hold possession of the Encumbered Property or any part thereof, Grantor or the Persons so holding possession shall be guilty of trespass; and any such Person 22 (including Grantor) failing or refusing to surrender possession upon demand shall be guilty of forcible detainer and shall be liable to Beneficiary or any purchaser in foreclosure, as applicable, for reasonable rental on said premises, and shall be subject to eviction and removal in accordance with law. 4.5 WAIVER OF STAY OR EXTENSION. To the extent permitted to be waived by law, Grantor shall not at any time insist upon or plead or in any manner whatever claim the benefit or advantage of any stay, extension or moratorium law now or at any time hereafter in force in any locality where the Encumbered Property or any part thereof may or shall be situated, nor shall Grantor claim any benefit or advantage from any law now or hereafter in force providing for the valuation or appraisement of the Encumbered Property or any part thereof prior to any sale thereof to be made pursuant to any provision of this Deed of Trust or to a decree of any court of competent jurisdiction, nor after any such sale shall Grantor claim or exercise any right conferred by any law now or at any time hereafter in force to redeem the Encumbered Property so sold or any part thereof; and Grantor hereby expressly waives all benefit or advantage of any such law or laws and the appraisement of the Encumbered Property or any part thereof, and covenants that Grantor shall not hinder or delay the execution of any power herein granted and delegated to Beneficiary but that Grantor shall permit the execution of every such power as though no such law had been made. 4.6 NOTICES. Except where certified or registered mail notice is required by applicable law, any notice to Grantor or Beneficiary required or permitted hereunder shall be deemed to be given when given in the manner prescribed in the Collateral Trust Agreement. 4.7 SEVERABILITY. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Deed of Trust invalid, unenforceable or not entitled to be recorded, registered or filed under any applicable law. In the event any term or provision contained in this Deed of Trust is in conflict, or may hereafter be held to be in conflict, with the laws of the State or of the United States of America, this Deed of Trust shall be affected only as to such particular term or provision, and shall in all other respects remain in full force and effect. 4.8 APPLICATION OF PAYMENTS. In the event that any part of the Obligations cannot lawfully be secured hereby, or in the event that the lien and security interest hereof cannot be lawfully enforced to pay any part of the Obligations, or in the event that the lien or security interest created by this Deed of Trust shall be invalid or unenforceable as to any part of the Obligations, then all payments on the Obligations shall be deemed to have been first applied to the complete payment and liquidation of that part of the Obligations which is not secured by this Deed of Trust and the unsecured portion of the Obligations shall be completely paid and liquidated prior to the payment and liquidation of the remaining secured portion of the Obligations. 4.9 GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. 4.10 AMENDMENTS. This Deed of Trust may be amended, supplemented or otherwise modified only by an instrument in writing signed by Grantor and Beneficiary. 23 4.11 SUCCESSORS AND ASSIGNS. All terms of this Deed of Trust shall run with the land and bind each of Grantor and Beneficiary and their respective successors and assigns, and all Persons claiming under or through Grantor or Beneficiary, as the case may be, or any such successor or assign, and shall inure to the benefit of Beneficiary and Grantor, and their respective successors and assigns. 4.12 RENEWAL, ETC. To the extent permitted under the other Secured Debt Documents, Beneficiary may, but shall not be obligated to, at any time and from time to time renew or extend this Deed of Trust, or alter or modify the same in any way, or waive any of the terms, covenants or conditions hereof in whole or in part and may release any portion of the Encumbered Property or any other security, and grant such extensions and indulgences in relation to the Obligations as Beneficiary may determine, without the consent of any junior lienor or encumbrancer and without any obligation to give notice of any kind thereto and without in any manner affecting the priority of the lien and security interest hereof on any part of the Encumbered Property; provided that nothing in this Section 4.12 shall grant Beneficiary the right to alter or modify the Deed of Trust without the consent of the Grantor unless otherwise specifically permitted in this Deed of Trust. 4.13 FUTURE ADVANCES. It is understood and agreed that this Deed of Trust secures, among other things, (i) the Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Grantor under the Priority Lien Documents; (ii) the Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Grantor under the Parity Lien Documents; (iii) all Obligations under any other Priority Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs incurred by Beneficiary or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate therein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (v) any and all other indebtedness of Grantor to Beneficiary now or hereafter owing, whether direct or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (vi) any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (i) through (iv) above, whether or not Grantor executes any extension agreement or renewal instrument, and that the lien of any such future advances shall relate to the date of this Deed of Trust. 4.14 LIABILITY. Notwithstanding any provision in this Deed of Trust to the contrary, none of Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever. None of Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Encumbered Property for debts contracted or liability or damages incurred in the management or operation of the Encumbered Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Beneficiary, Trustee or any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Grantor will, from time to time, pay the compensation due hereunder and reimburse such parties for, 24 and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 4.15 SUCCESSOR TRUSTEE. Any Trustee may resign in writing addressed to Beneficiary or may be removed at any time with or without cause by an instrument in writing duly executed by Beneficiary. In case of the death, resignation or removal of a Trustee, one or more successor Trustee may be appointed by Beneficiary by instrument of substitution complying with any applicable requirements of Applicable Law, and in the absence of any such requirement without formality other than appointment and designation in writing. Such appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited, and upon the making of any such appointment and designation this conveyance shall vest in the named successor Trustee or Trustee, all the estate and title of the prior Trustee in all of the Encumbered Property, and he or they shall thereupon succeed to all the rights, powers, privileges, immunities and duties hereby conferred upon the prior Trustee. All references herein to Trustee shall be deemed to refer to Trustee from time to time acting hereunder. 4.16 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE. Each and every covenant herein contained shall be performed and kept by Grantor solely at Grantor's expense. If Grantor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Deed of Trust, Beneficiary, or Trustee or any receiver appointed hereunder or under Applicable Law, may, but shall not be obligated to, take action and/or make advances to perform the same in Grantor's behalf, and Grantor hereby agrees to repay the expense of such action and such advances upon demand plus interest as set forth in the Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to relieve Grantor from any default hereunder. 4.17 SEVERABILITY AND COMPLIANCE WITH USURY LAW. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Applicable Laws and Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained, nor the application of such provision to other persons or circumstances, nor the other instruments referred to hereinabove, shall be affected thereby, but rather shall be enforceable to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of Grantor at all times to comply with the applicable State law governing the maximum rate or amount of interest payable on or in connection with the Obligations. If the Applicable Law is ever judicially interpreted so as to render usurious any amount called for under the Secured Debt Documents, or contracted for, charged, taken, reserved or received with respect to the extension of credit evidenced by the Secured Debt Documents or if acceleration of the maturity of the Obligations or if any prepayment by Grantor results in Grantor having paid any interest in excess of that permitted by law, then it is Grantor's and Beneficiary's express intent that all excess amounts theretofore collected by Beneficiary be credited on the principal balance due under the Secured Debt Documents (or, if the Secured Debt Documents have been or would thereby be paid in full, refunded to Grantor), and the provisions of the Secured Debt Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. The right to 25 accelerate maturity of Obligations does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Beneficiary may not collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Beneficiary for the use, forbearance or detention of the Obligations may, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Obligations until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the applicable usury ceiling. 4.18 RELEASE OF COLLATERAL. Notwithstanding any provision herein to the contrary, the Encumbered Property or any part thereof may be released from the security interest created by this Deed of Trust in accordance with the provisions of the Collateral Trust Agreement. 4.19 TIME OF THE ESSENCE. Grantor acknowledges that time is of the essence in performing all of Grantor's obligations set forth herein. 4.20 COUNTERPART EXECUTION. This Deed of Trust may be executed by the parties hereto in any number of counterparts (and be each of the parties hereof on separate counterparts), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 4.21 FIXTURE FILING. Under Uniform Commercial Code, Grantor and Beneficiary agree, to the extent permitted by law, that: (i) this Deed of Trust upon recording or registration in the real estate records of the proper office shall constitute a financing statement filed as a "fixture filing" within the meaning of Sections 9334 and 9502 of the UCC; (ii) all or part of the Encumbered Property are or are to become fixtures; and (iii) the addresses of Grantor and Beneficiary are as set forth on the first page of this Deed of Trust. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 26 [OTAY MESA/METCALF], CALIFORNIA IN WITNESS WHEREOF, Grantor has caused this Deed of Trust to be duly executed and delivered as of the day and year first above written. GRANTOR: CALPINE CORPORATION, a Delaware corporation By: ____________________________________ Name: __________________________________ Title: _________________________________ S-1 STATE OF ) ) COUNTY OF _________ ) On _______________, before me, ____________________, a Notary Public in and for said state, personally appeared _______________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ________________________________________ Notary Public in and for said State S-2 [OTAY MESA/METCALF], CALIFORNIA EXHIBIT A DESCRIPTION OF LEASED PREMISES See attached. [OTAY MESA/METCALF], CALIFORNIA EXHIBIT B DESCRIPTION OF EASEMENTS [legal descriptions to be inserted at a later date] EX-10.37 29 f92357exv10w37.txt EXHIBIT 10.37 EXHIBIT 10.37 WASHINGTON PARISH, LA RECORDING REQUESTED BY AND WHEN RECORDED, RETURN TO: ANE C. PRIESTER LATHAM & WATKINS LLP 633 W. FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071 - -------------------------------------------------------------------------------- MORTGAGE, COLLATERAL ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT DATED AS OF JULY 16, 2003 BY CALPINE CORPORATION, A DELAWARE CORPORATION, AS MORTGAGOR TO THE BANK OF NEW YORK, A NEW YORK BANKING CORPORATION, AS MORTGAGEE - -------------------------------------------------------------------------------- TABLE OF CONTENTS

PAGE ---- ARTICLE 1 - DEFINITIONS ....................................................................... 4 1.1 Defined Terms ................................................................. 4 1.2 Accounting Terms .............................................................. 6 ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS .................................................. 6 2.1 Mortgagor Performance of Secured Debt Documents ............................... 6 2.2 General Representations, Covenants and Warranties ............................. 6 2.3 Compliance with Legal Requirements ............................................ 7 2.4 Insurance; Application of Insurance Proceeds; Application of Eminent Domain Proceeds ...................................................................... 7 2.5 Assignment of Rents ........................................................... 8 2.6 [Reserved.] ................................................................... 9 2.7 Expenses ...................................................................... 9 2.8 Mortgagee Assumes No Obligations .............................................. 9 2.9 Further Assurances ............................................................ 9 2.10 Acts of Mortgagor ............................................................. 9 2.11 After-Acquired Property ....................................................... 9 2.12 Site .......................................................................... 10 2.13 Power of Attorney ............................................................. 10 2.14 Covenant to Pay ............................................................... 10 2.15 Security Agreement ............................................................ 11 ARTICLE 3 - REMEDIES .......................................................................... 11 3.1 Protective Advances ........................................................... 11 3.2 Institution of Equity Proceedings ............................................. 12 3.3 Mortgagee's Power of Enforcement .............................................. 12 3.4 Mortgagee's Right to Enter and Take Possession, Operate and Apply Income ...... 14 3.5 Separate Sales ................................................................ 15 3.6 Waiver of Appraisement, Moratorium, Valuation, Stay, Extension, Redemption Laws and Other Rights ......................................................... 15 3.7 Receiver ...................................................................... 15 3.8 Suits to Protect the Mortgaged Property ....................................... 16 3.9 Proofs of Claim ............................................................... 16 3.10 Mortgagor to Pay Amounts Secured Hereby on Any Default in Payment; Application of Monies by Mortgagee .................................................................. 16 3.11 Delay or Omission; No Waiver .................................................. 17 3.12 No Waiver of One Default to Affect Another .................................... 17 3.13 Discontinuance of Proceedings; Position of Parties Restored ................... 18 3.14 Remedies Cumulative ........................................................... 18 3.15 Interest After Event of Default ............................................... 18 3.16 Foreclosure; Expenses of Litigation ........................................... 18 3.17 Deficiency Judgments .......................................................... 19 3.18 Waiver of Jury Trial .......................................................... 19 3.19 Exculpation of Mortgagee ...................................................... 19

i ARTICLE 4 - GENERAL ........................................................................... 19 4.1 Discharge ..................................................................... 19 4.2 No Waiver ..................................................................... 19 4.3 Extension, Rearrangement or Renewal of Obligations ............................ 20 4.4 Forcible Detainer ............................................................. 20 4.5 Waiver of Stay or Extension ................................................... 20 4.6 Notices ....................................................................... 20 4.7 Severability .................................................................. 20 4.8 Application of Payments ....................................................... 21 4.9 GOVERNING LAW ................................................................. 21 4.10 Amendments .................................................................... 21 4.11 Successors and Assigns ........................................................ 21 4.12 Renewal ....................................................................... 21 4.13 Future Advances ............................................................... 21 4.14 Liability ..................................................................... 22 4.15 Severability and Compliance With Usury Law .................................... 22 4.16 Release of Collateral ......................................................... 23 4.17 Time of the Essence ........................................................... 23 4.18 Counterpart Execution ......................................................... 23 4.19 WAIVER OF MORTGAGOR'S RIGHTS .................................................. 23 4.20 Attorneys' Fees ............................................................... 23 ii WASHINGTON PARISH, LA MORTGAGE, COLLATERAL ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT STATE OF LOUISIANA COUNTY OR PARISH OF WASHINGTON BE IT KNOWN, that on this 16th day of July, 2003, before me, the undersigned Notary Public duly commissioned and qualified, personally came and appeared: CALPINE CORPORATION, a Delaware corporation, successor by merger with Washington Parish Energy Center, LLC, having a mailing address of 50 West San Fernando Street, San Jose, CA 95113, and a federal taxpayer identification number of 77-0212977, appearing herein through its undersigned representative, duly authorized hereunto pursuant to resolutions of its Board of Directors (the "Mortgagor"), who declared that Mortgagor does by these presents declare and acknowledge an indebtedness unto: THE BANK OF NEW YORK, a New York banking corporation, having a mailing address of 101 Barclay Street, New York, New York 10286, and a federal taxpayer identification number of 13-5160382, acting not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among Mortgagor, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent (the "Mortgagee"). References to this "Mortgage" shall mean this instrument and any and all renewals, modifications, amendments, supplements, extensions, consolidations, substitutions, spreaders, restatements and replacements of this instrument. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. Recitals A. Mortgagor has entered into an Amended and Restated Credit Agreement dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Mortgagor, the Lenders referred to therein and The Bank of Nova Scotia as Administrative Agent, relating to a $500,000,000 senior secured credit facility made available in the form of revolving loans and term loans, including letters of credit issued thereunder. B. Mortgagor also intends to (a) issue $500,000,000 in aggregate principal amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007 Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010 Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together with its successors in such capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the "Term Loan Agreement") between Mortgagor and Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its successors in such capacity, the "Term Loan Administrative Agent"). C. As permitted pursuant to the Secured Debt Documents, Mortgagor may incur future debt which could, together with the obligations under the Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future debt which could, together with the 2007 Notes, 2010 Notes, the 2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Mortgagor intends to secure certain obligations, including the obligations (a) under the Credit Agreement and any future Priority Lien Debt, equally and ratably, on a priority basis, and (b) subject to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and ratably, with liens and security interests in, among other collateral, the Mortgaged Property under the Existing Mortgage, as contemplated in the Collateral Trust Agreement. D. Mortgagor (i) is the owner of the interests in the lands described in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to use all of the buildings, improvements, structures and fixtures located on the lands described in Exhibit A and is executing and delivering this instrument in order to secure its Obligations (as defined below). Agreement NOW, THEREFORE, to secure the prompt and complete payment when and as due and payable of all of the obligations and liabilities of Mortgagor to Mortgagee, by acceleration or otherwise, arising out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010 Indenture, the 2013 Indenture and the Term Loan Agreement and the obligations of Mortgagor set forth herein (collectively, the "Obligations"), and in consideration of the covenants herein and therein, Mortgagor, intending to be legally bound, does hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage, pledge, set over hypothecate, transfer and confirm unto Mortgagee as set forth in this Mortgage, all of Mortgagor's estate, right, title, interest, property, claim and demand, now or hereafter arising, in and to the following property and rights (herein collectively called the "Mortgaged Property"): (a) Mortgagor's interest in the lands and premises more particularly described in Exhibit A hereto (the "Site"); (b) any and all easements, leases, licenses, option rights, rights-of-way and other rights used in connection with the Site or as a means of access thereto, all easements for 2 ingress and egress and easements for water, natural gas and sewage pipelines, running in favor of Mortgagor, or appurtenant to the Site, and any and all sidewalks, alleys, strips and gores of land adjacent thereto or used in connection therewith together with all and singular the tenements, hereditaments and appurtenances thereto, and with any land lying within the right-of-way of any streets, open or proposed, adjoining the same (including, without limitation, the easements, leases, licenses and other instruments described in Exhibit B hereto) (collectively, the "Easements"; and the Site and the Easements collectively referred to herein as the "Real Property"); (c) all buildings, structures, fixtures and other improvements now or hereafter erected on the Real Property, including the Project (collectively, the "Improvements"); (d) all machinery, apparatus, equipment, fittings, fixtures, boilers, turbines and other articles of personal property, including all goods and all goods which become fixtures, now owned or hereafter acquired by Mortgagor and now or hereafter located on, attached to or used in the operation of or in connection with the Real Property and/or the Improvements, and all replacements thereof, additions thereto and substitutions therefor, to the fullest extent permitted by applicable law (all of the foregoing being hereinafter collectively called the "Equipment"); (e) all raw materials, work in process and other materials used or consumed in the construction of, or now or hereafter located on or used in connection with, the Real Property, the Improvements and/or the Equipment, (including, without limitation, fuel and fuel deposits, now or hereafter located on the Real Property or elsewhere or otherwise owned by Mortgagor) (the above items, together with the Equipment, being hereinafter collectively called the "Tangible Collateral"); (f) all rights, powers, privileges and other benefits of Mortgagor (to the extent assignable) now or hereafter obtained by Mortgagor and/or from any Governmental Authority, including, without limitation, permits issued in the name of Mortgagor, governmental actions relating to the ownership, operation, management and use of the Real Property, Improvements, Equipment or Tangible Collateral, the development and financing of the Project, the Improvements and the Equipment, and any improvements, modifications or additions thereto; (g) all the lands and interests in lands, tenements and hereditaments hereafter acquired by Mortgagor in connection with or appurtenant to the Real Property and/or any other property or rights subject to the lien hereof, including (without limitation) all interests of Mortgagor, whether as lessor or lessee, in any leases of land hereafter made and all rights of Mortgagor thereunder; (h) any and all other property in any way associated or used in connection with or appurtenant to the Real Property, Improvements, Equipment or Tangible Collateral that may from time to time, by delivery or by writing of any kind, be subjected to the lien hereof by Mortgagor or by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Mortgagee pursuant to this Mortgage, being hereby collaterally assigned to Mortgagee and subjected or added to the lien or estate created by this Mortgage forthwith upon the acquisition thereof by Mortgagor, as fully as if such property 3 were now owned by Mortgagor and were specifically described in this Mortgage and subjected to the lien and security interest hereof; and Mortgagee is hereby authorized to receive any and all such property as and for additional security hereunder; and (i) all the remainder or remainders, reversion or reversions, rents, revenues, issues, profits, royalties, income and other benefits derived from any of the foregoing, all of which are hereby assigned to Mortgagee, who is hereby authorized to collect and receive the same, to give proper receipts and acquittances therefor and to apply the same in accordance with the provisions of this Mortgage. The maximum amount of the Obligations that may be outstanding at any time and from time to time that this Mortgage secures, including without limitation as a mortgage and a collateral assignment, including all principal, interest and any sums paid or incurred by Mortgagee pursuant to this Mortgage, including without limitation under Section 2.14 and Section 3.1 hereof, and all other amounts included within the Obligations, is 4.2 billion ($4,200,000,000) dollars. Notwithstanding any provision herein to the contrary, the Mortgaged Property or any part thereof may be released from the conveyance created by this Mortgage in accordance with the provisions of the Collateral Trust Agreement. TO HAVE AND TO HOLD the said Mortgaged Property, whether now owned or held or hereafter acquired, unto Mortgagee, its successors and assigns, pursuant to the provisions of this Mortgage. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security title, security interest or estate created by this Mortgage to secure the payment of the Obligations, both present and future, shall be first, prior and superior to any Lien, security interest, reservation of title or other interest (other than superior Permitted Liens) heretofore, contemporaneously or subsequently suffered or granted by Mortgagor, its legal representatives, successors or assigns, except only those, if any, expressly hereinafter referred to and that the Mortgaged Property is to be held, dealt with and disposed of by Mortgagee, upon and subject to the terms, covenants, conditions, uses and agreements set forth in this Mortgage. PROVIDED ALWAYS, that upon payment in full of the Obligations in accordance with the terms and provisions hereof and of the other Secured Debt Documents and the observance and performance by Mortgagor of its covenants and agreements set forth herein and therein, then this Mortgage and the estate hereby and therein granted shall be cancelled and surrendered and shall be reconveyed as provided herein below. ARTICLE 1 - DEFINITIONS 1.1 Defined Terms. (a) Capitalized terms used in this Mortgage and not otherwise defined herein shall have the meanings assigned to them in the Collateral Trust Agreement. Any term defined by reference to an agreement, instrument or other document shall have the meaning so assigned to it whether or not such document is in effect. In addition, for purposes of this Mortgage, the following definitions shall apply: 4 "Applicable Law" means with respect to any Person or matter, any federal, state, regional, tribal or local statute, law, code, rule, treaty, convention, application, order, decree, consent decree, injunction, directive, determination or other requirement (whether or not having the force of law) relating to such Person or matter and, where applicable, any interpretation thereof by a Governmental Authority having jurisdiction with respect thereto or charged with the administration or interpretation thereof. "Default Rate" has the meaning ascribed to it in the Secured Debt Documents. "Easements" has the meaning ascribed to it in the Granting Clauses. "Equipment" has the meaning ascribed to it in the Granting Clauses. "Event of Default" means an Actionable Default as defined under the Collateral Trust Agreement. "Governmental Authority" means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city, tribe or otherwise) whether now or hereafter in existence charged with the administration, interpretation or enforcement of any Applicable Law. "Improvements" has the meaning ascribed to it in the Granting Clauses. "Legal Requirements" means (i) any and all present and future judicial decisions, statutes, rulings, rules, regulations, licenses, decisions, orders, injunctions, decrees, permits, certificates or ordinances of any Governmental Authority in any way applicable to Mortgagor, or the Mortgaged Property, including the ownership, use, occupancy, operation, maintenance, repair or reconstruction thereof, and any other Applicable Law enacted by any Governmental Authority relating to health or the environment, (ii) Mortgagor's presently or subsequently effective Organic Documents, (iii) any and all Leases, (iv) any and all leases and other contracts (written or oral) of any nature to which Mortgagor, or the Mortgaged Property may be bound and (v) any and all restrictions, restrictive covenants or zoning, present and future, as the same may apply to the Mortgaged Property. "Mortgaged Property" has the meaning ascribed to it in the Granting Clauses. "Obligations" has the meaning ascribed to it in the Granting Clauses. "Organic Documents" means the Articles of Incorporation, Certificate of Incorporation, limited liability company certificate of formation and regulations or operating agreement, partnership agreement, limited partnership agreement, joint venture agreement, trust agreement or other similar documents governing the organization and operation of a business association. "Permitted Lien" means the liens, easements, building lines, restrictions, exceptions, reservations, conditions, limitations, security interests and other matters (if any) as permitted in the Secured Debt Documents. 5 "Person" means any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Proceeds" has the meaning assigned to it under the UCC and, in any event, shall include, without limitation, (i) any and all proceeds of any insurance (including, without limitation, property casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Mortgaged Property; (ii) any and all proceeds in the form of accounts (as such term is defined in the UCC), security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, letters of credit, chattel paper, liens and security instruments, guaranties or general intangibles relating in whole or in part to the Mortgaged Property and all rights and remedies of whatever kind or nature Mortgagor may hold or acquire for the purpose of securing or enforcing any obligation due Mortgagor thereunder. "Project" means that certain 600 MW (approximately) power generating facility located on the Real Property. "Real Property" has the meaning ascribed to it in the Granting Clauses. "Secured Debt Documents" has the meaning ascribed to it in the Collateral Trust Agreement. "Site" has the meaning ascribed to it in the Granting Clauses. "State" means that state in which the Site is located. "Tangible Collateral" has the meaning ascribed to it in the Granting Clauses. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of Louisiana, and the terms "Accounts," "Account Debtor, "As Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts," "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the respective meanings assigned to such terms in the Uniform Commercial Code. 1.2 Accounting Terms. As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined herein shall have the respective meanings given to them under GAAP. ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS 2.1 Mortgagor Performance of Secured Debt Documents. Mortgagor shall perform, observe and comply with each and every provision hereof, and with each and every provision contained in the Secured Debt Documents and shall promptly pay, when payment shall become due, the principal with interest thereon and all other sums required to be paid by Mortgagor under this Mortgage and the other Secured Debt Documents at the time and in the manner provided in the Secured Debt Documents. 6 2.2 General Representations, Covenants and Warranties. Mortgagor, to the best of its knowledge, represents, covenants and warrants that as of the date hereof: (a) Mortgagor has good and marketable title to that portion of the Real Property which constitutes real property interests free and clear of all encumbrances except Permitted Liens with respect to the Site, and other matters which, individually and in the aggregate, do not have a materially adverse effect upon the ownership or operation of the Site; (b) Mortgagor has the right to hold, occupy and enjoy its interest in the Real Property and has good right, full power and lawful authority to grant the same as provided herein, and Mortgagee may at all times peaceably and quietly enter upon, hold, occupy and enjoy the Real Property in accordance with the terms hereof; (c) except as otherwise disclosed in the Secured Debt Documents, all costs arising from construction of any improvements, the performance of any labor and the purchase of all Mortgaged Property have been or shall be paid when due; (d) the Site has access for ingress and egress to dedicated street(s); and (e) no material part of the Mortgaged Property has been damaged, destroyed, condemned or abandoned. 2.3 Compliance with Legal Requirements. Mortgagor shall promptly comply in all material respects with all Legal Requirements relating to its use and occupancy of the Mortgaged Property, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Mortgaged Property. 2.4 Insurance; Application of Insurance Proceeds; Application of Eminent Domain Proceeds. 2.4.1 Mortgagor shall carry with financially sound and reputable insurance companies and in amounts as is customary in the industry or as otherwise required pursuant to the Secured Debt Documents, the following insurance: (1) workmen's compensation insurance and public liability and property damage insurance in respect of all activities in which Mortgagor might incur personal liability for the death of or injury to an employee or third person, or damage to or destruction of another's property; and (2) to the extent such insurance is carried by similar companies engaged in similar undertakings in, the same general areas in which the Mortgaged Property, is located, insurance in respect of the Equipment, against loss or damage by fire, lightning, hail, tornado, explosion and other similar risks, hazards, casualties and contingencies (including business interruption insurance covering loss of revenues) with limits and sublimits as appropriate; provided, that any such insurance may be provided by way of self insurance to the extent that similar companies engaged in similar undertakings in the same general areas also self-insure. Each insurance policy issued in connection therewith shall provide by way of endorsements, riders or otherwise that (i) name Mortgagee as a loss payee on all property insurance policies and an additional insured on all liability insurance policies, and provide that proceeds from property insurance policies will be payable to Mortgagee as its interest may appear, which proceeds are hereby assigned to Mortgagee, it being agreed by Mortgagor that such payments shall be applied A) if there be no Event of Default existing or which would exist but for due notice or lapse of time, or both, to the restoration, repair or replacement of the Mortgaged Property, or B) if there be an Event of Default existing, or which would exist but for due notice or lapse of time, or both, in accordance with the provisions of the Collateral Trust Agreement, either for the above stated purpose or toward the payment of the Indebtedness; (ii) the coverage of Mortgagee shall not be terminated, reduced or affected in any manner regardless of any breach or violation by Mortgagor of any warranties, declarations or conditions in such 7 policy; (iii) no such insurance policy shall be canceled, materially endorsed, materially altered or reissued to effect a change in coverage for any reason and to any extent whatsoever unless such insurer, their authorized representative or Mortgagor shall have first given Mortgagee and each Secured Debt Representative thirty (30) days prior written notice thereof; and (iv) Mortgagee may, but shall not be obligated to, make premium payments to prevent any cancellation, endorsement, alteration or re-issuance and such payments shall be accepted by the insurer to prevent the same. Mortgagee shall be furnished with a certificate evidencing such coverage in form and content as are customary in the industry. All policies to be maintained under this Mortgage are to be issued on forms and by companies and with endorsements as are customary in the industry. Mortgagor shall maintain insurance in an amount sufficient to prevent Mortgagor from becoming a co-insurer under any policy required hereunder. If Mortgagor fails to maintain the level of insurance required under this Mortgage, then Mortgagor shall and hereby agrees to indemnify Mortgagee to the extent that a casualty occurs and insurance proceeds would have been available had such insurance been maintained; 2.4.2 All insurance proceeds and all eminent domain proceeds shall be paid and/or shall be applied in accordance with the provisions of the Secured Debt Documents. 2.5 Assignment of Rents. Mortgagor unconditionally and absolutely assigns to Mortgagee all of Mortgagor's right, title and interest in and to: all leases, subleases, occupancy agreements, licenses, rental contracts and other similar agreements now or hereafter existing relating to the use or occupancy of the Mortgaged Property, together with all guarantees, modifications, extensions and renewals thereof; and all rents, issues, profits, income and proceeds due or to become due from tenants of the Mortgaged Property (the "Leases"), including rentals and all other payments of any kind under any leases now existing or hereafter entered into, together with all deposits (including security deposits) of tenants thereunder. This is an absolute assignment to Mortgagee and not an assignment as security for the performance of the obligations under the Secured Debt Documents, or any other indebtedness. Subject to the provisions of herein below, Mortgagee shall have the right, power and authority to, but shall not be obligated to: notify any person that the Leases have been assigned to Mortgagee and that all rents and other obligations are to be paid directly to Mortgagee, whether or not Mortgagee has commenced or completed foreclosure or taken possession of the Mortgaged Property; settle compromise, release, extend the time of payment of, and make allowances, adjustments and discounts of any rents or other obligations under the Leases; enforce payment of rents and other rights under the Leases, prosecute any action or proceeding, and defend against any claim with respect to rents and Leases; enter upon, take possession of and operate the Mortgaged Property; lease all or any part of the Mortgaged Property; and/or perform any and all obligations of Mortgagor under the Leases and exercise any and all rights of Mortgagor therein contained to the full extent of Mortgagor's rights and obligations thereunder, with or without the bringing of any action or the appointment of a receiver. At Mortgagee's request, Mortgagor shall deliver a copy of this Mortgage to each tenant under a Lease. Mortgagor irrevocably directs any tenant, without any requirement for notice to or consent by Mortgagor, to comply with all demands of Mortgagee under this Section 2.5 and to turn over to Mortgagee on demand all rents which it receives. Mortgagee shall have the right, but not the obligation, to use and apply all rents received hereunder in such order and such manner as Mortgagee may determine in accordance with the Collateral Trust Agreement. Notwithstanding that this is an absolute assignment of the rents and Leases and not merely the collateral assignment of, or the grant of a lien or security interest in the rents and Leases, Mortgagee grants to Mortgagor a 8 revocable license to collect and receive the rents and to retain, use and enjoy such rents. Such license may be revoked by Mortgagee only upon the occurrence of any Event of Default. Mortgagor shall apply any rents which it receives to the payment due under the Obligations, taxes, assessments, water charges, sewer rents and other governmental charges levied, assessed or imposed against the Mortgaged Property, insurance premiums, and other obligations of lessor under the Leases before using such proceeds for any other purpose. 2.6 [Reserved.] 2.7 Expenses. Mortgagor shall indemnify Mortgagee with respect to any transaction or matter in any way connected with any portion of the Mortgaged Property, or Mortgagor's use, occupancy, or operation of the Mortgaged Property in accordance with the Collateral Trust Agreement. 2.8 Mortgagee Assumes No Obligations. It is expressly agreed that, anything herein contained to the contrary notwithstanding, Mortgagor shall remain obligated under all agreements which are included in the definition of "Mortgaged Property" and shall perform all of its obligations thereunder in accordance with the provisions thereof, and neither Mortgagee nor any of the Secured Debtholders shall have any obligation or liability with respect to such obligations of Mortgagor, nor shall Mortgagee or any of the Secured Debtholders be required or obligated in any manner to perform or fulfill any obligations or duties of Mortgagor under such agreements, or to make any payment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or take any action to collect or enforce the payment of any amounts which have been assigned to Mortgagee hereunder or to which Mortgagee or the Secured Debtholders may be entitled at any time or times. 2.9 Further Assurances. Mortgagor shall, from time to time, at its expense, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Mortgagee may reasonably request, in order to perfect and continue the lien and security interest granted hereby and to enable Mortgagee to obtain the full benefits of the lien and security interest granted or intended to be granted hereby. Mortgagor shall keep the Mortgaged Property free and clear of all Liens, other than Permitted Liens. Without limiting the generality of the foregoing, Mortgagor shall execute and record or file this Mortgage and each amendment hereto, and such financing or continuation statements, or amendments thereto, and such other instruments, endorsements or notices, as may be necessary, or as Mortgagee may reasonably request, in order to perfect and preserve the lien and security interest granted or purported to be granted hereby. Mortgagor hereby authorizes Mortgagee to file one or more financing statements or continuation statements, and amendments thereto, relative to all or any part of the Mortgaged Property necessary to preserve or protect the lien and security interest granted hereby without the signature of Mortgagor where permitted by law. 2.10 Acts of Mortgagor. Except as provided in or permitted by the Secured Debt Documents, Mortgagor hereby represents and warrants that it has not granted, mortgaged, hypothecated, assigned or pledged and hereby covenants that it will not grant, mortgage, hypothecate, assign or pledge, so long as this Mortgage shall remain in effect, any of its right, title or interest in and to the Mortgaged Property or any part thereof, other than Permitted Liens, to anyone other than Mortgagee. 9 2.11 After-Acquired Property. Any and all of the Mortgaged Property which is hereafter acquired shall immediately, without any further conveyance, assignment or act on the part of Mortgagor or Mortgagee, become and be subject to the lien and security interest of this Mortgage as fully and completely as though specifically described herein, but nothing contained in this Section 2.11 shall be deemed to modify or change the obligations of Mortgagor under Section 2.9 hereof. If and whenever from time to time Mortgagor shall hereafter acquire any real property or interest therein which constitutes or is intended to constitute part of the Mortgaged Property hereunder, Mortgagor shall promptly give notice thereof to Mortgagee and Mortgagor shall forthwith execute, acknowledge and deliver to Mortgagee a supplement to this Mortgage subjecting the property so acquired to the lien of this Mortgage. 2.12 Site. Mortgagor shall observe all applicable covenants, easements and other restrictions of record with respect to the Site, the Easements or to any other part of the Mortgaged Property, in all material respects. 2.13 Power of Attorney. Mortgagor does hereby irrevocably constitute and appoint Mortgagee, its true and lawful attorney (which appointment is coupled with an interest), with full power of substitution, for Mortgagor and in the name, place and stead of Mortgagor or in Mortgagee's own name, for so long as any of the Obligations are outstanding, to ask, demand, collect, receive, receipt for and sue for any and all rents, income and other sums which are assigned hereunder with full power to endorse the name of Mortgagor on all instruments given in payment or in part payment thereof, to settle, adjust or compromise any claims thereunder as fully as Mortgagor itself could do and file any claim or take any action or proceeding, either in its own name or in the name of Mortgagor or otherwise, as are necessary or appropriate to protect and preserve the right, title and interest of Mortgagee in and to such rents, income and other sums and the security intended to be afforded hereby; provided that Mortgagee shall not exercise such rights unless an Event of Default has occurred and is continuing. 2.14 Covenant to Pay. If an Event of Default has occurred and is continuing and such Event of Default could reasonably be expected to materially and adversely affect Mortgagee's interest hereunder in the Mortgaged Property or result in personal injury, then Mortgagee, among its other rights and remedies, shall have the right, but not the obligation, to pay, observe or perform the same, in whole or in part, and with such modifications as Mortgagee reasonably shall deem advisable. To the extent provided in the Secured Debt Documents, all sums, including, without limitation, reasonable attorneys fees, so expended or incurred by Mortgagee by reason of the default of Mortgagor, or by reason of the bankruptcy or insolvency of Mortgagor, as well as, without limitation, sums expended or incurred to sustain the lien or estate of this Mortgage or its priority, or to protect or enforce any rights of Mortgagee hereunder, or to recover any of the Obligations, or to complete construction of the Project for which the Secured Debt Documents are intended as financing, or for repairs, maintenance, alterations, replacements or improvements thereto or for the protection thereof, or for real estate taxes or other governmental assessments or charges against any part of the Mortgaged Property, or premiums for insurance of the Mortgaged Property, shall be entitled to the benefit of the lien on the Mortgaged Property as of the date of the recording of this Mortgage, shall be deemed to be added to and be part of the Obligations secured hereby, whether or not the result thereof causes the total amount of the Obligations to exceed the stated amount set forth in the second introductory paragraph of this Mortgage, and shall be repaid by Mortgagor as provided in the Secured Debt Documents. 10 2.15 Security Agreement. 2.15.1 This Mortgage shall also be a security agreement between Mortgagor and Mortgagee covering the Mortgaged Property constituting personal property or fixtures (hereinafter collectively called "UCC Collateral") governed by the UCC in effect in the State as the same may be more specifically set forth in any financing statement delivered in connection with this Mortgage, and as further security for the payment and performance of the Obligations, Mortgagor hereby grants to Mortgagee a security interest in such portion of the Mortgaged Property to the full extent that the Mortgaged Property may be subject to the UCC. In addition to Mortgagee's other rights hereunder, Mortgagee shall have all rights of a secured party under the UCC. Mortgagor shall execute and deliver to Mortgagee all financing statements and such further assurances that may be required to establish, create, perfect (to the extent the same can be achieved by the filing of a financing statement) and maintain the validity and priority of Mortgagee's security interests, and Mortgagor shall bear all reasonable costs thereof, including all UCC searches. Except as otherwise provided in the Secured Debt Documents, if Mortgagee should dispose of any of the Mortgaged Property comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written notice by Mortgagee to Mortgagor shall be deemed to be reasonable notice; provided, however, Mortgagee may dispose of such property in accordance with the foreclosure procedures of this Mortgage in lieu of proceeding under the UCC. Mortgagee may, but shall not be obligated to, from time to time execute and deliver at Mortgagor's expense, all continuation statements, termination statements, amendments, partial releases, or other instruments relating to all financing statements by and between Mortgagor and Mortgagee. Except as otherwise provided in the Secured Debt Documents, if an Event of Default shall occur and is continuing, (a) Mortgagee, in addition to any other rights and remedies which it may have, may exercise immediately and without demand to the extent permitted by law, any and all rights and remedies granted to a secured party under the UCC including, without limiting the generality of the foregoing, the right to take possession of the UCC Collateral or any part thereof, and to take such other measures as may be necessary for the care, protection and preservation of such collateral and (b) upon request or demand of Mortgagee, Mortgagor shall at its expense, assemble the UCC Collateral and make it available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on demand, any and all expenses, including reasonable attorneys' fees and disbursements incurred or paid by Mortgagee in protecting the interest in the UCC Collateral and in enforcing the rights hereunder with respect to such UCC Collateral. 2.15.2 Mortgagor agrees, to the extent permitted by law, that: (i) all or a part of the Mortgaged Property are or are to become fixtures; and (ii) the address of Mortgagor is as set forth on the first page of this Mortgage. ARTICLE 3 - REMEDIES 3.1 Protective Advances. If an Event of Default shall have occurred and is continuing, then without thereby limiting Mortgagee's other rights or remedies, waiving or releasing any of Mortgagor's obligations, or imposing any obligation on Mortgagee, Mortgagee may, but shall not be obligated to, either advance any amount owing or perform any or all actions as may be necessary or appropriate to cure such default. All such advances shall constitute "Protective Advances." No sums advanced or performance rendered by Mortgagee shall cure, or be deemed a waiver of any Event of Default. 11 3.2 Institution of Equity Proceedings. If an Event of Default occurs and is continuing, Mortgagee may, but shall not be obligated to, institute an action, suit or proceeding in equity for specific performance of this Mortgage or any other Secured Debt Document, all of which shall be specifically enforceable by injunction or other equitable remedy. 3.3 Mortgagee's Power of Enforcement. 3.3.1 If an Event of Default shall have occurred, Mortgagee may, but shall not be obligated to, sell the Mortgaged Property or any part of the Mortgaged Property at public sale or sales before the door of the courthouse of the county in which the Mortgaged Property or any part of the Mortgaged Property is situated, to the highest bidder for cash, in order to pay the indebtedness secured hereby and accrued interest thereon and insurance premiums, liens, assessments, taxes and charges, including utility charges, if any, with accrued interest thereon, and all expenses of the sale and of all proceedings in connection therewith, including reasonable attorneys' fees actually incurred, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff's sales are advertised in said county. At any such public sale, Mortgagee may, but shall not be obligated to, execute and deliver to the purchaser a conveyance of the Mortgaged Property or any part of the Mortgaged Property in fee simple, with full warranties of title (or without warranties if Mortgagee shall so elect) and to this end, Mortgagor hereby constitutes and appoints Mortgagee the agent and attorney-in-fact of Mortgagor to make such sale and conveyance, and thereby to divest Mortgagor of all right, title, interest, equity and equity of redemption that Mortgagor may have in and to the Mortgaged Property and to vest the same in the purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Mortgagor. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by dissolution, insolvency or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the indebtedness secured hereby and shall not be exhausted by one exercise thereof but may be exercised until full payment of all indebtedness secured hereby. In the event of any such foreclosure sale by Mortgagee, Mortgagor shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. 3.3.2 Mortgagee may adjourn from time to time any sale by it to be made under or by virtue of this Mortgage by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and, except as otherwise provided by any applicable provision of law, Mortgagee, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned. 3.3.3 Upon any sale made under or by virtue of this Section 3.3 (whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale), Mortgagee may bid for and acquire the Mortgaged Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the indebtedness the net sales price after deducting therefrom the expenses of the sale and the costs of the action and any other sums which Mortgagee is authorized to deduct under this Mortgage. 12 3.3.4 No recovery of any judgment by Mortgagee and no levy of an execution under any judgment upon the Mortgaged Property or upon any other property of Mortgagor shall affect in any manner or to any extent, the lien and title of this Mortgage upon the Mortgaged Property or any part thereof, or any liens, titles, rights, powers or remedies of Mortgagee hereunder, but such liens, titles, rights, powers and remedies of Mortgagee shall continue unimpaired as before. 3.3.5 Mortgagee is authorized, but shall not be obligated, to foreclose this Mortgage subject to the rights of any tenants of the Mortgaged Property, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Mortgagor, a defense to any proceedings instituted by Mortgagee to collect the sums secured hereby. 3.3.6 After deducting all costs, fees and expenses of Mortgagee and of this Mortgage, including, without limitation, costs of evidence of title and reasonable attorneys' fees of Mortgagee in connection with a sale, Mortgagee shall apply the proceeds of such sale to payment of all sums expended under the terms hereof not then repaid, with accrued interest at the Default Rate then to the payment of all other sums then secured hereby and the remainder, if any, to the person or persons legally entitled thereto. 3.3.7 If any Event of Default occurs and is continuing, Mortgagee may, either with or without entry or taking possession of the Mortgaged Property, and without regard to whether or not the indebtedness and other sums secured hereby shall be due and without prejudice to the right of Mortgagee thereafter to bring an action or proceeding to foreclose or any other action for any default existing at the time such earlier action was commenced, proceed by any appropriate action or proceeding: (1) to enforce payment of the Obligations, to the extent permitted by law, or the performance of any term hereof or any other right; (2) to foreclose this Mortgage in any manner provided by law for the foreclosure of mortgages or deeds of trust or deeds to secure debt on real property and to sell, as an entirety or in separate lots or parcels, the Mortgaged Property or any portion thereof upon executory or ordinary process and pursuant to the laws of the State or under the judgment or decree of a court or courts of competent jurisdiction, and Mortgagee shall be entitled to recover in any such proceeding all costs and expenses incident thereto, including reasonable attorneys' fees in such amount as shall be awarded by the court; (3) to exercise any or all of the rights and remedies available to it under the Secured Debt Documents; and (4) to pursue any other remedy available to it. Mortgagee may take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, or both, as Mortgagee may determine. 3.3.8 The remedies described in this Section 3.3 may be exercised with respect to all or any portion of the UCC Collateral, either simultaneously with the sale of any real property encumbered hereby or independent thereof. Mortgagee may at any time be permitted to proceed with respect to all or any portion of the UCC Collateral in any manner permitted by the UCC. Mortgagor agrees that Mortgagee's inclusion of all or any portion of the UCC Collateral in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. 13 3.4 Mortgagee's Right to Enter and Take Possession, Operate and Apply Income. (a) If an Event of Default occurs and is continuing, Mortgagor, upon demand of Mortgagee, shall forthwith surrender to Mortgagee the actual possession and, if and to the extent permitted by law, Mortgagee itself, or by such officers or agents as it may appoint, may enter and take possession of all of the Mortgaged Property, including the Tangible Collateral, without liability for trespass, damages or otherwise, and may exclude Mortgagor and its agents and employees wholly therefrom and may have joint access with Mortgagor to the books, papers and accounts of Mortgagor. (b) If an Event of Default has occurred and is continuing and Mortgagor shall for any reason fail to surrender or deliver the Mortgaged Property or any part thereof after Mortgagee's demand, Mortgagee may obtain a judgment or decree conferring on Mortgagee the right to immediate possession or requiring Mortgagor to deliver immediate possession of all or part of such property to Mortgagee and Mortgagor hereby specifically consents to the entry of such judgment or decree. Mortgagor shall pay to Mortgagee, upon demand, all costs and expenses of obtaining such judgment or decree and reasonable compensation to Mortgagee, its attorneys and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien, security title and security interest of this Mortgage. (c) Upon every such entering upon or taking of possession, Mortgagee may hold, store, use, operate, manage and control the Mortgaged Property and conduct the business thereof, and, from time to time and without being under any duty to so act: (1) make all necessary and proper maintenance, repairs, renewals and replacements thereto and thereon, and all necessary additions, betterments and improvements thereto and thereon and purchase or otherwise acquire fixtures, personalty and other property in connection therewith; (2) insure or keep the Mortgaged Property insured; (3) manage and operate the Mortgaged Property and exercise all the rights and powers of Mortgagor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Mortgagee, all as Mortgagee from time to time may determine; and shall apply the monies so received by Mortgagee in such priority as provided by the Secured Debt Documents to (1) the payment of interest and principal due and payable to the Mortgagee, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Mortgaged Property or any part thereof; (4) the compensation, expenses and disbursements of the agents, attorneys and other representatives of Mortgagee as allowed under this Mortgage; and (5) any other charges or costs required to be paid by Mortgagor under the terms of the Secured Debt Documents. (5) rent or sublet the Mortgaged Property or any portion thereof for any purpose permitted by this Mortgage. 14 Mortgagee shall surrender possession of the Mortgaged Property to Mortgagor (i) as may be required by law or court order, or (ii) when all amounts under any of the terms of the Secured Debt Documents, including this Mortgage, shall have been paid current and all Events of Default have been cured or waived. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. 3.5 Separate Sales. To the extent permitted by law or Governmental Authority, the Mortgaged Property may be sold in one or more parcels and in such manner and order as Mortgagee, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. 3.6 Waiver of Appraisement, Moratorium, Valuation, Stay, Extension, Redemption Laws and Other Rights. (a) Mortgagor agrees to the full extent permitted by law that if an Event of Default occurs and is continuing, neither Mortgagor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, moratorium, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Mortgagor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Mortgaged Property marshalled upon any foreclosure of the lien hereof and agrees that Mortgagee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property in part or as an entirety. (b) Mortgagor waives in favor of Mortgagee any and all homestead exemptions and other exemptions of seizure or otherwise to which Mortgagor is or may be entitled under the constitution and statutes of the State of Louisiana insofar as the Mortgaged Property is concerned. Mortgagor further waives: (i) the benefit of appraisement as provided in Louisiana Code of Civil Procedure Articles 2332, 2336, 2723, 2724, and all other laws conferring the same; (ii) the demand and three days delay accorded by Louisiana Code of Civil Procedure Articles 2639 and 2721; (iii) the notice of seizure required by Louisiana Code of Civil Procedure Articles 2293 and 2721; (iv) the three days delay provided by Louisiana Code of Civil Procedure Articles 2331 and 2722; and (v) the benefit of the other provisions of Louisiana Code of Civil Procedure Articles 2331, 2722 and 2723, not specifically mentioned above. (c) Any and all declarations of facts made by authentic act before a notary public in the presence of two witnesses by a person declaring that such facts lie within his knowledge, shall constitute authentic evidence of such facts for the purpose of executory process. Mortgagor specifically agrees that such an affidavit by a representative of Mortgagee as to the existence, amount, terms and maturity of the Obligations and of a default thereunder shall constitute authentic evidence of such facts for the purpose of executory process. 3.7 Receiver. If an Event of Default occurs and is continuing, Mortgagee, to the extent permitted by law, and without regard to the value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, shall be entitled as a matter of right, but shall not be 15 obligated to, if it so elects to the appointment of a receiver to enter upon and take possession of the Mortgaged Property and to collect all earnings, revenues and receipts and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Mortgagee. To the extent permitted by law, Mortgagee may have a receiver appointed without notice to Mortgagor or any third party, and Mortgagee may waive any requirement that the receiver post a bond. To the extent permitted by law, Mortgagee shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. To the extent permitted by law, any receiver appointed on Mortgagee's behalf may be an Affiliate of Mortgagee. The reasonable expenses, including receiver's fees, reasonable attorneys' fees, costs and agents' compensation, incurred pursuant to the powers herein contained shall be secured by this Mortgage. The right to enter and take possession of and to manage and operate the Mortgaged Property and to collect all earnings, revenues and receipts, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Mortgagee under this Mortgage, the other Secured Debt Documents or otherwise available to Mortgagee and may be exercised concurrently therewith or independently thereof, but such rights shall be exercised in a manner which is otherwise in accordance with and consistent with the Secured Debt Documents. Mortgagee shall be liable to account only for such earnings, revenues and receipts (including, without limitation, security deposits) actually received by Mortgagee, whether received pursuant to this section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Mortgagee shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Mortgage to, Mortgagee. 3.8 Suits to Protect the Mortgaged Property. Mortgagee shall have the power and authority, but shall not be obligated, to institute and maintain any suits and proceedings as may be advisable (a) to prevent any impairment of the Mortgaged Property by any acts which may be unlawful or in violation of this Mortgage, (b) to preserve or protect its interest in the Mortgaged Property, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Mortgagee's interest 3.9 Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Mortgagor, any Affiliate or any guarantor, co-maker or endorser of any of Mortgagor's obligations, its creditors or its property, Mortgagee, to the extent permitted by law, shall be entitled, but shall not be obligated, to file such proofs of claim or other documents as may be necessary or advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Mortgagor under the Secured Debt Documents, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Mortgagor after such date. 3.10 Mortgagor to Pay Amounts Secured Hereby on Any Default in Payment; Application of Monies by Mortgagee. (a) In case of a foreclosure sale of all or any part of the Mortgaged Property and of the application of the proceeds of sale to the payment of the sums secured hereby, to the extent permitted by law, the Secured Debtholders shall be entitled to enforce payment from 16 Mortgagor of any additional amounts then remaining due and unpaid and to recover judgment against Mortgagor for any portion thereof remaining unpaid, with interest at the Default Rate. (b) Mortgagor hereby agrees to the extent permitted by law, that no recovery of any such judgment by the Secured Debtholders or other action by the Secured Debtholders and no attachment or levy of any execution upon any of the Mortgaged Property or any other property shall in any way affect the Lien and security interest of this Mortgage upon the Mortgaged Property or any part thereof or any Lien, rights, powers or remedies of Mortgagee hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. (c) Any monies collected or received by Mortgagee under this Section 3.10 shall be first applied to the payment of compensation, expenses and disbursements of the agents, attorneys and other representatives of the Beneficiary and the Secured Debtholders, and the balance remaining shall be applied as provided in the Collateral Trustee Agreement. 3.11 Delay or Omission; No Waiver. No delay or omission of Mortgagee or the Secured Debtholders to exercise any right, power or remedy upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Mortgagee whether contained herein or in the other Secured Debt Documents or otherwise available to Mortgagee may be exercised from time to time and as often as may be deemed expedient by Mortgagee. 3.12 No Waiver of One Default to Affect Another. No waiver of any defaults hereunder shall extend to or affect any subsequent or any other defaults then existing, or impair any rights, powers or remedies consequent thereon. If Mortgagee (a) grants forbearance or an extension of time for the payment of any sums secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in this Mortgage or any other Secured Debt Document; (d) releases any part of the Mortgaged Property from the lien or security interest of this Mortgage or any other instrument securing the Obligations; (e) consents to the filing of any map, plat or replat of the Real Property or any part thereof; (f) consents to the granting of any easement on the Real Property; or (g) makes or consents to any agreement changing the terms of this Mortgage or any other Secured Debt Document subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the liability under this Mortgage or any other Secured Debt Document or otherwise of Mortgagor, or any subsequent purchaser of the Mortgaged Property or any part thereof or any maker, co-signer, surety or guarantor with respect to any other matters not addressed by such act or omission. No such act or omission shall preclude Mortgagee from exercising any right, power or privilege herein granted or intended to be granted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Mortgagee, shall the lien or security interest of this Mortgage be altered thereby, except to the extent expressly provided in such acts or omissions. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Mortgaged Property, Mortgagee, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Mortgaged Property or the indebtedness secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any of the liabilities or undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Mortgage or any other 17 Secured Debt Document, (i) in the case of any non-monetary default, Mortgagee may continue to accept payments due hereunder without thereby waiving the existence of such or any other default and (ii) in the case of any monetary Event of Default, Mortgagee may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. 3.13 Discontinuance of Proceedings; Position of Parties Restored. If Mortgagee shall have proceeded to enforce any right or remedy under this Mortgage by foreclosure, entry of judgment or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Mortgagee, then and in every such case Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Mortgagee shall continue as if no such proceedings had occurred or had been taken. 3.14 Remedies Cumulative. Subject to the provisions of Section 4.15 hereof, no right, power or remedy, including without limitation remedies with respect to any security for the Obligations, conferred upon or reserved to Mortgagee by this Mortgage or any other Secured Debt Document is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under any other Secured Debt Document, now or hereafter existing at law, in equity or by statute, and Mortgagee shall be entitled to resort to such rights, powers, remedies or security as Mortgagee may deem advisable. 3.15 Interest After Event of Default. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Secured Debt Documents, including this Mortgage, may bear interest at the Default Rate until such Event of Default has been cured. Mortgagor's obligation to pay such interest shall be secured by this Mortgage. 3.16 Foreclosure; Expenses of Litigation. If Mortgagee forecloses, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be allowed to the Mortgagee as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Mortgagee for attorneys' fees, appraisers' fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guarantees, and similar data and assurances with respect to title as are necessary either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Mortgaged Property or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Mortgaged Property and the maintenance of the lien and security interest of this Mortgage, including the reasonable fees of any attorney employed by Mortgagee in any litigation or proceeding affecting this Mortgage or any other Secured Debt Document, the Mortgaged Property or any portion thereof, including, without limitation, civil, probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Mortgagor, with interest thereon at the Default Rate, and shall be secured by this Mortgage. 18 Mortgagee waives its right to any statutory fee in connection with any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee for such services. 3.17 Deficiency Judgments. If after foreclosure of this Mortgage, there shall remain any deficiency with respect to any amounts payable under the Secured Debt Documents, including hereunder, or any amounts secured hereby, and Mortgagee may institute any proceedings to recover such deficiency or deficiencies, all such amounts shall continue to bear interest at the Default Rate. Mortgagor waives any defense to Mortgagee's recovery against Mortgagor of any deficiency after any foreclosure sale of the Mortgaged Property. To the extent permitted by law, Mortgagor expressly waives any defense or benefits that may be derived from any statute granting Mortgagor any defense to any such recovery by Mortgagee. In addition, Mortgagee shall be entitled to recovery of all of its reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including their reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 3.16 above. This provision shall survive any foreclosure or sale of the Mortgaged Property, any portion thereof and/or the extinguishment of the lien hereof. 3.18 Waiver of Jury Trial. Mortgagee and Mortgagor each waive any right to have a jury participate in resolving any dispute whether sounding in contract, tort or otherwise arising out of, connected with, related to or incidental to the relationship established between them in connection with this Mortgage or any other Secured Debt Document. Any such disputes shall be resolved in a bench trial without a jury. 3.19 Exculpation of Mortgagee. The acceptance by Mortgagee of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Mortgaged Property by Mortgagee, be deemed or construed to make Mortgagee a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Mortgagee to appear in or defend any action or proceeding relating to the Mortgaged Property, nor shall Mortgagee, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Mortgaged Property. ARTICLE 4 - GENERAL 4.1 Discharge. When all of the Obligations shall have been paid in full, then this Mortgage and the lien and security interest created hereby shall be of no further force and effect, Mortgagor shall be released from the covenants, agreements and obligations of Mortgagor contained in this Mortgage and all right, title and interest in and to the Mortgaged Property shall revert to Mortgagor. Mortgagee, at the request and the expense of Mortgagor, shall promptly execute a deed of reconveyance and such other documents as may be reasonably requested by Mortgagor to evidence the discharge and satisfaction of this Mortgage and the release of Mortgagor from its obligations hereunder. 4.2 No Waiver. The exercise of the privileges granted in this Mortgage to perform Mortgagor's obligations under the agreements which constitute the Mortgaged Property shall in no event be considered or constitute a waiver of any right which Mortgagee may have at any time, after an Event of Default shall have occurred and be continuing, to declare the Obligations to be immediately due and payable. No delay or omission to exercise any right, remedy or power accruing upon any default shall impair any such right, remedy or power or shall be construed to be a 19 waiver of any such default or acquiescence therein; and every such right, remedy and power may be exercised from time to time and as often as may be deemed expedient. 4.3 Extension, Rearrangement or Renewal of Obligations. It is expressly agreed that any of the Obligations at any time secured hereby may be from time to time extended for any period, or with the consent of Mortgagor rearranged or renewed, and that any part of the security herein described, or any other security for the Obligations, may be waived or released, without altering, varying or diminishing the force, effect or lien or security interest of this Mortgage; and the lien and security interest granted by this Mortgage shall continue as a prior lien and security interest on all of the Mortgaged Property not expressly so released, until the Obligations are fully paid and this Mortgage is terminated in accordance with the provisions hereof; and no other security now existing or hereafter taken to secure the payment of the Obligations or any part thereof or the performance of any obligation or liability of Mortgagor whatever shall in any manner impair or affect the security given by this Mortgage; and all security for the payment of the Obligations or any part thereof and the performance of any obligation or liability shall be taken, considered and held as cumulative. 4.4 Forcible Detainer. Mortgagor agrees for itself and all Persons claiming by, through or under it, that subsequent to foreclosure hereunder in accordance with this Mortgage and applicable law if Mortgagor shall hold possession of the Mortgaged Property or any part thereof, Mortgagor or the Persons so holding possession shall be guilty of trespass; and any such Person (including Mortgagor) failing or refusing to surrender possession upon demand shall be guilty of forcible detainer and shall be liable to Mortgagee or any purchaser in foreclosure, as applicable, for reasonable rental on said premises, and shall be subject to eviction and removal in accordance with law. 4.5 Waiver of Stay or Extension. To the extent permitted to be waived by law, Mortgagor shall not at any time insist upon or plead or in any manner whatever claim the benefit or advantage of any stay, extension or moratorium law now or at any time hereafter in force in any locality where the Mortgaged Property or any part thereof may or shall be situated, nor shall Mortgagor claim any benefit or advantage from any law now or hereafter in force providing for the valuation or appraisement of the Mortgaged Property or any part thereof prior to any sale thereof to be made pursuant to any provision of this Mortgage or to a decree of any court of competent jurisdiction, nor after any such sale shall Mortgagor claim or exercise any right conferred by any law now or at any time hereafter in force to redeem the Mortgaged Property so sold or any part thereof; and Mortgagor hereby expressly waives all benefit or advantage of any such law or laws and the appraisement of the Mortgaged Property or any part thereof, and covenants that Mortgagor shall not hinder or delay the execution of any power herein granted and delegated to Mortgagee but that Mortgagor shall permit the execution of every such power as though no such law had been made. 4.6 Notices. Except where certified or registered mail notice is required by applicable law, any notice to Mortgagor or Mortgagee required or permitted hereunder shall be deemed to be given when given in the manner prescribed in the Collateral Trust Agreement. 4.7 Severability. All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Mortgage invalid, unenforceable 20 or not entitled to be recorded, registered or filed under any applicable law. In the event any term or provision contained in this Mortgage is in conflict, or may hereafter be held to be in conflict, with the laws of the State or of the United States of America, this Mortgage shall be affected only as to such particular term or provision, and shall in all other respects remain in full force and effect. 4.8 Application of Payments. In the event that any part of the Obligations cannot lawfully be secured hereby, or in the event that the lien and security interest hereof cannot be lawfully enforced to pay any part of the Obligations, or in the event that the lien or security interest created by this Mortgage shall be invalid or unenforceable as to any part of the Obligations, then all payments on the Obligations shall be deemed to have been first applied to the complete payment and liquidation of that part of the Obligations which is not secured by this Mortgage and the unsecured portion of the Obligations shall be completely paid and liquidated prior to the payment and liquidation of the remaining secured portion of the Obligations. 4.9 GOVERNING LAW. THIS MORTGAGE IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA. 4.10 Amendments. This Mortgage may be amended, supplemented or otherwise modified only by an instrument in writing signed by Mortgagor and Mortgagee. 4.11 Successors and Assigns. All terms of this Mortgage shall run with the land and bind each of Mortgagor and Mortgagee and their respective successors and assigns, and all Persons claiming under or through Mortgagor or Mortgagee, as the case may be, or any such successor or assign, and shall inure to the benefit of Mortgagee and Mortgagor, and their respective successors and assigns. 4.12 Renewal. To the extent permitted under the other Secured Debt Documents, Mortgagee may, but shall not be obligated to, at any time and from time to time renew or extend this Mortgage, or alter or modify the same in any way, or waive any of the terms, covenants or conditions hereof in whole or in part and may release any portion of the Mortgaged Property or any other security, and grant such extensions and indulgences in relation to the Obligations as Mortgagee may determine, without the consent of any junior lienor or encumbrancer and without any obligation to give notice of any kind thereto and without in any manner affecting the priority of the lien and security interest hereof on any part of the Mortgaged Property; provided that nothing in this Section 4.12 shall grant Mortgagee the right to alter or modify the Mortgage without the consent of the Mortgagor unless otherwise specifically permitted in this Mortgage. 4.13 Future Advances. It is understood and agreed that this Mortgage secures, among other things, (i) the Priority Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Priority Lien Documents; (ii) the Parity Lien Debt (including future advances to be made with respect thereto), and all other Obligations of Mortgagor under the Parity Lien Documents; (iii) all Obligations under any other Priority Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs incurred by Mortgagee or any Secured Debtholder, or by any receiver appointed hereunder, which are made or incurred pursuant to, or permitted by, the terms hereof, plus interest thereon at the rate therein specified or otherwise agreed upon, from the date of the advances or the incurring of such expenses or costs until reimbursed; (v) any and all other indebtedness of Mortgagor to Mortgagee now or hereafter owing, whether direct 21 or indirect, primary or secondary, fixed or contingent, joint or several, regardless of how evidenced or arising, where the indebtedness provides that it is secured hereby; and (vi) any extensions, refinancings, modifications or renewals of all such indebtedness described in subparagraphs (i) through (iv) above, whether or not Mortgagor executes any extension agreement or renewal instrument, and that the lien of any such future advances shall relate to the date of this Mortgage. 4.14 Liability. Notwithstanding any provision in this Mortgage to the contrary, none of Mortgagee or any Secured Debt Representative or any of their agents shall be liable for any error of judgment or act done in good faith, or be otherwise responsible or accountable under any circumstances whatsoever. None of Mortgagee or any Secured Debt Representative or any of their agents shall be personally liable in case of entry by them, or anyone entering by virtue of the powers herein granted them, upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property. Such persons shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by them hereunder, believed by them in good faith to be genuine. Mortgagee or any Secured Debt Representative or any of their agents shall be entitled to reimbursement for expenses incurred by them in the performance of their duties hereunder and to reasonable compensation for such of their services hereunder as shall be rendered. Mortgagor will, from time to time, pay the compensation due hereunder and reimburse such parties for, and save them harmless against, any and all liability and expenses which may be incurred by them in the performance of their duties. 4.15 Severability and Compliance With Usury Law. The Secured Debt Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable Applicable Laws and Legal Requirements. If any provision of any of the Secured Debt Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of the instrument in which such provision is contained, nor the application of such provision to other persons or circumstances, nor the other instruments referred to hereinabove, shall be affected thereby, but rather shall be enforceable to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of Mortgagor at all times to comply with the applicable State law governing the maximum rate or amount of interest payable on or in connection with the Obligations. If the Applicable Law is ever judicially interpreted so as to render usurious any amount called for under the Secured Debt Documents, or contracted for, charged, taken, reserved or received with respect to the extension of credit evidenced by the Secured Debt Documents or if acceleration of the maturity of the Obligations or if any prepayment by Mortgagor results in Mortgagor having paid any interest in excess of that permitted by law, then it is Mortgagor's express intent that all excess amounts theretofore collected by Mortgagee be credited on the principal balance due under the Secured Debt Documents (or, if the Secured Debt Documents have been or would thereby be paid in full, refunded to Mortgagor), and the provisions of the Secured Debt Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. The right to accelerate maturity of Obligations does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Mortgagee may not collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Mortgagee for the use, forbearance or detention of the Obligations may, to the extent permitted by applicable law, be amortized, prorated, allocated 22 and spread throughout the full term of the Obligations until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the applicable usury ceiling. 4.16 Release of Collateral. Notwithstanding any provision herein to the contrary, the Mortgaged Property or any part thereof shall be released from the security interest created by this Mortgage in accordance with the provisions of the Collateral Trust Agreement. 4.17 Time of the Essence. Mortgagor acknowledges that time is of the essence in performing all of Mortgagor's obligations set forth herein. 4.18 Counterpart Execution. This Mortgage may be executed by the parties hereto in any number of counterparts (and be each of the parties hereof on separate counterparts), each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 4.19 WAIVER OF MORTGAGOR'S RIGHTS. BY EXECUTION OF THIS MORTGAGE AND BY INITIALING THIS SECTION 4.19, MORTGAGOR EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTES AND THE POWER OF ATTORNEY GIVEN HEREIN TO MORTGAGEE TO SELL THE MORTGAGED PROPERTY BY NONJUDICIAL FORECLOSURE UPON DEFAULT BY MORTGAGOR WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE (EXCEPT AS OTHERWISE PROVIDED HEREIN); (B) EXCEPT TO THE EXTENT PROVIDED OTHERWISE HEREIN, WAIVES ANY AND ALL RIGHTS WHICH MORTGAGOR MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY MORTGAGEE OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO MORTGAGEE; (C) ACKNOWLEDGES THAT MORTGAGOR HAS READ THIS MORTGAGE AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO MORTGAGOR AND MORTGAGOR HAS CONSULTED WITH COUNSEL OF MORTGAGOR'S CHOICE PRIOR TO EXECUTING THIS MORTGAGE; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF MORTGAGOR HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY MORTGAGOR AS PART OF A BARGAINED FOR LOAN TRANSACTION: INITIALED BY MORTGAGOR: ______________________________________ By:______________________________ 4.20 Attorneys' Fees. Notwithstanding anything contained herein to the contrary, (i) "reasonable attorneys' fees" are not, and shall not be, statutory attorneys' fees under State law, (ii) if, under any circumstances Mortgagor is required hereunder to pay any or all of Mortgagee's attorneys' fees and expenses, Mortgagor shall be responsible only for actual legal fees and out of pocket expenses actually incurred by Mortgagee at customary hourly rates for the work done, and 23 (iii) Mortgagor shall not be liable under any circumstances for additional attorneys' fees or expenses under State law. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 24 WASHINGTON PARISH, LA THUS DONE AND PASSED on the day and in the month and year hereinabove first written, in the presence of the undersigned witness who hereunto sign their names with Mortgagor and me, Notary, after due reading of the whole. WITNESSES AS TO SIGNATURES: ___________________________________ ___________________________________ MORTGAGOR: CALPINE CORPORATION, a Delaware corporation By: _________________________________ Name: _________________________________ Title: _________________________________ ___________________________________ NOTARY PUBLIC My Commission Expires: ___________ WASHINGTON PARISH, LA EXHIBIT A LEGAL DESCRIPTION OF PREMISES WASHINGTON PARISH, LA EXHIBIT B DESCRIPTION OF SERVITUDES [legal descriptions to be inserted at a later date] EX-10.38 30 f92357exv10w38.txt EXHIBIT 10.38 EXHIBIT 10.38 AMENDED AND RESTATED HAZARDOUS MATERIALS UNDERTAKING AND INDEMNITY This Amended and Restated Hazardous Materials Undertaking and Indemnity (this "Indemnity") is executed by CALPINE CORPORATION, a Delaware corporation (the "Indemnitor") in favor of THE BANK OF NEW YORK, a New York banking corporation ("BONY"), not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among Indemnitor, BONY, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent (collectively, with the Secured Debtholders and their successors and assigns, the "Indemnified Parties"), whose address is 101 Barclay Street, New York, New York 10286. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. Recitals Indemnitor is party to that certain (i) Credit Agreement, dated as of March 8, 2002 (herein, as the same may be amended, modified or supplemented from time to time, called the "Existing 2002 Credit Agreement"), and (ii) Second Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the same may be amended, modified, or supplemented from time to time, called the "Existing 2000 Credit Agreement" and together with the Existing 2002 Credit Agreement, collectively, the "Existing Credit Agreements"). Indemnitor, as a condition to the making of the loans pursuant to the Existing Credit Agreement has heretofore executed and delivered to The Bank of Nova Scotia, for itself and as agent for the Lender Parties, that certain Hazardous Materials Undertaking and Indemnity, dated as of May 1, 2002 (the "Existing Hazardous Materials Indemnity"). Indemnitor, the Existing Lenders and the Credit Agreement Agent have now agreed to, among other things, (i) terminate the commitments under the Existing 2000 Credit Agreement, and (ii) amend and restate the Existing 2002 Credit Agreement (as so amended and restated, and as the same may, from time to time hereafter, be amended, supplemented, modified or amended and restated, the "Amended and Restated Credit Agreement"). Indemnitor also intends to issue the 2007 Notes, the 2010 Notes, and the 2013 Notes (collectively, the "Notes") and to borrow the Term Loans pursuant to the Term Loan Agreement. The proceeds from the issuance of the Notes, and the borrowing of the Term Loans will be used to refinance a portion of the loans and other indebtedness outstanding under the Existing Credit Agreements. The Secured Debt is secured by, among other things, all of the right, title and interest of Indemnitor in the real property and interests comprising the oil and gas reserves, gas, assets, power plants and any other real property at any time owned by Indemnitor and now or hereafter mortgaged to BONY and all fixtures, personal property and other improvements now existing or to be constructed on any of such properties (such properties, descriptions of which are attached hereto as Exhibit A, herein collectively called, the "Properties"), with respect to which Indemnitor has executed counterparts of those certain mortgages or deeds of trust dated July 16, 2003 (the "Mortgages"). The Secured Debtholders have agreed to enter into the Secured Debt Documents only if the Indemnified Parties are indemnified and held harmless with respect to any risk that the Properties may now or in the future be in any way contaminated, or its use or value impacted by any Hazardous Materials, as defined below. It is a condition precedent to issuing the Secured Debt that Indemnitor execute and deliver this Indemnity, which Indemnity amends and restates the Existing Hazardous Materials Indemnity. In order to induce the Lenders to issue the Secured Debt, and with the full intention and understanding that the Indemnified Parties will rely hereon, Indemnitor represents, warrants, covenants and agrees as follows: 1. CERTAIN DEFINITIONS. As used in this Indemnity, the following terms shall have the following respective meanings: "Hazardous Materials" means crude or refined oil or fraction thereof, petroleum substances, petrochemical products, PCBs, asbestos, asbestos containing materials, urea formaldehyde, salts, flammable explosives, radioactive materials, hazardous wastes, toxic, mutagenic or pathogenic substances or related materials, including, without limitation, any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal or state laws or regulations. "Hazardous Materials Laws" means all federal, state or local laws, ordinances, regulations, orders and directives pertaining to Hazardous Materials. 2. REPRESENTATIONS AND WARRANTIES. Without limiting the generality of any of the representations or warranties contained in the other Secured Debt Documents, Indemnitor hereby represents and warrants to BONY and the other Indemnified Parties that, except as disclosed on Exhibit B hereto, as of the date of this Indemnity and continuing thereafter, (a) the Properties and each portion thereof (including the underlying groundwater) are not and have not been a site for the use, generation, manufacture, discharge, assembly, processing, storage, release, disposal or transportation to or from of any Hazardous Materials, except in connection with the production, storage and transportation of crude oil, natural gas, other -2- hydrocarbons and petroleum, and other petroleum products in the ordinary course of Indemnitor's business; (b) the Properties and each portion thereof (including the underlying groundwater) are presently in compliance in all material respects with all Hazardous Materials Laws, including, without limitation, those relating to exposure to Hazardous Materials, the labeling, storage and containment of Hazardous Materials, and air, soil and surface and ground water conditions; (c) there have been no past, and there are no pending or, to Indemnitor's knowledge, threatened (i) claims, complaints, notices or requests for information received by Indemnitor with respect to any alleged violation of any Environmental Law, including Hazardous Materials Laws, that, singly or in the aggregate, may reasonably be expected to result in a Material Adverse Effect, or (ii) complaints, notices or inquiries to Indemnitor regarding potential liability under any Environmental Law, including Hazardous Materials Laws, that, singly or in the aggregate, may reasonably be expected to result in a Material Adverse Effect; (d) there have been no unremediated Releases of Hazardous Materials at, on or under any property (including the Properties) now or previously owned or leased by Indemnitor that, singly or in the aggregate, result in, or may reasonably be expected to result in, a Material Adverse Effect; (e) Indemnitor has been issued and is in material compliance with all permits, certificates, approvals, licenses and other governmental authorizations relating to environmental matters and necessary for its businesses; (f) no property (including the Properties) now or previously owned or leased by Indemnitor is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (g) Indemnitor has not directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against Indemnitor for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) there are no polychlorinated biphenyls or friable asbestos present at any property (including the Properties) now or previously owned or leased by -3- Indemnitor that, singly or in the aggregate, result in, or may reasonably be expected to result in, a Material Adverse Effect; and (i) no conditions exist at, on or under any property (including the Properties) now or previously owned or leased by Indemnitor which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law, which liability would reasonably be expected to result in a Material Adverse Effect. 3. COVENANTS. Indemnitor hereby covenants and agrees that, so long as any obligation under any of the Secured Debt Documents or otherwise in connection with the Secured Debt is outstanding: (a) Indemnitor shall not permit the Properties or any portion of any parcel thereof to be a site for the use, generation, manufacture, discharge, assembly, processing, storage, Release, disposal or transportation to or from of Hazardous Materials except (i) as disclosed on Exhibit B hereto, (ii) in such quantities and as may be necessary for the production, storage and transportation of crude oil, natural gas and other Hydrocarbons (as defined in the Mortgages) in the ordinary course of Indemnitor's business as conducted on the Effective Date, (iii) as necessary or required to develop the Properties in the ordinary course of Indemnitor's business and (iv) as may be necessary to respond to any emergency, each of which excepted activities will be conducted in a manner designed to minimize environmental risk; (b) Indemnitor shall keep and maintain the Properties and each portion of any parcel thereof in compliance in all material respects with all Environmental Laws, including Hazardous Materials Laws (and to the extent there are violations of such laws existing as of the date hereof which are disclosed on Exhibit B, with the remediation plans and work plans listed on Exhibit B), and otherwise shall not cause or permit the Properties or any portion of any parcel thereof to be in violation, in any material respect, of such laws; (c) As to any claim or matter not disclosed on Exhibit B, Indemnitor shall immediately advise BONY and each of the Secured Debt Representatives in writing of: (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Indemnitor or the Properties pursuant to any applicable Environmental Laws, including Hazardous Materials Laws that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; (ii) any and all material claims made or threatened by any third party against Indemnitor or the Properties relating to any claim, liability, cause of action, nuisance, fine, penalty, charge, administrative or judicial -4- order or proceeding, judgment, remedial action or cleanup requirement, enforcement, damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect (the matters set forth in Sections 3(c)(i) and (ii) hereof are hereinafter referred to as "Hazardous Materials Claims"); (iii) any change in any claim or matter disclosed in Exhibit B that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; and (iv) For the purpose of protecting the collateral given to secure the Obligations, BONY and any Secured Debt Representative shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees and expenses in connection therewith paid by Indemnitor; (d) Indemnitor shall not, without the prior written consent (which consent shall not be unreasonably withheld or delayed) of a Secured Debt Representative, take any remedial action in response to the presence of any Hazardous Materials on, under, or about the Properties (except (i) with respect to oil, gas and other Hydrocarbons, in the ordinary course of Indemnitor's business, or (ii) as may be necessary to respond to any emergency), nor enter into any settlement agreement, consent decree, or other compromise in respect of any Hazardous Material Claim in excess of $250,000; (e) Annually, at the time Indemnitor's audited financial statements are required to be delivered pursuant to any Secured Debt Document, Indemnitor shall deliver to BONY and each Secured Debt Representative a report discussing significant issues or concerns arising, or measures taken, during the preceding year and those contemplated for the following year relating to compliance with Hazardous Materials Laws and Environmental Laws, including, without limitation, compliance with any then effective order of the Regional Water Quality Control Board (or other lead agency) pertaining to the characterization, abatement and remediation of soil and groundwater contamination of the Properties; (f) To the extent that Indemnitor has the right to do so, Indemnitor shall permit BONY and any Secured Debt Representative or its agents, at the cost and expense of Indemnitor, to enter upon the Properties and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof, and shall permit reasonable access to the field offices and other offices, including the principal place of business, of Indemnitor to inspect and examine the Properties and to inspect, review and reproduce as necessary any books, records, accounts, contracts or other documents of Indemnitor; -5- (g) Without limiting the generality of the foregoing clause (f), BONY and any Secured Debt Representative shall have the right, subject to any existing contractual restrictions binding on Indemnitor and on twenty-four (24) hours prior notice to Indemnitor, to cause such persons and entities as such parties may designate to enter the Properties to conduct (at the cost and expense of Indemnitor), or to cause Indemnitor to conduct (at the cost and expense of Indemnitor), such tests and investigations as such parties deem necessary to determine whether any hazardous substance or solid waste is being generated, transported, stored, or disposed of in accordance with applicable Environmental Laws. Such tests and investigations may include, without limitation, underground borings, ground water analyses and borings from the floors, ceilings and walls of any improvements located on the Properties. This Section 3(g) shall not be construed to affect or limit the obligations of Indemnitor pursuant to Section 4 hereof; (h) Neither BONY nor any Secured Debt Representative shall have any duty to visit or observe the Properties or to conduct tests, and no site visit, observation or testing by such parties shall impose any liability on such parties, nor shall Indemnitor or any other Obligor be entitled to rely on any visit, observation or testing by BONY and/or any Secured Debt Representative in any respect. BONY and any Secured Debt Representative may, in its discretion, disclose to Indemnitor or any other Person, including any governmental agency, any report or finding made as a result of, or in connection with, any site visit, observation or testing by such parties. Indemnitor agrees that no warranty or representation is made by these parties to Indemnitor or any other Obligor regarding the truth, accuracy or completeness of any such report or findings that may be so disclosed. Indemnitor also acknowledges that, depending upon the results of any site visit, observation or testing by such parties and disclosed to Indemnitor, Indemnitor may have a legal obligation to notify one or more governmental agencies of such results, that such reporting requirements are site-specific, and are to be evaluated by Indemnitor without advice or assistance from such parties; and (i) Cooperate fully with any environmental consultant retained by BONY and/or any Secured Debt Representative to prepare reports on the Properties. 4. CONTINUING INDEMNITY. Indemnitor hereby agrees to indemnify, hold harmless and defend (by one law firm of counsel reasonably satisfactory to BONY and/or any Secured Debt Representative unless an Event of Default shall have occurred and be continuing) the Secured Debt Representatives and the Indemnified Parties and their directors, officers, employees, agents, successors and assigns (collectively, "Indemnitees") from and against any and all claims (including without limitation third party claims for personal injury or real or personal property damage), losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in -6- connection therewith (including but not limited to reasonable attorneys' and/or paralegals' fees and expenses), including, but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising directly or indirectly, in whole or in part, out of (i) the presence on or under the Properties of any Hazardous Materials, or any escape, seepage, leakage, spillage, discharge, emission or Release of any Hazardous Materials on, under or from the Properties, or (ii) any activity carried on or undertaken on or off the Properties, whether prior to or during the term of the Secured Debt, and whether by Indemnitor or any predecessor in title or any employees, agents, contractors or subcontractors of Indemnitor or any predecessor in title, or any third persons at any time occupying or present on the Properties, in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials that at any time are located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under the Properties; provided however, that nothing herein shall require Indemnitor to indemnify Indemnitees for any matter arising solely from the gross negligence or wilful misconduct of BONY. The foregoing indemnity shall further apply to any residual contamination on or under the Properties, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances. It is expressly understood and agreed that the indemnity provided for herein shall survive: (i) the repayment of the Secured Debt and the release of or reconveyance (whether full or partial) of the Mortgages; or (ii) the acquisition of title to all or any portion of the Properties by BONY, or any successor in interest to BONY, or any nominee or designee of any of them, by foreclosure under or transfer in lieu of foreclosure of the Mortgages, whether or not the same is otherwise in satisfaction of Indemnitor's obligations in connection with the Secured Debt. 5. TIME OF THE ESSENCE. Time is of the essence of this Indemnity. 6. GOVERNING LAW. This Indemnity shall be governed by and construed in accordance with the laws of the State of New York, except to the extent preempted by Federal Law. Indemnitor irrevocably agrees that any legal action or proceeding with respect to this Indemnity may be brought in a court of competent jurisdiction of the State of New York or of the United States of America, as BONY may elect, and by execution and delivery of this Indemnity the Indemnitor hereby irrevocably submits to each such jurisdiction; and agrees that final judgment against the Indemnitor in any such action or proceeding shall be conclusive and may be enforced in any jurisdiction within the United States including, without limitation, the State of New York, by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and of the amount of the indebtedness owed. 7. INDEMNITOR WAIVERS. Indemnitor waives: (a) any defense based upon any legal disability to enter into the Secured Debt Documents or other defense of Indemnitor under the Secured Debt Documents; (b) any defense based on any lack of -7- authority of the officers, directors, partners or agents acting or purporting to act on behalf of Indemnitor or any principal of Indemnitor, or any defect in the formation of Indemnitor or any principal of Indemnitor; (c) any defense based upon the application of the Secured Debt by Indemnitor for purposes other than the purposes represented by Indemnitor to BONY or intended or understood by BONY or Indemnitor; (d) any defense based upon BONY's election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 111(b)(2) of the Federal Bankruptcy Code or any successor statute; (e) any defense based upon any borrowing or any grant of security interest under Section 364 of the Federal Bankruptcy Code; (f) presentment, demand, protest and notice of any kind; and (g) the benefit of any statute of limitations affecting the liability of Indemnitor hereunder or the enforcement hereof. 8. OTHER PROVISIONS. (a) This Indemnity is executed pursuant to the Secured Debt Documents and shall be construed, administered and applied in accordance with the terms and provisions thereof. (b) All notices pursuant to this Indemnity shall be delivered at the times, in the manner and to the addressees as set forth in any Secured Debt Documents. (c) No amendment to or waiver of any provision of this Indemnity nor consent to any departure by Indemnitor herefrom shall be effective unless the same shall be in writing and signed by BONY or a Secured Debt Representative and Indemnitor. (d) This Indemnity shall be binding on and for the benefit of, the parties hereto, together with their respective successors and assigns. (e) The obligations of Indemnitor hereunder shall survive any termination of this Indemnity and the termination of all the Secured Debt Obligations. The representations and warranties made by Indemnitor in this Agreement shall survive the execution and delivery of this Indemnity. (f) Any provision of this Indemnity which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Indemnity or affecting the validity or enforceability of such provision in any other jurisdiction. (g) The various headings of this Indemnity are inserted for convenience only and shall not affect the meaning or interpretation of this Indemnity or any provisions hereof. -8- Dated: as of July 16, 2003 "Indemnitor" CALPINE CORPORATION, a Delaware corporation By: /a/ B.A. Berligen ------------------------------------ Name: B.A. Berilgen Title: Executive Vice President EXHIBIT A to HAZARDOUS MATERIAL UNDERTAKING AND INDEMNITY Legal Description of Properties EXHIBIT B to HAZARDOUS MATERIAL UNDERTAKING AND INDEMNITY Description of Hazardous Materials On Properties, etc. None. EX-10.39 31 f92357exv10w39.txt EXHIBIT 10.39 EXHIBIT 10.39 AMENDED AND RESTATED HAZARDOUS MATERIALS UNDERTAKING AND UNSECURED INDEMNITY This Amended and Restated Hazardous Materials Undertaking and Unsecured Indemnity (this "Indemnity") is executed by CALPINE CORPORATION, a Delaware corporation (the "Indemnitor") in favor of THE BANK OF NEW YORK, a New York banking corporation ("BONY"), not in its individual capacity but solely as Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among Indemnitor, BONY, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent (collectively, with the Secured Debtholders and their successors and assigns, the "Indemnified Parties"), whose address is 101 Barclay Street, New York, New York 10286. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Collateral Trust Agreement. Recitals Indemnitor is party to that certain (i) Credit Agreement, dated as of March 8, 2002 (herein, as the same may be amended, modified or supplemented from time to time, called the "Existing 2002 Credit Agreement"), and (ii) Second Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the same may be amended, modified, or supplemented from time to time, called the "Existing 2000 Credit Agreement" and together with the Existing 2002 Credit Agreement, collectively, the "Existing Credit Agreements"). Indemnitor, as a condition to the making of the loans pursuant to the Existing Credit Agreement has heretofore executed and delivered to The Bank of Nova Scotia, for itself and as agent for the Lender Parties, that certain Hazardous Materials Undertaking and Unsecured Indemnity, dated as of May 1, 2002 (the "Existing Hazardous Materials Indemnity"). Indemnitor, the Existing Lenders and the Credit Agreement Agent have now agreed to, among other things, (i) terminate the commitments under the Existing 2000 Credit Agreement, and (ii) amend and restate the Existing 2002 Credit Agreement (as so amended and restated, and as the same may, from time to time hereafter, be amended, supplemented, modified or amended and restated, the "Amended and Restated Credit Agreement"). Indemnitor also intends to issue the 2007 Notes, the 2010 Notes, and the 2013 Notes (collectively, the "Notes") and to borrow the Term Loans pursuant to the Term Loan Agreement. The proceeds from the issuance of the Notes, and the borrowing of the Term Loans will be used to refinance a portion of the loans and other indebtedness outstanding under the Existing Credit Agreements. -1- The Secured Debt is secured by, among other things, all of the right, title and interest of Indemnitor in the real property and interests comprising the oil and gas reserves, gas, assets, power plants and any other real property at any time owned by Indemnitor and now or hereafter mortgaged to BONY and all fixtures, personal property and other improvements now existing or to be constructed on any of such properties (such properties, descriptions of which are attached hereto as Exhibit A, herein collectively called, the "Properties"), with respect to which Indemnitor has executed counterparts of those certain mortgages or deeds of trust dated July 16, 2003 (the "Mortgages"). The Secured Debtholders have agreed to enter into the Secured Debt Documents only if the Indemnified Parties are indemnified and held harmless with respect to any risk that the Properties may now or in the future be in any way contaminated, or its use or value impacted by any Hazardous Materials, as defined below. It is a condition precedent to issuing the Secured Debt that Indemnitor execute and deliver this Indemnity, which Indemnity amends and restates the Existing Hazardous Materials Indemnity. In order to induce the Lenders to issue the Secured Debt, and with the full intention and understanding that the Indemnified Parties will rely hereon, Indemnitor represents, warrants, covenants and agrees as follows: 1. CERTAIN DEFINITIONS. As used in this Indemnity, the following terms shall have the following respective meanings: "Hazardous Materials" means crude or refined oil or fraction thereof, petroleum substances, petrochemical products, PCBs, asbestos, asbestos containing materials, urea formaldehyde, salts, flammable explosives, radioactive materials, hazardous wastes, toxic, mutagenic or pathogenic substances or related materials, including, without limitation, any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal or state laws or regulations. "Hazardous Materials Laws" means all federal, state or local laws, ordinances, regulations, orders and directives pertaining to Hazardous Materials. 2. REPRESENTATIONS AND WARRANTIES. Without limiting the generality of any of the representations or warranties contained in the other Secured Debt Documents, Indemnitor hereby represents and warrants to BONY and the other Indemnified Parties that, except as disclosed on Exhibit B hereto, as of the date of this Indemnity and continuing thereafter, (a) the Properties and each portion thereof (including the underlying groundwater) are not and have not been a site for the use, generation, manufacture, discharge, assembly, processing, storage, release, disposal or transportation to or from of any Hazardous Materials, except in connection with -2- the production, storage and transportation of crude oil, natural gas, other hydrocarbons and petroleum, and other petroleum products in the ordinary course of Indemnitor's business; (b) the Properties and each portion thereof (including the underlying groundwater) are presently in compliance in all material respects with all Hazardous Materials Laws, including, without limitation, those relating to exposure to Hazardous Materials, the labeling, storage and containment of Hazardous Materials, and air, soil and surface and ground water conditions; (c) there have been no past, and there are no pending or, to Indemnitor's knowledge, threatened (i) claims, complaints, notices or requests for information received by Indemnitor with respect to any alleged violation of any Environmental Law, including Hazardous Materials Laws, that, singly or in the aggregate, may reasonably be expected to result in a Material Adverse Effect, or (ii) complaints, notices or inquiries to Indemnitor regarding potential liability under any Environmental Law, including Hazardous Materials Laws, that, singly or in the aggregate, may reasonably be expected to result in a Material Adverse Effect; (d) there have been no unremediated Releases of Hazardous Materials at, on or under any property (including the Properties) now or previously owned or leased by Indemnitor that, singly or in the aggregate, result in, or may reasonably be expected to result in, a Material Adverse Effect; (e) Indemnitor has been issued and is in material compliance with all permits, certificates, approvals, licenses and other governmental authorizations relating to environmental matters and necessary for its businesses; (f) no property (including the Properties) now or previously owned or leased by Indemnitor is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (g) Indemnitor has not directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against Indemnitor for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) there are no polychlorinated biphenyls or friable asbestos present at any property (including the Properties) now or previously owned or leased by -3- Indemnitor that, singly or in the aggregate, result in, or may reasonably be expected to result in, a Material Adverse Effect; (i) no conditions exist at, on or under any property (including the Properties) now or previously owned or leased by Indemnitor which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law, which liability would reasonably be expected to result in a Material Adverse Effect; and (j) to the best of the knowledge of Indemnitor, no property owned, operated or leased by Indemnitor is located within two thousand (2,000) feet of a significant disposal of "hazardous waste" within the meaning of Section 25221 of the California Health and Safety Code. 3. COVENANTS. Indemnitor hereby covenants and agrees that, so long as any obligation under any of the Secured Debt Documents or otherwise in connection with the Secured Debt is outstanding: (a) Indemnitor shall not permit the Properties or any portion of any parcel thereof to be a site for the use, generation, manufacture, discharge, assembly, processing, storage, Release, disposal or transportation to or from of Hazardous Materials except (i) as disclosed on Exhibit B hereto, (ii) in such quantities and as may be necessary for the production, storage and transportation of crude oil, natural gas and other Hydrocarbons (as defined in the Mortgages) in the ordinary course of Indemnitor's business as conducted on the Effective Date, (iii) as necessary or required to develop the Properties in the ordinary course of Indemnitor's business and (iv) as may be necessary to respond to any emergency, each of which excepted activities will be conducted in a manner designed to minimize environmental risk; (b) Indemnitor shall keep and maintain the Properties and each portion of any parcel thereof in compliance in all material respects with all Environmental Laws, including Hazardous Materials Laws (and to the extent there are violations of such laws existing as of the date hereof which are disclosed on Exhibit B, with the remediation plans and work plans listed on Exhibit B), and otherwise shall not cause or permit the Properties or any portion of any parcel thereof to be in violation, in any material respect, of such laws; (c) As to any claim or matter not disclosed on Exhibit B, Indemnitor shall immediately advise BONY and each of the Secured Debt Representatives in writing of: (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Indemnitor or the Properties pursuant to any applicable Environmental Laws, including Hazardous Materials Laws that, singly or in -4- the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; (ii) any and all material claims made or threatened by any third party against Indemnitor or the Properties relating to any claim, liability, cause of action, nuisance, fine, penalty, charge, administrative or judicial order or proceeding, judgment, remedial action or cleanup requirement, enforcement, damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect (the matters set forth in Sections 3(c)(i) and (ii) hereof are hereinafter referred to as "Hazardous Materials Claims"); (iii) any change in any claim or matter disclosed in Exhibit B that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; and (iv) Indemnitor's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Properties that could cause the Properties or any part thereof to be classified as "border-zone property" under the provisions of California Health and Safety Code, Sections 25220, et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Properties under any Environmental Law, including Hazardous Materials Laws. For the purpose of protecting the collateral given to secure the Obligations, BONY and any Secured Debt Representative shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees and expenses in connection therewith paid by Indemnitor; (d) Indemnitor shall not, without the prior written consent (which consent shall not be unreasonably withheld or delayed) of a Secured Debt Representative, take any remedial action in response to the presence of any Hazardous Materials on, under, or about the Properties (except (i) with respect to oil, gas and other Hydrocarbons, in the ordinary course of Indemnitor's business, or (ii) as may be necessary to respond to any emergency), nor enter into any settlement agreement, consent decree, or other compromise in respect of any Hazardous Material Claim in excess of $250,000; (e) Annually, at the time Indemnitor's audited financial statements are required to be delivered pursuant to any Secured Debt Document, Indemnitor shall deliver to BONY and each Secured Debt Representative a report discussing significant issues or concerns arising, or measures taken, during the preceding year and those contemplated for the following year relating to compliance with Hazardous Materials Laws and Environmental Laws, including, without limitation, -5- compliance with any then effective order of the Regional Water Quality Control Board (or other lead agency) pertaining to the characterization, abatement and remediation of soil and groundwater contamination of the Properties; (f) To the extent that Indemnitor has the right to do so, Indemnitor shall permit BONY and any Secured Debt Representative or its agents, at the cost and expense of Indemnitor, to enter upon the Properties and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof, and shall permit reasonable access to the field offices and other offices, including the principal place of business, of Indemnitor to inspect and examine the Properties and to inspect, review and reproduce as necessary any books, records, accounts, contracts or other documents of Indemnitor; (g) Without limiting the generality of the foregoing clause (f), BONY and any Secured Debt Representative shall have the right, subject to any existing contractual restrictions binding on Indemnitor and on twenty-four (24) hours prior notice to Indemnitor, to cause such persons and entities as such parties may designate to enter the Properties to conduct (at the cost and expense of Indemnitor), or to cause Indemnitor to conduct (at the cost and expense of Indemnitor), such tests and investigations as such parties deem necessary to determine whether any hazardous substance or solid waste is being generated, transported, stored, or disposed of in accordance with applicable Environmental Laws. Such tests and investigations may include, without limitation, underground borings, ground water analyses and borings from the floors, ceilings and walls of any improvements located on the Properties. This Section 3(g) shall not be construed to affect or limit the obligations of Indemnitor pursuant to Section 4 hereof; (h) Neither BONY nor any Secured Debt Representative shall have any duty to visit or observe the Properties or to conduct tests, and no site visit, observation or testing by such parties shall impose any liability on such parties, nor shall Indemnitor or any other Obligor be entitled to rely on any visit, observation or testing by BONY and/or any Secured Debt Representative in any respect. BONY and any Secured Debt Representative may, in its discretion, disclose to Indemnitor or any other Person, including any governmental agency, any report or finding made as a result of, or in connection with, any site visit, observation or testing by such parties. Indemnitor agrees that no warranty or representation is made by these parties to Indemnitor or any other Obligor regarding the truth, accuracy or completeness of any such report or findings that may be so disclosed. Indemnitor also acknowledges that, depending upon the results of any site visit, observation or testing by such parties and disclosed to Indemnitor, Indemnitor may have a legal obligation to notify one or more governmental agencies of such results, that such reporting requirements are site-specific, and are to be evaluated by Indemnitor without advice or assistance from such parties; and -6- (i) Cooperate fully with any environmental consultant retained by BONY and/or any Secured Debt Representative to prepare reports on the Properties. 4. CONTINUING, UNSECURED INDEMNITY. Indemnitor hereby agrees to indemnify, hold harmless and defend (by one law firm of counsel reasonably satisfactory to BONY and/or any Secured Debt Representative unless an Event of Default shall have occurred and be continuing) the Secured Debt Representatives and the Indemnified Parties and their directors, officers, employees, agents, successors and assigns (collectively, "Indemnitees") from and against any and all claims (including without limitation third party claims for personal injury or real or personal property damage), losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including but not limited to reasonable attorneys' and/or paralegals' fees and expenses), including, but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising directly or indirectly, in whole or in part, out of (i) the presence on or under the Properties of any Hazardous Materials, or any escape, seepage, leakage, spillage, discharge, emission or Release of any Hazardous Materials on, under or from the Properties, or (ii) any activity carried on or undertaken on or off the Properties, whether prior to or during the term of the Secured Debt, and whether by Indemnitor or any predecessor in title or any employees, agents, contractors or subcontractors of Indemnitor or any predecessor in title, or any third persons at any time occupying or present on the Properties, in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials that at any time are located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under the Properties; provided however, that nothing herein shall require Indemnitor to indemnify Indemnitees for any matter arising solely from the gross negligence or wilful misconduct of BONY. The foregoing indemnity shall further apply to any residual contamination on or under the Properties, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances. Indemnitor hereby acknowledges and agrees that the obligations of Indemnitor under this Indemnity shall be unlimited personal obligations and also shall NOT be secured by the Mortgages. In this regard, BONY's appraisal of the value of the Properties is such that BONY is not willing to accept the consequences, under California's "one form of action" rule (i.e., Section 726 of the Code of Civil Procedure) and "Anti-Deficiency Rules" (i.e., Sections 580(a), 580(b) and 580(d) of the Code of Civil Procedure) of inclusion of the obligations under this Indemnity among the obligations secured by the Mortgage, and that the BONY and the other Indemnified Parties would not issue the Secured Debt in the absence of the personal liability undertaken by Indemnitor for these obligations. It is expressly understood and agreed that the indemnity provided for herein shall survive: (i) the repayment of the Secured Debt and the release of or -7- reconveyance (whether full or partial) of the Mortgages; or (ii) the acquisition of title to all or any portion of the Properties by BONY, or any successor in interest to BONY, or any nominee or designee of any of them, by foreclosure under or transfer in lieu of foreclosure of the Mortgages, whether or not the same is otherwise in satisfaction of Indemnitor's obligations in connection with the Secured Debt. 5. TIME OF THE ESSENCE. Time is of the essence of this Indemnity. 6. GOVERNING LAW. This Indemnity shall be governed by and construed in accordance with the laws of the State of New York, except to the extent preempted by Federal Law. Indemnitor irrevocably agrees that any legal action or proceeding with respect to this Indemnity may be brought in a court of competent jurisdiction of the State of New York or of the United States of America, as BONY may elect, and by execution and delivery of this Indemnity the Indemnitor hereby irrevocably submits to each such jurisdiction; and agrees that final judgment against the Indemnitor in any such action or proceeding shall be conclusive and may be enforced in any jurisdiction within the United States including, without limitation, the State of New York, by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and of the amount of the indebtedness owed. This Indemnity shall be governed by, construed and enforced in accordance with the laws of the State of California. In any action brought under or arising out of this Indemnity, Indemnitor hereby consents to the jurisdiction of any competent court within the State of California and consents to service of process by any means authorized by California law. 7. INDEMNITOR WAIVERS. Indemnitor waives: (a) any defense based upon any legal disability to enter into the Secured Debt Documents or other defense of Indemnitor under the Secured Debt Documents; (b) any defense based on any lack of authority of the officers, directors, partners or agents acting or purporting to act on behalf of Indemnitor or any principal of Indemnitor, or any defect in the formation of Indemnitor or any principal of Indemnitor; (c) any defense based upon the application of the Secured Debt by Indemnitor for purposes other than the purposes represented by Indemnitor to BONY or intended or understood by BONY or Indemnitor; (d) any and all rights and defenses arising out of an election of remedies by BONY, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Indemnitor's rights of subrogation and reimbursement against the principal by the operation of Section 580(d) of the California Code of Civil Procedure or otherwise; (e) any defense based upon BONY's election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 111(b)(2) of the Federal Bankruptcy Code or any successor statute; (f) any defense based upon any borrowing or any grant of security interest under Section 364 of the Federal Bankruptcy Code; (g) presentment, demand, protest and notice of any kind; (h) and the benefit of any statute of limitations affecting the liability of Indemnitor hereunder or the enforcement hereof. Indemnitor further waives any and all rights and defenses that Indemnitor may have because Indemnitor's debt is secured by real property; this means, among other things, that: (1) BONY may collect from Indemnitor without first foreclosing on any real or personal property pledged by Indemnitor; (2) if BONY forecloses on any real property collateral pledged by Indemnitor, then the -8- amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price. The foregoing sentence is an unconditional and irrevocable waiver of any rights and defenses Indemnitor may have because its debt is secured by real property. These rights and defenses being waived by Indemnitor include, but are not limited to, any rights or defenses based upon Section 580(a), 580(b), 580(d) or 726 of the California Code of Civil Procedure. 8. OTHER PROVISIONS. (a) This Indemnity is executed pursuant to the Secured Debt Documents and shall be construed, administered and applied in accordance with the terms and provisions thereof. (b) All notices pursuant to this Indemnity shall be delivered at the times, in the manner and to the addressees as set forth in any Secured Debt Documents. (c) No amendment to or waiver of any provision of this Indemnity nor consent to any departure by Indemnitor herefrom shall be effective unless the same shall be in writing and signed by BONY or a Secured Debt Representative and Indemnitor. (d) This Indemnity shall be binding on and for the benefit of, the parties hereto, together with their respective successors and assigns. (e) The obligations of Indemnitor hereunder shall survive any termination of this Indemnity and the termination of all the Secured Debt Obligations. The representations and warranties made by Indemnitor in this Agreement shall survive the execution and delivery of this Indemnity. (f) Any provision of this Indemnity which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Indemnity or affecting the validity or enforceability of such provision in any other jurisdiction. (g) The various headings of this Indemnity are inserted for convenience only and shall not affect the meaning or interpretation of this Indemnity or any provisions hereof. -9- Dated: as of July 16, 2003 "Indemnitor" CALPINE CORPORATION, a Delaware corporation By: /s/ B.A. Berligen ------------------------------------ Name: B.A. Berilgen Title: Executive Vice President -10- EXHIBIT A to HAZARDOUS MATERIAL UNDERTAKING AND UNSECURED INDEMNITY Legal Description of Properties EXHIBIT B to HAZARDOUS MATERIAL UNDERTAKING AND UNSECURED INDEMNITY Description of Hazardous Materials On Properties, etc. None. EX-31.1 32 f92357exv31w1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION OF THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Peter Cartwright, the Chairman, President and Chief Executive Officer of Calpine Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Calpine Corporation (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Peter Cartwright ----------------------------- Peter Cartwright Chairman, President and Chief Executive Officer Calpine Corporation EX-31.2 33 f92357exv31w2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION OF THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert D. Kelly, the Executive Vice President and Chief Financial Officer of Calpine Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Calpine Corporation (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Robert D. Kelly ---------------------------- Robert D. Kelly Executive Vice President and Chief Financial Officer Calpine Corporation EX-32.1 34 f92357exv32w1.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Calpine Corporation (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge, based upon a review of the Report: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. /s/ Peter Cartwright /s/ Robert D. Kelly - -------------------- ------------------- Peter Cartwright Robert D. Kelly Chairman, President and Executive Vice President and Chief Executive Officer Chief Financial Officer Calpine Corporation Calpine Corporation Dated: August 14, 2003 A signed original of this written statement required by Section 906 has been provided to Calpine Corporation and will be retained by Calpine Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----

EX-4.1

                                                                     Exhibit 4.1

================================================================================

                -------------------------------------------------
                               CALPINE CORPORATION

           SECOND PRIORITY SENIOR SECURED FLOATING RATE NOTES DUE 2007

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

                                   INDENTURE

                            Dated as of July 16, 2003

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

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

                            WILMINGTON TRUST COMPANY

                                     Trustee

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

================================================================================



                             CROSS-REFERENCE TABLE*



Trust Indenture
Act Section                                                                     Indenture Section
                                                                             
310(a)(1).................................................................           7.10
   (a)(2).................................................................           7.10
   (a)(3).................................................................           N.A.
   (a)(4).................................................................           N.A.
   (a)(5).................................................................           7.10
   (b)....................................................................           7.10
   (c)....................................................................           N.A.
311(a)....................................................................           7.11
   (b)....................................................................           7.11
   (c)....................................................................           N.A.
312(a)....................................................................           2.05
313(a)....................................................................           7.06
   (b)(1).................................................................          10.03
   (b)(2).................................................................        7.06; 7.07
   (c)....................................................................           7.06
   (d)....................................................................           7.06
314(a)....................................................................           4.03
   (a)(4).................................................................           12.05
   (b)....................................................................           N.A.
   (c)(3).................................................................           N.A.
   (e)....................................................................           12.05
   (f)....................................................................           N.A.
315(a)....................................................................           7.01
   (b)....................................................................           7.05
   (c)....................................................................           7.01
   (d)....................................................................           7.01
   (e)....................................................................           6.11
316(a) (last sentence)....................................................           2.09
   (a)(1)(A)..............................................................           6.05
   (a)(1)(B)..............................................................           6.04
   (a)(2).................................................................           N.A.
   (b)....................................................................           6.07
   (c)....................................................................           2.12
317(a)(1).................................................................           6.08
   (a)(2).................................................................           6.09
   (b)....................................................................           2.04
318(a)....................................................................           N.A.
   (b)....................................................................          12.03
   (c)....................................................................   12.01; 12.02; 12.03


N.A. means not applicable.
* This Cross Reference Table is not part of this Indenture.



                                TABLE OF CONTENTS




                                                                                                                    Page
                                                                                                                 
                                   ARTICLE 1.
                          DEFINITIONS AND INCORPORATION

                                  BY REFERENCE

Section 1.01      Definitions....................................................................................     1
Section 1.02      Other Definitions..............................................................................    28
Section 1.03      Incorporation by Reference of Trust Indenture Act..............................................    29
Section 1.04      Rules of Construction..........................................................................    29

                                   ARTICLE 2.
                                    THE NOTES

Section 2.01      Form and Dating................................................................................    31
Section 2.02      Execution and Authentication...................................................................    31
Section 2.03      Registrar and Paying Agent.....................................................................    32
Section 2.04      Paying Agent to Hold Money in Trust............................................................    32
Section 2.05      Holder Lists...................................................................................    32
Section 2.06      Transfer and Exchange..........................................................................    32
Section 2.07      Replacement Notes..............................................................................    39
Section 2.08      Outstanding Notes..............................................................................    39
Section 2.09      Treasury Notes.................................................................................    39
Section 2.10      Temporary Notes................................................................................    39
Section 2.11      Cancellation...................................................................................    40
Section 2.12      Defaulted Interest.............................................................................    40

                                   ARTICLE 3.
                            REDEMPTION AND PREPAYMENT

Section 3.01      Notices to Trustee.............................................................................    40
Section 3.02      Selection of Notes to Be Redeemed or Purchased.................................................    40
Section 3.03      Notice of Redemption...........................................................................    41
Section 3.04      Effect of Notice of Redemption.................................................................    42
Section 3.05      Deposit of Redemption or Purchase Price........................................................    42
Section 3.06      Notes Redeemed or Purchased in Part............................................................    42
Section 3.07      Optional Redemption............................................................................    42
Section 3.08      Mandatory Redemption...........................................................................    43
Section 3.09      Offer to Purchase by Application of Excess Proceeds............................................    43

                                   ARTICLE 4.
                                    COVENANTS

Section 4.01      Payment of Notes...............................................................................    45
Section 4.02      Maintenance of Office or Agency................................................................    45
Section 4.03      Reports........................................................................................    45
Section 4.04      Compliance Certificate.........................................................................    46
Section 4.05      Taxes..........................................................................................    47
Section 4.06      Stay, Extension and Usury Laws.................................................................    47
Section 4.07      Restricted Payments............................................................................    47
Section 4.08      Dividend and Other Payment Restrictions Affecting Subsidiaries.................................    50
Section 4.09      Incurrence of Indebtedness and Issuance of Preferred Stock.....................................    51
Section 4.10      Asset Sales....................................................................................    53


                                       i



                                                                                                                 

Section 4.11      Transactions with Affiliates...................................................................    56
Section 4.12      Liens..........................................................................................    57
Section 4.13      Limitation on Changes in the Nature of Business................................................    57
Section 4.14      Corporate Existence............................................................................    57
Section 4.15      Offer to Repurchase Upon Change of Control.....................................................    58
Section 4.16      Limitation on Sale and Leaseback Transactions..................................................    59
Section 4.17      Limitation on Issuances of Guarantees of Indebtedness..........................................    59
Section 4.18      Payments for Consent...........................................................................    59
Section 4.19      Designation of Restricted and Unrestricted Subsidiaries........................................    60
Section 4.20      Changes in Covenant When Notes Rated Investment Grade..........................................    60

                                   ARTICLE 5.
                                   SUCCESSORS

Section 5.01      Merger, Consolidation, or Sale of Assets.......................................................    61
Section 5.02      Successor Corporation Substituted..............................................................    62

                                   ARTICLE 6.
                              DEFAULTS AND REMEDIES

Section 6.01      Events of Default..............................................................................    62
Section 6.02      Acceleration...................................................................................    64
Section 6.03      Other Remedies.................................................................................    65
Section 6.04      Waiver of Past Defaults........................................................................    65
Section 6.05      Control by Majority............................................................................    65
Section 6.06      Limitation on Suits............................................................................    65
Section 6.07      Rights of Holders of Notes to Receive Payment..................................................    66
Section 6.08      Collection Suit by Trustee.....................................................................    66
Section 6.09      Trustee May File Proofs of Claim...............................................................    66
Section 6.10      Priorities.....................................................................................    66
Section 6.11      Undertaking for Costs..........................................................................    67

                                   ARTICLE 7.
                                     TRUSTEE

Section 7.01      Duties of Trustee..............................................................................    67
Section 7.02      Rights of Trustee..............................................................................    68
Section 7.03      Individual Rights of Trustee...................................................................    69
Section 7.04      Trustee's Disclaimer...........................................................................    69
Section 7.05      Notice of Defaults.............................................................................    69
Section 7.06      Reports by Trustee to Holders of the Notes.....................................................    69
Section 7.07      Compensation and Indemnity.....................................................................    70
Section 7.08      Replacement of Trustee.........................................................................    70
Section 7.09      Successor Trustee by Merger, etc...............................................................    71
Section 7.10      Eligibility; Disqualification..................................................................    71
Section 7.11      Preferential Collection of Claims Against Company..............................................    71

                                   ARTICLE 8.
                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01      Option to Effect Legal Defeasance or Covenant Defeasance.......................................    72
Section 8.02      Legal Defeasance and Discharge.................................................................    72
Section 8.03      Covenant Defeasance............................................................................    72
Section 8.04      Conditions to Legal or Covenant Defeasance.....................................................    73



                                       ii



                                                                                                                 
Section 8.05      Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions..    74
Section 8.06      Repayment to Company...........................................................................    74
Section 8.07      Reinstatement..................................................................................    75

                                   ARTICLE 9.
                        AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01      Without Consent of Holders of Notes............................................................    75
Section 9.02      With Consent of Holders of Notes...............................................................    76
Section 9.03      Compliance with Trust Indenture Act............................................................    77
Section 9.04      Revocation and Effect of Consents..............................................................    77
Section 9.05      Notation on or Exchange of Notes...............................................................    78
Section 9.06      Trustee to Sign Amendments, etc................................................................    78

                                   ARTICLE 10.
                             COLLATERAL AND SECURITY

Section 10.01     Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation...    78
Section 10.02     Ranking of Note Liens..........................................................................    79
Section 10.03     Release of Security Interest in Respect of Notes...............................................    79

                                   ARTICLE 11.
                           SATISFACTION AND DISCHARGE

Section 11.01     Satisfaction and Discharge.....................................................................    80
Section 11.02     Application of Trust Money.....................................................................    81

                                   ARTICLE 12.
                                  MISCELLANEOUS

Section 12.01     Trust Indenture Act Controls...................................................................    81
Section 12.02     Notices........................................................................................    81
Section 12.03     Communication by Holders of Notes with Other Holders of Notes..................................    82
Section 12.04     Certificate and Opinion as to Conditions Precedent.............................................    82
Section 12.05     Statements Required in Certificate or Opinion..................................................    83
Section 12.06     Rules by Trustee and Agents....................................................................    83
Section 12.07     No Personal Liability of Directors, Officers, Employees and Stockholders.......................    83
Section 12.08     Governing Law..................................................................................    83
Section 12.09     No Adverse Interpretation of Other Agreements..................................................    83
Section 12.10     Successors.....................................................................................    83
Section 12.11     Severability...................................................................................    84
Section 12.12     Counterpart Originals..........................................................................    84
Section 12.13     Table of Contents, Headings, etc...............................................................    84

                                    EXHIBITS

Exhibit A         FORM OF NOTE
Exhibit B         FORM OF CERTIFICATE OF TRANSFER
Exhibit C         FORM OF CERTIFICATE OF EXCHANGE
Exhibit D         FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR



                                      iii



         INDENTURE dated as of July 16, 2003 between Calpine Corporation, a
Delaware corporation and Wilmington Trust Company (the "Trustee").

         The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders (as defined) of the
Second Priority Senior Secured Floating Rate Notes due 2007 (the "Notes"):

                                   ARTICLE 1.
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

Section 1.01      Definitions.

         "144A Global Note" means a Global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that shall be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.

         "Acquired Debt" means, with respect to any specified Person:

              (1) Indebtedness of any other Person existing at the time such
         other Person is merged with or into or became a Restricted Subsidiary
         of such specified Person, whether or not such Indebtedness is incurred
         in connection with, or in contemplation of, such other Person merging
         with or into, or becoming a Restricted Subsidiary of, such specified
         Person; and

              (2) Indebtedness secured by a Lien encumbering any asset acquired
by such specified Person.

Acquired Debt shall be deemed to be incurred on the date the acquired Person
becomes a Restricted Subsidiary.

         "Additional Notes" means Notes (other than the Initial Notes) issued
under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part
of the same series as the Initial Notes.

         "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings. For purposes of Section 4.11 herein,
"Affiliate" shall also mean any Person of which the Company owns 10% or more of
any class of Capital Stock or rights to acquire 10% or more of any class of
Capital Stock and any Person who would be an Affiliate of any such Person
pursuant to the first sentence hereof.

         "Agent" means any Registrar, co-registrar, Paying Agent or additional
paying agent.

         "Applicable Eurodollar Rate" means, for each quarterly period during
which any floating rate note is outstanding subsequent to the initial quarterly
period, 575 basis points over the rate determined by the Company (written notice
of such rate to be sent to the Trustee by the Company on the date of
determination thereof) equal to the applicable British Bankers' Association
LIBOR rate for deposits in U.S. dollars for a period of three months as reported
by any generally recognized financial information

                                       1



service as of 11:00 a.m. (London time) two business days prior to the first day
of such quarterly period; provided that, if no such British Bankers' Association
LIBOR rate is available to the Company, the Applicable Eurodollar Rate for the
relevant quarterly period shall instead be the rate at which Goldman Sachs
Credit Partners L.P. or one of its affiliate banks offers to place deposits in
U.S. dollars with first-class banks in the London interbank market for a period
of three months at approximately 11:00 a.m. (London time) two business days
prior to the first day of such quarterly period, in amounts equal to $1.0
million. Notwithstanding the foregoing, the Applicable Eurodollar Rate for the
initial quarterly period ending October 15, 2003, shall be 6.860% per annum.

         "Asset Sale" means:

              (1) the sale, lease, conveyance or other disposition of any assets
         or rights; provided that the sale, conveyance or other disposition of
         all or substantially all of the assets of the Company and its
         Restricted Subsidiaries taken as a whole shall be governed by Section
         4.15 of this Indenture and/or Section 5.01 and not by Section 4.10; and

              (2) the issuance of Equity Interests in any of the Company's
         Restricted Subsidiaries or the sale of Equity Interests in any of its
         Subsidiaries.

Notwithstanding the preceding, none of the following items shall be deemed to be
an Asset Sale:

              (1) (A) any single transaction or series of related transactions
         that involves the sale of uninstalled turbines and related equipment,
         and (B) any single transaction or series of related transactions that
         involves other assets having a Fair Market Value of less than $50.0
         million, it being understood that, in connection with any sale, lease,
         conveyance or other disposition of any Designated Assets or rights
         relating thereto in connection with a farm-out transaction, such
         transaction shall be valued as at the time of execution and delivery of
         binding contractual arrangements relating thereto;

              (2) a transfer of assets between or among the Company and its
         Restricted Subsidiaries,

              (3) an issuance of Equity Interests by a Restricted Subsidiary to
         the Company or to a Restricted Subsidiary of the Company;

              (4) the sale or lease of products, services or accounts receivable
         in the ordinary course of business and any sale or other disposition of
         damaged, worn-out or obsolete assets in the ordinary course of
         business;

              (5) the sale or other disposition of cash or Cash Equivalents;

              (6) a Restricted Payment that does not violate Section 4.07 herein
         or a Permitted Investment; and

              (7) the sale or other disposition of all or any part of the
         Company's right to amounts that have or are to become due and payable
         by Pacific Gas & Electric Company under that certain Agreement dated as
         of July 1, 1999, as amended, between Pacific Gas & Electric Company and
         Calpine Gilroy L.P., a California limited partnership (PG&E Log No.
         08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase
         Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P.
         by the Company pursuant to the Purchase Agreement dated as of March 8,
         2002, as amended, between Calpine Gilroy Cogen L.P. and the Company.

                                       2



         "Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP; provided, that
if such sale and leaseback transaction results in a Capital Lease Obligation,
the amount of Indebtedness represented thereby shall be determined in accordance
with the definition of "Capital Lease Obligation."

         "Bankruptcy Case" means any case under Title 11 of the United States
Code or any successor bankruptcy law commenced voluntarily or involuntarily
against the Company or any other Obligor.

         "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

         "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only after the passage of time. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.

         "Board of Directors" means:

              (1) with respect to a corporation, the Board of Directors of the
         corporation or any committee thereof duly authorized to act on behalf
         of such board;

              (2) with respect to a partnership, the Board of Directors of the
         general partner of the partnership;

              (3) with respect to a limited liability company, the managing
         member or members or any controlling committee of managing members
         thereof; and

              (4) with respect to any other Person, the board or committee of
such Person serving a similar function.

         "Business Day" means any day other than a Legal Holiday.

         "Canadian Gas Assets" means Designated Assets owned by a direct or
indirect Restricted Subsidiary of one or more Canadian Guarantors.

         "Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware
corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana
Canada Holdings LLC, a Delaware limited liability company, and any successor to
any of the foregoing.

         "Capital Lease Obligation" means, at the time any determination is to
be made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP, and the Stated Maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be prepaid by the lessee without payment of a penalty.

                                       3



         "Capital Stock" means:

              (1) in the case of a corporation, corporate stock;

              (2) in the case of an association or business entity, any and all
         shares, interests, participations, rights or other equivalents (however
         designated) of corporate stock;

              (3) in the case of a partnership or limited liability company,
         partnership interests (whether general or limited) or membership
         interests; and

              (4) any other interest or participation that confers on a Person
         the right to receive a share of the profits and losses of, or
         distributions of assets of, the issuing Person, but excluding from all
         of the foregoing any debt securities convertible into Capital Stock,
         whether or not such debt securities include any right of participation
         with Capital Stock.

         "Cash Equivalents" means:

              (1) the lawful currency of any country where the Company owns or
         operates a Facility;

              (2) securities issued or directly and fully guaranteed or insured
         by the United States government or any state thereof (or any agency or
         instrumentality thereof), by the Canadian government (or any agency or
         instrumentality thereof), or by the government of a member state of the
         European Union (or any agency or instrumentality thereof), in each case
         the payment of which is backed by the full faith and credit of the
         United States, Canada or the relevant member state of the European
         Union, as the case may be, and having maturities of not more than six
         months from the date of acquisition;

              (3) certificates of deposit and eurodollar time deposits with
         maturities of six months or less from the date of acquisition, bankers'
         acceptances with maturities not exceeding six months and overnight bank
         deposits, in each case, with any lender party to the Credit Agreement
         or with any domestic commercial bank having capital and surplus in
         excess of $500.0 million and a Thomson Bank Watch or successor rating
         agency rating of "B" or better;

              (4) repurchase obligations with a term of not more than seven days
         for underlying securities of the types described in clauses (2) and (3)
         above entered into with any financial institution meeting the
         qualifications specified in clause (3) above;

              (5) commercial paper having one of the two highest ratings
         obtainable from Moody's or S&P and maturing within six months after the
         date of acquisition; and

              (6) money market funds at least 95% of the assets of which
         constitute Cash Equivalents of the kinds described in clauses (1)
         through (5) of this definition.

         "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited
liability company that is wholly-owned by the Canadian Guarantors.

         "Change of Control" means the occurrence of any of the following:

              (1) the direct or indirect sale, transfer, conveyance or other
         disposition (other than by way of merger or consolidation), in one or a
         series of related transactions, of all or substantially all of the

                                       4



         properties or assets of the Company and its Restricted Subsidiaries
         taken as a whole to any "person" (as that term is used in Section 13(d)
         of the Exchange Act);

              (2) the adoption of a plan relating to the liquidation or
         dissolution of the Company;

              (3) the consummation of any transaction (including any merger or
         consolidation) the result of which is that any "person" (as defined
         above) becomes the Beneficial Owner, directly or indirectly, of more
         than 50% of the Voting Stock of the Company, measured by voting power
         rather than number of shares;

              (4) the Company consolidates with, or merges with or into, any
         Person, or any Person consolidates with, or merges with or into, the
         Company, in any such event pursuant to a transaction in which any of
         the outstanding Voting Stock of the Company or such other Person is
         converted into or exchanged for cash, securities or other property,
         other than any such transaction where the Voting Stock of the Company
         outstanding immediately prior to such transaction is converted into or
         exchanged for Voting Stock (other than Disqualified Stock) of the
         surviving or transferee Person constituting a majority of the
         outstanding shares of such Voting Stock of such surviving or transferee
         Person (immediately after giving effect to such issuance); or

              (5) the first day on which a majority of the members of the Board
         of Directors of the Company are not Continuing Directors.

         "Clearstream" means Clearstream Banking, S.A.

         "Collateral" means all properties and assets at any time owned or
acquired by the Company, except the Excluded Assets, and the Canadian
Guarantors' ownership interest in 65% of the aggregate outstanding voting stock
of CCEC.

         "Collateral Trust Agreement" means that certain Collateral Trust
Agreement dated as of July 16, 2003, among the Company, the Canadian Guarantors,
the Credit Agreement Agent, the Trustee and the Bank of New York.

         "Collateral Trustee" means The Bank of New York in its capacity as
collateral trustee under the Collateral Trust Agreement, together with its
successors and assigns in such capacity.

         "Company" means Calpine Corporation, a Delaware Corporation and any and
all successors thereto.

         "Consolidated Cash Flow" means, with respect to any specified Person
for any period, the Consolidated Net Income of such Person for such period plus,
without duplication:

              (1) an amount equal to any extraordinary loss plus any net loss
         realized by such Person or any of its Restricted Subsidiaries in
         connection with an Asset Sale, to the extent such losses were deducted
         in computing such Consolidated Net Income; plus

              (2) provision for taxes based on income or profits of such Person
         and its Restricted Subsidiaries for such period, to the extent that
         such provision for taxes was deducted in computing such Consolidated
         Net Income; plus

              (3) the Fixed Charges of such Person and its Restricted
         Subsidiaries for such period, to the extent that such Fixed Charges
         were deducted in computing such Consolidated Net Income; plus

                                       5



              (4) depreciation, amortization (including amortization of
         intangibles but excluding amortization of prepaid cash expenses that
         were paid in a prior period) and other non-cash expenses (excluding any
         such non-cash expense to the extent that it represents an accrual of or
         reserve for cash expenses in any future period or amortization of a
         prepaid cash expense that was paid in a prior period) of such Person
         and its Restricted Subsidiaries for such period to the extent that such
         depreciation, amortization and other non-cash expenses were deducted in
         computing such Consolidated Net Income;

minus non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business;

in each case, on a consolidated basis and determined in accordance with GAAP.

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

         "Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; provided that:

              (1) the Net Income (but not loss) of any Person that is not a
         Restricted Subsidiary or that is accounted for by the equity method of
         accounting shall be included only to the extent of the amount of
         dividends or similar distributions paid in cash to the specified Person
         or a Restricted Subsidiary of the Person;

              (2) the Net Income of any Restricted Subsidiary shall be excluded
         to the extent that the declaration or payment of dividends or similar
         distributions by that Restricted Subsidiary of that Net Income is not
         at the date of determination permitted without any prior governmental
         approval (that has not been obtained) or, directly or indirectly, by
         operation of the terms of its charter or any agreement, instrument,
         judgment, decree, order, statute, rule or governmental regulation
         applicable to that Restricted Subsidiary or its stockholders; and

              (3) the cumulative effect of a change in accounting principles
         shall be excluded.

         "Consolidated Net Worth" means, with respect to any specified Person as
of any date, the sum of:

              (1) the consolidated equity of the common stockholders of such
         Person and its consolidated Subsidiaries as of such date; plus

              (2) the respective amounts reported on such Person's balance sheet
         as of such date with respect to any series of preferred stock (other
         than Disqualified Stock) that by its terms is not entitled to the
         payment of dividends unless such dividends may be declared and paid
         only out of net earnings in respect of the year of such declaration and
         payment, but only to the extent of any cash received by such Person
         upon issuance of such preferred stock.

         "Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who:

                                       6



              (1) was a member of such Board of Directors on the date of this
         Indenture; or

              (2) was nominated for election or elected to such Board of
         Directors with the approval of a majority of the Continuing Directors
         then still in office or with the approval of a majority of Directors
         whose election was previously so approved from time to time.

         "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.

         "Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of July 16, 2003, by and among the Company and The Bank of
Nova Scotia and Bayerische Landesbank, as lead arrangers and bookrunners,
providing for up to $500.0 million of revolving credit and term loan borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
restated, modified, renewed, refunded, replaced or refinanced (including by
means of sales of debt securities to institutional investors) in whole or in
part from time to time.

         "Credit Agreement Agent" means, at any time, the Person serving at such
time as the "Agent" or "Administrative Agent" under the Credit Agreement or any
other representative of the Lenders then most recently designated by a majority
of the Lenders, in a written notice delivered to each Parity Debt Representative
and the Collateral Trustee, as the Credit Agreement Agent for the purposes of
the Parity Lien Debt Documents.

         "Credit Facilities" means one or more debt facilities (including the
Credit Agreement) with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
(including by means of sales of debt securities to institutional investors) in
whole or in part from time to time.

         "Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.

         "Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.

         "Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof,
substantially in the form of Exhibit A hereto except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.

         "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.

         "Designated Assets" means all geothermal energy assets (including any
related extraction, processing or similar equipment and geothermal power plants)
and all natural gas assets (including any related extraction, processing or
similar equipment, other than natural gas power plants) owned by the Company or
any of its Restricted Subsidiaries from time to time, including the equity
interests of any

                                       7



Restricted Subsidiary owning any Designated Assets, but excluding (i) any
geothermal energy assets that are both unproven and undeveloped and (ii)
contracts for the purchase or sale of natural gas and natural gas supplied under
such contracts.

         "Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the Notes issued pursuant to this Indenture
mature. Notwithstanding the preceding sentence, any Capital Stock that would
constitute Disqualified Stock solely because the holders of the Capital Stock
have the right to require the Company to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at
any time for purposes of this Indenture shall be the maximum amount that the
Company and its Restricted Subsidiaries may become obligated to pay upon the
maturity of, or pursuant to any mandatory redemption provisions of, such
Disqualified Stock, exclusive of accrued dividends.

         "Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

         "Euroclear" means Euroclear Bank S.A./N.V., as operator of the
Euroclear system.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Excluded Assets" means:

              (1) any lease of property other than (i) a lease of a geothermal
         energy or natural gas interest or property, (ii) a lease of real estate
         underlying a power generation property or (iii) a capital lease;

              (2) all deposit accounts (as defined in Article 9 of the Uniform
         Commercial Code of any relevant jurisdiction) and deposits therein to
         the extent not exceeding $50.0 million in the aggregate, except for the
         Designated Assets Sale Proceeds Account and any deposit account and
         deposits therein holding amounts referred to in clause (7) of this
         definition;

              (3) the fixtures and equipment relating to any pipeline if, to the
         extent that and for so long as (i) the ownership or operation of such
         pipeline is regulated by any federal or state regulatory authority and
         (ii) under the law applicable to such regulatory authority the grant of
         a security interest in such fixtures and equipment is prohibited or a
         security interest in such fixtures and equipment may be granted only
         after completion of a filing with, or receipt of consent from, such
         regulatory authority which has not been effectively completed or
         received; provided, that (a) such fixtures and equipment shall be an
         Excluded Asset only to the extent and for so long as the conditions set
         forth in clauses (i) and (ii) in this clause (3) are and remain
         satisfied and to the extent such assets otherwise constitute
         Collateral, shall cease to be an Excluded Asset, and shall become
         subject to the security interests granted to the Collateral Trustee
         under the Security Documents, immediately and automatically at such
         time as such conditions cease to exist, including by reason of the
         effective completion of any required filing or effective receipt of any
         required regulatory approval, and (b) unless prohibited by law, the
         proceeds of any sale, lease or other disposition of any such fixtures
         or equipment that are Excluded Assets shall not be an Excluded Asset
         and shall at all times be and remain subject to the security interests
         granted to the Collateral Trustee under the Security Documents except
         as such proceeds are applied and used by

                                       8



         the Company in the ordinary course of business and applied in
         accordance with Section 4.10 herein;

              (4) all easements, rights-of-way, licenses and other real property
         interests for or pertaining to the construction, operation, use or
         maintenance of any pipeline over, upon or under land owned by another
         Person;

              (5) with respect to personal property, any lease, license, permit,
         franchise, power, authority or right if, to the extent that and for so
         long as (i) the grant of a security interest therein constitutes or
         would result in the abandonment, invalidation or unenforceability of
         such lease, license, permit, franchise, power, authority or right or
         the termination of or a default under the instrument or agreement by
         which such lease, license, permit, franchise, power, authority or right
         is governed and (ii) such abandonment, invalidation, unenforceability,
         termination or default is not rendered ineffective pursuant to Sections
         9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any
         successor provisions) of any relevant jurisdiction or any other
         applicable law (including the United States bankruptcy code); provided,
         that (a) such lease, license, permit, franchise, power, authority or
         right shall be an Excluded Asset only to the extent and for so long as
         the conditions set forth in clauses (i) and (ii) of this clause (5) are
         and remain satisfied and to the extent that such assets otherwise
         constitute Collateral, shall cease to be an Excluded Asset, and shall
         become subject to the security interests granted to the Collateral
         Trustee under the Security Documents, immediately and automatically at
         such time as such conditions cease to exist, including by reason of any
         waiver or consent under the applicable instrument or agreement, and (b)
         the proceeds of any sale, lease or other disposition of any such lease,
         license, permit, franchise, power, authority or right that is or
         becomes an Excluded Asset shall not be an Excluded Asset and shall at
         all times be and remain subject to the security interests granted to
         the Collateral Trustee under the Security Documents except as such
         proceeds are applied and used by the Company in the ordinary course of
         business and applied in accordance with Section 4.10 herein;

              (6) with respect to any real property, any lease, license, permit,
         franchise, power, authority or right if, to the extent that and for so
         long as the grant of a security interest therein (i) requires a third
         party consent which has not been obtained or (ii) constitutes or would
         result in the abandonment, invalidation or unenforceability of such
         lease, license, permit, franchise, power, authority or right or the
         termination of or a default under the instrument or agreement by which
         such lease, license, permit, franchise, power, authority or right is
         governed; provided, that such lease, license, permit, franchise, power,
         authority or right shall be an Excluded Asset only to the extent and
         for as long as the conditions set forth in clause (i) or (ii) of this
         clause (6) are and remain satisfied and to the extent such assets
         otherwise constitute Collateral, shall cease to be an Excluded Asset,
         and shall become subject to the security interests granted to the
         Collateral Trustee under the Security Documents immediately and
         automatically at such time as such conditions cease to exist except as
         such proceeds are applied and used by the Company in the ordinary
         course of business and applied in accordance with Section 4.10 herein;

              (7) any cash proceeds (including any earnings thereon) of Priority
         Lien Debt that are pledged to cash collateralize letters of credit;

              (8) any turbines which serve as collateral pursuant to that
         certain General Agreement dated as of January 31, 2002 among the
         Company, various Subsidiaries of the Company and Siemens Westinghouse
         Power Corporation relating to various purchase contracts and letters of
         intent for gas turbine generators, steam turbine generators and related
         accessories;

                                       9



              (9) proved oil and gas reserves located in Oklahoma and
         undeveloped reserves and unproven acreage located in California, Texas,
         Wyoming, Montana, Colorado, New Mexico and offshore Louisiana; provided
         that such reserves and acreage has a Fair Market Value not exceeding
         $20.0 million in the aggregate;

              (10) Capital Stock of Subsidiaries designated by the Company, but
         only for so long as (i) the Capital Stock of such Subsidiaries is not
         pledged to any Person (other than the Collateral Trustee on behalf of
         all holders of all Secured Debt) and (ii) such Subsidiaries
         collectively own less than 5.0% of the Company's total consolidated
         assets and collectively account for less than 5.0% of the Company's
         Consolidated Cash Flow; and

              (11) any other property in which a security interest cannot be
         perfected by the filing of a financing statement under the Uniform
         Commercial Code of the relevant jurisdiction; provided that such
         property has a Fair Market Value not exceeding $25.0 million in the
         aggregate.

         "Existing Guarantees" means the Guarantees of the Term Loans, the Notes
and certain obligations under the Credit Agreement that exist on the date of
this Indenture.

         "Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of this Indenture, until such amounts are repaid.

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

         "Fair Market Value" means the value that would be paid by a willing
buyer to a willing seller in a transaction not involving distress or necessity
of either party, determined in good faith by the Board of Directors of the
Company (unless otherwise provided in this Indenture).

         "Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
for such period to the Fixed Charges of such Person for such period. In the
event that the specified Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees, repays, repurchases, redeems, defeases or otherwise
discharges any Indebtedness (other than ordinary working capital borrowings) or
issues, repurchases or redeems preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated and on
or prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase, redemption, defeasance or other
discharge of Indebtedness, or such issuance, repurchase or redemption of
preferred stock, and the use of the proceeds therefrom, as if the same had
occurred at the beginning of the applicable four-quarter reference period.

         In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:

              (1) acquisitions that have been made by the specified Person or
         any of its Restricted Subsidiaries, including through mergers or
         consolidations or acquisitions of assets, or any Person or any of its
         Restricted Subsidiaries acquired by merger, consolidation, or the
         acquisition of all or substantially all of its assets by the specified
         Person or any of its Restricted Subsidiaries, and including any related
         financing transactions and including increases in ownership of
         Restricted Subsidiaries, during the four-quarter reference period or
         subsequent to such reference period and on or prior to the Calculation
         Date shall be given pro forma effect (in accordance with Regulation

                                       10



         S-X under the Securities Act) as if they had occurred on the first day
         of the four-quarter reference period;

              (2) the Consolidated Cash Flow attributable to discontinued
         operations, as determined in accordance with GAAP, and operations or
         businesses (and ownership interests therein) disposed of prior to the
         Calculation Date, shall be excluded;

              (3) the Fixed Charges attributable to discontinued operations, as
         determined in accordance with GAAP, and operations or businesses (and
         ownership interests therein) disposed of prior to the Calculation Date,
         shall be excluded, but only to the extent that the obligations giving
         rise to such Fixed Charges shall not be obligations of the specified
         Person or any of its Restricted Subsidiaries following the Calculation
         Date;

              (4) any Person that is a Restricted Subsidiary on the Calculation
         Date shall be deemed to have been a Restricted Subsidiary at all times
         during such four-quarter period;

              (5) any Person that is not a Restricted Subsidiary on such
         Calculation Date shall be deemed not to have been a Restricted
         Subsidiary at any time during such four-quarter period; and

              (6) if any Indebtedness bears a floating rate of interest, the
         interest expense on such Indebtedness shall be calculated as if the
         rate in effect on the Calculation Date had been the applicable rate for
         the entire period (taking into account any Hedging Obligation
         applicable to such Indebtedness if such Hedging Obligation has a
         remaining term as at the Calculation Date in excess of 12 months).

         "Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:

              (1) the consolidated interest expense of such Person and its
         Restricted Subsidiaries for such period, whether paid or accrued,
         including amortization of debt issuance costs and original issue
         discount, non-cash interest payments, the interest component of any
         deferred payment obligations, the interest component of all payments
         associated with Capital Lease Obligations, commissions, discounts and
         other fees and charges incurred in respect of letter of credit or
         bankers' acceptance financings, and net of the effect of all payments
         made or received pursuant to Hedging Obligations in respect of interest
         rates, plus one-third of all payments with respect to operating leases;
         plus

              (2) the consolidated interest of such Person and its Restricted
         Subsidiaries that was capitalized during such period, except interest
         on Indebtedness incurred to finance the development or construction of
         a Facility; plus

              (3) any interest accruing on Indebtedness of another Person that
         is Guaranteed by such Person or one of its Restricted Subsidiaries or
         secured by a Lien on assets of such Person or one of its Restricted
         Subsidiaries, whether or not such Guarantee or Lien is called upon, but
         excluding any such Guarantee or Lien in effect on the date of this
         Indenture unless the same is called upon; plus

              (4) the product of (a) all dividends, whether paid or accrued and
         whether or not in cash, on any series of preferred stock of such Person
         or any of its Restricted Subsidiaries, other than dividends on Equity
         Interests payable solely in Equity Interests of the Company (other than
         Disqualified Stock) or to the Company or a Restricted Subsidiary of the
         Company, times (b) a fraction, the numerator of which is one and the
         denominator of which is one minus the effective

                                       11



         combined federal, state and local statutory tax rate of such Person for
         the immediately preceding fiscal year, expressed as a decimal, in each
         case, on a consolidated basis and in accordance with GAAP.

         "Foreign Asset Sale" means an Asset Sale in respect of the Capital
Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type
described in Section 936 of the Internal Revenue Code of 1986, as amended, to
the extent that the proceeds of such Asset Sale are received by a Person subject
in respect of such proceeds to the tax laws of a jurisdiction other than the
United States of America or any State thereof or the District of Columbia.

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

         "GAAP" means generally accepted accounting principles set forth in the
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect and, to
the extent optional, adopted by the Company, on the applicable date of
determination.

         "Global Notes" means, individually and collectively, each of the
Restricted Global Notes, substantially in the form of Exhibit A hereto issued in
accordance with Section 2.01 or 2.06(b)(3) hereof.

         "Global Note Legend" means the legend set forth in Section 2.06(e)(2),
which is required to be placed on all Global Notes issued under this Indenture.

         "Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.

         "Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including by way of a pledge of assets or through
letters of credit or reimbursement agreements in respect thereof, of all or any
part of any Indebtedness (whether arising by virtue of partnership arrangements,
or by agreements to keep-well, to purchase assets, goods, securities or
services, to take or pay or to maintain financial statement conditions or
otherwise).

         "Guarantor" means each Subsidiary of Calpine that Guarantees the Notes.

         "Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:

              (1) interest rate swap agreements (whether from fixed to floating
         or from floating to fixed), interest rate cap agreements and interest
         rate collar agreements;

              (2) other agreements or arrangements designed to manage interest
         rate risk; and

              (3) other agreements or arrangements designed to protect such
         Person against fluctuations in currency exchange rates or commodity
         prices.

         "Holder" means a Person in whose name a Note is registered.

         "IAI Global Note" means a Global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of and

                                       12



registered in the name of the Depositary or its nominee that shall be issued in
a denomination equal to the outstanding principal amount of the Notes sold to
Institutional Accredited Investors.

         "Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:

              (1) in respect of borrowed money;

              (2) evidenced by bonds, notes, debentures or similar instruments
         or letters of credit (or reimbursement agreements in respect thereof);

              (3) in respect of banker's acceptances;

              (4) representing Capital Lease Obligations or Attributable Debt in
         respect of sale and leaseback transactions;

              (5) representing the balance deferred and unpaid of the purchase
         price of any property or services due more than six months after such
         property is acquired or such services are completed; or

              (6) representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit,
Attributable Debt and Hedging Obligations) would appear as a liability upon a
balance sheet of the specified Person prepared in accordance with GAAP. In
addition, the term "Indebtedness" includes all Indebtedness of others secured by
a Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any Indebtedness of any other Person.

         The amount of any Indebtedness outstanding as of any date shall be:

              (1) the accreted value of the Indebtedness, in the case of any
         Indebtedness issued with original issue discount;

              (2) the principal amount of the Indebtedness, in the case of any
         other Indebtedness; and

              (3) in respect of Indebtedness of another Person secured by a Lien
         on the assets of the specified Person, the lesser of:

                  (A) the Fair Market Value of such asset at such date of
              determination, and

                  (B) the amount of the Indebtedness of such other Person.

         Notwithstanding anything to the contrary in this definition of
Indebtedness, with respect to any contingent obligations (other than with
respect to contractual obligations to repurchase goods sold or distributed,
which shall be included to the extent reflected on the balance sheet of such
Person in accordance with GAAP) of a Person, the maximum liability of such
Indebtedness shall be as determined by such Person's Board of Directors, in good
faith, as, in light of the facts and circumstances existing at the time,
reasonably likely to be incurred upon the occurrence of the contingency giving
rise to such obligation.

                                       13



         "Indenture" means this indenture, as amended or supplemented from time
to time.

         "Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.

         "Initial Notes" means the first $500,000,000 aggregate principal amount
of Notes issued under this Indenture on the date hereof.

         "Initial Purchasers" means Credit Lyonnais (USA) Inc., Goldman, Sachs &
Co., ING Financial Markets LLC, Scotia Capital (USA) Inc. and TD Securities
(USA) Inc.

         "Insolvency Proceeding" means:

              (1) any proceeding for the reorganization, recapitalization or
         adjustment or marshalling of the assets or liabilities of the Company
         or any other Obligor, any receivership or assignment for the benefit of
         creditors relating to the Company or any other Obligor or any similar
         case or proceeding relative to the Company or any other Obligor or its
         creditors, as such, in each case whether or not voluntary;

              (2) any liquidation, dissolution, marshalling of assets or
         liabilities or other winding up of or relating to the Company or any
         other Obligor, in each case whether or not voluntary and whether or not
         involving bankruptcy or insolvency; or

              (3) any other proceeding of any type or nature in which
         substantially all claims of creditors of the Company or any other
         Obligor are determined and any payment or distribution is or may be
         made on account of such claims.

         "Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.

         "Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market
Value of the Company's Investments in such Subsidiary that were not sold or
disposed of in an amount determined as provided in Section 4.07(b). Except as
otherwise provided in this Indenture, the amount of an Investment shall be
determined at the time the Investment is made and without giving effect to
subsequent changes in value.

         "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.

                                       14



         "Lenders" means, at any time, the parties to the Credit Agreement then
holding (or committed to provide) loans, letters of credit or other extensions
of credit that constitute (or when provided shall constitute) Priority Lien Debt
outstanding under the Credit Agreement.

         "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

         "Magic Valley Generating Assets" means the Magic Valley Generating
Station, a natural gas fired power plant in commercial operation in Edinburg,
Texas.

         "Material Designated Assets" means Designated Assets having a Fair
Market Value in the aggregate in excess of $50.0 million.

         "Moody's" means Moody's Investors Service, Inc. (or, if such entity
ceases to rate the applicable notes for reasons outside of the control of the
Company, the equivalent investment grade credit rating from any other
"nationally recognized statistical rating organization" (or successor concept)
within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or
successor provision) selected by the Company as a replacement agency).

         "Net Income" means, with respect to any specified Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, without
duplication:

              (1) any gain (but not loss), together with any related provision
         for taxes on such gain (but not loss), realized in connection with: (a)
         any Asset Sale; or (b) the disposition of any securities by such Person
         or any of its Restricted Subsidiaries or the extinguishment of any
         Indebtedness of such Person or any of its Restricted Subsidiaries; and

              (2) any extraordinary gain (but not loss), together with any
         related provision for taxes on such extraordinary gain (but not loss).

         "Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including legal, accounting and investment banking fees, and
sales commissions, and any relocation expenses incurred as a result of the Asset
Sale, taxes paid or payable as a result of the Asset Sale, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.

         "Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary
that is incurred to finance the exploration, drilling, development, construction
or purchase of or by, or repairs, improvements or additions to, property or
assets of the Company or any Restricted Subsidiary; provided that such
Indebtedness is without recourse to the Company (except as permitted by clause
(8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any
property or assets of the Company or any

                                       15



Restricted Subsidiary other than property or assets (including Capital Stock) of
a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of
the definition of Permitted Liens or property or assets (including Capital
Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause
(19) of the definition of Permitted Liens.

         "Note Documents" means this Indenture, the Notes, the 2010 Notes and
the indenture governing such notes, the 2013 Notes and the indenture governing
such notes, each Sharing Confirmation and the Security Documents.

         "Note Obligations" means the Notes (including any Additional Notes
issued under the this Indenture) and all other Obligations of any Obligor under
this Indenture, the Notes (including any Additional Notes issued under this
Indenture) and the Security Documents.

         "Notes" has the meaning assigned to it in the preamble to this
Indenture. The Initial Notes and the Additional Notes shall be treated as a
single class for all purposes under this Indenture, and unless the context
otherwise requires, all references to the Notes shall include the Initial Notes
and any Additional Notes.

         "Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness (including the Notes and this
Indenture).

         "Obligor" means the Company and each Restricted Subsidiary of the
Company (if any) that at any time guarantees or provides collateral security or
credit support for any Secured Obligations.

         "Offering Circular" means that certain offering circular dated as of
July 10, 2003, with respect to the $2.55 billion in aggregate principal amount
offering of the Notes, the 2010 Notes and the 2013 Notes, collectively.

         "Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.

         "Officers' Certificate" means a certificate signed on behalf of the
Company by one Officer of the Company that meets the requirements of Section
12.05 hereof.

         "Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.

         "Parity Debt Representative" means:

              (1) in the case of the Notes, the 2010 Notes or the 2013 Notes,
         the applicable trustee thereof;

              (2) in the case of the Term Loans, the Term Loan Administrative
         Agent; or

              (3) in the case of any other Series of Parity Debt, the trustee,
         agent or representative of the holders of such Series of Parity Lien
         Debt who maintains the transfer register for such Series of Parity Lien
         Debt and is appointed as a Parity Debt Representative (for purposes
         related to the administration of the Security Documents) pursuant to
         this Indenture or other agreement governing such Series of Parity Lien
         Debt.

                                       16



         "Parity Lien" means a Lien granted by a Security Document to the
Collateral Trustee upon any property of the Company or any other Obligor to
secure Parity Lien Obligations.

         "Parity Lien Debt" means:

              (1) the Notes;

              (2) the Term Loans; and

              (3) any other Indebtedness (including additional notes and Term
         Loans) that:

                  (A) is permitted to be incurred under Section 4.09 herein; and

                  (B) is permitted to be secured by Parity Liens by clause (2)
               of the definition of Permitted Liens;

provided, in the case of each issue or series of Indebtedness referred to in
this clause (3), that:

              (i) on or before the date on which such Indebtedness was incurred
         by the Company such Indebtedness is designated by the Company, in an
         officers' certificate delivered to each Parity Debt Representative and
         the Collateral Trustee on or before such date, as Parity Lien Debt for
         the purposes of this Indenture and the Collateral Trust Agreement,

              (ii) such Indebtedness is governed by an indenture or other
         agreement that includes a Sharing Confirmation and

              (iii) all requirements set forth in the Collateral Trust Agreement
         as to the confirmation, grant or perfection of the Collateral Trustee's
         Liens to secure such Indebtedness or Obligations in respect thereof are
         satisfied

(and the satisfaction of such requirements and the other provisions of this
clause (3) shall be conclusively established, for purposes of entitling the
holders of such Indebtedness to share equally and ratably with the other holders
of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's
Liens on the Collateral, if the Company delivers to the Collateral Trustee an
officers' certificate in the form required pursuant to the Collateral Trust
Agreement stating that such requirements and other provisions have been
satisfied and that such Indebtedness is Parity Lien Debt, together with an
opinion of counsel stating that such officers' certificate has been duly
authorized by the Board of Directors of the Company and has been duly executed
and delivered, and the holders of such Indebtedness and Obligations in respect
thereof shall be entitled to rely conclusively thereon).

         "Parity Lien Debt Documents" means, collectively, the Term Loan
Documents, the Note Documents, and the indenture or agreement governing each
other Series of Parity Lien Debt and all agreements binding on any Obligor
related thereto.

         "Parity Lien Obligations" means Parity Lien Debt and all other
Obligations in respect thereof.

         "Participant" means, with respect to the Depositary, Euroclear or
Clearstream, a Person who has an account with the Depositary, Euroclear or
Clearstream, respectively (and, with respect to DTC, shall include Euroclear and
Clearstream).

                                       17



         "Permitted Business" means the business of acquiring, constructing,
managing, developing, improving, owning and operating Facilities, as well as any
other activities reasonably related to the foregoing activities (including
acquiring and holding reserves), including investing in Facilities.

         "Permitted Investments" means:

              (1) any Investment in the Company or in a Restricted Subsidiary
         of the Company;

              (2) any Investment in Cash Equivalents;

              (3) any Investment by the Company or any Restricted Subsidiary of
         the Company in a Person, if as a result of such Investment:

                  (a) such Person becomes a Restricted Subsidiary of the
              Company; or

                  (b) such Person is merged, consolidated or amalgamated with or
              into, or transfers or conveys substantially all of its assets to,
              or is liquidated into, the Company or a Restricted Subsidiary of
              the Company;

              (4) any Investment made as a result of the receipt of non-cash
         consideration from an Asset Sale that was made pursuant to and in
         compliance with Section 4.10 herein;

              (5) any acquisition of assets or Capital Stock solely in exchange
         for the issuance of Equity Interests (other than Disqualified Stock) of
         the Company;

              (6) any Investments received in compromise or resolution of (A)
         obligations of trade creditors or customers that were incurred in the
         ordinary course of business of the Company or any of its Restricted
         Subsidiaries, including pursuant to any plan of reorganization or
         similar arrangement upon the bankruptcy or insolvency of any trade
         creditor or customer; or (B) litigation, arbitration or other disputes
         with Persons who are not Affiliates;

              (7) Investments represented by Hedging Obligations;

              (8) loans or advances to employees made in the ordinary course of
         business consistent with past practices of the Company or such
         Restricted Subsidiary in an aggregate principal amount not to exceed
         $5.0 million at any one time outstanding;

              (9) repurchases of the Notes; and

              (10) other Investments in any Person having an aggregate Fair
         Market Value (measured on the date each such Investment was made and
         without giving effect to subsequent changes in value), when taken
         together with all other Investments made pursuant to this clause (10)
         that are at the time outstanding not to exceed $100.0 million;

         provided that Designated Assets held by the Company may not be invested
         in, leased to or otherwise transferred to any Restricted Subsidiary;
         provided, however, that the Company may transfer proven undeveloped gas
         reserves to its Restricted Subsidiaries in the ordinary course of
         business for consumption in the power generating business of such
         Restricted Subsidiaries during the 12-month period following transfer.

         "Permitted Liens" means:

                                       18



              (1) Liens on assets of the Company or any Canadian Guarantor
         securing Obligations of the Company or such Canadian Guarantor under
         one or more Credit Facilities in an aggregate amount not exceeding the
         Priority Lien Cap;

              (2) Liens held by the Collateral Trustee equally and ratably
         securing the Notes and the Term Loans to be issued on the date of this
         Indenture and all future Parity Lien Debt and other Parity Lien
         Obligations; provided that the Collateral Trustee's Liens may secure
         Parity Lien Debt incurred after the date of this Indenture or
         Obligations in respect thereof only if, on the date of the incurrence
         of such Parity Lien Debt, after giving pro forma effect to the
         incurrence thereof and the application of the proceeds therefrom, the
         Secured Leverage Ratio is not greater than 2.75:1.0;

              (3) Liens in favor of the Company;

              (4) Pledges or deposits made under workers' compensation,
         unemployment insurance laws or similar legislation, or good faith
         deposits in connection with bids, tenders, contracts (other than for
         payment of Indebtedness) or leases to which such Person is a party, and
         Liens or deposits to secure the performance of statutory obligations,
         surety or appeal bonds, performance bonds or other obligations of a
         like nature incurred in the ordinary course of business;

              (5) Liens to secure Indebtedness (including Capital Lease
         Obligations) permitted by clause (4) of the definition of Permitted
         Debt covering only the assets acquired, designed, constructed,
         installed or improved with or financed by such Indebtedness;

              (6) Liens existing on the date of this Indenture;

              (7) Liens securing Indebtedness or other obligations of a
         Restricted Subsidiary owing to the Company or a Restricted Subsidiary;

              (8) (A) Liens on assets or property of a Restricted Subsidiary
         (other than Material Designated Assets) incurred by any Restricted
         Subsidiary to secure Indebtedness of such Restricted Subsidiary
         incurred to finance the exploration, drilling, development,
         construction or purchase of or by, or repairs, improvements or
         additions to, property or assets of the Company or such Restricted
         Subsidiary, which Liens may include Liens on the Capital Stock of such
         Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a
         direct Subsidiary of the Company or (ii) owns, directly or indirectly,
         Material Designated Assets), (B) Liens (other than Liens on Material
         Designated Assets) incurred by any Restricted Subsidiary that does not
         own, directly or indirectly, at the time of original incurrence of such
         a Lien under this clause (B) any Material Designated Assets or any
         operating properties or assets, securing Indebtedness incurred to
         finance the exploration, drilling, development, construction or
         purchase of or by, or repairs, improvements or additions to, property
         or assets of any Restricted Subsidiary that does not, directly or
         indirectly, own any operating properties or assets at the time of the
         original incurrence of such Lien, which Liens contemplated by this
         clause (8) may include Liens on the Capital Stock of one or more
         Restricted Subsidiaries that (i) are not direct Subsidiaries of the
         Company and (ii) do not, directly or indirectly, own any Material
         Designated Assets or operating properties or assets at the time of
         original incurrence of such Lien; or (C) without duplication, Liens
         (other than Liens on Material Designated Assets) incurred by any
         Restricted Subsidiary (which Liens may include Liens on Capital Stock
         of such Restricted Subsidiary so long as the Capital Stock of such
         Restricted Subsidiary is not pledged as Collateral) that owns as of the
         date of this Indenture all or part of one or more of the peaking power
         plants (and no other significant unrelated assets)

                                       19



         constructed for the purpose of providing peaking capacity and energy to
         the California Department of Water Resources; provided, that the
         Indebtedness secured by any such Lien contemplated by this clause (8)
         may not be issued more than 365 days (or, in the case of clause (C)
         above, two years) after the later of the exploration, drilling,
         development, completion of construction, purchase, repair, improvement,
         addition or commencement of full commercial operation of the property
         or asset being so financed;

              (9) Liens on property or shares of Capital Stock of a Subsidiary
         at the time such Person becomes a Subsidiary; provided that any such
         Lien may not extend to any other property owned by the Company;

              (10) Liens on property at the time a Subsidiary acquires the
         property, including any acquisition by means of a merger or
         consolidation with or into the Subsidiary; provided that such Liens are
         not incurred in connection with, or in contemplation of, such merger or
         consolidation; and provided, further, that the Lien may not extend to
         any other property owned by the Company or any Restricted Subsidiary;

              (11) Liens incurred by a Person other than the Company or any
         Subsidiary on assets that are the subject of a Capitalized Lease
         Obligation to which the Company or a Subsidiary is a party; provided
         that any such Lien may not secure Indebtedness of the Company or any
         Subsidiary (except Indebtedness secured by a Lien on any property or
         assets of the Company or such Subsidiary incurred in connection with
         Indebtedness of another Person), with the amount of such obligation
         being deemed to be the lesser of the value of such property or assets
         or the amount of the obligation so secured) and may not extend to any
         other property owned by the Company or any Restricted Subsidiary;

              (12) Liens on assets of the Company Construction Finance Company,
         L.P. (and/or any other Restricted Subsidiary that subsequently owns any
         such assets) relating to the Magic Valley Generating Station;

              (13) Liens not in respect of Indebtedness arising from Uniform
         Commercial Code financing statements for informational purposes with
         respect to leases incurred in the ordinary course of business and not
         otherwise prohibited by this Indenture;

              (14) Liens not in respect of Indebtedness consisting of the
         interest of the lessor under any lease entered into in the ordinary
         course of business and not otherwise prohibited by this Indenture; and
         Liens on shares of Capital Stock of a subsidiary that does not own any
         significant assets other than a lessee's interest in a Facility or on
         the Capital Stock of a subsidiary whose only significant asset is its
         direct or indirect interest in such lessee subsidiary; provided that in
         no event shall this clause (14) allow a lien on any Capital Stock
         constituting Collateral;

              (15) Liens which constitute banker's liens, rights of set-off or
         similar rights and remedies as to deposit accounts or other funds
         maintained with any bank or other financial institution, whether
         arising by operation of law or pursuant to contract;

              (16) Liens for taxes, assessments or governmental charges or
         claims that are not yet delinquent or that are being contested in good
         faith by appropriate proceedings promptly instituted and diligently
         concluded; provided that any reserve or other appropriate provision as
         is required in conformity with GAAP has been made therefor;

                                       20



              (17) Liens imposed by law such as carriers', warehousemen's and
         mechanics' Liens, in each case, arising in the ordinary course of
         business and with respect to amounts not yet due or being contested in
         good faith by appropriate legal proceedings promptly instituted and
         diligently conducted and for which a reserve or other appropriate
         provision, if any, as shall be required in conformity with GAAP shall
         have been made; or other Liens arising out of judgments or awards
         against such Person with respect to which such Person shall then be
         diligently prosecuting appeal or other proceedings for review;

              (18) survey exceptions, easements or reservations of, or rights of
         others for, licenses, rights-of-way, sewers, electric lines, telegraph
         and telephone lines and other similar purposes, or zoning or other
         restrictions as to the use of real property or Liens incidental to the
         conduct of the business of the Company or any Restricted Subsidiary or
         to the ownership of its properties that were not incurred in connection
         with Indebtedness and that do not in the aggregate materially adversely
         affect the value of said properties or materially impair their use in
         the operation of the business of the Company or any Restricted
         Subsidiary;

              (19) Liens to secure any refinancing, refunding, extension,
         renewal or replacement (or successive refinancings, refundings,
         extensions, renewals or replacements) as a whole, or in part, of any
         Indebtedness secured by any Lien referred to in the foregoing clauses
         (6), (8), (9) and (10); provided that (A) such new Lien shall be
         limited to all or part of the same property or assets that secured the
         original Lien (plus repairs, improvements and additions to such
         property or assets and Liens on the stock or other ownership interest
         in one or more Restricted Subsidiaries beneficially owning such
         property or assets) and (B) the amount of the Indebtedness secured by
         such Lien at such time (or, if the amount that may be realized in
         respect of such Lien is limited, by contract or otherwise, such limited
         lesser amount) is not increased (other than by an amount necessary to
         pay fees and expenses, including premiums, related to the refinancing,
         refunding, extension, renewal or replacement of such Indebtedness);

              (20) Liens on assets of Restricted Subsidiaries to secure letters
         of credit issued pursuant to clause (14) of the definition of Permitted
         Debt; provided if and to the extent such letters of credit are drawn
         upon, such drawing is reimbursed no later than the tenth Business Day
         following a demand for reimbursement following payment on the letter of
         credit and Liens to secure letters of credit incurred pursuant to
         clause (15) of the definition of Permitted Debt on cash collateral
         constituting the proceeds of Priority Lien Debt;

              (21) Liens (A) on cash and short-term investments of Restricted
         Subsidiaries to secure obligations with respect to (i) contracts for
         commercial and trading activities in the ordinary course of business
         and contracts (including physical delivery, option (whether cash or
         financial), exchange, swap and futures contracts) for the purchase,
         transmission, distribution, sale, lease or hedge of any energy-related
         commodity or service or (ii) interest rate, commodity price, or
         currency rate management contracts or derivatives and (B) encumbering
         assets of a Restricted Subsidiary, other than (i) Material Designated
         Assets or (ii) accounts or receivables, which Liens arise out of
         contracts or agreements relating to the generation, distribution or
         transmission or sale of energy and/or fuel; provided that all such
         agreements or contracts are entered into in the ordinary course of
         business; and

              (22) other Liens to secure Indebtedness in an aggregate amount not
         to exceed $50.0 million at any time outstanding.

        "Permitted Prior Liens" means (a) Liens securing Priority Lien
Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses
(5), (6), (10) or (11) of the definition of "Permitted

                                       21



Liens" and (c) Liens that arise by operation of law and are not voluntarily
granted, to the extent entitled by law to priority over the security interests
created by the Security Documents.

         "Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:

              (1) the principal amount (or accreted value, if applicable) of
         such Permitted Refinancing Indebtedness does not exceed the principal
         amount (or accreted value, if applicable) of the Indebtedness extended,
         refinanced, renewed, replaced, defeased or refunded (plus all accrued
         or accumulated interest on the Indebtedness and the amount of all fees,
         costs, expenses and premiums, including swap breakage and defeasance
         costs, incurred in connection therewith);

              (2) such Permitted Refinancing Indebtedness has a final maturity
         date equal to or later than the final maturity date of, and has a
         Weighted Average Life to Maturity equal to or greater than the Weighted
         Average Life to Maturity of, the Indebtedness being extended,
         refinanced, renewed, replaced, defeased or refunded; provided that such
         Permitted Refinancing Indebtedness may have such shorter final maturity
         date and Weighted Average Life to Maturity as is equal to or greater
         than the latest maturity date of any Notes issued under this Indenture;
         and

              (3) if the Indebtedness being extended, refinanced, renewed,
         replaced, defeased or refunded is subordinated in right of payment to
         the Notes, such Permitted Refinancing Indebtedness has a final maturity
         date equal to or later than the final maturity date of, and is
         subordinated in right of payment to, the Notes on terms at least as
         favorable to the holders of Notes as those contained in the
         documentation governing the Indebtedness being extended, refinanced,
         renewed, replaced, defeased or refunded;

provided that Permitted Refinancing Indebtedness shall not include (A)
Indebtedness of the Company incurred to refinance Non-Recourse Debt of a
Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the
Company that refinances Indebtedness of the Company or (C) Indebtedness of the
Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.

         "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.

         "Pledged Power Project" means the power generation property and related
equipment at each of the following locations:

              (1) the Goldendale Energy Center in Goldendale, Washington;

              (2) the Otay Mesa Energy Center near San Diego, California;

              (3) the Metcalf Energy Center near San Jose, California;

              (4) the Santa Rosa Energy Center in Santa Rosa County, Florida;

              (5) the Washington Parish Energy Center near Bogalusa, Louisiana;

              (6) the Deer Park Energy Center in Deer Park, Texas; and

                                       22



              (7) the Augusta Energy Center in Augusta, Georgia.

         "Priority Foreclosure Event" means the failure to pay at maturity or
upon acceleration of maturity all outstanding Priority Lien Debt at any time
when no Bankruptcy Case or Insolvency Proceeding is pending.

         "Priority Lien" means a Lien granted by a Security Document to the
Collateral Trustee upon any property of the Company or any other Obligor to
secure Priority Lien Obligations not exceeding the Priority Lien Cap.

         "Priority Lien Agent" means the Credit Agreement Agent or any other
agent for holders of Priority Lien Debt.

         "Priority Lien Cap" means an amount equal to (a) the Indebtedness
outstanding under the Credit Agreement or any other Credit Facility in an
aggregate principal amount not exceeding the greater of (1) $500.0 million, less
the amount of any Net Proceeds of a Sale of Designated Assets applied to repay
Priority Lien Debt and/or cash collateralize letters of credit that constitute
Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of
such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for
the then most recent four-quarter period for which financial information is
available, plus (b) any interest (including any interest accruing at the then
applicable rate provided in any applicable Priority Lien Document after the
maturity of the loans and reimbursement obligations therein and interest
accruing at the then applicable rate provided in any applicable Priority Lien
Document after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the Company,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), penalties, premiums, fees, costs, expenses or other
Obligations in respect of such Indebtedness. For purposes of this definition of
Priority Lien Cap, all letters of credit shall be valued at face amount, whether
or not drawn, and all letters of credit denominated in a currency other than
U.S. dollars shall be valued at all times at the Equivalent Amount (as defined
in the Credit Agreement) thereof on the date of issue thereof.

         "Priority Lien Debt" means Indebtedness under (a) the Credit Agreement
or (b) any other Credit Facility that is secured by a Priority Lien that was
permitted to be incurred under clause (1) of the definition of "Permitted Liens"
but only if on or before the day on which such Indebtedness under a Credit
Facility described in clause (b) above is incurred by the Company such
Indebtedness is designated by the Company, in an officers' certificate delivered
to each Parity Debt Representative and the Collateral Trustee on or before such
date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt
Documents and the Collateral Trust Agreement.

         "Priority Lien Documents" means the Credit Agreement or any other
Credit Facility pursuant to which any Priority Lien Debt is incurred and all
other agreements governing, securing or relating to any Priority Lien
Obligations.

         "Priority Lien Obligations" means the Priority Lien Debt and all other
Obligations in respect of Priority Lien Debt.

         "Private Placement Legend" means the legend set forth in Section
2.06(e)(1) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.

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

                                       23



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

         "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

         "Regulation S" means Regulation S promulgated under the Securities Act.

         "Regulation S Global Note" means a Global Note bearing the Private
Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.

         "Required Parity Debtholders" means, at any time in respect of any
action or matter, holders of a majority in aggregate outstanding principal
amount of all Parity Lien Debt then outstanding, voting together as a single
class. For this purpose, Parity Lien Debt registered in the name of, or
beneficially owned by, the Company or any Affiliate of the Company shall be
deemed not to be outstanding.

         "Required Priority Debtholders" means, at any time in respect of any
action or matter, (1) holders of the outstanding principal amount of, or
commitments with respect to, the applicable Priority Lien Debt then outstanding
required pursuant to the terms of the applicable Credit Facility, voting as a
single class, to approve such action or matter or (2) the Priority Lien Agent
acting upon the authorization or consent of the holders referred to in the
immediately preceding clause (1). For this purpose, Priority Lien Debt
registered in the name of, or beneficially owned by, the Company or any
Affiliate of the Company shall be deemed not to be outstanding.

         "Responsible Officer," means, with respect to the Collateral Trustee,
any officer within the corporate trust department of the Collateral Trustee
including any vice president, assistant vice president, assistant treasurer,
trust officer or any other officer of the Collateral Trustee who customarily
performs functions similar to those performed by the Persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred because of such Person's knowledge of and familiarity with the
particular subject and who shall have direct responsibility for the
administration of the Collateral Trust Agreement.

         "Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.

         "Restricted Global Note" means a Global Note bearing the Private
Placement Legend.

         "Restricted Investment" means an Investment other than a Permitted
Investment.

         "Restricted Period" means the 40-day distribution compliance period as
defined in Regulation S.903(B)(3)

         "Restricted Subsidiary" means any Subsidiary of the Company that is not
an Unrestricted Subsidiary.

         "Rule 144" means Rule 144 promulgated under the Securities Act.

         "Rule 144A" means Rule 144A promulgated under the Securities Act.

         "Rule 903" means Rule 903 promulgated under the Securities Act.

         "Rule 904" means Rule 904 promulgated the Securities Act.

                                       24



          "S&P" means Standard & Poor's Ratings Group (or, if such entity ceases
to rate the Notes for reasons outside of the control of the Company, the
equivalent investment grade credit rating from any other "nationally recognized
statistical rating organization" (or successor concept) within the meaning of
Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision)
selected by the Company as a replacement agency).

         "Sale of Designated Assets" means any Asset Sale involving a sale or
other disposition of Designated Assets.

         "SEC" means the Securities and Exchange Commission.

         "Secured Debt" means Parity Lien Debt and Priority Lien Debt.

         "Secured Debt Documents" means the Parity Lien Debt Documents and the
Priority Lien Documents.

         "Secured Debt Representative" means each Parity Debt Representative and
the Priority Lien Agent.

         "Secured Leverage Ratio" means, on any date, the ratio of:

              (1) the aggregate principal amount of Secured Debt outstanding on
         such date (and, for this purpose, letters of credit shall be deemed to
         have a principal amount equal to the maximum potential liability of the
         Company thereunder) to

              (2) the aggregate amount of the Company's Consolidated Cash Flow
         for the most recent four-quarter period for which financial information
         is available.

         In addition, for purposes of calculating the Secured Leverage Ratio:

              (1) acquisitions that have been made by the specified Person or
         any of its Restricted Subsidiaries, including through mergers or
         consolidations or acquisitions of assets, or any Person or any of its
         Restricted Subsidiaries acquired by merger, consolidation or the
         acquisition of all or substantially all of its assets by the specified
         Person or any of its Restricted Subsidiaries, and including any related
         financing transactions and including increases in ownership of
         Restricted Subsidiaries, during the four-quarter reference period or
         subsequent to such reference period and on or prior to the date on
         which the event for which the calculation of the Secured Leverage Ratio
         is made (the "Leverage Calculation Date") shall be given pro forma
         effect in accordance with Regulation S-X under the Securities Act) as
         if they had occurred on the first day of the four-quarter reference
         period;

              (2) the Consolidated Cash Flow attributable to discontinued
         operations, as determined in accordance with GAAP, and operations or
         businesses (and ownership interests therein) disposed of prior to the
         Leverage Calculation Date, shall be excluded;

              (3) any Person that is a Restricted Subsidiary on the Leverage
         Calculation Date shall be deemed to have been a Restricted Subsidiary
         at all times during such four-quarter period;

              (5) any Person that is not a Restricted Subsidiary on the Leverage
         Calculation Date shall be deemed not to have been a Restricted
         Subsidiary at any time during such four-quarter period; and

                                       25



              (6) if any Indebtedness bears a floating rate of interest, the
         interest expense on such Indebtedness shall be calculated as if the
         rate in effect on the Leverage Calculation Date had been the applicable
         rate for the entire period (taking into account any Hedging Obligation
         applicable to such Indebtedness if such Hedging Obligation has a
         remaining term as at the Calculation Date in excess of 12 months).

         "Secured Obligations" means the Parity Lien Obligations and the
Priority Lien Obligations.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Security Documents" means the Collateral Trust Agreement and one or
more security agreements, pledge agreements, collateral assignments, mortgages,
collateral agency agreements, deeds of trust or other grants or transfers for
security executed and delivered by the Company or any other Obligor creating (or
purporting to create) a Lien upon Collateral in favor of the Collateral Trustee,
in each case, as amended, modified, renewed, restated or replaced, in whole or
in part, from time to time, in accordance with its terms.

         "Series of Parity Lien Debt" means, severally, each series of the
Notes, the 2010 Notes, the 2013 Notes, the Term Loans and each other issue or
series of Parity Lien Debt for which a single transfer register is maintained.

         "Series of Secured Debt" means, severally, each series of the Notes,
the 2010 Notes, the 2013 Notes, the Term Loans, each other issue or series of
Parity Lien Debt for which a single transfer register is maintained and each
issue or series of Priority Lien Debt for which a single register is maintained.

         "Sharing Confirmation" means, as to any Series of Parity Lien Debt, the
written agreement of the holders of such Series of Parity Lien Debt, as set
forth in the indenture or agreement governing such Series of Parity Lien Debt,
for the enforceable benefit of all holders of each other existing and future
Series of Parity Lien Debt and each existing and future Parity Debt
Representative, that all Parity Lien Obligations shall be and are secured
equally and ratably by all Liens at any time granted by the Company or any other
Obligor to secure any Obligations in respect of such Series of Parity Lien Debt,
whether or not upon property otherwise constituting Collateral, that all such
Liens shall be enforceable by the Collateral Trustee for the benefit of all
holders of Parity Lien Obligations equally and ratably, and that the holders of
Obligations in respect of such Series of Parity Lien Debt are bound by the
provisions in the Collateral Trust Agreement relating to the order of
application of proceeds from enforcement of the Collateral Trustee's Liens upon
the Collateral, and consent to and direct the Collateral Trustee to perform its
obligations under the Collateral Trust Agreement.

         "Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

         "Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness as of the date of this Indenture, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.

         "Subsidiary" means, as applied to any Person, any corporation, limited
or general partnership, trust, association or other business entity of which an
aggregate of at least 50% of the outstanding Voting

                                       26



Shares, or an equivalent controlling interest therein, of such Person is, at the
time, directly or indirectly, owned by such Person and/or one or more
Subsidiaries of such Person.

         "Term Loan Administrative Agent" means Goldman Sachs Credit Partners
L.P., as administrative agent under the Term Loan Agreement, together with its
successors in such capacity.

         "Term Loan Agreement" means that certain Term Loan Agreement dated the
date of this Indenture between the Company and the Term Loan Administrative
Agent, relating to $750.0 million in aggregate principal amount of Term Loans,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as amended, modified, increased,
renewed, restated or replaced, in whole or in part, from time to time.

         "Term Loan Documents" means the Term Loan Agreement, each Sharing
Confirmation and the Security Documents.

         "Term Loan Obligations" means the Term Loans (including additional Term
Loans) and all other Obligations under the Term Loan Agreement and the Security
Documents.

         "Term Loans" means the principal of and interest and premium (if any)
on Indebtedness of the Company incurred under the Term Loan Agreement.

         "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 of this Indenture.

          "Trustee" means the party named as such in the preamble to this
Indenture until a successor replaces it in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.

         "2010 Notes" means the $1.15 billion in aggregate principal amount of
the Company's 8 1/2% notes due 2010.

         "2013 Notes" means the $900.0 million in aggregate principal amount of
the Company's 8 3/4% notes due 2013.

         "Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary (and any
subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed
after the date of this Indenture, but only to the extent that such Subsidiary:

              (1) has no Indebtedness other than Indebtedness that is
         non-recourse to the Company and its Restricted Subsidiaries;

              (2) is not party to any agreement, contract, arrangement or
         understanding with the Company or any Restricted Subsidiary of the
         Company unless the terms of any such agreement, contract, arrangement
         or understanding are no less favorable to the Company or such
         Restricted Subsidiary than those that might be obtained at the time
         from Persons who are not Affiliates of the Company;

              (3) is a Person with respect to which neither the Company nor any
         of its Restricted Subsidiaries has any direct or indirect obligation
         (a) to subscribe for additional Equity Interests or

                                       27



         (b) to maintain or preserve such Person's financial condition or to
         cause such Person to achieve any specified levels of operating results;
         and

              (4) has not guaranteed or otherwise directly or indirectly
         provided credit support for any Indebtedness of the Company or any of
         its Restricted Subsidiaries;

provided, however, that a corporation with no significant assets created for the
sole purpose of serving as a co-obligor to facilitate a financing by a
partnership of a limited liability company may be designated as an Unrestricted
Subsidiary.

         Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by Section 4.07 herein, regarding
Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to
meet the preceding requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under Section 4.09 herein, the
Company shall be in default of such Section 4.09. The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under Section 4.09 herein,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.

         "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the
Securities Act.

         "Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

         "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years or portion thereof obtained by
dividing:

              (1) the sum of the products obtained by multiplying (a) the amount
         of each then remaining installment, sinking fund, serial maturity or
         other required payments of principal, including payment at final
         maturity, in respect of the Indebtedness, by (b) the number of years
         (calculated to the nearest one-twelfth) that shall elapse between such
         date and the making of such payment; by

              (2) the then outstanding principal amount of such Indebtedness.

         "Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.

                                       28



Section 1.02      Other Definitions.




                                                                                        Defined in
Term                                                                                      Section
- ----                                                                                      -------
                                                                                     
"Affiliate Transaction".............................................................       4.11
"Asset Sale Offer"..................................................................       3.09
"Authentication Order"..............................................................       2.02
"Change of Control Offer"...........................................................       4.15
"Change of Control Payment".........................................................       4.15
"Change of Control Payment Date"....................................................       4.15
"Covenant Defeasance"...............................................................       8.03
"DTC"...............................................................................       2.03
"Event of Default"..................................................................       6.01
"Excess Proceeds"...................................................................       4.10
"incur".............................................................................       4.09
"Legal Defeasance"..................................................................       8.02
"Offer Amount"......................................................................       3.09
"Offer Period"......................................................................       3.09
"Paying Agent"......................................................................       2.03
"Permitted Debt"....................................................................       4.09
"Purchase Date".....................................................................       3.09
"Registrar".........................................................................       2.03
"Restricted Payments"...............................................................       4.07


Section 1.03      Incorporation by Reference of Trust Indenture Act.

         Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.

         The following TIA terms used in this Indenture have the following
meanings:

         "indenture securities" means the Notes;

         "indenture security holder" means a Holder of a Note;

         "indenture to be qualified" means this Indenture;

         "indenture trustee" or "institutional trustee" means the Trustee; and

         "obligor" on the Notes and the Guarantees means the Company and the
Guarantors, respectively, and any successor obligor upon the Notes and the
Guarantees, respectively.

         All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.

Section 1.04      Rules of Construction.

         Unless the context otherwise requires:

                  (1)      a term has the meaning assigned to it;

                  (2)      an accounting term not otherwise defined has the
         meaning assigned to it in accordance with GAAP;

                                       29



                  (3)      "or" is not exclusive;

                  (4)      words in the singular include the plural, and in the
         plural include the singular;

                  (5)      "shall" shall be interpreted to express a command;

                  (6)      provisions apply to successive events and
                           transactions; and

                  (7)      references to sections of or rules under the
         Securities Act shall be deemed to include substitute, replacement of
         successor sections or rules adopted by the SEC from time to time.

                                       30



                                   ARTICLE 2.
                                   THE NOTES

Section 2.01      Form and Dating.

         (a)      General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.

         The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.

         (b)      Global Notes. Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Note Legend thereon and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Notes issued in definitive form shall be substantially
in the form of Exhibit A attached hereto (but without the Global Note Legend
thereon and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it represents
the aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.

         (c)      Euroclear and Clearstream Procedures Applicable. The
provisions of the "Operating Procedures of the Euroclear System" and "Terms and
Conditions Governing Use of Euroclear" and the "General Terms and Conditions of
Clearstream Banking" and "Customer Handbook" of Clearstream shall be applicable
to transfers of beneficial interests in the Global Notes that are held by
Participants through Euroclear or Clearsteam.

Section 2.02      Execution and Authentication.

         One Officer must sign the Notes for the Company by manual or facsimile
signature.

         If the Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.

         A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.

         The Trustee will, upon receipt of a written order of the Company signed
by one Officer (an "Authentication Order"), authenticate (i) Initial Notes in an
aggregate principal amount up to $1.15 billion on the date of this Indenture and
(ii) Additional Notes from time to time as permitted under this Indenture.

                                       31



         The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.

Section 2.03      Registrar and Paying Agent.

         The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.

         The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.

         The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.

Section 2.04      Paying Agent to Hold Money in Trust.

         The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Notes, and shall notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Notes.

Section 2.05      Holder Lists.

         The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA Section 312(a).

Section 2.06      Transfer and Exchange.

         (a)      Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the

                                       32



Depositary or to another nominee of the Depositary, or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. All Global Notes shall be exchanged by the Company for Definitive
Notes if:

                  (1)      the Company delivers to the Trustee notice from the
         Depositary that it is unwilling or unable to continue to act as
         Depositary or that it is no longer a clearing agency registered under
         the Exchange Act and, in either case, a successor Depositary is not
         appointed by the Company within 120 days after the date of such notice
         from the Depositary; or

                  (2)      the Company in its sole discretion determines that
         the Global Notes (in whole but not in part) should be exchanged for
         Definitive Notes and delivers a written notice to such effect to the
         Trustee.

         Upon the occurrence of either of the preceding events in (1) or (2)
above, Definitive Notes shall be issued in such names as the Depositary shall
instruct the Trustee. Global Notes also may be exchanged or replaced, in whole
or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof,
shall be authenticated by the Trustee pursuant to an Authentication Order and
delivered in the form of, and shall be, a Global Note. A Global Note may not be
exchanged for another Note other than as provided in this Section 2.06(a),
however, beneficial interests in a Global Note may be transferred and exchanged
as provided in Section 2.06(b), (c) or (f) hereof.

         (b)      Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (1) or (2) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:

                  (1)      Transfer of Beneficial Interests in the Same Global
         Note. Beneficial interests in any Restricted Global Note may be
         transferred to Persons who take delivery thereof in the form of a
         beneficial interest in the same Restricted Global Note in accordance
         with the transfer restrictions set forth in the Private Placement
         Legend; provided, however, that prior to the expiration of the
         Restricted Period, transfers of beneficial interests in the Regulation
         S Global Note may not be made to a U.S. Person or for the account or
         benefit of a U.S. Person (other than an Initial Purchaser). No written
         orders or instructions shall be required to be delivered to the
         Registrar to effect the transfers described in this Section 2.06(b)(1).

                  (2)      All Other Transfers and Exchanges of Beneficial
         Interests in Global Notes. In connection with all transfers and
         exchanges of beneficial interests that are not subject to Section
         2.06(b)(1) above, the transferor of such beneficial interest must
         deliver to the Registrar both:

                           (A)      a written order from a Participant or an
                  Indirect Participant given to the Depositary in accordance
                  with the Applicable Procedures directing the Depositary to
                  credit or cause to be credited a beneficial interest in
                  another Global Note in an amount equal to the beneficial
                  interest to be transferred or exchanged; and

                           (B)      instructions given in accordance with the
                  Applicable Procedures containing information regarding the
                  Participant account to be credited with such increase.

                                       33



                  (3)      Transfer of Beneficial Interests to Another
         Restricted Global Note. A beneficial interest in any Restricted Global
         Note may be transferred to a Person who takes delivery thereof in the
         form of a beneficial interest in another Restricted Global Note if the
         transfer complies with the requirements of Section 2.06(b)(2) above and
         the Registrar receives the following:

                           (A)      if the transferee shall take delivery in the
                  form of a beneficial interest in the 144A Global Note, then
                  the transferor must deliver a certificate in the form of
                  Exhibit B hereto, including the certifications in item (1)
                  thereof;

                           (B)      if the transferee shall take delivery in the
                  form of a beneficial interest in the Regulation S Global Note,
                  then the transferor must deliver a certificate in the form of
                  Exhibit B hereto, including the certifications in item (2)
                  thereof; and

                           (C)      if the transferee shall take delivery in the
                  form of a beneficial interest in the IAI Global Note, then the
                  transferor must deliver a certificate in the form of Exhibit B
                  hereto, including the certifications, certificates and Opinion
                  of Counsel required by item (3)(d) thereof, if applicable.

                  (4)      Transfer and Exchange of Beneficial Interests in
         Restricted Global Notes to Restricted Definitive Notes. If any holder
         of a beneficial interest in a Restricted Global Note proposes to
         exchange such beneficial interest for a Restricted Definitive Note or
         to transfer such beneficial interest to a Person who takes delivery
         thereof in the form of a Restricted Definitive Note, then, upon receipt
         by the Registrar of the following documentation:

                           (A)      if the holder of such beneficial interest in
                  a Restricted Global Note proposes to exchange such beneficial
                  interest for a Restricted Definitive Note, a certificate from
                  such holder in the form of Exhibit C hereto, including the
                  certifications in item (a) thereof;

                           (B)      if such beneficial interest is being
                  transferred to a QIB in accordance with Rule 144A, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (C)      if such beneficial interest is being
                  transferred to a Non-U.S. Person in an offshore transaction in
                  accordance with Rule 903 or Rule 904, a certificate to the
                  effect set forth in Exhibit B hereto, including the
                  certifications in item (2) thereof;

                           (D)      if such beneficial interest is being
                  transferred pursuant to an exemption from the registration
                  requirements of the Securities Act in accordance with Rule
                  144, a certificate to the effect set forth in Exhibit B
                  hereto, including the certifications in item (a) thereof;

                           (E)      if such beneficial interest is being
                  transferred to an Institutional Accredited Investor in
                  reliance on an exemption from the registration requirements of
                  the Securities Act other than those listed in subparagraphs
                  (B) through (D) above, a certificate to the effect set forth
                  in Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)
                  thereof, if applicable;

                           (F)      if such beneficial interest is being
                  transferred to the Company or any of its Subsidiaries, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (3)(b) thereof; or

                                       34



                           (G)      if such beneficial interest is being
                  transferred pursuant to an effective registration statement
                  under the Securities Act, a certificate to the effect set
                  forth in Exhibit B hereto, including the certifications in
                  item (3)(c) thereof,

the Trustee shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the
Company shall execute and the Trustee shall authenticate, upon receipt of an
Authentication Order, and deliver to the Person designated in such
Authentication Order a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(b) shall be registered in such name or
names and in such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial interest in
a Restricted Global Note pursuant to this Section 2.06(b) shall bear the Private
Placement Legend and shall be subject to all restrictions on transfer contained
therein.

         (c)      Transfer and Exchange of Definitive Notes for Beneficial
Interests.

                  (1)      Restricted Definitive Notes to Beneficial Interests
         in Restricted Global Notes. If any Holder of a Restricted Definitive
         Note proposes to exchange such Note for a beneficial interest in a
         Restricted Global Note or to transfer such Restricted Definitive Notes
         to a Person who takes delivery thereof in the form of a beneficial
         interest in a Restricted Global Note, then, upon receipt by the
         Registrar of the following documentation:

                           (A)      if the Holder of such Restricted Definitive
                  Note proposes to exchange such Note for a beneficial interest
                  in a Restricted Global Note, a certificate from such Holder in
                  the form of Exhibit C hereto, including the certifications in
                  item (b) thereof;

                           (B)      if such Restricted Definitive Note is being
                  transferred to a QIB in accordance with Rule 144A, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (C)      if such Restricted Definitive Note is being
                  transferred to a Non-U.S. Person in an offshore transaction in
                  accordance with Rule 903 or Rule 904, a certificate to the
                  effect set forth in Exhibit B hereto, including the
                  certifications in item (2) thereof;

                           (D)      if such Restricted Definitive Note is being
                  transferred pursuant to an exemption from the registration
                  requirements of the Securities Act in accordance with Rule
                  144, a certificate to the effect set forth in Exhibit B
                  hereto, including the certifications in item (3)(a) thereof;

                           (E)      if such Restricted Definitive Note is being
                  transferred to an Institutional Accredited Investor in
                  reliance on an exemption from the registration requirements of
                  the Securities Act other than those listed in subparagraphs
                  (B) through (D) above, a certificate to the effect set forth
                  in Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)(d)
                  thereof, if applicable;

                           (F)      if such Restricted Definitive Note is being
                  transferred to the Company or any of its Subsidiaries, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (3)(b) thereof; or

                                       35



                           (G)      if such Restricted Definitive Note is being
                  transferred pursuant to an effective registration statement
                  under the Securities Act, a certificate to the effect set
                  forth in Exhibit B hereto, including the certifications in
                  item (3)(c) thereof,

                  the Trustee shall cancel the Restricted Definitive Note,
                  increase or cause to be increased the aggregate principal
                  amount of, in the case of clause (A) above, the appropriate
                  Restricted Global Note, in the case of clause (B) above, the
                  144A Global Note, in the case of clause (C) above, the
                  Regulation S Global Note, and in all other cases, the IAI
                  Global Note.

         (d)      Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(d), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder must present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
must provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(d).

                  (1)      Restricted Definitive Notes to Restricted Definitive
         Notes. Any Restricted Definitive Note may be transferred to and
         registered in the name of Persons who take delivery thereof in the form
         of a Restricted Definitive Note if the Registrar receives the
         following:

                           (A)      if the transfer shall be made pursuant to
                  Rule 144A under the Securities Act, then the transferor must
                  deliver a certificate in the form of Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (B)      if the transfer shall be made pursuant to
                  Rule 903 or Rule 904, then the transferor must deliver a
                  certificate in the form of Exhibit B hereto, including the
                  certifications in item (2) thereof; and

                           (C)      if the transfer shall be made pursuant to
                  any other exemption from the registration requirements of the
                  Securities Act, then the transferor must deliver a certificate
                  in the form of Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)
                  thereof, if applicable.

         (e)      Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.

                  (1)      Private Placement Legend.

                           (A)      Each Global Note and each Definitive Note
                  (and all Notes issued in exchange therefor or substitution
                  thereof) shall bear the legend in substantially the following
                  form:

    "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER
    THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
    AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1)
    TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
    BUYER WITHIN THE MEANING OF RULE

                                       36



    144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
    ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
    REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH
    RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT
    TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
    144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR
    IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
    ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
    SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
    THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS."

                  (2)      Global Note Legend. Each Global Note shall bear a
         legend in substantially the following form:

"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."

         (f)      Cancellation and/or Adjustment of Global Notes. At such time
as all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who shall take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to

                                       37



a Person who shall take delivery thereof in the form of a beneficial interest in
another Global Note, such other Global Note shall be increased accordingly and
an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.

         (g)      General Provisions Relating to Transfers and Exchanges.

                  (1)      To permit registrations of transfers and exchanges,
         the Company shall execute and the Trustee shall authenticate Global
         Notes and Definitive Notes upon receipt of an Authentication Order in
         accordance with Section 2.02 or at the Registrar's request.

                  (2)      No service charge shall be made to a Holder of a
         Global Note or to a Holder of a Definitive Note for any registration of
         transfer or exchange, but the Company may require payment of a sum
         sufficient to cover any transfer tax or similar governmental charge
         payable in connection therewith (other than any such transfer taxes or
         similar governmental charge payable upon exchange or transfer pursuant
         to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

                  (3)      The Registrar shall not be required to register the
         transfer of or exchange any Note selected for redemption in whole or in
         part, except the unredeemed portion of any Note being redeemed in part.

                  (4)      All Global Notes and Definitive Notes issued upon any
         registration of transfer or exchange of Global Notes or Definitive
         Notes shall be the valid obligations of the Company, evidencing the
         same debt, and entitled to the same benefits under this Indenture, as
         the Global Notes or Definitive Notes surrendered upon such registration
         of transfer or exchange.

                  (5)      The Company shall not be required:

                           (A)      to issue, to register the transfer of or to
                  exchange any Notes during a period beginning at the opening of
                  business 15 days before the day of any selection of Notes for
                  redemption under Section 3.02 hereof and ending at the close
                  of business on the day of selection;

                           (B)      to register the transfer of or to exchange
                  any Note selected for redemption in whole or in part, except
                  the unredeemed portion of any Note being redeemed in part; or

                           (C)      to register the transfer of or to exchange a
                  Note between a record date and the next succeeding interest
                  payment date.

                  (6)      Prior to due presentment for the registration of a
         transfer of any Note, the Trustee, any Agent and the Company may deem
         and treat the Person in whose name any Note is registered as the
         absolute owner of such Note for the purpose of receiving payment of
         principal of and interest on such Notes and for all other purposes, and
         none of the Trustee, any Agent or the Company shall be affected by
         notice to the contrary.

                  (7)      The Trustee shall authenticate Global Notes and
         Definitive Notes in accordance with the provisions of Section 2.02
         hereof.

                  (8)      All certifications, certificates and Opinions of
         Counsel required to be submitted to the Registrar pursuant to this
         Section 2.06 to effect a registration of transfer or exchange may be
         submitted by facsimile.

                                       38



Section 2.07      Replacement Notes.

         If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements hereunder are met. If required by the Trustee or the Company, an
indemnity bond must be supplied by the Holder that is sufficient in the judgment
of the Trustee and the Company to protect the Company, the Trustee, any Agent
and any authenticating agent from any loss that any of them may suffer if a Note
is replaced. The Company may charge the applicable Holder for its expenses in
replacing a Note.

         Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.

Section 2.08      Outstanding Notes.

         The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.

         If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a protected purchaser.

         If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.

         If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.

Section 2.09      Treasury Notes.

         In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.

Section 2.10      Temporary Notes.

         Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as may be reasonably acceptable to
the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall, upon receipt of an Authentication Order, authenticate definitive
Notes in exchange for temporary Notes.

         Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.

                                       39



Section 2.11      Cancellation.

         The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes in accordance with its customary practices (subject to the record
retention requirement of the Exchange Act). Certification of the destruction of
all canceled Notes shall be delivered to the Company. The Company may not issue
new Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.

Section 2.12      Defaulted Interest.

         If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
may be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.

                                   ARTICLE 3.
                            REDEMPTION AND PREPAYMENT

Section 3.01      Notices to Trustee.

         If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth:

                  (1)      the clause of this Indenture pursuant to which the
         redemption shall occur;

                  (2)      the redemption date;

                  (3)      the principal amount of Notes to be redeemed; and

                  (4)      the redemption price.

Section 3.02      Selection of Notes to Be Redeemed or Purchased.

         If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select Notes for redemption or
purchase as follows:

                  (1)      if the Notes are listed on any national securities
         exchange, in compliance with the requirements of the principal national
         securities exchange on which the Notes are listed; or

                  (2)      if the Notes are not listed on any national
         securities exchange, on a pro rata basis, by lot or by such method as
         the Trustee shall deem fair and appropriate.

                                       40



         In the event of partial redemption or purchase by lot, the particular
Notes to be redeemed or purchased shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption or
purchase date by the Trustee from the outstanding Notes not previously called
for redemption or purchase.

         The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption or purchase and, in the case of any Note selected for
partial redemption or purchase, the principal amount thereof to be redeemed or
purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or
whole multiples of $1,000; except that if all of the Notes of a Holder are to be
redeemed or purchased, the entire outstanding amount of Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except
as provided in the preceding sentence, provisions of this Indenture that apply
to Notes called for redemption or purchase also apply to portions of Notes
called for redemption or purchase.

Section 3.03      Notice of Redemption.

         Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address, except that redemption
notices may be mailed more than 60 days prior to a redemption date if the notice
is issued in connection with a defeasance of the Notes or a satisfaction and
discharge of this Indenture pursuant to Articles 8 or 11, respectively, of this
Indenture.

         The notice shall identify the Notes to be redeemed and shall state:

                  (1)      the redemption date;

                  (2)      the redemption price;

                  (3)      if any Note is being redeemed in part, the portion of
         the principal amount of such Note to be redeemed and that, after the
         redemption date upon surrender of such Note, a new Note or Notes in
         principal amount equal to the unredeemed portion shall be issued upon
         cancellation of the original Note;

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

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

                  (6)      that, unless the Company defaults in making such
         redemption payment, interest on Notes called for redemption ceases to
         accrue on and after the redemption date;

                  (7)      the paragraph of the Notes and/or Section of this
         Indenture pursuant to which the Notes called for redemption are being
         redeemed; and

                  (8)      that no representation is made as to the correctness
         or accuracy of the CUSIP number, if any, listed in such notice or
         printed on the Notes.

         At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company has delivered to the Trustee, at least 45

                                       41



days prior to the redemption date, an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.

Section 3.04      Effect of Notice of Redemption.

         Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.

Section 3.05      Deposit of Redemption or Purchase Price.

         Not less than one Business Day prior to the redemption or purchase
price date, the Company shall deposit with the Trustee or with the Paying Agent
money sufficient to pay the redemption or purchase price of and accrued interest
on all Notes to be redeemed or purchased on that date. The Trustee or the Paying
Agent shall promptly return to the Company any money deposited with the Trustee
or the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption or purchase price of, and accrued interest on, all Notes to be
redeemed or purchased.

         If the Company complies with the provisions of the preceding paragraph,
on and after the redemption or purchase date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption or purchase. If a Note
is redeemed or purchased on or after an interest record date but on or prior to
the related interest payment date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Note was registered at the close of
business on such record date. If any Note called for redemption or purchase is
not so paid upon surrender for redemption or purchase because of the failure of
the Company to comply with the preceding paragraph, interest shall be paid on
the unpaid principal, from the redemption or purchase date until such principal
is paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.01
hereof.

Section 3.06      Notes Redeemed or Purchased in Part.

         Upon surrender of a Note that is redeemed or purchased in part, the
Company shall issue and, upon receipt of an Authentication Order, the Trustee
shall authenticate for the Holder at the expense of the Company a new Note equal
in principal amount to the unredeemed or unpurchased portion of the Note
surrendered.

Section 3.07      Optional Redemption.

         (a)      At any time prior to July 15, 2005, the Company may on one or
more occasions upon not less than 30 nor more than 60 days prior notice mailed
by first-class mail to each holder's registered address, redeem up to 35% of the
aggregate principal amount of Notes issued under this Indenture (without regard
to the reduction of the aggregate principal amount of the Notes outstanding due
to any scheduled principal payments) at a redemption price equal to par plus the
applicable Eurodollar Rate then in effect, plus accrued and unpaid interest, if
any, to the redemption date, with the net cash proceeds of one or more Public
Equity Offerings; provided that:

                  (1)      at least 65% of the aggregate principal amount of
         Notes originally issued under this Indenture (without regard to the
         reduction of the aggregate principal amount of the Notes then
         outstanding due to any scheduled principal payments) remains
         outstanding immediately after the occurrence of such redemption
         (excluding Notes held by the Company and its Subsidiaries); and

                                       42



                  (2)      the redemption must occur within 45 days of the date
         of the closing of such Public Equity Offering.

         (b)      After July 15, 2005 the Company may redeem all or a part of
the Notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest, if any, on the notes redeemed, to the applicable
redemption date, if redeemed during the twelve-month period beginning on July 15
of the years indicated below, subject to the rights of noteholders on the
relevant record date to receive interest on the relevant interest payment date:



Year                                                                                  Percentage
- ----                                                                                  ----------
                                                                                   
2005.............................................................................      103.000%
2006 and thereafter..............................................................      100.000%


         (c)      Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.

Section 3.08      Mandatory Redemption.

         The Company shall not be required to make mandatory redemption or
sinking fund payments with respect to the Notes.

Section 3.09      Offer to Purchase by Application of Excess Proceeds.

         In the event that, pursuant to Section 4.10 hereof, the Company is
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below.

         The Asset Sale Offer shall be made to all Holders and all holders of
other Indebtedness that is pari passu with the Notes containing provisions
similar to those set forth in this Indenture with respect to offers to purchase
or redeem with the proceeds of sales and assets. The Asset Sale Offer shall
remain open for a period of at least 20 Business Days following its commencement
and not more than 30 Business Days, except to the extent that a longer period is
required by applicable law (the "Offer Period"). No later than three Business
Days after the termination of the Offer Period (the "Purchase Date"), the
Company shall apply all Excess Proceeds (the "Offer Amount") to the purchase of
Notes and such other pari passu Indebtedness (on a pro rata basis, if
applicable) or, if less than the Offer Amount has been tendered, all Notes and
other Indebtedness tendered in response to the Asset Sale Offer. Payment for any
Notes so purchased shall be made in the same manner as interest payments are
made.

         If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.

         Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The written notice shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the Asset
Sale Offer. The written notice, which shall govern the terms of the Asset Sale
Offer, shall state:

                  (1)      that the Asset Sale Offer is being made pursuant to
         this Section 3.09 and Section 4.10 hereof and the length of time the
         Asset Sale Offer shall remain open;

                                       43



                  (2)      the Offer Amount, the purchase price and the Purchase
         Date;

                  (3)      that any Note not tendered or accepted for payment
         shall continue to accrue interest;

                  (4)      that, unless the Company defaults in making such
         payment, any Note accepted for payment pursuant to the Asset Sale Offer
         shall cease to accrue interest after the Purchase Date;

                  (5)      that Holders electing to have a Note purchased
         pursuant to an Asset Sale Offer may elect to have Notes purchased in
         integral multiples of $1,000 only;

                  (6)      that Holders electing to have a Note purchased
         pursuant to any Asset Sale Offer shall be required to surrender the
         Note, with the form entitled "Option of Holder to Elect Purchase" on
         the reverse of the Note completed, or transfer by book-entry transfer,
         to the Company, a Depositary, if appointed by the Company, or a Paying
         Agent at the address specified in the notice at least three days before
         the Purchase Date;

                  (7)      that Holders shall be entitled to withdraw their
         election if the Company, the Depositary or the Paying Agent, as the
         case may be, receives, not later than the expiration of the Offer
         Period, a telegram, telex, facsimile transmission or letter setting
         forth the name of the Holder, the principal amount of the Note the
         Holder delivered for purchase and a statement that such Holder is
         withdrawing his election to have such Note purchased;

                  (8)      that, if the aggregate principal amount of Notes and
         other pari passu Indebtedness surrendered by Holders exceeds the Offer
         Amount, the Company shall select the Notes and other pari passu
         Indebtedness to be purchased on a pro rata basis based on the principal
         amount of Notes and such other pari passu Indebtedness surrendered
         (with such adjustments as may be deemed appropriate by the Company so
         that only Notes in denominations of $1,000, or integral multiples
         thereof, shall be purchased); and

                  (9)      that Holders whose Notes were purchased only in part
         shall be issued new Notes equal in principal amount to the unpurchased
         portion of the Notes surrendered (or transferred by book-entry
         transfer).

         On or before the Purchase Date, the Company will, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, either directly or through the
Depositary or the Paying Agent, as the case may be, shall promptly (but in any
case not later than five days after the Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Notes tendered by
such Holder and accepted by the Company for purchase, and the Company shall
promptly issue a new Note, and the Trustee, upon written request from the
Company and receipt of an Authentication Order shall authenticate and mail or
deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.

         Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.

                                       44



                                   ARTICLE 4.
                                   COVENANTS

Section 4.01      Payment of Notes.

         The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due.

         The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.

Section 4.02      Maintenance of Office or Agency.

         The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
fails to maintain any such required office or agency or fails to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.

         The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.

         The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03
hereof.

Section 4.03      Reports.

         (a)      Whether or not required by the Commission's rules and
regulations, so long as any Notes are outstanding, the Company shall furnish to
the holders of Notes, within the time periods specified in the Commission's
rules and regulations:

                  (1)      all quarterly and annual reports that would be
         required to be filed with the Commission on Forms 10-Q and 10-K if the
         Company were required to file such reports; and

                  (2)      all current reports that would be required to be
         filed with the Commission on Form 8-K if the Company were required to
         file such reports.

                                       45



         (b)      All such reports shall be prepared in all material respects in
accordance with all of the rules and regulations applicable to such reports.
Each annual report on Form 10-K shall include a report on the Company's
consolidated financial statements by the Company's certified independent
accountants. In addition, the Company shall file a copy of each of the reports
referred to in clauses (1) and (2) in Section 4.03(a) above with the Commission
for public availability within the time periods specified in the rules and
regulations applicable to such reports (unless the Commission shall not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.

         (c)      If, at any time, the Company is no longer subject to the
periodic reporting requirements of the Exchange Act for any reason, the Company
shall nevertheless continue filing the reports specified in Section 4.03(a) with
the Commission within the time periods specified above unless the Commission
shall not accept such a filing. The Company agrees that it shall not take any
action for the purpose of causing the Commission not to accept any such filings.
If, notwithstanding the foregoing, the Commission shall not accept the Company's
filings for any reason, the Company shall post the reports referred to in
Section 4.03(a) on its website within the time periods that would apply if the
Company were required to file those reports with the Commission.

         (d)      If the Company has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by Section 4.03(a) shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.

(e) In addition, the Company agrees that, for so long as any Notes remain
outstanding, at any time it is not required to file the reports required by
Section 4.03(a) with the Commission, it shall furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.

Section 4.04      Compliance Certificate.

(a) The Company and each Guarantor (to the extent that such Guarantor is so
required under the TIA) shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate prescribed by the TIA stating
that a review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture and the Security
Documents, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and the Security Documents and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture or
the Security Documents (or, if a Default or Event of Default has occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with respect
thereto) and that to the best of his or her knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.

(b) So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, the year-end financial statements
delivered pursuant to Section 4.03(a) above shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for

                                       46



certification of such financial statements, nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Article 4 or Article 5 hereof or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.

         (c)      So long as any of the Notes are outstanding, the Company shall
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.

Section 4.05      Taxes.

         The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.

Section 4.06      Stay, Extension and Usury Laws.

         The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.

Section 4.07      Restricted Payments.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly:

                  (1)      declare or pay any dividend or make any other payment
         or distribution on account of the Company's or any of its Restricted
         Subsidiaries' Equity Interests (including any payment in connection
         with any merger or consolidation involving the Company or any of its
         Restricted Subsidiaries) or to the direct or indirect holders of the
         Company's or any of its Restricted Subsidiaries' Equity Interests in
         their capacity as such (other than dividends or distributions payable
         in Equity Interests (other than Disqualified Stock) of the Company or
         dividends or distributions payable to the Company or a Restricted
         Subsidiary of the Company);

                  (2)      purchase, redeem or otherwise acquire or retire for
         value (including in connection with any merger or consolidation
         involving the Company) any Equity Interests of the Company or any
         direct or indirect parent of the Company;

                  (3)      make any payment on or with respect to, or purchase,
         redeem, defease or otherwise acquire or retire for value any
         Indebtedness of the Company that is contractually subordinated to the
         Notes (excluding any intercompany Indebtedness between or among the
         Company and any of its Restricted Subsidiaries and excluding the
         purchase, repurchase or other acquisition of such subordinated
         Indebtedness purchased in anticipation of satisfying a sinking

                                       47



         fund obligation, principal installment or final maturity, in each case
         due within one year of the date of acquisition), except a payment of
         interest or principal at the Stated Maturity thereof; or

                  (4)      make any Restricted Investment

(all such payments and other actions set forth in these clauses (1) through (4)
above being collectively referred to as "Restricted Payments"), unless after
giving effect to such Restricted Payment:

                  (1)      no Default or Event of Default has occurred and is
         continuing or would occur as a consequence of such Restricted Payment
         (other than any Default or Event of Default that is cured as a result
         of such Restricted Payment);

                  (2)      the Company would, after giving pro forma effect
         thereto as if such Restricted Payment had been made at the beginning of
         the applicable four-quarter period, have been permitted to incur at
         least $1.00 of additional Indebtedness pursuant to the Fixed Charge
         Coverage Ratio test set forth in Section 4.09(a) herein; and

                  (3)      such Restricted Payment, together with the aggregate
         amount of all other Restricted Payments made by the Company and its
         Restricted Subsidiaries since the date of this Indenture (excluding
         Restricted Payments permitted by clauses (2), (3), (4), (5), (6), and
         (9) of the next succeeding paragraph), is less than the sum, without
         duplication, of:

                           (a)      50% of the Consolidated Net Income of the
         Company for the period (taken as one accounting period) from the
         beginning of the first fiscal quarter commencing after the date of this
         Indenture to the end of the Company's most recently ended fiscal
         quarter for which internal financial statements are available at the
         time of such Restricted Payment (or, if such Consolidated Net Income
         for such period is a deficit, less 100% of such deficit), plus

                           (b)      100% of the aggregate net cash proceeds
         received by the Company since the date of this Indenture as a
         contribution to its common equity capital or from the issue or sale of
         Equity Interests of the Company (other than Disqualified Stock) or from
         the issue or sale of convertible or exchangeable Disqualified Stock or
         convertible or exchangeable debt securities of the Company that have
         been converted into or exchanged for such Equity Interests (other than
         Equity Interests (or Disqualified Stock or debt securities) sold to a
         Subsidiary of the Company), plus

                           (c)      to the extent that any Restricted Investment
         that was made after the date of this Indenture is sold for cash or
         otherwise liquidated or repaid for cash, the lesser of (i) the cash
         return of capital with respect to such Restricted Investment (less the
         cost of disposition, if any) and (ii) the initial amount of such
         Restricted Investment, plus

                           (d)      to the extent that any Unrestricted
         Subsidiary of the Company designated as such after the date of this
         Indenture is redesignated as a Restricted Subsidiary after the date of
         this Indenture, the Fair Market Value of the Company's Investment in
         such Subsidiary as of the date of such redesignation, plus

                           (e)      100% of any payments of interest on
         Indebtedness, dividends, repayments of loans or advances, or other
         transfers of assets received by the Company or a Restricted Subsidiary
         of the Company after the date of this Indenture from an Unrestricted
         Subsidiary of the Company, to the extent that such payments, dividends,
         repayments or transfers were not otherwise included in Consolidated Net
         Income of the Company for such period, plus

                                       48



                           (f)      $628.3 million.

                  The preceding provisions shall not prohibit:

                  (1)      the payment of any dividend within 60 days after the
         date of declaration of the dividend, if at the date of declaration the
         dividend payment would have complied with the provisions of this
         Indenture;

                  (2)      the making of any Restricted Payment in exchange for,
         or out of the net cash proceeds of the substantially concurrent sale
         (other than to a Subsidiary of the Company) of, Equity Interests of the
         Company (other than Disqualified Stock) or from the substantially
         concurrent contribution of common equity capital to the Company;
         provided that the amount of any such net cash proceeds that are
         utilized for any such Restricted Payment shall be excluded from clause
         (3)(b) of the preceding paragraph;

                  (3)      the defeasance, redemption, repurchase or other
         acquisition of Indebtedness of the Company that is contractually
         subordinated to the Notes with the net cash proceeds from a
         substantially concurrent incurrence of Permitted Refinancing
         Indebtedness, so long as no Default has occurred and is continuing or
         would be caused thereby;

                  (4)      the payment of any dividend (or, in the case of any
         partnership or limited liability company, any similar distribution) by
         a Restricted Subsidiary of the Company to the holders of any class or
         series of such Restricted Subsidiary's Equity Interests on a pro rata
         basis;

                  (5)      the repurchase, redemption or other acquisition or
         retirement for value of any Equity Interests of the Company or any
         Restricted Subsidiary of the Company held by any current or former
         officer, direct or employee of the Company (or any of its Restricted
         Subsidiaries) pursuant to any equity subscription agreement, stock
         option agreement, shareholders' agreement or similar agreement;
         provided that the aggregate price paid for all such repurchased,
         redeemed, acquired or retired Equity Interests may not exceed $5.0
         million in any twelve-month period, so long as no Default has occurred
         and is continuing or would be caused thereby;

                  (6)      the repurchase of Equity Interests deemed to occur
         upon the exercise of stock options to the extent such Equity Interests
         represent a portion of the exercise price of those stock options;

                  (7)      the declaration and payment of dividends to holders
         of any class or series of Disqualified Stock of the Company or any
         Restricted Subsidiary of the Company issued on or after the date of
         this Indenture in accordance with the Fixed Charge Coverage test
         described under Section 4.09 herein; provided that no Default has
         occurred and is continuing or would be caused thereby (other than any
         Default or Event of Default that is cured as a result of such
         Restricted Payment); and

                  (8)      any purchase, redemption, defeasance or other
         acquisition or retirement for value of subordinated Indebtedness upon a
         Change of Control or an Asset Sale to the extent required by this
         Indenture or other agreement pursuant to which such subordinated
         Indebtedness was issued, but only if the Company (a) in the case of a
         Change of Control, has made an offer to repurchase the Notes as
         described under Section 4.15 herein or (b) in the case of an Asset
         Sale, has applied the Net Proceeds from such Asset Sale in accordance
         with the provisions described under Section 4.10 herein, so long as no
         Default has occurred and is continuing or would be caused thereby.

                                       49



         (b)      The amount of all Restricted Payments (other than cash) shall
be the Fair Market Value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.

Section 4.08      Dividend and Other Payment Restrictions Affecting
                  Subsidiaries.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or permit to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:

                  (1)      pay dividends or make any other distributions on its
         Capital Stock to the Company or any of its Restricted Subsidiaries, or
         with respect to any other interest or participation in, or measured by,
         its profits, or pay any indebtedness owed to the Company or any of its
         Restricted Subsidiaries;

                  (2)      make loans or advances to the Company or any of its
         Restricted Subsidiaries; or

                  (3)      transfer any of its properties or assets to the
         Company or any of its Restricted Subsidiaries.

         However, the preceding restrictions shall not apply to encumbrances or
restrictions existing under or by reason of:

                  (1)      agreements governing Existing Indebtedness and Credit
         Facilities as in effect on the date of this Indenture and any
         amendments, modifications, restatements, renewals, increases,
         supplements, refundings, replacements or refinancings of those
         agreements; provided that the amendments, modifications, restatements,
         renewals, increases, supplements, refundings, replacements or
         refinancings are no more restrictive, taken as a whole, with respect to
         such dividend and other payment restrictions than those contained in
         those agreements on the date of this Indenture;

                  (2)      this Indenture, the Notes, the 2010 Notes and the
         indenture governing such notes, the 2013 Notes and the indenture
         governing such notes and the Term Loan Agreement or any other indenture
         governing letters of credit, loans or debt securities issued by or on
         behalf of the Company that are no more restrictive, taken as a whole,
         with respect to such dividend, distribution or other payment
         restrictions and loan or investment restrictions than those contained
         in this Indenture, the Notes, the 2010 Notes and the indenture
         governing such notes, the 2013 Notes and the indenture governing such
         notes and the Term Loan Agreement as in effect on the date of this
         Indenture;

                  (3)      applicable law, rule, regulation or order;

                  (4)      customary non-assignment provisions in leases,
         contracts and licenses entered into in the ordinary course of business
         and consistent with past practices;

                  (5)      purchase money obligations for property acquired in
         the ordinary course of business and Capital Lease Obligations that
         impose restrictions on the property purchased or leased of the nature
         described in clause (3) of Section 4.08(a);

                  (6)      any agreement for the sale or other disposition of a
         Restricted Subsidiary that restricts distributions by that Restricted
         Subsidiary pending the sale or other disposition;

                                       50



                  (7)      Permitted Refinancing Indebtedness; provided that the
         restrictions contained in the agreements governing such Permitted
         Refinancing Indebtedness are not materially more restrictive, taken as
         a whole, than those contained in the agreements governing the
         Indebtedness being refinanced;

                  (8)      Liens securing Indebtedness otherwise permitted to be
         incurred under the provisions of Section 4.12 herein that limit the
         right of the debtor to dispose of the assets subject to such Liens;

                  (9)      provisions limiting or prohibiting the disposition or
         distribution of assets or property in joint venture agreements, asset
         sale agreements, sale-leaseback agreements, stock sale agreements and
         other similar agreements entered into with the approval of the
         Company's Board of Directors, which limitation or prohibition is
         applicable only to the assets that are the subject of such agreements;

                  (10)     any encumbrance or restriction imposed pursuant to
         the terms of any Non-Recourse Debt incurred pursuant to clause (6) of
         the definition of Permitted Debt or any preferred stock issued pursuant
         to clause (7) of the definition of Permitted Debt; provided that such
         encumbrance or restriction, in the written opinion of the President,
         Vice Chairman, Chief Operating Officer or Chief Financial Officer of
         the Company, (x) is required in order to obtain such financing or to
         place such preferred stock, (y) is customary for such financings or
         placements and (z) applies only to the assets or revenues of the
         applicable Restricted Subsidiary;

                  (11)     any encumbrance or restriction with respect to a
         Restricted Subsidiary pursuant to an agreement relating to any Acquired
         Debt incurred pursuant to clause (10) of the definition of Permitted
         Debt; provided that such encumbrance or restriction was not incurred in
         connection with or in contemplation of such Restricted Subsidiary
         becoming a Restricted Subsidiary; and

                  (12)     restrictions on cash or other deposits or net worth
         imposed by customers or suppliers under contracts entered into in the
         ordinary course of business.

Section 4.09      Incurrence of Indebtedness and Issuance of Preferred Stock.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), and the Company shall not issue any
Disqualified Stock and shall not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.0 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.

         (b)      Section 4.09(a) shall not prohibit the incurrence of any of
the following items (collectively, "Permitted Debt"):

                  (1)      the incurrence by the Company and the Guarantee by
         the Canadian Guarantors of additional Indebtedness and letters of
         credit under Credit Facilities in an aggregate principal

                                       51



         amount at any one time outstanding under this clause (1) (with letters
         of credit being deemed to have a principal amount equal to the maximum
         potential liability of the Company thereunder) not to exceed on any
         date of incurrence the greater of (A) $500.0 million or (B) the dollar
         amount that is equal to 50% of the Company's Consolidated Cash Flow for
         the then most recent four-quarter period for which financial
         information is available;

                  (2)      the incurrence by the Company and its Restricted
         Subsidiaries of the Existing Indebtedness;

                  (3)      the incurrence by the Company and the Canadian
         Guarantors of Indebtedness represented by the Notes, the 2010 Notes,
         the 2013 Notes and the Term Loans to be issued on the date of this
         Indenture, and in each case the related Guarantees;

                  (4)      the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness represented by Capital Lease
         Obligations, mortgage financings or purchase money obligations, in each
         case, incurred for the purpose of financing all or any part of the
         purchase price or cost of design, construction, installation or
         improvement of property, plant or equipment used in the business of the
         Company or any of its Restricted Subsidiaries, in an aggregate
         principal amount (or accreted value, as applicable), including all
         Permitted Refinancing Indebtedness incurred to extend, refund,
         refinance, renew, replace or defease any Indebtedness incurred pursuant
         to this clause (4), not to exceed $100.0 million at any one time
         outstanding;

                  (5)      Indebtedness of the Company which is owed to and
         owned by a Restricted Subsidiary and Indebtedness of a Restricted
         Subsidiary that is owed to and owned by the Company or a Restricted
         Subsidiary; provided that any subsequent issuance or transfer of any
         Capital Stock that results in any such Restricted Subsidiary ceasing to
         be a Restricted Subsidiary or any transfer of such Indebtedness (other
         than to the Company or a Restricted Subsidiary) shall be deemed, in
         each case, to constitute the incurrence of such Indebtedness by the
         Company or by a Restricted Subsidiary, as the case may be;

                  (6)      the incurrence of Non-Recourse Debt by any Restricted
         Subsidiary of the Company (other than a Restricted Subsidiary that
         owns, directly or indirectly, any Material Designated Assets);

                  (7)      the issuance of preferred stock by a Restricted
         Subsidiary of the Company (other than a Restricted Subsidiary that
         owns, directly or indirectly, any Material Designated Assets), the net
         proceeds of which are applied to finance the exploration, drilling,
         development, construction or purchase of or by, or repairs or
         improvements or additions to, property or assets of the Company or any
         Restricted Subsidiary;

                  (8)      the incurrence by the Company of Guarantees of
         Indebtedness of Restricted Subsidiaries which, but for such Guarantees,
         would be permitted to be incurred pursuant to clause (6) of Section
         4.09 (b); provided that the aggregate principal amount of Indebtedness
         incurred pursuant to this clause (8) does not exceed $100.0 million at
         any one time outstanding;

                  (9)      the incurrence by the Company or any of its
         Restricted Subsidiaries of Permitted Refinancing Indebtedness in
         exchange for, or the net proceeds of which are used to refund,
         refinance, replace, defease or discharge Indebtedness (other than
         intercompany Indebtedness) that was permitted by this Indenture to be
         incurred under Section 4.09(a) or clauses (2), (3), (4), (5), (6), (8)
         or (10) of this Section 4.09(b) or this clause (9);

                                       52



                  (10)     the incurrence of Acquired Debt by any Restricted
         Subsidiary of the Company at the time such Restricted Subsidiary
         becomes a Restricted Subsidiary of the Company so long as such Acquired
         Debt was not incurred in connection with or in contemplation of such
         Person becoming a Restricted Subsidiary of the Company; provided that
         the Company would have been able to incur such Indebtedness at the time
         of incurrence thereof by the Restricted Subsidiary pursuant to Section
         4.09 (a);

                  (11)     the incurrence of Indebtedness pursuant to Hedging
         Obligations incurred in the ordinary course of business and not for
         speculative purposes;

                  (12)     the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness in respect of workers'
         compensation claims, self-insurance obligations, bankers' acceptances
         and performance and surety bonds in the ordinary course of business;

                  (13)     the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness arising from the honoring by a
         bank or other financial institution of a check, draft or similar
         instrument inadvertently drawn against insufficient funds, so long as
         such Indebtedness is covered within five business days;

                  (14)     the incurrence by any Restricted Subsidiary of
         Indebtedness represented by letters of credit (or Guarantees thereof)
         entered into in the ordinary course of business to the extent that such
         letters of credit are not drawn upon or, if and to the extent drawn
         upon, such drawing is reimbursed no later than the tenth Business Day
         following a demand for reimbursement following payment on the letter of
         credit; provided that such letters of credit shall not constitute
         Permitted Debt pursuant to this clause (14) if they are issued in
         support of Indebtedness;

                  (15)     the incurrence of Indebtedness by the Company
         represented by letters of credit cash collateralized with the proceeds
         of Priority Lien Debt; and

                  (16)     the incurrence by the Company or any of its
         Restricted Subsidiaries of additional Indebtedness in an aggregate
         principal amount (or accreted value, as applicable) at any time
         outstanding, including all Permitted Refinancing Indebtedness incurred
         to extend, refinance, renew, replace, defease or refund any
         Indebtedness incurred pursuant to this clause (16), not to exceed
         $100.0 million.

         The Company shall not incur and shall not permit any Guarantor to
incur, any Indebtedness (including Permitted Debt) that is contractually
subordinated in right of payment to any other Indebtedness of the Company or
such Guarantor unless such Indebtedness is also contractually subordinated in
right of payment to the Notes (and the Applicable Guarantee) and the Term Loans
on substantially identical terms; provided, however, that no Indebtedness of the
Company shall be deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Company solely by virtue of being unsecured or by
virtue of being secured on a junior basis.

Section 4.10      Asset Sales.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale (including a Sale of
Designated Assets) unless:

                                       53



                  (1)      the Company (or the Restricted Subsidiary, as the
         case may be) receives consideration at the time of the Asset Sale at
         least equal to the Fair Market Value of the assets or Equity Interests
         issued or sold or otherwise disposed of;

                  (2)      at least 75% of the consideration received in the
         Asset Sale by the Company or such Restricted Subsidiary is in the form
         of cash or Cash Equivalents. For purposes of this provision, each of
         the following shall be deemed to be cash:

                           (A)      any liabilities, as shown on the Company's
                  most recent consolidated balance sheet, of the Company or any
                  Restricted Subsidiary (other than contingent liabilities and
                  liabilities that are by their terms subordinated to the Notes)
                  that are assumed by the transferee of any such assets pursuant
                  to a customary novation or similar agreement that releases the
                  Company or such Restricted Subsidiary from further liability;

                           (B)      any securities, notes or other obligations
                  received by the Company or any such Restricted Subsidiary from
                  such transferee that are promptly, subject to ordinary
                  settlement periods, converted by the Company or such
                  Restricted Subsidiary into cash, to the extent of the cash
                  received in that conversion; and

                           (C)      except in the case of a Sale of Designated
                  Assets, any stock or assets of the kind referred to in clauses
                  (4) or (6) of Section 4.10(b); and

                  (3)      in the case of a Sale of Designated Assets other than
         Canadian Gas Assets, the Company (or the Restricted Subsidiary, as the
         case may be) shall deposit the Net Proceeds as cash collateral in a
         segregated account (a "Designated Asset Sale Proceeds Account") held by
         the Collateral Trustee or its agent to secure the Secured Obligations;
         provided, that for so long as the terms of any of the Company's senior
         unsecured notes that were issued prior to August 10, 2000 would prevent
         such a pledge by a Restricted Subsidiary, the Company shall deposit
         with the Collateral Trustee or its agent an amount of cash equal to the
         Net Proceeds as cash collateral to secure the Secured Obligations, and
         the applicable Restricted Subsidiary shall not be obligated to do so.

         (b)      Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, other than a Sale of Designated Assets that are not Canadian Gas
Assets, the Company (or the applicable Restricted Subsidiary, as the case may
be) may apply those Net Proceeds:

                  (1)      to repay Priority Lien Debt and/or cash collateralize
         letters of credit constituting Priority Lien Debt;

                  (2)      in the case of an Asset Sale by a Restricted
         Subsidiary, to repay or repurchase Indebtedness of Calpine Canada
         Energy Finance ULC and/or Calpine Canada Energy Finance II ULC existing
         on the date of this Indenture;

                  (3)      in the case of an Asset Sale by a Restricted
         Subsidiary, to repay or repurchase Indebtedness of any Restricted
         Subsidiary and, if such Indebtedness is revolving credit Indebtedness,
         to correspondingly reduce commitments with respect thereto;

                  (4)      to acquire all or substantially all of the assets of,
         or any Capital Stock of, another Permitted Business, if, after giving
         effect to any such acquisition of Capital Stock, the Permitted Business
         is or becomes a Restricted Subsidiary of the Company;

                                       54



                  (5)      to make a capital expenditure; or

                  (6)      to acquire other assets that are not classified as
         current assets under GAAP and that are used or useful in a Permitted
         Business.

         (c)      Within 180 days after the receipt of any Net Proceeds from an
Asset Sale that constitutes a Sale of Designated Assets other than Canadian Gas
Assets, the Company (or the Restricted Subsidiary that disposed of those
Designated Assets, as the case may be) may apply those Net Proceeds to purchase
other assets that would constitute Designated Assets or to repay Priority Lien
Debt and/or cash collateralize letters of credit constituting Priority Lien Debt
and, if such Priority Lien Debt is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto.

         (d)      Any Net Proceeds from Asset Sales (including Sales of
Designated Assets) that are not applied or invested as provided in the preceding
clauses of this Section 4.10 shall constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier
point as may be elected by the Company, the Company shall make an offer to all
holders of the Notes and all holders of other Indebtedness that is pari passu
with the Notes and equally and ratably secured with the Notes containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets, including the 2010
Notes, the 2013 Notes, the Term Loans and each series of Existing Indebtedness
that contains similar asset sale provisions, when applicable (an "Asset Sale
Offer"), to purchase or redeem the maximum principal amount of notes and such
other pari passu Indebtedness that may be purchased or redeemed out of the
Excess Proceeds (including each series of Existing Indebtedness that contains
similar asset sale provisions). The offer price in any Asset Sale Offer shall be
equal to 100% of principal amount plus accrued and unpaid interest, if any, to
the date of purchase, and shall be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use those
Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If
the aggregate principal amount of notes and other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
Company shall select the Notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.

         (e)      Notwithstanding the foregoing, to the extent that any or all
of the Net Proceeds of any Foreign Asset Sale is prohibited or delayed by
applicable local law from being repatriated to the United States, the portion of
such Net Proceeds so affected shall not be required to be applied at the time
provided above, but may be retained by the applicable Restricted Subsidiary so
long, but only so long, as the applicable local law shall not permit
repatriation to the United States. The Company shall promptly take or cause the
applicable Restricted Subsidiary to promptly take all actions required by the
applicable local law to permit such repatriation. Once such repatriation of any
of the affected Net Proceeds is permitted under the applicable local law, the
repatriation shall be immediately effected and the repatriated Net Proceeds
shall be applied in the manner set forth in this Section 4.10 as if the Asset
Sale had occurred on the date of such repatriation.

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

         (g)      The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that

                                       55



the provisions of any securities laws or regulations conflict with the Asset
Sale provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Asset Sale provisions of this Indenture by virtue of such
conflict.

Section 4.11      Transactions with Affiliates.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"),
unless:

                  (1)      the Affiliate Transaction is on terms that are no
         less favorable to the Company or the relevant Restricted Subsidiary
         than those that would have been obtained in a comparable transaction by
         the Company or such Restricted Subsidiary with an unrelated Person; and

                  (2)      the Company delivers to the Trustee:

                           (a)      with respect to any Affiliate Transaction or
         series of related Affiliate Transactions involving aggregate
         consideration in excess of $2.5 million, an officers' certificate
         certifying that such Affiliate Transaction complies with this Section
         4.11(a); and

                           (b)      with respect to any Affiliate Transaction or
         series of related Affiliate Transactions involving aggregate
         consideration in excess of $10.0 million, a resolution of the Board of
         Directors set forth in an officers' certificate certifying that such
         Affiliate Transaction complies with this Section 4.11 and that such
         Affiliate Transaction has been approved by a majority of the
         disinterested members of the Board of Directors or, if there are no
         disinterested members of the Board of Directors, the Board of Directors
         shall have received a written opinion of an accounting, appraisal or
         investment banking firm of national standing stating that such
         Affiliate Transaction or series of Affiliate Transactions is fair to
         the Company or such Restricted Subsidiary from a financial point of
         view.

         (b)      The following items shall not be deemed to be Affiliate
Transactions and, therefore, shall not be subject to the provisions of Section
4.11(a):

                  (1)      any employment agreement, employee benefit plan,
         stock option plan, officer and director indemnification agreement or
         any similar arrangement entered into by the Company or any of its
         Restricted Subsidiaries in the ordinary course of business;

                  (2)      transactions between or among the Company and its
         Restricted Subsidiaries and between or among the Company's Restricted
         Subsidiaries;

                  (3)      transactions with a Person (other than an
         Unrestricted Subsidiary of the Company) that is an Affiliate of the
         Company solely because the Company owns, directly or through a
         Restricted Subsidiary, an Equity Interest in, or controls, such Person;

                  (4)      payment of reasonable directors' fees to Persons who
         are not otherwise Affiliates of the Company;

                                       56



                  (5)      any issuance of Equity Interests (other than
         Disqualified Stock) of the Company to Affiliates of the Company;

                  (6)      Restricted Payments that do not violate the
         provisions of Section 4.07 hereof;

                  (7)      loans or advances to employees in the ordinary course
         of business;

                  (8)      any repurchase, redemption or other retirement of
         Capital Stock of the Company held by employees of the Company or any of
         its Subsidiaries upon death, disability or termination of employment at
         a price not in excess of the Fair Market Value thereof approved by the
         Board of Directors;

                  (9)      any transaction between or among the Company and any
         of its Subsidiaries in the ordinary course of business and consistent
         with past practices of the Company and its Subsidiaries; and

                  (10)     any agreement to do any of the foregoing.

         (c)      Any transaction which has been determined, in the written
opinion of an independent nationally recognized investment banking firm, to be
fair, from a financial point of view, to the Company or the applicable
Restricted Subsidiary shall be deemed to be in compliance with this Section
4.11.

Section 4.12      Liens.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind on any asset now owned or hereafter
acquired, except Permitted Liens.

         (b)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, grant or permit to exist a Lien upon any property
(whether then held by it or to be acquired by it at a future time) as security
for any Priority Lien Debt, unless (1) such Lien secures all Priority Lien Debt
on an equal and ratable basis and (2) the Collateral Trustee holds an
enforceable and perfected Lien upon such property as security equally and
ratably for all Parity Lien Obligations in second priority to Priority Lien
Debt.

Section 4.13      Limitation on Changes in the Nature of the Business.

         The Company and its Restricted Subsidiaries shall engage only in
Permitted Businesses, except to such extent as would not be material to the
Company and its Restricted Subsidiaries taken as a whole. In addition, the
Company will, and shall cause its Subsidiaries, to conduct their respective
businesses in a manner so as to maintain the exemption of the Company and its
Subsidiaries from treatment as a public utility holding company under PUHCA or
an electric utility or public utility under any federal, state or local law;
provided to the extent that any such law is amended following the date of this
Indenture in such a manner that would (absent application of this proviso) make
non-compliance with this Section 4.13 not result in a material adverse effect on
the Company's results of operations or financial condition, then the Company
shall not be required to comply with this Section 4.13, but only to the extent
of actions or failures to act that would (absent application of this Section
4.13) constitute violations of this Section 4.13 solely as a result of such
amendment.

                                       57



Section 4.14      Corporate Existence.

         Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect:

                  (1)      its corporate existence, and the corporate,
         partnership or other existence of each of its Subsidiaries, in
         accordance with the respective organizational documents (as the same
         may be amended from time to time) of the Company or any such
         Subsidiary; and

                  (2)      the rights (charter and statutory), licenses and
         franchises of the Company and its Subsidiaries; provided, however, that
         the Company shall not be required to preserve any such right, license
         or franchise, or the corporate, partnership or other existence of any
         of its Subsidiaries, if the Board of Directors shall determine that the
         preservation thereof is no longer desirable in the conduct of the
         business of the Company and its Subsidiaries, taken as a whole, and
         that the loss thereof is not adverse in any material respect to the
         Holders of the Notes.

Section 4.15      Offer to Repurchase Upon Change of Control.

         (a)      If a Change of Control occurs, each holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple of $1,000) of that holder's Notes pursuant to the offer
described below (the "Change of Control Offer") on the terms set forth in this
Indenture. In the Change of Control Offer, the Company shall offer a payment in
cash equal to 101% of the aggregate principal amount of Notes repurchased plus
accrued and unpaid interest, if any, on the Notes repurchased (the "Change of
Control Payment"), to but excluding the date of purchase. Within 30 days
following any Change of Control, the Company shall mail a notice to each holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Notes on the change of control payment date (the
"Change of Control Payment Date") specified in the notice, which date shall be
no earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by this Indenture and described in
such notice. The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change of
Control provisions of this Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Change of Control provisions of this
Indenture by virtue of such compliance.

         (b)      On the Change of Control Payment Date, the Company will, to
the extent lawful:

                  (1)      accept for payment all Notes or portions of Notes
         properly tendered pursuant to the Change of Control Offer;

                  (2)      deposit with the paying agent an amount equal to the
         Change of Control Payment in respect of all Notes or portions of Notes
         properly tendered; and

                  (3)      deliver or cause to be delivered to the trustee the
         Notes properly accepted together with an officers' certificate stating
         the aggregate principal amount of Notes or portions of Notes being
         purchased by the Company.

                  The paying agent shall promptly mail to each holder of Notes
properly tendered the Change of Control Payment for such Notes, and the Trustee
upon receipt of an Authentication Order from the Company shall promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any;

                                       58



provided that each new note shall be in a principal amount of $1,000 or an
integral multiple of $1,000. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.

         (c)      The Company shall not be required to make a Change of Control
Offer upon a Change of Control if (1) a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes properly tendered and not withdrawn
under the Change of Control Offer, or (2) notice of redemption has been given
pursuant to Section 3.07 herein, unless and until there is a default in payment
of the applicable redemption price.

Section 4.16      Limitation on Sale and Leaseback Transactions.

         (a)      The Company shall not enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if:

                  (1)      the Company could have (a) incurred Indebtedness in
         an amount equal to the Attributable Debt relating to such sale and
         leaseback transaction under the Fixed Charge Coverage Ratio test in
         Section 4.09 (a) herein and (b) incurred a Lien to secure such
         Indebtedness pursuant to Section 4.12 herein;

                  (2)      the gross cash proceeds of that sale and leaseback
         transaction are at least equal to the Fair Market Value, as determined
         in good faith by the Board of Directors and set forth in an officers'
         certificate delivered to the Trustee, of the property that is the
         subject of that sale and leaseback transaction; and

                  (3)      the transfer of assets in that sale and leaseback
         transaction is permitted by, and the Company applies the proceeds of
         such transaction in compliance with, Section 4.10 herein.

         (b)      This Section 4.16 shall not apply to the Company's
Subsidiaries.

Section 4.17      Limitation on Issuances of Guarantees of Indebtedness.

         The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company (other than the Existing Guarantees by
the Canadian Guarantors) unless such Restricted Subsidiary simultaneously
executes and delivers (1) supplemental indentures providing for the Guarantees
of the payment of the Notes by such Restricted Subsidiary, which Guarantees
shall be senior to such Restricted Subsidiary's Guarantee of or pledge to secure
such other Indebtedness unless the Indebtedness of the Company so Guaranteed or
secured is senior Indebtedness of the Company, in which case the Guarantees of
the Notes may be pari passu with such Restricted Subsidiary's Guarantee of or
pledge to secure such other Indebtedness of the Company, and (2) a pledge or
security agreement providing for a pledge of such assets to secure the Notes and
all other Parity Lien Debt on an equal and ratable basis (subject only to
Permitted Prior Liens).

Section 4.18      Payments for Consent.

         The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
the Notes, the 2010 Notes, the 2013 Notes or the Term Loans for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture, the Notes, the 2010

                                       59



Notes, the 2013 Notes, the Term Loans, the Term Loan Agreement or any Security
Documents unless such consideration is offered to be paid or agreed to be paid
to all holders of such notes and/or Term Loans that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.

Section 4.19      Designation of Restricted and Unrestricted Subsidiaries.

         The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
Fair Market Value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be
deemed to be an Investment made as of the time of the designation and shall
reduce the remaining amount available for Restricted Payments under Section 4.07
herein or under one or more clauses of the definition of Permitted Investments,
as determined by the Company. That designation shall only be permitted if the
Investment would be permitted at that time and if the Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if that redesignation would not cause a Default.

Section 4.20      Changes in Covenant When Notes Rated Investment Grade.

         If on any date following the date of this Indenture:

                  (1)      any series of the notes is rated Baa3 or better by
         Moody's and BBB- or better by S&P; and

                  (2)      no Default or Event of Default shall have occurred
         and be continuing, then, beginning on that day and subject to the
         provisions of the following paragraph, the provisions of Section 4.07,
         4.08, 4.09, 4.10, 4.11, 4.13, 4.19 and clause (4) of Section 5.01
         hereof shall be suspended.

         Notwithstanding the foregoing, if the rating assigned by either such
rating agency should subsequently decline to below Baa3 or BBB-, respectively,
the foregoing provisions shall be reinstituted as of and from the date of such
rating decline. Calculations under the reinstated Section 4.07 shall be made as
if Section 4.07 had been in effect since the date of this Indenture except that
no default shall be deemed to have occurred solely by reason of a Restricted
Payment made while that Section 4.07 was suspended. These covenant suspension
provisions shall continue to be applicable following any such reinstatement. The
Company shall notify the Trustee if any covenants are suspended or reinstated
pursuant to this Section 4.20.

                                       60



                                   ARTICLE 5.
                                   SUCCESSORS

Section 5.01      Merger, Consolidation, or Sale of Assets.

         The Company may not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:

                  (1)      either:

                           (A)      the Company is the surviving corporation; or

                           (B)      the Person formed by or surviving any such
                  consolidation or merger (if other than the Company) or to
                  which such sale, assignment, transfer, conveyance or other
                  disposition has been made is a corporation organized or
                  existing under the laws of the United States, any state of the
                  United States or the District of Columbia;

                  (2)      the Person formed by or surviving any such
         consolidation or merger (if other than the Company) or the Person to
         which such sale, assignment, transfer, conveyance or other disposition
         has been made assumes all the obligations of the Company under the
         Notes, this Indenture, and the Security Documents pursuant to
         agreements reasonably satisfactory to the Trustee and the Collateral
         Trustee;

                  (3)      immediately after such transaction, no Default or
         Event of Default exists;

                  (4)      the Company or the Person formed by or surviving any
         such consolidation or merger (if other than the Company), or to which
         such sale, assignment, transfer, conveyance or other disposition has
         been made:

                           (A)      shall have Consolidated Net Worth
                  immediately after the transaction equal to or greater than the
                  Consolidated Net Worth of the Company immediately preceding
                  the transaction; and

                           (B)      will, on the date of such transaction after
                  giving pro forma effect thereto and any related financing
                  transactions as if the same had occurred at the beginning of
                  the applicable four-quarter period, be permitted to incur at
                  least $1.00 of additional Indebtedness pursuant to the Fixed
                  Charge Coverage Ratio test set forth in Section 4.09(a)
                  herein; and

                  (5)      such transaction shall not impair the ability of the
         Company or any of its Subsidiaries to conduct their respective
         businesses in a manner so as to maintain the exemption of the Company
         and its Subsidiaries from treatment as a public utility holding company
         under PUHCA or an electric utility or public utility under any federal,
         state or local law, unless such exemption is no longer material to the
         Company and its Restricted Subsidiaries taken as a whole or to the
         Person formed by or surviving any such consolidation or merger (if
         other then the Company) and its Restricted Subsidiaries taken as a
         whole.

         In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.

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         Notwithstanding the foregoing:

                  (1)      the Company may merge with an Affiliate solely for
         the purpose of reincorporating the Company in another jurisdiction; and

                  (2)      the Company and its Restricted Subsidiaries may sell,
         assign, transfer, lease, convey or otherwise dispose of assets between
         or among each other (including by way of merger).

Section 5.02      Successor Corporation Substituted.

         Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in a transaction that is subject to, and that complies with the
provisions of, Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets in a transaction that is subject to, and that complies with
the provisions of, Section 5.01 hereof.

                                   ARTICLE 6.
                              DEFAULTS AND REMEDIES

Section 6.01      Events of Default.

         Each of the following is an "Event of Default":

                  (1)      default for 30 days in the payment when due of
         interest on the Notes;

                  (2)      default in payment when due of the principal of, or
         premium, if any, on the Notes;

                  (3)      failure to purchase the Notes when required pursuant
         to Section 4.10, 4.15 or otherwise as required pursuant to this
         Indenture or the Notes;

                  (4)      failure by the Company or any of its Restricted
         Subsidiaries for 30 days after written notice from the Trustee or the
         holders of at least 25% in outstanding aggregate principal amount of
         that series of notes to comply with any of the other agreements in this
         Indenture, the Notes or the Security Documents;

                  (5)      default under any mortgage, indenture or instrument
         under which there may be issued or by which there may be secured or
         evidenced any Indebtedness for money borrowed by the Company or any of
         its Restricted Subsidiaries (or the payment of which is guaranteed by
         the Company or any of its Restricted Subsidiaries) whether such
         Indebtedness or guarantee now exists, or is created after the date of
         this Indenture, if that default:

                                       62



                           (a)      is caused by a failure to pay principal of,
         or interest or premium, if any, on such Indebtedness prior to the
         expiration of the grace period provided in such Indebtedness on the
         date of such default (a "Payment Default"); or

                           (b)      results in the acceleration of such
         Indebtedness prior to its express maturity,

         and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $50.0 million or more, and such default shall not have
been cured or waived or any such acceleration rescinded, or such Indebtedness
repaid, within 20 days of the Company or such Restricted Subsidiary becoming
aware of such default; provided that the provisions of this clause (5) shall not
apply to any default on Non-Recourse Debt;

                  (6)      failure by the Company or any of its Significant
         Subsidiaries to pay final judgments (not covered by insurance)
         aggregating in excess of $50.0 million, which judgments are not paid,
         discharged or stayed for a period of 30 days;

                  (7)      the repudiation by the Company or any of its
         Restricted Subsidiaries of any of its obligations under the Security
         Documents or the unenforceability of the Security Documents against the
         Company or any of its Restricted Subsidiaries for any reason; provided
         that such breach, repudiation or unenforceability relates to Collateral
         having an aggregate Fair Market Value of $50.0 million or more;

                  (8)      except as permitted by this Indenture, any note
         Guarantee shall be held in any judicial proceeding to be unenforceable
         or invalid or shall cease for any reason to be in full force and effect
         or any Canadian Guarantor, or any Person acting on behalf of any
         Canadian Guarantor, shall deny or disaffirm its obligations under its
         note Guarantee and such condition shall not have been cured within 30
         days of written notice from the Trustee or the holders of at least 25%
         in outstanding aggregate principal amount of the Notes; and

                  (9)      the Company or any of its Significant Subsidiaries or
         any group of Subsidiaries that, taken as a whole, would constitute a
         Significant Subsidiary pursuant to or within the meaning of Bankruptcy
         Law:

                           (A)      commences a voluntary case,

                           (B)      consents to the entry of an order for relief
                  against it in an involuntary case,

                           (C)      consents to the appointment of a custodian
                  of it or for all or substantially all of its property,

                           (D)      makes a general assignment for the benefit
                  of its creditors, or

                           (E)      generally is not paying its debts as they
                  become due; and

                  (10)     a court of competent jurisdiction enters an order or
         decree under any Bankruptcy Law that:

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                           (A)      is for relief against the Company or any of
                  its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary in an involuntary case;

                           (B)      appoints a custodian of the Company or any
                  of its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary or for all or substantially all of the property of
                  the Company or any of its Significant Subsidiaries or any
                  group of Subsidiaries that, taken as a whole, would constitute
                  a Significant Subsidiary; or

                           (C)      orders the liquidation of the Company or any
                  of its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary;

                  and the order or decree remains unstayed and in effect for 60
         consecutive days.

Section 6.02      Acceleration.

         In the case of an Event of Default specified in clause (9) or (10) of
Section 6.01 hereof, with respect to the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary, all outstanding Notes shall become due and
payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately.

         Upon any such declaration, the Notes shall become due and payable
immediately. Notwithstanding the foregoing, if an Event of Default specified in
clause (9) of Section 6.01 hereof occurs with respect to the Company, any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.

         If an Event of Default occurs on or after July 15, 2005 by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to July 15, 2005
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on July 15 of the years
set forth below, as set forth below (expressed as a percentage of the principal
amount of the Notes on the date of payment that would otherwise be due but for
the provisions of this sentence):



YEAR                                    PERCENTAGE
- ----                                    ----------
                                     
2003..............................         5.145%
2004..............................         3.430%


                                       64



Section 6.03      Other Remedies.

         If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.

         The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.

Section 6.04      Waiver of Past Defaults.

         Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on, the Notes
(including in connection with an offer to purchase); provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.

Section 6.05      Control by Majority.

         Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.

Section 6.06      Limitation on Suits.

         A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:

                  (1)      the Holder of a Note gives to the Trustee written
         notice of a continuing Event of Default;

                  (2)      the Holders of at least 25% in principal amount of
         the then outstanding Notes make a written request to the Trustee to
         pursue the remedy;

                  (3)      such Holder of a Note or Holders of Notes offer and,
         if requested, provide to the Trustee indemnity satisfactory to the
         Trustee against any loss, liability or expense;

                  (4)      the Trustee does not comply with the request within
         60 days after receipt of the request and the offer and, if requested,
         the provision of indemnity; and

                                       65



                  (5)      during such 60-day period the Holders of a majority
         in principal amount of the then outstanding Notes do not give the
         Trustee a direction inconsistent with the request.

         A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.

Section 6.07      Rights of Holders of Notes to Receive Payment.

         Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder; provided that a Holder
shall not have the right to institute any such suit for the enforcement of
payment if and to the extent that the institution or prosecution thereof or the
entry of judgment therein would, under applicable law, result in the surrender,
impairment, waiver or loss of the Lien of this Indenture upon any property
subject to such Lien.

Section 6.08      Collection Suit by Trustee.

         If an Event of Default specified in Section 6.01(1) or (2) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

Section 6.09      Trustee May File Proofs of Claim.

         The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.

                                       66



Section 6.10      Priorities.

         If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:

                  First:   to the Trustee, its agents and attorneys for amounts
         due under Section 7.07 hereof, including payment of all compensation,
         expense and liabilities incurred, and all advances made, by the Trustee
         and the costs and expenses of collection;

                  Second:  to Holders of Notes for amounts due and unpaid on the
         Notes for principal, premium, if any, and interest, ratably, without
         preference or priority of any kind, according to the amounts due and
         payable on the Notes for principal, premium, if any and interest,
         respectively; and

                  Third:   to the Company or to such party as a court of
         competent jurisdiction shall direct.

         The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

Section 6.11      Undertaking for Costs.

         In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.

                                   ARTICLE 7.
                                     TRUSTEE

Section 7.01      Duties of Trustee.

         (a)      If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.

         (b)      Except during the continuance of an Event of Default:

                  (1)      the duties of the Trustee shall be determined solely
         by the express provisions of this Indenture and the Trustee need
         perform only those duties that are specifically set forth in this
         Indenture and no others, and no implied covenants or obligations shall
         be read into this Indenture against the Trustee; and

                  (2)      in the absence of bad faith on its part, the Trustee
         may conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon certificates or
         opinions furnished to the Trustee and conforming to the requirements of
         this Indenture. However, the Trustee shall examine the certificates and
         opinions to determine whether or not they

                                       67



         conform to the requirements of this Indenture (but need not confirm or
         investigate the accuracy of mathematical calculations or other facts
         stated therein).

         (c)      The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

                  (1)      this paragraph (c) does not limit the effect of
         paragraph (b) of this Section 7.01;

                  (2)      the Trustee shall not be liable for any error of
         judgment made in good faith by a Responsible Officer, unless it is
         conclusively determined by a court of competent jurisdiction that the
         Trustee was negligent in ascertaining the pertinent facts; and

                  (3)      the Trustee shall not be liable with respect to any
         action it takes or omits to take in good faith in accordance with a
         direction received by it pursuant to Section 6.05 hereof.

         (d)      Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section 7.01.

         (e)      No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder has offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

         (f)      The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.

Section 7.02      Rights of Trustee.

         (a)      The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.

         (b)      Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.

         (c)      The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.

         (d)      The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.

         (e)      Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.

         (f)      The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders have offered to

                                       68



the Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.

         (g)      In no event shall the Trustee be required to take notice of
any default or breach hereof or any Event of Default hereunder, except for
Events of Default specified in Section 6.01(1) and/or 6.01(2) hereof, unless and
until the Trustee shall have received from a Holder of a Note or from the
Company express written notice of the circumstances constituting the breach,
default or Event of Default and stating that said circumstances constitute an
Event of Default hereunder.

         (h)      If the Trustee is acting as Paying Agent and/or Registrar
hereunder, the rights and protections afforded to the Trustee pursuant to this
Article 7 will also be afforded to such Paying Agent and Registrar.

Section 7.03      Individual Rights of Trustee.

         The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days after ascertaining it
has such conflicting interest, apply to the SEC for permission to continue as
trustee or resign to the extent and in the manner provided by, and subject to
the provisions of, the TIA and this Indenture. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.

Section 7.04      Trustee's Disclaimer.

         The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

Section 7.05      Notice of Defaults.

         If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.

Section 7.06      Reports by Trustee to Holders of the Notes.

         (a)      Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2) to the extent applicable. The Trustee
shall also transmit by mail all reports as required by TIA Section 313(c).

                                       69



         (b)      A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed by the Trustee to the Company and filed by the
Trustee with the SEC and each stock exchange on which the Notes are listed in
accordance with TIA Section 313(d). The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange.

Section 7.07      Compensation and Indemnity.

         (a)      The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.

         (b)      The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture (and any other Note
Documents to which it is a party) against the Company (including this Section
7.07) and defending itself against any claim (whether asserted by the Company,
or any Holder or any other Person) or liability in connection with the exercise
or performance of any of its powers or duties hereunder, except to the extent
any such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.

         (c)      The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.

         (d)      To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.

         (e)      When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(9) or (10) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of administration
under any Bankruptcy Law.

Section 7.08      Replacement of Trustee.

         (a)      A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.

         (b)      The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee if:

                                       70



                  (1)      the Trustee fails to comply with Section 7.10 hereof;

                  (2)      the Trustee is adjudged a bankrupt or an insolvent or
         an order for relief is entered with respect to the Trustee under any
         Bankruptcy Law;

                  (3)      a custodian or public officer takes charge of the
         Trustee or its property; or

                  (4)      the Trustee becomes incapable of acting.

         (c)      If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.

         (d)      If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

         (e)      If the Trustee, after written request by any Holder who has
been a Holder for at least six months, fails to comply with Section 7.10, such
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.

         (f)      A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.

Section 7.09      Successor Trustee by Merger, etc.

         If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.

Section 7.10      Eligibility; Disqualification.

         There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.

         This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).

Section 7.11      Preferential Collection of Claims Against Company.

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         The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.

                                   ARTICLE 8.
                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01      Option to Effect Legal Defeasance or Covenant Defeasance.

         The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.

Section 8.02      Legal Defeasance and Discharge.

         Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company will, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from their obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in clauses (1) and (2) below, and to have satisfied all their other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder:

                  (1)      the rights of Holders of outstanding Notes to receive
         payments in respect of the principal of, or interest or premium, if
         any, on such Notes when such payments are due from the trust referred
         to in Section 8.04 hereof;

                  (2)      the Company's obligations with respect to such Notes
         under Article 2 and Section 4.02 hereof;

                  (3)      the rights, powers, trusts, duties and immunities of
         the Trustee hereunder and the Company's obligations in connection
         therewith; and

                  (4)      this Article 8.

         Subject to compliance with this Article 8, the Company may exercise its
option under this Section 8.02 notwithstanding the prior exercise of its option
under Section 8.03 hereof.

Section 8.03      Covenant Defeasance.

         Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company (to the extent applicable) shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from each of their obligations under the covenants contained in
Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and
4.19 hereof and clause (4) of Section 5.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.04
hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and

                                       72



the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby. In addition, upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(3) through 6.01(5) hereof shall not constitute Events of Default.

Section 8.04      Conditions to Legal or Covenant Defeasance.

         In order to exercise either Legal Defeasance or Covenant Defeasance
under either Section 8.02 or 8.03 hereof:

                  (1)      the Company must irrevocably deposit with the
         Trustee, in trust, for the benefit of the Holders, cash in United
         States dollars, non-callable Government Securities, or a combination
         thereof, in such amounts as shall be sufficient, in the opinion of a
         nationally recognized investment bank, appraisal firm or firm of
         independent public accountants, to pay the principal of, premium, if
         any, and interest on the outstanding Notes on the stated date for
         payment thereof or on the applicable redemption date, as the case may
         be, and the Company must specify whether such Notes are being defeased
         to maturity or to a particular redemption date;

                  (2)      in the case of an election under Section 8.02 hereof,
         the Company has delivered to the Trustee an Opinion of Counsel in the
         United States reasonably acceptable to the Trustee confirming that:

                           (A)      the Company has received from, or there has
                  been published by, the Internal Revenue Service a ruling; or

                           (B)      since the date of this Indenture, there has
                  been a change in the applicable federal income tax law,

                  in either case to the effect that, and based thereon such
                  Opinion of Counsel shall confirm that, the Holders of the
                  outstanding Notes shall not recognize income, gain or loss for
                  federal income tax purposes as a result of such Legal
                  Defeasance and shall be subject to federal income tax on the
                  same amounts, in the same manner and at the same times as
                  would have been the case if such Legal Defeasance had not
                  occurred;

                  (3)      in the case of an election under Section 8.03 hereof,
         the Company must deliver to the Trustee an Opinion of Counsel in the
         United States reasonably acceptable to the Trustee confirming that the
         Holders of the outstanding Notes shall not recognize income, gain or
         loss for federal income tax purposes as a result of such Covenant
         Defeasance and shall be subject to federal income tax on the same
         amounts, in the same manner and at the same times as would have been
         the case if such Covenant Defeasance had not occurred;

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                  (4)      no Default or Event of Default shall have occurred
         and be continuing on the date of such deposit (other than a Default or
         Event of Default resulting from the borrowing of funds to be applied to
         such deposit);

                  (5)      such Legal Defeasance or Covenant Defeasance shall
         not result in a breach or violation of, or constitute a default under,
         any material agreement or instrument (other than this Indenture) to
         which the Company or any of its Subsidiaries is a party or by which the
         Company or any of its Subsidiaries is bound;

                  (6)      the Company must deliver to the Trustee an Officers'
         Certificate stating that the deposit was not made by the Company with
         the intent of preferring the Holders of Notes over the other creditors
         of the Company with the intent of defeating, hindering, delaying or
         defrauding any other creditors of the Company or others; and

                  (7)      the Company must deliver to the Trustee an Officers'
         Certificate and an Opinion of Counsel, each stating that all conditions
         precedent provided for or relating to the Legal Defeasance or the
         Covenant Defeasance have been complied with.

Section 8.05      Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.

         Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.

         The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

         Notwithstanding anything in this Article 8 to the contrary, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized
investment bank, appraisal firm or firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.04(1) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.

Section 8.06      Repayment to the Company.

         Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter be
permitted to look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money,

                                       74



and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.

Section 8.07      Reinstatement.

         If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.

                                   ARTICLE 9.
                        AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01      Without Consent of Holders of Notes.

         Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:

                  (1)      to cure any ambiguity, defect or inconsistency;

                  (2)      to provide for uncertificated Notes in addition to or
         in place of certificated Notes;

                  (3)      to provide for the assumption of the Company's
         obligations to the Holders of the Notes by a successor to the Company
         pursuant to Article 5 hereof;

                  (4)      to make any change that would provide any additional
         rights or benefits to the Holders of the Notes or that does not
         adversely affect the legal rights hereunder of any Holder of the Notes;

                  (5)      to comply with requirements of the SEC in order to
         effect or maintain the qualification of this Indenture under the TIA;

                  (6)      to provide for the issuance of Additional Notes in
         accordance with the limitations set forth in this Indenture as of the
         date hereof;

                  (7)      to allow any Guarantor to execute a supplemental
         indenture and/or a Guarantee with respect to the Notes;

                  (8)      to make, complete or confirm any grant of Collateral
         permitted or required by this Indenture or any of the Security
         Documents or any release of Collateral that becomes effective as set
         forth in this Indenture or any of the Security Documents;

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                  (9)      to conform the text of this Indenture, the Notes or
         the Security Documents to any provision of the Description of the Notes
         section of the Offering Circular to the extent that such provision of
         the Description of the Notes section of the Offering Circular was
         intended to be a verbatim recitation of a provision of this Indenture,
         the Notes or the Security Documents; or

                  (10)     to reflect any waiver or termination of any right
         arising under the provisions of this Indenture that otherwise would be
         enforceable by any holder of the Term Loan Obligations, if such waiver
         or termination is set forth in the agreement governing such Term Loan
         Obligations, provided that no such waiver or amendment shall adversely
         affect the right of holders of Notes.

         Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.

Section 9.02      With Consent of Holders of Notes.

         Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including, without limitation,
Section 3.09, 4.10 and 4.15 hereof), the Guarantees and the Notes with the
consent of the Holders of at least a majority in principal amount of the Notes
(including, without limitation, Additional Notes, if any) then outstanding
voting as a single class (including, without limitation, consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture, the Guarantees or the Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes).

         Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.

         It is not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it is sufficient if such consent approves the substance thereof.

         After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount

                                       76



of the Notes then outstanding voting as a single class may waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):

                  (1)      reduce the principal amount of Notes whose Holders
         must consent to an amendment, supplement or waiver;

                  (2)      reduce the principal of or change the fixed maturity
         of any Note or alter or waive any of the provisions with respect to the
         redemption of the Notes except as provided above with respect to
         Sections 3.09, 4.10 and 4.15 hereof;

                  (3)      reduce the rate of or change the time for payment of
         interest, including default interest, on any Note;

                  (4)      waive a Default or Event of Default in the payment of
         principal of, or interest or premium, if any, on the Notes (except a
         rescission of acceleration of the Notes by the Holders of at least a
         majority in aggregate principal amount of the then outstanding Notes
         and a waiver of the payment default that resulted from such
         acceleration);

                  (5)      make any Note payable in money other than that stated
         in the Notes;

                  (6)      make any change in the provisions of this Indenture
         relating to waivers of past Defaults or the rights of Holders of Notes
         to receive payments of principal of, or interest or premium, if any, on
         the Notes;

                  (7)      waive a redemption payment with respect to any Note
         (other than a payment required under Section 4.10 and Section 4.15);

                  (8)      release (A) any Collateral from the Liens created by
         the Security Documents except as specifically provided in this
         Indenture and the Security Documents as of the date of this Indenture
         or (B) all or substantially all of the Collateral or all or
         substantially all of the Canadian Guarantors from their obligations
         under the Guarantee and Collateral Agreement dated July 16, 2003
         without the prior written consent of all Holders; or

                  (9)      make any change in Section 6.04 or 6.07 hereof or in
         the foregoing amendment and waiver provisions.

Section 9.03      Compliance with Trust Indenture Act.

         Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.

Section 9.04      Revocation and Effect of Consents.

         Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver,

                                       77



supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.

Section 9.05      Notation on or Exchange of Notes.

         The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.

         Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.

Section 9.06      Trustee to Sign Amendments, etc.

         The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 and 7.02 hereof) shall
be fully protected in relying upon, in addition to the documents required by
Section 13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating
that the execution of such amended or supplemental Indenture is authorized or
permitted by this Indenture.

                                   ARTICLE 10.
                             COLLATERAL AND SECURITY

Section 10.01     Equal and Ratable Sharing of Collateral by Holders of Parity
Lien Debt; Sharing Confirmation.

         Notwithstanding (1) anything to the contrary contained in the Security
Documents, (2) the time of incurrence of any Series of Parity Lien Debt, (3) the
order or method of attachment or perfection of any Liens securing any Series of
Parity Lien Debt, (4) the time or order of filing or recording of financing
statements, mortgages or other documents filed or recorded to perfect any Lien
upon any Collateral, (5) the time of taking possession or control over any
Collateral or (6) the rules for determining priority under any law governing
relative priorities of Liens:

                  (A)      all Liens at any time granted by the Company or any
         other Obligor to secure any of the Parity Lien Debt shall secure,
         equally and ratably, all present and future Parity Lien Obligations;
         and

                  (B)      all proceeds of all Liens at any time granted by the
         Company or any Obligor to secure any of the Parity Lien Debt and other
         Parity Lien Obligations shall be allocated and distributed equally and
         ratably on account of the Parity Lien Debt and other Parity Lien
         Obligations; provided, that, for the avoidance of doubt, in the absence
         of an Event of Default, the Company shall be entitled to utilize cash
         proceeds of Collateral in the ordinary course of its business.

         The foregoing provision is intended for the benefit of, and shall be
enforceable as a third party beneficiary by, each present and future holder of
Parity Lien Obligations, each present and future Parity Debt Representative and
the Collateral Trustee as holder of Parity Liens. The Company shall not incur

                                       78



any future Series of Parity Lien Debt unless the agreement governing such Series
of Parity Lien Debt includes a Sharing Confirmation at the time of incurrence of
such Series of Parity Lien Debt.

Section 10.02     Ranking of Note Liens

         Notwithstanding:

                  (1)      anything to the contrary contained in the Security
         Documents,

                  (2)      the time of incurrence of any Series of Secured Debt,

                  (3)      the order or method of attachment or perfection of
         any Liens securing any Series of Secured Debt,

                  (4)      the time or order of filing or recording of financing
         statements, mortgages or other documents filed or recorded to perfect
         any Lien upon any Collateral,

                  (5)      the time of taking possession or control over any
         Collateral or

                  (6)      the rules for determining priority under any law
         governing relative priorities of Liens,

all Liens at any time granted by the Company or any other Obligor to secure any
of the Parity Lien Debt shall be subject and subordinate to Priority Liens
securing Priority Lien Obligations up to the Priority Lien Cap.

         The foregoing provision is intended for the benefit of, and shall be
enforceable as a third party beneficiary by, each present and future holder of
Priority Lien Obligations, each present and future Priority Lien Agent and the
Collateral Trustee as holder of Priority Liens. No other Person shall be
entitled to rely on, have the benefit of or enforce this provision.

         In addition, the foregoing provision is intended solely to set forth
the relative ranking, as Liens, of the Liens securing Parity Lien Debt as
against the Priority Liens. Neither the Notes, the 2010 Notes, the 2013 Notes
nor the Term Loans nor any other Parity Lien Obligations nor the exercise or
enforcement of any right or remedy for the payment or collection thereof are
intended to be, or shall ever by reason of the foregoing provision, in any
respect subordinated, deferred, postponed, restricted or prejudiced.

Section 10.03     Release of Security Interest in Respect of Notes

         The Collateral Trustee's Liens upon the Collateral shall no longer
secure the Notes or any other Obligations under this Indenture, and the right of
the holders of the Notes and Obligations to the benefits and proceeds of the
Collateral Trustee's Liens on Collateral shall terminate and be discharged:

                  (1)      upon satisfaction and discharge of this Indenture in
         accordance with Article 11 hereof;

                  (2)      upon a Legal Defeasance or Covenant Defeasance of the
         Notes in accordance with Article 8 hereof; or

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                  (3)      upon payment in full and discharge of all Notes
         outstanding under this Indenture and all related Obligations that are
         outstanding, due and payable under this Indenture at the time the Notes
         are paid in full and discharged.

                                   ARTICLE 11.
                           SATISFACTION AND DISCHARGE

Section 11.01     Satisfaction and Discharge.

         This Indenture shall be discharged and shall cease to be of further
effect as to all Notes issued hereunder, when:

                  (1)      either:

                           (a)      all Notes that have been authenticated under
         this Indenture (except lost, stolen or destroyed Notes that have been
         replaced or paid and Notes for whose payment money has theretofore been
         deposited in trust and thereafter repaid to the Company) have been
         delivered to the Trustee for cancellation; or

                           (b)      all Notes that have not been delivered to
         the Trustee for cancellation have become due and payable by reason of
         the making of a notice of redemption or otherwise or shall become due
         and payable within one year and the Company has irrevocably deposited
         or caused to be deposited with the Trustee as trust funds in trust
         solely for the benefit of the Holders, cash in U.S. dollars,
         non-callable Government Securities, or a combination thereof, in such
         amounts as shall be sufficient without consideration of any
         reinvestment of interest, to pay and discharge the entire indebtedness
         on the Notes not delivered to the Trustee for cancellation for
         principal, premium, if any, and accrued interest to the date of
         maturity or redemption;

                  (2)      no Default or Event of Default has occurred and is
         continuing on the date of such deposit or shall occur as a result of
         such deposit and such deposit shall not result in a breach or violation
         of, or constitute a default under, any other instrument to which the
         Company is a party or by which the Company is bound;

                  (3)      the Company has paid or caused to be paid all sums
         payable by it under this Indenture; and

                  (4)      the Company has delivered irrevocable instructions to
         the Trustee under this Indenture to apply the deposited money toward
         the payment of the Notes at maturity or the redemption date, as the
         case may be.

In addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.

         Notwithstanding the satisfaction and discharge of this Indenture, if
money has been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section, the provisions of Section 12.02 and Section 8.06 shall
survive. In addition, nothing in this Section 11.01 shall be deemed to discharge
those provisions of Section 7.07 hereof, that, by their terms, survive the
satisfaction and discharge of this Indenture.

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Section 11.02     Application of Trust Money.

         Subject to the provisions of Section 8.06, all money deposited with the
Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in
accordance with the provisions of the Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium, if any) and interest for whose payment such money
has been deposited with the Trustee; but such money need not be segregated from
other funds except to the extent required by law.

         If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 11.01; provided
that if the Company has made any payment of principal of, premium, if any, or
interest on any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or Government Securities held by the Trustee
or Paying Agent.

                                   ARTICLE 12.
                                  MISCELLANEOUS

Section 12.01     Trust Indenture Act Controls.

         If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties or provisions of
the TIA shall control.

Section 12.02     Notices.

         Any notice or communication by the Company or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:

         If to the Company:

         Calpine Corporation
         50 West San Fernando Street
         San Jose, California 95113
         Telephone No.: (408) 995-5115
         Attention: Ron Fischer

         With a copy to:
         Covington & Burling
         1330 Avenue of the Americas
         New York, NY 10019
         Telecopier No.: (212) 841-1010
         Attention: Bruce Bennett

                                       81



         If to the Trustee:
         Wilmington Trust Company
         Rodney Square North
         1100 North Market Street
         Wilmington, Delaware 19890
         Telecopier No.: (302) 636-4145
         Attention: Corporate Capital Markets

         By notice to the others, the Company or the Trustee may designate
additional or different addresses for subsequent notices or communications.

         All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.

         Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.

         If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.

         If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

Section 12.03     Communication by Holders of Notes with Other Holders of Notes.

         Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).

Section 12.04     Certificate and Opinion as to Conditions Precedent.

         Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

                  (1)      an Officer's Certificate in form and substance
         reasonably satisfactory to the Trustee (which must include the
         statements set forth in Section 12.05 hereof) stating that, in the
         opinion of the signer, all conditions precedent and covenants, if any,
         provided for in this Indenture relating to the proposed action have
         been satisfied; and

                  (2)      an Opinion of Counsel in form and substance
         reasonably satisfactory to the Trustee (which must include the
         statements set forth in Section 12.05 hereof) stating that, in the
         opinion of such counsel, all such conditions precedent and covenants
         have been satisfied.

                                       82



Section 12.05     Statements Required in Certificate or Opinion.

         Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA
Section 314(e) and must include:

                  (1)      a statement that the Person making such certificate
         or opinion has read such covenant or condition;

                  (2)      a brief statement as to the nature and scope of the
         examination or investigation upon which the statements or opinions
         contained in such certificate or opinion are based;

                  (3)      a statement that, in the opinion of such Person, he
         or she has made such examination or investigation as is necessary to
         enable him or her to express an informed opinion as to whether or not
         such covenant or condition has been satisfied; and

                  (4)      a statement as to whether or not, in the opinion of
         such Person, such condition or covenant has been satisfied.

Section 12.06     Rules by Trustee and Agents.

         The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

Section 12.07     No Personal Liability of Directors, Officers, Employees and
Stockholders.

         No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, this Indenture, the Security
Documents or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.

Section 12.08     Governing Law.

         THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTATION OF GUARANTEES WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

Section 12.09     No Adverse Interpretation of Other Agreements.

         This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.

Section 12.10     Successors.

         All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.

                                       83



Section 12.11     Severability.

         In case any provision in this Indenture or in the Notes is invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

Section 12.12     Counterpart Originals.

         The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.

Section 12.13     Table of Contents, Headings, etc.

         The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.

                         [Signatures on following page]

                                       84



                                   SIGNATURES

Dated as of July 16, 2003
                                           CALPINE CORPORATION

                                           By: /s/ Michael Thomas
                                               --------------------------------
                                               Name:
                                               Title:

                                       85



                                           WILMINGTON TRUST COMPANY

                                           By: /s/ Michael W. Diaz
                                               --------------------------------
                                               Name: Michael W. Diaz
                                               Title: Authorized Signer

                                       86



                                                                       EXHIBIT A

                                 [Face of Note]

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

                                               CUSIP [131347 BB 1] [U13055 AD 7]

           Second Priority Senior Secured Floating Rate Notes due 2007

No. ___                                                            $____________

                               CALPINE CORPORATION

promises to pay to CEDE & CO.

or registered assigns,

the principal sum of __________________________________________________________

Dollars on July 15, 2007.

Interest Payment Dates: January 15, April 15, July 15, October 15

Record Dates: January 1, April 1, July 1, October 1

                                           CALPINE CORPORATION

                                           By: ________________________________
                                               Name:
                                               Title:

Dated: July 16, 2003

This is one of the Notes referred to
in the within-mentioned Indenture:

WILMINGTON TRUST COMPANY,
  as Trustee

By: __________________________________
           Authorized Signatory

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

                                       A-1



                                 [Back of Note]

           Second Priority Senior Secured Floating Rate Notes due 2007

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
(5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
(B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES AND OTHER JURISDICTIONS.

         Capitalized terms used herein have the meanings assigned to them in
this Indenture referred to below unless otherwise indicated.

                                       A-2



                  (1)      INTEREST. Calpine Corporation, a Delaware corporation
         (the "Company"), promises to pay interest on the principal amount of
         this Note at the Applicable Eurodollar Rate (as defined in the
         Indenture) quarterly, on January 15, April 15, July 15 and October 15,
         from July 16, 2003 until maturity. The Company shall pay interest
         quarterly in arrears on January 15, April 15, July 15 and October 15 of
         each year, or if any such day is not a Business Day, on the next
         succeeding Business Day (each, an "Interest Payment Date"). Interest on
         the Notes shall accrue from the most recent date to which interest has
         been paid or, if no interest has been paid, from the date of issuance;
         provided that if there is no existing Default in the payment of
         interest, and if this Note is authenticated between a record date
         referred to on the face hereof and the next succeeding Interest Payment
         Date, interest shall accrue from such next succeeding Interest Payment
         Date; provided, further, that the first Interest Payment Date shall be
         October 15, 2003. The Company shall pay interest (including
         post-petition interest in any proceeding under any Bankruptcy Law) on
         overdue principal and premium, if any, from time to time on demand at a
         rate that is 1% per annum in excess of the rate then in effect; it
         shall pay interest (including post-petition interest in any proceeding
         under any Bankruptcy Law) on overdue installments of interest (without
         regard to any applicable grace periods) from time to time on demand at
         the same rate to the extent lawful. Interest shall be computed on the
         basis of a 360-day year of twelve 30-day months. On each Interest
         Payment Date the Company shall also pay a portion of the principal of
         the Notes equal to 0.25% of the original amount of the Notes.

                  (2)      METHOD OF PAYMENT. The Company shall pay interest and
         principal on the Notes (except defaulted interest) to the Persons who
         are registered Holders of Notes at the close of business on the January
         1, April 1, July 1 or October 1 next preceding the Interest Payment
         Date, even if such Notes are canceled after such record date and on or
         before such Interest Payment Date, except as provided in Section 2.12
         of the Indenture with respect to defaulted interest. The Notes shall be
         payable as to principal, premium, if any, and interest at the office or
         agency of the Company maintained for such purpose within or without the
         City and State of New York, or, at the option of the Company, payment
         of interest may be made by check mailed to the Holders at their
         addresses set forth in the register of Holders; provided that payment
         by wire transfer of immediately available funds shall be required with
         respect to principal of and interest, premium on, all Global Notes and
         all other Notes the Holders of which shall have provided wire transfer
         instructions to the Company or the Paying Agent. Such payment shall be
         in such coin or currency of the United States of America as at the time
         of payment is legal tender for payment of public and private debts.

                  (3)      PAYING AGENT AND REGISTRAR. Initially, Wilmington
         Trust Company, the Trustee under the Indenture, shall act as Paying
         Agent and Registrar. The Company may change any Paying Agent or
         Registrar without prior notice to any Holder. The Company or any of its
         Subsidiaries may act in any such capacity.

                  (4)      INDENTURE. The Company issued the Notes under an
         Indenture dated as of July 16, 2003 (the "Indenture") between the
         Company and the Trustee. The terms of the Notes include those stated in
         the Indenture and those made part of the Indenture by reference to the
         Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
         77aaa-77bbbb). The Notes are subject to all such terms, and Holders are
         referred to the Indenture and such Act for a statement of such terms.
         To the extent any provision of this Note conflicts with the express
         provisions of the Indenture, the provisions of the Indenture shall
         govern and be controlling. The Notes are secured obligations of the
         Company, as evidenced by the Security Documents referred to in the
         Indenture.

                  (5)      OPTIONAL REDEMPTION. (a) Except as set forth in
         subparagraph (b) of this Paragraph 5, the Company shall not have the
         option to redeem the Notes prior to July 15, 2005.

                                       A-3



         Thereafter, the Company shall have the option to redeem the Notes, in
         whole or in part, upon not less than 30 nor more than 60 days' notice,
         at the redemption prices (expressed as percentages of principal amount)
         set forth below plus accrued and unpaid interest thereon to the
         applicable redemption date, if redeemed during the twelve-month period
         beginning on July 15 of the years indicated below:



Year                                                 Percentage
- ----                                                 ----------
                                                  
2005.......................................           103.000%
2006 and thereafter........................           100.000%


         (b)      Notwithstanding the provisions of subparagraph (a) of this
         Paragraph 5, at any time prior to July 15, 2005, the Company may, on
         one or more occasions upon not less than 30 nor more than 60 days prior
         notice mailed by first-class mail to each holder's registered address,
         redeem up to 35% of the aggregate principal amount of Notes issued
         under the Indenture with the net proceeds of an any one or more Public
         Equity Offerings (without regard to the reduction of the aggregate
         principal amount of the Notes outstanding due to any scheduled
         principal payments) at a redemption price equal to par plus the
         applicable Eurodollar Rate then in effect, plus accrued and unpaid
         interest, if any, to the redemption date; provided that at least 65% in
         aggregate principal amount of the Notes originally issued under the
         Indenture remains outstanding immediately after the occurrence of such
         redemption and that such redemption occurs within 45 days of the date
         of the closing of such Public Equity Offering.

                  (6)      MANDATORY REDEMPTION. The Company shall not be
         required to make mandatory redemption or sinking fund payments with
         respect to the Notes.

                  (7)      REPURCHASE AT OPTION OF HOLDER. (a) If a Change of
         Control occurs, each holder of Notes shall have the right to require
         the Company to repurchase all or any part (equal to $1,000 or an
         integral multiple of $1,000) of that holder's Notes pursuant to the
         offer described below (the "Change of Control Offer") on the terms set
         forth in the Indenture. In the Change of Control Offer, the Company
         shall offer a payment in cash equal to 101% of the aggregate principal
         amount of Notes repurchased plus accrued and unpaid interest, if any,
         on the Notes repurchased (the "Change of Control Payment"), to but
         excluding the date of purchase. Within 30 days following any Change of
         Control, the Company shall mail a notice to each holder as required by
         the Indenture. (b) If the Company or a Subsidiary consummates any Asset
         Sales, and when the aggregate amount of Excess Proceeds exceeds $50.0
         million, or at such earlier point as may be elected by the Company, the
         Company shall make an offer to all holders of Notes and all holders of
         other Indebtedness that is pari passu with the Notes and equally and
         ratably secured with the Notes containing provisions similar to those
         set forth in the Indenture with respect to offers to purchase or redeem
         with the proceeds of sales of assets, including the Term Loans and each
         series of Existing Indebtedness that contains similar asset sale
         provisions, when applicable (an "Asset Sale Offer"), to purchase or
         redeem the maximum principal amount of Notes and such other pari passu
         Indebtedness that may be purchased or redeemed out of the Excess
         Proceeds (including each series of Existing Indebtedness that contains
         similar asset sale provisions). The offer price in any Asset Sale Offer
         shall be equal to 100% of principal amount plus accrued and unpaid
         interest, if any, to the date of purchase, and shall be payable in
         cash. If any Excess Proceeds remain after consummation of an Asset Sale
         Offer, the Company may use those Excess Proceeds for any purpose not
         otherwise prohibited by the Indenture. If the aggregate principal
         amount of Notes and other pari passu Indebtedness tendered into such
         Asset Sale Offer exceeds the amount of Excess Proceeds, the Company
         shall select the Notes and such other pari passu Indebtedness to be
         purchased on a pro rata basis. Upon completion of each Asset Sale
         Offer, the

                                       A-4



         amount of Excess Proceeds shall be reset at zero. Holders of Notes that
         are the subject of an offer to purchase shall receive an Asset Sale
         Offer from the Company prior to any related purchase date and may elect
         to have such Notes purchased by completing the form entitled "Option of
         Holder to Elect Purchase" on the reverse of the Notes.

                  (8)      NOTICE OF REDEMPTION. Notice of redemption shall be
         mailed at least 30 days but not more than 60 days before the redemption
         date to each Holder whose Notes are to be redeemed at its registered
         address. Notes in denominations larger than $1,000 may be redeemed in
         part but only in whole multiples of $1,000, unless all of the Notes
         held by a Holder are to be redeemed. On and after the redemption date
         interest ceases to accrue on Notes or portions thereof called for
         redemption.

                  (9)      DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
         registered form without coupons in denominations of $1,000 and integral
         multiples of $1,000. The transfer of Notes may be registered and Notes
         may be exchanged as provided in the Indenture. The Registrar and the
         Trustee may require a Holder, among other things, to furnish
         appropriate endorsements and transfer documents and the Company may
         require a Holder to pay any taxes and fees required by law or permitted
         by the Indenture. The Company need not exchange or register the
         transfer of any Note or portion of a Note selected for redemption,
         except for the unredeemed portion of any Note being redeemed in part.
         Also, the Company need not exchange or register the transfer of any
         Notes for a period of 15 days before a selection of Notes to be
         redeemed or during the period between a record date and the
         corresponding Interest Payment Date.

                  (10)     PERSONS DEEMED OWNERS. The registered Holder of a
         Note may be treated as its owner for all purposes.

                  (11)     AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
         exceptions, the Indenture or the Notes may be amended or supplemented
         with the consent of the Holders of at least a majority in principal
         amount of the then outstanding Notes and Additional Notes, if any,
         voting as a single class, and any existing default or compliance with
         any provision of the Indenture or the Notes may be waived with the
         consent of the Holders of a majority in principal amount of the then
         outstanding Notes and Additional Notes, if any, voting as a single
         class. Without the consent of any Holder of a Note, the Indenture, the
         Guarantees or the Notes may be amended or supplemented to cure any
         ambiguity, defect or inconsistency, to provide for uncertificated Notes
         in addition to or in place of certificated Notes, to provide for the
         assumption of the Company's obligations to Holders of the Notes in case
         of a merger or consolidation, to make any change that would provide any
         additional rights or benefits to the Holders of the Notes or that does
         not adversely affect the legal rights under the Indenture of any such
         Holder, to comply with the requirements of the SEC in order to effect
         or maintain the qualification of the Indenture under the Trust
         Indenture Act, to provide for the issuance of Additional Notes in
         accordance with the limitations set forth in the Indenture, to allow
         any Guarantor to execute a supplemental indenture to the Indenture
         and/or a Guarantee with respect to the Notes, to make, complete or
         confirm any grant of Collateral permitted or required by the Indenture
         or any of the Security Documents or any release of Collateral that
         becomes effective as set forth in the Indenture or any of the Security
         Documents, to conform the text of the Indenture, the Notes or the
         Security Documents to any provision of the Description of the Notes
         section of the Offering Circular to the extent that such provision of
         the Description of the Notes section of the Offering Circular was
         intended to be a verbatim recitation of a provision of the Indenture,
         the Notes or the Security Documents, or to reflect any waiver or
         termination of any right arising under the provisions of the Indenture
         that otherwise would be enforceable by any holder of the Term Loan

                                       A-5



         Obligations, if such waiver or termination is set forth in the
         agreement governing such Term Loan Obligations, provided that no such
         waiver or amendment shall adversely affect the right of holders of
         Notes.

                  (12)     DEFAULTS AND REMEDIES. Events of Default include: (i)
         default for 30 days in the payment when due of interest on the Notes;
         (ii) default in payment when due of principal of or premium, if any, on
         the Notes, (iii) failure by the Company to purchase the Notes when
         required pursuant to Section 4.10 or 4.15 of the Indenture or otherwise
         as required pursuant to the Indenture or Notes; (iv) failure by the
         Company or any of its Restricted Subsidiaries for 30 days after written
         notice from the Trustee or the holders of at least 25% in outstanding
         aggregate principal amount of the Notes to comply with any of the other
         agreements in the Indenture, the Notes or the Security Documents; (v)
         default under certain other agreements relating to Indebtedness of the
         Company which default results in the acceleration of such Indebtedness
         prior to its express maturity; (vi) certain final judgments for the
         payment of money that remain undischarged for a period of 30 days;
         (vii) certain events of bankruptcy or insolvency with respect to the
         Company or any of its Restricted Subsidiaries that would constitute a
         Significant Subsidiary or any group of Restricted Subsidiaries that,
         taken together, would constitute a Significant Subsidiary; (viii) the
         repudiation by the Company or any of its Restricted Subsidiaries or the
         unenforceability of the Security Documents if such breach, repudiation
         or unenforceability relates to Collateral having an aggregate Fair
         Market Value of $50.0 million or more and (ix) except as permitted by
         the Indenture, any Guarantee shall be held in any judicial proceeding
         to be unenforceable or invalid or shall cease for any reason to be in
         full force and effect or any Guarantor or any Person acting on its
         behalf shall deny or disaffirm its obligations under such Guarantor's
         Guarantee. If any Event of Default occurs and is continuing, the
         Trustee or the Holders of at least 25% in principal amount of the then
         outstanding Notes may declare all the Notes to be due and payable.
         Notwithstanding the foregoing, in the case of an Event of Default
         arising from certain events of bankruptcy or insolvency, all
         outstanding Notes shall become due and payable without further action
         or notice. Holders may not enforce the Indenture or the Notes except as
         provided in the Indenture. Subject to certain limitations, Holders of a
         majority in principal amount of the then outstanding Notes may direct
         the Trustee in its exercise of any trust or power. The Trustee may
         withhold from holders of the Notes notice of any continuing Default or
         Event of Default if it determines that withholding Notes is in their
         interest, except a Default or Event of Default relating to the payment
         of principal or interest. The Holders of a majority in aggregate
         principal amount of the Notes then outstanding by notice to the Trustee
         may on behalf of the Holders of all of the Notes waive any existing
         Default or Event of Default and its consequences under the Indenture
         except a continuing Default or Event of Default in the payment of
         interest on, or the principal of, the Notes. The Company is required to
         deliver to the Trustee annually a statement regarding compliance with
         the Indenture, and the Company is required upon becoming aware of any
         Default or Event of Default under clauses (3) through (8) of the
         Section 6.01(a) of the Indenture, to deliver to the Trustee a statement
         specifying such Default or Event of Default.

                  (13)     TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
         individual or any other capacity, may make loans to, accept deposits
         from, and perform services for the Company or its Affiliates, and may
         otherwise deal with the Company or its Affiliates, as if it were not
         the Trustee.

                  (14)     NO RECOURSE AGAINST OTHERS. A director, officer,
         employee, incorporator or stockholder, of the Company as such, shall
         not have any liability for any obligations of the Company under the
         Notes, the Indenture or for any claim based on, in respect of, or by
         reason of,

                                       A-6



         such obligations or their creation. Each Holder by accepting a Note
         waives and releases all such liability. The waiver and release are part
         of the consideration for the issuance of the Notes.

                  (15)     AUTHENTICATION. This Note shall not be valid until
         authenticated by the manual signature of the Trustee or an
         authenticating agent.

                  (16)     ABBREVIATIONS. Customary abbreviations may be used in
         the name of a Holder or an assignee, such as: TEN COM (= tenants in
         common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants
         with right of survivorship and not as tenants in common), CUST (=
         Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

                  (17)     CUSIP NUMBERS. Pursuant to a recommendation
         promulgated by the Committee on Uniform Security Identification
         Procedures, the Company has caused CUSIP numbers to be printed on the
         Notes and the Trustee may use CUSIP numbers in notices of redemption as
         a convenience to Holders. No representation is made as to the accuracy
         of such numbers either as printed on the Notes or as contained in any
         notice of redemption and reliance may be placed only on the other
         identification numbers placed thereon.

         The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:

                  Calpine Corporation
                  50 West San Fernando Street
                  San Jose, California 95113
                  Attention: Ron Fischer

                                       A-7



                                 ASSIGNMENT FORM

         To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to: __________________________________
                                                (Insert assignee's legal name)

________________________________________________________________________________
                  (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
              (Print or type assignee's name, address and zip code)

and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

Date: _______________

                              Your Signature: __________________________________
                                              (Sign exactly as your name appears
                                                   on the face of this Note)

Signature Guarantee*: _________________________

*    Participant in a recognized Signature Guarantee Medallion Program (or other
     signature guarantor acceptable to the Trustee).

                                       A-8



                       OPTION OF HOLDER TO ELECT PURCHASE

         If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box
below:

                      -Section 4.10      -Section 4.15

         If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:

                                 $______________

Date: _______________

                                      Your Signature: _________________________
                                              (Sign exactly as your name appears
                                                    on the face of this Note)

                                      Tax Identification No.: __________________

Signature Guarantee*: _________________________

*    Participant in a recognized Signature Guarantee Medallion Program (or other
     signature guarantor acceptable to the Trustee).

                                       A-9



             SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*

         The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:



                                                                        Principal Amount
                     Amount of decrease in    Amount of increase in    of this Global Note
                        Principal Amount         Principal Amount        following such       Signature of authorized
                               of                       of                  decrease           officer of Trustee or
Date of Exchange        this Global Note         this Global Note         (or increase)              Custodian
- ----------------        ----------------         ----------------         -------------              ---------
                                                                                  


*    This schedule should be included only if the Note is issued in global form.

                                      A-10



                                                                       EXHIBIT B

                         FORM OF CERTIFICATE OF TRANSFER

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re:  Second Priority Senior Secured Floating Rate Notes due 2007

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), between Calpine Corporation, as issuer (the "Company"), and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         ___________________, (the "Transferor") owns and proposes to transfer
the Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to ___________________________ (the "Transferee"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies that:

                             [CHECK ALL THAT APPLY]

         1. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST
IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the
Transferor hereby further certifies that the beneficial interest or Definitive
Note is being transferred to a Person that the Transferor reasonably believed
and believes is purchasing the beneficial interest or Definitive Note for its
own account, or for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A and such Transfer is in compliance with
any applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note shall be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the 144A Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.

         2. [ ] CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL INTEREST
IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S.
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and, accordingly, the Transferor hereby
further certifies that (i) the Transfer is not being made to a Person in the
United States and (x) at the time the buy order was originated, the Transferee
was outside the United States or such Transferor and any Person acting on its
behalf reasonably believed and believes that the Transferee was outside the
United States or (y) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance with the
terms of

                                       B-1



the Indenture, the transferred beneficial interest or Definitive Note
shall be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Regulation S Global Note and/or the Definitive
Note and in the Indenture and the Securities Act.

         3. [ ] CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A
BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act and
any applicable blue sky securities laws of any state of the United States, and
accordingly the Transferor hereby further certifies that (check one):

                  (a)  [ ] such Transfer is being effected pursuant to and in
         accordance with Rule 144 under the Securities Act;

                                       or

                  (b)  [ ] such Transfer is being effected to the Company or a
         subsidiary thereof;

                                       or

                  (c)  [ ] such Transfer is being effected pursuant to an
         effective registration statement under the Securities Act and in
         compliance with the prospectus delivery requirements of the Securities
         Act;

                                       or

                  (d)  [ ] such Transfer is being effected to an Institutional
         Accredited Investor and pursuant to an exemption from the registration
         requirements of the Securities Act other than Rule 144A, Rule 144 or
         Rule 904, and the Transferor hereby further certifies that it has not
         engaged in any general solicitation within the meaning of Regulation D
         under the Securities Act and the Transfer complies with the transfer
         restrictions applicable to beneficial interests in a Restricted Global
         Note or Restricted Definitive Notes and the requirements of the
         exemption claimed, which certification is supported by (1) a
         certificate executed by the Transferee in the form of Exhibit D to the
         Indenture and (2) an Opinion of Counsel provided by the Transferor or
         the Transferee (a copy of which the Transferor has attached to this
         certification), to the effect that such Transfer is in compliance with
         the Securities Act. Upon consummation of the proposed transfer in
         accordance with the terms of the Indenture, the transferred beneficial
         interest or Definitive Note shall be subject to the restrictions on
         transfer enumerated in the Private Placement Legend printed on the IAI
         Global Note and/or the Definitive Notes and in the Indenture and the
         Securities Act.

         This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                                           ____________________________________
                                                [Insert Name of Transferor]

                                           By: ________________________________
                                               Name:
                                               Title:

         Dated: _______________________

                                       B-2



                       ANNEX A TO CERTIFICATE OF TRANSFER

         1.    The Transferor owns and proposes to transfer the following:

                            [CHECK ONE OF (a) OR (b)]

                  (a)  [ ] a beneficial interest in the:

                       (i)   [ ] 144A Global Note (CUSIP _________), or

                       (ii)  [ ] Regulation S Global Note (CUSIP _________), or

                       (iii) [ ] IAI Global Note (CUSIP _________); or

                  (b)  [ ] a Restricted Definitive Note.

         2.    After the Transfer the Transferee shall hold:

                                   [CHECK ONE]

                  (a)  [ ] a beneficial interest in the:

                       (i)   [ ] 144A Global Note (CUSIP _________), or

                       (ii)  [ ] Regulation S Global Note (CUSIP _________), or

                       (iii) [ ] IAI Global Note (CUSIP _________); or

                  (b)  [ ] a Restricted Definitive Note,

                  in accordance with the terms of the Indenture.

                                       B-3



                                                                       EXHIBIT C

                         FORM OF CERTIFICATE OF EXCHANGE

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re:  Second Priority Senior Secured Floating Rate Notes due 2007

                       (CUSIP [131347 BB 1] [U13055 AD 7])

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), among Calpine Corporation, as issuer (the "Company") and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         __________________________, (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $____________ in such Note[s] or interests (the "Exchange"). In
connection with the Exchange, the Owner hereby certifies that:

         EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES

         (a) [ ]  CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued shall continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.

         (b) [ ]  CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued shall be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the relevant Restricted Global Note and in
the Indenture and the Securities Act.

                                       C-1



         This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                                           _____________________________________
                                                [Insert Name of Transferor]

                                           By: _________________________________
                                               Name:
                                               Title:

Dated: ______________________

                                       C-2



                                                                       EXHIBIT D

                             FORM OF CERTIFICATE OF
                   ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re:  Second Priority Senior Secured Floating Rate Notes due 2007

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), among Calpine Corporation, as issuer (the "Company") and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         In connection with our proposed purchase of $____________ aggregate
principal amount of:

         (a) [ ]  a beneficial interest in a Global Note, or

         (b) [ ]  a Definitive Note,

         we confirm that:

         1.       We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").

         2.       We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we shall do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and an Opinion
of Counsel in form reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act, (D) outside the United States
in accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the provisions of Rule 144(k) under the Securities Act or (F)
pursuant to an effective registration statement under the Securities Act, and we
further agree to provide to any Person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction meeting the
requirements of clauses (A) through (E) of this paragraph a notice advising such
purchaser that resales thereof are restricted as stated herein.

         3.       We understand that, on any proposed resale of the Notes or
beneficial interest therein, we shall be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
shall bear a legend to the foregoing effect.

                                       D-1



                                                                       EXHIBIT D

         4.       We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.

         5.       We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.

         You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.

                                  ______________________________________________
                                       [Insert Name of Accredited Investor]

                                  By: __________________________________________
                                      Name:
                                      Title:

Dated: _______________________

                                       D-2

EX-4.2

                                                                     Exhibit 4.2

================================================================================

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

                               CALPINE CORPORATION

               8.5% SECOND PRIORITY SENIOR SECURED NOTES DUE 2010

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

                                    INDENTURE

                            Dated as of July 16, 2003

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

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

                            WILMINGTON TRUST COMPANY

                                     Trustee

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

================================================================================



                             CROSS-REFERENCE TABLE*



Trust Indenture
Act Section                                                                  Indenture Section
                                                                          
310(a)(1)...............................................................          7.10
   (a)(2)...............................................................          7.10
   (a)(3)...............................................................          N.A.
   (a)(4)...............................................................          N.A.
   (a)(5)...............................................................          7.10
   (b)..................................................................          7.10
   (c)..................................................................          N.A.
311(a)..................................................................          7.11
   (b)..................................................................          7.11
   (c)..................................................................          N.A.
312(a)..................................................................          2.05
313(a)..................................................................          7.06
   (b)(1)...............................................................         10.03
   (b)(2)...............................................................       7.06; 7.07
   (c)..................................................................          7.06
   (d)..................................................................          7.06
314(a)..................................................................          4.03
   (a)(4)...............................................................         12.05
   (b)..................................................................          N.A.
   (c)(3)...............................................................          N.A.
   (e)..................................................................         12.05
   (f)..................................................................          N.A.
315(a)..................................................................          7.01
   (b)..................................................................          7.05
   (c)..................................................................          7.01
   (d)..................................................................          7.01
   (e)..................................................................          6.11
316(a) (last sentence)..................................................          2.09
   (a)(1)(A)............................................................          6.05
   (a)(1)(B)............................................................          6.04
   (a)(2)...............................................................          N.A.
   (b)..................................................................          6.07
   (c)..................................................................          2.12
317(a)(1)...............................................................          6.08
   (a)(2)...............................................................          6.09
   (b)..................................................................          2.04
318(a)..................................................................          N.A.
   (b)..................................................................         12.03
   (c)..................................................................  12.01; 12.02; 12.03


N.A. means not applicable.

* This Cross Reference Table is not part of this Indenture.



                                TABLE OF CONTENTS



                                                                                                           Page
                                                                                                        
                                   ARTICLE 1.
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

Section 1.01    Definitions.......................................................................           1
Section 1.02    Other Definitions.................................................................          29
Section 1.03    Incorporation by Reference of Trust Indenture Act.................................          29
Section 1.04    Rules of Construction.............................................................          30

                                   ARTICLE 2.
                                    THE NOTES

Section 2.01    Form and Dating...................................................................          31
Section 2.02    Execution and Authentication......................................................          31
Section 2.03    Registrar and Paying Agent........................................................          32
Section 2.04    Paying Agent to Hold Money in Trust...............................................          32
Section 2.05    Holder Lists......................................................................          32
Section 2.06    Transfer and Exchange.............................................................          32
Section 2.07    Replacement Notes.................................................................          39
Section 2.08    Outstanding Notes.................................................................          39
Section 2.09    Treasury Notes....................................................................          39
Section 2.10    Temporary Notes...................................................................          39
Section 2.11    Cancellation......................................................................          40
Section 2.12    Defaulted Interest................................................................          40

                                   ARTICLE 3.
                            REDEMPTION AND PREPAYMENT

Section 3.01    Notices to Trustee................................................................          40
Section 3.02    Selection of Notes to Be Redeemed or Purchased....................................          40
Section 3.03    Notice of Redemption..............................................................          41
Section 3.04    Effect of Notice of Redemption....................................................          42
Section 3.05    Deposit of Redemption or Purchase Price...........................................          42
Section 3.06    Notes Redeemed or Purchased in Part...............................................          42
Section 3.07    Optional Redemption...............................................................          42
Section 3.08    Mandatory Redemption..............................................................          43
Section 3.09    Offer to Purchase by Application of Excess Proceeds...............................          43

                                   ARTICLE 4.
                                    COVENANTS

Section 4.01    Payment of Notes..................................................................          45
Section 4.02    Maintenance of Office or Agency...................................................          45
Section 4.03    Reports...........................................................................          45
Section 4.04    Compliance Certificate............................................................          46
Section 4.05    Taxes.............................................................................          47
Section 4.06    Stay, Extension and Usury Laws....................................................          47
Section 4.07    Restricted Payments...............................................................          47
Section 4.08    Dividend and Other Payment Restrictions Affecting Subsidiaries....................          50
Section 4.09    Incurrence of Indebtedness and Issuance of Preferred Stock........................          51
Section 4.10    Asset Sales.......................................................................          54


                                        i



                                                                                                        
Section 4.11    Transactions with Affiliates......................................................          56
Section 4.12    Liens.............................................................................          57
Section 4.13    Limitation on Changes in the Nature of Business...................................          57
Section 4.14    Corporate Existence...............................................................          58
Section 4.15    Offer to Repurchase Upon Change of Control........................................          58
Section 4.16    Limitation on Sale and Leaseback Transactions.....................................          59
Section 4.17    Limitation on Issuances of Guarantees of Indebtedness.............................          59
Section 4.18    Payments for Consent..............................................................          60
Section 4.19    Designation of Restricted and Unrestricted Subsidiaries...........................          60
Section 4.20    Changes in Covenant When Notes Rated Investment Grade.............................          60

                                   ARTICLE 5.
                                   SUCCESSORS

Section 5.01    Merger, Consolidation, or Sale of Assets..........................................          61
Section 5.02    Successor Corporation Substituted.................................................          62

                                   ARTICLE 6.
                              DEFAULTS AND REMEDIES

Section 6.01    Events of Default.................................................................          62
Section 6.02    Acceleration......................................................................          64
Section 6.03    Other Remedies....................................................................          65
Section 6.04    Waiver of Past Defaults...........................................................          65
Section 6.05    Control by Majority...............................................................          65
Section 6.06    Limitation on Suits...............................................................          65
Section 6.07    Rights of Holders of Notes to Receive Payment.....................................          66
Section 6.08    Collection Suit by Trustee........................................................          66
Section 6.09    Trustee May File Proofs of Claim..................................................          66
Section 6.10    Priorities........................................................................          67
Section 6.11    Undertaking for Costs.............................................................          67

                                   ARTICLE 7.
                                     TRUSTEE

Section 7.01    Duties of Trustee.................................................................          67
Section 7.02    Rights of Trustee.................................................................          68
Section 7.03    Individual Rights of Trustee......................................................          69
Section 7.04    Trustee's Disclaimer..............................................................          69
Section 7.05    Notice of Defaults................................................................          69
Section 7.06    Reports by Trustee to Holders of the Notes........................................          69
Section 7.07    Compensation and Indemnity........................................................          70
Section 7.08    Replacement of Trustee............................................................          70
Section 7.09    Successor Trustee by Merger, etc..................................................          71
Section 7.10    Eligibility; Disqualification.....................................................          71
Section 7.11    Preferential Collection of Claims Against Company.................................          72

                                   ARTICLE 8.
                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01    Option to Effect Legal Defeasance or Covenant Defeasance..........................          72
Section 8.02    Legal Defeasance and Discharge....................................................          72
Section 8.03    Covenant Defeasance...............................................................          72
Section 8.04    Conditions to Legal or Covenant Defeasance........................................          73



                                       ii



                                                                                                        
Section 8.05    Deposited Money and Government Securities to be Held in Trust; Other
                Miscellaneous Provisions..........................................................          74
Section 8.06    Repayment to Company..............................................................          74
Section 8.07    Reinstatement.....................................................................          75

                                   ARTICLE 9.
                        AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01    Without Consent of Holders of Notes...............................................          75
Section 9.02    With Consent of Holders of Notes..................................................          76
Section 9.03    Compliance with Trust Indenture Act...............................................          77
Section 9.04    Revocation and Effect of Consents.................................................          77
Section 9.05    Notation on or Exchange of Notes..................................................          78
Section 9.06    Trustee to Sign Amendments, etc...................................................          78

                                   ARTICLE 10.
                             COLLATERAL AND SECURITY

Section 10.01   Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing
                Confirmation......................................................................          78
Section 10.02   Ranking of Note Liens.............................................................          79
Section 10.03   Release of Security Interest in Respect of Notes..................................          79

                                   ARTICLE 11.
                           SATISFACTION AND DISCHARGE

Section 11.01   Satisfaction and Discharge........................................................          80
Section 11.02   Application of Trust Money........................................................          81

                                   ARTICLE 12.
                                  MISCELLANEOUS

Section 12.01   Trust Indenture Act Controls......................................................          81
Section 12.02   Notices...........................................................................          81
Section 12.03   Communication by Holders of Notes with Other Holders of Notes.....................          82
Section 12.04   Certificate and Opinion as to Conditions Precedent................................          82
Section 12.05   Statements Required in Certificate or Opinion.....................................          83
Section 12.06   Rules by Trustee and Agents.......................................................          83
Section 12.07   No Personal Liability of Directors, Officers, Employees and Stockholders..........          83
Section 12.08   Governing Law.....................................................................          83
Section 12.09   No Adverse Interpretation of Other Agreements.....................................          83
Section 12.10   Successors........................................................................          83
Section 12.11   Severability......................................................................          84
Section 12.12   Counterpart Originals.............................................................          84
Section 12.13   Table of Contents, Headings, etc..................................................          84



                                    EXHIBITS

Exhibit A       FORM OF NOTE
Exhibit B       FORM OF CERTIFICATE OF TRANSFER
Exhibit C       FORM OF CERTIFICATE OF EXCHANGE
Exhibit D       FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED
                INVESTOR

                                       iii



         INDENTURE dated as of July 16, 2003 between Calpine Corporation, a
Delaware corporation and Wilmington Trust Company (the "Trustee").

         The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders (as defined) of the
8.5% Second Priority Senior Secured Notes due 2010 (the "Notes"):

                                   ARTICLE 1.
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

Section 1.01      Definitions.

         "144A Global Note" means a Global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that shall be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.

         "Acquired Debt" means, with respect to any specified Person:

              (1) Indebtedness of any other Person existing at the time such
         other Person is merged with or into or became a Restricted Subsidiary
         of such specified Person, whether or not such Indebtedness is incurred
         in connection with, or in contemplation of, such other Person merging
         with or into, or becoming a Restricted Subsidiary of, such specified
         Person; and

              (2) Indebtedness secured by a Lien encumbering any asset acquired
         by such specified Person.

Acquired Debt shall be deemed to be incurred on the date the acquired Person
becomes a Restricted Subsidiary.

         "Additional Notes" means Notes (other than the Initial Notes) issued
under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part
of the same series as the Initial Notes.

         "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings. For purposes of Section 4.11 herein,
"Affiliate" shall also mean any Person of which the Company owns 10% or more of
any class of Capital Stock or rights to acquire 10% or more of any class of
Capital Stock and any Person who would be an Affiliate of any such Person
pursuant to the first sentence hereof.

         "Agent" means any Registrar, co-registrar, Paying Agent or additional
paying agent.

         "Applicable Premium" means, with respect to any note on any redemption
date, the greater of:

              (1) 1.0% of the principal amount of the note; or

              (2) the excess of:

                                        1



                  (a) the present value at the redemption date of (i) the
               redemption price of the note at July 15, 2007 (such redemption
               price being set forth in Section 3.07 herein) plus (ii) all
               required interest payments due on the note through July 15, 2010
               (excluding accrued but unpaid interest to the redemption date),
               computed using a discount rate equal to the Treasury Rate as of
               the redemption date plus 100 basis points; over

                  (b) the principal amount of the note.

         "Asset Sale" means:

              (1) the sale, lease, conveyance or other disposition of any assets
         or rights; provided that the sale, conveyance or other disposition of
         all or substantially all of the assets of the Company and its
         Restricted Subsidiaries taken as a whole shall be governed by Section
         4.15 of this Indenture and/or Section 5.01 and not by Section 4.10; and

              (2) the issuance of Equity Interests in any of the Company's
         Restricted Subsidiaries or the sale of Equity Interests in any of its
         Subsidiaries.

Notwithstanding the preceding, none of the following items shall be deemed to be
an Asset Sale:

              (1) (A) any single transaction or series of related transactions
         that involves the sale of uninstalled turbines and related equipment,
         and (B) any single transaction or series of related transactions that
         involves other assets having a Fair Market Value of less than $50.0
         million, it being understood that, in connection with any sale, lease,
         conveyance or other disposition of any Designated Assets or rights
         relating thereto in connection with a farm-out transaction, such
         transaction shall be valued as at the time of execution and delivery of
         binding contractual arrangements relating thereto;

              (2) a transfer of assets between or among the Company and its
         Restricted Subsidiaries,

              (3) an issuance of Equity Interests by a Restricted Subsidiary to
         the Company or to a Restricted Subsidiary of the Company;

              (4) the sale or lease of products, services or accounts receivable
         in the ordinary course of business and any sale or other disposition of
         damaged, worn-out or obsolete assets in the ordinary course of
         business;

              (5) the sale or other disposition of cash or Cash Equivalents;

              (6) a Restricted Payment that does not violate Section 4.07 herein
         or a Permitted Investment; and

              (7) the sale or other disposition of all or any part of the
         Company's right to amounts that have or are to become due and payable
         by Pacific Gas & Electric Company under that certain Agreement dated as
         of July 1, 1999, as amended, between Pacific Gas & Electric Company and
         Calpine Gilroy L.P., a California limited partnership (PG&E Log No.
         08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase
         Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P.
         by the Company pursuant to the Purchase Agreement dated as of March 8,
         2002, as amended, between Calpine Gilroy Cogen L.P. and the Company.

                                        2



         "Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP; provided, that
if such sale and leaseback transaction results in a Capital Lease Obligation,
the amount of Indebtedness represented thereby shall be determined in accordance
with the definition of "Capital Lease Obligation."

         "Bankruptcy Case" means any case under Title 11 of the United States
Code or any successor bankruptcy law commenced voluntarily or involuntarily
against the Company or any other Obligor.

         "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

         "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only after the passage of time. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.

         "Board of Directors" means:

              (1) with respect to a corporation, the Board of Directors of the
         corporation or any committee thereof duly authorized to act on behalf
         of such board;

              (2) with respect to a partnership, the Board of Directors of the
         general partner of the partnership;

              (3) with respect to a limited liability company, the managing
         member or members or any controlling committee of managing members
         thereof; and

              (4) with respect to any other Person, the board or committee of
         such Person serving a similar function.

         "Business Day" means any day other than a Legal Holiday.

         "Canadian Gas Assets" means Designated Assets owned by a direct or
indirect Restricted Subsidiary of one or more Canadian Guarantors.

         "Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware
corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana
Canada Holdings LLC, a Delaware limited liability company, and any successor to
any of the foregoing.

         "Capital Lease Obligation" means, at the time any determination is to
be made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP, and the Stated Maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be prepaid by the lessee without payment of a penalty.

                                        3



         "Capital Stock" means:

              (1) in the case of a corporation, corporate stock;

              (2) in the case of an association or business entity, any and all
         shares, interests, participations, rights or other equivalents (however
         designated) of corporate stock;

              (3) in the case of a partnership or limited liability company,
         partnership interests (whether general or limited) or membership
         interests; and

              (4) any other interest or participation that confers on a Person
         the right to receive a share of the profits and losses of, or
         distributions of assets of, the issuing Person, but excluding from all
         of the foregoing any debt securities convertible into Capital Stock,
         whether or not such debt securities include any right of participation
         with Capital Stock.

         "Cash Equivalents" means:

              (1) the lawful currency of any country where the Company owns or
         operates a Facility;

              (2) securities issued or directly and fully guaranteed or insured
         by the United States government or any state thereof (or any agency or
         instrumentality thereof), by the Canadian government (or any agency or
         instrumentality thereof), or by the government of a member state of the
         European Union (or any agency or instrumentality thereof), in each case
         the payment of which is backed by the full faith and credit of the
         United States, Canada or the relevant member state of the European
         Union, as the case may be, and having maturities of not more than six
         months from the date of acquisition;

              (3) certificates of deposit and eurodollar time deposits with
         maturities of six months or less from the date of acquisition, bankers'
         acceptances with maturities not exceeding six months and overnight bank
         deposits, in each case, with any lender party to the Credit Agreement
         or with any domestic commercial bank having capital and surplus in
         excess of $500.0 million and a Thomson Bank Watch or successor rating
         agency rating of "B" or better;

              (4) repurchase obligations with a term of not more than seven days
         for underlying securities of the types described in clauses (2) and (3)
         above entered into with any financial institution meeting the
         qualifications specified in clause (3) above;

              (5) commercial paper having one of the two highest ratings
         obtainable from Moody's or S&P and maturing within six months after the
         date of acquisition; and

              (6) money market funds at least 95% of the assets of which
         constitute Cash Equivalents of the kinds described in clauses (1)
         through (5) of this definition.

         "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited
liability company that is wholly-owned by the Canadian Guarantors.

         "Change of Control" means the occurrence of any of the following:

              (1) the direct or indirect sale, transfer, conveyance or other
         disposition (other than by way of merger or consolidation), in one or a
         series of related transactions, of all or substantially all of the

                                        4


         properties or assets of the Company and its Restricted Subsidiaries
         taken as a whole to any "person" (as that term is used in Section 13(d)
         of the Exchange Act);

              (2) the adoption of a plan relating to the liquidation or
         dissolution of the Company;

              (3) the consummation of any transaction (including any merger or
         consolidation) the result of which is that any "person" (as defined
         above) becomes the Beneficial Owner, directly or indirectly, of more
         than 50% of the Voting Stock of the Company, measured by voting power
         rather than number of shares;

              (4) the Company consolidates with, or merges with or into, any
         Person, or any Person consolidates with, or merges with or into, the
         Company, in any such event pursuant to a transaction in which any of
         the outstanding Voting Stock of the Company or such other Person is
         converted into or exchanged for cash, securities or other property,
         other than any such transaction where the Voting Stock of the Company
         outstanding immediately prior to such transaction is converted into or
         exchanged for Voting Stock (other than Disqualified Stock) of the
         surviving or transferee Person constituting a majority of the
         outstanding shares of such Voting Stock of such surviving or transferee
         Person (immediately after giving effect to such issuance); or

              (5) the first day on which a majority of the members of the Board
         of Directors of the Company are not Continuing Directors.

         "Clearstream" means Clearstream Banking, S.A.

         "Collateral" means all properties and assets at any time owned or
acquired by the Company, except the Excluded Assets, and the Canadian
Guarantors' ownership interest in 65% of the aggregate outstanding voting stock
of CCEC.

         "Collateral Trust Agreement" means that certain Collateral Trust
Agreement dated as of July 16, 2003, among the Company, the Canadian Guarantors,
the Credit Agreement Agent, the Trustee and the Bank of New York.

         "Collateral Trustee" means The Bank of New York in its capacity as
collateral trustee under the Collateral Trust Agreement, together with its
successors and assigns in such capacity.

         "Company" means Calpine Corporation, a Delaware Corporation and any and
all successors thereto.

         "Consolidated Cash Flow" means, with respect to any specified Person
for any period, the Consolidated Net Income of such Person for such period plus,
without duplication:

              (1) an amount equal to any extraordinary loss plus any net loss
         realized by such Person or any of its Restricted Subsidiaries in
         connection with an Asset Sale, to the extent such losses were deducted
         in computing such Consolidated Net Income; plus

              (2) provision for taxes based on income or profits of such Person
         and its Restricted Subsidiaries for such period, to the extent that
         such provision for taxes was deducted in computing such Consolidated
         Net Income; plus

              (3) the Fixed Charges of such Person and its Restricted
         Subsidiaries for such period, to the extent that such Fixed Charges
         were deducted in computing such Consolidated Net Income; plus

                                        5



              (4) depreciation, amortization (including amortization of
         intangibles but excluding amortization of prepaid cash expenses that
         were paid in a prior period) and other non-cash expenses (excluding any
         such non-cash expense to the extent that it represents an accrual of or
         reserve for cash expenses in any future period or amortization of a
         prepaid cash expense that was paid in a prior period) of such Person
         and its Restricted Subsidiaries for such period to the extent that such
         depreciation, amortization and other non-cash expenses were deducted in
         computing such Consolidated Net Income;

minus non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business;

in each case, on a consolidated basis and determined in accordance with GAAP.

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

         "Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; provided that:

              (1) the Net Income (but not loss) of any Person that is not a
         Restricted Subsidiary or that is accounted for by the equity method of
         accounting shall be included only to the extent of the amount of
         dividends or similar distributions paid in cash to the specified Person
         or a Restricted Subsidiary of the Person;

              (2) the Net Income of any Restricted Subsidiary shall be excluded
         to the extent that the declaration or payment of dividends or similar
         distributions by that Restricted Subsidiary of that Net Income is not
         at the date of determination permitted without any prior governmental
         approval (that has not been obtained) or, directly or indirectly, by
         operation of the terms of its charter or any agreement, instrument,
         judgment, decree, order, statute, rule or governmental regulation
         applicable to that Restricted Subsidiary or its stockholders; and

              (3) the cumulative effect of a change in accounting principles
         shall be excluded.

         "Consolidated Net Worth" means, with respect to any specified Person as
of any date, the sum of:

              (1) the consolidated equity of the common stockholders of such
         Person and its consolidated Subsidiaries as of such date; plus

              (2) the respective amounts reported on such Person's balance sheet
         as of such date with respect to any series of preferred stock (other
         than Disqualified Stock) that by its terms is not entitled to the
         payment of dividends unless such dividends may be declared and paid
         only out of net earnings in respect of the year of such declaration and
         payment, but only to the extent of any cash received by such Person
         upon issuance of such preferred stock.

         "Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who:

                                        6



              (1) was a member of such Board of Directors on the date of this
         Indenture; or

              (2) was nominated for election or elected to such Board of
         Directors with the approval of a majority of the Continuing Directors
         then still in office or with the approval of a majority of Directors
         whose election was previously so approved from time to time.

         "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.

         "Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of July 16, 2003, by and among the Company and The Bank of
Nova Scotia and Bayerische Landesbank, as lead arrangers and bookrunners,
providing for up to $500.0 million of revolving credit and term loan borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
restated, modified, renewed, refunded, replaced or refinanced (including by
means of sales of debt securities to institutional investors) in whole or in
part from time to time.

         "Credit Agreement Agent" means, at any time, the Person serving at such
time as the "Agent" or "Administrative Agent" under the Credit Agreement or any
other representative of the Lenders then most recently designated by a majority
of the Lenders, in a written notice delivered to each Parity Debt Representative
and the Collateral Trustee, as the Credit Agreement Agent for the purposes of
the Parity Lien Debt Documents.

         "Credit Facilities" means one or more debt facilities (including the
Credit Agreement) with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
(including by means of sales of debt securities to institutional investors) in
whole or in part from time to time.

         "Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.

         "Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.

         "Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof,
substantially in the form of Exhibit A hereto except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.

         "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.

         "Designated Assets" means all geothermal energy assets (including any
related extraction, processing or similar equipment and geothermal power plants)
and all natural gas assets (including any related extraction, processing or
similar equipment, other than natural gas power plants) owned by the Company or
any of its Restricted Subsidiaries from time to time, including the equity
interests of any

                                        7



Restricted Subsidiary owning any Designated Assets, but excluding (i) any
geothermal energy assets that are both unproven and undeveloped and (ii)
contracts for the purchase or sale of natural gas and natural gas supplied under
such contracts.

         "Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the Notes issued pursuant to this Indenture
mature. Notwithstanding the preceding sentence, any Capital Stock that would
constitute Disqualified Stock solely because the holders of the Capital Stock
have the right to require the Company to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at
any time for purposes of this Indenture shall be the maximum amount that the
Company and its Restricted Subsidiaries may become obligated to pay upon the
maturity of, or pursuant to any mandatory redemption provisions of, such
Disqualified Stock, exclusive of accrued dividends.

         "Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

         "Euroclear" means Euroclear Bank S.A./N.V., as operator of the
Euroclear system.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Excluded Assets" means:

              (1) any lease of property other than (i) a lease of a geothermal
         energy or natural gas interest or property, (ii) a lease of real estate
         underlying a power generation property or (iii) a capital lease;

              (2) all deposit accounts (as defined in Article 9 of the Uniform
         Commercial Code of any relevant jurisdiction) and deposits therein to
         the extent not exceeding $50.0 million in the aggregate, except for the
         Designated Assets Sale Proceeds Account and any deposit account and
         deposits therein holding amounts referred to in clause (7) of this
         definition;

              (3) the fixtures and equipment relating to any pipeline if, to the
         extent that and for so long as (i) the ownership or operation of such
         pipeline is regulated by any federal or state regulatory authority and
         (ii) under the law applicable to such regulatory authority the grant of
         a security interest in such fixtures and equipment is prohibited or a
         security interest in such fixtures and equipment may be granted only
         after completion of a filing with, or receipt of consent from, such
         regulatory authority which has not been effectively completed or
         received; provided, that (a) such fixtures and equipment shall be an
         Excluded Asset only to the extent and for so long as the conditions set
         forth in clauses (i) and (ii) in this clause (3) are and remain
         satisfied and to the extent such assets otherwise constitute
         Collateral, shall cease to be an Excluded Asset, and shall become
         subject to the security interests granted to the Collateral Trustee
         under the Security Documents, immediately and automatically at such
         time as such conditions cease to exist, including by reason of the
         effective completion of any required filing or effective receipt of any
         required regulatory approval, and (b) unless prohibited by law, the
         proceeds of any sale, lease or other disposition of any such fixtures
         or equipment that are Excluded Assets shall not be an Excluded Asset
         and shall at all times be and remain subject to the security interests
         granted to the Collateral Trustee under the Security Documents except
         as such proceeds are applied and used by

                                        8



         the Company in the ordinary course of business and applied in
         accordance with Section 4.10 herein;

              (4) all easements, rights-of-way, licenses and other real property
         interests for or pertaining to the construction, operation, use or
         maintenance of any pipeline over, upon or under land owned by another
         Person;

              (5) with respect to personal property, any lease, license, permit,
         franchise, power, authority or right if, to the extent that and for so
         long as (i) the grant of a security interest therein constitutes or
         would result in the abandonment, invalidation or unenforceability of
         such lease, license, permit, franchise, power, authority or right or
         the termination of or a default under the instrument or agreement by
         which such lease, license, permit, franchise, power, authority or right
         is governed and (ii) such abandonment, invalidation, unenforceability,
         termination or default is not rendered ineffective pursuant to Sections
         9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any
         successor provisions) of any relevant jurisdiction or any other
         applicable law (including the United States bankruptcy code); provided,
         that (a) such lease, license, permit, franchise, power, authority or
         right shall be an Excluded Asset only to the extent and for so long as
         the conditions set forth in clauses (i) and (ii) of this clause (5) are
         and remain satisfied and to the extent that such assets otherwise
         constitute Collateral, shall cease to be an Excluded Asset, and shall
         become subject to the security interests granted to the Collateral
         Trustee under the Security Documents, immediately and automatically at
         such time as such conditions cease to exist, including by reason of any
         waiver or consent under the applicable instrument or agreement, and (b)
         the proceeds of any sale, lease or other disposition of any such lease,
         license, permit, franchise, power, authority or right that is or
         becomes an Excluded Asset shall not be an Excluded Asset and shall at
         all times be and remain subject to the security interests granted to
         the Collateral Trustee under the Security Documents except as such
         proceeds are applied and used by the Company in the ordinary course of
         business and applied in accordance with Section 4.10 herein;

              (6) with respect to any real property, any lease, license, permit,
         franchise, power, authority or right if, to the extent that and for so
         long as the grant of a security interest therein (i) requires a third
         party consent which has not been obtained or (ii) constitutes or would
         result in the abandonment, invalidation or unenforceability of such
         lease, license, permit, franchise, power, authority or right or the
         termination of or a default under the instrument or agreement by which
         such lease, license, permit, franchise, power, authority or right is
         governed; provided, that such lease, license, permit, franchise, power,
         authority or right shall be an Excluded Asset only to the extent and
         for as long as the conditions set forth in clause (i) or (ii) of this
         clause (6) are and remain satisfied and to the extent such assets
         otherwise constitute Collateral, shall cease to be an Excluded Asset,
         and shall become subject to the security interests granted to the
         Collateral Trustee under the Security Documents immediately and
         automatically at such time as such conditions cease to exist except as
         such proceeds are applied and used by the Company in the ordinary
         course of business and applied in accordance with Section 4.10 herein;

              (7) any cash proceeds (including any earnings thereon) of Priority
         Lien Debt that are pledged to cash collateralize letters of credit;

              (8) any turbines which serve as collateral pursuant to that
         certain General Agreement dated as of January 31, 2002 among the
         Company, various Subsidiaries of the Company and Siemens Westinghouse
         Power Corporation relating to various purchase contracts and letters of
         intent for gas turbine generators, steam turbine generators and related
         accessories;

                                        9



              (9) proved oil and gas reserves located in Oklahoma and
         undeveloped reserves and unproven acreage located in California, Texas,
         Wyoming, Montana, Colorado, New Mexico and offshore Louisiana; provided
         that such reserves and acreage has a Fair Market Value not exceeding
         $20.0 million in the aggregate;

              (10) Capital Stock of Subsidiaries designated by the Company, but
         only for so long as (i) the Capital Stock of such Subsidiaries is not
         pledged to any Person (other than the Collateral Trustee on behalf of
         all holders of all Secured Debt) and (ii) such Subsidiaries
         collectively own less than 5.0% of the Company's total consolidated
         assets and collectively account for less than 5.0% of the Company's
         Consolidated Cash Flow; and

              (11) any other property in which a security interest cannot be
         perfected by the filing of a financing statement under the Uniform
         Commercial Code of the relevant jurisdiction; provided that such
         property has a Fair Market Value not exceeding $25.0 million in the
         aggregate.

         "Existing Guarantees" means the Guarantees of the Term Loans, the Notes
and certain obligations under the Credit Agreement that exist on the date of
this Indenture.

         "Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of this Indenture, until such amounts are repaid.

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

         "Fair Market Value" means the value that would be paid by a willing
buyer to a willing seller in a transaction not involving distress or necessity
of either party, determined in good faith by the Board of Directors of the
Company (unless otherwise provided in this Indenture).

         "Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
for such period to the Fixed Charges of such Person for such period. In the
event that the specified Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees, repays, repurchases, redeems, defeases or otherwise
discharges any Indebtedness (other than ordinary working capital borrowings) or
issues, repurchases or redeems preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated and on
or prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase, redemption, defeasance or other
discharge of Indebtedness, or such issuance, repurchase or redemption of
preferred stock, and the use of the proceeds therefrom, as if the same had
occurred at the beginning of the applicable four-quarter reference period.

         In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:

              (1) acquisitions that have been made by the specified Person or
         any of its Restricted Subsidiaries, including through mergers or
         consolidations or acquisitions of assets, or any Person or any of its
         Restricted Subsidiaries acquired by merger, consolidation, or the
         acquisition of all or substantially all of its assets by the specified
         Person or any of its Restricted Subsidiaries, and including any related
         financing transactions and including increases in ownership of
         Restricted Subsidiaries, during the four-quarter reference period or
         subsequent to such reference period and on or prior to the Calculation
         Date shall be given pro forma effect (in accordance with Regulation

                                       10



         S-X under the Securities Act) as if they had occurred on the first day
         of the four-quarter reference period;

              (2) the Consolidated Cash Flow attributable to discontinued
         operations, as determined in accordance with GAAP, and operations or
         businesses (and ownership interests therein) disposed of prior to the
         Calculation Date, shall be excluded;

              (3) the Fixed Charges attributable to discontinued operations, as
         determined in accordance with GAAP, and operations or businesses (and
         ownership interests therein) disposed of prior to the Calculation Date,
         shall be excluded, but only to the extent that the obligations giving
         rise to such Fixed Charges shall not be obligations of the specified
         Person or any of its Restricted Subsidiaries following the Calculation
         Date;

              (4) any Person that is a Restricted Subsidiary on the Calculation
         Date shall be deemed to have been a Restricted Subsidiary at all times
         during such four-quarter period;

              (5) any Person that is not a Restricted Subsidiary on such
         Calculation Date shall be deemed not to have been a Restricted
         Subsidiary at any time during such four-quarter period; and

              (6) if any Indebtedness bears a floating rate of interest, the
         interest expense on such Indebtedness shall be calculated as if the
         rate in effect on the Calculation Date had been the applicable rate for
         the entire period (taking into account any Hedging Obligation
         applicable to such Indebtedness if such Hedging Obligation has a
         remaining term as at the Calculation Date in excess of 12 months).

         "Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:

              (1) the consolidated interest expense of such Person and its
         Restricted Subsidiaries for such period, whether paid or accrued,
         including amortization of debt issuance costs and original issue
         discount, non-cash interest payments, the interest component of any
         deferred payment obligations, the interest component of all payments
         associated with Capital Lease Obligations, commissions, discounts and
         other fees and charges incurred in respect of letter of credit or
         bankers' acceptance financings, and net of the effect of all payments
         made or received pursuant to Hedging Obligations in respect of interest
         rates, plus one-third of all payments with respect to operating leases;
         plus

              (2) the consolidated interest of such Person and its Restricted
         Subsidiaries that was capitalized during such period, except interest
         on Indebtedness incurred to finance the development or construction of
         a Facility; plus

              (3) any interest accruing on Indebtedness of another Person that
         is Guaranteed by such Person or one of its Restricted Subsidiaries or
         secured by a Lien on assets of such Person or one of its Restricted
         Subsidiaries, whether or not such Guarantee or Lien is called upon, but
         excluding any such Guarantee or Lien in effect on the date of this
         Indenture unless the same is called upon; plus

              (4) the product of (a) all dividends, whether paid or accrued and
         whether or not in cash, on any series of preferred stock of such Person
         or any of its Restricted Subsidiaries, other than dividends on Equity
         Interests payable solely in Equity Interests of the Company (other than
         Disqualified Stock) or to the Company or a Restricted Subsidiary of the
         Company, times (b) a fraction, the numerator of which is one and the
         denominator of which is one minus the effective

                                       11



         combined federal, state and local statutory tax rate of such Person for
         the immediately preceding fiscal year, expressed as a decimal, in each
         case, on a consolidated basis and in accordance with GAAP.

         "Foreign Asset Sale" means an Asset Sale in respect of the Capital
Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type
described in Section 936 of the Internal Revenue Code of 1986, as amended, to
the extent that the proceeds of such Asset Sale are received by a Person subject
in respect of such proceeds to the tax laws of a jurisdiction other than the
United States of America or any State thereof or the District of Columbia.

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

         "GAAP" means generally accepted accounting principles set forth in the
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect and, to
the extent optional, adopted by the Company, on the applicable date of
determination.

         "Global Notes" means, individually and collectively, each of the
Restricted Global Notes, substantially in the form of Exhibit A hereto issued in
accordance with Section 2.01 or 2.06(b)(3) hereof.

         "Global Note Legend" means the legend set forth in Section 2.06(e)(2),
which is required to be placed on all Global Notes issued under this Indenture.

         "Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.

         "Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including by way of a pledge of assets or through
letters of credit or reimbursement agreements in respect thereof, of all or any
part of any Indebtedness (whether arising by virtue of partnership arrangements,
or by agreements to keep-well, to purchase assets, goods, securities or
services, to take or pay or to maintain financial statement conditions or
otherwise).

         "Guarantor" means each Subsidiary of Calpine that Guarantees the Notes.

         "Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:

              (1) interest rate swap agreements (whether from fixed to floating
         or from floating to fixed), interest rate cap agreements and interest
         rate collar agreements;

              (2) other agreements or arrangements designed to manage interest
         rate risk; and

              (3) other agreements or arrangements designed to protect such
         Person against fluctuations in currency exchange rates or commodity
         prices.

         "Holder" means a Person in whose name a Note is registered.

         "IAI Global Note" means a Global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of and

                                       12



registered in the name of the Depositary or its nominee that shall be issued in
a denomination equal to the outstanding principal amount of the Notes sold to
Institutional Accredited Investors.

         "Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:

              (1) in respect of borrowed money;

              (2) evidenced by bonds, notes, debentures or similar instruments
         or letters of credit (or reimbursement agreements in respect thereof);

              (3) in respect of banker's acceptances;

              (4) representing Capital Lease Obligations or Attributable Debt in
         respect of sale and leaseback transactions;

              (5) representing the balance deferred and unpaid of the purchase
         price of any property or services due more than six months after such
         property is acquired or such services are completed; or

              (6) representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit,
Attributable Debt and Hedging Obligations) would appear as a liability upon a
balance sheet of the specified Person prepared in accordance with GAAP. In
addition, the term "Indebtedness" includes all Indebtedness of others secured by
a Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any Indebtedness of any other Person.

         The amount of any Indebtedness outstanding as of any date shall be:

              (1) the accreted value of the Indebtedness, in the case of any
         Indebtedness issued with original issue discount;

              (2) the principal amount of the Indebtedness, in the case of any
         other Indebtedness; and

              (3) in respect of Indebtedness of another Person secured by a Lien
         on the assets of the specified Person, the lesser of:

                  (A) the Fair Market Value of such asset at such date of
         determination, and

                  (B) the amount of the Indebtedness of such other Person.

         Notwithstanding anything to the contrary in this definition of
Indebtedness, with respect to any contingent obligations (other than with
respect to contractual obligations to repurchase goods sold or distributed,
which shall be included to the extent reflected on the balance sheet of such
Person in accordance with GAAP) of a Person, the maximum liability of such
Indebtedness shall be as determined by such Person's Board of Directors, in good
faith, as, in light of the facts and circumstances existing at the time,
reasonably likely to be incurred upon the occurrence of the contingency giving
rise to such obligation.

                                       13



         "Indenture" means this indenture, as amended or supplemented from time
to time.

         "Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.

         "Initial Notes" means the first $1,150,000,000 aggregate principal
amount of Notes issued under this Indenture on the date hereof.

                  "Initial Purchasers" means Credit Lyonnais (USA) Inc.,
Goldman, Sachs & Co., ING Financial Markets LLC, Scotia Capital (USA) Inc. and
TD Securities (USA) Inc.

         "Insolvency Proceeding" means:

              (1) any proceeding for the reorganization, recapitalization or
         adjustment or marshalling of the assets or liabilities of the Company
         or any other Obligor, any receivership or assignment for the benefit of
         creditors relating to the Company or any other Obligor or any similar
         case or proceeding relative to the Company or any other Obligor or its
         creditors, as such, in each case whether or not voluntary;

              (2) any liquidation, dissolution, marshalling of assets or
         liabilities or other winding up of or relating to the Company or any
         other Obligor, in each case whether or not voluntary and whether or not
         involving bankruptcy or insolvency; or

              (3) any other proceeding of any type or nature in which
         substantially all claims of creditors of the Company or any other
         Obligor are determined and any payment or distribution is or may be
         made on account of such claims.

         "Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.

         "Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market
Value of the Company's Investments in such Subsidiary that were not sold or
disposed of in an amount determined as provided in Section 4.07(b). Except as
otherwise provided in this Indenture, the amount of an Investment shall be
determined at the time the Investment is made and without giving effect to
subsequent changes in value.

         "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.

                                       14



         "Lenders" means, at any time, the parties to the Credit Agreement then
holding (or committed to provide) loans, letters of credit or other extensions
of credit that constitute (or when provided shall constitute) Priority Lien Debt
outstanding under the Credit Agreement.

         "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

         "Magic Valley Generating Assets" means the Magic Valley Generating
Station, a natural gas fired power plant in commercial operation in Edinburg,
Texas.

         "Material Designated Assets" means Designated Assets having a Fair
Market Value in the aggregate in excess of $50.0 million.

         "Moody's" means Moody's Investors Service, Inc. (or, if such entity
ceases to rate the applicable notes for reasons outside of the control of the
Company, the equivalent investment grade credit rating from any other
"nationally recognized statistical rating organization" (or successor concept)
within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or
successor provision) selected by the Company as a replacement agency).

         "Net Income" means, with respect to any specified Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, without
duplication:

              (1) any gain (but not loss), together with any related provision
         for taxes on such gain (but not loss), realized in connection with: (a)
         any Asset Sale; or (b) the disposition of any securities by such Person
         or any of its Restricted Subsidiaries or the extinguishment of any
         Indebtedness of such Person or any of its Restricted Subsidiaries; and

              (2) any extraordinary gain (but not loss), together with any
         related provision for taxes on such extraordinary gain (but not loss).

         "Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including legal, accounting and investment banking fees, and
sales commissions, and any relocation expenses incurred as a result of the Asset
Sale, taxes paid or payable as a result of the Asset Sale, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.

         "Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary
that is incurred to finance the exploration, drilling, development, construction
or purchase of or by, or repairs, improvements or additions to, property or
assets of the Company or any Restricted Subsidiary; provided that such
Indebtedness is without recourse to the Company (except as permitted by clause
(8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any
property or assets of the Company or any

                                       15



Restricted Subsidiary other than property or assets (including Capital Stock) of
a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of
the definition of Permitted Liens or property or assets (including Capital
Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause
(19) of the definition of Permitted Liens.

         "Note Documents" means this Indenture, the Notes, the 2007 Notes and
the indenture governing such notes, the 2013 Notes and the indenture governing
such notes, each Sharing Confirmation and the Security Documents.

         "Note Obligations" means the Notes (including any Additional Notes
issued under the this Indenture) and all other Obligations of any Obligor under
this Indenture, the Notes (including any Additional Notes issued under this
Indenture) and the Security Documents.

         "Notes" has the meaning assigned to it in the preamble to this
Indenture. The Initial Notes and the Additional Notes shall be treated as a
single class for all purposes under this Indenture, and unless the context
otherwise requires, all references to the Notes shall include the Initial Notes
and any Additional Notes.

         "Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness (including the Notes and this
Indenture).

         "Obligor" means the Company and each Restricted Subsidiary of the
Company (if any) that at any time guarantees or provides collateral security or
credit support for any Secured Obligations.

         "Offering Circular" means that certain offering circular dated as of
July 10, 2003, with respect to the $2.55 billion in aggregate principal amount
offering of the Notes, the 2007 Notes and the 2013 Notes, collectively.

         "Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.

         "Officers' Certificate" means a certificate signed on behalf of the
Company by one Officer of the Company that meets the requirements of Section
12.05 hereof.

         "Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.

         "Parity Debt Representative" means:

              (1) in the case of the Notes, the 2007 Notes or the 2013 Notes,
         the applicable trustee thereof;

              (2) in the case of the Term Loans, the Term Loan Administrative
         Agent; or

              (3) in the case of any other Series of Parity Debt, the trustee,
         agent or representative of the holders of such Series of Parity Lien
         Debt who maintains the transfer register for such Series of Parity Lien
         Debt and is appointed as a Parity Debt Representative (for purposes
         related to the administration of the Security Documents) pursuant to
         this Indenture or other agreement governing such Series of Parity Lien
         Debt.

                                       16



         "Parity Lien" means a Lien granted by a Security Document to the
Collateral Trustee upon any property of the Company or any other Obligor to
secure Parity Lien Obligations.

         "Parity Lien Debt" means:

              (1) the Notes;

              (2) the Term Loans; and

              (3) any other Indebtedness (including additional notes and Term
         Loans) that:

                  (A) is permitted to be incurred under Section 4.09 herein; and

                  (B) is permitted to be secured by Parity Liens by clause (2)
              of the definition of Permitted Liens;

provided, in the case of each issue or series of Indebtedness referred to in
this clause (3), that:

              (i) on or before the date on which such Indebtedness was incurred
         by the Company such Indebtedness is designated by the Company, in an
         officers' certificate delivered to each Parity Debt Representative and
         the Collateral Trustee on or before such date, as Parity Lien Debt for
         the purposes of this Indenture and the Collateral Trust Agreement,

              (ii) such Indebtedness is governed by an indenture or other
         agreement that includes a Sharing Confirmation and

              (iii) all requirements set forth in the Collateral Trust Agreement
         as to the confirmation, grant or perfection of the Collateral Trustee's
         Liens to secure such Indebtedness or Obligations in respect thereof are
         satisfied

(and the satisfaction of such requirements and the other provisions of this
clause (3) shall be conclusively established, for purposes of entitling the
holders of such Indebtedness to share equally and ratably with the other holders
of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's
Liens on the Collateral, if the Company delivers to the Collateral Trustee an
officers' certificate in the form required pursuant to the Collateral Trust
Agreement stating that such requirements and other provisions have been
satisfied and that such Indebtedness is Parity Lien Debt, together with an
opinion of counsel stating that such officers' certificate has been duly
authorized by the Board of Directors of the Company and has been duly executed
and delivered, and the holders of such Indebtedness and Obligations in respect
thereof shall be entitled to rely conclusively thereon).

         "Parity Lien Debt Documents" means, collectively, the Term Loan
Documents, the Note Documents, and the indenture or agreement governing each
other Series of Parity Lien Debt and all agreements binding on any Obligor
related thereto.

         "Parity Lien Obligations" means Parity Lien Debt and all other
Obligations in respect thereof.

         "Participant" means, with respect to the Depositary, Euroclear or
Clearstream, a Person who has an account with the Depositary, Euroclear or
Clearstream, respectively (and, with respect to DTC, shall include Euroclear and
Clearstream).

                                       17



         "Permitted Business" means the business of acquiring, constructing,
managing, developing, improving, owning and operating Facilities, as well as any
other activities reasonably related to the foregoing activities (including
acquiring and holding reserves), including investing in Facilities.

         "Permitted Investments" means:

              (1) any Investment in the Company or in a Restricted Subsidiary of
         the Company;

              (2) any Investment in Cash Equivalents;

              (3) any Investment by the Company or any Restricted Subsidiary of
         the Company in a Person, if as a result of such Investment:

                  (a) such Person becomes a Restricted Subsidiary of the
              Company; or

                  (b) such Person is merged, consolidated or amalgamated with or
              into, or transfers or conveys substantially all of its assets to,
              or is liquidated into, the Company or a Restricted Subsidiary of
              the Company;

              (4) any Investment made as a result of the receipt of non-cash
         consideration from an Asset Sale that was made pursuant to and in
         compliance with Section 4.10 herein;

              (5) any acquisition of assets or Capital Stock solely in exchange
         for the issuance of Equity Interests (other than Disqualified Stock) of
         the Company;

              (6) any Investments received in compromise or resolution of (A)
         obligations of trade creditors or customers that were incurred in the
         ordinary course of business of the Company or any of its Restricted
         Subsidiaries, including pursuant to any plan of reorganization or
         similar arrangement upon the bankruptcy or insolvency of any trade
         creditor or customer; or (B) litigation, arbitration or other disputes
         with Persons who are not Affiliates;

              (7) Investments represented by Hedging Obligations;

              (8) loans or advances to employees made in the ordinary course of
         business consistent with past practices of the Company or such
         Restricted Subsidiary in an aggregate principal amount not to exceed
         $5.0 million at any one time outstanding;

              (9) repurchases of the Notes; and

              (10) other Investments in any Person having an aggregate Fair
         Market Value (measured on the date each such Investment was made and
         without giving effect to subsequent changes in value), when taken
         together with all other Investments made pursuant to this clause (10)
         that are at the time outstanding not to exceed $100.0 million;

         provided that Designated Assets held by the Company may not be invested
         in, leased to or otherwise transferred to any Restricted Subsidiary;
         provided, however, that the Company may transfer proven undeveloped gas
         reserves to its Restricted Subsidiaries in the ordinary course of
         business for consumption in the power generating business of such
         Restricted Subsidiaries during the 12-month period following transfer.

                                       18



         "Permitted Liens" means:

              (1) Liens on assets of the Company or any Canadian Guarantor
         securing Obligations of the Company or such Canadian Guarantor under
         one or more Credit Facilities in an aggregate amount not exceeding the
         Priority Lien Cap;

              (2) Liens held by the Collateral Trustee equally and ratably
         securing the Notes and the Term Loans to be issued on the date of this
         Indenture and all future Parity Lien Debt and other Parity Lien
         Obligations; provided that the Collateral Trustee's Liens may secure
         Parity Lien Debt incurred after the date of this Indenture or
         Obligations in respect thereof only if, on the date of the incurrence
         of such Parity Lien Debt, after giving pro forma effect to the
         incurrence thereof and the application of the proceeds therefrom, the
         Secured Leverage Ratio is not greater than 2.75:1.0;

              (3) Liens in favor of the Company;

              (4) Pledges or deposits made under workers' compensation,
         unemployment insurance laws or similar legislation, or good faith
         deposits in connection with bids, tenders, contracts (other than for
         payment of Indebtedness) or leases to which such Person is a party, and
         Liens or deposits to secure the performance of statutory obligations,
         surety or appeal bonds, performance bonds or other obligations of a
         like nature incurred in the ordinary course of business;

              (5) Liens to secure Indebtedness (including Capital Lease
         Obligations) permitted by clause (4) of the definition of Permitted
         Debt covering only the assets acquired, designed, constructed,
         installed or improved with or financed by such Indebtedness;

              (6) Liens existing on the date of this Indenture;

              (7) Liens securing Indebtedness or other obligations of a
         Restricted Subsidiary owing to the Company or a Restricted Subsidiary;

              (8) (A) Liens on assets or property of a Restricted Subsidiary
         (other than Material Designated Assets) incurred by any Restricted
         Subsidiary to secure Indebtedness of such Restricted Subsidiary
         incurred to finance the exploration, drilling, development,
         construction or purchase of or by, or repairs, improvements or
         additions to, property or assets of the Company or such Restricted
         Subsidiary, which Liens may include Liens on the Capital Stock of such
         Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a
         direct Subsidiary of the Company or (ii) owns, directly or indirectly,
         Material Designated Assets), (B) Liens (other than Liens on Material
         Designated Assets) incurred by any Restricted Subsidiary that does not
         own, directly or indirectly, at the time of original incurrence of such
         a Lien under this clause (B) any Material Designated Assets or any
         operating properties or assets, securing Indebtedness incurred to
         finance the exploration, drilling, development, construction or
         purchase of or by, or repairs, improvements or additions to, property
         or assets of any Restricted Subsidiary that does not, directly or
         indirectly, own any operating properties or assets at the time of the
         original incurrence of such Lien, which Liens contemplated by this
         clause (8) may include Liens on the Capital Stock of one or more
         Restricted Subsidiaries that (i) are not direct Subsidiaries of the
         Company and (ii) do not, directly or indirectly, own any Material
         Designated Assets or operating properties or assets at the time of
         original incurrence of such Lien; or (C) without duplication, Liens
         (other than Liens on Material Designated Assets) incurred by any
         Restricted Subsidiary (which Liens may include Liens on Capital Stock
         of such Restricted Subsidiary so long as the Capital Stock of such
         Restricted Subsidiary is not pledged as Collateral) that owns as of the
         date of this Indenture all or part of one or more of the peaking power
         plants (and no other significant unrelated assets)

                                       19



         constructed for the purpose of providing peaking capacity and energy to
         the California Department of Water Resources; provided, that the
         Indebtedness secured by any such Lien contemplated by this clause (8)
         may not be issued more than 365 days (or, in the case of clause (C)
         above, two years) after the later of the exploration, drilling,
         development, completion of construction, purchase, repair, improvement,
         addition or commencement of full commercial operation of the property
         or asset being so financed;

              (9) Liens on property or shares of Capital Stock of a Subsidiary
         at the time such Person becomes a Subsidiary; provided that any such
         Lien may not extend to any other property owned by the Company;

              (10) Liens on property at the time a Subsidiary acquires the
         property, including any acquisition by means of a merger or
         consolidation with or into the Subsidiary; provided that such Liens are
         not incurred in connection with, or in contemplation of, such merger or
         consolidation; and provided, further, that the Lien may not extend to
         any other property owned by the Company or any Restricted Subsidiary;

              (11) Liens incurred by a Person other than the Company or any
         Subsidiary on assets that are the subject of a Capitalized Lease
         Obligation to which the Company or a Subsidiary is a party; provided
         that any such Lien may not secure Indebtedness of the Company or any
         Subsidiary (except Indebtedness secured by a Lien on any property or
         assets of the Company or such Subsidiary incurred in connection with
         Indebtedness of another Person), with the amount of such obligation
         being deemed to be the lesser of the value of such property or assets
         or the amount of the obligation so secured) and may not extend to any
         other property owned by the Company or any Restricted Subsidiary;

              (12) Liens on assets of the Company Construction Finance Company,
         L.P. (and/or any other Restricted Subsidiary that subsequently owns any
         such assets) relating to the Magic Valley Generating Station;

              (13) Liens not in respect of Indebtedness arising from Uniform
         Commercial Code financing statements for informational purposes with
         respect to leases incurred in the ordinary course of business and not
         otherwise prohibited by this Indenture;

              (14) Liens not in respect of Indebtedness consisting of the
         interest of the lessor under any lease entered into in the ordinary
         course of business and not otherwise prohibited by this Indenture; and
         Liens on shares of Capital Stock of a subsidiary that does not own any
         significant assets other than a lessee's interest in a Facility or on
         the Capital Stock of a subsidiary whose only significant asset is its
         direct or indirect interest in such lessee subsidiary; provided that in
         no event shall this clause (14) allow a lien on any Capital Stock
         constituting Collateral;

              (15) Liens which constitute banker's liens, rights of set-off or
         similar rights and remedies as to deposit accounts or other funds
         maintained with any bank or other financial institution, whether
         arising by operation of law or pursuant to contract;

              (16) Liens for taxes, assessments or governmental charges or
         claims that are not yet delinquent or that are being contested in good
         faith by appropriate proceedings promptly instituted and diligently
         concluded; provided that any reserve or other appropriate provision as
         is required in conformity with GAAP has been made therefor;

                                       20



              (17) Liens imposed by law such as carriers', warehousemen's and
         mechanics' Liens, in each case, arising in the ordinary course of
         business and with respect to amounts not yet due or being contested in
         good faith by appropriate legal proceedings promptly instituted and
         diligently conducted and for which a reserve or other appropriate
         provision, if any, as shall be required in conformity with GAAP shall
         have been made; or other Liens arising out of judgments or awards
         against such Person with respect to which such Person shall then be
         diligently prosecuting appeal or other proceedings for review;

              (18) survey exceptions, easements or reservations of, or rights of
         others for, licenses, rights-of-way, sewers, electric lines, telegraph
         and telephone lines and other similar purposes, or zoning or other
         restrictions as to the use of real property or Liens incidental to the
         conduct of the business of the Company or any Restricted Subsidiary or
         to the ownership of its properties that were not incurred in connection
         with Indebtedness and that do not in the aggregate materially adversely
         affect the value of said properties or materially impair their use in
         the operation of the business of the Company or any Restricted
         Subsidiary;

              (19) Liens to secure any refinancing, refunding, extension,
         renewal or replacement (or successive refinancings, refundings,
         extensions, renewals or replacements) as a whole, or in part, of any
         Indebtedness secured by any Lien referred to in the foregoing clauses
         (6), (8), (9) and (10); provided that (A) such new Lien shall be
         limited to all or part of the same property or assets that secured the
         original Lien (plus repairs, improvements and additions to such
         property or assets and Liens on the stock or other ownership interest
         in one or more Restricted Subsidiaries beneficially owning such
         property or assets) and (B) the amount of the Indebtedness secured by
         such Lien at such time (or, if the amount that may be realized in
         respect of such Lien is limited, by contract or otherwise, such limited
         lesser amount) is not increased (other than by an amount necessary to
         pay fees and expenses, including premiums, related to the refinancing,
         refunding, extension, renewal or replacement of such Indebtedness);

              (20) Liens on assets of Restricted Subsidiaries to secure letters
         of credit issued pursuant to clause (14) of the definition of Permitted
         Debt; provided if and to the extent such letters of credit are drawn
         upon, such drawing is reimbursed no later than the tenth Business Day
         following a demand for reimbursement following payment on the letter of
         credit and Liens to secure letters of credit incurred pursuant to
         clause (15) of the definition of Permitted Debt on cash collateral
         constituting the proceeds of Priority Lien Debt;

              (21) Liens (A) on cash and short-term investments of Restricted
         Subsidiaries to secure obligations with respect to (i) contracts for
         commercial and trading activities in the ordinary course of business
         and contracts (including physical delivery, option (whether cash or
         financial), exchange, swap and futures contracts) for the purchase,
         transmission, distribution, sale, lease or hedge of any energy-related
         commodity or service or (ii) interest rate, commodity price, or
         currency rate management contracts or derivatives and (B) encumbering
         assets of a Restricted Subsidiary, other than (i) Material Designated
         Assets or (ii) accounts or receivables, which Liens arise out of
         contracts or agreements relating to the generation, distribution or
         transmission or sale of energy and/or fuel; provided that all such
         agreements or contracts are entered into in the ordinary course of
         business; and

              (22) other Liens to secure Indebtedness in an aggregate amount not
         to exceed $50.0 million at any time outstanding.

        "Permitted Prior Liens" means (a) Liens securing Priority Lien
Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses
(5), (6), (10) or (11) of the definition of "Permitted

                                       21



Liens" and (c) Liens that arise by operation of law and are not voluntarily
granted, to the extent entitled by law to priority over the security interests
created by the Security Documents.

         "Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:

              (1) the principal amount (or accreted value, if applicable) of
         such Permitted Refinancing Indebtedness does not exceed the principal
         amount (or accreted value, if applicable) of the Indebtedness extended,
         refinanced, renewed, replaced, defeased or refunded (plus all accrued
         or accumulated interest on the Indebtedness and the amount of all fees,
         costs, expenses and premiums, including swap breakage and defeasance
         costs, incurred in connection therewith);

              (2) such Permitted Refinancing Indebtedness has a final maturity
         date equal to or later than the final maturity date of, and has a
         Weighted Average Life to Maturity equal to or greater than the Weighted
         Average Life to Maturity of, the Indebtedness being extended,
         refinanced, renewed, replaced, defeased or refunded; provided that such
         Permitted Refinancing Indebtedness may have such shorter final maturity
         date and Weighted Average Life to Maturity as is equal to or greater
         than the latest maturity date of any Notes issued under this Indenture;
         and

              (3) if the Indebtedness being extended, refinanced, renewed,
         replaced, defeased or refunded is subordinated in right of payment to
         the Notes, such Permitted Refinancing Indebtedness has a final maturity
         date equal to or later than the final maturity date of, and is
         subordinated in right of payment to, the Notes on terms at least as
         favorable to the holders of Notes as those contained in the
         documentation governing the Indebtedness being extended, refinanced,
         renewed, replaced, defeased or refunded;

provided that Permitted Refinancing Indebtedness shall not include (A)
Indebtedness of the Company incurred to refinance Non-Recourse Debt of a
Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the
Company that refinances Indebtedness of the Company or (C) Indebtedness of the
Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.

         "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.

         "Pledged Power Project" means the power generation property and related
equipment at each of the following locations:

              (1) the Goldendale Energy Center in Goldendale, Washington;

              (2) the Otay Mesa Energy Center near San Diego, California;

              (3) the Metcalf Energy Center near San Jose, California;

              (4) the Santa Rosa Energy Center in Santa Rosa County, Florida;

              (5) the Washington Parish Energy Center near Bogalusa, Louisiana;

              (6) the Deer Park Energy Center in Deer Park, Texas; and

                                       22



              (7) the Augusta Energy Center in Augusta, Georgia.

         "Priority Foreclosure Event" means the failure to pay at maturity or
upon acceleration of maturity all outstanding Priority Lien Debt at any time
when no Bankruptcy Case or Insolvency Proceeding is pending.

         "Priority Lien" means a Lien granted by a Security Document to the
Collateral Trustee upon any property of the Company or any other Obligor to
secure Priority Lien Obligations not exceeding the Priority Lien Cap.

         "Priority Lien Agent" means the Credit Agreement Agent or any other
agent for holders of Priority Lien Debt.

         "Priority Lien Cap" means an amount equal to (a) the Indebtedness
outstanding under the Credit Agreement or any other Credit Facility in an
aggregate principal amount not exceeding the greater of (1) $500.0 million, less
the amount of any Net Proceeds of a Sale of Designated Assets applied to repay
Priority Lien Debt and/or cash collateralize letters of credit that constitute
Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of
such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for
the then most recent four-quarter period for which financial information is
available, plus (b) any interest (including any interest accruing at the then
applicable rate provided in any applicable Priority Lien Document after the
maturity of the loans and reimbursement obligations therein and interest
accruing at the then applicable rate provided in any applicable Priority Lien
Document after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the Company,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), penalties, premiums, fees, costs, expenses or other
Obligations in respect of such Indebtedness. For purposes of this definition of
Priority Lien Cap, all letters of credit shall be valued at face amount, whether
or not drawn, and all letters of credit denominated in a currency other than
U.S. dollars shall be valued at all times at the Equivalent Amount (as defined
in the Credit Agreement) thereof on the date of issue thereof.

         "Priority Lien Debt" means Indebtedness under (a) the Credit Agreement
or (b) any other Credit Facility that is secured by a Priority Lien that was
permitted to be incurred under clause (1) of the definition of "Permitted Liens"
but only if on or before the day on which such Indebtedness under a Credit
Facility described in clause (b) above is incurred by the Company such
Indebtedness is designated by the Company, in an officers' certificate delivered
to each Parity Debt Representative and the Collateral Trustee on or before such
date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt
Documents and the Collateral Trust Agreement.

         "Priority Lien Documents" means the Credit Agreement or any other
Credit Facility pursuant to which any Priority Lien Debt is incurred and all
other agreements governing, securing or relating to any Priority Lien
Obligations.

         "Priority Lien Obligations" means the Priority Lien Debt and all other
Obligations in respect of Priority Lien Debt.

         "Private Placement Legend" means the legend set forth in Section
2.06(e)(1) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.

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

                                       23



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

         "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

         "Regulation S" means Regulation S promulgated under the Securities Act.

         "Regulation S Global Note" means a Global Note bearing the Private
Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.

         "Required Parity Debtholders" means, at any time in respect of any
action or matter, holders of a majority in aggregate outstanding principal
amount of all Parity Lien Debt then outstanding, voting together as a single
class. For this purpose, Parity Lien Debt registered in the name of, or
beneficially owned by, the Company or any Affiliate of the Company shall be
deemed not to be outstanding.

         "Required Priority Debtholders" means, at any time in respect of any
action or matter, (1) holders of the outstanding principal amount of, or
commitments with respect to, the applicable Priority Lien Debt then outstanding
required pursuant to the terms of the applicable Credit Facility, voting as a
single class, to approve such action or matter or (2) the Priority Lien Agent
acting upon the authorization or consent of the holders referred to in the
immediately preceding clause (1). For this purpose, Priority Lien Debt
registered in the name of, or beneficially owned by, the Company or any
Affiliate of the Company shall be deemed not to be outstanding.

         "Responsible Officer," means, with respect to the Collateral Trustee,
any officer within the corporate trust department of the Collateral Trustee
including any vice president, assistant vice president, assistant treasurer,
trust officer or any other officer of the Collateral Trustee who customarily
performs functions similar to those performed by the Persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred because of such Person's knowledge of and familiarity with the
particular subject and who shall have direct responsibility for the
administration of the Collateral Trust Agreement.

         "Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.

         "Restricted Global Note" means a Global Note bearing the Private
Placement Legend.

         "Restricted Investment" means an Investment other than a Permitted
Investment.

         "Restricted Period" means the 40-day distribution compliance period as
defined in Regulation S. (903(b)(3))

         "Restricted Subsidiary" means any Subsidiary of the Company that is not
an Unrestricted Subsidiary.

         "Rule 144" means Rule 144 promulgated under the Securities Act.

         "Rule 144A" means Rule 144A promulgated under the Securities Act.

         "Rule 903" means Rule 903 promulgated under the Securities Act.

         "Rule 904" means Rule 904 promulgated the Securities Act.

                                       24



          "S&P" means Standard & Poor's Ratings Group (or, if such entity ceases
to rate the Notes for reasons outside of the control of the Company, the
equivalent investment grade credit rating from any other "nationally recognized
statistical rating organization" (or successor concept) within the meaning of
Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision)
selected by the Company as a replacement agency).

         "Sale of Designated Assets" means any Asset Sale involving a sale or
other disposition of Designated Assets.

         "SEC" means the Securities and Exchange Commission.

         "Secured Debt" means Parity Lien Debt and Priority Lien Debt.

         "Secured Debt Documents" means the Parity Lien Debt Documents and the
Priority Lien Documents.

         "Secured Debt Representative" means each Parity Debt Representative and
the Priority Lien Agent.

         "Secured Leverage Ratio" means, on any date, the ratio of:

              (1) the aggregate principal amount of Secured Debt outstanding on
         such date (and, for this purpose, letters of credit shall be deemed to
         have a principal amount equal to the maximum potential liability of the
         Company thereunder) to

              (2) the aggregate amount of the Company's Consolidated Cash Flow
         for the most recent four-quarter period for which financial information
         is available.

         In addition, for purposes of calculating the Secured Leverage Ratio:

              (1) acquisitions that have been made by the specified Person or
         any of its Restricted Subsidiaries, including through mergers or
         consolidations or acquisitions of assets, or any Person or any of its
         Restricted Subsidiaries acquired by merger, consolidation or the
         acquisition of all or substantially all of its assets by the specified
         Person or any of its Restricted Subsidiaries, and including any related
         financing transactions and including increases in ownership of
         Restricted Subsidiaries, during the four-quarter reference period or
         subsequent to such reference period and on or prior to the date on
         which the event for which the calculation of the Secured Leverage Ratio
         is made (the "Leverage Calculation Date") shall be given pro forma
         effect in accordance with Regulation S-X under the Securities Act) as
         if they had occurred on the first day of the four-quarter reference
         period;

              (2) the Consolidated Cash Flow attributable to discontinued
         operations, as determined in accordance with GAAP, and operations or
         businesses (and ownership interests therein) disposed of prior to the
         Leverage Calculation Date, shall be excluded;

              (3) any Person that is a Restricted Subsidiary on the Leverage
         Calculation Date shall be deemed to have been a Restricted Subsidiary
         at all times during such four-quarter period;

              (5) any Person that is not a Restricted Subsidiary on the Leverage
         Calculation Date shall be deemed not to have been a Restricted
         Subsidiary at any time during such four-quarter period; and

                                       25



              (6) if any Indebtedness bears a floating rate of interest, the
         interest expense on such Indebtedness shall be calculated as if the
         rate in effect on the Leverage Calculation Date had been the applicable
         rate for the entire period (taking into account any Hedging Obligation
         applicable to such Indebtedness if such Hedging Obligation has a
         remaining term as at the Calculation Date in excess of 12 months).

         "Secured Obligations" means the Parity Lien Obligations and the
Priority Lien Obligations.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Security Documents" means the Collateral Trust Agreement and one or
more security agreements, pledge agreements, collateral assignments, mortgages,
collateral agency agreements, deeds of trust or other grants or transfers for
security executed and delivered by the Company or any other Obligor creating (or
purporting to create) a Lien upon Collateral in favor of the Collateral Trustee,
in each case, as amended, modified, renewed, restated or replaced, in whole or
in part, from time to time, in accordance with its terms.

         "Series of Parity Lien Debt" means, severally, each series of the
Notes, the 2007 Notes, the 2013 Notes, the Term Loans and each other issue or
series of Parity Lien Debt for which a single transfer register is maintained.

         "Series of Secured Debt" means, severally, each series of the Notes,
the 2007 Notes, the 2013 Notes, the Term Loans, each other issue or series of
Parity Lien Debt for which a single transfer register is maintained and each
issue or series of Priority Lien Debt for which a single register is maintained.

         "Sharing Confirmation" means, as to any Series of Parity Lien Debt, the
written agreement of the holders of such Series of Parity Lien Debt, as set
forth in the indenture or agreement governing such Series of Parity Lien Debt,
for the enforceable benefit of all holders of each other existing and future
Series of Parity Lien Debt and each existing and future Parity Debt
Representative, that all Parity Lien Obligations shall be and are secured
equally and ratably by all Liens at any time granted by the Company or any other
Obligor to secure any Obligations in respect of such Series of Parity Lien Debt,
whether or not upon property otherwise constituting Collateral, that all such
Liens shall be enforceable by the Collateral Trustee for the benefit of all
holders of Parity Lien Obligations equally and ratably, and that the holders of
Obligations in respect of such Series of Parity Lien Debt are bound by the
provisions in the Collateral Trust Agreement relating to the order of
application of proceeds from enforcement of the Collateral Trustee's Liens upon
the Collateral, and consent to and direct the Collateral Trustee to perform its
obligations under the Collateral Trust Agreement.

         "Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

         "Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness as of the date of this Indenture, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.

         "Subsidiary" means, as applied to any Person, any corporation, limited
or general partnership, trust, association or other business entity of which an
aggregate of at least 50% of the outstanding Voting

                                       26



Shares, or an equivalent controlling interest therein, of such Person is, at the
time, directly or indirectly, owned by such Person and/or one or more
Subsidiaries of such Person.

         "Term Loan Administrative Agent" means Goldman Sachs Credit Partners
L.P., as administrative agent under the Term Loan Agreement, together with its
successors in such capacity.

         "Term Loan Agreement" means that certain Term Loan Agreement dated the
date of this Indenture between the Company and the Term Loan Administrative
Agent, relating to $750.0 million in aggregate principal amount of Term Loans,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as amended, modified, increased,
renewed, restated or replaced, in whole or in part, from time to time.

         "Term Loan Documents" means the Term Loan Agreement, each Sharing
Confirmation and the Security Documents.

         "Term Loan Obligations" means the Term Loans (including additional Term
Loans) and all other Obligations under the Term Loan Agreement and the Security
Documents.

         "Term Loans" means the principal of and interest and premium (if any)
on Indebtedness of the Company incurred under the Term Loan Agreement.

         "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 of this Indenture.

         "Treasury Rate" means, as of any redemption date, the yield to maturity
as of such redemption date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
business days prior to the redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to July 15, 2010; provided,
however, that if the period from the redemption date to July 15, 2010 is less
than one year, the average of weekly yields on actively traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.

         "Trustee" means the party named as such in the preamble to this
Indenture until a successor replaces it in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.

         "2007 Notes" means the $500.0 million in aggregate principal amount of
the Company's floating rate notes due 2007.

         "2013 Notes" means the $900.0 million in aggregate principal amount of
the Company's 8 3/4% notes due 2013.

         "Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary (and any
subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed
after the date of this Indenture, but only to the extent that such Subsidiary:

              (1) has no Indebtedness other than Indebtedness that is
         non-recourse to the Company and its Restricted Subsidiaries;

                                       27



              (2) is not party to any agreement, contract, arrangement or
         understanding with the Company or any Restricted Subsidiary of the
         Company unless the terms of any such agreement, contract, arrangement
         or understanding are no less favorable to the Company or such
         Restricted Subsidiary than those that might be obtained at the time
         from Persons who are not Affiliates of the Company;

              (3) is a Person with respect to which neither the Company nor any
         of its Restricted Subsidiaries has any direct or indirect obligation
         (a) to subscribe for additional Equity Interests or (b) to maintain or
         preserve such Person's financial condition or to cause such Person to
         achieve any specified levels of operating results; and

              (4) has not guaranteed or otherwise directly or indirectly
         provided credit support for any Indebtedness of the Company or any of
         its Restricted Subsidiaries;

provided, however, that a corporation with no significant assets created for the
sole purpose of serving as a co-obligor to facilitate a financing by a
partnership of a limited liability company may be designated as an Unrestricted
Subsidiary.

         Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by Section 4.07 herein, regarding
Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to
meet the preceding requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under Section 4.09 herein, the
Company shall be in default of such Section 4.09. The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under Section 4.09 herein,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.

         "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the
Securities Act.

         "Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

         "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years or portion thereof obtained by
dividing:

              (1) the sum of the products obtained by multiplying (a) the amount
         of each then remaining installment, sinking fund, serial maturity or
         other required payments of principal, including payment at final
         maturity, in respect of the Indebtedness, by (b) the number of years
         (calculated to the nearest one-twelfth) that shall elapse between such
         date and the making of such payment; by

              (2) the then outstanding principal amount of such Indebtedness.

                                       28



         "Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.

Section 1.02      Other Definitions.



                                                                                        Defined in
        Term                                                                             Section
        ----                                                                             -------
                                                                                     
"Affiliate Transaction".............................................................       4.11
"Asset Sale Offer"..................................................................       3.09
"Authentication Order"..............................................................       2.02
"Change of Control Offer"...........................................................       4.15
"Change of Control Payment".........................................................       4.15
"Change of Control Payment Date"....................................................       4.15
"Covenant Defeasance"...............................................................       8.03
"DTC"...............................................................................       2.03
"Event of Default"..................................................................       6.01
"Excess Proceeds"...................................................................       4.10
"incur".............................................................................       4.09
"Legal Defeasance"..................................................................       8.02
"Offer Amount"......................................................................       3.09
"Offer Period"......................................................................       3.09
"Paying Agent"......................................................................       2.03
"Permitted Debt"....................................................................       4.09
"Purchase Date".....................................................................       3.09
"Registrar".........................................................................       2.03
"Restricted Payments"...............................................................       4.07


Section 1.03      Incorporation by Reference of Trust Indenture Act.

         Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.

         The following TIA terms used in this Indenture have the following
meanings:

         "indenture securities" means the Notes;

         "indenture security holder" means a Holder of a Note;

         "indenture to be qualified" means this Indenture;

         "indenture trustee" or "institutional trustee" means the Trustee; and

         "obligor" on the Notes and the Guarantees means the Company and the
Guarantors, respectively, and any successor obligor upon the Notes and the
Guarantees, respectively.

         All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.

                                       29



Section 1.04      Rules of Construction.

         Unless the context otherwise requires:

                  (1)      a term has the meaning assigned to it;

                  (2)      an accounting term not otherwise defined has the
         meaning assigned to it in accordance with GAAP;

                  (3)      "or" is not exclusive;

                  (4)      words in the singular include the plural, and in the
         plural include the singular;

                  (5)      "shall" shall be interpreted to express a command;

                  (6)      provisions apply to successive events and
         transactions; and

                  (7)      references to sections of or rules under the
         Securities Act shall be deemed to include substitute, replacement of
         successor sections or rules adopted by the SEC from time to time.

                                       30



                                   ARTICLE 2.
                                    THE NOTES

Section 2.01      Form and Dating.

         (a)      General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.

         The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.

         (b)      Global Notes. Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Note Legend thereon and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Notes issued in definitive form shall be substantially
in the form of Exhibit A attached hereto (but without the Global Note Legend
thereon and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it represents
the aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.

         (c)      Euroclear and Clearstream Procedures Applicable. The
provisions of the "Operating Procedures of the Euroclear System" and "Terms and
Conditions Governing Use of Euroclear" and the "General Terms and Conditions of
Clearstream Banking" and "Customer Handbook" of Clearstream shall be applicable
to transfers of beneficial interests in the Global Notes that are held by
Participants through Euroclear or Clearsteam.

Section 2.02      Execution and Authentication.

         One Officer must sign the Notes for the Company by manual or facsimile
signature.

         If the Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.

         A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.

         The Trustee will, upon receipt of a written order of the Company signed
by one Officer (an "Authentication Order"), authenticate (i) Initial Notes in an
aggregate principal amount up to $1.15 billion on the date of this Indenture and
(ii) Additional Notes from time to time as permitted under this Indenture.

                                       31



         The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.

Section 2.03      Registrar and Paying Agent.

         The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.

         The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.

         The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.

Section 2.04      Paying Agent to Hold Money in Trust.

         The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Notes, and shall notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Notes.

Section 2.05      Holder Lists.

         The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA Section 312(a).

Section 2.06      Transfer and Exchange.

         (a)      Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the

                                       32



Depositary or to another nominee of the Depositary, or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. All Global Notes shall be exchanged by the Company for Definitive
Notes if:

                  (1)      the Company delivers to the Trustee notice from the
         Depositary that it is unwilling or unable to continue to act as
         Depositary or that it is no longer a clearing agency registered under
         the Exchange Act and, in either case, a successor Depositary is not
         appointed by the Company within 120 days after the date of such notice
         from the Depositary; or

                  (2)      the Company in its sole discretion determines that
         the Global Notes (in whole but not in part) should be exchanged for
         Definitive Notes and delivers a written notice to such effect to the
         Trustee.

         Upon the occurrence of either of the preceding events in (1) or (2)
above, Definitive Notes shall be issued in such names as the Depositary shall
instruct the Trustee. Global Notes also may be exchanged or replaced, in whole
or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof,
shall be authenticated by the Trustee pursuant to an Authentication Order and
delivered in the form of, and shall be, a Global Note. A Global Note may not be
exchanged for another Note other than as provided in this Section 2.06(a),
however, beneficial interests in a Global Note may be transferred and exchanged
as provided in Section 2.06(b), (c) or (f) hereof.

         (b)      Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (1) or (2) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:

                  (1)      Transfer of Beneficial Interests in the Same Global
         Note. Beneficial interests in any Restricted Global Note may be
         transferred to Persons who take delivery thereof in the form of a
         beneficial interest in the same Restricted Global Note in accordance
         with the transfer restrictions set forth in the Private Placement
         Legend; provided, however, that prior to the expiration of the
         Restricted Period, transfers of beneficial interests in the Regulation
         S Global Note may not be made to a U.S. Person or for the account or
         benefit of a U.S. Person (other than an Initial Purchaser). No written
         orders or instructions shall be required to be delivered to the
         Registrar to effect the transfers described in this Section 2.06(b)(1).

                  (2)      All Other Transfers and Exchanges of Beneficial
         Interests in Global Notes. In connection with all transfers and
         exchanges of beneficial interests that are not subject to Section
         2.06(b)(1) above, the transferor of such beneficial interest must
         deliver to the Registrar both:

                           (A)      a written order from a Participant or an
                  Indirect Participant given to the Depositary in accordance
                  with the Applicable Procedures directing the Depositary to
                  credit or cause to be credited a beneficial interest in
                  another Global Note in an amount equal to the beneficial
                  interest to be transferred or exchanged; and

                           (B)      instructions given in accordance with the
                  Applicable Procedures containing information regarding the
                  Participant account to be credited with such increase.

                                       33



                  (3)      Transfer of Beneficial Interests to Another
         Restricted Global Note. A beneficial interest in any Restricted Global
         Note may be transferred to a Person who takes delivery thereof in the
         form of a beneficial interest in another Restricted Global Note if the
         transfer complies with the requirements of Section 2.06(b)(2) above and
         the Registrar receives the following:

                           (A)      if the transferee shall take delivery in the
                  form of a beneficial interest in the 144A Global Note, then
                  the transferor must deliver a certificate in the form of
                  Exhibit B hereto, including the certifications in item (1)
                  thereof;

                           (B)      if the transferee shall take delivery in the
                  form of a beneficial interest in the Regulation S Global Note,
                  then the transferor must deliver a certificate in the form of
                  Exhibit B hereto, including the certifications in item (2)
                  thereof; and

                           (C)      if the transferee shall take delivery in the
                  form of a beneficial interest in the IAI Global Note, then the
                  transferor must deliver a certificate in the form of Exhibit B
                  hereto, including the certifications, certificates and Opinion
                  of Counsel required by item (3)(d) thereof, if applicable.

                  (4)      Transfer and Exchange of Beneficial Interests in
         Restricted Global Notes to Restricted Definitive Notes. If any holder
         of a beneficial interest in a Restricted Global Note proposes to
         exchange such beneficial interest for a Restricted Definitive Note or
         to transfer such beneficial interest to a Person who takes delivery
         thereof in the form of a Restricted Definitive Note, then, upon receipt
         by the Registrar of the following documentation:

                           (A)      if the holder of such beneficial interest in
                  a Restricted Global Note proposes to exchange such beneficial
                  interest for a Restricted Definitive Note, a certificate from
                  such holder in the form of Exhibit C hereto, including the
                  certifications in item (a) thereof;

                           (B)      if such beneficial interest is being
                  transferred to a QIB in accordance with Rule 144A, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (C)      if such beneficial interest is being
                  transferred to a Non-U.S. Person in an offshore transaction in
                  accordance with Rule 903 or Rule 904, a certificate to the
                  effect set forth in Exhibit B hereto, including the
                  certifications in item (2) thereof;

                           (D)      if such beneficial interest is being
                  transferred pursuant to an exemption from the registration
                  requirements of the Securities Act in accordance with Rule
                  144, a certificate to the effect set forth in Exhibit B
                  hereto, including the certifications in item (a) thereof;

                           (E)      if such beneficial interest is being
                  transferred to an Institutional Accredited Investor in
                  reliance on an exemption from the registration requirements of
                  the Securities Act other than those listed in subparagraphs
                  (B) through (D) above, a certificate to the effect set forth
                  in Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)
                  thereof, if applicable;

                           (F)      if such beneficial interest is being
                  transferred to the Company or any of its Subsidiaries, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (3)(b) thereof; or

                                       34



                           (G)      if such beneficial interest is being
                  transferred pursuant to an effective registration statement
                  under the Securities Act, a certificate to the effect set
                  forth in Exhibit B hereto, including the certifications in
                  item (3)(c) thereof,

the Trustee shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the
Company shall execute and the Trustee shall authenticate, upon receipt of an
Authentication Order, and deliver to the Person designated in such
Authentication Order a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(b) shall be registered in such name or
names and in such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial interest in
a Restricted Global Note pursuant to this Section 2.06(b) shall bear the Private
Placement Legend and shall be subject to all restrictions on transfer contained
therein.

         (c)      Transfer and Exchange of Definitive Notes for Beneficial
Interests.

                  (1)      Restricted Definitive Notes to Beneficial Interests
         in Restricted Global Notes. If any Holder of a Restricted Definitive
         Note proposes to exchange such Note for a beneficial interest in a
         Restricted Global Note or to transfer such Restricted Definitive Notes
         to a Person who takes delivery thereof in the form of a beneficial
         interest in a Restricted Global Note, then, upon receipt by the
         Registrar of the following documentation:

                           (A)      if the Holder of such Restricted Definitive
                  Note proposes to exchange such Note for a beneficial interest
                  in a Restricted Global Note, a certificate from such Holder in
                  the form of Exhibit C hereto, including the certifications in
                  item (b) thereof;

                           (B)      if such Restricted Definitive Note is being
                  transferred to a QIB in accordance with Rule 144A, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (C)      if such Restricted Definitive Note is being
                  transferred to a Non-U.S. Person in an offshore transaction in
                  accordance with Rule 903 or Rule 904, a certificate to the
                  effect set forth in Exhibit B hereto, including the
                  certifications in item (2) thereof;

                           (D)      if such Restricted Definitive Note is being
                  transferred pursuant to an exemption from the registration
                  requirements of the Securities Act in accordance with Rule
                  144, a certificate to the effect set forth in Exhibit B
                  hereto, including the certifications in item (3)(a) thereof;

                           (E)      if such Restricted Definitive Note is being
                  transferred to an Institutional Accredited Investor in
                  reliance on an exemption from the registration requirements of
                  the Securities Act other than those listed in subparagraphs
                  (B) through (D) above, a certificate to the effect set forth
                  in Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)(d)
                  thereof, if applicable;

                           (F)      if such Restricted Definitive Note is being
                  transferred to the Company or any of its Subsidiaries, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (3)(b) thereof; or

                                       35



                           (G)      if such Restricted Definitive Note is being
                  transferred pursuant to an effective registration statement
                  under the Securities Act, a certificate to the effect set
                  forth in Exhibit B hereto, including the certifications in
                  item (3)(c) thereof,

                  the Trustee shall cancel the Restricted Definitive Note,
                  increase or cause to be increased the aggregate principal
                  amount of, in the case of clause (A) above, the appropriate
                  Restricted Global Note, in the case of clause (B) above, the
                  144A Global Note, in the case of clause (C) above, the
                  Regulation S Global Note, and in all other cases, the IAI
                  Global Note.

         (d)      Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(d), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder must present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
must provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(d).

                  (1)      Restricted Definitive Notes to Restricted Definitive
         Notes. Any Restricted Definitive Note may be transferred to and
         registered in the name of Persons who take delivery thereof in the form
         of a Restricted Definitive Note if the Registrar receives the
         following:

                           (A)      if the transfer shall be made pursuant to
                  Rule 144A under the Securities Act, then the transferor must
                  deliver a certificate in the form of Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (B)      if the transfer shall be made pursuant to
                  Rule 903 or Rule 904, then the transferor must deliver a
                  certificate in the form of Exhibit B hereto, including the
                  certifications in item (2) thereof; and

                           (C)      if the transfer shall be made pursuant to
                  any other exemption from the registration requirements of the
                  Securities Act, then the transferor must deliver a certificate
                  in the form of Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)
                  thereof, if applicable.

         (e)      Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.

                  (1)      Private Placement Legend.

                           (A)      Each Global Note and each Definitive Note
                  (and all Notes issued in exchange therefor or substitution
                  thereof) shall bear the legend in substantially the following
                  form:

    "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER
    THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
    AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1)
    TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
    BUYER WITHIN THE MEANING OF RULE

                                       36



    144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
    ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
    REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH
    RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT
    TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
    144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR
    IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
    ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
    SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
    THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS."

                  (2)      Global Note Legend. Each Global Note shall bear a
         legend in substantially the following form:

"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."

         (f)      Cancellation and/or Adjustment of Global Notes. At such time
as all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who shall take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to

                                       37



a Person who shall take delivery thereof in the form of a beneficial interest in
another Global Note, such other Global Note shall be increased accordingly and
an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.

         (g)      General Provisions Relating to Transfers and Exchanges.

                  (1)      To permit registrations of transfers and exchanges,
         the Company shall execute and the Trustee shall authenticate Global
         Notes and Definitive Notes upon receipt of an Authentication Order in
         accordance with Section 2.02 or at the Registrar's request.

                  (2)      No service charge shall be made to a Holder of a
         Global Note or to a Holder of a Definitive Note for any registration of
         transfer or exchange, but the Company may require payment of a sum
         sufficient to cover any transfer tax or similar governmental charge
         payable in connection therewith (other than any such transfer taxes or
         similar governmental charge payable upon exchange or transfer pursuant
         to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

                  (3)      The Registrar shall not be required to register the
         transfer of or exchange any Note selected for redemption in whole or in
         part, except the unredeemed portion of any Note being redeemed in part.

                  (4)      All Global Notes and Definitive Notes issued upon any
         registration of transfer or exchange of Global Notes or Definitive
         Notes shall be the valid obligations of the Company, evidencing the
         same debt, and entitled to the same benefits under this Indenture, as
         the Global Notes or Definitive Notes surrendered upon such registration
         of transfer or exchange.

                  (5)      The Company shall not be required:

                           (A)      to issue, to register the transfer of or to
                  exchange any Notes during a period beginning at the opening of
                  business 15 days before the day of any selection of Notes for
                  redemption under Section 3.02 hereof and ending at the close
                  of business on the day of selection;

                           (B)      to register the transfer of or to exchange
                  any Note selected for redemption in whole or in part, except
                  the unredeemed portion of any Note being redeemed in part; or

                           (C)      to register the transfer of or to exchange a
                  Note between a record date and the next succeeding interest
                  payment date.

                  (6)      Prior to due presentment for the registration of a
         transfer of any Note, the Trustee, any Agent and the Company may deem
         and treat the Person in whose name any Note is registered as the
         absolute owner of such Note for the purpose of receiving payment of
         principal of and interest on such Notes and for all other purposes, and
         none of the Trustee, any Agent or the Company shall be affected by
         notice to the contrary.

                  (7)      The Trustee shall authenticate Global Notes and
         Definitive Notes in accordance with the provisions of Section 2.02
         hereof.

                  (8)      All certifications, certificates and Opinions of
         Counsel required to be submitted to the Registrar pursuant to this
         Section 2.06 to effect a registration of transfer or exchange may be
         submitted by facsimile.

                                       38



Section 2.07      Replacement Notes.

         If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements hereunder are met. If required by the Trustee or the Company, an
indemnity bond must be supplied by the Holder that is sufficient in the judgment
of the Trustee and the Company to protect the Company, the Trustee, any Agent
and any authenticating agent from any loss that any of them may suffer if a Note
is replaced. The Company may charge the applicable Holder for its expenses in
replacing a Note.

         Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.

Section 2.08      Outstanding Notes.

         The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.

         If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a protected purchaser.

         If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.

         If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.

Section 2.09      Treasury Notes.

         In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.

Section 2.10      Temporary Notes.

         Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as may be reasonably acceptable to
the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall, upon receipt of an Authentication Order, authenticate definitive
Notes in exchange for temporary Notes.

         Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.

                                       39



Section 2.11      Cancellation.

         The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes in accordance with its customary practices (subject to the record
retention requirement of the Exchange Act). Certification of the destruction of
all canceled Notes shall be delivered to the Company. The Company may not issue
new Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.

Section 2.12      Defaulted Interest.

         If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
may be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.

                                   ARTICLE 3.
                            REDEMPTION AND PREPAYMENT

Section 3.01      Notices to Trustee.

         If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth:

                  (1)      the clause of this Indenture pursuant to which the
         redemption shall occur;

                  (2)      the redemption date;

                  (3)      the principal amount of Notes to be redeemed; and

                  (4)      the redemption price.

Section 3.02      Selection of Notes to Be Redeemed or Purchased.

         If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select Notes for redemption or
purchase as follows:

                  (1)      if the Notes are listed on any national securities
         exchange, in compliance with the requirements of the principal national
         securities exchange on which the Notes are listed; or

                  (2)      if the Notes are not listed on any national
         securities exchange, on a pro rata basis, by lot or by such method as
         the Trustee shall deem fair and appropriate.

                                       40



         In the event of partial redemption or purchase by lot, the particular
Notes to be redeemed or purchased shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption or
purchase date by the Trustee from the outstanding Notes not previously called
for redemption or purchase.

         The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption or purchase and, in the case of any Note selected for
partial redemption or purchase, the principal amount thereof to be redeemed or
purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or
whole multiples of $1,000; except that if all of the Notes of a Holder are to be
redeemed or purchased, the entire outstanding amount of Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except
as provided in the preceding sentence, provisions of this Indenture that apply
to Notes called for redemption or purchase also apply to portions of Notes
called for redemption or purchase.

Section 3.03      Notice of Redemption.

         Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address, except that redemption
notices may be mailed more than 60 days prior to a redemption date if the notice
is issued in connection with a defeasance of the Notes or a satisfaction and
discharge of this Indenture pursuant to Articles 8 or 11, respectively, of this
Indenture.

         The notice shall identify the Notes to be redeemed and shall state:

                  (1)      the redemption date;

                  (2)      the redemption price;

                  (3)      if any Note is being redeemed in part, the portion of
         the principal amount of such Note to be redeemed and that, after the
         redemption date upon surrender of such Note, a new Note or Notes in
         principal amount equal to the unredeemed portion shall be issued upon
         cancellation of the original Note;

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

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

                  (6)      that, unless the Company defaults in making such
         redemption payment, interest on Notes called for redemption ceases to
         accrue on and after the redemption date;

                  (7)      the paragraph of the Notes and/or Section of this
         Indenture pursuant to which the Notes called for redemption are being
         redeemed; and

                  (8)      that no representation is made as to the correctness
         or accuracy of the CUSIP number, if any, listed in such notice or
         printed on the Notes.

         At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company has delivered to the Trustee, at least 45

                                       41



days prior to the redemption date, an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.

Section 3.04      Effect of Notice of Redemption.

         Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.

Section 3.05      Deposit of Redemption or Purchase Price.

         Not less than one Business Day prior to the redemption or purchase
price date, the Company shall deposit with the Trustee or with the Paying Agent
money sufficient to pay the redemption or purchase price of and accrued interest
on all Notes to be redeemed or purchased on that date. The Trustee or the Paying
Agent shall promptly return to the Company any money deposited with the Trustee
or the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption or purchase price of, and accrued interest on, all Notes to be
redeemed or purchased.

         If the Company complies with the provisions of the preceding paragraph,
on and after the redemption or purchase date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption or purchase. If a Note
is redeemed or purchased on or after an interest record date but on or prior to
the related interest payment date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Note was registered at the close of
business on such record date. If any Note called for redemption or purchase is
not so paid upon surrender for redemption or purchase because of the failure of
the Company to comply with the preceding paragraph, interest shall be paid on
the unpaid principal, from the redemption or purchase date until such principal
is paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.01
hereof.

Section 3.06      Notes Redeemed or Purchased in Part.

         Upon surrender of a Note that is redeemed or purchased in part, the
Company shall issue and, upon receipt of an Authentication Order, the Trustee
shall authenticate for the Holder at the expense of the Company a new Note equal
in principal amount to the unredeemed or unpurchased portion of the Note
surrendered.

Section 3.07      Optional Redemption.

         (a)      At any time prior to July 15, 2006, the Company may on one or
more occasions upon not less than 30 nor more than 60 days prior notice mailed
by first-class mail to each holder's registered address, redeem up to 35% of the
aggregate principal amount of Notes issued under this Indenture at a redemption
price of 108.500% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date, with the net cash proceeds of one or
more Public Equity Offerings; provided that:

                  (1)      at least 65% of the aggregate principal amount of
Notes originally issued under this Indenture remains outstanding immediately
after the occurrence of such redemption (excluding Notes held by the Company and
its Subsidiaries); and

                  (2)      the redemption must occur within 45 days of the date
of the closing of such Public Equity Offering.

                                       42



         (b)      At any time prior to July 15, 2007 the Company may also redeem
all or a part of the 2010 Notes, upon not less than 30 nor more than 60 days
prior notice mailed by first-class mail to each holder's registered address, at
a redemption price equal to 100% of the principal amount of the Notes redeemed
plus the Applicable Premium as of, and accrued and unpaid interest, if any, to
the redemption date, subject to the rights of noteholders on the relevant record
date to receive interest due on the relevant interest payment date.

         (c)      After July 15, 2007 the Company may redeem all or a part of
the Notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest, if any, on the notes redeemed, to the applicable
redemption date, if redeemed during the twelve-month period beginning on July 15
of the years indicated below, subject to the rights of noteholders on the
relevant record date to receive interest on the relevant interest payment date:



      Year                                                                Percentage
      ----                                                                ----------
                                                                       
2007.................................................................      104.250%
2008.................................................................      102.125%
2009 and thereafter..................................................      100.000%


         (d)      Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.

Section 3.08      Mandatory Redemption.

         The Company shall not be required to make mandatory redemption or
sinking fund payments with respect to the Notes.

Section 3.09      Offer to Purchase by Application of Excess Proceeds.

         In the event that, pursuant to Section 4.10 hereof, the Company is
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below.

         The Asset Sale Offer shall be made to all Holders and all holders of
other Indebtedness that is pari passu with the Notes containing provisions
similar to those set forth in this Indenture with respect to offers to purchase
or redeem with the proceeds of sales and assets. The Asset Sale Offer shall
remain open for a period of at least 20 Business Days following its commencement
and not more than 30 Business Days, except to the extent that a longer period is
required by applicable law (the "Offer Period"). No later than three Business
Days after the termination of the Offer Period (the "Purchase Date"), the
Company shall apply all Excess Proceeds (the "Offer Amount") to the purchase of
Notes and such other pari passu Indebtedness (on a pro rata basis, if
applicable) or, if less than the Offer Amount has been tendered, all Notes and
other Indebtedness tendered in response to the Asset Sale Offer. Payment for any
Notes so purchased shall be made in the same manner as interest payments are
made.

         If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.

         Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The written notice shall contain

                                       43



all instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Asset Sale Offer. The written notice, which shall govern the
terms of the Asset Sale Offer, shall state:

                  (1)      that the Asset Sale Offer is being made pursuant to
         this Section 3.09 and Section 4.10 hereof and the length of time the
         Asset Sale Offer shall remain open;

                  (2)      the Offer Amount, the purchase price and the Purchase
         Date;

                  (3)      that any Note not tendered or accepted for payment
         shall continue to accrue interest;

                  (4)      that, unless the Company defaults in making such
         payment, any Note accepted for payment pursuant to the Asset Sale Offer
         shall cease to accrue interest after the Purchase Date;

                  (5)      that Holders electing to have a Note purchased
         pursuant to an Asset Sale Offer may elect to have Notes purchased in
         integral multiples of $1,000 only;

                  (6)      that Holders electing to have a Note purchased
         pursuant to any Asset Sale Offer shall be required to surrender the
         Note, with the form entitled "Option of Holder to Elect Purchase" on
         the reverse of the Note completed, or transfer by book-entry transfer,
         to the Company, a Depositary, if appointed by the Company, or a Paying
         Agent at the address specified in the notice at least three days before
         the Purchase Date;

                  (7)      that Holders shall be entitled to withdraw their
         election if the Company, the Depositary or the Paying Agent, as the
         case may be, receives, not later than the expiration of the Offer
         Period, a telegram, telex, facsimile transmission or letter setting
         forth the name of the Holder, the principal amount of the Note the
         Holder delivered for purchase and a statement that such Holder is
         withdrawing his election to have such Note purchased;

                  (8)      that, if the aggregate principal amount of Notes and
         other pari passu Indebtedness surrendered by Holders exceeds the Offer
         Amount, the Company shall select the Notes and other pari passu
         Indebtedness to be purchased on a pro rata basis based on the principal
         amount of Notes and such other pari passu Indebtedness surrendered
         (with such adjustments as may be deemed appropriate by the Company so
         that only Notes in denominations of $1,000, or integral multiples
         thereof, shall be purchased); and

                  (9)      that Holders whose Notes were purchased only in part
         shall be issued new Notes equal in principal amount to the unpurchased
         portion of the Notes surrendered (or transferred by book-entry
         transfer).

         On or before the Purchase Date, the Company will, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, either directly or through the
Depositary or the Paying Agent, as the case may be, shall promptly (but in any
case not later than five days after the Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Notes tendered by
such Holder and accepted by the Company for purchase, and the Company shall
promptly issue a new Note, and the Trustee, upon written request from the
Company and receipt of an Authentication Order shall authenticate and mail or
deliver such new Note

                                       44



to such Holder, in a principal amount equal to any unpurchased portion of the
Note surrendered. Any Note not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company shall publicly announce the
results of the Asset Sale Offer on the Purchase Date.

         Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.

                                    ARTICLE 4.
                                    COVENANTS

Section 4.01      Payment of Notes.

         The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due.

         The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.

Section 4.02      Maintenance of Office or Agency.

         The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
fails to maintain any such required office or agency or fails to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.

         The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.

         The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03
hereof.

Section 4.03      Reports.

         (a)      Whether or not required by the Commission's rules and
regulations, so long as any Notes are outstanding, the Company shall furnish to
the holders of Notes, within the time periods specified in the Commission's
rules and regulations:

                                       45



                  (1)      all quarterly and annual reports that would be
         required to be filed with the Commission on Forms 10-Q and 10-K if the
         Company were required to file such reports; and

                  (2)      all current reports that would be required to be
         filed with the Commission on Form 8-K if the Company were required to
         file such reports.

         (b)      All such reports shall be prepared in all material respects in
accordance with all of the rules and regulations applicable to such reports.
Each annual report on Form 10-K shall include a report on the Company's
consolidated financial statements by the Company's certified independent
accountants. In addition, the Company shall file a copy of each of the reports
referred to in clauses (1) and (2) in Section 4.03(a) above with the Commission
for public availability within the time periods specified in the rules and
regulations applicable to such reports (unless the Commission shall not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.

         (c)      If, at any time, the Company is no longer subject to the
periodic reporting requirements of the Exchange Act for any reason, the Company
shall nevertheless continue filing the reports specified in Section 4.03(a) with
the Commission within the time periods specified above unless the Commission
shall not accept such a filing. The Company agrees that it shall not take any
action for the purpose of causing the Commission not to accept any such filings.
If, notwithstanding the foregoing, the Commission shall not accept the Company's
filings for any reason, the Company shall post the reports referred to in
Section 4.03(a) on its website within the time periods that would apply if the
Company were required to file those reports with the Commission.

         (d)      If the Company has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by Section 4.03(a) shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.

         (e)      In addition, the Company agrees that, for so long as any Notes
remain outstanding, at any time it is not required to file the reports required
by Section 4.03(a) with the Commission, it shall furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.

Section 4.04      Compliance Certificate.

         (a)      The Company and each Guarantor (to the extent that such
Guarantor is so required under the TIA) shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate prescribed by
the TIA stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture and the Security Documents, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and the Security Documents and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture or the Security Documents (or, if a Default or Event of Default
has occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action the Company is taking or proposes to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest,

                                       46



if any, on the Notes is prohibited or if such event has occurred, a description
of the event and what action the Company is taking or proposes to take with
respect thereto.

         (b)      So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.

         (c)      So long as any of the Notes are outstanding, the Company shall
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.

Section 4.05      Taxes.

         The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.

Section 4.06      Stay, Extension and Usury Laws.

         The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.

Section 4.07      Restricted Payments.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly:

                  (1)      declare or pay any dividend or make any other payment
         or distribution on account of the Company's or any of its Restricted
         Subsidiaries' Equity Interests (including any payment in connection
         with any merger or consolidation involving the Company or any of its
         Restricted Subsidiaries) or to the direct or indirect holders of the
         Company's or any of its Restricted Subsidiaries' Equity Interests in
         their capacity as such (other than dividends or distributions payable
         in Equity Interests (other than Disqualified Stock) of the Company or
         dividends or distributions payable to the Company or a Restricted
         Subsidiary of the Company);

                  (2)      purchase, redeem or otherwise acquire or retire for
         value (including in connection with any merger or consolidation
         involving the Company) any Equity Interests of the Company or any
         direct or indirect parent of the Company;

                                       47



                  (3)      make any payment on or with respect to, or purchase,
         redeem, defease or otherwise acquire or retire for value any
         Indebtedness of the Company that is contractually subordinated to the
         Notes (excluding any intercompany Indebtedness between or among the
         Company and any of its Restricted Subsidiaries and excluding the
         purchase, repurchase or other acquisition of such subordinated
         Indebtedness purchased in anticipation of satisfying a sinking fund
         obligation, principal installment or final maturity, in each case due
         within one year of the date of acquisition), except a payment of
         interest or principal at the Stated Maturity thereof; or

                  (4)      make any Restricted Investment

(all such payments and other actions set forth in these clauses (1) through (4)
above being collectively referred to as "Restricted Payments"), unless after
giving effect to such Restricted Payment:

                  (1)      no Default or Event of Default has occurred and is
         continuing or would occur as a consequence of such Restricted Payment
         (other than any Default or Event of Default that is cured as a result
         of such Restricted Payment);

                  (2)      the Company would, after giving pro forma effect
         thereto as if such Restricted Payment had been made at the beginning of
         the applicable four-quarter period, have been permitted to incur at
         least $1.00 of additional Indebtedness pursuant to the Fixed Charge
         Coverage Ratio test set forth in Section 4.09(a) herein; and

                  (3)      such Restricted Payment, together with the aggregate
         amount of all other Restricted Payments made by the Company and its
         Restricted Subsidiaries since the date of this Indenture (excluding
         Restricted Payments permitted by clauses (2), (3), (4), (5), (6), and
         (9) of the next succeeding paragraph), is less than the sum, without
         duplication, of:

                           (a)      50% of the Consolidated Net Income of the
         Company for the period (taken as one accounting period) from the
         beginning of the first fiscal quarter commencing after the date of this
         Indenture to the end of the Company's most recently ended fiscal
         quarter for which internal financial statements are available at the
         time of such Restricted Payment (or, if such Consolidated Net Income
         for such period is a deficit, less 100% of such deficit), plus

                           (b)      100% of the aggregate net cash proceeds
         received by the Company since the date of this Indenture as a
         contribution to its common equity capital or from the issue or sale of
         Equity Interests of the Company (other than Disqualified Stock) or from
         the issue or sale of convertible or exchangeable Disqualified Stock or
         convertible or exchangeable debt securities of the Company that have
         been converted into or exchanged for such Equity Interests (other than
         Equity Interests (or Disqualified Stock or debt securities) sold to a
         Subsidiary of the Company), plus

                           (c)      to the extent that any Restricted Investment
         that was made after the date of this Indenture is sold for cash or
         otherwise liquidated or repaid for cash, the lesser of (i) the cash
         return of capital with respect to such Restricted Investment (less the
         cost of disposition, if any) and (ii) the initial amount of such
         Restricted Investment, plus

                           (d)      to the extent that any Unrestricted
         Subsidiary of the Company designated as such after the date of this
         Indenture is redesignated as a Restricted Subsidiary after the date of
         this Indenture, the Fair Market Value of the Company's Investment in
         such Subsidiary as of the date of such redesignation, plus

                                       48



                           (e)      100% of any payments of interest on
         Indebtedness, dividends, repayments of loans or advances, or other
         transfers of assets received by the Company or a Restricted Subsidiary
         of the Company after the date of this Indenture from an Unrestricted
         Subsidiary of the Company, to the extent that such payments, dividends,
         repayments or transfers were not otherwise included in Consolidated Net
         Income of the Company for such period, plus

                           (f)      $628.3 million.

                  The preceding provisions shall not prohibit:

                  (1)      the payment of any dividend within 60 days after the
         date of declaration of the dividend, if at the date of declaration the
         dividend payment would have complied with the provisions of this
         Indenture;

                  (2)      the making of any Restricted Payment in exchange for,
         or out of the net cash proceeds of the substantially concurrent sale
         (other than to a Subsidiary of the Company) of, Equity Interests of the
         Company (other than Disqualified Stock) or from the substantially
         concurrent contribution of common equity capital to the Company;
         provided that the amount of any such net cash proceeds that are
         utilized for any such Restricted Payment shall be excluded from clause
         (3)(b) of the preceding paragraph;

                  (3)      the defeasance, redemption, repurchase or other
         acquisition of Indebtedness of the Company that is contractually
         subordinated to the Notes with the net cash proceeds from a
         substantially concurrent incurrence of Permitted Refinancing
         Indebtedness, so long as no Default has occurred and is continuing or
         would be caused thereby;

                  (4)      the payment of any dividend (or, in the case of any
         partnership or limited liability company, any similar distribution) by
         a Restricted Subsidiary of the Company to the holders of any class or
         series of such Restricted Subsidiary's Equity Interests on a pro rata
         basis;

                  (5)      the repurchase, redemption or other acquisition or
         retirement for value of any Equity Interests of the Company or any
         Restricted Subsidiary of the Company held by any current or former
         officer, direct or employee of the Company (or any of its Restricted
         Subsidiaries) pursuant to any equity subscription agreement, stock
         option agreement, shareholders' agreement or similar agreement;
         provided that the aggregate price paid for all such repurchased,
         redeemed, acquired or retired Equity Interests may not exceed $5.0
         million in any twelve-month period, so long as no Default has occurred
         and is continuing or would be caused thereby;

                  (6)      the repurchase of Equity Interests deemed to occur
         upon the exercise of stock options to the extent such Equity Interests
         represent a portion of the exercise price of those stock options;

                  (7)      the declaration and payment of dividends to holders
         of any class or series of Disqualified Stock of the Company or any
         Restricted Subsidiary of the Company issued on or after the date of
         this Indenture in accordance with the Fixed Charge Coverage test
         described under Section 4.09 herein; provided that no Default has
         occurred and is continuing or would be caused thereby (other than any
         Default or Event of Default that is cured as a result of such
         Restricted Payment); and

                                       49



                  (8)      any purchase, redemption, defeasance or other
         acquisition or retirement for value of subordinated Indebtedness upon a
         Change of Control or an Asset Sale to the extent required by this
         Indenture or other agreement pursuant to which such subordinated
         Indebtedness was issued, but only if the Company (a) in the case of a
         Change of Control, has made an offer to repurchase the Notes as
         described under Section 4.15 herein or (b) in the case of an Asset
         Sale, has applied the Net Proceeds from such Asset Sale in accordance
         with the provisions described under Section 4.10 herein, so long as no
         Default has occurred and is continuing or would be caused thereby.

         (b)      The amount of all Restricted Payments (other than cash) shall
be the Fair Market Value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.

Section 4.08      Dividend and Other Payment Restrictions Affecting
                  Subsidiaries.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or permit to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:

                  (1)      pay dividends or make any other distributions on its
         Capital Stock to the Company or any of its Restricted Subsidiaries, or
         with respect to any other interest or participation in, or measured by,
         its profits, or pay any indebtedness owed to the Company or any of its
         Restricted Subsidiaries;

                  (2)      make loans or advances to the Company or any of its
         Restricted Subsidiaries; or

                  (3)      transfer any of its properties or assets to the
         Company or any of its Restricted Subsidiaries.

         However, the preceding restrictions shall not apply to encumbrances or
restrictions existing under or by reason of:

                  (1)      agreements governing Existing Indebtedness and Credit
         Facilities as in effect on the date of this Indenture and any
         amendments, modifications, restatements, renewals, increases,
         supplements, refundings, replacements or refinancings of those
         agreements; provided that the amendments, modifications, restatements,
         renewals, increases, supplements, refundings, replacements or
         refinancings are no more restrictive, taken as a whole, with respect to
         such dividend and other payment restrictions than those contained in
         those agreements on the date of this Indenture;

                  (2)      this Indenture, the Notes, the 2007 Notes and the
         indenture governing such notes, the 2013 Notes and the indenture
         governing such notes and the Term Loan Agreement or any other indenture
         governing letters of credit, loans or debt securities issued by or on
         behalf of the Company that are no more restrictive, taken as a whole,
         with respect to such dividend, distribution or other payment
         restrictions and loan or investment restrictions than those contained
         in this Indenture, the Notes, the 2007 Notes and the indenture
         governing such notes, the 2013 Notes and the indenture governing such
         notes and the Term Loan Agreement as in effect on the date of this
         Indenture;

                  (3)      applicable law, rule, regulation or order;

                                       50



                  (4)      customary non-assignment provisions in leases,
         contracts and licenses entered into in the ordinary course of business
         and consistent with past practices;

                  (5)      purchase money obligations for property acquired in
         the ordinary course of business and Capital Lease Obligations that
         impose restrictions on the property purchased or leased of the nature
         described in clause (3) of Section 4.08(a);

                  (6)      any agreement for the sale or other disposition of a
         Restricted Subsidiary that restricts distributions by that Restricted
         Subsidiary pending the sale or other disposition;

                  (7)      Permitted Refinancing Indebtedness; provided that the
         restrictions contained in the agreements governing such Permitted
         Refinancing Indebtedness are not materially more restrictive, taken as
         a whole, than those contained in the agreements governing the
         Indebtedness being refinanced;

                  (8)      Liens securing Indebtedness otherwise permitted to be
         incurred under the provisions of Section 4.12 herein that limit the
         right of the debtor to dispose of the assets subject to such Liens;

                  (9)      provisions limiting or prohibiting the disposition or
         distribution of assets or property in joint venture agreements, asset
         sale agreements, sale-leaseback agreements, stock sale agreements and
         other similar agreements entered into with the approval of the
         Company's Board of Directors, which limitation or prohibition is
         applicable only to the assets that are the subject of such agreements;

                  (10)     any encumbrance or restriction imposed pursuant to
         the terms of any Non-Recourse Debt incurred pursuant to clause (6) of
         the definition of Permitted Debt or any preferred stock issued pursuant
         to clause (7) of the definition of Permitted Debt; provided that such
         encumbrance or restriction, in the written opinion of the President,
         Vice Chairman, Chief Operating Officer or Chief Financial Officer of
         the Company, (x) is required in order to obtain such financing or to
         place such preferred stock, (y) is customary for such financings or
         placements and (z) applies only to the assets or revenues of the
         applicable Restricted Subsidiary;

                  (11)     any encumbrance or restriction with respect to a
         Restricted Subsidiary pursuant to an agreement relating to any Acquired
         Debt incurred pursuant to clause (10) of the definition of Permitted
         Debt; provided that such encumbrance or restriction was not incurred in
         connection with or in contemplation of such Restricted Subsidiary
         becoming a Restricted Subsidiary; and

                  (12)     restrictions on cash or other deposits or net worth
         imposed by customers or suppliers under contracts entered into in the
         ordinary course of business.

Section 4.09      Incurrence of Indebtedness and Issuance of Preferred Stock.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), and the Company shall not issue any
Disqualified Stock and shall not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such

                                       51



Disqualified Stock is issued would have been at least 2.0 to 1, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.

         (b)      Section 4.09(a) shall not prohibit the incurrence of any of
the following items (collectively, "Permitted Debt"):

                  (1)      the incurrence by the Company and the Guarantee by
         the Canadian Guarantors of additional Indebtedness and letters of
         credit under Credit Facilities in an aggregate principal amount at any
         one time outstanding under this clause (1) (with letters of credit
         being deemed to have a principal amount equal to the maximum potential
         liability of the Company thereunder) not to exceed on any date of
         incurrence the greater of (A) $500.0 million or (B) the dollar amount
         that is equal to 50% of the Company's Consolidated Cash Flow for the
         then most recent four-quarter period for which financial information is
         available;

                  (2)      the incurrence by the Company and its Restricted
         Subsidiaries of the Existing Indebtedness;

                  (3)      the incurrence by the Company and the Canadian
         Guarantors of Indebtedness represented by the Notes, the 2007 Notes,
         the 2013 Notes and the Term Loans to be issued on the date of this
         Indenture, and in each case the related Guarantees;

                  (4)      the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness represented by Capital Lease
         Obligations, mortgage financings or purchase money obligations, in each
         case, incurred for the purpose of financing all or any part of the
         purchase price or cost of design, construction, installation or
         improvement of property, plant or equipment used in the business of the
         Company or any of its Restricted Subsidiaries, in an aggregate
         principal amount (or accreted value, as applicable), including all
         Permitted Refinancing Indebtedness incurred to extend, refund,
         refinance, renew, replace or defease any Indebtedness incurred pursuant
         to this clause (4), not to exceed $100.0 million at any one time
         outstanding;

                  (5)      Indebtedness of the Company which is owed to and
         owned by a Restricted Subsidiary and Indebtedness of a Restricted
         Subsidiary that is owed to and owned by the Company or a Restricted
         Subsidiary; provided that any subsequent issuance or transfer of any
         Capital Stock that results in any such Restricted Subsidiary ceasing to
         be a Restricted Subsidiary or any transfer of such Indebtedness (other
         than to the Company or a Restricted Subsidiary) shall be deemed, in
         each case, to constitute the incurrence of such Indebtedness by the
         Company or by a Restricted Subsidiary, as the case may be;

                  (6)      the incurrence of Non-Recourse Debt by any Restricted
         Subsidiary of the Company (other than a Restricted Subsidiary that
         owns, directly or indirectly, any Material Designated Assets);

                  (7)      the issuance of preferred stock by a Restricted
         Subsidiary of the Company (other than a Restricted Subsidiary that
         owns, directly or indirectly, any Material Designated Assets), the net
         proceeds of which are applied to finance the exploration, drilling,
         development, construction or purchase of or by, or repairs or
         improvements or additions to, property or assets of the Company or any
         Restricted Subsidiary;

                                       52



                  (8)      the incurrence by the Company of Guarantees of
         Indebtedness of Restricted Subsidiaries which, but for such Guarantees,
         would be permitted to be incurred pursuant to clause (6) of Section
         4.09 (b); provided that the aggregate principal amount of Indebtedness
         incurred pursuant to this clause (8) does not exceed $100.0 million at
         any one time outstanding;

                  (9)      the incurrence by the Company or any of its
         Restricted Subsidiaries of Permitted Refinancing Indebtedness in
         exchange for, or the net proceeds of which are used to refund,
         refinance, replace, defease or discharge Indebtedness (other than
         intercompany Indebtedness) that was permitted by this Indenture to be
         incurred under Section 4.09(a) or clauses (2), (3), (4), (5), (6), (8)
         or (10) of this Section 4.09(b) or this clause (9);

                  (10)     the incurrence of Acquired Debt by any Restricted
         Subsidiary of the Company at the time such Restricted Subsidiary
         becomes a Restricted Subsidiary of the Company so long as such Acquired
         Debt was not incurred in connection with or in contemplation of such
         Person becoming a Restricted Subsidiary of the Company; provided that
         the Company would have been able to incur such Indebtedness at the time
         of incurrence thereof by the Restricted Subsidiary pursuant to Section
         4.09 (a);

                  (11)     the incurrence of Indebtedness pursuant to Hedging
         Obligations incurred in the ordinary course of business and not for
         speculative purposes;

                  (12)     the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness in respect of workers'
         compensation claims, self-insurance obligations, bankers' acceptances
         and performance and surety bonds in the ordinary course of business;

                  (13)     the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness arising from the honoring by a
         bank or other financial institution of a check, draft or similar
         instrument inadvertently drawn against insufficient funds, so long as
         such Indebtedness is covered within five business days;

                  (14)     the incurrence by any Restricted Subsidiary of
         Indebtedness represented by letters of credit (or Guarantees thereof)
         entered into in the ordinary course of business to the extent that such
         letters of credit are not drawn upon or, if and to the extent drawn
         upon, such drawing is reimbursed no later than the tenth Business Day
         following a demand for reimbursement following payment on the letter of
         credit; provided that such letters of credit shall not constitute
         Permitted Debt pursuant to this clause (14) if they are issued in
         support of Indebtedness;

                  (15)     the incurrence of Indebtedness by the Company
         represented by letters of credit cash collateralized with the proceeds
         of Priority Lien Debt; and

                  (16)     the incurrence by the Company or any of its
         Restricted Subsidiaries of additional Indebtedness in an aggregate
         principal amount (or accreted value, as applicable) at any time
         outstanding, including all Permitted Refinancing Indebtedness incurred
         to extend, refinance, renew, replace, defease or refund any
         Indebtedness incurred pursuant to this clause (16), not to exceed
         $100.0 million.

         The Company shall not incur and shall not permit any Guarantor to
incur, any Indebtedness (including Permitted Debt) that is contractually
subordinated in right of payment to any other Indebtedness of the Company or
such Guarantor unless such Indebtedness is also contractually subordinated in
right of payment to the Notes (and the Applicable Guarantee) and the Term Loans
on

                                       53



substantially identical terms; provided, however, that no Indebtedness of the
Company shall be deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Company solely by virtue of being unsecured or by
virtue of being secured on a junior basis.

Section 4.10      Asset Sales.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale (including a Sale of
Designated Assets) unless:

                  (1)      the Company (or the Restricted Subsidiary, as the
         case may be) receives consideration at the time of the Asset Sale at
         least equal to the Fair Market Value of the assets or Equity Interests
         issued or sold or otherwise disposed of;

                  (2)      at least 75% of the consideration received in the
         Asset Sale by the Company or such Restricted Subsidiary is in the form
         of cash or Cash Equivalents. For purposes of this provision, each of
         the following shall be deemed to be cash:

                           (A)      any liabilities, as shown on the Company's
                  most recent consolidated balance sheet, of the Company or any
                  Restricted Subsidiary (other than contingent liabilities and
                  liabilities that are by their terms subordinated to the Notes)
                  that are assumed by the transferee of any such assets pursuant
                  to a customary novation or similar agreement that releases the
                  Company or such Restricted Subsidiary from further liability;

                           (B)      any securities, notes or other obligations
                  received by the Company or any such Restricted Subsidiary from
                  such transferee that are promptly, subject to ordinary
                  settlement periods, converted by the Company or such
                  Restricted Subsidiary into cash, to the extent of the cash
                  received in that conversion; and

                           (C)      except in the case of a Sale of Designated
                  Assets, any stock or assets of the kind referred to in clauses
                  (4) or (6) of Section 4.10(b); and

                  (3)      in the case of a Sale of Designated Assets other than
         Canadian Gas Assets, the Company (or the Restricted Subsidiary, as the
         case may be) shall deposit the Net Proceeds as cash collateral in a
         segregated account (a "Designated Asset Sale Proceeds Account") held by
         the Collateral Trustee or its agent to secure the Secured Obligations;
         provided, that for so long as the terms of any of the Company's senior
         unsecured notes that were issued prior to August 10, 2000 would prevent
         such a pledge by a Restricted Subsidiary, the Company shall deposit
         with the Collateral Trustee or its agent an amount of cash equal to the
         Net Proceeds as cash collateral to secure the Secured Obligations, and
         the applicable Restricted Subsidiary shall not be obligated to do so.

         (b)      Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, other than a Sale of Designated Assets that are not Canadian Gas
Assets, the Company (or the applicable Restricted Subsidiary, as the case may
be) may apply those Net Proceeds:

                  (1)      to repay Priority Lien Debt and/or cash collateralize
         letters of credit constituting Priority Lien Debt;

                  (2)      in the case of an Asset Sale by a Restricted
         Subsidiary, to repay or repurchase Indebtedness of Calpine Canada
         Energy Finance ULC and/or Calpine Canada Energy Finance II ULC existing
         on the date of this Indenture;

                                       54



                  (3)      in the case of an Asset Sale by a Restricted
         Subsidiary, to repay or repurchase Indebtedness of any Restricted
         Subsidiary and, if such Indebtedness is revolving credit Indebtedness,
         to correspondingly reduce commitments with respect thereto;

                  (4)      to acquire all or substantially all of the assets of,
         or any Capital Stock of, another Permitted Business, if, after giving
         effect to any such acquisition of Capital Stock, the Permitted Business
         is or becomes a Restricted Subsidiary of the Company;

                  (5)      to make a capital expenditure; or

                  (6)      to acquire other assets that are not classified as
         current assets under GAAP and that are used or useful in a Permitted
         Business.

         (c)      Within 180 days after the receipt of any Net Proceeds from an
Asset Sale that constitutes a Sale of Designated Assets other than Canadian Gas
Assets, the Company (or the Restricted Subsidiary that disposed of those
Designated Assets, as the case may be) may apply those Net Proceeds to purchase
other assets that would constitute Designated Assets or to repay Priority Lien
Debt and/or cash collateralize letters of credit constituting Priority Lien Debt
and, if such Priority Lien Debt is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto.

         (d)      Any Net Proceeds from Asset Sales (including Sales of
Designated Assets) that are not applied or invested as provided in the preceding
clauses of this Section 4.10 shall constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier
point as may be elected by the Company, the Company shall make an offer to all
holders of the Notes and all holders of other Indebtedness that is pari passu
with the Notes and equally and ratably secured with the Notes containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets, including the 2007
Notes, the 2013 Notes, the Term Loans and each series of Existing Indebtedness
that contains similar asset sale provisions, when applicable (an "Asset Sale
Offer"), to purchase or redeem the maximum principal amount of notes and such
other pari passu Indebtedness that may be purchased or redeemed out of the
Excess Proceeds (including each series of Existing Indebtedness that contains
similar asset sale provisions). The offer price in any Asset Sale Offer shall be
equal to 100% of principal amount plus accrued and unpaid interest, if any, to
the date of purchase, and shall be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use those
Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If
the aggregate principal amount of notes and other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
Company shall select the Notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.

         (e)      Notwithstanding the foregoing, to the extent that any or all
of the Net Proceeds of any Foreign Asset Sale is prohibited or delayed by
applicable local law from being repatriated to the United States, the portion of
such Net Proceeds so affected shall not be required to be applied at the time
provided above, but may be retained by the applicable Restricted Subsidiary so
long, but only so long, as the applicable local law shall not permit
repatriation to the United States. The Company shall promptly take or cause the
applicable Restricted Subsidiary to promptly take all actions required by the
applicable local law to permit such repatriation. Once such repatriation of any
of the affected Net Proceeds is permitted under the applicable local law, the
repatriation shall be immediately effected and the repatriated Net Proceeds
shall be applied in the manner set forth in this Section 4.10 as if the Asset
Sale had occurred on the date of such repatriation.

                                       55



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

         (g)      The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Asset Sale provisions of this Indenture by virtue of such
conflict.

Section 4.11      Transactions with Affiliates.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"),
unless:

                  (1)      the Affiliate Transaction is on terms that are no
         less favorable to the Company or the relevant Restricted Subsidiary
         than those that would have been obtained in a comparable transaction by
         the Company or such Restricted Subsidiary with an unrelated Person; and

                  (2)      the Company delivers to the Trustee:

                           (a)      with respect to any Affiliate Transaction or
         series of related Affiliate Transactions involving aggregate
         consideration in excess of $2.5 million, an officers' certificate
         certifying that such Affiliate Transaction complies with this Section
         4.11(a); and

                           (b)      with respect to any Affiliate Transaction or
         series of related Affiliate Transactions involving aggregate
         consideration in excess of $10.0 million, a resolution of the Board of
         Directors set forth in an officers' certificate certifying that such
         Affiliate Transaction complies with this Section 4.11 and that such
         Affiliate Transaction has been approved by a majority of the
         disinterested members of the Board of Directors or, if there are no
         disinterested members of the Board of Directors, the Board of Directors
         shall have received a written opinion of an accounting, appraisal or
         investment banking firm of national standing stating that such
         Affiliate Transaction or series of Affiliate Transactions is fair to
         the Company or such Restricted Subsidiary from a financial point of
         view.

         (b)      The following items shall not be deemed to be Affiliate
Transactions and, therefore, shall not be subject to the provisions of Section
4.11(a):

                  (1)      any employment agreement, employee benefit plan,
         stock option plan, officer and director indemnification agreement or
         any similar arrangement entered into by the Company or any of its
         Restricted Subsidiaries in the ordinary course of business;

                  (2)      transactions between or among the Company and its
         Restricted Subsidiaries and between or among the Company's Restricted
         Subsidiaries;

                                       56



                  (3)      transactions with a Person (other than an
         Unrestricted Subsidiary of the Company) that is an Affiliate of the
         Company solely because the Company owns, directly or through a
         Restricted Subsidiary, an Equity Interest in, or controls, such Person;

                  (4)      payment of reasonable directors' fees to Persons who
         are not otherwise Affiliates of the Company;

                  (5)      any issuance of Equity Interests (other than
         Disqualified Stock) of the Company to Affiliates of the Company;

                  (6)      Restricted Payments that do not violate the
         provisions of Section 4.07 hereof;

                  (7)      loans or advances to employees in the ordinary course
         of business;

                  (8)      any repurchase, redemption or other retirement of
         Capital Stock of the Company held by employees of the Company or any of
         its Subsidiaries upon death, disability or termination of employment at
         a price not in excess of the Fair Market Value thereof approved by the
         Board of Directors;

                  (9)      any transaction between or among the Company and any
         of its Subsidiaries in the ordinary course of business and consistent
         with past practices of the Company and its Subsidiaries; and

                  (10)     any agreement to do any of the foregoing.

         (c)      Any transaction which has been determined, in the written
opinion of an independent nationally recognized investment banking firm, to be
fair, from a financial point of view, to the Company or the applicable
Restricted Subsidiary shall be deemed to be in compliance with this Section
4.11.

Section 4.12      Liens.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind on any asset now owned or hereafter
acquired, except Permitted Liens.

         (b)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, grant or permit to exist a Lien upon any property
(whether then held by it or to be acquired by it at a future time) as security
for any Priority Lien Debt, unless (1) such Lien secures all Priority Lien Debt
on an equal and ratable basis and (2) the Collateral Trustee holds an
enforceable and perfected Lien upon such property as security equally and
ratably for all Parity Lien Obligations in second priority to Priority Lien
Debt.

Section 4.13      Limitation on Changes in the Nature of the Business.

         The Company and its Restricted Subsidiaries shall engage only in
Permitted Businesses, except to such extent as would not be material to the
Company and its Restricted Subsidiaries taken as a whole. In addition, the
Company will, and shall cause its Subsidiaries, to conduct their respective
businesses in a manner so as to maintain the exemption of the Company and its
Subsidiaries from treatment as a public utility holding company under PUHCA or
an electric utility or public utility under any federal, state or local law;
provided to the extent that any such law is amended following the date of this
Indenture in such a manner that would (absent application of this proviso) make
non-compliance with this Section 4.13 not result in a material adverse effect on
the Company's results of operations or financial condition, then the

                                       57



Company shall not be required to comply with this Section 4.13, but only to the
extent of actions or failures to act that would (absent application of this
Section 4.13) constitute violations of this Section 4.13 solely as a result of
such amendment.

Section 4.14      Corporate Existence.

         Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect:

                  (1)      its corporate existence, and the corporate,
         partnership or other existence of each of its Subsidiaries, in
         accordance with the respective organizational documents (as the same
         may be amended from time to time) of the Company or any such
         Subsidiary; and

                  (2)      the rights (charter and statutory), licenses and
         franchises of the Company and its Subsidiaries; provided, however, that
         the Company shall not be required to preserve any such right, license
         or franchise, or the corporate, partnership or other existence of any
         of its Subsidiaries, if the Board of Directors shall determine that the
         preservation thereof is no longer desirable in the conduct of the
         business of the Company and its Subsidiaries, taken as a whole, and
         that the loss thereof is not adverse in any material respect to the
         Holders of the Notes.

Section 4.15      Offer to Repurchase Upon Change of Control.

         (a)      If a Change of Control occurs, each holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple of $1,000) of that holder's Notes pursuant to the offer
described below (the "Change of Control Offer") on the terms set forth in this
Indenture. In the Change of Control Offer, the Company shall offer a payment in
cash equal to 101% of the aggregate principal amount of Notes repurchased plus
accrued and unpaid interest, if any, on the Notes repurchased (the "Change of
Control Payment"), to but excluding the date of purchase. Within 30 days
following any Change of Control, the Company shall mail a notice to each holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Notes on the change of control payment date (the
"Change of Control Payment Date") specified in the notice, which date shall be
no earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by this Indenture and described in
such notice. The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change of
Control provisions of this Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Change of Control provisions of this
Indenture by virtue of such compliance.

         (b)      On the Change of Control Payment Date, the Company will, to
the extent lawful:

                  (1)      accept for payment all Notes or portions of Notes
         properly tendered pursuant to the Change of Control Offer;

                  (2)      deposit with the paying agent an amount equal to the
         Change of Control Payment in respect of all Notes or portions of Notes
         properly tendered; and

                                       58



                  (3)      deliver or cause to be delivered to the trustee the
         Notes properly accepted together with an officers' certificate stating
         the aggregate principal amount of Notes or portions of Notes being
         purchased by the Company.

                  The paying agent shall promptly mail to each holder of Notes
properly tendered the Change of Control Payment for such Notes, and the Trustee
upon receipt of an Authentication Order from the Company shall promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each new note shall be in a principal amount
of $1,000 or an integral multiple of $1,000. The Company shall publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.

         (c)      The Company shall not be required to make a Change of Control
Offer upon a Change of Control if (1) a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes properly tendered and not withdrawn
under the Change of Control Offer, or (2) notice of redemption has been given
pursuant to Section 3.07 herein, unless and until there is a default in payment
of the applicable redemption price.

Section 4.16      Limitation on Sale and Leaseback Transactions.

         (a)      The Company shall not enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if:

                  (1)      the Company could have (a) incurred Indebtedness in
         an amount equal to the Attributable Debt relating to such sale and
         leaseback transaction under the Fixed Charge Coverage Ratio test in
         Section 4.09 (a) herein and (b) incurred a Lien to secure such
         Indebtedness pursuant to Section 4.12 herein;

                  (2)      the gross cash proceeds of that sale and leaseback
         transaction are at least equal to the Fair Market Value, as determined
         in good faith by the Board of Directors and set forth in an officers'
         certificate delivered to the Trustee, of the property that is the
         subject of that sale and leaseback transaction; and

                  (3)      the transfer of assets in that sale and leaseback
         transaction is permitted by, and the Company applies the proceeds of
         such transaction in compliance with, Section 4.10 herein.

         (b)      This Section 4.16 shall not apply to the Company's
Subsidiaries.

Section 4.17      Limitation on Issuances of Guarantees of Indebtedness.

         The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company (other than the Existing Guarantees by
the Canadian Guarantors) unless such Restricted Subsidiary simultaneously
executes and delivers (1) supplemental indentures providing for the Guarantees
of the payment of the Notes by such Restricted Subsidiary, which Guarantees
shall be senior to such Restricted Subsidiary's Guarantee of or pledge to secure
such other Indebtedness unless the Indebtedness of the Company so Guaranteed or
secured is senior Indebtedness of the Company, in which case the Guarantees of
the Notes may be pari passu with such Restricted Subsidiary's Guarantee of or
pledge to secure such other Indebtedness of the Company, and (2) a pledge or
security agreement providing for a pledge of such

                                       59



assets to secure the Notes and all other Parity Lien Debt on an equal and
ratable basis (subject only to Permitted Prior Liens).

Section 4.18      Payments for Consent.

         The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
the Notes the 2007 Notes, the 2013 Notes or the Term Loans for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture, the Notes, the 2007 Notes, the 2013 Notes, the Term Loans,
the Term Loan Agreement or any Security Documents unless such consideration is
offered to be paid or agreed to be paid to all holders of such notes and/or Term
Loans that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.

Section 4.19      Designation of Restricted and Unrestricted Subsidiaries.

         The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
Fair Market Value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be
deemed to be an Investment made as of the time of the designation and shall
reduce the remaining amount available for Restricted Payments under Section 4.07
herein or under one or more clauses of the definition of Permitted Investments,
as determined by the Company. That designation shall only be permitted if the
Investment would be permitted at that time and if the Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if that redesignation would not cause a Default.

Section 4.20      Changes in Covenant When Notes Rated Investment Grade.

         If on any date following the date of this Indenture:

                  (1)      any series of the notes is rated Baa3 or better by
Moody's and BBB- or better by S&P; and

                  (2)      no Default or Event of Default shall have occurred
         and be continuing, then, beginning on that day and subject to the
         provisions of the following paragraph, the provisions of Section 4.07,
         4.08, 4.09, 4.10, 4.11, 4.13, 4.19 and clause (4) of Section 5.01
         hereof shall be suspended.

         Notwithstanding the foregoing, if the rating assigned by either such
rating agency should subsequently decline to below Baa3 or BBB-, respectively,
the foregoing provisions shall be reinstituted as of and from the date of such
rating decline. Calculations under the reinstated Section 4.07 shall be made as
if Section 4.07 had been in effect since the date of this Indenture except that
no default shall be deemed to have occurred solely by reason of a Restricted
Payment made while that Section 4.07 was suspended. These covenant suspension
provisions shall continue to be applicable following any such reinstatement. The
Company shall notify the Trustee if any covenants are suspended or reinstated
pursuant to this Section 4.20.

                                       60



                                   ARTICLE 5.
                                   SUCCESSORS

Section 5.01      Merger, Consolidation, or Sale of Assets.

         The Company may not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:

                  (1)      either:

                           (A)      the Company is the surviving corporation; or

                           (B)      the Person formed by or surviving any such
                  consolidation or merger (if other than the Company) or to
                  which such sale, assignment, transfer, conveyance or other
                  disposition has been made is a corporation organized or
                  existing under the laws of the United States, any state of the
                  United States or the District of Columbia;

                  (2)      the Person formed by or surviving any such
         consolidation or merger (if other than the Company) or the Person to
         which such sale, assignment, transfer, conveyance or other disposition
         has been made assumes all the obligations of the Company under the
         Notes, this Indenture, and the Security Documents pursuant to
         agreements reasonably satisfactory to the Trustee and the Collateral
         Trustee;

                  (3)      immediately after such transaction, no Default or
         Event of Default exists;

                  (4)      the Company or the Person formed by or surviving any
         such consolidation or merger (if other than the Company), or to which
         such sale, assignment, transfer, conveyance or other disposition has
         been made:

                           (A)      shall have Consolidated Net Worth
                  immediately after the transaction equal to or greater than the
                  Consolidated Net Worth of the Company immediately preceding
                  the transaction; and

                           (B)      will, on the date of such transaction after
                  giving pro forma effect thereto and any related financing
                  transactions as if the same had occurred at the beginning of
                  the applicable four-quarter period, be permitted to incur at
                  least $1.00 of additional Indebtedness pursuant to the Fixed
                  Charge Coverage Ratio test set forth in Section 4.09(a)
                  herein; and

                  (5)      such transaction shall not impair the ability of the
         Company or any of its Subsidiaries to conduct their respective
         businesses in a manner so as to maintain the exemption of the Company
         and its Subsidiaries from treatment as a public utility holding company
         under PUHCA or an electric utility or public utility under any federal,
         state or local law, unless such exemption is no longer material to the
         Company and its Restricted Subsidiaries taken as a whole or to the
         Person formed by or surviving any such consolidation or merger (if
         other then the Company) and its Restricted Subsidiaries taken as a
         whole.

         In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.

                                       61



         Notwithstanding the foregoing:

                  (1)      the Company may merge with an Affiliate solely for
         the purpose of reincorporating the Company in another jurisdiction; and

                  (2) the Company and its Restricted Subsidiaries may sell,
         assign, transfer, lease, convey or otherwise dispose of assets between
         or among each other (including by way of merger).

Section 5.02      Successor Corporation Substituted.

         Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in a transaction that is subject to, and that complies with the
provisions of, Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets in a transaction that is subject to, and that complies with
the provisions of, Section 5.01 hereof.

                                   ARTICLE 6.
                              DEFAULTS AND REMEDIES

Section 6.01      Events of Default.

         Each of the following is an "Event of Default":

                  (1)      default for 30 days in the payment when due of
         interest on the Notes;

                  (2)      default in payment when due of the principal of, or
         premium, if any, on the Notes;

                  (3)      failure to purchase the Notes when required pursuant
         to Section 4.10, 4.15 or otherwise as required pursuant to this
         Indenture or the Notes;

                  (4)      failure by the Company or any of its Restricted
         Subsidiaries for 30 days after written notice from the Trustee or the
         holders of at least 25% in outstanding aggregate principal amount of
         that series of notes to comply with any of the other agreements in this
         Indenture, the Notes or the Security Documents;

                  (5)      default under any mortgage, indenture or instrument
         under which there may be issued or by which there may be secured or
         evidenced any Indebtedness for money borrowed by the Company or any of
         its Restricted Subsidiaries (or the payment of which is guaranteed by
         the Company or any of its Restricted Subsidiaries) whether such
         Indebtedness or guarantee now exists, or is created after the date of
         this Indenture, if that default:

                                       62



                           (a)      is caused by a failure to pay principal of,
         or interest or premium, if any, on such Indebtedness prior to the
         expiration of the grace period provided in such Indebtedness on the
         date of such default (a "Payment Default"); or

                           (b)      results in the acceleration of such
         Indebtedness prior to its express maturity,

         and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $50.0 million or more, and such default shall not have
been cured or waived or any such acceleration rescinded, or such Indebtedness
repaid, within 20 days of the Company or such Restricted Subsidiary becoming
aware of such default; provided that the provisions of this clause (5) shall not
apply to any default on Non-Recourse Debt;

                  (6)      failure by the Company or any of its Significant
         Subsidiaries to pay final judgments (not covered by insurance)
         aggregating in excess of $50.0 million, which judgments are not paid,
         discharged or stayed for a period of 30 days;

                  (7)      the repudiation by the Company or any of its
         Restricted Subsidiaries of any of its obligations under the Security
         Documents or the unenforceability of the Security Documents against the
         Company or any of its Restricted Subsidiaries for any reason; provided
         that such breach, repudiation or unenforceability relates to Collateral
         having an aggregate Fair Market Value of $50.0 million or more;

                  (8)      except as permitted by this Indenture, any note
         Guarantee shall be held in any judicial proceeding to be unenforceable
         or invalid or shall cease for any reason to be in full force and effect
         or any Canadian Guarantor, or any Person acting on behalf of any
         Canadian Guarantor, shall deny or disaffirm its obligations under its
         note Guarantee and such condition shall not have been cured within 30
         days of written notice from the Trustee or the holders of at least 25%
         in outstanding aggregate principal amount of the Notes; and

                  (9)      the Company or any of its Significant Subsidiaries or
         any group of Subsidiaries that, taken as a whole, would constitute a
         Significant Subsidiary pursuant to or within the meaning of Bankruptcy
         Law:

                           (A)      commences a voluntary case,

                           (B)      consents to the entry of an order for relief
                  against it in an involuntary case,

                           (C)      consents to the appointment of a custodian
                  of it or for all or substantially all of its property,

                           (D)      makes a general assignment for the benefit
                  of its creditors, or

                           (E)      generally is not paying its debts as they
                  become due; and

                  (10)     a court of competent jurisdiction enters an order or
         decree under any Bankruptcy Law that:

                                       63



                           (A)      is for relief against the Company or any of
                  its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary in an involuntary case;

                           (B)      appoints a custodian of the Company or any
                  of its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary or for all or substantially all of the property of
                  the Company or any of its Significant Subsidiaries or any
                  group of Subsidiaries that, taken as a whole, would constitute
                  a Significant Subsidiary; or

                           (C)      orders the liquidation of the Company or any
                  of its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary;

                  and the order or decree remains unstayed and in effect for 60
         consecutive days.

Section 6.02      Acceleration.

         In the case of an Event of Default specified in clause (9) or (10) of
Section 6.01 hereof, with respect to the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary, all outstanding Notes shall become due and
payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately.

         Upon any such declaration, the Notes shall become due and payable
immediately. Notwithstanding the foregoing, if an Event of Default specified in
clause (9) of Section 6.01 hereof occurs with respect to the Company, any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.

         If an Event of Default occurs on or after July 15, 2007 by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to July 15, 2007
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on July 15 of the years
set forth below, as set forth below (expressed as a percentage of the principal
amount of the Notes on the date of payment that would otherwise be due but for
the provisions of this sentence):



YEAR                                                                              PERCENTAGE
- ----                                                                              ----------
                                                                               
2003........................................................................        8.500%
2004........................................................................        7.438%
2005........................................................................        6.375%
2006........................................................................        5.313%


                                       64



Section 6.03      Other Remedies.

         If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.

         The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.

Section 6.04      Waiver of Past Defaults.

         Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on, the Notes
(including in connection with an offer to purchase); provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.

Section 6.05      Control by Majority.

         Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.

Section 6.06      Limitation on Suits.

         A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:

                  (1)      the Holder of a Note gives to the Trustee written
         notice of a continuing Event of Default;

                  (2)      the Holders of at least 25% in principal amount of
         the then outstanding Notes make a written request to the Trustee to
         pursue the remedy;

                  (3)      such Holder of a Note or Holders of Notes offer and,
         if requested, provide to the Trustee indemnity satisfactory to the
         Trustee against any loss, liability or expense;

                                       65



                  (4)      the Trustee does not comply with the request within
         60 days after receipt of the request and the offer and, if requested,
         the provision of indemnity; and

                  (5)      during such 60-day period the Holders of a majority
         in principal amount of the then outstanding Notes do not give the
         Trustee a direction inconsistent with the request.

         A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.

Section 6.07      Rights of Holders of Notes to Receive Payment.

         Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder; provided that a Holder
shall not have the right to institute any such suit for the enforcement of
payment if and to the extent that the institution or prosecution thereof or the
entry of judgment therein would, under applicable law, result in the surrender,
impairment, waiver or loss of the Lien of this Indenture upon any property
subject to such Lien.

Section 6.08      Collection Suit by Trustee.

         If an Event of Default specified in Section 6.01(1) or (2) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

Section 6.09      Trustee May File Proofs of Claim.

         The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.

                                       66



Section 6.10      Priorities.

         If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:

                  First:   to the Trustee, its agents and attorneys for amounts
         due under Section 7.07 hereof, including payment of all compensation,
         expense and liabilities incurred, and all advances made, by the Trustee
         and the costs and expenses of collection;

                  Second:  to Holders of Notes for amounts due and unpaid on the
         Notes for principal, premium, if any, and interest, ratably, without
         preference or priority of any kind, according to the amounts due and
         payable on the Notes for principal, premium, if any and interest,
         respectively; and

                  Third:   to the Company or to such party as a court of
         competent jurisdiction shall direct.

         The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

Section 6.11      Undertaking for Costs.

         In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.

                                   ARTICLE 7.
                                     TRUSTEE

Section 7.01      Duties of Trustee.

         (a)      If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.

         (b)      Except during the continuance of an Event of Default:

                  (1)      the duties of the Trustee shall be determined solely
         by the express provisions of this Indenture and the Trustee need
         perform only those duties that are specifically set forth in this
         Indenture and no others, and no implied covenants or obligations shall
         be read into this Indenture against the Trustee; and

                  (2)      in the absence of bad faith on its part, the Trustee
         may conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon certificates or
         opinions furnished to the Trustee and conforming to the requirements of
         this Indenture.

                                       67



         However, the Trustee shall examine the certificates and opinions to
         determine whether or not they conform to the requirements of this
         Indenture (but need not confirm or investigate the accuracy of
         mathematical calculations or other facts stated therein).

         (c)      The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

                  (1)      this paragraph (c) does not limit the effect of
         paragraph (b) of this Section 7.01;

                  (2)      the Trustee shall not be liable for any error of
         judgment made in good faith by a Responsible Officer, unless it is
         conclusively determined by a court of competent jurisdiction that the
         Trustee was negligent in ascertaining the pertinent facts; and

                  (3)      the Trustee shall not be liable with respect to any
         action it takes or omits to take in good faith in accordance with a
         direction received by it pursuant to Section 6.05 hereof.

         (d)      Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section 7.01.

         (e)      No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder has offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

         (f)      The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.

Section 7.02      Rights of Trustee.

         (a)      The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.

         (b)      Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.

         (c)      The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.

         (d)      The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.

         (e)      Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.

                                       68



         (f)      The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.

         (g)      In no event shall the Trustee be required to take notice of
any default or breach hereof or any Event of Default hereunder, except for
Events of Default specified in Section 6.01(1) and/or 6.01(2) hereof, unless and
until the Trustee shall have received from a Holder of a Note or from the
Company express written notice of the circumstances constituting the breach,
default or Event of Default and stating that said circumstances constitute an
Event of Default hereunder.

         (h)      If the Trustee is acting as Paying Agent and/or Registrar
hereunder, the rights and protections afforded to the Trustee pursuant to this
Article 7 will also be afforded to such Paying Agent and Registrar.

Section 7.03      Individual Rights of Trustee.

         The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days after ascertaining it
has such conflicting interest, apply to the SEC for permission to continue as
trustee or resign to the extent and in the manner provided by, and subject to
the provisions of, the TIA and this Indenture. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.

Section 7.04      Trustee's Disclaimer.

         The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

Section 7.05      Notice of Defaults.

         If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.

Section 7.06      Reports by Trustee to Holders of the Notes.

         (a)      Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be

                                       69



transmitted). The Trustee also shall comply with TIA Section 313(b)(2) to the
extent applicable. The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c).

         (b)      A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed by the Trustee to the Company and filed by the
Trustee with the SEC and each stock exchange on which the Notes are listed in
accordance with TIA Section 313(d). The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange.

Section 7.07      Compensation and Indemnity.

         (a)      The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.

         (b)      The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture (and any other Note
Documents to which it is a party) against the Company (including this Section
7.07) and defending itself against any claim (whether asserted by the Company,
or any Holder or any other Person) or liability in connection with the exercise
or performance of any of its powers or duties hereunder, except to the extent
any such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.

         (c)      The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.

         (d)      To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.

         (e)      When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(9) or (10) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of administration
under any Bankruptcy Law.

Section 7.08      Replacement of Trustee.

         (a)      A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.

         (b)      The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of a majority in principal amount of the then

                                       70



outstanding Notes may remove the Trustee by so notifying the Trustee and the
Company in writing. The Company may remove the Trustee if:

                  (1)      the Trustee fails to comply with Section 7.10 hereof;

                  (2)      the Trustee is adjudged a bankrupt or an insolvent or
         an order for relief is entered with respect to the Trustee under any
         Bankruptcy Law;

                  (3)      a custodian or public officer takes charge of the
         Trustee or its property; or

                  (4)      the Trustee becomes incapable of acting.

         (c)      If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.

         (d)      If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

         (e)      If the Trustee, after written request by any Holder who has
been a Holder for at least six months, fails to comply with Section 7.10, such
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.

         (f)      A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.

Section 7.09      Successor Trustee by Merger, etc.

         If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.

Section 7.10      Eligibility; Disqualification.

         There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.

         This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section. 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section. 310(b).

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Section 7.11      Preferential Collection of Claims Against Company.

         The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.

                                   ARTICLE 8.
                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01      Option to Effect Legal Defeasance or Covenant Defeasance.

         The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.

Section 8.02      Legal Defeasance and Discharge.

         Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company will, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from their obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in clauses (1) and (2) below, and to have satisfied all their other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder:

                  (1)      the rights of Holders of outstanding Notes to receive
         payments in respect of the principal of, or interest or premium, if
         any, on such Notes when such payments are due from the trust referred
         to in Section 8.04 hereof;

                  (2)      the Company's obligations with respect to such Notes
         under Article 2 and Section 4.02 hereof;

                  (3)      the rights, powers, trusts, duties and immunities of
         the Trustee hereunder and the Company's obligations in connection
         therewith; and

                  (4)      this Article 8.

         Subject to compliance with this Article 8, the Company may exercise its
option under this Section 8.02 notwithstanding the prior exercise of its option
under Section 8.03 hereof.

Section 8.03      Covenant Defeasance.

         Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company (to the extent applicable) shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from each of their obligations under the covenants contained in
Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and
4.19 hereof and clause (4) of Section 5.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section

                                       72



8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(3) through 6.01(5) hereof shall not constitute Events of Default.

Section 8.04      Conditions to Legal or Covenant Defeasance.

         In order to exercise either Legal Defeasance or Covenant Defeasance
under either Section 8.02 or 8.03 hereof:

                  (1)      the Company must irrevocably deposit with the
         Trustee, in trust, for the benefit of the Holders, cash in United
         States dollars, non-callable Government Securities, or a combination
         thereof, in such amounts as shall be sufficient, in the opinion of a
         nationally recognized investment bank, appraisal firm or firm of
         independent public accountants, to pay the principal of, premium, if
         any, and interest on the outstanding Notes on the stated date for
         payment thereof or on the applicable redemption date, as the case may
         be, and the Company must specify whether such Notes are being defeased
         to maturity or to a particular redemption date;

                  (2)      in the case of an election under Section 8.02 hereof,
         the Company has delivered to the Trustee an Opinion of Counsel in the
         United States reasonably acceptable to the Trustee confirming that:

                           (A)      the Company has received from, or there has
                  been published by, the Internal Revenue Service a ruling; or

                           (B)      since the date of this Indenture, there has
                  been a change in the applicable federal income tax law,

                  in either case to the effect that, and based thereon such
                  Opinion of Counsel shall confirm that, the Holders of the
                  outstanding Notes shall not recognize income, gain or loss for
                  federal income tax purposes as a result of such Legal
                  Defeasance and shall be subject to federal income tax on the
                  same amounts, in the same manner and at the same times as
                  would have been the case if such Legal Defeasance had not
                  occurred;

                  (3)      in the case of an election under Section 8.03 hereof,
         the Company must deliver to the Trustee an Opinion of Counsel in the
         United States reasonably acceptable to the Trustee confirming that the
         Holders of the outstanding Notes shall not recognize income, gain or
         loss for federal income tax purposes as a result of such Covenant
         Defeasance and shall be subject to federal income tax on the same
         amounts, in the same manner and at the same times as would have been
         the case if such Covenant Defeasance had not occurred;

                                       73



                  (4)      no Default or Event of Default shall have occurred
         and be continuing on the date of such deposit (other than a Default or
         Event of Default resulting from the borrowing of funds to be applied to
         such deposit);

                  (5)      such Legal Defeasance or Covenant Defeasance shall
         not result in a breach or violation of, or constitute a default under,
         any material agreement or instrument (other than this Indenture) to
         which the Company or any of its Subsidiaries is a party or by which the
         Company or any of its Subsidiaries is bound;

                  (6)      the Company must deliver to the Trustee an Officers'
         Certificate stating that the deposit was not made by the Company with
         the intent of preferring the Holders of Notes over the other creditors
         of the Company with the intent of defeating, hindering, delaying or
         defrauding any other creditors of the Company or others; and

                  (7)      the Company must deliver to the Trustee an Officers'
         Certificate and an Opinion of Counsel, each stating that all conditions
         precedent provided for or relating to the Legal Defeasance or the
         Covenant Defeasance have been complied with.

Section 8.05      Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.

         Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.

         The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

         Notwithstanding anything in this Article 8 to the contrary, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized
investment bank, appraisal firm or firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.04(1) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.

Section 8.06      Repayment to the Company.

         Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter be
permitted to look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money,

                                       74



and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.

Section 8.07      Reinstatement.

         If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.

                                   ARTICLE 9.
                        AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01      Without Consent of Holders of Notes.

         Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:

                  (1)      to cure any ambiguity, defect or inconsistency;

                  (2)      to provide for uncertificated Notes in addition to or
         in place of certificated Notes;

                  (3)      to provide for the assumption of the Company's
         obligations to the Holders of the Notes by a successor to the Company
         pursuant to Article 5 hereof;

                  (4)      to make any change that would provide any additional
         rights or benefits to the Holders of the Notes or that does not
         adversely affect the legal rights hereunder of any Holder of the Notes;

                  (5)      to comply with requirements of the SEC in order to
         effect or maintain the qualification of this Indenture under the TIA;

                  (6)      to provide for the issuance of Additional Notes in
         accordance with the limitations set forth in this Indenture as of the
         date hereof;

                  (7)      to allow any Guarantor to execute a supplemental
         indenture and/or a Guarantee with respect to the Notes;

                  (8)      to make, complete or confirm any grant of Collateral
         permitted or required by this Indenture or any of the Security
         Documents or any release of Collateral that becomes effective as set
         forth in this Indenture or any of the Security Documents;

                                       75



                  (9)      to conform the text of this Indenture, the Notes or
         the Security Documents to any provision of the Description of the Notes
         section of the Offering Circular to the extent that such provision of
         the Description of the Notes section of the Offering Circular was
         intended to be a verbatim recitation of a provision of this Indenture,
         the Notes or the Security Documents; or

                  (10)     to reflect any waiver or termination of any right
         arising under the provisions of this Indenture that otherwise would be
         enforceable by any holder of the Term Loan Obligations, if such waiver
         or termination is set forth in the agreement governing such Term Loan
         Obligations, provided that no such waiver or amendment shall adversely
         affect the right of holders of Notes.

         Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.

Section 9.02      With Consent of Holders of Notes.

         Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including, without limitation,
Section 3.09, 4.10 and 4.15 hereof), the Guarantees and the Notes with the
consent of the Holders of at least a majority in principal amount of the Notes
(including, without limitation, Additional Notes, if any) then outstanding
voting as a single class (including, without limitation, consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture, the Guarantees or the Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes).

         Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.

         It is not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it is sufficient if such consent approves the substance thereof.

         After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount

                                       76



of the Notes then outstanding voting as a single class may waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):

                  (1)      reduce the principal amount of Notes whose Holders
         must consent to an amendment, supplement or waiver;

                  (2)      reduce the principal of or change the fixed maturity
         of any Note or alter or waive any of the provisions with respect to the
         redemption of the Notes except as provided above with respect to
         Sections 3.09, 4.10 and 4.15 hereof;

                  (3)      reduce the rate of or change the time for payment of
         interest, including default interest, on any Note;

                  (4)      waive a Default or Event of Default in the payment of
         principal of, or interest or premium, if any, on the Notes (except a
         rescission of acceleration of the Notes by the Holders of at least a
         majority in aggregate principal amount of the then outstanding Notes
         and a waiver of the payment default that resulted from such
         acceleration);

                  (5)      make any Note payable in money other than that stated
         in the Notes;

                  (6)      make any change in the provisions of this Indenture
         relating to waivers of past Defaults or the rights of Holders of Notes
         to receive payments of principal of, or interest or premium, if any, on
         the Notes;

                  (7)      waive a redemption payment with respect to any Note
         (other than a payment required under Section 4.10 and Section 4.15);

                  (8)      release (A) any Collateral from the Liens created by
         the Security Documents except as specifically provided in this
         Indenture and the Security Documents as of the date of this Indenture
         or (B) all or substantially all of the Collateral or all or
         substantially all of the Canadian Guarantors from their obligations
         under the Guarantee and Collateral Agreement dated July 16, 2003
         without the prior written consent of all Holders; or

                  (9)      make any change in Section 6.04 or 6.07 hereof or in
         the foregoing amendment and waiver provisions.

Section 9.03      Compliance with Trust Indenture Act.

         Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.

Section 9.04      Revocation and Effect of Consents.

         Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver,

                                       77



supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.

Section 9.05      Notation on or Exchange of Notes.

         The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.

         Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.

Section 9.06      Trustee to Sign Amendments, etc.

         The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 and 7.02 hereof) shall
be fully protected in relying upon, in addition to the documents required by
Section 13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating
that the execution of such amended or supplemental Indenture is authorized or
permitted by this Indenture.

                                  ARTICLE 10.
                             COLLATERAL AND SECURITY

Section 10.01     Equal and Ratable Sharing of Collateral by Holders of Parity
Lien Debt; Sharing Confirmation.

         Notwithstanding (1) anything to the contrary contained in the Security
Documents, (2) the time of incurrence of any Series of Parity Lien Debt, (3) the
order or method of attachment or perfection of any Liens securing any Series of
Parity Lien Debt, (4) the time or order of filing or recording of financing
statements, mortgages or other documents filed or recorded to perfect any Lien
upon any Collateral, (5) the time of taking possession or control over any
Collateral or (6) the rules for determining priority under any law governing
relative priorities of Liens:

                           (A)      all Liens at any time granted by the Company
                  or any other Obligor to secure any of the Parity Lien Debt
                  shall secure, equally and ratably, all present and future
                  Parity Lien Obligations; and

                           (B)      all proceeds of all Liens at any time
                  granted by the Company or any Obligor to secure any of the
                  Parity Lien Debt and other Parity Lien Obligations shall be
                  allocated and distributed equally and ratably on account of
                  the Parity Lien Debt and other Parity Lien Obligations;
                  provided, that, for the avoidance of doubt, in the absence of
                  an Event of Default, the Company shall be entitled to utilize
                  cash proceeds of Collateral in the ordinary course of its
                  business.

         The foregoing provision is intended for the benefit of, and shall be
enforceable as a third party beneficiary by, each present and future holder of
Parity Lien Obligations, each present and future Parity Debt Representative and
the Collateral Trustee as holder of Parity Liens. The Company shall not incur

                                       78



any future Series of Parity Lien Debt unless the agreement governing such Series
of Parity Lien Debt includes a Sharing Confirmation at the time of incurrence of
such Series of Parity Lien Debt.

Section 10.02     Ranking of Note Liens

         Notwithstanding:

                  (1)      anything to the contrary contained in the Security
         Documents,

                  (2)      the time of incurrence of any Series of Secured Debt,

                  (3)      the order or method of attachment or perfection of
         any Liens securing any Series of Secured Debt,

                  (4)      the time or order of filing or recording of financing
         statements, mortgages or other documents filed or recorded to perfect
         any Lien upon any Collateral,

                  (5)      the time of taking possession or control over any
         Collateral or

                  (6)      the rules for determining priority under any law
         governing relative priorities of Liens,

all Liens at any time granted by the Company or any other Obligor to secure any
of the Parity Lien Debt shall be subject and subordinate to Priority Liens
securing Priority Lien Obligations up to the Priority Lien Cap.

         The foregoing provision is intended for the benefit of, and shall be
enforceable as a third party beneficiary by, each present and future holder of
Priority Lien Obligations, each present and future Priority Lien Agent and the
Collateral Trustee as holder of Priority Liens. No other Person shall be
entitled to rely on, have the benefit of or enforce this provision.

         In addition, the foregoing provision is intended solely to set forth
the relative ranking, as Liens, of the Liens securing Parity Lien Debt as
against the Priority Liens. Neither the Notes, the 2007 Notes, the 2013 Notes
nor the Term Loans nor any other Parity Lien Obligations nor the exercise or
enforcement of any right or remedy for the payment or collection thereof are
intended to be, or shall ever by reason of the foregoing provision, in any
respect subordinated, deferred, postponed, restricted or prejudiced.

Section 10.03     Release of Security Interest in Respect of Notes

         The Collateral Trustee's Liens upon the Collateral shall no longer
secure the Notes or any other Obligations under this Indenture, and the right of
the holders of the Notes and Obligations to the benefits and proceeds of the
Collateral Trustee's Liens on Collateral shall terminate and be discharged:

                  (1)      upon satisfaction and discharge of this Indenture in
         accordance with Article 11 hereof;

                  (2)      upon a Legal Defeasance or Covenant Defeasance of the
         Notes in accordance with Article 8 hereof; or

                                       79



                  (3)      upon payment in full and discharge of all Notes
         outstanding under this Indenture and all related Obligations that are
         outstanding, due and payable under this Indenture at the time the Notes
         are paid in full and discharged.

                                  ARTICLE 11.
                           satisfaction and discharge

Section 11.01     Satisfaction and Discharge.

         This Indenture shall be discharged and shall cease to be of further
effect as to all Notes issued hereunder, when:

                  (1)      either:

                           (a)      all Notes that have been authenticated under
         this Indenture (except lost, stolen or destroyed Notes that have been
         replaced or paid and Notes for whose payment money has theretofore been
         deposited in trust and thereafter repaid to the Company) have been
         delivered to the Trustee for cancellation; or

                           (b)      all Notes that have not been delivered to
         the Trustee for cancellation have become due and payable by reason of
         the making of a notice of redemption or otherwise or shall become due
         and payable within one year and the Company has irrevocably deposited
         or caused to be deposited with the Trustee as trust funds in trust
         solely for the benefit of the Holders, cash in U.S. dollars,
         non-callable Government Securities, or a combination thereof, in such
         amounts as shall be sufficient without consideration of any
         reinvestment of interest, to pay and discharge the entire indebtedness
         on the Notes not delivered to the Trustee for cancellation for
         principal, premium, if any, and accrued interest to the date of
         maturity or redemption;

                  (2)      no Default or Event of Default has occurred and is
         continuing on the date of such deposit or shall occur as a result of
         such deposit and such deposit shall not result in a breach or violation
         of, or constitute a default under, any other instrument to which the
         Company is a party or by which the Company is bound;

                  (3)      the Company has paid or caused to be paid all sums
         payable by it under this Indenture; and

                  (4)      the Company has delivered irrevocable instructions to
         the Trustee under this Indenture to apply the deposited money toward
         the payment of the Notes at maturity or the redemption date, as the
         case may be.

In addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.

         Notwithstanding the satisfaction and discharge of this Indenture, if
money has been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section, the provisions of Section 12.02 and Section 8.06 shall
survive. In addition, nothing in this Section 11.01 shall be deemed to discharge
those provisions of Section 7.07 hereof, that, by their terms, survive the
satisfaction and discharge of this Indenture.

                                       80



Section 11.02     Application of Trust Money.

         Subject to the provisions of Section 8.06, all money deposited with the
Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in
accordance with the provisions of the Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium, if any) and interest for whose payment such money
has been deposited with the Trustee; but such money need not be segregated from
other funds except to the extent required by law.

         If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 11.01; provided
that if the Company has made any payment of principal of, premium, if any, or
interest on any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or Government Securities held by the Trustee
or Paying Agent.

                                  ARTICLE 12.
                                  MISCELLANEOUS

Section 12.01     Trust Indenture Act Controls.

         If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties or provisions of
the TIA shall control.

Section 12.02     Notices.

         Any notice or communication by the Company or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:

         If to the Company:

         Calpine Corporation
         50 West San Fernando Street
         San Jose, California 95113
         Telephone No.:  (408) 995-5115
         Attention:  Ron Fischer

         With a copy to:
         Covington & Burling
         1330 Avenue of the Americas
         New York, NY 10019
         Telecopier No.:  (212) 841-1010
         Attention:  Bruce Bennett

                                       81



         If to the Trustee:
         Wilmington Trust Company
         Rodney Square North
         1100 North Market Street
         Wilmington, Delaware 19890
         Telecopier No.:  (302) 636-4145
         Attention:  Corporate Capital Markets

         By notice to the others, the Company or the Trustee may designate
additional or different addresses for subsequent notices or communications.

         All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.

         Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.

         If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.

         If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

Section 12.03     Communication by Holders of Notes with Other Holders of Notes.

         Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).

Section 12.04     Certificate and Opinion as to Conditions Precedent.

         Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

                  (1)      an Officer's Certificate in form and substance
         reasonably satisfactory to the Trustee (which must include the
         statements set forth in Section 12.05 hereof) stating that, in the
         opinion of the signer, all conditions precedent and covenants, if any,
         provided for in this Indenture relating to the proposed action have
         been satisfied; and

                  (2)      an Opinion of Counsel in form and substance
         reasonably satisfactory to the Trustee (which must include the
         statements set forth in Section 12.05 hereof) stating that, in the
         opinion of such counsel, all such conditions precedent and covenants
         have been satisfied.

                                       82



Section 12.05     Statements Required in Certificate or Opinion.

         Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA
Section 314(e) and must include:

                  (1)      a statement that the Person making such certificate
         or opinion has read such covenant or condition;

                  (2)      a brief statement as to the nature and scope of the
         examination or investigation upon which the statements or opinions
         contained in such certificate or opinion are based;

                  (3)      a statement that, in the opinion of such Person, he
         or she has made such examination or investigation as is necessary to
         enable him or her to express an informed opinion as to whether or not
         such covenant or condition has been satisfied; and

                  (4)      a statement as to whether or not, in the opinion of
         such Person, such condition or covenant has been satisfied.

Section 12.06     Rules by Trustee and Agents.

         The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

Section 12.07     No Personal Liability of Directors, Officers, Employees and
Stockholders.

         No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, this Indenture, the Security
Documents or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.

Section 12.08     Governing Law.

         THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTATION OF GUARANTEES WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

Section 12.09     No Adverse Interpretation of Other Agreements.

         This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.

Section 12.10     Successors.

         All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.

                                       83



Section 12.11     Severability.

         In case any provision in this Indenture or in the Notes is invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

Section 12.12     Counterpart Originals.

         The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.

Section 12.13     Table of Contents, Headings, etc.

         The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.

                         [Signatures on following page]

                                       84



                                   SIGNATURES

Dated as of July 16, 2003
                                            CALPINE CORPORATION

                                            By: /s/ Michael Thomas
                                                ----------------------------
                                                Name:
                                                Title:

                                       85



                                            WILMINGTON TRUST COMPANY

                                            By: /s/ Michael W. Diaz
                                                ----------------------------
                                                Name: Michael W. Diaz
                                                Title:  Authorized Signer

                                       86



                                                                       EXHIBIT A

                                 [Face of Note]

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

                                             CUSIP  [131347 BC 9]  [U13055 AE 5]

               8.50% Second Priority Senior Secured Notes due 2010

No. ___                                                            $____________

                               CALPINE CORPORATION

promises to pay to CEDE & CO.

or registered assigns,

the principal sum of____________________________________________________________

Dollars on July 15, 2010.

Interest Payment Dates:  January 15 and July 15

Record Dates:  January 1 and July 1

                                           CALPINE CORPORATION

                                           By: _________________________________
                                               Name:
                                               Title:

Dated:  July 16, 2003

This is one of the Notes referred to
in the within-mentioned Indenture:

WILMINGTON TRUST COMPANY,
 as Trustee

By:______________________________
       Authorized Signatory

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

                                       A-1



                                 [Back of Note]

               8.50% Second Priority Senior Secured Notes due 2010

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
(5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
(B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES AND OTHER JURISDICTIONS.

         Capitalized terms used herein have the meanings assigned to them in
this Indenture referred to below unless otherwise indicated.

                                      A-2



         (1)      INTEREST. Calpine Corporation, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
8.50% per annum from July 16, 2003 until maturity. The Company shall pay
interest semi-annually in arrears on January 15 and July 15 of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each,
an "Interest Payment Date"). Interest on the Notes shall accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date; provided,
further, that the first Interest Payment Date shall be January 15, 2004. The
Company shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at a rate that is 1% per annum in excess of the rate then in
effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest shall be computed on the basis of a
360-day year of twelve 30-day months.

         (2)      METHOD OF PAYMENT. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the January 1 or July 1 next preceding the Interest
Payment Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the
Indenture with respect to defaulted interest. The Notes shall be payable as to
principal, premium, if any, and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders;
provided that payment by wire transfer of immediately available funds shall be
required with respect to principal of and interest, premium on, all Global Notes
and all other Notes the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.

         (3)      PAYING AGENT AND REGISTRAR. Initially, Wilmington Trust
Company, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without prior
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.

         (4)      INDENTURE. The Company issued the Notes under an Indenture
dated as of July 16, 2003 (the "Indenture") between the Company and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are secured obligations of the Company, as evidenced by
the Security Documents referred to in the Indenture.

         (5)      OPTIONAL REDEMPTION. (a) Except as set forth in subparagraphs
(b) and (c) of this Paragraph 5, the Company shall not have the option to redeem
the Notes prior to July 15, 2007. Thereafter, the Company shall have the option
to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest thereon to the

                                       A-3



applicable redemption date, if redeemed during the twelve-month period beginning
on July 15 of the years indicated below:



Year                                                                    Percentage
- ----                                                                    ----------
                                                                     
2007.............................................................        104.250%
2008.............................................................        102.125%
2009 and thereafter..............................................        100.000%


(b)      Notwithstanding the provisions of subparagraph (a) of this Paragraph 5,
at any time prior to July 15, 2006, the Company may, on any one or more
occasions upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each holder's registered address, redeem up to 35% of the
aggregate principal amount of Notes issued under the Indenture with the net
proceeds of an any one or more Public Equity Offerings at a redemption price
equal to 108.500% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date; provided that at least 65% in
aggregate principal amount of the Notes originally issued under the Indenture
remains outstanding immediately after the occurrence of such redemption and that
such redemption occurs within 45 days of the date of the closing of such Public
Equity Offering.

(c)      Notwithstanding the provisions of subparagraph (a) of this Paragraph 5,
at any time prior to July 15, 2007, the Company may also redeem all or a part of
the Notes, upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each holder's registered address, at a redemption price
equal to 100.000% of the principal amount of the Notes redeemed plus the
Applicable Premium as of, and accrued and unpaid interest, if any, to the
redemption date, subject to the rights of holders on the record date to receive
interest due on the Interest Payment Date.

(6)      MANDATORY REDEMPTION. The Company shall not be required to make
mandatory redemption or sinking fund payments with respect to the Notes.

(7)      REPURCHASE AT OPTION OF HOLDER. (a) If a Change of Control occurs, each
holder of Notes shall have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple of $1,000) of that holder's
Notes pursuant to the offer described below (the "Change of Control Offer") on
the terms set forth in the Indenture. In the Change of Control Offer, the
Company shall offer a payment in cash equal to 101% of the aggregate principal
amount of Notes repurchased plus accrued and unpaid interest, if any, on the
Notes repurchased (the "Change of Control Payment"), to but excluding the date
of purchase. Within 30 days following any Change of Control, the Company shall
mail a notice to each holder as required by the Indenture. (b) If the Company or
a Subsidiary consummates any Asset Sales, and when the aggregate amount of
Excess Proceeds exceeds $50.0 million, or at such earlier point as may be
elected by the Company, the Company shall make an offer to all holders of Notes
and all holders of other Indebtedness that is pari passu with the Notes and
equally and ratably secured with the Notes containing provisions similar to
those set forth in the Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets, including the Term Loans and each series
of Existing Indebtedness that contains similar asset sale provisions, when
applicable (an "Asset Sale Offer"), to purchase or redeem the maximum principal
amount of Notes and such other pari passu Indebtedness that may be purchased or
redeemed out of the Excess Proceeds (including each series of Existing
Indebtedness that contains similar asset sale provisions). The offer price in
any Asset Sale Offer shall be equal to 100% of principal amount plus accrued and
unpaid interest, if any, to the date of purchase, and shall be payable in cash.
If any Excess Proceeds remain after consummation of an Asset Sale Offer, the
Company may use those Excess Proceeds for any purpose not otherwise prohibited
by the Indenture. If the aggregate principal

                                       A-4



amount of Notes and other pari passu Indebtedness tendered into such Asset Sale
Offer exceeds the amount of Excess Proceeds, the Company shall select the Notes
and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero. Holders of Notes that are the subject of an offer to purchase
shall receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.

         (8)      NOTICE OF REDEMPTION. Notice of redemption shall be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.

         (9)      DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.

         (10)     PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.

         (11)     AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the then
outstanding Notes and Additional Notes, if any, voting as a single class, and
any existing default or compliance with any provision of the Indenture or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes and Additional Notes, if any, voting as a
single class. Without the consent of any Holder of a Note, the Indenture, the
Guarantees or the Notes may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the Company's
obligations to Holders of the Notes in case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act, to provide for the issuance of Additional Notes in accordance
with the limitations set forth in the Indenture, to allow any Guarantor to
execute a supplemental indenture to the Indenture and/or a Guarantee with
respect to the Notes, to make, complete or confirm any grant of Collateral
permitted or required by the Indenture or any of the Security Documents or any
release of Collateral that becomes effective as set forth in the Indenture or
any of the Security Documents, to conform the text of the Indenture, the Notes
or the Security Documents to any provision of the Description of the Notes
section of the Offering Circular to the extent that such provision of the
Description of the Notes section of the Offering

                                       A-5



Circular was intended to be a verbatim recitation of a provision of the
Indenture, the Notes or the Security Documents, or to reflect any waiver or
termination of any right arising under the provisions of the Indenture that
otherwise would be enforceable by any holder of the Term Loan Obligations, if
such waiver or termination is set forth in the agreement governing such Term
Loan Obligations, provided that no such waiver or amendment shall adversely
affect the right of holders of Notes.

         (12)     DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on the Notes; (ii) default in
payment when due of principal of or premium, if any, on the Notes, (iii) failure
by the Company to purchase the Notes when required pursuant to Section 4.10 or
4.15 of the Indenture or otherwise as required pursuant to the Indenture or
Notes; (iv) failure by the Company or any of its Restricted Subsidiaries for 30
days after written notice from the Trustee or the holders of at least 25% in
outstanding aggregate principal amount of the Notes to comply with any of the
other agreements in the Indenture, the Notes or the Security Documents; (v)
default under certain other agreements relating to Indebtedness of the Company
which default results in the acceleration of such Indebtedness prior to its
express maturity; (vi) certain final judgments for the payment of money that
remain undischarged for a period of 30 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Restricted Subsidiaries
that would constitute a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary;
(viii) the repudiation by the Company or any of its Restricted Subsidiaries or
the unenforceability of the Security Documents if such breach, repudiation or
unenforceability relates to Collateral having an aggregate Fair Market Value of
$50.0 million or more and (ix) except as permitted by the Indenture, any
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor or any Person acting on its behalf shall deny or disaffirm its
obligations under such Guarantor's Guarantee. If any Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes shall become
due and payable without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from holders of the Notes notice of any continuing Default or Event
of Default if it determines that withholding Notes is in their interest, except
a Default or Event of Default relating to the payment of principal or interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. The Company is required to deliver
to the Trustee annually a statement regarding compliance with the Indenture, and
the Company is required upon becoming aware of any Default or Event of Default
under clauses (3) through (8) of the Section 6.01(a) of the Indenture, to
deliver to the Trustee a statement specifying such Default or Event of Default.

         (13)     TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.

                                       A-6



         (14)     NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company as such, shall not have any
liability for any obligations of the Company under the Notes, the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.

         (15)     AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.

         (16)     ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

         (17)     CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

         The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:

                  Calpine Corporation
                  50 West San Fernando Street
                  San Jose, California 95113
                  Attention:  Ron Fischer

                                       A-7



                                 ASSIGNMENT FORM

         To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to:___________________________________
                                               (Insert assignee's legal name)

________________________________________________________________________________
                  (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
              (Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

Date:  _______________

                                           Your Signature:______________________
                                               (Sign exactly as your name
                                               appears on the face of this Note)

Signature Guarantee*:  _________________________

* Participant in a recognized Signature Guarantee Medallion Program (or other
  signature guarantor acceptable to the Trustee).

                                       A-8



                       OPTION OF HOLDER TO ELECT PURCHASE

         If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box
below:

                   -Section 4.10                -Section 4.15

         If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:

                                                 $_______________

Date:  _______________

                                           Your Signature:______________________
                                              (Sign exactly as your name appears
                                                   on the face of this Note)

                                           Tax Identification No.:______________

Signature Guarantee*:  _________________________

* Participant in a recognized Signature Guarantee Medallion Program (or other
  signature guarantor acceptable to the Trustee).

                                       A-9



             SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*

         The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:



                                                                       Principal Amount
                       Amount of decrease    Amount of increase in    of this Global Note       Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                               of                      of                  decrease             of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
- ----------------        ----------------        ----------------         -------------            ---------
                                                                                 


* This schedule should be included only if the Note is issued in global form.

                                      A-10



                                                                       EXHIBIT B

                         FORM OF CERTIFICATE OF TRANSFER

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re:  8.50% Second Priority Senior Secured Notes due 2010

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), between Calpine Corporation, as issuer (the "Company"), and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         ___________________, (the "Transferor") owns and proposes to transfer
the Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to ___________________________ (the "Transferee"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies that:

                             [CHECK ALL THAT APPLY]

         1.  [ ]  CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly,
the Transferor hereby further certifies that the beneficial interest or
Definitive Note is being transferred to a Person that the Transferor reasonably
believed and believes is purchasing the beneficial interest or Definitive Note
for its own account, or for one or more accounts with respect to which such
Person exercises sole investment discretion, and such Person and each such
account is a "qualified institutional buyer" within the meaning of Rule 144A in
a transaction meeting the requirements of Rule 144A and such Transfer is in
compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
shall be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.

         2.  [ ]  CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO
REGULATION S. The Transfer is being effected pursuant to and in accordance with
Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor
hereby further certifies that (i) the Transfer is not being made to a Person in
the United States and (x) at the time the buy order was originated, the
Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance with the
terms of

                                       B-1



the Indenture, the transferred beneficial interest or Definitive Note shall be
subject to the restrictions on Transfer enumerated in the Private Placement
Legend printed on the Regulation S Global Note and/or the Definitive Note and in
the Indenture and the Securities Act.

         3.  [ ]  CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A
BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act and
any applicable blue sky securities laws of any state of the United States, and
accordingly the Transferor hereby further certifies that (check one):

                  (a)  [ ] such Transfer is being effected pursuant to and in
         accordance with Rule 144 under the Securities Act;

                                       or

                  (b)  [ ] such Transfer is being effected to the Company or a
         subsidiary thereof;

                                       or

                  (c)  [ ] such Transfer is being effected pursuant to an
         effective registration statement under the Securities Act and in
         compliance with the prospectus delivery requirements of the Securities
         Act;

                                       or

                  (d)  [ ] such Transfer is being effected to an Institutional
         Accredited Investor and pursuant to an exemption from the registration
         requirements of the Securities Act other than Rule 144A, Rule 144 or
         Rule 904, and the Transferor hereby further certifies that it has not
         engaged in any general solicitation within the meaning of Regulation D
         under the Securities Act and the Transfer complies with the transfer
         restrictions applicable to beneficial interests in a Restricted Global
         Note or Restricted Definitive Notes and the requirements of the
         exemption claimed, which certification is supported by (1) a
         certificate executed by the Transferee in the form of Exhibit D to the
         Indenture and (2) an Opinion of Counsel provided by the Transferor or
         the Transferee (a copy of which the Transferor has attached to this
         certification), to the effect that such Transfer is in compliance with
         the Securities Act. Upon consummation of the proposed transfer in
         accordance with the terms of the Indenture, the transferred beneficial
         interest or Definitive Note shall be subject to the restrictions on
         transfer enumerated in the Private Placement Legend printed on the IAI
         Global Note and/or the Definitive Notes and in the Indenture and the
         Securities Act.

         This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                                             ___________________________________
                                                 [Insert Name of Transferor]

                                             By:________________________________
                                                Name:
                                                Title:

Dated:  _______________________

                                       B-2



                       ANNEX A TO CERTIFICATE OF TRANSFER

         1.       The Transferor owns and proposes to transfer the following:

                            [CHECK ONE OF (a) OR (b)]

                        (a) [ ] a beneficial interest in the:

                            (i)   [ ] 144A Global Note (CUSIP _________), or

                            (ii)  [ ] Regulation S Global Note (CUSIP _____), or

                            (iii) [ ] IAI Global Note (CUSIP _________); or

                        (b) [ ] a Restricted Definitive Note.

         2.       After the Transfer the Transferee shall hold:

                                   [CHECK ONE]

                        (a) [ ] a beneficial interest in the:

                            (i)   [ ] 144A Global Note (CUSIP _________), or

                            (ii)  [ ] Regulation S Global Note (CUSIP _____), or

                            (iii) [ ] IAI Global Note (CUSIP _________); or

                        (b) [ ] a Restricted Definitive Note,

                        in accordance with the terms of the Indenture.

                                       B-3



                                                                       EXHIBIT C

                         FORM OF CERTIFICATE OF EXCHANGE

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re:  8.50% Second Priority Senior Secured Notes due 2010

                              (CUSIP ____________)

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), among Calpine Corporation, as issuer (the "Company") and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         __________________________, (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $____________ in such Note[s] or interests (the "Exchange"). In
connection with the Exchange, the Owner hereby certifies that:

         EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES

         (a) [ ]  CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued shall continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.

         (b) [ ]  CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global
Note with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued shall be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.

                                       C-1



         This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                                        ________________________________________
                                              [Insert Name of Transferor]

                                        By:_____________________________________
                                           Name:
                                           Title:

Dated:  ______________________

                                       C-2



                                                                       EXHIBIT D

                             FORM OF CERTIFICATE OF
                   ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re:  8.50% Second Priority Senior Secured Notes due 2010

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), among Calpine Corporation, as issuer (the "Company") and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         In connection with our proposed purchase of $____________ aggregate
principal amount of:

         (a)  [ ]       a beneficial interest in a Global Note, or

         (b)  [ ]       a Definitive Note,

         we confirm that:

         1.       We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").

         2.       We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we shall do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and an Opinion
of Counsel in form reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act, (D) outside the United States
in accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the provisions of Rule 144(k) under the Securities Act or (F)
pursuant to an effective registration statement under the Securities Act, and we
further agree to provide to any Person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction meeting the
requirements of clauses (A) through (E) of this paragraph a notice advising such
purchaser that resales thereof are restricted as stated herein.

         3.       We understand that, on any proposed resale of the Notes or
beneficial interest therein, we shall be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
shall bear a legend to the foregoing effect.

                                       D-1



         4.       We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.

         5.       We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.

         You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.

                                        ________________________________________
                                          [Insert Name of Accredited Investor]

                                        By:_____________________________________
                                           Name:
                                           Title:

Dated:  _______________________

                                      D-2

EX-4.3

                                                                     Exhibit 4.3

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

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

                               CALPINE CORPORATION

               8.75% SECOND PRIORITY SENIOR SECURED NOTES DUE 2013

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

                                    INDENTURE

                            Dated as of July 16, 2003

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

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

                            WILMINGTON TRUST COMPANY

                                     Trustee

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

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



                             CROSS-REFERENCE TABLE*



Trust Indenture
  Act Section                                                                    Indenture Section
                                                                              
310(a)(1)...................................................................             7.10
   (a)(2)...................................................................             7.10
   (a)(3)...................................................................             N.A.
   (a)(4)...................................................................             N.A.
   (a)(5)...................................................................             7.10
   (b)......................................................................             7.10
   (c)......................................................................             N.A.
311(a)......................................................................             7.11
   (b)......................................................................             7.11
   (c)......................................................................             N.A.
312(a)......................................................................             2.05
313(a)......................................................................             7.06
   (b)(1)...................................................................            10.03
   (b)(2)...................................................................          7.06; 7.07
   (c)......................................................................             7.06
   (d)......................................................................             7.06
314(a)......................................................................             4.03
   (a)(4)...................................................................            12.05
   (b)......................................................................             N.A.
   (c)(3)...................................................................             N.A.
   (e)......................................................................            12.05
   (f)......................................................................             N.A.
315(a)......................................................................             7.01
   (b)......................................................................             7.05
   (c)......................................................................             7.01
   (d)......................................................................             7.01
   (e)......................................................................             6.11
316(a)(last sentence).......................................................             2.09
   (a)(1)(A)................................................................             6.05
   (a)(1)(B)................................................................             6.04
   (a)(2)...................................................................             N.A.
   (b)......................................................................             6.07
   (c)......................................................................             2.12
317(a)(1)...................................................................             6.08
   (a)(2)...................................................................             6.09
   (b)......................................................................             2.04
318(a)......................................................................             N.A.
   (b)......................................................................            12.03
   (c)......................................................................     12.01; 12.02; 12.03


N.A. means not applicable.
* This Cross Reference Table is not part of this Indenture.



                                TABLE OF CONTENTS



                                                                                                                   Page
                                                                                                                
                                                             ARTICLE 1.
                                                    DEFINITIONS AND INCORPORATION
                                                            BY REFERENCE

Section 1.01      Definitions....................................................................................    1
Section 1.02      Other Definitions..............................................................................   29
Section 1.03      Incorporation by Reference of Trust Indenture Act..............................................   29
Section 1.04      Rules of Construction..........................................................................   30

                                                             ARTICLE 2.
                                                              THE NOTES

Section 2.01      Form and Dating................................................................................   31
Section 2.02      Execution and Authentication...................................................................   31
Section 2.03      Registrar and Paying Agent.....................................................................   32
Section 2.04      Paying Agent to Hold Money in Trust............................................................   32
Section 2.05      Holder Lists...................................................................................   32
Section 2.06      Transfer and Exchange..........................................................................   32
Section 2.07      Replacement Notes..............................................................................   39
Section 2.08      Outstanding Notes..............................................................................   39
Section 2.09      Treasury Notes.................................................................................   39
Section 2.10      Temporary Notes................................................................................   39
Section 2.11      Cancellation...................................................................................   40
Section 2.12      Defaulted Interest.............................................................................   40

                                                             ARTICLE 3.
                                                      REDEMPTION AND PREPAYMENT

Section 3.01      Notices to Trustee.............................................................................   40
Section 3.02      Selection of Notes to Be Redeemed or Purchased.................................................   40
Section 3.03      Notice of Redemption...........................................................................   41
Section 3.04      Effect of Notice of Redemption.................................................................   42
Section 3.05      Deposit of Redemption or Purchase Price........................................................   42
Section 3.06      Notes Redeemed or Purchased in Part............................................................   42
Section 3.07      Optional Redemption............................................................................   42
Section 3.08      Mandatory Redemption...........................................................................   43
Section 3.09      Offer to Purchase by Application of Excess Proceeds............................................   43

                                                             ARTICLE 4.
                                                              COVENANTS

Section 4.01      Payment of Notes...............................................................................   45
Section 4.02      Maintenance of Office or Agency................................................................   45
Section 4.03      Reports........................................................................................   45
Section 4.04      Compliance Certificate.........................................................................   46
Section 4.05      Taxes..........................................................................................   47
Section 4.06      Stay, Extension and Usury Laws.................................................................   47
Section 4.07      Restricted Payments............................................................................   47
Section 4.08      Dividend and Other Payment Restrictions Affecting Subsidiaries.................................   50
Section 4.09      Incurrence of Indebtedness and Issuance of Preferred Stock.....................................   51
Section 4.10      Asset Sales....................................................................................   54


                                        i



                                                                                                                 
Section 4.11      Transactions with Affiliates...................................................................   56
Section 4.12      Liens..........................................................................................   57
Section 4.13      Limitation on Changes in the Nature of Business................................................   57
Section 4.14      Corporate Existence............................................................................   58
Section 4.15      Offer to Repurchase Upon Change of Control.....................................................   58
Section 4.16      Limitation on Sale and Leaseback Transactions..................................................   59
Section 4.17      Limitation on Issuances of Guarantees of Indebtedness..........................................   59
Section 4.18      Payments for Consent...........................................................................   60
Section 4.19      Designation of Restricted and Unrestricted Subsidiaries........................................   60
Section 4.20      Changes in Covenant When Notes Rated Investment Grade..........................................   60

                                                             ARTICLE 5.
                                                            SUCCESSORS

Section 5.01      Merger, Consolidation, or Sale of Assets.......................................................   61
Section 5.02      Successor Corporation Substituted..............................................................   62

                                                             ARTICLE 6.
                                                        DEFAULTS AND REMEDIES

Section 6.01      Events of Default..............................................................................   62
Section 6.02      Acceleration...................................................................................   64
Section 6.03      Other Remedies.................................................................................   65
Section 6.04      Waiver of Past Defaults........................................................................   65
Section 6.05      Control by Majority............................................................................   65
Section 6.06      Limitation on Suits............................................................................   65
Section 6.07      Rights of Holders of Notes to Receive Payment..................................................   66
Section 6.08      Collection Suit by Trustee.....................................................................   66
Section 6.09      Trustee May File Proofs of Claim...............................................................   66
Section 6.10      Priorities.....................................................................................   67
Section 6.11      Undertaking for Costs..........................................................................   67

                                                             ARTICLE 7.
                                                             TRUSTEE

Section 7.01      Duties of Trustee..............................................................................   67
Section 7.02      Rights of Trustee..............................................................................   68
Section 7.03      Individual Rights of Trustee...................................................................   69
Section 7.04      Trustee's Disclaimer...........................................................................   69
Section 7.05      Notice of Defaults.............................................................................   69
Section 7.06      Reports by Trustee to Holders of the Notes.....................................................   69
Section 7.07      Compensation and Indemnity.....................................................................   70
Section 7.08      Replacement of Trustee.........................................................................   70
Section 7.09      Successor Trustee by Merger, etc...............................................................   71
Section 7.10      Eligibility; Disqualification..................................................................   71
Section 7.11      Preferential Collection of Claims Against Company..............................................   72

                                                             ARTICLE 8.
                                              LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01      Option to Effect Legal Defeasance or Covenant Defeasance.......................................   72
Section 8.02      Legal Defeasance and Discharge.................................................................   72
Section 8.03      Covenant Defeasance............................................................................   72
Section 8.04      Conditions to Legal or Covenant Defeasance.....................................................   73



                                       ii



                                                                                                                 
Section 8.05      Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions..   74
Section 8.06      Repayment to Company...........................................................................   74
Section 8.07      Reinstatement..................................................................................   75

                                                             ARTICLE 9.
                                                  AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01      Without Consent of Holders of Notes............................................................   75
Section 9.02      With Consent of Holders of Notes...............................................................   76
Section 9.03      Compliance with Trust Indenture Act............................................................   77
Section 9.04      Revocation and Effect of Consents..............................................................   77
Section 9.05      Notation on or Exchange of Notes...............................................................   78
Section 9.06      Trustee to Sign Amendments, etc................................................................   78

                                                             ARTICLE 10.
                                                       COLLATERAL AND SECURITY

Section 10.01     Equal and Ratable Sharing of Collateral by Holders of Parity Lien Debt; Sharing Confirmation...   78
Section 10.02     Ranking of Note Liens..........................................................................   79
Section 10.03     Release of Security Interest in Respect of Notes...............................................   79

                                                             ARTICLE 11.
                                                     SATISFACTION AND DISCHARGE

Section 11.01     Satisfaction and Discharge.....................................................................   80
Section 11.02     Application of Trust Money.....................................................................   81

                                                             ARTICLE 12.
                                                            MISCELLANEOUS

Section 12.01     Trust Indenture Act Controls...................................................................   81
Section 12.02     Notices........................................................................................   81
Section 12.03     Communication by Holders of Notes with Other Holders of Notes..................................   82
Section 12.04     Certificate and Opinion as to Conditions Precedent.............................................   82
Section 12.05     Statements Required in Certificate or Opinion..................................................   83
Section 12.06     Rules by Trustee and Agents....................................................................   83
Section 12.07     No Personal Liability of Directors, Officers, Employees and Stockholders.......................   83
Section 12.08     Governing Law..................................................................................   83
Section 12.09     No Adverse Interpretation of Other Agreements..................................................   83
Section 12.10     Successors.....................................................................................   83
Section 12.11     Severability...................................................................................   84
Section 12.12     Counterpart Originals..........................................................................   84
Section 12.13     Table of Contents, Headings, etc...............................................................   84



                                    EXHIBITS

Exhibit A         FORM OF NOTE

Exhibit B         FORM OF CERTIFICATE OF TRANSFER

Exhibit C         FORM OF CERTIFICATE OF EXCHANGE

Exhibit D         FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED
                  INVESTOR

                                       iii



         INDENTURE dated as of July 16, 2003 between Calpine Corporation, a
Delaware corporation and Wilmington Trust Company (the "Trustee").

         The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders (as defined) of the
8.75% Second Priority Senior Secured Notes due 2013 (the "Notes"):

                                   ARTICLE 1.
                          DEFINITIONS AND INCORPORATION
                                  BY REFERENCE

Section 1.01      Definitions.

         "144A Global Note" means a Global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that shall be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.

         "Acquired Debt" means, with respect to any specified Person:

              (1) Indebtedness of any other Person existing at the time such
         other Person is merged with or into or became a Restricted Subsidiary
         of such specified Person, whether or not such Indebtedness is incurred
         in connection with, or in contemplation of, such other Person merging
         with or into, or becoming a Restricted Subsidiary of, such specified
         Person; and

              (2) Indebtedness secured by a Lien encumbering any asset acquired
         by such specified Person.

Acquired Debt shall be deemed to be incurred on the date the acquired Person
becomes a Restricted Subsidiary.

         "Additional Notes" means Notes (other than the Initial Notes) issued
under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part
of the same series as the Initial Notes.

         "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings. For purposes of Section 4.11 herein,
"Affiliate" shall also mean any Person of which the Company owns 10% or more of
any class of Capital Stock or rights to acquire 10% or more of any class of
Capital Stock and any Person who would be an Affiliate of any such Person
pursuant to the first sentence hereof.

         "Agent" means any Registrar, co-registrar, Paying Agent or additional
paying agent.

         "Applicable Premium" means, with respect to any note on any redemption
date, the greater of:

              (1) 1.0% of the principal amount of the note; or

              (2) the excess of:

                                        1



                  (a) the present value at the redemption date of (i) the
              redemption price of the note at July 15, 2008 (such redemption
              price being set forth in Section 3.07 herein) plus (ii) all
              required interest payments due on the note through July 15, 2013
              (excluding accrued but unpaid interest to the redemption date),
              computed using a discount rate equal to the Treasury Rate as of
              the redemption date plus 100 basis points; over

                  (b) the principal amount of the note.

         "Asset Sale" means:

              (1) the sale, lease, conveyance or other disposition of any assets
         or rights; provided that the sale, conveyance or other disposition of
         all or substantially all of the assets of the Company and its
         Restricted Subsidiaries taken as a whole shall be governed by Section
         4.15 of this Indenture and/or Section 5.01 and not by Section 4.10; and

              (2) the issuance of Equity Interests in any of the Company's
         Restricted Subsidiaries or the sale of Equity Interests in any of its
         Subsidiaries.

Notwithstanding the preceding, none of the following items shall be deemed to be
an Asset Sale:

              (1) (A) any single transaction or series of related transactions
         that involves the sale of uninstalled turbines and related equipment,
         and (B) any single transaction or series of related transactions that
         involves other assets having a Fair Market Value of less than $50.0
         million, it being understood that, in connection with any sale, lease,
         conveyance or other disposition of any Designated Assets or rights
         relating thereto in connection with a farm-out transaction, such
         transaction shall be valued as at the time of execution and delivery of
         binding contractual arrangements relating thereto;

              (2) a transfer of assets between or among the Company and its
         Restricted Subsidiaries,

              (3) an issuance of Equity Interests by a Restricted Subsidiary to
         the Company or to a Restricted Subsidiary of the Company;

              (4) the sale or lease of products, services or accounts receivable
         in the ordinary course of business and any sale or other disposition of
         damaged, worn-out or obsolete assets in the ordinary course of
         business;

              (5) the sale or other disposition of cash or Cash Equivalents;

              (6) a Restricted Payment that does not violate Section 4.07 herein
         or a Permitted Investment; and

              (7) the sale or other disposition of all or any part of the
         Company's right to amounts that have or are to become due and payable
         by Pacific Gas & Electric Company under that certain Agreement dated as
         of July 1, 1999, as amended, between Pacific Gas & Electric Company and
         Calpine Gilroy L.P., a California limited partnership (PG&E Log No.
         08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase
         Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P.
         by the Company pursuant to the Purchase Agreement dated as of March 8,
         2002, as amended, between Calpine Gilroy Cogen L.P. and the Company.

                                        2



         "Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP; provided, that
if such sale and leaseback transaction results in a Capital Lease Obligation,
the amount of Indebtedness represented thereby shall be determined in accordance
with the definition of "Capital Lease Obligation."

         "Bankruptcy Case" means any case under Title 11 of the United States
Code or any successor bankruptcy law commenced voluntarily or involuntarily
against the Company or any other Obligor.

         "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

         "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only after the passage of time. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.

         "Board of Directors" means:

              (1) with respect to a corporation, the Board of Directors of the
         corporation or any committee thereof duly authorized to act on behalf
         of such board;

              (2) with respect to a partnership, the Board of Directors of the
         general partner of the partnership;

              (3) with respect to a limited liability company, the managing
         member or members or any controlling committee of managing members
         thereof; and

              (4) with respect to any other Person, the board or committee of
         such Person serving a similar function.

         "Business Day" means any day other than a Legal Holiday.

         "Canadian Gas Assets" means Designated Assets owned by a direct or
indirect Restricted Subsidiary of one or more Canadian Guarantors.

         "Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware
corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana
Canada Holdings LLC, a Delaware limited liability company, and any successor to
any of the foregoing.

         "Capital Lease Obligation" means, at the time any determination is to
be made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP, and the Stated Maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be prepaid by the lessee without payment of a penalty.

                                        3



         "Capital Stock" means:

              (1) in the case of a corporation, corporate stock;

              (2) in the case of an association or business entity, any and all
         shares, interests, participations, rights or other equivalents (however
         designated) of corporate stock;

              (3) in the case of a partnership or limited liability company,
         partnership interests (whether general or limited) or membership
         interests; and

              (4) any other interest or participation that confers on a Person
         the right to receive a share of the profits and losses of, or
         distributions of assets of, the issuing Person, but excluding from all
         of the foregoing any debt securities convertible into Capital Stock,
         whether or not such debt securities include any right of participation
         with Capital Stock.

         "Cash Equivalents" means:

              (1) the lawful currency of any country where the Company owns or
         operates a Facility;

              (2) securities issued or directly and fully guaranteed or insured
         by the United States government or any state thereof (or any agency or
         instrumentality thereof), by the Canadian government (or any agency or
         instrumentality thereof), or by the government of a member state of the
         European Union (or any agency or instrumentality thereof), in each case
         the payment of which is backed by the full faith and credit of the
         United States, Canada or the relevant member state of the European
         Union, as the case may be, and having maturities of not more than six
         months from the date of acquisition;

              (3) certificates of deposit and eurodollar time deposits with
         maturities of six months or less from the date of acquisition, bankers'
         acceptances with maturities not exceeding six months and overnight bank
         deposits, in each case, with any lender party to the Credit Agreement
         or with any domestic commercial bank having capital and surplus in
         excess of $500.0 million and a Thomson Bank Watch or successor rating
         agency rating of "B" or better;

              (4) repurchase obligations with a term of not more than seven days
         for underlying securities of the types described in clauses (2) and (3)
         above entered into with any financial institution meeting the
         qualifications specified in clause (3) above;

              (5) commercial paper having one of the two highest ratings
         obtainable from Moody's or S&P and maturing within six months after the
         date of acquisition; and

              (6) money market funds at least 95% of the assets of which
         constitute Cash Equivalents of the kinds described in clauses (1)
         through (5) of this definition.

         "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited
liability company that is wholly-owned by the Canadian Guarantors.

         "Change of Control" means the occurrence of any of the following:

              (1) the direct or indirect sale, transfer, conveyance or other
         disposition (other than by way of merger or consolidation), in one or a
         series of related transactions, of all or substantially all of the

                                        4



         properties or assets of the Company and its Restricted Subsidiaries
         taken as a whole to any "person" (as that term is used in Section 13(d)
         of the Exchange Act);

              (2) the adoption of a plan relating to the liquidation or
         dissolution of the Company;

              (3) the consummation of any transaction (including any merger or
         consolidation) the result of which is that any "person" (as defined
         above) becomes the Beneficial Owner, directly or indirectly, of more
         than 50% of the Voting Stock of the Company, measured by voting power
         rather than number of shares;

              (4) the Company consolidates with, or merges with or into, any
         Person, or any Person consolidates with, or merges with or into, the
         Company, in any such event pursuant to a transaction in which any of
         the outstanding Voting Stock of the Company or such other Person is
         converted into or exchanged for cash, securities or other property,
         other than any such transaction where the Voting Stock of the Company
         outstanding immediately prior to such transaction is converted into or
         exchanged for Voting Stock (other than Disqualified Stock) of the
         surviving or transferee Person constituting a majority of the
         outstanding shares of such Voting Stock of such surviving or transferee
         Person (immediately after giving effect to such issuance); or

              (5) the first day on which a majority of the members of the Board
         of Directors of the Company are not Continuing Directors.

         "Clearstream" means Clearstream Banking, S.A.

         "Collateral" means all properties and assets at any time owned or
acquired by the Company, except the Excluded Assets, and the Canadian
Guarantors' ownership interest in 65% of the aggregate outstanding voting stock
of CCEC.

         "Collateral Trust Agreement" means that certain Collateral Trust
Agreement dated as of July 16, 2003, among the Company, the Canadian Guarantors,
the Credit Agreement Agent, the Trustee and the Bank of New York.

         "Collateral Trustee" means The Bank of New York in its capacity as
collateral trustee under the Collateral Trust Agreement, together with its
successors and assigns in such capacity.

         "Company" means Calpine Corporation, a Delaware Corporation and any and
all successors thereto.

         "Consolidated Cash Flow" means, with respect to any specified Person
for any period, the Consolidated Net Income of such Person for such period plus,
without duplication:

              (1) an amount equal to any extraordinary loss plus any net loss
         realized by such Person or any of its Restricted Subsidiaries in
         connection with an Asset Sale, to the extent such losses were deducted
         in computing such Consolidated Net Income; plus

              (2) provision for taxes based on income or profits of such Person
         and its Restricted Subsidiaries for such period, to the extent that
         such provision for taxes was deducted in computing such Consolidated
         Net Income; plus

              (3) the Fixed Charges of such Person and its Restricted
         Subsidiaries for such period, to the extent that such Fixed Charges
         were deducted in computing such Consolidated Net Income; plus

                                        5



              (4) depreciation, amortization (including amortization of
         intangibles but excluding amortization of prepaid cash expenses that
         were paid in a prior period) and other non-cash expenses (excluding any
         such non-cash expense to the extent that it represents an accrual of or
         reserve for cash expenses in any future period or amortization of a
         prepaid cash expense that was paid in a prior period) of such Person
         and its Restricted Subsidiaries for such period to the extent that such
         depreciation, amortization and other non-cash expenses were deducted in
         computing such Consolidated Net Income;

minus non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business;

in each case, on a consolidated basis and determined in accordance with GAAP.

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

         "Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; provided that:

              (1) the Net Income (but not loss) of any Person that is not a
         Restricted Subsidiary or that is accounted for by the equity method of
         accounting shall be included only to the extent of the amount of
         dividends or similar distributions paid in cash to the specified Person
         or a Restricted Subsidiary of the Person;

              (2) the Net Income of any Restricted Subsidiary shall be excluded
         to the extent that the declaration or payment of dividends or similar
         distributions by that Restricted Subsidiary of that Net Income is not
         at the date of determination permitted without any prior governmental
         approval (that has not been obtained) or, directly or indirectly, by
         operation of the terms of its charter or any agreement, instrument,
         judgment, decree, order, statute, rule or governmental regulation
         applicable to that Restricted Subsidiary or its stockholders; and

              (3) the cumulative effect of a change in accounting principles
         shall be excluded.

         "Consolidated Net Worth" means, with respect to any specified Person as
of any date, the sum of:

              (1) the consolidated equity of the common stockholders of such
         Person and its consolidated Subsidiaries as of such date; plus

              (2) the respective amounts reported on such Person's balance sheet
         as of such date with respect to any series of preferred stock (other
         than Disqualified Stock) that by its terms is not entitled to the
         payment of dividends unless such dividends may be declared and paid
         only out of net earnings in respect of the year of such declaration and
         payment, but only to the extent of any cash received by such Person
         upon issuance of such preferred stock.

         "Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who:

                                        6



              (1) was a member of such Board of Directors on the date of this
         Indenture; or

              (2) was nominated for election or elected to such Board of
         Directors with the approval of a majority of the Continuing Directors
         then still in office or with the approval of a majority of Directors
         whose election was previously so approved from time to time.

         "Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.

         "Credit Agreement" means that certain Amended and Restated Credit
Agreement, dated as of July 16, 2003, by and among the Company and The Bank of
Nova Scotia and Bayerische Landesbank, as lead arrangers and bookrunners,
providing for up to $500.0 million of revolving credit and term loan borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
restated, modified, renewed, refunded, replaced or refinanced (including by
means of sales of debt securities to institutional investors) in whole or in
part from time to time.

         "Credit Agreement Agent" means, at any time, the Person serving at such
time as the "Agent" or "Administrative Agent" under the Credit Agreement or any
other representative of the Lenders then most recently designated by a majority
of the Lenders, in a written notice delivered to each Parity Debt Representative
and the Collateral Trustee, as the Credit Agreement Agent for the purposes of
the Parity Lien Debt Documents.

         "Credit Facilities" means one or more debt facilities (including the
Credit Agreement) with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
(including by means of sales of debt securities to institutional investors) in
whole or in part from time to time.

         "Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.

         "Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.

         "Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof,
substantially in the form of Exhibit A hereto except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.

         "Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.

         "Designated Assets" means all geothermal energy assets (including any
related extraction, processing or similar equipment and geothermal power plants)
and all natural gas assets (including any related extraction, processing or
similar equipment, other than natural gas power plants) owned by the Company or
any of its Restricted Subsidiaries from time to time, including the equity
interests of any

                                        7



Restricted Subsidiary owning any Designated Assets, but excluding (i) any
geothermal energy assets that are both unproven and undeveloped and (ii)
contracts for the purchase or sale of natural gas and natural gas supplied under
such contracts.

         "Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the Notes issued pursuant to this Indenture
mature. Notwithstanding the preceding sentence, any Capital Stock that would
constitute Disqualified Stock solely because the holders of the Capital Stock
have the right to require the Company to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock. The amount of Disqualified Stock deemed to be outstanding at
any time for purposes of this Indenture shall be the maximum amount that the
Company and its Restricted Subsidiaries may become obligated to pay upon the
maturity of, or pursuant to any mandatory redemption provisions of, such
Disqualified Stock, exclusive of accrued dividends.

         "Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

         "Euroclear" means Euroclear Bank S.A./N.V., as operator of the
Euroclear system.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Excluded Assets" means:

              (1) any lease of property other than (i) a lease of a geothermal
         energy or natural gas interest or property, (ii) a lease of real estate
         underlying a power generation property or (iii) a capital lease;

              (2) all deposit accounts (as defined in Article 9 of the Uniform
         Commercial Code of any relevant jurisdiction) and deposits therein to
         the extent not exceeding $50.0 million in the aggregate, except for the
         Designated Assets Sale Proceeds Account and any deposit account and
         deposits therein holding amounts referred to in clause (7) of this
         definition;

              (3) the fixtures and equipment relating to any pipeline if, to the
         extent that and for so long as (i) the ownership or operation of such
         pipeline is regulated by any federal or state regulatory authority and
         (ii) under the law applicable to such regulatory authority the grant of
         a security interest in such fixtures and equipment is prohibited or a
         security interest in such fixtures and equipment may be granted only
         after completion of a filing with, or receipt of consent from, such
         regulatory authority which has not been effectively completed or
         received; provided, that (a) such fixtures and equipment shall be an
         Excluded Asset only to the extent and for so long as the conditions set
         forth in clauses (i) and (ii) in this clause (3) are and remain
         satisfied and to the extent such assets otherwise constitute
         Collateral, shall cease to be an Excluded Asset, and shall become
         subject to the security interests granted to the Collateral Trustee
         under the Security Documents, immediately and automatically at such
         time as such conditions cease to exist, including by reason of the
         effective completion of any required filing or effective receipt of any
         required regulatory approval, and (b) unless prohibited by law, the
         proceeds of any sale, lease or other disposition of any such fixtures
         or equipment that are Excluded Assets shall not be an Excluded Asset
         and shall at all times be and remain subject to the security interests
         granted to the Collateral Trustee under the Security Documents except
         as such proceeds are applied and used by

                                        8



         the Company in the ordinary course of business and applied in
         accordance with Section 4.10 herein;

              (4) all easements, rights-of-way, licenses and other real property
         interests for or pertaining to the construction, operation, use or
         maintenance of any pipeline over, upon or under land owned by another
         Person;

              (5) with respect to personal property, any lease, license, permit,
         franchise, power, authority or right if, to the extent that and for so
         long as (i) the grant of a security interest therein constitutes or
         would result in the abandonment, invalidation or unenforceability of
         such lease, license, permit, franchise, power, authority or right or
         the termination of or a default under the instrument or agreement by
         which such lease, license, permit, franchise, power, authority or right
         is governed and (ii) such abandonment, invalidation, unenforceability,
         termination or default is not rendered ineffective pursuant to Sections
         9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any
         successor provisions) of any relevant jurisdiction or any other
         applicable law (including the United States bankruptcy code); provided,
         that (a) such lease, license, permit, franchise, power, authority or
         right shall be an Excluded Asset only to the extent and for so long as
         the conditions set forth in clauses (i) and (ii) of this clause (5) are
         and remain satisfied and to the extent that such assets otherwise
         constitute Collateral, shall cease to be an Excluded Asset, and shall
         become subject to the security interests granted to the Collateral
         Trustee under the Security Documents, immediately and automatically at
         such time as such conditions cease to exist, including by reason of any
         waiver or consent under the applicable instrument or agreement, and (b)
         the proceeds of any sale, lease or other disposition of any such lease,
         license, permit, franchise, power, authority or right that is or
         becomes an Excluded Asset shall not be an Excluded Asset and shall at
         all times be and remain subject to the security interests granted to
         the Collateral Trustee under the Security Documents except as such
         proceeds are applied and used by the Company in the ordinary course of
         business and applied in accordance with Section 4.10 herein;

              (6) with respect to any real property, any lease, license, permit,
         franchise, power, authority or right if, to the extent that and for so
         long as the grant of a security interest therein (i) requires a third
         party consent which has not been obtained or (ii) constitutes or would
         result in the abandonment, invalidation or unenforceability of such
         lease, license, permit, franchise, power, authority or right or the
         termination of or a default under the instrument or agreement by which
         such lease, license, permit, franchise, power, authority or right is
         governed; provided, that such lease, license, permit, franchise, power,
         authority or right shall be an Excluded Asset only to the extent and
         for as long as the conditions set forth in clause (i) or (ii) of this
         clause (6) are and remain satisfied and to the extent such assets
         otherwise constitute Collateral, shall cease to be an Excluded Asset,
         and shall become subject to the security interests granted to the
         Collateral Trustee under the Security Documents immediately and
         automatically at such time as such conditions cease to exist except as
         such proceeds are applied and used by the Company in the ordinary
         course of business and applied in accordance with Section 4.10 herein;

              (7) any cash proceeds (including any earnings thereon) of Priority
         Lien Debt that are pledged to cash collateralize letters of credit;

              (8) any turbines which serve as collateral pursuant to that
         certain General Agreement dated as of January 31, 2002 among the
         Company, various Subsidiaries of the Company and Siemens Westinghouse
         Power Corporation relating to various purchase contracts and letters of
         intent for gas turbine generators, steam turbine generators and related
         accessories;

                                        9



              (9) proved oil and gas reserves located in Oklahoma and
         undeveloped reserves and unproven acreage located in California, Texas,
         Wyoming, Montana, Colorado, New Mexico and offshore Louisiana; provided
         that such reserves and acreage has a Fair Market Value not exceeding
         $20.0 million in the aggregate;

              (10) Capital Stock of Subsidiaries designated by the Company, but
         only for so long as (i) the Capital Stock of such Subsidiaries is not
         pledged to any Person (other than the Collateral Trustee on behalf of
         all holders of all Secured Debt) and (ii) such Subsidiaries
         collectively own less than 5.0% of the Company's total consolidated
         assets and collectively account for less than 5.0% of the Company's
         Consolidated Cash Flow; and

              (11) any other property in which a security interest cannot be
         perfected by the filing of a financing statement under the Uniform
         Commercial Code of the relevant jurisdiction; provided that such
         property has a Fair Market Value not exceeding $25.0 million in the
         aggregate.

         "Existing Guarantees" means the Guarantees of the Term Loans, the Notes
and certain obligations under the Credit Agreement that exist on the date of
this Indenture.

         "Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of this Indenture, until such amounts are repaid.

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

         "Fair Market Value" means the value that would be paid by a willing
buyer to a willing seller in a transaction not involving distress or necessity
of either party, determined in good faith by the Board of Directors of the
Company (unless otherwise provided in this Indenture).

         "Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
for such period to the Fixed Charges of such Person for such period. In the
event that the specified Person or any of its Restricted Subsidiaries incurs,
assumes, Guarantees, repays, repurchases, redeems, defeases or otherwise
discharges any Indebtedness (other than ordinary working capital borrowings) or
issues, repurchases or redeems preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated and on
or prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase, redemption, defeasance or other
discharge of Indebtedness, or such issuance, repurchase or redemption of
preferred stock, and the use of the proceeds therefrom, as if the same had
occurred at the beginning of the applicable four-quarter reference period.

         In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:

              (1) acquisitions that have been made by the specified Person or
         any of its Restricted Subsidiaries, including through mergers or
         consolidations or acquisitions of assets, or any Person or any of its
         Restricted Subsidiaries acquired by merger, consolidation, or the
         acquisition of all or substantially all of its assets by the specified
         Person or any of its Restricted Subsidiaries, and including any related
         financing transactions and including increases in ownership of
         Restricted Subsidiaries, during the four-quarter reference period or
         subsequent to such reference period and on or prior to the Calculation
         Date shall be given pro forma effect (in accordance with Regulation

                                       10



         S-X under the Securities Act) as if they had occurred on the first day
         of the four-quarter reference period;

              (2) the Consolidated Cash Flow attributable to discontinued
         operations, as determined in accordance with GAAP, and operations or
         businesses (and ownership interests therein) disposed of prior to the
         Calculation Date, shall be excluded;

              (3) the Fixed Charges attributable to discontinued operations, as
         determined in accordance with GAAP, and operations or businesses (and
         ownership interests therein) disposed of prior to the Calculation Date,
         shall be excluded, but only to the extent that the obligations giving
         rise to such Fixed Charges shall not be obligations of the specified
         Person or any of its Restricted Subsidiaries following the Calculation
         Date;

              (4) any Person that is a Restricted Subsidiary on the Calculation
         Date shall be deemed to have been a Restricted Subsidiary at all times
         during such four-quarter period;

              (5) any Person that is not a Restricted Subsidiary on such
         Calculation Date shall be deemed not to have been a Restricted
         Subsidiary at any time during such four-quarter period; and

              (6) if any Indebtedness bears a floating rate of interest, the
         interest expense on such Indebtedness shall be calculated as if the
         rate in effect on the Calculation Date had been the applicable rate for
         the entire period (taking into account any Hedging Obligation
         applicable to such Indebtedness if such Hedging Obligation has a
         remaining term as at the Calculation Date in excess of 12 months).

         "Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:

              (1) the consolidated interest expense of such Person and its
         Restricted Subsidiaries for such period, whether paid or accrued,
         including amortization of debt issuance costs and original issue
         discount, non-cash interest payments, the interest component of any
         deferred payment obligations, the interest component of all payments
         associated with Capital Lease Obligations, commissions, discounts and
         other fees and charges incurred in respect of letter of credit or
         bankers' acceptance financings, and net of the effect of all payments
         made or received pursuant to Hedging Obligations in respect of interest
         rates, plus one-third of all payments with respect to operating leases;
         plus

              (2) the consolidated interest of such Person and its Restricted
         Subsidiaries that was capitalized during such period, except interest
         on Indebtedness incurred to finance the development or construction of
         a Facility; plus

              (3) any interest accruing on Indebtedness of another Person that
         is Guaranteed by such Person or one of its Restricted Subsidiaries or
         secured by a Lien on assets of such Person or one of its Restricted
         Subsidiaries, whether or not such Guarantee or Lien is called upon, but
         excluding any such Guarantee or Lien in effect on the date of this
         Indenture unless the same is called upon; plus

              (4) the product of (a) all dividends, whether paid or accrued and
         whether or not in cash, on any series of preferred stock of such Person
         or any of its Restricted Subsidiaries, other than dividends on Equity
         Interests payable solely in Equity Interests of the Company (other than
         Disqualified Stock) or to the Company or a Restricted Subsidiary of the
         Company, times (b) a fraction, the numerator of which is one and the
         denominator of which is one minus the effective

                                       11



         combined federal, state and local statutory tax rate of such Person for
         the immediately preceding fiscal year, expressed as a decimal, in each
         case, on a consolidated basis and in accordance with GAAP.

         "Foreign Asset Sale" means an Asset Sale in respect of the Capital
Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type
described in Section 936 of the Internal Revenue Code of 1986, as amended, to
the extent that the proceeds of such Asset Sale are received by a Person subject
in respect of such proceeds to the tax laws of a jurisdiction other than the
United States of America or any State thereof or the District of Columbia.

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

         "GAAP" means generally accepted accounting principles set forth in the
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect and, to
the extent optional, adopted by the Company, on the applicable date of
determination.

         "Global Notes" means, individually and collectively, each of the
Restricted Global Notes, substantially in the form of Exhibit A hereto issued in
accordance with Section 2.01 or 2.06(b)(3) hereof.

         "Global Note Legend" means the legend set forth in Section 2.06(e)(2),
which is required to be placed on all Global Notes issued under this Indenture.

         "Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.

         "Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including by way of a pledge of assets or through
letters of credit or reimbursement agreements in respect thereof, of all or any
part of any Indebtedness (whether arising by virtue of partnership arrangements,
or by agreements to keep-well, to purchase assets, goods, securities or
services, to take or pay or to maintain financial statement conditions or
otherwise).

         "Guarantor" means each Subsidiary of Calpine that Guarantees the Notes.

         "Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:

              (1) interest rate swap agreements (whether from fixed to floating
         or from floating to fixed), interest rate cap agreements and interest
         rate collar agreements;

              (2) other agreements or arrangements designed to manage interest
         rate risk; and

              (3) other agreements or arrangements designed to protect such
         Person against fluctuations in currency exchange rates or commodity
         prices.

         "Holder" means a Person in whose name a Note is registered.

         "IAI Global Note" means a Global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of and

                                       12



registered in the name of the Depositary or its nominee that shall be issued in
a denomination equal to the outstanding principal amount of the Notes sold to
Institutional Accredited Investors.

         "Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:

              (1) in respect of borrowed money;

              (2) evidenced by bonds, notes, debentures or similar instruments
         or letters of credit (or reimbursement agreements in respect thereof);

              (3) in respect of banker's acceptances;

              (4) representing Capital Lease Obligations or Attributable Debt in
         respect of sale and leaseback transactions;

              (5) representing the balance deferred and unpaid of the purchase
         price of any property or services due more than six months after such
         property is acquired or such services are completed; or

              (6) representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit,
Attributable Debt and Hedging Obligations) would appear as a liability upon a
balance sheet of the specified Person prepared in accordance with GAAP. In
addition, the term "Indebtedness" includes all Indebtedness of others secured by
a Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any Indebtedness of any other Person.

         The amount of any Indebtedness outstanding as of any date shall be:

              (1) the accreted value of the Indebtedness, in the case of any
         Indebtedness issued with original issue discount;

              (2) the principal amount of the Indebtedness, in the case of any
         other Indebtedness; and

              (3) in respect of Indebtedness of another Person secured by a Lien
         on the assets of the specified Person, the lesser of:

                  (A) the Fair Market Value of such asset at such date of
              determination, and

                  (B) the amount of the Indebtedness of such other Person.

         Notwithstanding anything to the contrary in this definition of
Indebtedness, with respect to any contingent obligations (other than with
respect to contractual obligations to repurchase goods sold or distributed,
which shall be included to the extent reflected on the balance sheet of such
Person in accordance with GAAP) of a Person, the maximum liability of such
Indebtedness shall be as determined by such Person's Board of Directors, in good
faith, as, in light of the facts and circumstances existing at the time,
reasonably likely to be incurred upon the occurrence of the contingency giving
rise to such obligation.

                                       13



         "Indenture" means this indenture, as amended or supplemented from time
to time.

         "Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.

         "Initial Notes" means the first $900,000,000 aggregate principal amount
of Notes issued under this Indenture on the date hereof.

         "Initial Purchasers" means Credit Lyonnais (USA) Inc., Goldman, Sachs &
Co., ING Financial Markets LLC, Scotia Capital (USA) Inc. and TD Securities
(USA) Inc.

         "Insolvency Proceeding" means:

              (1) any proceeding for the reorganization, recapitalization or
         adjustment or marshalling of the assets or liabilities of the Company
         or any other Obligor, any receivership or assignment for the benefit of
         creditors relating to the Company or any other Obligor or any similar
         case or proceeding relative to the Company or any other Obligor or its
         creditors, as such, in each case whether or not voluntary;

              (2) any liquidation, dissolution, marshalling of assets or
         liabilities or other winding up of or relating to the Company or any
         other Obligor, in each case whether or not voluntary and whether or not
         involving bankruptcy or insolvency; or

              (3) any other proceeding of any type or nature in which
         substantially all claims of creditors of the Company or any other
         Obligor are determined and any payment or distribution is or may be
         made on account of such claims.

         "Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.

         "Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market
Value of the Company's Investments in such Subsidiary that were not sold or
disposed of in an amount determined as provided in Section 4.07(b). Except as
otherwise provided in this Indenture, the amount of an Investment shall be
determined at the time the Investment is made and without giving effect to
subsequent changes in value.

         "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.

                                       14



         "Lenders" means, at any time, the parties to the Credit Agreement then
holding (or committed to provide) loans, letters of credit or other extensions
of credit that constitute (or when provided shall constitute) Priority Lien Debt
outstanding under the Credit Agreement.

         "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

         "Magic Valley Generating Assets" means the Magic Valley Generating
Station, a natural gas fired power plant in commercial operation in Edinburg,
Texas.

         "Material Designated Assets" means Designated Assets having a Fair
Market Value in the aggregate in excess of $50.0 million.

         "Moody's" means Moody's Investors Service, Inc. (or, if such entity
ceases to rate the applicable notes for reasons outside of the control of the
Company, the equivalent investment grade credit rating from any other
"nationally recognized statistical rating organization" (or successor concept)
within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or
successor provision) selected by the Company as a replacement agency).

         "Net Income" means, with respect to any specified Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, without
duplication:

              (1) any gain (but not loss), together with any related provision
         for taxes on such gain (but not loss), realized in connection with: (a)
         any Asset Sale; or (b) the disposition of any securities by such Person
         or any of its Restricted Subsidiaries or the extinguishment of any
         Indebtedness of such Person or any of its Restricted Subsidiaries; and

              (2) any extraordinary gain (but not loss), together with any
         related provision for taxes on such extraordinary gain (but not loss).

         "Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including legal, accounting and investment banking fees, and
sales commissions, and any relocation expenses incurred as a result of the Asset
Sale, taxes paid or payable as a result of the Asset Sale, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.

         "Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary
that is incurred to finance the exploration, drilling, development, construction
or purchase of or by, or repairs, improvements or additions to, property or
assets of the Company or any Restricted Subsidiary; provided that such
Indebtedness is without recourse to the Company (except as permitted by clause
(8) of the definition of Permitted Debt) or any Restricted Subsidiary or to any
property or assets of the Company or any

                                       15



Restricted Subsidiary other than property or assets (including Capital Stock) of
a Restricted Subsidiary subject to a Lien permitted pursuant to clause (8) of
the definition of Permitted Liens or property or assets (including Capital
Stock) of a Restricted Subsidiary subject to a Lien permitted pursuant to clause
(19) of the definition of Permitted Liens.

         "Note Documents" means this Indenture, the Notes, the 2007 Notes and
the indenture governing such notes, the 2010 Notes and the indenture governing
such notes, each Sharing Confirmation and the Security Documents.

         "Note Obligations" means the Notes (including any Additional Notes
issued under the this Indenture) and all other Obligations of any Obligor under
this Indenture, the Notes (including any Additional Notes issued under this
Indenture) and the Security Documents.

         "Notes" has the meaning assigned to it in the preamble to this
Indenture. The Initial Notes and the Additional Notes shall be treated as a
single class for all purposes under this Indenture, and unless the context
otherwise requires, all references to the Notes shall include the Initial Notes
and any Additional Notes.

         "Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness (including the Notes and this
Indenture).

         "Obligor" means the Company and each Restricted Subsidiary of the
Company (if any) that at any time guarantees or provides collateral security or
credit support for any Secured Obligations.

         "Offering Circular" means that certain offering circular dated as of
July 10, 2003, with respect to the $2.55 billion in aggregate principal amount
offering of the Notes, the 2007 Notes and the 2010 Notes, collectively.

         "Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.

         "Officers' Certificate" means a certificate signed on behalf of the
Company by one Officer of the Company that meets the requirements of Section
12.05 hereof.

         "Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.

         "Parity Debt Representative" means:

              (1) in the case of the Notes, the 2007 Notes or the 2010 Notes,
         the applicable trustee thereof;

              (2) in the case of the Term Loans, the Term Loan Administrative
         Agent; or

              (3) in the case of any other Series of Parity Debt, the trustee,
         agent or representative of the holders of such Series of Parity Lien
         Debt who maintains the transfer register for such Series of Parity Lien
         Debt and is appointed as a Parity Debt Representative (for purposes
         related to the administration of the Security Documents) pursuant to
         this Indenture or other agreement governing such Series of Parity Lien
         Debt.

                                       16



         "Parity Lien" means a Lien granted by a Security Document to the
Collateral Trustee upon any property of the Company or any other Obligor to
secure Parity Lien Obligations.

         "Parity Lien Debt" means:

              (1) the Notes;

              (2) the Term Loans; and

              (3) any other Indebtedness (including additional notes and Term
         Loans) that:

                  (A) is permitted to be incurred under Section 4.09 herein; and

                  (B) is permitted to be secured by Parity Liens by clause (2)
              of the definition of Permitted Liens;

provided, in the case of each issue or series of Indebtedness referred to in
this clause (3), that:

              (i) on or before the date on which such Indebtedness was incurred
         by the Company such Indebtedness is designated by the Company, in an
         officers' certificate delivered to each Parity Debt Representative and
         the Collateral Trustee on or before such date, as Parity Lien Debt for
         the purposes of this Indenture and the Collateral Trust Agreement,

              (ii) such Indebtedness is governed by an indenture or other
         agreement that includes a Sharing Confirmation and

              (iii) all requirements set forth in the Collateral Trust Agreement
         as to the confirmation, grant or perfection of the Collateral Trustee's
         Liens to secure such Indebtedness or Obligations in respect thereof are
         satisfied

(and the satisfaction of such requirements and the other provisions of this
clause (3) shall be conclusively established, for purposes of entitling the
holders of such Indebtedness to share equally and ratably with the other holders
of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's
Liens on the Collateral, if the Company delivers to the Collateral Trustee an
officers' certificate in the form required pursuant to the Collateral Trust
Agreement stating that such requirements and other provisions have been
satisfied and that such Indebtedness is Parity Lien Debt, together with an
opinion of counsel stating that such officers' certificate has been duly
authorized by the Board of Directors of the Company and has been duly executed
and delivered, and the holders of such Indebtedness and Obligations in respect
thereof shall be entitled to rely conclusively thereon).

         "Parity Lien Debt Documents" means, collectively, the Term Loan
Documents, the Note Documents, and the indenture or agreement governing each
other Series of Parity Lien Debt and all agreements binding on any Obligor
related thereto.

         "Parity Lien Obligations" means Parity Lien Debt and all other
Obligations in respect thereof.

         "Participant" means, with respect to the Depositary, Euroclear or
Clearstream, a Person who has an account with the Depositary, Euroclear or
Clearstream, respectively (and, with respect to DTC, shall include Euroclear and
Clearstream).

                                       17



         "Permitted Business" means the business of acquiring, constructing,
managing, developing, improving, owning and operating Facilities, as well as any
other activities reasonably related to the foregoing activities (including
acquiring and holding reserves), including investing in Facilities.

         "Permitted Investments" means:

              (1) any Investment in the Company or in a Restricted Subsidiary
          of the Company;

              (2) any Investment in Cash Equivalents;

              (3) any Investment by the Company or any Restricted Subsidiary of
         the Company in a Person, if as a result of such Investment:

                  (a) such Person becomes a Restricted Subsidiary of the
              Company; or

                  (b) such Person is merged, consolidated or amalgamated with or
              into, or transfers or conveys substantially all of its assets to,
              or is liquidated into, the Company or a Restricted Subsidiary of
              the Company;

              (4) any Investment made as a result of the receipt of non-cash
         consideration from an Asset Sale that was made pursuant to and in
         compliance with Section 4.10 herein;

              (5) any acquisition of assets or Capital Stock solely in exchange
         for the issuance of Equity Interests (other than Disqualified Stock) of
         the Company;

              (6) any Investments received in compromise or resolution of (A)
         obligations of trade creditors or customers that were incurred in the
         ordinary course of business of the Company or any of its Restricted
         Subsidiaries, including pursuant to any plan of reorganization or
         similar arrangement upon the bankruptcy or insolvency of any trade
         creditor or customer; or (B) litigation, arbitration or other disputes
         with Persons who are not Affiliates;

              (7) Investments represented by Hedging Obligations;

              (8) loans or advances to employees made in the ordinary course of
         business consistent with past practices of the Company or such
         Restricted Subsidiary in an aggregate principal amount not to exceed
         $5.0 million at any one time outstanding;

              (9) repurchases of the Notes; and

              (10) other Investments in any Person having an aggregate Fair
         Market Value (measured on the date each such Investment was made and
         without giving effect to subsequent changes in value), when taken
         together with all other Investments made pursuant to this clause (10)
         that are at the time outstanding not to exceed $100.0 million;

         provided that Designated Assets held by the Company may not be invested
         in, leased to or otherwise transferred to any Restricted Subsidiary;
         provided, however, that the Company may transfer proven undeveloped gas
         reserves to its Restricted Subsidiaries in the ordinary course of
         business for consumption in the power generating business of such
         Restricted Subsidiaries during the 12-month period following transfer.

         "Permitted Liens" means:

                                       18



              (1) Liens on assets of the Company or any Canadian Guarantor
         securing Obligations of the Company or such Canadian Guarantor under
         one or more Credit Facilities in an aggregate amount not exceeding the
         Priority Lien Cap;

              (2) Liens held by the Collateral Trustee equally and ratably
         securing the Notes and the Term Loans to be issued on the date of this
         Indenture and all future Parity Lien Debt and other Parity Lien
         Obligations; provided that the Collateral Trustee's Liens may secure
         Parity Lien Debt incurred after the date of this Indenture or
         Obligations in respect thereof only if, on the date of the incurrence
         of such Parity Lien Debt, after giving pro forma effect to the
         incurrence thereof and the application of the proceeds therefrom, the
         Secured Leverage Ratio is not greater than 2.75:1.0;

              (3) Liens in favor of the Company;

              (4) Pledges or deposits made under workers' compensation,
         unemployment insurance laws or similar legislation, or good faith
         deposits in connection with bids, tenders, contracts (other than for
         payment of Indebtedness) or leases to which such Person is a party, and
         Liens or deposits to secure the performance of statutory obligations,
         surety or appeal bonds, performance bonds or other obligations of a
         like nature incurred in the ordinary course of business;

              (5) Liens to secure Indebtedness (including Capital Lease
         Obligations) permitted by clause (4) of the definition of Permitted
         Debt covering only the assets acquired, designed, constructed,
         installed or improved with or financed by such Indebtedness;

              (6) Liens existing on the date of this Indenture;

              (7) Liens securing Indebtedness or other obligations of a
         Restricted Subsidiary owing to the Company or a Restricted Subsidiary;

              (8) (A) Liens on assets or property of a Restricted Subsidiary
         (other than Material Designated Assets) incurred by any Restricted
         Subsidiary to secure Indebtedness of such Restricted Subsidiary
         incurred to finance the exploration, drilling, development,
         construction or purchase of or by, or repairs, improvements or
         additions to, property or assets of the Company or such Restricted
         Subsidiary, which Liens may include Liens on the Capital Stock of such
         Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a
         direct Subsidiary of the Company or (ii) owns, directly or indirectly,
         Material Designated Assets), (B) Liens (other than Liens on Material
         Designated Assets) incurred by any Restricted Subsidiary that does not
         own, directly or indirectly, at the time of original incurrence of such
         a Lien under this clause (B) any Material Designated Assets or any
         operating properties or assets, securing Indebtedness incurred to
         finance the exploration, drilling, development, construction or
         purchase of or by, or repairs, improvements or additions to, property
         or assets of any Restricted Subsidiary that does not, directly or
         indirectly, own any operating properties or assets at the time of the
         original incurrence of such Lien, which Liens contemplated by this
         clause (8) may include Liens on the Capital Stock of one or more
         Restricted Subsidiaries that (i) are not direct Subsidiaries of the
         Company and (ii) do not, directly or indirectly, own any Material
         Designated Assets or operating properties or assets at the time of
         original incurrence of such Lien; or (C) without duplication, Liens
         (other than Liens on Material Designated Assets) incurred by any
         Restricted Subsidiary (which Liens may include Liens on Capital Stock
         of such Restricted Subsidiary so long as the Capital Stock of such
         Restricted Subsidiary is not pledged as Collateral) that owns as of the
         date of this Indenture all or part of one or more of the peaking power
         plants (and no other significant unrelated assets)

                                       19



         constructed for the purpose of providing peaking capacity and energy to
         the California Department of Water Resources; provided, that the
         Indebtedness secured by any such Lien contemplated by this clause (8)
         may not be issued more than 365 days (or, in the case of clause (C)
         above, two years) after the later of the exploration, drilling,
         development, completion of construction, purchase, repair, improvement,
         addition or commencement of full commercial operation of the property
         or asset being so financed;

              (9) Liens on property or shares of Capital Stock of a Subsidiary
         at the time such Person becomes a Subsidiary; provided that any such
         Lien may not extend to any other property owned by the Company;

              (10) Liens on property at the time a Subsidiary acquires the
         property, including any acquisition by means of a merger or
         consolidation with or into the Subsidiary; provided that such Liens are
         not incurred in connection with, or in contemplation of, such merger or
         consolidation; and provided, further, that the Lien may not extend to
         any other property owned by the Company or any Restricted Subsidiary;

              (11) Liens incurred by a Person other than the Company or any
         Subsidiary on assets that are the subject of a Capitalized Lease
         Obligation to which the Company or a Subsidiary is a party; provided
         that any such Lien may not secure Indebtedness of the Company or any
         Subsidiary (except Indebtedness secured by a Lien on any property or
         assets of the Company or such Subsidiary incurred in connection with
         Indebtedness of another Person), with the amount of such obligation
         being deemed to be the lesser of the value of such property or assets
         or the amount of the obligation so secured) and may not extend to any
         other property owned by the Company or any Restricted Subsidiary;

              (12) Liens on assets of the Company Construction Finance Company,
         L.P. (and/or any other Restricted Subsidiary that subsequently owns any
         such assets) relating to the Magic Valley Generating Station;

              (13) Liens not in respect of Indebtedness arising from Uniform
         Commercial Code financing statements for informational purposes with
         respect to leases incurred in the ordinary course of business and not
         otherwise prohibited by this Indenture;

              (14) Liens not in respect of Indebtedness consisting of the
         interest of the lessor under any lease entered into in the ordinary
         course of business and not otherwise prohibited by this Indenture; and
         Liens on shares of Capital Stock of a subsidiary that does not own any
         significant assets other than a lessee's interest in a Facility or on
         the Capital Stock of a subsidiary whose only significant asset is its
         direct or indirect interest in such lessee subsidiary; provided that in
         no event shall this clause (14) allow a lien on any Capital Stock
         constituting Collateral;

              (15) Liens which constitute banker's liens, rights of set-off or
         similar rights and remedies as to deposit accounts or other funds
         maintained with any bank or other financial institution, whether
         arising by operation of law or pursuant to contract;

              (16) Liens for taxes, assessments or governmental charges or
         claims that are not yet delinquent or that are being contested in good
         faith by appropriate proceedings promptly instituted and diligently
         concluded; provided that any reserve or other appropriate provision as
         is required in conformity with GAAP has been made therefor;

                                       20



              (17) Liens imposed by law such as carriers', warehousemen's and
         mechanics' Liens, in each case, arising in the ordinary course of
         business and with respect to amounts not yet due or being contested in
         good faith by appropriate legal proceedings promptly instituted and
         diligently conducted and for which a reserve or other appropriate
         provision, if any, as shall be required in conformity with GAAP shall
         have been made; or other Liens arising out of judgments or awards
         against such Person with respect to which such Person shall then be
         diligently prosecuting appeal or other proceedings for review;

              (18) survey exceptions, easements or reservations of, or rights of
         others for, licenses, rights-of-way, sewers, electric lines, telegraph
         and telephone lines and other similar purposes, or zoning or other
         restrictions as to the use of real property or Liens incidental to the
         conduct of the business of the Company or any Restricted Subsidiary or
         to the ownership of its properties that were not incurred in connection
         with Indebtedness and that do not in the aggregate materially adversely
         affect the value of said properties or materially impair their use in
         the operation of the business of the Company or any Restricted
         Subsidiary;

              (19) Liens to secure any refinancing, refunding, extension,
         renewal or replacement (or successive refinancings, refundings,
         extensions, renewals or replacements) as a whole, or in part, of any
         Indebtedness secured by any Lien referred to in the foregoing clauses
         (6), (8), (9) and (10); provided that (A) such new Lien shall be
         limited to all or part of the same property or assets that secured the
         original Lien (plus repairs, improvements and additions to such
         property or assets and Liens on the stock or other ownership interest
         in one or more Restricted Subsidiaries beneficially owning such
         property or assets) and (B) the amount of the Indebtedness secured by
         such Lien at such time (or, if the amount that may be realized in
         respect of such Lien is limited, by contract or otherwise, such limited
         lesser amount) is not increased (other than by an amount necessary to
         pay fees and expenses, including premiums, related to the refinancing,
         refunding, extension, renewal or replacement of such Indebtedness);

              (20) Liens on assets of Restricted Subsidiaries to secure letters
         of credit issued pursuant to clause (14) of the definition of Permitted
         Debt; provided if and to the extent such letters of credit are drawn
         upon, such drawing is reimbursed no later than the tenth Business Day
         following a demand for reimbursement following payment on the letter of
         credit and Liens to secure letters of credit incurred pursuant to
         clause (15) of the definition of Permitted Debt on cash collateral
         constituting the proceeds of Priority Lien Debt;

              (21) Liens (A) on cash and short-term investments of Restricted
         Subsidiaries to secure obligations with respect to (i) contracts for
         commercial and trading activities in the ordinary course of business
         and contracts (including physical delivery, option (whether cash or
         financial), exchange, swap and futures contracts) for the purchase,
         transmission, distribution, sale, lease or hedge of any energy-related
         commodity or service or (ii) interest rate, commodity price, or
         currency rate management contracts or derivatives and (B) encumbering
         assets of a Restricted Subsidiary, other than (i) Material Designated
         Assets or (ii) accounts or receivables, which Liens arise out of
         contracts or agreements relating to the generation, distribution or
         transmission or sale of energy and/or fuel; provided that all such
         agreements or contracts are entered into in the ordinary course of
         business; and

              (22) other Liens to secure Indebtedness in an aggregate amount not
         to exceed $50.0 million at any time outstanding.

        "Permitted Prior Liens" means (a) Liens securing Priority Lien
Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses
(5), (6), (10) or (11) of the definition of "Permitted

                                       21



Liens" and (c) Liens that arise by operation of law and are not voluntarily
granted, to the extent entitled by law to priority over the security interests
created by the Security Documents.

         "Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:

              (1) the principal amount (or accreted value, if applicable) of
         such Permitted Refinancing Indebtedness does not exceed the principal
         amount (or accreted value, if applicable) of the Indebtedness extended,
         refinanced, renewed, replaced, defeased or refunded (plus all accrued
         or accumulated interest on the Indebtedness and the amount of all fees,
         costs, expenses and premiums, including swap breakage and defeasance
         costs, incurred in connection therewith);

              (2) such Permitted Refinancing Indebtedness has a final maturity
         date equal to or later than the final maturity date of, and has a
         Weighted Average Life to Maturity equal to or greater than the Weighted
         Average Life to Maturity of, the Indebtedness being extended,
         refinanced, renewed, replaced, defeased or refunded; provided that such
         Permitted Refinancing Indebtedness may have such shorter final maturity
         date and Weighted Average Life to Maturity as is equal to or greater
         than the latest maturity date of any Notes issued under this Indenture;
         and

              (3) if the Indebtedness being extended, refinanced, renewed,
         replaced, defeased or refunded is subordinated in right of payment to
         the Notes, such Permitted Refinancing Indebtedness has a final maturity
         date equal to or later than the final maturity date of, and is
         subordinated in right of payment to, the Notes on terms at least as
         favorable to the holders of Notes as those contained in the
         documentation governing the Indebtedness being extended, refinanced,
         renewed, replaced, defeased or refunded;

provided that Permitted Refinancing Indebtedness shall not include (A)
Indebtedness of the Company incurred to refinance Non-Recourse Debt of a
Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the
Company that refinances Indebtedness of the Company or (C) Indebtedness of the
Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.

         "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.

         "Pledged Power Project" means the power generation property and related
equipment at each of the following locations:

              (1) the Goldendale Energy Center in Goldendale, Washington;

              (2) the Otay Mesa Energy Center near San Diego, California;

              (3) the Metcalf Energy Center near San Jose, California;

              (4) the Santa Rosa Energy Center in Santa Rosa County, Florida;

              (5) the Washington Parish Energy Center near Bogalusa, Louisiana;

              (6) the Deer Park Energy Center in Deer Park, Texas; and

                                       22



              (7) the Augusta Energy Center in Augusta, Georgia.

         "Priority Foreclosure Event" means the failure to pay at maturity or
upon acceleration of maturity all outstanding Priority Lien Debt at any time
when no Bankruptcy Case or Insolvency Proceeding is pending.

         "Priority Lien" means a Lien granted by a Security Document to the
Collateral Trustee upon any property of the Company or any other Obligor to
secure Priority Lien Obligations not exceeding the Priority Lien Cap.

         "Priority Lien Agent" means the Credit Agreement Agent or any other
agent for holders of Priority Lien Debt.

         "Priority Lien Cap" means an amount equal to (a) the Indebtedness
outstanding under the Credit Agreement or any other Credit Facility in an
aggregate principal amount not exceeding the greater of (1) $500.0 million, less
the amount of any Net Proceeds of a Sale of Designated Assets applied to repay
Priority Lien Debt and/or cash collateralize letters of credit that constitute
Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of
such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for
the then most recent four-quarter period for which financial information is
available, plus (b) any interest (including any interest accruing at the then
applicable rate provided in any applicable Priority Lien Document after the
maturity of the loans and reimbursement obligations therein and interest
accruing at the then applicable rate provided in any applicable Priority Lien
Document after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the Company,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), penalties, premiums, fees, costs, expenses or other
Obligations in respect of such Indebtedness. For purposes of this definition of
Priority Lien Cap, all letters of credit shall be valued at face amount, whether
or not drawn, and all letters of credit denominated in a currency other than
U.S. dollars shall be valued at all times at the Equivalent Amount (as defined
in the Credit Agreement) thereof on the date of issue thereof.

         "Priority Lien Debt" means Indebtedness under (a) the Credit Agreement
or (b) any other Credit Facility that is secured by a Priority Lien that was
permitted to be incurred under clause (1) of the definition of "Permitted Liens"
but only if on or before the day on which such Indebtedness under a Credit
Facility described in clause (b) above is incurred by the Company such
Indebtedness is designated by the Company, in an officers' certificate delivered
to each Parity Debt Representative and the Collateral Trustee on or before such
date, as Priority Lien Debt for the purposes of each of the Parity Lien Debt
Documents and the Collateral Trust Agreement.

         "Priority Lien Documents" means the Credit Agreement or any other
Credit Facility pursuant to which any Priority Lien Debt is incurred and all
other agreements governing, securing or relating to any Priority Lien
Obligations.

         "Priority Lien Obligations" means the Priority Lien Debt and all other
Obligations in respect of Priority Lien Debt.

         "Private Placement Legend" means the legend set forth in Section
2.06(e)(1) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.

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

                                       23



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

         "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

         "Regulation S" means Regulation S promulgated under the Securities Act.

         "Regulation S Global Note" means a Global Note bearing the Private
Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.

         "Required Parity Debtholders" means, at any time in respect of any
action or matter, holders of a majority in aggregate outstanding principal
amount of all Parity Lien Debt then outstanding, voting together as a single
class. For this purpose, Parity Lien Debt registered in the name of, or
beneficially owned by, the Company or any Affiliate of the Company shall be
deemed not to be outstanding.

         "Required Priority Debtholders" means, at any time in respect of any
action or matter, (1) holders of the outstanding principal amount of, or
commitments with respect to, the applicable Priority Lien Debt then outstanding
required pursuant to the terms of the applicable Credit Facility, voting as a
single class, to approve such action or matter or (2) the Priority Lien Agent
acting upon the authorization or consent of the holders referred to in the
immediately preceding clause (1). For this purpose, Priority Lien Debt
registered in the name of, or beneficially owned by, the Company or any
Affiliate of the Company shall be deemed not to be outstanding.

         "Responsible Officer," means, with respect to the Collateral Trustee,
any officer within the corporate trust department of the Collateral Trustee
including any vice president, assistant vice president, assistant treasurer,
trust officer or any other officer of the Collateral Trustee who customarily
performs functions similar to those performed by the Persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred because of such Person's knowledge of and familiarity with the
particular subject and who shall have direct responsibility for the
administration of the Collateral Trust Agreement.

         "Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.

         "Restricted Global Note" means a Global Note bearing the Private
Placement Legend.

         "Restricted Investment" means an Investment other than a Permitted
Investment.

         "Restricted Period" means the 40-day distribution compliance period as
defined in Regulation S.(9030(B)(3))

         "Restricted Subsidiary" means any Subsidiary of the Company that is not
an Unrestricted Subsidiary.

         "Rule 144" means Rule 144 promulgated under the Securities Act.

         "Rule 144A" means Rule 144A promulgated under the Securities Act.

         "Rule 903" means Rule 903 promulgated under the Securities Act.

         "Rule 904" means Rule 904 promulgated the Securities Act.

                                       24



          "S&P" means Standard & Poor's Ratings Group (or, if such entity ceases
to rate the Notes for reasons outside of the control of the Company, the
equivalent investment grade credit rating from any other "nationally recognized
statistical rating organization" (or successor concept) within the meaning of
Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision)
selected by the Company as a replacement agency).

         "Sale of Designated Assets" means any Asset Sale involving a sale or
other disposition of Designated Assets.

         "SEC" means the Securities and Exchange Commission.

         "Secured Debt" means Parity Lien Debt and Priority Lien Debt.

         "Secured Debt Documents" means the Parity Lien Debt Documents and the
Priority Lien Documents.

         "Secured Debt Representative" means each Parity Debt Representative and
the Priority Lien Agent.

         "Secured Leverage Ratio" means, on any date, the ratio of:

              (1) the aggregate principal amount of Secured Debt outstanding on
         such date (and, for this purpose, letters of credit shall be deemed to
         have a principal amount equal to the maximum potential liability of the
         Company thereunder) to

              (2) the aggregate amount of the Company's Consolidated Cash Flow
         for the most recent four-quarter period for which financial information
         is available.

         In addition, for purposes of calculating the Secured Leverage Ratio:

              (1) acquisitions that have been made by the specified Person or
         any of its Restricted Subsidiaries, including through mergers or
         consolidations or acquisitions of assets, or any Person or any of its
         Restricted Subsidiaries acquired by merger, consolidation or the
         acquisition of all or substantially all of its assets by the specified
         Person or any of its Restricted Subsidiaries, and including any related
         financing transactions and including increases in ownership of
         Restricted Subsidiaries, during the four-quarter reference period or
         subsequent to such reference period and on or prior to the date on
         which the event for which the calculation of the Secured Leverage Ratio
         is made (the "Leverage Calculation Date") shall be given pro forma
         effect in accordance with Regulation S-X under the Securities Act) as
         if they had occurred on the first day of the four-quarter reference
         period;

              (2) the Consolidated Cash Flow attributable to discontinued
         operations, as determined in accordance with GAAP, and operations or
         businesses (and ownership interests therein) disposed of prior to the
         Leverage Calculation Date, shall be excluded;

              (3) any Person that is a Restricted Subsidiary on the Leverage
         Calculation Date shall be deemed to have been a Restricted Subsidiary
         at all times during such four-quarter period;

              (5) any Person that is not a Restricted Subsidiary on the Leverage
         Calculation Date shall be deemed not to have been a Restricted
         Subsidiary at any time during such four-quarter period; and

                                       25



              (6) if any Indebtedness bears a floating rate of interest, the
         interest expense on such Indebtedness shall be calculated as if the
         rate in effect on the Leverage Calculation Date had been the applicable
         rate for the entire period (taking into account any Hedging Obligation
         applicable to such Indebtedness if such Hedging Obligation has a
         remaining term as at the Calculation Date in excess of 12 months).

         "Secured Obligations" means the Parity Lien Obligations and the
Priority Lien Obligations.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Security Documents" means the Collateral Trust Agreement and one or
more security agreements, pledge agreements, collateral assignments, mortgages,
collateral agency agreements, deeds of trust or other grants or transfers for
security executed and delivered by the Company or any other Obligor creating (or
purporting to create) a Lien upon Collateral in favor of the Collateral Trustee,
in each case, as amended, modified, renewed, restated or replaced, in whole or
in part, from time to time, in accordance with its terms.

         "Series of Parity Lien Debt" means, severally, each series of the
Notes, the 2007 Notes, the 2010 Notes, the Term Loans and each other issue or
series of Parity Lien Debt for which a single transfer register is maintained.

         "Series of Secured Debt" means, severally, each series of the Notes,
the 2007 Notes, the 2010 Notes, the Term Loans, each other issue or series of
Parity Lien Debt for which a single transfer register is maintained and each
issue or series of Priority Lien Debt for which a single register is maintained.

         "Sharing Confirmation" means, as to any Series of Parity Lien Debt, the
written agreement of the holders of such Series of Parity Lien Debt, as set
forth in the indenture or agreement governing such Series of Parity Lien Debt,
for the enforceable benefit of all holders of each other existing and future
Series of Parity Lien Debt and each existing and future Parity Debt
Representative, that all Parity Lien Obligations shall be and are secured
equally and ratably by all Liens at any time granted by the Company or any other
Obligor to secure any Obligations in respect of such Series of Parity Lien Debt,
whether or not upon property otherwise constituting Collateral, that all such
Liens shall be enforceable by the Collateral Trustee for the benefit of all
holders of Parity Lien Obligations equally and ratably, and that the holders of
Obligations in respect of such Series of Parity Lien Debt are bound by the
provisions in the Collateral Trust Agreement relating to the order of
application of proceeds from enforcement of the Collateral Trustee's Liens upon
the Collateral, and consent to and direct the Collateral Trustee to perform its
obligations under the Collateral Trust Agreement.

         "Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.

         "Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness as of the date of this Indenture, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.

         "Subsidiary" means, as applied to any Person, any corporation, limited
or general partnership, trust, association or other business entity of which an
aggregate of at least 50% of the outstanding Voting

                                       26



Shares, or an equivalent controlling interest therein, of such Person is, at the
time, directly or indirectly, owned by such Person and/or one or more
Subsidiaries of such Person.

         "Term Loan Administrative Agent" means Goldman Sachs Credit Partners
L.P., as administrative agent under the Term Loan Agreement, together with its
successors in such capacity.

         "Term Loan Agreement" means that certain Term Loan Agreement dated the
date of this Indenture between the Company and the Term Loan Administrative
Agent, relating to $750.0 million in aggregate principal amount of Term Loans,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as amended, modified, increased,
renewed, restated or replaced, in whole or in part, from time to time.

         "Term Loan Documents" means the Term Loan Agreement, each Sharing
Confirmation and the Security Documents.

         "Term Loan Obligations" means the Term Loans (including additional Term
Loans) and all other Obligations under the Term Loan Agreement and the Security
Documents.

         "Term Loans" means the principal of and interest and premium (if any)
on Indebtedness of the Company incurred under the Term Loan Agreement.

         "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 of this Indenture.

         "Treasury Rate" means, as of any redemption date, the yield to maturity
as of such redemption date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
business days prior to the redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to July 15, 2013; provided,
however, that if the period from the redemption date to July 15, 2013 is less
than one year, the average of weekly yields on actively traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.

         "Trustee" means the party named as such in the preamble to this
Indenture until a successor replaces it in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.

         "2007 Notes" means the $500.0 million in aggregate principal amount of
the Company's floating rate notes due 2007.

         "2010 Notes" means the $1.15 billion in aggregate principal amount of
the Company's 8 1/2% notes due 2010.

         "Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary (and any
subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution passed
after the date of this Indenture, but only to the extent that such Subsidiary:

              (1) has no Indebtedness other than Indebtedness that is non-
         recourse to the Company and its Restricted Subsidiaries;

                                       27



              (2) is not party to any agreement, contract, arrangement or
         understanding with the Company or any Restricted Subsidiary of the
         Company unless the terms of any such agreement, contract, arrangement
         or understanding are no less favorable to the Company or such
         Restricted Subsidiary than those that might be obtained at the time
         from Persons who are not Affiliates of the Company;

              (3) is a Person with respect to which neither the Company nor any
         of its Restricted Subsidiaries has any direct or indirect obligation
         (a) to subscribe for additional Equity Interests or (b) to maintain or
         preserve such Person's financial condition or to cause such Person to
         achieve any specified levels of operating results; and

              (4) has not guaranteed or otherwise directly or indirectly
         provided credit support for any Indebtedness of the Company or any of
         its Restricted Subsidiaries;

provided, however, that a corporation with no significant assets created for the
sole purpose of serving as a co-obligor to facilitate a financing by a
partnership of a limited liability company may be designated as an Unrestricted
Subsidiary.

         Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by Section 4.07 herein, regarding
Restricted Payments. If, at any time, any Unrestricted Subsidiary would fail to
meet the preceding requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under Section 4.09 herein, the
Company shall be in default of such Section 4.09. The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under Section 4.09 herein,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.

         "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the
Securities Act.

         "Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

         "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years or portion thereof obtained by
dividing:

              (1) the sum of the products obtained by multiplying (a) the amount
         of each then remaining installment, sinking fund, serial maturity or
         other required payments of principal, including payment at final
         maturity, in respect of the Indebtedness, by (b) the number of years
         (calculated to the nearest one-twelfth) that shall elapse between such
         date and the making of such payment; by

              (2) the then outstanding principal amount of such Indebtedness.

                                       28



         "Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.

Section 1.02      Other Definitions.



                                                                                        Defined in
Term                                                                                      Section
- ----                                                                                      -------
                                                                                     
"Affiliate Transaction".............................................................       4.11
"Asset Sale Offer"..................................................................       3.09
"Authentication Order"..............................................................       2.02
"Change of Control Offer"...........................................................       4.15
"Change of Control Payment".........................................................       4.15
"Change of Control Payment Date"....................................................       4.15
"Covenant Defeasance"...............................................................       8.03
"DTC"...............................................................................       2.03
"Event of Default"..................................................................       6.01
"Excess Proceeds"...................................................................       4.10
"incur".............................................................................       4.09
"Legal Defeasance"..................................................................       8.02
"Offer Amount"......................................................................       3.09
"Offer Period"......................................................................       3.09
"Paying Agent"......................................................................       2.03
"Permitted Debt"....................................................................       4.09
"Purchase Date".....................................................................       3.09
"Registrar".........................................................................       2.03
"Restricted Payments"...............................................................       4.07


Section 1.03      Incorporation by Reference of Trust Indenture Act.

         Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.

         The following TIA terms used in this Indenture have the following
meanings:

         "indenture securities" means the Notes;

         "indenture security holder" means a Holder of a Note;

         "indenture to be qualified" means this Indenture;

         "indenture trustee" or "institutional trustee" means the Trustee; and

         "obligor" on the Notes and the Guarantees means the Company and the
Guarantors, respectively, and any successor obligor upon the Notes and the
Guarantees, respectively.

         All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.

                                       29



Section 1.04      Rules of Construction.

         Unless the context otherwise requires:

                  (1)      a term has the meaning assigned to it;

                  (2)      an accounting term not otherwise defined has the
         meaning assigned to it in accordance with GAAP;

                  (3)      "or" is not exclusive;

                  (4)      words in the singular include the plural, and in the
         plural include the singular;

                  (5)      "shall" shall be interpreted to express a command;

                  (6)      provisions apply to successive events and
         transactions; and

                  (7)      references to sections of or rules under the
         Securities Act shall be deemed to include substitute, replacement of
         successor sections or rules adopted by the SEC from time to time.

                                       30



                                   ARTICLE 2.
                                    THE NOTES

Section 2.01      Form and Dating.

         (a)      General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.

         The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.

         (b)      Global Notes. Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Note Legend thereon and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Notes issued in definitive form shall be substantially
in the form of Exhibit A attached hereto (but without the Global Note Legend
thereon and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it represents
the aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.

         (c)      Euroclear and Clearstream Procedures Applicable. The
provisions of the "Operating Procedures of the Euroclear System" and "Terms and
Conditions Governing Use of Euroclear" and the "General Terms and Conditions of
Clearstream Banking" and "Customer Handbook" of Clearstream shall be applicable
to transfers of beneficial interests in the Global Notes that are held by
Participants through Euroclear or Clearsteam.

Section 2.02      Execution and Authentication.

         One Officer must sign the Notes for the Company by manual or facsimile
signature.

         If the Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.

         A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.

         The Trustee will, upon receipt of a written order of the Company signed
by one Officer (an "Authentication Order"), authenticate (i) Initial Notes in an
aggregate principal amount up to $1.15 billion on the date of this Indenture and
(ii) Additional Notes from time to time as permitted under this Indenture.

                                       31



         The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.

Section 2.03      Registrar and Paying Agent.

         The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.

         The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.

         The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.

Section 2.04      Paying Agent to Hold Money in Trust.

         The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Notes, and shall notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Notes.

Section 2.05      Holder Lists.

         The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA Section 312(a).

Section 2.06      Transfer and Exchange.

         (a)      Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the

                                       32



Depositary or to another nominee of the Depositary, or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. All Global Notes shall be exchanged by the Company for Definitive
Notes if:

                  (1)      the Company delivers to the Trustee notice from the
         Depositary that it is unwilling or unable to continue to act as
         Depositary or that it is no longer a clearing agency registered under
         the Exchange Act and, in either case, a successor Depositary is not
         appointed by the Company within 120 days after the date of such notice
         from the Depositary; or

                  (2)      the Company in its sole discretion determines that
         the Global Notes (in whole but not in part) should be exchanged for
         Definitive Notes and delivers a written notice to such effect to the
         Trustee.

         Upon the occurrence of either of the preceding events in (1) or (2)
above, Definitive Notes shall be issued in such names as the Depositary shall
instruct the Trustee. Global Notes also may be exchanged or replaced, in whole
or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof,
shall be authenticated by the Trustee pursuant to an Authentication Order and
delivered in the form of, and shall be, a Global Note. A Global Note may not be
exchanged for another Note other than as provided in this Section 2.06(a),
however, beneficial interests in a Global Note may be transferred and exchanged
as provided in Section 2.06(b), (c) or (f) hereof.

         (b)      Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (1) or (2) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:

                  (1)      Transfer of Beneficial Interests in the Same Global
         Note. Beneficial interests in any Restricted Global Note may be
         transferred to Persons who take delivery thereof in the form of a
         beneficial interest in the same Restricted Global Note in accordance
         with the transfer restrictions set forth in the Private Placement
         Legend; provided, however, that prior to the expiration of the
         Restricted Period, transfers of beneficial interests in the Regulation
         S Global Note may not be made to a U.S. Person or for the account or
         benefit of a U.S. Person (other than an Initial Purchaser). No written
         orders or instructions shall be required to be delivered to the
         Registrar to effect the transfers described in this Section 2.06(b)(1).

                  (2)      All Other Transfers and Exchanges of Beneficial
         Interests in Global Notes. In connection with all transfers and
         exchanges of beneficial interests that are not subject to Section
         2.06(b)(1) above, the transferor of such beneficial interest must
         deliver to the Registrar both:

                           (A)      a written order from a Participant or an
                  Indirect Participant given to the Depositary in accordance
                  with the Applicable Procedures directing the Depositary to
                  credit or cause to be credited a beneficial interest in
                  another Global Note in an amount equal to the beneficial
                  interest to be transferred or exchanged; and

                           (B)      instructions given in accordance with the
                  Applicable Procedures containing information regarding the
                  Participant account to be credited with such increase.

                                       33



                  (3)      Transfer of Beneficial Interests to Another
         Restricted Global Note. A beneficial interest in any Restricted Global
         Note may be transferred to a Person who takes delivery thereof in the
         form of a beneficial interest in another Restricted Global Note if the
         transfer complies with the requirements of Section 2.06(b)(2) above and
         the Registrar receives the following:

                           (A)      if the transferee shall take delivery in the
                  form of a beneficial interest in the 144A Global Note, then
                  the transferor must deliver a certificate in the form of
                  Exhibit B hereto, including the certifications in item (1)
                  thereof;

                           (B)      if the transferee shall take delivery in the
                  form of a beneficial interest in the Regulation S Global Note,
                  then the transferor must deliver a certificate in the form of
                  Exhibit B hereto, including the certifications in item (2)
                  thereof; and

                           (C)      if the transferee shall take delivery in the
                  form of a beneficial interest in the IAI Global Note, then the
                  transferor must deliver a certificate in the form of Exhibit B
                  hereto, including the certifications, certificates and Opinion
                  of Counsel required by item (3)(d) thereof, if applicable.

                  (4)      Transfer and Exchange of Beneficial Interests in
         Restricted Global Notes to Restricted Definitive Notes. If any holder
         of a beneficial interest in a Restricted Global Note proposes to
         exchange such beneficial interest for a Restricted Definitive Note or
         to transfer such beneficial interest to a Person who takes delivery
         thereof in the form of a Restricted Definitive Note, then, upon receipt
         by the Registrar of the following documentation:

                           (A)      if the holder of such beneficial interest in
                  a Restricted Global Note proposes to exchange such beneficial
                  interest for a Restricted Definitive Note, a certificate from
                  such holder in the form of Exhibit C hereto, including the
                  certifications in item (a) thereof;

                           (B)      if such beneficial interest is being
                  transferred to a QIB in accordance with Rule 144A, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (C)      if such beneficial interest is being
                  transferred to a Non-U.S. Person in an offshore transaction in
                  accordance with Rule 903 or Rule 904, a certificate to the
                  effect set forth in Exhibit B hereto, including the
                  certifications in item (2) thereof;

                           (D)      if such beneficial interest is being
                  transferred pursuant to an exemption from the registration
                  requirements of the Securities Act in accordance with Rule
                  144, a certificate to the effect set forth in Exhibit B
                  hereto, including the certifications in item (a) thereof;

                           (E)      if such beneficial interest is being
                  transferred to an Institutional Accredited Investor in
                  reliance on an exemption from the registration requirements of
                  the Securities Act other than those listed in subparagraphs
                  (B) through (D) above, a certificate to the effect set forth
                  in Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)
                  thereof, if applicable;

                           (F)      if such beneficial interest is being
                  transferred to the Company or any of its Subsidiaries, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (3)(b) thereof; or

                                       34



                           (G)      if such beneficial interest is being
                  transferred pursuant to an effective registration statement
                  under the Securities Act, a certificate to the effect set
                  forth in Exhibit B hereto, including the certifications in
                  item (3)(c) thereof,

the Trustee shall cause the aggregate principal amount of the applicable Global
Note to be reduced accordingly pursuant to Section 2.06(f) hereof, and the
Company shall execute and the Trustee shall authenticate, upon receipt of an
Authentication Order, and deliver to the Person designated in such
Authentication Order a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(b) shall be registered in such name or
names and in such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial interest in
a Restricted Global Note pursuant to this Section 2.06(b) shall bear the Private
Placement Legend and shall be subject to all restrictions on transfer contained
therein.

         (c)      Transfer and Exchange of Definitive Notes for Beneficial
Interests.

                  (1)      Restricted Definitive Notes to Beneficial Interests
         in Restricted Global Notes. If any Holder of a Restricted Definitive
         Note proposes to exchange such Note for a beneficial interest in a
         Restricted Global Note or to transfer such Restricted Definitive Notes
         to a Person who takes delivery thereof in the form of a beneficial
         interest in a Restricted Global Note, then, upon receipt by the
         Registrar of the following documentation:

                           (A)      if the Holder of such Restricted Definitive
                  Note proposes to exchange such Note for a beneficial interest
                  in a Restricted Global Note, a certificate from such Holder in
                  the form of Exhibit C hereto, including the certifications in
                  item (b) thereof; (B) if such Restricted Definitive Note is
                  being transferred to a QIB in accordance with Rule 144A, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (C)      if such Restricted Definitive Note is being
                  transferred to a Non-U.S. Person in an offshore transaction in
                  accordance with Rule 903 or Rule 904, a certificate to the
                  effect set forth in Exhibit B hereto, including the
                  certifications in item (2) thereof;

                           (D)      if such Restricted Definitive Note is being
                  transferred pursuant to an exemption from the registration
                  requirements of the Securities Act in accordance with Rule
                  144, a certificate to the effect set forth in Exhibit B
                  hereto, including the certifications in item (3)(a) thereof;

                           (E)      if such Restricted Definitive Note is being
                  transferred to an Institutional Accredited Investor in
                  reliance on an exemption from the registration requirements of
                  the Securities Act other than those listed in subparagraphs
                  (B) through (D) above, a certificate to the effect set forth
                  in Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)(d)
                  thereof, if applicable;

                           (F)      if such Restricted Definitive Note is being
                  transferred to the Company or any of its Subsidiaries, a
                  certificate to the effect set forth in Exhibit B hereto,
                  including the certifications in item (3)(b) thereof; or

                                       35



                           (G)      if such Restricted Definitive Note is being
                  transferred pursuant to an effective registration statement
                  under the Securities Act, a certificate to the effect set
                  forth in Exhibit B hereto, including the certifications in
                  item (3)(c) thereof,

                  the Trustee shall cancel the Restricted Definitive Note,
                  increase or cause to be increased the aggregate principal
                  amount of, in the case of clause (A) above, the appropriate
                  Restricted Global Note, in the case of clause (B) above, the
                  144A Global Note, in the case of clause (C) above, the
                  Regulation S Global Note, and in all other cases, the IAI
                  Global Note.

         (d)      Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(d), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder must present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
must provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(d).

                  (1)      Restricted Definitive Notes to Restricted Definitive
         Notes. Any Restricted Definitive Note may be transferred to and
         registered in the name of Persons who take delivery thereof in the form
         of a Restricted Definitive Note if the Registrar receives the
         following:

                           (A)      if the transfer shall be made pursuant to
                  Rule 144A under the Securities Act, then the transferor must
                  deliver a certificate in the form of Exhibit B hereto,
                  including the certifications in item (1) thereof;

                           (B)      if the transfer shall be made pursuant to
                  Rule 903 or Rule 904, then the transferor must deliver a
                  certificate in the form of Exhibit B hereto, including the
                  certifications in item (2) thereof; and

                           (C)      if the transfer shall be made pursuant to
                  any other exemption from the registration requirements of the
                  Securities Act, then the transferor must deliver a certificate
                  in the form of Exhibit B hereto, including the certifications,
                  certificates and Opinion of Counsel required by item (3)
                  thereof, if applicable.

         (e)      Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.

                  (1)      Private Placement Legend.

                           (A)      Each Global Note and each Definitive Note
                  (and all Notes issued in exchange therefor or substitution
                  thereof) shall bear the legend in substantially the following
                  form:

"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE

                                       36



144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER
JURISDICTIONS."

                  (2)      Global Note Legend. Each Global Note shall bear a
         legend in substantially the following form:

"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."

         (f)      Cancellation and/or Adjustment of Global Notes. At such time
as all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who shall take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to

                                       37



a Person who shall take delivery thereof in the form of a beneficial interest in
another Global Note, such other Global Note shall be increased accordingly and
an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.

         (g)      General Provisions Relating to Transfers and Exchanges.

                  (1)      To permit registrations of transfers and exchanges,
         the Company shall execute and the Trustee shall authenticate Global
         Notes and Definitive Notes upon receipt of an Authentication Order in
         accordance with Section 2.02 or at the Registrar's request.

                  (2)      No service charge shall be made to a Holder of a
         Global Note or to a Holder of a Definitive Note for any registration of
         transfer or exchange, but the Company may require payment of a sum
         sufficient to cover any transfer tax or similar governmental charge
         payable in connection therewith (other than any such transfer taxes or
         similar governmental charge payable upon exchange or transfer pursuant
         to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

                  (3)      The Registrar shall not be required to register the
         transfer of or exchange any Note selected for redemption in whole or in
         part, except the unredeemed portion of any Note being redeemed in part.

                  (4)      All Global Notes and Definitive Notes issued upon any
         registration of transfer or exchange of Global Notes or Definitive
         Notes shall be the valid obligations of the Company, evidencing the
         same debt, and entitled to the same benefits under this Indenture, as
         the Global Notes or Definitive Notes surrendered upon such registration
         of transfer or exchange.

                  (5)      The Company shall not be required:

                           (A)      to issue, to register the transfer of or to
                  exchange any Notes during a period beginning at the opening of
                  business 15 days before the day of any selection of Notes for
                  redemption under Section 3.02 hereof and ending at the close
                  of business on the day of selection;

                           (B)      to register the transfer of or to exchange
                  any Note selected for redemption in whole or in part, except
                  the unredeemed portion of any Note being redeemed in part; or

                           (C)      to register the transfer of or to exchange a
                  Note between a record date and the next succeeding interest
                  payment date.

                  (6)      Prior to due presentment for the registration of a
         transfer of any Note, the Trustee, any Agent and the Company may deem
         and treat the Person in whose name any Note is registered as the
         absolute owner of such Note for the purpose of receiving payment of
         principal of and interest on such Notes and for all other purposes, and
         none of the Trustee, any Agent or the Company shall be affected by
         notice to the contrary.

                  (7)      The Trustee shall authenticate Global Notes and
         Definitive Notes in accordance with the provisions of Section 2.02
         hereof.

                  (8)      All certifications, certificates and Opinions of
         Counsel required to be submitted to the Registrar pursuant to this
         Section 2.06 to effect a registration of transfer or exchange may be
         submitted by facsimile.

                                       38



Section 2.07      Replacement Notes.

         If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements hereunder are met. If required by the Trustee or the Company, an
indemnity bond must be supplied by the Holder that is sufficient in the judgment
of the Trustee and the Company to protect the Company, the Trustee, any Agent
and any authenticating agent from any loss that any of them may suffer if a Note
is replaced. The Company may charge the applicable Holder for its expenses in
replacing a Note.

         Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.

Section 2.08      Outstanding Notes.

         The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.

         If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a protected purchaser.

         If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.

         If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.

Section 2.09      Treasury Notes.

         In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.

Section 2.10      Temporary Notes.

         Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as may be reasonably acceptable to
the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall, upon receipt of an Authentication Order, authenticate definitive
Notes in exchange for temporary Notes.

         Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.

                                       39



Section 2.11      Cancellation.

         The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes in accordance with its customary practices (subject to the record
retention requirement of the Exchange Act). Certification of the destruction of
all canceled Notes shall be delivered to the Company. The Company may not issue
new Notes to replace Notes that it has paid or that have been delivered to the
Trustee for cancellation.

Section 2.12      Defaulted Interest.

         If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
may be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.

                                   ARTICLE 3.
                            REDEMPTION AND PREPAYMENT

Section 3.01      Notices to Trustee.

         If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth:

                  (1)      the clause of this Indenture pursuant to which the
         redemption shall occur;

                  (2)      the redemption date;

                  (3)      the principal amount of Notes to be redeemed; and

                  (4)      the redemption price.

Section 3.02      Selection of Notes to Be Redeemed or Purchased.

         If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select Notes for redemption or
purchase as follows:

                  (1)      if the Notes are listed on any national securities
         exchange, in compliance with the requirements of the principal national
         securities exchange on which the Notes are listed; or

                  (2)      if the Notes are not listed on any national
         securities exchange, on a pro rata basis, by lot or by such method as
         the Trustee shall deem fair and appropriate.

                                       40



         In the event of partial redemption or purchase by lot, the particular
Notes to be redeemed or purchased shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption or
purchase date by the Trustee from the outstanding Notes not previously called
for redemption or purchase.

         The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption or purchase and, in the case of any Note selected for
partial redemption or purchase, the principal amount thereof to be redeemed or
purchased. Notes and portions of Notes selected shall be in amounts of $1,000 or
whole multiples of $1,000; except that if all of the Notes of a Holder are to be
redeemed or purchased, the entire outstanding amount of Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except
as provided in the preceding sentence, provisions of this Indenture that apply
to Notes called for redemption or purchase also apply to portions of Notes
called for redemption or purchase.

Section 3.03      Notice of Redemption.

         Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address, except that redemption
notices may be mailed more than 60 days prior to a redemption date if the notice
is issued in connection with a defeasance of the Notes or a satisfaction and
discharge of this Indenture pursuant to Articles 8 or 11, respectively, of this
Indenture.

         The notice shall identify the Notes to be redeemed and shall state:

                  (1)      the redemption date;

                  (2)      the redemption price;

                  (3)      if any Note is being redeemed in part, the portion of
         the principal amount of such Note to be redeemed and that, after the
         redemption date upon surrender of such Note, a new Note or Notes in
         principal amount equal to the unredeemed portion shall be issued upon
         cancellation of the original Note;

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

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

                  (6)      that, unless the Company defaults in making such
         redemption payment, interest on Notes called for redemption ceases to
         accrue on and after the redemption date;

                  (7)      the paragraph of the Notes and/or Section of this
         Indenture pursuant to which the Notes called for redemption are being
         redeemed; and

                  (8)      that no representation is made as to the correctness
         or accuracy of the CUSIP number, if any, listed in such notice or
         printed on the Notes.

         At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company has delivered to the Trustee, at least 45

                                       41



days prior to the redemption date, an Officers' Certificate requesting that the
Trustee give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.

Section 3.04      Effect of Notice of Redemption.

         Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.

Section 3.05      Deposit of Redemption or Purchase Price.

         Not less than one Business Day prior to the redemption or purchase
price date, the Company shall deposit with the Trustee or with the Paying Agent
money sufficient to pay the redemption or purchase price of and accrued interest
on all Notes to be redeemed or purchased on that date. The Trustee or the Paying
Agent shall promptly return to the Company any money deposited with the Trustee
or the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption or purchase price of, and accrued interest on, all Notes to be
redeemed or purchased.

         If the Company complies with the provisions of the preceding paragraph,
on and after the redemption or purchase date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption or purchase. If a Note
is redeemed or purchased on or after an interest record date but on or prior to
the related interest payment date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Note was registered at the close of
business on such record date. If any Note called for redemption or purchase is
not so paid upon surrender for redemption or purchase because of the failure of
the Company to comply with the preceding paragraph, interest shall be paid on
the unpaid principal, from the redemption or purchase date until such principal
is paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.01
hereof.

Section 3.06      Notes Redeemed or Purchased in Part.

         Upon surrender of a Note that is redeemed or purchased in part, the
Company shall issue and, upon receipt of an Authentication Order, the Trustee
shall authenticate for the Holder at the expense of the Company a new Note equal
in principal amount to the unredeemed or unpurchased portion of the Note
surrendered.

Section 3.07      Optional Redemption.

         (a)      At any time prior to July 15, 2006, the Company may on one or
more occasions upon not less than 30 nor more than 60 days prior notice mailed
by first-class mail to each holder's registered address, redeem up to 35% of the
aggregate principal amount of Notes issued under this Indenture at a redemption
price of 108.750% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date, with the net cash proceeds of one or
more Public Equity Offerings; provided that:

                  (1)      at least 65% of the aggregate principal amount of
         Notes originally issued under this Indenture remains outstanding
         immediately after the occurrence of such redemption (excluding Notes
         held by the Company and its Subsidiaries); and

                  (2)      the redemption must occur within 45 days of the date
         of the closing of such Public Equity Offering.

                                       42



         (b)      At any time prior to July 15, 2008 the Company may also redeem
all or a part of the 2013 Notes, upon not less than 30 nor more than 60 days
prior notice mailed by first-class mail to each holder's registered address, at
a redemption price equal to 100% of the principal amount of the Notes redeemed
plus the Applicable Premium as of, and accrued and unpaid interest, if any, to
the redemption date, subject to the rights of noteholders on the relevant record
date to receive interest due on the relevant interest payment date.

         (c)      After July 15, 2008 the Company may redeem all or a part of
the Notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest, if any, on the notes redeemed, to the applicable
redemption date, if redeemed during the twelve-month period beginning on July 15
of the years indicated below, subject to the rights of noteholders on the
relevant record date to receive interest on the relevant interest payment date:



Year                                                             Percentage
- ----                                                             ----------
                                                              
2008........................................................      104.375%
2009........................................................      102.917%
2010........................................................      101.458%
2011 and thereafter.........................................      100.000%


         (d)      Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.

Section 3.08      Mandatory Redemption.

         The Company shall not be required to make mandatory redemption or
sinking fund payments with respect to the Notes.

Section 3.09      Offer to Purchase by Application of Excess Proceeds.

         In the event that, pursuant to Section 4.10 hereof, the Company is
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below.

         The Asset Sale Offer shall be made to all Holders and all holders of
other Indebtedness that is pari passu with the Notes containing provisions
similar to those set forth in this Indenture with respect to offers to purchase
or redeem with the proceeds of sales and assets. The Asset Sale Offer shall
remain open for a period of at least 20 Business Days following its commencement
and not more than 30 Business Days, except to the extent that a longer period is
required by applicable law (the "Offer Period"). No later than three Business
Days after the termination of the Offer Period (the "Purchase Date"), the
Company shall apply all Excess Proceeds (the "Offer Amount") to the purchase of
Notes and such other pari passu Indebtedness (on a pro rata basis, if
applicable) or, if less than the Offer Amount has been tendered, all Notes and
other Indebtedness tendered in response to the Asset Sale Offer. Payment for any
Notes so purchased shall be made in the same manner as interest payments are
made.

         If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.

         Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The written notice shall contain

                                       43



all instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Asset Sale Offer. The written notice, which shall govern the
terms of the Asset Sale Offer, shall state:

                  (1)      that the Asset Sale Offer is being made pursuant to
         this Section 3.09 and Section 4.10 hereof and the length of time the
         Asset Sale Offer shall remain open;

                  (2)      the Offer Amount, the purchase price and the Purchase
         Date;

                  (3)      that any Note not tendered or accepted for payment
         shall continue to accrue interest;

                  (4)      that, unless the Company defaults in making such
         payment, any Note accepted for payment pursuant to the Asset Sale Offer
         shall cease to accrue interest after the Purchase Date;

                  (5)      that Holders electing to have a Note purchased
         pursuant to an Asset Sale Offer may elect to have Notes purchased in
         integral multiples of $1,000 only;

                  (6)      that Holders electing to have a Note purchased
         pursuant to any Asset Sale Offer shall be required to surrender the
         Note, with the form entitled "Option of Holder to Elect Purchase" on
         the reverse of the Note completed, or transfer by book-entry transfer,
         to the Company, a Depositary, if appointed by the Company, or a Paying
         Agent at the address specified in the notice at least three days before
         the Purchase Date;

                  (7)      that Holders shall be entitled to withdraw their
         election if the Company, the Depositary or the Paying Agent, as the
         case may be, receives, not later than the expiration of the Offer
         Period, a telegram, telex, facsimile transmission or letter setting
         forth the name of the Holder, the principal amount of the Note the
         Holder delivered for purchase and a statement that such Holder is
         withdrawing his election to have such Note purchased;

                  (8)      that, if the aggregate principal amount of Notes and
         other pari passu Indebtedness surrendered by Holders exceeds the Offer
         Amount, the Company shall select the Notes and other pari passu
         Indebtedness to be purchased on a pro rata basis based on the principal
         amount of Notes and such other pari passu Indebtedness surrendered
         (with such adjustments as may be deemed appropriate by the Company so
         that only Notes in denominations of $1,000, or integral multiples
         thereof, shall be purchased); and

                  (9)      that Holders whose Notes were purchased only in part
         shall be issued new Notes equal in principal amount to the unpurchased
         portion of the Notes surrendered (or transferred by book-entry
         transfer).

         On or before the Purchase Date, the Company will, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, either directly or through the
Depositary or the Paying Agent, as the case may be, shall promptly (but in any
case not later than five days after the Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Notes tendered by
such Holder and accepted by the Company for purchase, and the Company shall
promptly issue a new Note, and the Trustee, upon written request from the
Company and receipt of an Authentication Order shall authenticate and mail or
deliver such new Note

                                       44



to such Holder, in a principal amount equal to any unpurchased portion of the
Note surrendered. Any Note not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company shall publicly announce the
results of the Asset Sale Offer on the Purchase Date.

         Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.

                                   ARTICLE 4.
                                    COVENANTS

Section 4.01      Payment of Notes.

         The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due.

         The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.

Section 4.02      Maintenance of Office or Agency.

         The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
fails to maintain any such required office or agency or fails to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.

         The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.

         The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03
hereof.

Section 4.03      Reports.

         (a)      Whether or not required by the Commission's rules and
regulations, so long as any Notes are outstanding, the Company shall furnish to
the holders of Notes, within the time periods specified in the Commission's
rules and regulations:

                                       45



                  (1)      all quarterly and annual reports that would be
         required to be filed with the Commission on Forms 10-Q and 10-K if the
         Company were required to file such reports; and

                  (2)      all current reports that would be required to be
         filed with the Commission on Form 8-K if the Company were required to
         file such reports.

         (b)      All such reports shall be prepared in all material respects in
accordance with all of the rules and regulations applicable to such reports.
Each annual report on Form 10-K shall include a report on the Company's
consolidated financial statements by the Company's certified independent
accountants. In addition, the Company shall file a copy of each of the reports
referred to in clauses (1) and (2) in Section 4.03(a) above with the Commission
for public availability within the time periods specified in the rules and
regulations applicable to such reports (unless the Commission shall not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.

         (c)      If, at any time, the Company is no longer subject to the
periodic reporting requirements of the Exchange Act for any reason, the Company
shall nevertheless continue filing the reports specified in Section 4.03(a) with
the Commission within the time periods specified above unless the Commission
shall not accept such a filing. The Company agrees that it shall not take any
action for the purpose of causing the Commission not to accept any such filings.
If, notwithstanding the foregoing, the Commission shall not accept the Company's
filings for any reason, the Company shall post the reports referred to in
Section 4.03(a) on its website within the time periods that would apply if the
Company were required to file those reports with the Commission.

         (d)      If the Company has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by Section 4.03(a) shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.

         (e)      In addition, the Company agrees that, for so long as any Notes
remain outstanding, at any time it is not required to file the reports required
by Section 4.03(a) with the Commission, it shall furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.

Section 4.04      Compliance Certificate.

         (a)      The Company and each Guarantor (to the extent that such
Guarantor is so required under the TIA) shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate prescribed by
the TIA stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture and the Security Documents, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and the Security Documents and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture or the Security Documents (or, if a Default or Event of Default
has occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action the Company is taking or proposes to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest,

                                       46



if any, on the Notes is prohibited or if such event has occurred, a description
of the event and what action the Company is taking or proposes to take with
respect thereto.

         (b)      So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.

         (c)      So long as any of the Notes are outstanding, the Company shall
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.

Section 4.05      Taxes.

         The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.

Section 4.06      Stay, Extension and Usury Laws.

         The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.

Section 4.07      Restricted Payments.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly:

                  (1)      declare or pay any dividend or make any other payment
         or distribution on account of the Company's or any of its Restricted
         Subsidiaries' Equity Interests (including any payment in connection
         with any merger or consolidation involving the Company or any of its
         Restricted Subsidiaries) or to the direct or indirect holders of the
         Company's or any of its Restricted Subsidiaries' Equity Interests in
         their capacity as such (other than dividends or distributions payable
         in Equity Interests (other than Disqualified Stock) of the Company or
         dividends or distributions payable to the Company or a Restricted
         Subsidiary of the Company);

                  (2)      purchase, redeem or otherwise acquire or retire for
         value (including in connection with any merger or consolidation
         involving the Company) any Equity Interests of the Company or any
         direct or indirect parent of the Company;

                                       47



                  (3)      make any payment on or with respect to, or purchase,
         redeem, defease or otherwise acquire or retire for value any
         Indebtedness of the Company that is contractually subordinated to the
         Notes (excluding any intercompany Indebtedness between or among the
         Company and any of its Restricted Subsidiaries and excluding the
         purchase, repurchase or other acquisition of such subordinated
         Indebtedness purchased in anticipation of satisfying a sinking fund
         obligation, principal installment or final maturity, in each case due
         within one year of the date of acquisition), except a payment of
         interest or principal at the Stated Maturity thereof; or

                  (4)      make any Restricted Investment

(all such payments and other actions set forth in these clauses (1) through (4)
above being collectively referred to as "Restricted Payments"), unless after
giving effect to such Restricted Payment:

                  (1)      no Default or Event of Default has occurred and is
         continuing or would occur as a consequence of such Restricted Payment
         (other than any Default or Event of Default that is cured as a result
         of such Restricted Payment);

                  (2)      the Company would, after giving pro forma effect
         thereto as if such Restricted Payment had been made at the beginning of
         the applicable four-quarter period, have been permitted to incur at
         least $1.00 of additional Indebtedness pursuant to the Fixed Charge
         Coverage Ratio test set forth in Section 4.09(a) herein; and

                  (3)      such Restricted Payment, together with the aggregate
         amount of all other Restricted Payments made by the Company and its
         Restricted Subsidiaries since the date of this Indenture (excluding
         Restricted Payments permitted by clauses (2), (3), (4), (5), (6), and
         (9) of the next succeeding paragraph), is less than the sum, without
         duplication, of:

                           (a)      50% of the Consolidated Net Income of the
         Company for the period (taken as one accounting period) from the
         beginning of the first fiscal quarter commencing after the date of this
         Indenture to the end of the Company's most recently ended fiscal
         quarter for which internal financial statements are available at the
         time of such Restricted Payment (or, if such Consolidated Net Income
         for such period is a deficit, less 100% of such deficit), plus

                           (b)      100% of the aggregate net cash proceeds
         received by the Company since the date of this Indenture as a
         contribution to its common equity capital or from the issue or sale of
         Equity Interests of the Company (other than Disqualified Stock) or from
         the issue or sale of convertible or exchangeable Disqualified Stock or
         convertible or exchangeable debt securities of the Company that have
         been converted into or exchanged for such Equity Interests (other than
         Equity Interests (or Disqualified Stock or debt securities) sold to a
         Subsidiary of the Company), plus

                           (c)      to the extent that any Restricted Investment
         that was made after the date of this Indenture is sold for cash or
         otherwise liquidated or repaid for cash, the lesser of (i) the cash
         return of capital with respect to such Restricted Investment (less the
         cost of disposition, if any) and (ii) the initial amount of such
         Restricted Investment, plus

                           (d)      to the extent that any Unrestricted
         Subsidiary of the Company designated as such after the date of this
         Indenture is redesignated as a Restricted Subsidiary after the date of
         this Indenture, the Fair Market Value of the Company's Investment in
         such Subsidiary as of the date of such redesignation, plus

                                       48



                           (e)      100% of any payments of interest on
         Indebtedness, dividends, repayments of loans or advances, or other
         transfers of assets received by the Company or a Restricted Subsidiary
         of the Company after the date of this Indenture from an Unrestricted
         Subsidiary of the Company, to the extent that such payments, dividends,
         repayments or transfers were not otherwise included in Consolidated Net
         Income of the Company for such period, plus

                           (f)      $628.3 million.

                  The preceding provisions shall not prohibit:

                  (1)      the payment of any dividend within 60 days after the
         date of declaration of the dividend, if at the date of declaration the
         dividend payment would have complied with the provisions of this
         Indenture;

                  (2)      the making of any Restricted Payment in exchange for,
         or out of the net cash proceeds of the substantially concurrent sale
         (other than to a Subsidiary of the Company) of, Equity Interests of the
         Company (other than Disqualified Stock) or from the substantially
         concurrent contribution of common equity capital to the Company;
         provided that the amount of any such net cash proceeds that are
         utilized for any such Restricted Payment shall be excluded from clause
         (3)(b) of the preceding paragraph;

                  (3)      the defeasance, redemption, repurchase or other
         acquisition of Indebtedness of the Company that is contractually
         subordinated to the Notes with the net cash proceeds from a
         substantially concurrent incurrence of Permitted Refinancing
         Indebtedness, so long as no Default has occurred and is continuing or
         would be caused thereby;

                  (4)      the payment of any dividend (or, in the case of any
         partnership or limited liability company, any similar distribution) by
         a Restricted Subsidiary of the Company to the holders of any class or
         series of such Restricted Subsidiary's Equity Interests on a pro rata
         basis;

                  (5)      the repurchase, redemption or other acquisition or
         retirement for value of any Equity Interests of the Company or any
         Restricted Subsidiary of the Company held by any current or former
         officer, direct or employee of the Company (or any of its Restricted
         Subsidiaries) pursuant to any equity subscription agreement, stock
         option agreement, shareholders' agreement or similar agreement;
         provided that the aggregate price paid for all such repurchased,
         redeemed, acquired or retired Equity Interests may not exceed $5.0
         million in any twelve-month period, so long as no Default has occurred
         and is continuing or would be caused thereby;

                  (6)      the repurchase of Equity Interests deemed to occur
         upon the exercise of stock options to the extent such Equity Interests
         represent a portion of the exercise price of those stock options;

                  (7)      the declaration and payment of dividends to holders
         of any class or series of Disqualified Stock of the Company or any
         Restricted Subsidiary of the Company issued on or after the date of
         this Indenture in accordance with the Fixed Charge Coverage test
         described under Section 4.09 herein; provided that no Default has
         occurred and is continuing or would be caused thereby (other than any
         Default or Event of Default that is cured as a result of such
         Restricted Payment); and

                                       49



                  (8)      any purchase, redemption, defeasance or other
         acquisition or retirement for value of subordinated Indebtedness upon a
         Change of Control or an Asset Sale to the extent required by this
         Indenture or other agreement pursuant to which such subordinated
         Indebtedness was issued, but only if the Company (a) in the case of a
         Change of Control, has made an offer to repurchase the Notes as
         described under Section 4.15 herein or (b) in the case of an Asset
         Sale, has applied the Net Proceeds from such Asset Sale in accordance
         with the provisions described under Section 4.10 herein, so long as no
         Default has occurred and is continuing or would be caused thereby.

         (b)      The amount of all Restricted Payments (other than cash) shall
be the Fair Market Value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.

Section 4.08      Dividend and Other Payment Restrictions Affecting
Subsidiaries.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or permit to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:

                  (1)      pay dividends or make any other distributions on its
         Capital Stock to the Company or any of its Restricted Subsidiaries, or
         with respect to any other interest or participation in, or measured by,
         its profits, or pay any indebtedness owed to the Company or any of its
         Restricted Subsidiaries;

                  (2)      make loans or advances to the Company or any of its
         Restricted Subsidiaries; or

                  (3)      transfer any of its properties or assets to the
         Company or any of its Restricted Subsidiaries.

         However, the preceding restrictions shall not apply to encumbrances or
restrictions existing under or by reason of:

                  (1)      agreements governing Existing Indebtedness and Credit
         Facilities as in effect on the date of this Indenture and any
         amendments, modifications, restatements, renewals, increases,
         supplements, refundings, replacements or refinancings of those
         agreements; provided that the amendments, modifications, restatements,
         renewals, increases, supplements, refundings, replacements or
         refinancings are no more restrictive, taken as a whole, with respect to
         such dividend and other payment restrictions than those contained in
         those agreements on the date of this Indenture;

                  (2)      this Indenture, the Notes, the 2007 Notes and the
         indenture governing such notes, the 2010 Notes and the indenture
         governing such notes and the Term Loan Agreement or any other indenture
         governing letters of credit, loans or debt securities issued by or on
         behalf of the Company that are no more restrictive, taken as a whole,
         with respect to such dividend, distribution or other payment
         restrictions and loan or investment restrictions than those contained
         in this Indenture, the Notes, the 2007 Notes and the indenture
         governing such notes, the 2010 Notes and the indenture governing such
         notes and the Term Loan Agreement as in effect on the date of this
         Indenture;

                  (3)      applicable law, rule, regulation or order;

                                       50



                  (4)      customary non-assignment provisions in leases,
         contracts and licenses entered into in the ordinary course of business
         and consistent with past practices;

                  (5)      purchase money obligations for property acquired in
         the ordinary course of business and Capital Lease Obligations that
         impose restrictions on the property purchased or leased of the nature
         described in clause (3) of Section 4.08(a);

                  (6)      any agreement for the sale or other disposition of a
         Restricted Subsidiary that restricts distributions by that Restricted
         Subsidiary pending the sale or other disposition;

                  (7)      Permitted Refinancing Indebtedness; provided that the
         restrictions contained in the agreements governing such Permitted
         Refinancing Indebtedness are not materially more restrictive, taken as
         a whole, than those contained in the agreements governing the
         Indebtedness being refinanced;

                  (8)      Liens securing Indebtedness otherwise permitted to be
         incurred under the provisions of Section 4.12 herein that limit the
         right of the debtor to dispose of the assets subject to such Liens;

                  (9)      provisions limiting or prohibiting the disposition or
         distribution of assets or property in joint venture agreements, asset
         sale agreements, sale-leaseback agreements, stock sale agreements and
         other similar agreements entered into with the approval of the
         Company's Board of Directors, which limitation or prohibition is
         applicable only to the assets that are the subject of such agreements;

                  (10)     any encumbrance or restriction imposed pursuant to
         the terms of any Non-Recourse Debt incurred pursuant to clause (6) of
         the definition of Permitted Debt or any preferred stock issued pursuant
         to clause (7) of the definition of Permitted Debt; provided that such
         encumbrance or restriction, in the written opinion of the President,
         Vice Chairman, Chief Operating Officer or Chief Financial Officer of
         the Company, (x) is required in order to obtain such financing or to
         place such preferred stock, (y) is customary for such financings or
         placements and (z) applies only to the assets or revenues of the
         applicable Restricted Subsidiary;

                  (11)     any encumbrance or restriction with respect to a
         Restricted Subsidiary pursuant to an agreement relating to any Acquired
         Debt incurred pursuant to clause (10) of the definition of Permitted
         Debt; provided that such encumbrance or restriction was not incurred in
         connection with or in contemplation of such Restricted Subsidiary
         becoming a Restricted Subsidiary; and

                  (12)     restrictions on cash or other deposits or net worth
         imposed by customers or suppliers under contracts entered into in the
         ordinary course of business.

Section 4.09      Incurrence of Indebtedness and Issuance of Preferred Stock.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), and the Company shall not issue any
Disqualified Stock and shall not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue Disqualified Stock if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such

                                       51



Disqualified Stock is issued would have been at least 2.0 to 1, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.

         (b)      Section 4.09(a) shall not prohibit the incurrence of any of
the following items (collectively, "Permitted Debt"):

                  (1)      the incurrence by the Company and the Guarantee by
         the Canadian Guarantors of additional Indebtedness and letters of
         credit under Credit Facilities in an aggregate principal amount at any
         one time outstanding under this clause (1) (with letters of credit
         being deemed to have a principal amount equal to the maximum potential
         liability of the Company thereunder) not to exceed on any date of
         incurrence the greater of (A) $500.0 million or (B) the dollar amount
         that is equal to 50% of the Company's Consolidated Cash Flow for the
         then most recent four-quarter period for which financial information is
         available;

                  (2)      the incurrence by the Company and its Restricted
         Subsidiaries of the Existing Indebtedness;

                  (3)      the incurrence by the Company and the Canadian
         Guarantors of Indebtedness represented by the Notes, the 2007 Notes,
         the 2010 Notes and the Term Loans to be issued on the date of this
         Indenture, and in each case the related Guarantees;

                  (4)      the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness represented by Capital Lease
         Obligations, mortgage financings or purchase money obligations, in each
         case, incurred for the purpose of financing all or any part of the
         purchase price or cost of design, construction, installation or
         improvement of property, plant or equipment used in the business of the
         Company or any of its Restricted Subsidiaries, in an aggregate
         principal amount (or accreted value, as applicable), including all
         Permitted Refinancing Indebtedness incurred to extend, refund,
         refinance, renew, replace or defease any Indebtedness incurred pursuant
         to this clause (4), not to exceed $100.0 million at any one time
         outstanding;

                  (5)      Indebtedness of the Company which is owed to and
         owned by a Restricted Subsidiary and Indebtedness of a Restricted
         Subsidiary that is owed to and owned by the Company or a Restricted
         Subsidiary; provided that any subsequent issuance or transfer of any
         Capital Stock that results in any such Restricted Subsidiary ceasing to
         be a Restricted Subsidiary or any transfer of such Indebtedness (other
         than to the Company or a Restricted Subsidiary) shall be deemed, in
         each case, to constitute the incurrence of such Indebtedness by the
         Company or by a Restricted Subsidiary, as the case may be;

                  (6)      the incurrence of Non-Recourse Debt by any Restricted
         Subsidiary of the Company (other than a Restricted Subsidiary that
         owns, directly or indirectly, any Material Designated Assets);

                  (7)      the issuance of preferred stock by a Restricted
         Subsidiary of the Company (other than a Restricted Subsidiary that
         owns, directly or indirectly, any Material Designated Assets), the net
         proceeds of which are applied to finance the exploration, drilling,
         development, construction or purchase of or by, or repairs or
         improvements or additions to, property or assets of the Company or any
         Restricted Subsidiary;

                                       52



                  (8)      the incurrence by the Company of Guarantees of
         Indebtedness of Restricted Subsidiaries which, but for such Guarantees,
         would be permitted to be incurred pursuant to clause (6) of Section
         4.09 (b); provided that the aggregate principal amount of Indebtedness
         incurred pursuant to this clause (8) does not exceed $100.0 million at
         any one time outstanding;

                  (9)      the incurrence by the Company or any of its
         Restricted Subsidiaries of Permitted Refinancing Indebtedness in
         exchange for, or the net proceeds of which are used to refund,
         refinance, replace, defease or discharge Indebtedness (other than
         intercompany Indebtedness) that was permitted by this Indenture to be
         incurred under Section 4.09(a) or clauses (2), (3), (4), (5), (6), (8)
         or (10) of this Section 4.09(b) or this clause (9);

                  (10)     the incurrence of Acquired Debt by any Restricted
         Subsidiary of the Company at the time such Restricted Subsidiary
         becomes a Restricted Subsidiary of the Company so long as such Acquired
         Debt was not incurred in connection with or in contemplation of such
         Person becoming a Restricted Subsidiary of the Company; provided that
         the Company would have been able to incur such Indebtedness at the time
         of incurrence thereof by the Restricted Subsidiary pursuant to Section
         4.09 (a);

                  (11)     the incurrence of Indebtedness pursuant to Hedging
         Obligations incurred in the ordinary course of business and not for
         speculative purposes;

                  (12)     the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness in respect of workers'
         compensation claims, self-insurance obligations, bankers' acceptances
         and performance and surety bonds in the ordinary course of business;

                  (13)     the incurrence by the Company or any of its
         Restricted Subsidiaries of Indebtedness arising from the honoring by a
         bank or other financial institution of a check, draft or similar
         instrument inadvertently drawn against insufficient funds, so long as
         such Indebtedness is covered within five business days;

                  (14)     the incurrence by any Restricted Subsidiary of
         Indebtedness represented by letters of credit (or Guarantees thereof)
         entered into in the ordinary course of business to the extent that such
         letters of credit are not drawn upon or, if and to the extent drawn
         upon, such drawing is reimbursed no later than the tenth Business Day
         following a demand for reimbursement following payment on the letter of
         credit; provided that such letters of credit shall not constitute
         Permitted Debt pursuant to this clause (14) if they are issued in
         support of Indebtedness;

                  (15)     the incurrence of Indebtedness by the Company
         represented by letters of credit cash collateralized with the proceeds
         of Priority Lien Debt; and

                  (16)     the incurrence by the Company or any of its
         Restricted Subsidiaries of additional Indebtedness in an aggregate
         principal amount (or accreted value, as applicable) at any time
         outstanding, including all Permitted Refinancing Indebtedness incurred
         to extend, refinance, renew, replace, defease or refund any
         Indebtedness incurred pursuant to this clause (16), not to exceed
         $100.0 million.

         The Company shall not incur and shall not permit any Guarantor to
incur, any Indebtedness (including Permitted Debt) that is contractually
subordinated in right of payment to any other Indebtedness of the Company or
such Guarantor unless such Indebtedness is also contractually subordinated in
right of payment to the Notes (and the Applicable Guarantee) and the Term Loans
on

                                       53



substantially identical terms; provided, however, that no Indebtedness of the
Company shall be deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Company solely by virtue of being unsecured or by
virtue of being secured on a junior basis.

Section 4.10      Asset Sales.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale (including a Sale of
Designated Assets) unless:

                  (1)      the Company (or the Restricted Subsidiary, as the
         case may be) receives consideration at the time of the Asset Sale at
         least equal to the Fair Market Value of the assets or Equity Interests
         issued or sold or otherwise disposed of;

                  (2)      at least 75% of the consideration received in the
         Asset Sale by the Company or such Restricted Subsidiary is in the form
         of cash or Cash Equivalents. For purposes of this provision, each of
         the following shall be deemed to be cash:

                           (A)      any liabilities, as shown on the Company's
                  most recent consolidated balance sheet, of the Company or any
                  Restricted Subsidiary (other than contingent liabilities and
                  liabilities that are by their terms subordinated to the Notes)
                  that are assumed by the transferee of any such assets pursuant
                  to a customary novation or similar agreement that releases the
                  Company or such Restricted Subsidiary from further liability;

                           (B)      any securities, notes or other obligations
                  received by the Company or any such Restricted Subsidiary from
                  such transferee that are promptly, subject to ordinary
                  settlement periods, converted by the Company or such
                  Restricted Subsidiary into cash, to the extent of the cash
                  received in that conversion; and

                           (C)      except in the case of a Sale of Designated
                  Assets, any stock or assets of the kind referred to in clauses
                  (4) or (6) of Section 4.10(b); and

                  (3)      in the case of a Sale of Designated Assets other than
         Canadian Gas Assets, the Company (or the Restricted Subsidiary, as the
         case may be) shall deposit the Net Proceeds as cash collateral in a
         segregated account (a "Designated Asset Sale Proceeds Account") held by
         the Collateral Trustee or its agent to secure the Secured Obligations;
         provided, that for so long as the terms of any of the Company's senior
         unsecured notes that were issued prior to August 10, 2000 would prevent
         such a pledge by a Restricted Subsidiary, the Company shall deposit
         with the Collateral Trustee or its agent an amount of cash equal to the
         Net Proceeds as cash collateral to secure the Secured Obligations, and
         the applicable Restricted Subsidiary shall not be obligated to do so.

         (b)      Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, other than a Sale of Designated Assets that are not Canadian Gas
Assets, the Company (or the applicable Restricted Subsidiary, as the case may
be) may apply those Net Proceeds:

                  (1)      to repay Priority Lien Debt and/or cash collateralize
         letters of credit constituting Priority Lien Debt;

                  (2)      in the case of an Asset Sale by a Restricted
         Subsidiary, to repay or repurchase Indebtedness of Calpine Canada
         Energy Finance ULC and/or Calpine Canada Energy Finance II ULC existing
         on the date of this Indenture;

                                       54



                  (3)      in the case of an Asset Sale by a Restricted
         Subsidiary, to repay or repurchase Indebtedness of any Restricted
         Subsidiary and, if such Indebtedness is revolving credit Indebtedness,
         to correspondingly reduce commitments with respect thereto;

                  (4)      to acquire all or substantially all of the assets of,
         or any Capital Stock of, another Permitted Business, if, after giving
         effect to any such acquisition of Capital Stock, the Permitted Business
         is or becomes a Restricted Subsidiary of the Company;

                  (5)      to make a capital expenditure; or

                  (6)      to acquire other assets that are not classified as
         current assets under GAAP and that are used or useful in a Permitted
         Business.

         (c)      Within 180 days after the receipt of any Net Proceeds from an
Asset Sale that constitutes a Sale of Designated Assets other than Canadian Gas
Assets, the Company (or the Restricted Subsidiary that disposed of those
Designated Assets, as the case may be) may apply those Net Proceeds to purchase
other assets that would constitute Designated Assets or to repay Priority Lien
Debt and/or cash collateralize letters of credit constituting Priority Lien Debt
and, if such Priority Lien Debt is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto.

         (d)      Any Net Proceeds from Asset Sales (including Sales of
Designated Assets) that are not applied or invested as provided in the preceding
clauses of this Section 4.10 shall constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $50.0 million, or at such earlier
point as may be elected by the Company, the Company shall make an offer to all
holders of the Notes and all holders of other Indebtedness that is pari passu
with the Notes and equally and ratably secured with the Notes containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets, including the 2007
Notes, the 2010 Notes, the Term Loans and each series of Existing Indebtedness
that contains similar asset sale provisions, when applicable (an "Asset Sale
Offer"), to purchase or redeem the maximum principal amount of notes and such
other pari passu Indebtedness that may be purchased or redeemed out of the
Excess Proceeds (including each series of Existing Indebtedness that contains
similar asset sale provisions). The offer price in any Asset Sale Offer shall be
equal to 100% of principal amount plus accrued and unpaid interest, if any, to
the date of purchase, and shall be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use those
Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If
the aggregate principal amount of notes and other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
Company shall select the Notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.

         (e)      Notwithstanding the foregoing, to the extent that any or all
of the Net Proceeds of any Foreign Asset Sale is prohibited or delayed by
applicable local law from being repatriated to the United States, the portion of
such Net Proceeds so affected shall not be required to be applied at the time
provided above, but may be retained by the applicable Restricted Subsidiary so
long, but only so long, as the applicable local law shall not permit
repatriation to the United States. The Company shall promptly take or cause the
applicable Restricted Subsidiary to promptly take all actions required by the
applicable local law to permit such repatriation. Once such repatriation of any
of the affected Net Proceeds is permitted under the applicable local law, the
repatriation shall be immediately effected and the repatriated Net Proceeds
shall be applied in the manner set forth in this Section 4.10 as if the Asset
Sale had occurred on the date of such repatriation.

                                       55



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

         (g)      The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Asset Sale provisions of this Indenture by virtue of such
conflict.

Section 4.11      Transactions with Affiliates.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of the Company (each, an "Affiliate Transaction"),
unless:

                  (1)      the Affiliate Transaction is on terms that are no
         less favorable to the Company or the relevant Restricted Subsidiary
         than those that would have been obtained in a comparable transaction by
         the Company or such Restricted Subsidiary with an unrelated Person; and

                  (2)      the Company delivers to the Trustee:

                           (a)      with respect to any Affiliate Transaction or
         series of related Affiliate Transactions involving aggregate
         consideration in excess of $2.5 million, an officers' certificate
         certifying that such Affiliate Transaction complies with this Section
         4.11(a); and

                           (b)      with respect to any Affiliate Transaction or
         series of related Affiliate Transactions involving aggregate
         consideration in excess of $10.0 million, a resolution of the Board of
         Directors set forth in an officers' certificate certifying that such
         Affiliate Transaction complies with this Section 4.11 and that such
         Affiliate Transaction has been approved by a majority of the
         disinterested members of the Board of Directors or, if there are no
         disinterested members of the Board of Directors, the Board of Directors
         shall have received a written opinion of an accounting, appraisal or
         investment banking firm of national standing stating that such
         Affiliate Transaction or series of Affiliate Transactions is fair to
         the Company or such Restricted Subsidiary from a financial point of
         view.

         (b)      The following items shall not be deemed to be Affiliate
Transactions and, therefore, shall not be subject to the provisions of Section
4.11(a):

                  (1)      any employment agreement, employee benefit plan,
         stock option plan, officer and director indemnification agreement or
         any similar arrangement entered into by the Company or any of its
         Restricted Subsidiaries in the ordinary course of business;

                  (2)      transactions between or among the Company and its
         Restricted Subsidiaries and between or among the Company's Restricted
         Subsidiaries;

                                       56



                  (3)      transactions with a Person (other than an
         Unrestricted Subsidiary of the Company) that is an Affiliate of the
         Company solely because the Company owns, directly or through a
         Restricted Subsidiary, an Equity Interest in, or controls, such Person;

                  (4)      payment of reasonable directors' fees to Persons who
         are not otherwise Affiliates of the Company;

                  (5)      any issuance of Equity Interests (other than
         Disqualified Stock) of the Company to Affiliates of the Company;

                  (6)      Restricted Payments that do not violate the
         provisions of Section 4.07 hereof;

                  (7)      loans or advances to employees in the ordinary course
         of business;

                  (8)      any repurchase, redemption or other retirement of
         Capital Stock of the Company held by employees of the Company or any of
         its Subsidiaries upon death, disability or termination of employment at
         a price not in excess of the Fair Market Value thereof approved by the
         Board of Directors;

                  (9)      any transaction between or among the Company and any
         of its Subsidiaries in the ordinary course of business and consistent
         with past practices of the Company and its Subsidiaries; and

                  (10)     any agreement to do any of the foregoing.

         (c)      Any transaction which has been determined, in the written
opinion of an independent nationally recognized investment banking firm, to be
fair, from a financial point of view, to the Company or the applicable
Restricted Subsidiary shall be deemed to be in compliance with this Section
4.11.

Section 4.12      Liens.

         (a)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind on any asset now owned or hereafter
acquired, except Permitted Liens.

         (b)      The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, grant or permit to exist a Lien upon any property
(whether then held by it or to be acquired by it at a future time) as security
for any Priority Lien Debt, unless (1) such Lien secures all Priority Lien Debt
on an equal and ratable basis and (2) the Collateral Trustee holds an
enforceable and perfected Lien upon such property as security equally and
ratably for all Parity Lien Obligations in second priority to Priority Lien
Debt.

Section 4.13      Limitation on Changes in the Nature of the Business.

         The Company and its Restricted Subsidiaries shall engage only in
Permitted Businesses, except to such extent as would not be material to the
Company and its Restricted Subsidiaries taken as a whole. In addition, the
Company will, and shall cause its Subsidiaries, to conduct their respective
businesses in a manner so as to maintain the exemption of the Company and its
Subsidiaries from treatment as a public utility holding company under PUHCA or
an electric utility or public utility under any federal, state or local law;
provided to the extent that any such law is amended following the date of this
Indenture in such a manner that would (absent application of this proviso) make
non-compliance with this Section 4.13 not result in a material adverse effect on
the Company's results of operations or financial condition, then the

                                       57



Company shall not be required to comply with this Section 4.13, but only to the
extent of actions or failures to act that would (absent application of this
Section 4.13) constitute violations of this Section 4.13 solely as a result of
such amendment.

Section 4.14      Corporate Existence.

         Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect:

                  (1)      its corporate existence, and the corporate,
         partnership or other existence of each of its Subsidiaries, in
         accordance with the respective organizational documents (as the same
         may be amended from time to time) of the Company or any such
         Subsidiary; and

                  (2)      the rights (charter and statutory), licenses and
         franchises of the Company and its Subsidiaries; provided, however, that
         the Company shall not be required to preserve any such right, license
         or franchise, or the corporate, partnership or other existence of any
         of its Subsidiaries, if the Board of Directors shall determine that the
         preservation thereof is no longer desirable in the conduct of the
         business of the Company and its Subsidiaries, taken as a whole, and
         that the loss thereof is not adverse in any material respect to the
         Holders of the Notes.

Section 4.15      Offer to Repurchase Upon Change of Control.

         (a)      If a Change of Control occurs, each holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple of $1,000) of that holder's Notes pursuant to the offer
described below (the "Change of Control Offer") on the terms set forth in this
Indenture. In the Change of Control Offer, the Company shall offer a payment in
cash equal to 101% of the aggregate principal amount of Notes repurchased plus
accrued and unpaid interest, if any, on the Notes repurchased (the "Change of
Control Payment"), to but excluding the date of purchase. Within 30 days
following any Change of Control, the Company shall mail a notice to each holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Notes on the change of control payment date (the
"Change of Control Payment Date") specified in the notice, which date shall be
no earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by this Indenture and described in
such notice. The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change of
Control provisions of this Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Change of Control provisions of this
Indenture by virtue of such compliance.

         (b)      On the Change of Control Payment Date, the Company will, to
the extent lawful:

                  (1)      accept for payment all Notes or portions of Notes
         properly tendered pursuant to the Change of Control Offer;

                  (2)      deposit with the paying agent an amount equal to the
         Change of Control Payment in respect of all Notes or portions of Notes
         properly tendered; and

                                       58



                  (3)      deliver or cause to be delivered to the trustee the
         Notes properly accepted together with an officers' certificate stating
         the aggregate principal amount of Notes or portions of Notes being
         purchased by the Company.

                  The paying agent shall promptly mail to each holder of Notes
properly tendered the Change of Control Payment for such Notes, and the Trustee
upon receipt of an Authentication Order from the Company shall promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each new note shall be in a principal amount
of $1,000 or an integral multiple of $1,000. The Company shall publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.

         (c)      The Company shall not be required to make a Change of Control
Offer upon a Change of Control if (1) a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all Notes properly tendered and not withdrawn
under the Change of Control Offer, or (2) notice of redemption has been given
pursuant to Section 3.07 herein, unless and until there is a default in payment
of the applicable redemption price.

Section 4.16      Limitation on Sale and Leaseback Transactions.

         (a)      The Company shall not enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if:

                  (1)      the Company could have (a) incurred Indebtedness in
         an amount equal to the Attributable Debt relating to such sale and
         leaseback transaction under the Fixed Charge Coverage Ratio test in
         Section 4.09 (a) herein and (b) incurred a Lien to secure such
         Indebtedness pursuant to Section 4.12 herein;

                  (2)      the gross cash proceeds of that sale and leaseback
         transaction are at least equal to the Fair Market Value, as determined
         in good faith by the Board of Directors and set forth in an officers'
         certificate delivered to the Trustee, of the property that is the
         subject of that sale and leaseback transaction; and

                  (3)      the transfer of assets in that sale and leaseback
         transaction is permitted by, and the Company applies the proceeds of
         such transaction in compliance with, Section 4.10 herein.

         (b)      This Section 4.16 shall not apply to the Company's
Subsidiaries.

Section 4.17      Limitation on Issuances of Guarantees of Indebtedness.

         The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company (other than the Existing Guarantees by
the Canadian Guarantors) unless such Restricted Subsidiary simultaneously
executes and delivers (1) supplemental indentures providing for the Guarantees
of the payment of the Notes by such Restricted Subsidiary, which Guarantees
shall be senior to such Restricted Subsidiary's Guarantee of or pledge to secure
such other Indebtedness unless the Indebtedness of the Company so Guaranteed or
secured is senior Indebtedness of the Company, in which case the Guarantees of
the Notes may be pari passu with such Restricted Subsidiary's Guarantee of or
pledge to secure such other Indebtedness of the Company, and (2) a pledge or
security agreement providing for a pledge of such

                                       59



assets to secure the Notes and all other Parity Lien Debt on an equal and
ratable basis (subject only to Permitted Prior Liens).

Section 4.18      Payments for Consent.

         The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
the Notes the 2007 Notes, the 2010 Notes or the Term Loans for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture, the Notes, the 2007 Notes, the 2010 Notes, the Term Loans,
the Term Loan Agreement or any Security Documents unless such consideration is
offered to be paid or agreed to be paid to all holders of such notes and/or Term
Loans that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.

Section 4.19      Designation of Restricted and Unrestricted Subsidiaries.

         The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
Fair Market Value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be
deemed to be an Investment made as of the time of the designation and shall
reduce the remaining amount available for Restricted Payments under Section 4.07
herein or under one or more clauses of the definition of Permitted Investments,
as determined by the Company. That designation shall only be permitted if the
Investment would be permitted at that time and if the Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if that redesignation would not cause a Default.

Section 4.20      Changes in Covenant When Notes Rated Investment Grade.

         If on any date following the date of this Indenture:

                  (1)      any series of the notes is rated Baa3 or better by
         Moody's and BBB- or better by S&P; and

                  (2)      no Default or Event of Default shall have occurred
         and be continuing, then, beginning on that day and subject to the
         provisions of the following paragraph, the provisions of Section 4.07,
         4.08, 4.09, 4.10, 4.11, 4.13, 4.19 and clause (4) of Section 5.01
         hereof shall be suspended.

         Notwithstanding the foregoing, if the rating assigned by either such
rating agency should subsequently decline to below Baa3 or BBB-, respectively,
the foregoing provisions shall be reinstituted as of and from the date of such
rating decline. Calculations under the reinstated Section 4.07 shall be made as
if Section 4.07 had been in effect since the date of this Indenture except that
no default shall be deemed to have occurred solely by reason of a Restricted
Payment made while that Section 4.07 was suspended. These covenant suspension
provisions shall continue to be applicable following any such reinstatement. The
Company shall notify the Trustee if any covenants are suspended or reinstated
pursuant to this Section 4.20.

                                       60



                                   ARTICLE 5.
                                   SUCCESSORS

Section 5.01      Merger, Consolidation, or Sale of Assets.

         The Company may not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:

                  (1)      either:

                           (A)      the Company is the surviving corporation; or

                           (B)      the Person formed by or surviving any such
                  consolidation or merger (if other than the Company) or to
                  which such sale, assignment, transfer, conveyance or other
                  disposition has been made is a corporation organized or
                  existing under the laws of the United States, any state of the
                  United States or the District of Columbia;

                  (2)      the Person formed by or surviving any such
         consolidation or merger (if other than the Company) or the Person to
         which such sale, assignment, transfer, conveyance or other disposition
         has been made assumes all the obligations of the Company under the
         Notes, this Indenture, and the Security Documents pursuant to
         agreements reasonably satisfactory to the Trustee and the Collateral
         Trustee;

                  (3)      immediately after such transaction, no Default or
         Event of Default exists;

                  (4)      the Company or the Person formed by or surviving any
         such consolidation or merger (if other than the Company), or to which
         such sale, assignment, transfer, conveyance or other disposition has
         been made:

                           (A)      shall have Consolidated Net Worth
                  immediately after the transaction equal to or greater than the
                  Consolidated Net Worth of the Company immediately preceding
                  the transaction; and

                           (B)      will, on the date of such transaction after
                  giving pro forma effect thereto and any related financing
                  transactions as if the same had occurred at the beginning of
                  the applicable four-quarter period, be permitted to incur at
                  least $1.00 of additional Indebtedness pursuant to the Fixed
                  Charge Coverage Ratio test set forth in Section 4.09(a)
                  herein; and

                  (5)      such transaction shall not impair the ability of the
         Company or any of its Subsidiaries to conduct their respective
         businesses in a manner so as to maintain the exemption of the Company
         and its Subsidiaries from treatment as a public utility holding company
         under PUHCA or an electric utility or public utility under any federal,
         state or local law, unless such exemption is no longer material to the
         Company and its Restricted Subsidiaries taken as a whole or to the
         Person formed by or surviving any such consolidation or merger (if
         other then the Company) and its Restricted Subsidiaries taken as a
         whole.

         In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.

                                       61



         Notwithstanding the foregoing:

                  (1)      the Company may merge with an Affiliate solely for
         the purpose of reincorporating the Company in another jurisdiction; and

                  (2)      the Company and its Restricted Subsidiaries may sell,
         assign, transfer, lease, convey or otherwise dispose of assets between
         or among each other (including by way of merger).

Section 5.02      Successor Corporation Substituted.

         Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in a transaction that is subject to, and that complies with the
provisions of, Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets in a transaction that is subject to, and that complies with
the provisions of, Section 5.01 hereof.

                                   ARTICLE 6.
                              DEFAULTS AND REMEDIES

Section 6.01      Events of Default.

         Each of the following is an "Event of Default":

                  (1)      default for 30 days in the payment when due of
         interest on the Notes;

                  (2)      default in payment when due of the principal of, or
         premium, if any, on the Notes;

                  (3)      failure to purchase the Notes when required pursuant
         to Section 4.10, 4.15 or otherwise as required pursuant to this
         Indenture or the Notes;

                  (4)      failure by the Company or any of its Restricted
         Subsidiaries for 30 days after written notice from the Trustee or the
         holders of at least 25% in outstanding aggregate principal amount of
         that series of notes to comply with any of the other agreements in this
         Indenture, the Notes or the Security Documents;

                  (5)      default under any mortgage, indenture or instrument
         under which there may be issued or by which there may be secured or
         evidenced any Indebtedness for money borrowed by the Company or any of
         its Restricted Subsidiaries (or the payment of which is guaranteed by
         the Company or any of its Restricted Subsidiaries) whether such
         Indebtedness or guarantee now exists, or is created after the date of
         this Indenture, if that default:

                                       62



                           (a)      is caused by a failure to pay principal of,
         or interest or premium, if any, on such Indebtedness prior to the
         expiration of the grace period provided in such Indebtedness on the
         date of such default (a "Payment Default"); or

                           (b)      results in the acceleration of such
         Indebtedness prior to its express maturity,

         and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $50.0 million or more, and such default shall not have
been cured or waived or any such acceleration rescinded, or such Indebtedness
repaid, within 20 days of the Company or such Restricted Subsidiary becoming
aware of such default; provided that the provisions of this clause (5) shall not
apply to any default on Non-Recourse Debt;

                  (6)      failure by the Company or any of its Significant
         Subsidiaries to pay final judgments (not covered by insurance)
         aggregating in excess of $50.0 million, which judgments are not paid,
         discharged or stayed for a period of 30 days;

                  (7)      the repudiation by the Company or any of its
         Restricted Subsidiaries of any of its obligations under the Security
         Documents or the unenforceability of the Security Documents against the
         Company or any of its Restricted Subsidiaries for any reason; provided
         that such breach, repudiation or unenforceability relates to Collateral
         having an aggregate Fair Market Value of $50.0 million or more;

                  (8)      except as permitted by this Indenture, any note
         Guarantee shall be held in any judicial proceeding to be unenforceable
         or invalid or shall cease for any reason to be in full force and effect
         or any Canadian Guarantor, or any Person acting on behalf of any
         Canadian Guarantor, shall deny or disaffirm its obligations under its
         note Guarantee and such condition shall not have been cured within 30
         days of written notice from the Trustee or the holders of at least 25%
         in outstanding aggregate principal amount of the Notes; and

                  (9)      the Company or any of its Significant Subsidiaries or
         any group of Subsidiaries that, taken as a whole, would constitute a
         Significant Subsidiary pursuant to or within the meaning of Bankruptcy
         Law:

                           (A)      commences a voluntary case,

                           (B)      consents to the entry of an order for relief
                  against it in an involuntary case,

                           (C)      consents to the appointment of a custodian
                  of it or for all or substantially all of its property,

                           (D)      makes a general assignment for the benefit
                  of its creditors, or

                           (E)      generally is not paying its debts as they
                  become due; and

         (10)     a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

                                       63



                           (A)      is for relief against the Company or any of
                  its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary in an involuntary case;

                           (B)      appoints a custodian of the Company or any
                  of its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary or for all or substantially all of the property of
                  the Company or any of its Significant Subsidiaries or any
                  group of Subsidiaries that, taken as a whole, would constitute
                  a Significant Subsidiary; or

                           (C)      orders the liquidation of the Company or any
                  of its Significant Subsidiaries or any group of Subsidiaries
                  that, taken as a whole, would constitute a Significant
                  Subsidiary;

                  and the order or decree remains unstayed and in effect for 60
                  consecutive days.

Section 6.02      Acceleration.

         In the case of an Event of Default specified in clause (9) or (10) of
Section 6.01 hereof, with respect to the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary, all outstanding Notes shall become due and
payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately.

         Upon any such declaration, the Notes shall become due and payable
immediately. Notwithstanding the foregoing, if an Event of Default specified in
clause (9) of Section 6.01 hereof occurs with respect to the Company, any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.

         If an Event of Default occurs on or after July 15, 2008 by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to July 15, 2008
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on July 15 of the years
set forth below, as set forth below (expressed as a percentage of the principal
amount of the Notes on the date of payment that would otherwise be due but for
the provisions of this sentence):

                                       64





YEAR                                                                                 PERCENTAGE
- ----                                                                                 ----------
                                                                                  
2003.............................................................................      8.750%
2004.............................................................................      7.875%
2005.............................................................................      7.000%
2006.............................................................................      6.125%
2007.............................................................................      5.250%


Section 6.03      Other Remedies.

         If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.

         The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.

Section 6.04      Waiver of Past Defaults.

         Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on, the Notes
(including in connection with an offer to purchase); provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.

Section 6.05      Control by Majority.

         Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.

Section 6.06      Limitation on Suits.

         A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:

                  (1)      the Holder of a Note gives to the Trustee written
         notice of a continuing Event of Default;

                  (2)      the Holders of at least 25% in principal amount of
         the then outstanding Notes make a written request to the Trustee to
         pursue the remedy;

                  (3)      such Holder of a Note or Holders of Notes offer and,
         if requested, provide to the Trustee indemnity satisfactory to the
         Trustee against any loss, liability or expense;

                                       65



                  (4)      the Trustee does not comply with the request within
         60 days after receipt of the request and the offer and, if requested,
         the provision of indemnity; and

                  (5)      during such 60-day period the Holders of a majority
         in principal amount of the then outstanding Notes do not give the
         Trustee a direction inconsistent with the request.

         A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.

Section 6.07      Rights of Holders of Notes to Receive Payment.

         Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder; provided that a Holder
shall not have the right to institute any such suit for the enforcement of
payment if and to the extent that the institution or prosecution thereof or the
entry of judgment therein would, under applicable law, result in the surrender,
impairment, waiver or loss of the Lien of this Indenture upon any property
subject to such Lien.

Section 6.08      Collection Suit by Trustee.

         If an Event of Default specified in Section 6.01(1) or (2) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

Section 6.09      Trustee May File Proofs of Claim.

         The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.

                                       66



Section 6.10      Priorities.

         If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:

                  First: to the Trustee, its agents and attorneys for amounts
         due under Section 7.07 hereof, including payment of all compensation,
         expense and liabilities incurred, and all advances made, by the Trustee
         and the costs and expenses of collection;

                  Second: to Holders of Notes for amounts due and unpaid on the
         Notes for principal, premium, if any, and interest, ratably, without
         preference or priority of any kind, according to the amounts due and
         payable on the Notes for principal, premium, if any and interest,
         respectively; and

                  Third: to the Company or to such party as a court of competent
         jurisdiction shall direct.

         The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.

Section 6.11      Undertaking for Costs.

         In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.

                                   ARTICLE 7.
                                    TRUSTEE

Section 7.01      Duties of Trustee.

         (a)      If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.

         (b)      Except during the continuance of an Event of Default:

                  (1)      the duties of the Trustee shall be determined solely
         by the express provisions of this Indenture and the Trustee need
         perform only those duties that are specifically set forth in this
         Indenture and no others, and no implied covenants or obligations shall
         be read into this Indenture against the Trustee; and

                  (2)      in the absence of bad faith on its part, the Trustee
         may conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon certificates or
         opinions furnished to the Trustee and conforming to the requirements of
         this Indenture.

                                       67



         However, the Trustee shall examine the certificates and opinions to
         determine whether or not they conform to the requirements of this
         Indenture (but need not confirm or investigate the accuracy of
         mathematical calculations or other facts stated therein).

         (c)      The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

                  (1)      this paragraph (c) does not limit the effect of
         paragraph (b) of this Section 7.01;

                  (2)      the Trustee shall not be liable for any error of
         judgment made in good faith by a Responsible Officer, unless it is
         conclusively determined by a court of competent jurisdiction that the
         Trustee was negligent in ascertaining the pertinent facts; and

                  (3)      the Trustee shall not be liable with respect to any
         action it takes or omits to take in good faith in accordance with a
         direction received by it pursuant to Section 6.05 hereof.

         (d)      Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section 7.01.

         (e)      No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder has offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

         (f)      The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.

Section 7.02      Rights of Trustee.

         (a)      The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.

         (b)      Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.

         (c)      The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.

         (d)      The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.

         (e)      Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.

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         (f)      The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.

         (g)      In no event shall the Trustee be required to take notice of
any default or breach hereof or any Event of Default hereunder, except for
Events of Default specified in Section 6.01(1) and/or 6.01(2) hereof, unless and
until the Trustee shall have received from a Holder of a Note or from the
Company express written notice of the circumstances constituting the breach,
default or Event of Default and stating that said circumstances constitute an
Event of Default hereunder.

         (h)      If the Trustee is acting as Paying Agent and/or Registrar
hereunder, the rights and protections afforded to the Trustee pursuant to this
Article 7 will also be afforded to such Paying Agent and Registrar.

Section 7.03      Individual Rights of Trustee.

         The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days after ascertaining it
has such conflicting interest, apply to the SEC for permission to continue as
trustee or resign to the extent and in the manner provided by, and subject to
the provisions of, the TIA and this Indenture. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.

Section 7.04      Trustee's Disclaimer.

         The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

Section 7.05      Notice of Defaults.

         If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.

Section 7.06      Reports by Trustee to Holders of the Notes.

         (a)      Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be

                                       69



transmitted). The Trustee also shall comply with TIA Section 313(b)(2) to the
extent applicable. The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c).

         (b)      A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed by the Trustee to the Company and filed by the
Trustee with the SEC and each stock exchange on which the Notes are listed in
accordance with TIA Section 313(d). The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange.

Section 7.07      Compensation and Indemnity.

         (a)      The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.

         (b)      The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture (and any other Note
Documents to which it is a party) against the Company (including this Section
7.07) and defending itself against any claim (whether asserted by the Company,
or any Holder or any other Person) or liability in connection with the exercise
or performance of any of its powers or duties hereunder, except to the extent
any such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.

         (c)      The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.

         (d)      To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.

         (e)      When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(9) or (10) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of administration
under any Bankruptcy Law.

Section 7.08      Replacement of Trustee.

         (a)      A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.

         (b)      The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of a majority in principal amount of the then

                                       70



outstanding Notes may remove the Trustee by so notifying the Trustee and the
Company in writing. The Company may remove the Trustee if:

                  (1)      the Trustee fails to comply with Section 7.10 hereof;

                  (2)      the Trustee is adjudged a bankrupt or an insolvent or
         an order for relief is entered with respect to the Trustee under any
         Bankruptcy Law;

                  (3)      a custodian or public officer takes charge of the
         Trustee or its property; or

                  (4)      the Trustee becomes incapable of acting.

         (c)      If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.

         (d)      If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

         (e)      If the Trustee, after written request by any Holder who has
been a Holder for at least six months, fails to comply with Section 7.10, such
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.

         (f)      A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.

Section 7.09      Successor Trustee by Merger, etc.

         If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.

Section 7.10      Eligibility; Disqualification.

         There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.

         This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).

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Section 7.11      Preferential Collection of Claims Against Company.

         The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.

                                   ARTICLE 8.
                    LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01      Option to Effect Legal Defeasance or Covenant Defeasance.

         The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.

Section 8.02      Legal Defeasance and Discharge.

         Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company will, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from their obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in clauses (1) and (2) below, and to have satisfied all their other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder:

                  (1)      the rights of Holders of outstanding Notes to receive
         payments in respect of the principal of, or interest or premium, if
         any, on such Notes when such payments are due from the trust referred
         to in Section 8.04 hereof;

                  (2)      the Company's obligations with respect to such Notes
         under Article 2 and Section 4.02 hereof;

                  (3)      the rights, powers, trusts, duties and immunities of
         the Trustee hereunder and the Company's obligations in connection
         therewith; and

                  (4)      this Article 8.

         Subject to compliance with this Article 8, the Company may exercise its
option under this Section 8.02 notwithstanding the prior exercise of its option
under Section 8.03 hereof.

Section 8.03      Covenant Defeasance.

         Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company (to the extent applicable) shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from each of their obligations under the covenants contained in
Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and
4.19 hereof and clause (4) of Section 5.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section

                                       72



8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(3) through 6.01(5) hereof shall not constitute Events of Default.

Section 8.04      Conditions to Legal or Covenant Defeasance.

         In order to exercise either Legal Defeasance or Covenant Defeasance
under either Section 8.02 or 8.03 hereof:

                  (1)      the Company must irrevocably deposit with the
         Trustee, in trust, for the benefit of the Holders, cash in United
         States dollars, non-callable Government Securities, or a combination
         thereof, in such amounts as shall be sufficient, in the opinion of a
         nationally recognized investment bank, appraisal firm or firm of
         independent public accountants, to pay the principal of, premium, if
         any, and interest on the outstanding Notes on the stated date for
         payment thereof or on the applicable redemption date, as the case may
         be, and the Company must specify whether such Notes are being defeased
         to maturity or to a particular redemption date;

                  (2)      in the case of an election under Section 8.02 hereof,
         the Company has delivered to the Trustee an Opinion of Counsel in the
         United States reasonably acceptable to the Trustee confirming that:

                           (A)      the Company has received from, or there has
                  been published by, the Internal Revenue Service a ruling; or

                           (B)      since the date of this Indenture, there has
                  been a change in the applicable federal income tax law,

                  in either case to the effect that, and based thereon such
                  Opinion of Counsel shall confirm that, the Holders of the
                  outstanding Notes shall not recognize income, gain or loss for
                  federal income tax purposes as a result of such Legal
                  Defeasance and shall be subject to federal income tax on the
                  same amounts, in the same manner and at the same times as
                  would have been the case if such Legal Defeasance had not
                  occurred;

                  (3)      in the case of an election under Section 8.03 hereof,
         the Company must deliver to the Trustee an Opinion of Counsel in the
         United States reasonably acceptable to the Trustee confirming that the
         Holders of the outstanding Notes shall not recognize income, gain or
         loss for federal income tax purposes as a result of such Covenant
         Defeasance and shall be subject to federal income tax on the same
         amounts, in the same manner and at the same times as would have been
         the case if such Covenant Defeasance had not occurred;

                                       73



                  (4)      no Default or Event of Default shall have occurred
         and be continuing on the date of such deposit (other than a Default or
         Event of Default resulting from the borrowing of funds to be applied to
         such deposit);

                  (5)      such Legal Defeasance or Covenant Defeasance shall
         not result in a breach or violation of, or constitute a default under,
         any material agreement or instrument (other than this Indenture) to
         which the Company or any of its Subsidiaries is a party or by which the
         Company or any of its Subsidiaries is bound;

                  (6)      the Company must deliver to the Trustee an Officers'
         Certificate stating that the deposit was not made by the Company with
         the intent of preferring the Holders of Notes over the other creditors
         of the Company with the intent of defeating, hindering, delaying or
         defrauding any other creditors of the Company or others; and

                  (7)      the Company must deliver to the Trustee an Officers'
         Certificate and an Opinion of Counsel, each stating that all conditions
         precedent provided for or relating to the Legal Defeasance or the
         Covenant Defeasance have been complied with.

Section 8.05      Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.

         Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.

         The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.

         Notwithstanding anything in this Article 8 to the contrary, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized
investment bank, appraisal firm or firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.04(1) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.

Section 8.06      Repayment to the Company.

         Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter be
permitted to look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money,

                                       74



and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.

Section 8.07      Reinstatement.

         If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.

                                   ARTICLE 9.
                        AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01      Without Consent of Holders of Notes.

         Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:

                  (1)      to cure any ambiguity, defect or inconsistency;

                  (2)      to provide for uncertificated Notes in addition to or
         in place of certificated Notes;

                  (3)      to provide for the assumption of the Company's
         obligations to the Holders of the Notes by a successor to the Company
         pursuant to Article 5 hereof;

                  (4)      to make any change that would provide any additional
         rights or benefits to the Holders of the Notes or that does not
         adversely affect the legal rights hereunder of any Holder of the Notes;

                  (5)      to comply with requirements of the SEC in order to
         effect or maintain the qualification of this Indenture under the TIA;

                  (6)      to provide for the issuance of Additional Notes in
         accordance with the limitations set forth in this Indenture as of the
         date hereof;

                  (7)      to allow any Guarantor to execute a supplemental
         indenture and/or a Guarantee with respect to the Notes;

                  (8)      to make, complete or confirm any grant of Collateral
         permitted or required by this Indenture or any of the Security
         Documents or any release of Collateral that becomes effective as set
         forth in this Indenture or any of the Security Documents;

                                       75



                  (9)      to conform the text of this Indenture, the Notes or
         the Security Documents to any provision of the Description of the Notes
         section of the Offering Circular to the extent that such provision of
         the Description of the Notes section of the Offering Circular was
         intended to be a verbatim recitation of a provision of this Indenture,
         the Notes or the Security Documents; or

                  (10)     to reflect any waiver or termination of any right
         arising under the provisions of this Indenture that otherwise would be
         enforceable by any holder of the Term Loan Obligations, if such waiver
         or termination is set forth in the agreement governing such Term Loan
         Obligations, provided that no such waiver or amendment shall adversely
         affect the right of holders of Notes.

         Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.

Section 9.02      With Consent of Holders of Notes.

         Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including, without limitation,
Section 3.09, 4.10 and 4.15 hereof), the Guarantees and the Notes with the
consent of the Holders of at least a majority in principal amount of the Notes
(including, without limitation, Additional Notes, if any) then outstanding
voting as a single class (including, without limitation, consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture, the Guarantees or the Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes).

         Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.

         It is not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it is sufficient if such consent approves the substance thereof.

         After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount

                                       76



of the Notes then outstanding voting as a single class may waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):

                  (1)      reduce the principal amount of Notes whose Holders
         must consent to an amendment, supplement or waiver;

                  (2)      reduce the principal of or change the fixed maturity
         of any Note or alter or waive any of the provisions with respect to the
         redemption of the Notes except as provided above with respect to
         Sections 3.09, 4.10 and 4.15 hereof;

                  (3)      reduce the rate of or change the time for payment of
         interest, including default interest, on any Note;

                  (4)      waive a Default or Event of Default in the payment of
         principal of, or interest or premium, if any, on the Notes (except a
         rescission of acceleration of the Notes by the Holders of at least a
         majority in aggregate principal amount of the then outstanding Notes
         and a waiver of the payment default that resulted from such
         acceleration);

                  (5)      make any Note payable in money other than that stated
         in the Notes;

                  (6)      make any change in the provisions of this Indenture
         relating to waivers of past Defaults or the rights of Holders of Notes
         to receive payments of principal of, or interest or premium, if any, on
         the Notes;

                  (7)      waive a redemption payment with respect to any Note
         (other than a payment required under Section 4.10 and Section 4.15);

                  (8)      release (A) any Collateral from the Liens created by
         the Security Documents except as specifically provided in this
         Indenture and the Security Documents as of the date of this Indenture
         or (B) all or substantially all of the Collateral or all or
         substantially all of the Canadian Guarantors from their obligations
         under the Guarantee and Collateral Agreement dated July 16, 2003
         without the prior written consent of all Holders; or

                  (9)      make any change in Section 6.04 or 6.07 hereof or in
         the foregoing amendment and waiver provisions.

Section 9.03      Compliance with Trust Indenture Act.

         Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.

Section 9.04      Revocation and Effect of Consents.

         Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver,

                                       77



supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.

Section 9.05      Notation on or Exchange of Notes.

         The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.

         Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.

Section 9.06      Trustee to Sign Amendments, etc.

         The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 and 7.02 hereof) shall
be fully protected in relying upon, in addition to the documents required by
Section 13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating
that the execution of such amended or supplemental Indenture is authorized or
permitted by this Indenture.

                                   ARTICLE 10.
                             COLLATERAL AND SECURITY

Section 10.01     Equal and Ratable Sharing of Collateral by Holders of Parity
Lien Debt; Sharing Confirmation.

         Notwithstanding (1) anything to the contrary contained in the Security
Documents, (2) the time of incurrence of any Series of Parity Lien Debt, (3) the
order or method of attachment or perfection of any Liens securing any Series of
Parity Lien Debt, (4) the time or order of filing or recording of financing
statements, mortgages or other documents filed or recorded to perfect any Lien
upon any Collateral, (5) the time of taking possession or control over any
Collateral or (6) the rules for determining priority under any law governing
relative priorities of Liens:

                           (A)      all Liens at any time granted by the Company
                  or any other Obligor to secure any of the Parity Lien Debt
                  shall secure, equally and ratably, all present and future
                  Parity Lien Obligations; and

                           (B)      all proceeds of all Liens at any time
                  granted by the Company or any Obligor to secure any of the
                  Parity Lien Debt and other Parity Lien Obligations shall be
                  allocated and distributed equally and ratably on account of
                  the Parity Lien Debt and other Parity Lien Obligations;
                  provided, that, for the avoidance of doubt, in the absence of
                  an Event of Default, the Company shall be entitled to utilize
                  cash proceeds of Collateral in the ordinary course of its
                  business.

         The foregoing provision is intended for the benefit of, and shall be
enforceable as a third party beneficiary by, each present and future holder of
Parity Lien Obligations, each present and future Parity Debt Representative and
the Collateral Trustee as holder of Parity Liens. The Company shall not incur

                                       78



any future Series of Parity Lien Debt unless the agreement governing such Series
of Parity Lien Debt includes a Sharing Confirmation at the time of incurrence of
such Series of Parity Lien Debt.

Section 10.02     Ranking of Note Liens

         Notwithstanding:

                  (1)      anything to the contrary contained in the Security
         Documents,

                  (2)      the time of incurrence of any Series of Secured Debt,

                  (3)      the order or method of attachment or perfection of
         any Liens securing any Series of Secured Debt,

                  (4)      the time or order of filing or recording of financing
         statements, mortgages or other documents filed or recorded to perfect
         any Lien upon any Collateral,

                  (5)      the time of taking possession or control over any
         Collateral or

                  (6)      the rules for determining priority under any law
         governing relative priorities of Liens,

all Liens at any time granted by the Company or any other Obligor to secure any
of the Parity Lien Debt shall be subject and subordinate to Priority Liens
securing Priority Lien Obligations up to the Priority Lien Cap.

         The foregoing provision is intended for the benefit of, and shall be
enforceable as a third party beneficiary by, each present and future holder of
Priority Lien Obligations, each present and future Priority Lien Agent and the
Collateral Trustee as holder of Priority Liens. No other Person shall be
entitled to rely on, have the benefit of or enforce this provision.

         In addition, the foregoing provision is intended solely to set forth
the relative ranking, as Liens, of the Liens securing Parity Lien Debt as
against the Priority Liens. Neither the Notes, the 2007 Notes, the 2010 Notes
nor the Term Loans nor any other Parity Lien Obligations nor the exercise or
enforcement of any right or remedy for the payment or collection thereof are
intended to be, or shall ever by reason of the foregoing provision, in any
respect subordinated, deferred, postponed, restricted or prejudiced.

Section 10.03     Release of Security Interest in Respect of Notes

         The Collateral Trustee's Liens upon the Collateral shall no longer
secure the Notes or any other Obligations under this Indenture, and the right of
the holders of the Notes and Obligations to the benefits and proceeds of the
Collateral Trustee's Liens on Collateral shall terminate and be discharged:

                  (1)      upon satisfaction and discharge of this Indenture in
         accordance with Article 11 hereof;

                  (2)      upon a Legal Defeasance or Covenant Defeasance of the
         Notes in accordance with Article 8 hereof; or

                                       79



                  (3)      upon payment in full and discharge of all Notes
         outstanding under this Indenture and all related Obligations that are
         outstanding, due and payable under this Indenture at the time the Notes
         are paid in full and discharged.

                                   ARTICLE 11.
                           SATISFACTION AND DISCHARGE

Section 11.01     Satisfaction and Discharge.

         This Indenture shall be discharged and shall cease to be of further
effect as to all Notes issued hereunder, when:

                  (1)      either:

                           (a)      all Notes that have been authenticated under
         this Indenture (except lost, stolen or destroyed Notes that have been
         replaced or paid and Notes for whose payment money has theretofore been
         deposited in trust and thereafter repaid to the Company) have been
         delivered to the Trustee for cancellation; or

                           (b)      all Notes that have not been delivered to
         the Trustee for cancellation have become due and payable by reason of
         the making of a notice of redemption or otherwise or shall become due
         and payable within one year and the Company has irrevocably deposited
         or caused to be deposited with the Trustee as trust funds in trust
         solely for the benefit of the Holders, cash in U.S. dollars,
         non-callable Government Securities, or a combination thereof, in such
         amounts as shall be sufficient without consideration of any
         reinvestment of interest, to pay and discharge the entire indebtedness
         on the Notes not delivered to the Trustee for cancellation for
         principal, premium, if any, and accrued interest to the date of
         maturity or redemption;

                  (2)      no Default or Event of Default has occurred and is
         continuing on the date of such deposit or shall occur as a result of
         such deposit and such deposit shall not result in a breach or violation
         of, or constitute a default under, any other instrument to which the
         Company is a party or by which the Company is bound;

                  (3)      the Company has paid or caused to be paid all sums
         payable by it under this Indenture; and

                  (4)      the Company has delivered irrevocable instructions to
         the Trustee under this Indenture to apply the deposited money toward
         the payment of the Notes at maturity or the redemption date, as the
         case may be.

In addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.

         Notwithstanding the satisfaction and discharge of this Indenture, if
money has been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section, the provisions of Section 12.02 and Section 8.06 shall
survive. In addition, nothing in this Section 11.01 shall be deemed to discharge
those provisions of Section 7.07 hereof, that, by their terms, survive the
satisfaction and discharge of this Indenture.

                                       80



Section 11.02     Application of Trust Money.

         Subject to the provisions of Section 8.06, all money deposited with the
Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in
accordance with the provisions of the Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium, if any) and interest for whose payment such money
has been deposited with the Trustee; but such money need not be segregated from
other funds except to the extent required by law.

         If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 11.01; provided
that if the Company has made any payment of principal of, premium, if any, or
interest on any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or Government Securities held by the Trustee
or Paying Agent.

                                   ARTICLE 12.
                                  MISCELLANEOUS

Section 12.01     Trust Indenture Act Controls.

         If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties or provisions of
the TIA shall control.

Section 12.02     Notices.

         Any notice or communication by the Company or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:

         If to the Company:

         Calpine Corporation
         50 West San Fernando Street
         San Jose, California 95113
         Telephone No.: (408) 995-5115
         Attention: Ron Fischer

         With a copy to:
         Covington & Burling
         1330 Avenue of the Americas
         New York, NY 10019
         Telecopier No.: (212) 841-1010
         Attention: Bruce Bennett

                                       81



         If to the Trustee:
         Wilmington Trust Company
         Rodney Square North
         1100 North Market Street
         Wilmington, Delaware 19890
         Telecopier No.: (302) 636-4145
         Attention: Corporate Capital Markets

         By notice to the others, the Company or the Trustee may designate
additional or different addresses for subsequent notices or communications.

         All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.

         Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.

         If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.

         If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.

Section 12.03     Communication by Holders of Notes with Other Holders of Notes.

         Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).

Section 12.04     Certificate and Opinion as to Conditions Precedent.

         Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:

                  (1)      an Officer's Certificate in form and substance
         reasonably satisfactory to the Trustee (which must include the
         statements set forth in Section 12.05 hereof) stating that, in the
         opinion of the signer, all conditions precedent and covenants, if any,
         provided for in this Indenture relating to the proposed action have
         been satisfied; and

                  (2)      an Opinion of Counsel in form and substance
         reasonably satisfactory to the Trustee (which must include the
         statements set forth in Section 12.05 hereof) stating that, in the
         opinion of such counsel, all such conditions precedent and covenants
         have been satisfied.

                                       82



Section 12.05     Statements Required in Certificate or Opinion.

         Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA
Section 314(e) and must include:

                  (1)      a statement that the Person making such certificate
         or opinion has read such covenant or condition;

                  (2)      a brief statement as to the nature and scope of the
         examination or investigation upon which the statements or opinions
         contained in such certificate or opinion are based;

                  (3)      a statement that, in the opinion of such Person, he
         or she has made such examination or investigation as is necessary to
         enable him or her to express an informed opinion as to whether or not
         such covenant or condition has been satisfied; and

                  (4)      a statement as to whether or not, in the opinion of
         such Person, such condition or covenant has been satisfied.

Section 12.06     Rules by Trustee and Agents.

         The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

Section 12.07     No Personal Liability of Directors, Officers, Employees and
Stockholders.

         No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, this Indenture, the Security
Documents or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.

Section 12.08     Governing Law.

         THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTATION OF GUARANTEES WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

Section 12.09     No Adverse Interpretation of Other Agreements.

         This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.

Section 12.10     Successors.

         All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.

                                       83



Section 12.11     Severability.

         In case any provision in this Indenture or in the Notes is invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

Section 12.12     Counterpart Originals.

         The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.

Section 12.13     Table of Contents, Headings, etc.

         The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.

                         [Signatures on following page]

                                       84



                                   SIGNATURES

Dated as of July 16, 2003

                                    CALPINE CORPORATION

                                    By: /s/ Michael Thomas
                                        -----------------------------
                                        Name:
                                        Title:

                                       85



                                    WILMINGTON TRUST COMPANY

                                    By: /s/ Michael W. Diaz
                                        --------------------------------------
                                        Name: Michael W. Diaz
                                        Title: Authorized Signer

                                       86



                                                                       EXHIBIT A

                                 [Face of Note]
- --------------------------------------------------------------------------------

                                               CUSIP [131347 BD 7] [U13055 AF 2]

               8.75% Second Priority Senior Secured Notes due 2013

No. ___                                                            $____________

                               CALPINE CORPORATION

promises to pay to CEDE & CO.

or registered assigns,

the principal sum of ___________________________________________________________

Dollars on July 15, 2013.

Interest Payment Dates:  January 15 and July 15

Record Dates: January 1 and July 1

                                    CALPINE CORPORATION

                                    By: ________________________________________
                                        Name:
                                        Title:

Dated:  July 16, 2003

This is one of the Notes referred to
in the within-mentioned Indenture:

WILMINGTON TRUST COMPANY,
  as Trustee

By: ______________________________________
             Authorized Signatory

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

                                       A-1



                                 [Back of Note]

               8.75% Second Priority Senior Secured Notes due 2013

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THE NOTES EVIDENCED HEREBY HAVE NOT BEEN AND SHALL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
(5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
(B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES AND OTHER JURISDICTIONS.

         Capitalized terms used herein have the meanings assigned to them in
this Indenture referred to below unless otherwise indicated.

                                       A-2



                  (1)      INTEREST. Calpine Corporation, a Delaware corporation
         (the "Company"), promises to pay interest on the principal amount of
         this Note at 8.75% per annum from July 16, 2003 until maturity. The
         Company shall pay interest semi-annually in arrears on January 15 and
         July 15 of each year, or if any such day is not a Business Day, on the
         next succeeding Business Day (each, an "Interest Payment Date").
         Interest on the Notes shall accrue from the most recent date to which
         interest has been paid or, if no interest has been paid, from the date
         of issuance; provided that if there is no existing Default in the
         payment of interest, and if this Note is authenticated between a record
         date referred to on the face hereof and the next succeeding Interest
         Payment Date, interest shall accrue from such next succeeding Interest
         Payment Date; provided, further, that the first Interest Payment Date
         shall be January 15, 2004. The Company shall pay interest (including
         post-petition interest in any proceeding under any Bankruptcy Law) on
         overdue principal and premium, if any, from time to time on demand at a
         rate that is 1% per annum in excess of the rate then in effect; it
         shall pay interest (including post-petition interest in any proceeding
         under any Bankruptcy Law) on overdue installments of interest (without
         regard to any applicable grace periods) from time to time on demand at
         the same rate to the extent lawful. Interest shall be computed on the
         basis of a 360-day year of twelve 30-day months.

                  (2)      METHOD OF PAYMENT. The Company shall pay interest on
         the Notes (except defaulted interest) to the Persons who are registered
         Holders of Notes at the close of business on the January 1 or July 1
         next preceding the Interest Payment Date, even if such Notes are
         canceled after such record date and on or before such Interest Payment
         Date, except as provided in Section 2.12 of the Indenture with respect
         to defaulted interest. The Notes shall be payable as to principal,
         premium, if any, and interest at the office or agency of the Company
         maintained for such purpose within or without the City and State of New
         York, or, at the option of the Company, payment of interest may be made
         by check mailed to the Holders at their addresses set forth in the
         register of Holders; provided that payment by wire transfer of
         immediately available funds shall be required with respect to principal
         of and interest, premium on, all Global Notes and all other Notes the
         Holders of which shall have provided wire transfer instructions to the
         Company or the Paying Agent. Such payment shall be in such coin or
         currency of the United States of America as at the time of payment is
         legal tender for payment of public and private debts.

                  (3)      PAYING AGENT AND REGISTRAR. Initially, Wilmington
         Trust Company, the Trustee under the Indenture, shall act as Paying
         Agent and Registrar. The Company may change any Paying Agent or
         Registrar without prior notice to any Holder. The Company or any of its
         Subsidiaries may act in any such capacity.

                  (4)      INDENTURE. The Company issued the Notes under an
         Indenture dated as of July 16, 2003 (the "Indenture") between the
         Company and the Trustee. The terms of the Notes include those stated in
         the Indenture and those made part of the Indenture by reference to the
         Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
         77aaa-77bbbb). The Notes are subject to all such terms, and Holders are
         referred to the Indenture and such Act for a statement of such terms.
         To the extent any provision of this Note conflicts with the express
         provisions of the Indenture, the provisions of the Indenture shall
         govern and be controlling. The Notes are secured obligations of the
         Company, as evidenced by the Security Documents referred to in the
         Indenture.

                  (5)      OPTIONAL REDEMPTION. (a) Except as set forth in
         subparagraphs (b) and (c) of this Paragraph 5, the Company shall not
         have the option to redeem the Notes prior to July 15, 2008. Thereafter,
         the Company shall have the option to redeem the Notes, in whole or in
         part, upon not less than 30 nor more than 60 days' notice, at the
         redemption prices (expressed as percentages of principal amount) set
         forth below plus accrued and unpaid interest thereon to the

                                       A-3



         applicable redemption date, if redeemed during the twelve-month period
         beginning on July 15 of the years indicated below:



Year                                                                             Percentage
- ----                                                                             ----------
                                                                              
2008...........................................................................   104.375%
2009...........................................................................   102.917%
2010...........................................................................   101.458%
2011 and thereafter............................................................   100.000%


         (b)      Notwithstanding the provisions of subparagraph (a) of this
         Paragraph 5, at any time prior to July 15, 2006, the Company may, on
         any one or more occasions, upon not less than 30 nor more than 60 days
         prior notice mailed by first-class mail to each holder's registered
         address, redeem up to 35% of the aggregate principal amount of Notes
         issued under the Indenture with the net proceeds of an any one or more
         Public Equity Offerings at a redemption price equal to 108.750% of the
         principal amount thereof, plus accrued and unpaid interest, if any, to
         the redemption date; provided that at least 65% in aggregate principal
         amount of the Notes originally issued under the Indenture remains
         outstanding immediately after the occurrence of such redemption and
         that such redemption occurs within 45 days of the date of the closing
         of such Public Equity Offering.

         (c)      Notwithstanding the provisions of subparagraph (a) of this
         Paragraph 5, at any time prior to July 15, 2008, the Company may also
         redeem all or a part of the Notes, upon not less than 30 nor more than
         60 days prior notice mailed by first-class mail to each holder's
         registered address, at a redemption price equal to 100.000% of the
         principal amount of the Notes redeemed plus the Applicable Premium as
         of, and accrued and unpaid interest, if any, to the redemption date,
         subject to the rights of holders on the record date to receive interest
         due on the Interest Payment Date.

                  (6)      MANDATORY REDEMPTION. The Company shall not be
         required to make mandatory redemption or sinking fund payments with
         respect to the Notes.

                  (7)      REPURCHASE AT OPTION OF HOLDER. (a) If a Change of
         Control occurs, each holder of Notes shall have the right to require
         the Company to repurchase all or any part (equal to $1,000 or an
         integral multiple of $1,000) of that holder's Notes pursuant to the
         offer described below (the "Change of Control Offer") on the terms set
         forth in the Indenture. In the Change of Control Offer, the Company
         shall offer a payment in cash equal to 101% of the aggregate principal
         amount of Notes repurchased plus accrued and unpaid interest, if any,
         on the Notes repurchased (the "Change of Control Payment"), to but
         excluding the date of purchase. Within 30 days following any Change of
         Control, the Company shall mail a notice to each holder as required by
         the Indenture. (b) If the Company or a Subsidiary consummates any Asset
         Sales, and when the aggregate amount of Excess Proceeds exceeds $50.0
         million, or at such earlier point as may be elected by the Company, the
         Company shall make an offer to all holders of Notes and all holders of
         other Indebtedness that is pari passu with the Notes and equally and
         ratably secured with the Notes containing provisions similar to those
         set forth in the Indenture with respect to offers to purchase or redeem
         with the proceeds of sales of assets, including the Term Loans and each
         series of Existing Indebtedness that contains similar asset sale
         provisions, when applicable (an "Asset Sale Offer"), to purchase or
         redeem the maximum principal amount of Notes and such other pari passu
         Indebtedness that may be purchased or redeemed out of the Excess
         Proceeds (including each series of Existing Indebtedness that contains
         similar asset sale provisions). The offer price in any Asset Sale Offer
         shall be equal to 100% of principal amount plus accrued and unpaid
         interest, if any, to the date of purchase, and shall be payable in
         cash. If any Excess Proceeds remain after consummation of an Asset Sale
         Offer, the Company may use those Excess

                                       A-4



         Proceeds for any purpose not otherwise prohibited by the Indenture.
         If the aggregate principal amount of Notes and other pari passu
         Indebtedness tendered into such Asset Sale Offer exceeds the amount of
         Excess Proceeds, the Company shall select the Notes and such other pari
         passu Indebtedness to be purchased on a pro rata basis. Upon completion
         of each Asset Sale Offer, the amount of Excess Proceeds shall be reset
         at zero. Holders of Notes that are the subject of an offer to purchase
         shall receive an Asset Sale Offer from the Company prior to any related
         purchase date and may elect to have such Notes purchased by completing
         the form entitled "Option of Holder to Elect Purchase" on the reverse
         of the Notes.

                  (8)      NOTICE OF REDEMPTION. Notice of redemption shall be
         mailed at least 30 days but not more than 60 days before the redemption
         date to each Holder whose Notes are to be redeemed at its registered
         address. Notes in denominations larger than $1,000 may be redeemed in
         part but only in whole multiples of $1,000, unless all of the Notes
         held by a Holder are to be redeemed. On and after the redemption date
         interest ceases to accrue on Notes or portions thereof called for
         redemption.

                  (9)      DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
         registered form without coupons in denominations of $1,000 and integral
         multiples of $1,000. The transfer of Notes may be registered and Notes
         may be exchanged as provided in the Indenture. The Registrar and the
         Trustee may require a Holder, among other things, to furnish
         appropriate endorsements and transfer documents and the Company may
         require a Holder to pay any taxes and fees required by law or permitted
         by the Indenture. The Company need not exchange or register the
         transfer of any Note or portion of a Note selected for redemption,
         except for the unredeemed portion of any Note being redeemed in part.
         Also, the Company need not exchange or register the transfer of any
         Notes for a period of 15 days before a selection of Notes to be
         redeemed or during the period between a record date and the
         corresponding Interest Payment Date.

                  (10)     PERSONS DEEMED OWNERS. The registered Holder of a
         Note may be treated as its owner for all purposes.

                  (11)     AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
         exceptions, the Indenture or the Notes may be amended or supplemented
         with the consent of the Holders of at least a majority in principal
         amount of the then outstanding Notes and Additional Notes, if any,
         voting as a single class, and any existing default or compliance with
         any provision of the Indenture or the Notes may be waived with the
         consent of the Holders of a majority in principal amount of the then
         outstanding Notes and Additional Notes, if any, voting as a single
         class. Without the consent of any Holder of a Note, the Indenture, the
         Guarantees or the Notes may be amended or supplemented to cure any
         ambiguity, defect or inconsistency, to provide for uncertificated Notes
         in addition to or in place of certificated Notes, to provide for the
         assumption of the Company's obligations to Holders of the Notes in case
         of a merger or consolidation, to make any change that would provide any
         additional rights or benefits to the Holders of the Notes or that does
         not adversely affect the legal rights under the Indenture of any such
         Holder, to comply with the requirements of the SEC in order to effect
         or maintain the qualification of the Indenture under the Trust
         Indenture Act, to provide for the issuance of Additional Notes in
         accordance with the limitations set forth in the Indenture, to allow
         any Guarantor to execute a supplemental indenture to the Indenture
         and/or a Guarantee with respect to the Notes, to make, complete or
         confirm any grant of Collateral permitted or required by the Indenture
         or any of the Security Documents or any release of Collateral that
         becomes effective as set forth in the Indenture or any of the Security
         Documents, to conform the text of the Indenture, the Notes or the
         Security Documents to any provision of the Description of the Notes
         section of the Offering

                                       A-5



         Circular to the extent that such provision of the Description of the
         Notes section of the Offering Circular was intended to be a verbatim
         recitation of a provision of the Indenture, the Notes or the Security
         Documents, or to reflect any waiver or termination of any right arising
         under the provisions of the Indenture that otherwise would be
         enforceable by any holder of the Term Loan Obligations, if such waiver
         or termination is set forth in the agreement governing such Term Loan
         Obligations, provided that no such waiver or amendment shall adversely
         affect the right of holders of Notes.

                  (12)     DEFAULTS AND REMEDIES. Events of Default include:
         (i) default for 30 days in the payment when due of interest on the
         Notes; (ii) default in payment when due of principal of or premium, if
         any, on the Notes, (iii) failure by the Company to purchase the Notes
         when required pursuant to Section 4.10 or 4.15 of the Indenture or
         otherwise as required pursuant to the Indenture or Notes; (iv) failure
         by the Company or any of its Restricted Subsidiaries for 30 days after
         written notice from the Trustee or the holders of at least 25% in
         outstanding aggregate principal amount of the Notes to comply with any
         of the other agreements in the Indenture, the Notes or the Security
         Documents; (v) default under certain other agreements relating to
         Indebtedness of the Company which default results in the acceleration
         of such Indebtedness prior to its express maturity; (vi) certain final
         judgments for the payment of money that remain undischarged for a
         period of 30 days; (vii) certain events of bankruptcy or insolvency
         with respect to the Company or any of its Restricted Subsidiaries that
         would constitute a Significant Subsidiary or any group of Restricted
         Subsidiaries that, taken together, would constitute a Significant
         Subsidiary; (viii) the repudiation by the Company or any of its
         Restricted Subsidiaries or the unenforceability of the Security
         Documents if such breach, repudiation or unenforceability relates to
         Collateral having an aggregate Fair Market Value of $50.0 million or
         more and (ix) except as permitted by the Indenture, any Guarantee shall
         be held in any judicial proceeding to be unenforceable or invalid or
         shall cease for any reason to be in full force and effect or any
         Guarantor or any Person acting on its behalf shall deny or disaffirm
         its obligations under such Guarantor's Guarantee. If any Event of
         Default occurs and is continuing, the Trustee or the Holders of at
         least 25% in principal amount of the then outstanding Notes may declare
         all the Notes to be due and payable. Notwithstanding the foregoing, in
         the case of an Event of Default arising from certain events of
         bankruptcy or insolvency, all outstanding Notes shall become due and
         payable without further action or notice. Holders may not enforce the
         Indenture or the Notes except as provided in the Indenture. Subject to
         certain limitations, Holders of a majority in principal amount of the
         then outstanding Notes may direct the Trustee in its exercise of any
         trust or power. The Trustee may withhold from holders of the Notes
         notice of any continuing Default or Event of Default if it determines
         that withholding Notes is in their interest, except a Default or Event
         of Default relating to the payment of principal or interest. The
         Holders of a majority in aggregate principal amount of the Notes then
         outstanding by notice to the Trustee may on behalf of the Holders of
         all of the Notes waive any existing Default or Event of Default and its
         consequences under the Indenture except a continuing Default or Event
         of Default in the payment of interest on, or the principal of, the
         Notes. The Company is required to deliver to the Trustee annually a
         statement regarding compliance with the Indenture, and the Company is
         required upon becoming aware of any Default or Event of Default under
         clauses (3) through (8) of the Section 6.01(a) of the Indenture, to
         deliver to the Trustee a statement specifying such Default or Event of
         Default.

                  (13)     TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
         individual or any other capacity, may make loans to, accept deposits
         from, and perform services for the Company or its Affiliates, and may
         otherwise deal with the Company or its Affiliates, as if it were not
         the Trustee.

                                       A-6



                  (14)     NO RECOURSE AGAINST OTHERS. A director, officer,
         employee, incorporator or stockholder, of the Company as such, shall
         not have any liability for any obligations of the Company under the
         Notes, the Indenture or for any claim based on, in respect of, or by
         reason of, such obligations or their creation. Each Holder by accepting
         a Note waives and releases all such liability. The waiver and release
         are part of the consideration for the issuance of the Notes.

                  (15)     AUTHENTICATION. This Note shall not be valid until
         authenticated by the manual signature of the Trustee or an
         authenticating agent.

                  (16)     ABBREVIATIONS. Customary abbreviations may be used in
         the name of a Holder or an assignee, such as: TEN COM (= tenants in
         common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants
         with right of survivorship and not as tenants in common), CUST (=
         Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

                  (17)     CUSIP NUMBERS. Pursuant to a recommendation
         promulgated by the Committee on Uniform Security Identification
         Procedures, the Company has caused CUSIP numbers to be printed on the
         Notes and the Trustee may use CUSIP numbers in notices of redemption as
         a convenience to Holders. No representation is made as to the accuracy
         of such numbers either as printed on the Notes or as contained in any
         notice of redemption and reliance may be placed only on the other
         identification numbers placed thereon.

         The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:

                  Calpine Corporation
                  50 West San Fernando Street
                  San Jose, California 95113
                  Attention:  Ron Fischer

                                       A-7



                                 ASSIGNMENT FORM

         To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to: __________________________________
                                                 (Insert assignee's legal name)

________________________________________________________________________________
                 (Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
              (Print or type assignee's name, address and zip code)

and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

Date: _______________

                                    Your Signature: ____________________________
                                       (Sign exactly as your name appears on the
                                       face of this Note)

Signature Guarantee*: _________________________

*   Participant in a recognized Signature Guarantee Medallion Program (or other
    signature guarantor acceptable to the Trustee).

                                       A-8



                       OPTION OF HOLDER TO ELECT PURCHASE

         If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box
below:

                    Section 4.10            Section 4.15

         If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:

                                 $_________________

Date: _______________

                                    Your Signature: ____________________________
                                           (Sign exactly as your name appears on
                                           the face of this Note)

                                    Tax Identification No.: ____________________

Signature Guarantee*: _________________________

*   Participant in a recognized Signature Guarantee Medallion Program (or other
    signature guarantor acceptable to the Trustee).

                                       A-9



             SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*

         The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:



                                                                       Principal Amount
                       Amount of decrease    Amount of increase in    of this Global Note       Signature of
                       in Principal Amount      Principal Amount        following such       authorized officer
                               of                      of                  decrease             of Trustee or
Date of Exchange        this Global Note        this Global Note         (or increase)            Custodian
- ----------------       -------------------   ---------------------    -------------------    ------------------
                                                                                 


*   This schedule should be included only if the Note is issued in global form.

                                      A-10



                                                                       EXHIBIT B

                         FORM OF CERTIFICATE OF TRANSFER

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re: 8.75% Second Priority Senior Secured Notes due 2013

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), between Calpine Corporation, as issuer (the "Company"), and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         ___________________, (the "Transferor") owns and proposes to transfer
the Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to ___________________________ (the "Transferee"), as further specified in Annex
A hereto. In connection with the Transfer, the Transferor hereby certifies that:

                             [CHECK ALL THAT APPLY]

         1. [ ]   CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly,
the Transferor hereby further certifies that the beneficial interest or
Definitive Note is being transferred to a Person that the Transferor reasonably
believed and believes is purchasing the beneficial interest or Definitive Note
for its own account, or for one or more accounts with respect to which such
Person exercises sole investment discretion, and such Person and each such
account is a "qualified institutional buyer" within the meaning of Rule 144A in
a transaction meeting the requirements of Rule 144A and such Transfer is in
compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
shall be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.

         2. [ ]   CHECK IF TRANSFEREE SHALL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO
REGULATION S. The Transfer is being effected pursuant to and in accordance with
Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor
hereby further certifies that (i) the Transfer is not being made to a Person in
the United States and (x) at the time the buy order was originated, the
Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance with the
terms of

                                      B-1



the Indenture, the transferred beneficial interest or Definitive Note shall be
subject to the restrictions on Transfer enumerated in the Private Placement
Legend printed on the Regulation S Global Note and/or the Definitive Note and in
the Indenture and the Securities Act.

         3. [ ]   CHECK AND COMPLETE IF TRANSFEREE SHALL TAKE DELIVERY OF A
BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act and
any applicable blue sky securities laws of any state of the United States, and
accordingly the Transferor hereby further certifies that (check one):

                  (a) [ ]  such Transfer is being effected pursuant to and in
         accordance with Rule 144 under the Securities Act;

                                       or

                  (b) [ ]  such Transfer is being effected to the Company or a
         subsidiary thereof;

                                       or

                  (c) [ ]  such Transfer is being effected pursuant to an
         effective registration statement under the Securities Act and in
         compliance with the prospectus delivery requirements of the Securities
         Act;

                                       or

                  (d) [ ]  such Transfer is being effected to an Institutional
         Accredited Investor and pursuant to an exemption from the registration
         requirements of the Securities Act other than Rule 144A, Rule 144 or
         Rule 904, and the Transferor hereby further certifies that it has not
         engaged in any general solicitation within the meaning of Regulation D
         under the Securities Act and the Transfer complies with the transfer
         restrictions applicable to beneficial interests in a Restricted Global
         Note or Restricted Definitive Notes and the requirements of the
         exemption claimed, which certification is supported by (1) a
         certificate executed by the Transferee in the form of Exhibit D to the
         Indenture and (2) an Opinion of Counsel provided by the Transferor or
         the Transferee (a copy of which the Transferor has attached to this
         certification), to the effect that such Transfer is in compliance with
         the Securities Act. Upon consummation of the proposed transfer in
         accordance with the terms of the Indenture, the transferred beneficial
         interest or Definitive Note shall be subject to the restrictions on
         transfer enumerated in the Private Placement Legend printed on the IAI
         Global Note and/or the Definitive Notes and in the Indenture and the
         Securities Act.

         This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                                     ___________________________________________
                                             [Insert Name of Transferor]

                                     By:________________________________________
                                        Name:
                                        Title:

         Dated: _______________________

                                      B-2



                       ANNEX A TO CERTIFICATE OF TRANSFER

1.       The Transferor owns and proposes to transfer the following:

                            [CHECK ONE OF (a) OR (b)]

               (a) [ ]  a beneficial interest in the:

                   (i)    [ ]  144A Global Note (CUSIP _________), or

                   (ii)   [ ]  Regulation S Global Note (CUSIP _________), or

                   (iii)  [ ]  IAI Global Note (CUSIP _________); or

               (b) [ ]  a Restricted Definitive Note.

2.       After the Transfer the Transferee shall hold:

                                   [CHECK ONE]

               (a) [ ]  a beneficial interest in the:

                   (i)    [ ]  144A Global Note (CUSIP _________), or

                   (ii)   [ ]  Regulation S Global Note (CUSIP _________), or

                   (iii)  [ ]  IAI Global Note (CUSIP _________); or

               (b) [ ]  a Restricted Definitive Note,

               in accordance with the terms of the Indenture.

                                      B-3



                                                                       EXHIBIT C

                         FORM OF CERTIFICATE OF EXCHANGE

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust Company
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re: 8.75% Second Priority Senior Secured Notes due 2013

                       (CUSIP [131347 BD 7] [U13055 AF 2])

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), among Calpine Corporation, as issuer (the "Company") and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         __________________________, (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $____________ in such Note[s] or interests (the "Exchange"). In
connection with the Exchange, the Owner hereby certifies that:

         EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES

         (a) [ ]  CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued shall continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.

         (b) [ ]  CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued shall be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the relevant Restricted Global Note and in
the Indenture and the Securities Act.

                                      C-1



         This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.

                                    ____________________________________________
                                             [Insert Name of Transferor]

                                    By: ________________________________________
                                     Name:
                                     Title:

Dated: ______________________

                                      C-2



                                                                       EXHIBIT D

                             FORM OF CERTIFICATE OF
                   ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

Calpine Corporation
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust
520 Madison Avenue, 33rd Floor
New York, NY 10022

         Re: 8.75% Second Priority Senior Secured Notes due 2013

         Reference is hereby made to the Indenture, dated as of July 16, 2003
(the "Indenture"), among Calpine Corporation, as issuer (the "Company") and
Wilmington Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.

         In connection with our proposed purchase of $____________ aggregate
principal amount of:

         (a) [ ]      a beneficial interest in a Global Note, or

         (b) [ ]      a Definitive Note,

         we confirm that:

         1.       We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").

         2.       We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we shall do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and an Opinion
of Counsel in form reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act, (D) outside the United States
in accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the provisions of Rule 144(k) under the Securities Act or (F)
pursuant to an effective registration statement under the Securities Act, and we
further agree to provide to any Person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction meeting the
requirements of clauses (A) through (E) of this paragraph a notice advising such
purchaser that resales thereof are restricted as stated herein.

         3.       We understand that, on any proposed resale of the Notes or
beneficial interest therein, we shall be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
shall bear a legend to the foregoing effect.

                                      D-1



                                                                       EXHIBIT D

         4.       We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.

         5.       We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.

         You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.

                                    ____________________________________________
                                        [Insert Name of Accredited Investor]

                                    By: ________________________________________
                                     Name:
                                     Title:

Dated: _______________________

                                      D-2

EX-4.4

                                                                     Exhibit 4.4

                                                                  EXECUTION COPY

================================================================================

                        POWER CONTRACT FINANCING, L.L.C.,
                                     Issuer,

                                       and

                            WILMINGTON TRUST COMPANY,
               Trustee, Accounts Agent, Paying Agent and Registrar

                                   ----------

                                    INDENTURE

                            Dated as of June 13, 2003

                      5.200% Senior Secured Notes due 2006

                      6.256% Senior Secured Notes due 2010

================================================================================



                                TABLE OF CONTENTS



                                                                                                       Page
                                                                                                       ----
                                                                                                    
                                                 ARTICLE ONE
                           DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 101.    Definitions....................................................................           1
SECTION 102.    Compliance Certificates and Opinions...........................................           2
SECTION 103.    Form of Documents Delivered to Trustee.........................................           3
SECTION 104.    Acts of Holders................................................................           4
SECTION 105.    Notices, Etc. to Trustee and Issuer............................................           5
SECTION 106.    Notice to Holders: Waiver......................................................           5
SECTION 107.    Effect of Headings and Table of Contents.......................................           6
SECTION 108.    Successors and Assigns.........................................................           6
SECTION 109.    Severability Clause............................................................           6
SECTION 110.    Benefits of Indenture..........................................................           6
SECTION 111.    Conflict with Trust Indenture Act..............................................           6
SECTION 112.    Governing Law; Consent to Jurisdiction and Service of Process..................           6
SECTION 113.    Legal Holidays.................................................................           8
SECTION 114.    Incorporators, Shareholders, Members, Officers and Directors of Issuer
                Exempt from Individual Liability...............................................           8
SECTION 115.    Execution in Counterparts......................................................           8

                                                 ARTICLE TWO
                                                FORM OF NOTES

SECTION 201.    Form of Note...................................................................           8
SECTION 202.    Restrictive Legends............................................................          10

                                                ARTICLE THREE
                                                  THE NOTES

SECTION 301.    Amount ........................................................................          13
SECTION 302.    Denominations..................................................................          14
SECTION 303.    Execution, Authentication, Delivery and Dating.................................          14
SECTION 304.    Temporary Notes................................................................          16
SECTION 305.    Registration, Registration of Transfer and Exchange............................          16
SECTION 306.    Book Entry Provisions for Global Notes.........................................          17
SECTION 307.    Special Transfer Provisions....................................................          19
SECTION 308.    Mutilated, Destroyed, Lost and Stolen Notes....................................          22
SECTION 309.    Payment on Notes; Rights Preserved.............................................          23
SECTION 310.    Persons Deemed Owners..........................................................          24
SECTION 311.    Cancellation...................................................................          24
SECTION 312.    Computation of Interest........................................................          25



                                       i


                                                                                                      
SECTION 313.    CUSIP and CINS Numbers.........................................................          25
SECTION 314.    Parity of Notes................................................................          25

                                                ARTICLE FOUR
                                 APPLICATION OF PROCEEDS FROM SALE OF NOTES

SECTION 401.    Application of Proceeds from Sale of Notes.....................................          25

                                                ARTICLE FIVE
                                                  ACCOUNTS

SECTION 501.    Establishment of Accounts......................................................          25
SECTION 502.    Collections Account............................................................          26
SECTION 503.    Working Capital Account........................................................          28
SECTION 504.    Reserve Account................................................................          29
SECTION 505.    Reserve Investments Account....................................................          29
SECTION 506.    Damages and Indemnity Account..................................................          29
SECTION 507.    Statements; Investment of Funds................................................          31

                                                 ARTICLE SIX
                                         SATISFACTION AND DISCHARGE

SECTION 601.    Satisfaction and Discharge of Indenture........................................          32
SECTION 602.    Application of Trust Money.....................................................          33

                                                   ARTICLE
                                    SEVEN EVENTS OF DEFAULT AND REMEDIES

SECTION 701.    Events of Default..............................................................          33
SECTION 702.    Acceleration of Maturity: Rescission and Annulment.............................          35
SECTION 703.    Remedies upon an Event of Default..............................................          37
SECTION 704.    Certain Sales of Collateral....................................................          37
SECTION 705.    No Marshaling..................................................................          38
SECTION 706.    Trustee May Recover Unpaid Indebtedness After Sale of Collateral...............          38
SECTION 707.    Recovery of Judgment Does Not Affect Rights....................................          38
SECTION 708.    Collection of Indebtedness and Suits for Enforcement by Trustee................          38
SECTION 709.    Trustee May File Proofs of Claim...............................................          39
SECTION 710.    Trustee May Enforce Claims Without Possession of Notes.........................          40
SECTION 711.    Application of Money Collected.................................................          40
SECTION 712.    Limitation on Suits............................................................          41
SECTION 713.    Unconditional Right of Holders to Receive Principal, Make-Whole
                Premium and Interest...........................................................          41
SECTION 714.    Restoration of Rights and Remedies.............................................          41
SECTION 715.    Rights and Remedies Cumulative.................................................          42
SECTION 716.    Delay or Omission Not Waiver...................................................          42
SECTION 717.    Control by Holders.............................................................          42




                                       ii


                                                                                                      
SECTION 718.    Waiver of Past Defaults........................................................          42
SECTION 719.    Waiver of Force Majeure and Stay or Extension Laws.............................          43
SECTION 720.    Trustee to Give Notice of Default, but May Withhold in Certain Circumstances...          43
SECTION 721.    Undertaking for Costs..........................................................          43

                                                   ARTICLE
                                              EIGHT THE TRUSTEE

SECTION 801.    Duties and Responsibilities of the Trustee; During Default; Prior to Default...          44
SECTION 802.    Certain Rights of Trustee......................................................          45
SECTION 803.    Trustee Not Responsible for Recitals or Issuance of Notes......................          46
SECTION 804.    May Hold Notes.................................................................          47
SECTION 805.    Money Held In Trust............................................................          47
SECTION 806.    Compensation and Indemnification of Trustee, Accounts Agent,
                Paying Agent and Registrar and Its Prior Claim.................................          47
SECTION 807.    Right of Trustee to Rely on Officer's Certificate, Etc.........................          48
SECTION 808.    Corporate Trustee Required; Eligibility........................................          48
SECTION 809.    Qualification of Trustee; Conflicting Interests................................          49
SECTION 810.    Resignation and Removal; Appointment of Successor Trustee......................          49
SECTION 811.    Acceptance of Appointment by Successor.........................................          51
SECTION 812.    Merger Conversion, Consolidation or Succession to Business.....................          51
SECTION 813.    Preferential Collection of Claims Against Issuer...............................          52
SECTION 814.    No Liability for Clean-up of Hazardous Materials...............................          52
SECTION 815.    Accounts Agent Registrar and Paving Agent......................................          52
SECTION 816.    Filing Fees....................................................................          52
SECTION 817.    Fee Agreement..................................................................          53

                                                ARTICLE NINE
                              HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER

SECTION 901.    Holder Lists...................................................................          53
SECTION 902.    Disclosure of Names and Addresses of Holders...................................          53
SECTION 903.    Reports by Trustee.............................................................          53
SECTION 904.    Reports by Issuer..............................................................          53

                                                 ARTICLE TEN
                       SUPPLEMENTS AND AMENDMENTS TO INDENTURE AND SECURITY DOCUMENTS

SECTION 1001.   Without Vote of Holders........................................................          54
SECTION 1002.   With Consent of Holders........................................................          55
SECTION 1003.   Execution of Supplemental Indentures...........................................          56
SECTION 1004.   Effect of Supplemental Indentures..............................................          56




                                      iii


                                                                                                      
SECTION 1005.   Conformity with Trust Indenture Act............................................          56
SECTION 1006.   Reference in Notes to Supplemental Indentures..................................          56
SECTION 1007.   Notice of Supplemental Indentures..............................................          57

                                               ARTICLE ELEVEN
                                            AFFIRMATIVE COVENANTS

SECTION 1101.   Payment of Principal and Interest..............................................          57
SECTION 1102.   Maintenance of Office or Agency................................................          57
SECTION 1103.   Maintenance of Existence, Properties...........................................          57
SECTION 1104.   Payments of Taxes and Other Claims.............................................          58
SECTION 1105.   Material Agreements............................................................          58
SECTION 1106.   Notice of Certain Events.......................................................          58
SECTION 1107.   Compliance with Laws and Other Agreements......................................          59
SECTION 1108.   Maintenance of Books and Records...............................................          59
SECTION 1109.   Approvals......................................................................          59
SECTION 1110.   Rule 144A Information for the Holders..........................................          60
SECTION 1111.   Recording......................................................................          60
SECTION 1112.   Further Assurances.............................................................          60
SECTION 1113.   Collateral.....................................................................          61
SECTION 1114.   Performance of Obligations.....................................................          61
SECTION 1115.   Return of Monies Held by Trustee...............................................          61
SECTION 1116.   Schedule and Delivery of Energy Under the CDWR Power Sales Agreement...........          61

                                               ARTICLE TWELVE
                                             NEGATIVE COVENANTS

SECTION 1201.   Liens .........................................................................          61
SECTION 1202.   Indebtedness...................................................................          62
SECTION 1203.   Guaranties.....................................................................          62
SECTION 1204.   Transactions with Affiliates...................................................          62
SECTION 1205.   Investments, Loans and Advances................................................          62
SECTION 1206.   Material Agreements; Additional Contracts......................................          62
SECTION 1207.   Fundamental Change.............................................................          62
SECTION 1208.   Restricted Payments............................................................          63

                                              ARTICLE THIRTEEN
                                             REDEMPTION OF NOTES

SECTION 1301.   Applicability of Article.......................................................          63
SECTION 1302.   Election to Redeem; Notice to Trustee..........................................          63
SECTION 1303.   Selection by Trustee of Notes to Be Redeemed...................................          63
SECTION 1304.   Notice of Redemption...........................................................          64
SECTION 1305.   Deposit of Redemption Price....................................................          64
SECTION 1306.   Notes Payable on Redemption Date...............................................          65
SECTION 1307.   Notes Redeemed in Part.........................................................          65




                                       iv


                                                                                                      
                                              ARTICLE FOURTEEN
                                     DEFEASANCE AND COVENANT DEFEASANCE

SECTION 1401.   Issuer's Option to Effect Defeasance or Covenant Defeasance....................          65
SECTION 1402.   Defeasance and Discharge.......................................................          65
SECTION 1403.   Covenant Defeasance............................................................          66
SECTION 1404.   Conditions to Defeasance or Covenant Defeasance................................          66
SECTION 1405.   Deposited Money to Be Held in Trust; Other Miscellaneous Provisions............          68
SECTION 1406.   Reinstatement..................................................................          68

                                               ARTICLE FIFTEEN
                                        MEETINGS OF HOLDERS OF NOTES

SECTION 1501.   Purposes for Which Holders' Meetings May Be Called.............................          68
SECTION 1502.   Call of Meetings by Trustee....................................................          69
SECTION 1503.   Issuer and Holders May Call Meeting............................................          69
SECTION 1504.   Persons Entitled to Vote at Meeting............................................          69
SECTION 1505.   Determination of Voting Rights: Conduct and Adjournment of Meeting.............          69
SECTION 1506.   Counting Votes and Recording Action of Meeting.................................          70

                                               ARTICLE SIXTEEN
                                        COVENANTS OF HOLDERS OF NOTES

SECTION 1601.   Treatment of Notes as Indebtedness for Tax Purposes............................          71



EXHIBIT A           Definitions

EXHIBIT B1          Form of Face of Note Power Contract Financing, L.L.C.
                    5.200% Senior Secured Note Due 2006

EXHIBIT B2          Form of Face of Note Power Contract Financing, L.L.C.
                    6.256% Senior Secured Note Due 2010.

EXHIBIT C           Form of Certificate to Be Delivered upon Termination of
                    Distribution Compliance Period on or after July 23, 2003

EXHIBIT D           Form of Certificate to Be Delivered in Connection with
                    Transfers to Non-QIB Institutional Accredited Investors

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

EXHIBIT F           Form of Issuer Order and Officer's Certificate of Power
                    Contract Financing, L.L.C.


                                       v


                        POWER CONTRACT FINANCING, L.L.C.

               RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
                OF 1939 AND INDENTURE, DATED AS OF JUNE 13, 2003



TRUST INDENTURE ACT SECTION                                                 INDENTURE SECTION
                                                                         
Section 310 (a)(1)     ................................................     808
            (a)(2)     ................................................     808
            (b)        ................................................     808, 809, 810
Section 311 (a)        ................................................     813
            (b)        ................................................     813
Section 312 (a)        ................................................     901
            (b)        ................................................     902
            (c)        ................................................     902
Section 313 (a)        ................................................     903
            (b)        ................................................     903
            (c)        ................................................     720, 903
            (d)        ................................................     903
Section 314 (a)        ................................................     904, 1106
            (b)        ................................................     1111
            (c)(1)     ................................................     102
            (c)(2)     ................................................     102
            (d)        ................................................     1111
            (e)        ................................................     102
Section 315 (a)        ................................................     801
            (b)        ................................................     720
            (c)        ................................................     801
            (d)        ................................................     801
            (e)        ................................................     721
Section 316 (a)        (last sentence).................................     101 ("Outstanding")
            (a)(1)(A)  ................................................     717
            (a)(1)(B)  ................................................     718
            (b)        ................................................     713
            (c)        ................................................     104
Section 317 (a)(1)     ................................................     708, 709
            (a)(2)     ................................................     709
            (b)        ................................................     1115
Section 318 (a)        ................................................     111
            (c)        ................................................     111

- ----------
Note:       This reconciliation and tie shall not, for any purpose, be deemed
            part of the Indenture


                                       vi


            This INDENTURE, dated as of June 13, 2003 (this "Indenture"), is
made by and between POWER CONTRACT FINANCING, L.L.C., a limited liability
company organized and existing under the laws of the State of Delaware, having
its principal executive offices at 50 West San Fernando Street, Suite 670, San
Jose, California 95113 (the "Issuer"), and WILMINGTON TRUST COMPANY, a Delaware
banking corporation (the "Trustee").

                                    RECITALS

            WHEREAS, the Issuer has duly authorized the execution and delivery
of this Indenture to provide for the creation and issuance on the Closing Date,
of 5.200% Senior Secured Notes due February 1, 2006 initially to be issued in
the aggregate principal amount of $339,929,000 (the "Notes due 2006") and 6.256%
Senior Secured Notes due February 1, 2010 initially to be issued in the
aggregate principal amount of $462,317,000 (the "Notes due 2010");

            WHEREAS, all necessary actions to ensure that this Indenture is a
valid indenture and agreement according to its terms have been taken;

            WHEREAS, as security for the payment and performance by the Issuer
of its obligations under this Indenture and the Notes (as defined below), the
Issuer has agreed to assign and pledge the Collateral (as defined below) as
collateral to the Trustee for the benefit of the Trustee and the Holders (as
defined below); and

            WHEREAS, the Trustee has agreed to act as trustee, accounts agent,
paying agent and registrar under this Indenture on the following terms and
conditions.

            NOW, THEREFORE, for and in consideration of the premises herein
contained and the purchase of the Notes by the Holders, it is mutually
covenanted and agreed, for the benefit of the parties hereto and the equal and
proportionate benefit of all Holders, as follows:

                                  ARTICLE ONE
             DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

            SECTION 101. Definitions. For all purposes of this Indenture, except
as otherwise expressly provided or unless the context otherwise requires:

            (a) capitalized terms used herein shall have the respective meanings
assigned to them in Exhibit A;

            (b) the terms defined in Exhibit A include the plural as well as the
singular;

            (c) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;



            (d) the words "herein," "hereof' and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;

            (e) except as otherwise expressly provided herein, (i) all
accounting terms used herein shall be interpreted, (ii) all financial statements
and all certificates and reports as to financial matters required to be
delivered to the Trustee hereunder shall be prepared and (iii) all calculations
made for the purposes of determining compliance with this Indenture shall
(except as otherwise expressly provided herein) be made in accordance with, or
by application of, GAAP applied on a basis consistent with that used in the
preparation of the latest corresponding financial statements furnished hereunder
to the Trustee;

            (f) all references in this Indenture to "Articles," "Sections,"
"Exhibits" and other subdivisions of this Indenture are to the designated
articles, sections and other subdivisions of, and the exhibits to, this
Indenture;

            (g) unless otherwise expressly specified or the context otherwise
requires, all references in this Indenture or any Exhibit to any agreement,
contract or document (including this Indenture) shall include reference to all
exhibits to such agreement, contract or document;

            (h) unless otherwise expressly specified or the context otherwise
requires, any agreement, contract or document defined or referred to herein
shall mean such agreement, contract or document as in effect as of the date
hereof, as the same may thereafter be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof and hereof;

            (i) unless otherwise expressly specified or the context otherwise
requires, pronouns having a masculine or feminine gender shall be deemed to
include the other;

            (j) any reference to any Person shall include its permitted
successors and assigns in accordance with the terms of this Indenture and the
other Financing Documents and, in the case of any Governmental Agency, any
Person succeeding to its functions and capacities; and

            (k) the term "including" denotes an example and not a limitation.

            SECTION 102. Compliance Certificates and Opinions. (a) Upon any
application or request by the Issuer to the Trustee to take any action under any
provision of this Indenture, the Issuer shall furnish to the Trustee an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture (including any covenant compliance with which constitutes
a condition precedent) relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any application or request as to which the furnishing of such


                                       2


documents is specifically required by any provision of this Indenture, no
additional certificate or opinion need be furnished.

            (b) Every Officer's Certificate or Opinion of Counsel with respect
to compliance with a covenant or condition provided for in this Indenture shall
include: (i) a statement that each individual signing such Officer's Certificate
or Opinion of Counsel has read such covenant or condition and the definitions
herein relating thereto; (ii) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions contained
in such Officer's Certificate or Opinion of Counsel are based; (iii) a statement
that, in the opinion of each such individual, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as to
whether or not such covenant or condition has been complied with; (iv) a
statement as to whether, in the opinion of each such individual, such covenant
or condition has been complied with; and (v) a statement that, in the opinion of
each such individual, such Officer's Certificate or Opinion of Counsel complies
with the provisions of this Section 102 and that the Trustee may rely on such
Officer's Certificate or Opinion of Counsel.

            (c) Any certificate, statement or opinion of an officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or Opinion of Counsel or representations by counsel (which shall also be
addressed to the Trustee and the Holders), unless such officer knows that the
certificate or Opinion of Counsel or representations with respect to the matters
upon which his certificate, statement or Opinion of Counsel will be based are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous. Any certificate, statement or Opinion of Counsel may be based,
insofar as it relates to factual matters or information which is in the
possession of the Issuer, upon the certificate, statement or opinion of or
representations by an officer or officers of the Issuer, unless such counsel
knows that the certificate, statement or opinion or representations with respect
to the matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous.

            (d) Any certificate, statement or opinion of an officer of the
Issuer or of counsel may be based, insofar as it relates to accounting matters,
upon a certificate or opinion of an Accountant in the employ of the Issuer
(which shall be additionally addressed to the Trustee and the Holders), unless
such officer or counsel, as the case may be, knows that the certificate or
opinion with respect to the accounting matters upon which his certificate,
statement or opinion may be based as aforesaid are erroneous, or in the exercise
of reasonable care should know that the same are erroneous.

            (e) Any certificate or opinion of any Independent Accountant filed
with the Trustee shall contain a statement that such Accountant is Independent.

            SECTION 103. Form of Documents Delivered to Trustee. (a) In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to


                                       3


some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or several
documents.

            (b) Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.

            SECTION 104. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders may be embodied in and
evidenced by (i) one or more instruments of substantially similar tenor signed
by the Holders in person or by their respective agents or proxies duly appointed
in writing, (ii) the record of Holders voting in favor thereof, either in person
or by their respective agents or proxies duly appointed in writing, at any
meeting of Holders duly called and held in accordance with the provisions of
Article Fifteen, or (iii) a combination of such instruments and any such record.
Except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments or record or both are delivered to
the Trustee and, where it is expressly required hereby, to the Issuer. Such
instrument or instruments and any such record (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments or so voting at any such meeting.
Proof of execution of any such instrument or of a writing appointing any such
agent, or of the holding by any Person of a Note, shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and the Issuer,
if made in the manner provided in this Section 104. The record of any meeting of
Holders shall be proved in the manner provided in Section 1506.

            (b) The affidavit of a witness of such execution sworn to before a
notary public or other officer authorized by law to take acknowledgments of
deeds or administer oaths, or by a certificate of such notary or other officer,
certifying that the individual signing such instrument or writing acknowledged
to him the execution thereof shall be conclusive evidence of the fact and date
of execution by any Person of any such instrument or writing. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.

            (c) Entries in the Security Register shall be conclusive evidence of
the principal amount and serial numbers of Notes held by any Person, and the
date of holding the same, and the Trustee shall not be affected by notice to the
contrary.

            (d) If the Issuer shall solicit from the Holders of either Series of
the Notes any request, demand, authorization, direction, notice, consent, waiver
or other Act, the Issuer may, at its option, by or pursuant to a Management
Committee's Consent, fix in advance a record date for the determination of such
Holders entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Issuer shall


                                       4


have no obligation to do so. Notwithstanding Trust Indenture Act Section 316(c),
such record date shall be the record date specified in or pursuant to such
Management Committee's Consent, which shall be a date not earlier than the date
thirty (30) days prior to the first solicitation of Holders generally in
connection therewith and not later than the date such solicitation is completed
unless otherwise specified herein. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Notes shall be computed as of such record date;
provided, that no such authorization, agreement or consent by the Holders on
such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven (11) months
after the record date.

            (e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Issuer in
reliance thereon, whether or not notation of such action is made upon such Note.

            SECTION 105. Notices, Etc. to Trustee and Issuer. Any request,
demand, authorization, direction, notice, consent, waiver or other Act of
Holders or other documents provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with:

            (a) the Trustee by any Holder or by the Issuer shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office; or

            (b) the Issuer by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Issuer addressed to it
at the address of its principal office specified in the first paragraph of this
Indenture or at any other address previously furnished in writing to the Trustee
by the Issuer.

            SECTION 106. Notice to Holders: Waiver. (a) Where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, or delivered by overnight courier or facsimile, to
each Holder, at its address or facsimile number (as applicable) as it appears in
the Security Register, not later than the latest date (if any), and not earlier
than the earliest date (if any), prescribed for the giving of such notice. Where
this Indenture provides for notice in any manner, such notice and the manner of
its giving may be waived in writing by the Person entitled to receive such
notice, either before or after the event and such waiver shall be the


                                       5


equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver. In any case where notice to
Holders is given by mail or fax (as applicable), neither the failure to mail or
fax such notice, nor any defect in any notice so mailed or faxed (as the case
may be), to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders, and any notice that is mailed or faxed in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not such Holder actually receives notice.

            (b) In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail or deliver notice of any event to Holders when such notice is required
to be given pursuant to any provision of this Indenture, then any manner of
giving such notice as shall be satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice for every purpose hereunder.

            SECTION 107. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the meaning or construction of any of the provisions
hereof.

            SECTION 108. Successors and Assigns. All covenants, stipulations,
promises and agreements in this Indenture by or on behalf of each of the Trustee
and the Issuer shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed or not.

            SECTION 109. Severability Clause. In case any provision in this
Indenture or in any Note shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

            SECTION 110. Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto, any Accounts Agent, any Paying Agent, any Registrar, and their
successors and permitted assigns hereunder, and the Holders of Notes, any
benefit or any legal or equitable right, remedy or claim under this Indenture.

            SECTION 111. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with the duties imposed by the Trust
Indenture Act Sections 310 to 318, inclusive, or conflicts with any provision of
the Trust Indenture Act that is required under the Trust Indenture Act to be a
part of and govern this Indenture, such duties or provision of the Trust
Indenture Act shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded by its terms, such provision shall be deemed to apply to this Indenture
as so modified or to be excluded, as the case may be.

            SECTION 112. Governing Law; Consent to Jurisdiction and Service of
Process. (a) This Indenture and the Notes shall be governed by, and construed in


                                       6


accordance with, the law of the State of New York without giving effect to the
principles thereof relating to conflicts of law except Section 5-1401 of the New
York General Obligations Law.

            (b) The Issuer consents to the non-exclusive jurisdiction of any
court of the State of New York or any United States federal court sitting in the
Borough of Manhattan, New York City, New York, United States, and any appellate
court from any thereof, and waives any immunity from the jurisdiction of such
courts over any suit, action, or proceeding that may be brought in connection
with this Indenture, the Financing Documents or the Notes. The Issuer
irrevocably waives, to the fullest extent permitted by law, any objection to any
suit, action, or proceeding that may be brought in connection with this
Indenture, the Financing Documents or the Notes in such courts whether on the
grounds of venue, residence or domicile or on the ground that any such suit,
action or proceeding has been brought in an inconvenient forum. The Issuer
agrees that final judgment in any such suit, action or proceeding brought in
such court shall be conclusive and binding upon the Issuer and may be enforced
in any court to the jurisdiction of which the Issuer is subject by a suit upon
such judgment.

The Issuer agrees that service of all writs, process and summonses in any suit,
action or proceeding brought in connection with this Indenture, the Financing
Documents or the Notes against the Issuer, or with respect to its property and
assets, in any court of the State of New York or any United States federal court
sitting in the Borough of Manhattan, New York City may be made upon National
Corporate Research, Ltd. ("NCR") at 225 W. 34th Street, Suite 910, New York, NY
10122, whom the Issuer appoints as its authorized agent for service of process.
The Issuer represents and warrants that NCR has agreed to act as the Issuer's
agent for service of process. The Issuer agrees that such appointment shall be
irrevocable so long as any of the Notes remain outstanding or until the
irrevocable appointment by the Issuer of a successor in New York City as its
authorized agent for such purpose and the acceptance (on terms reasonably
satisfactory to the Trustee) of such appointment by such successor. The Issuer
further agrees to take any and all action, including the filing of any and all
documents and instruments, that may be necessary to continue such appointment in
full force and effect as aforesaid. If NCR shall cease to act as the Issuer's
agent for service of process, the Issuer shall appoint without delay another
such agent and provide prompt written notice to the Trustee of such appointment.
With respect to any such action in any court of the State of New York or any
United States federal court in the Borough of Manhattan, City of New York,
service of process upon NCR, as the authorized agent of the Issuer for service
of process, and written notice of such service to the Issuer, shall be deemed in
every respect effective service of process upon the Issuer. Without prejudice to
the foregoing, the Issuer hereby irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
the Issuer at the address of its principal office specified in the first
paragraph of this Indenture or at any other address previously furnished in
writing to the Trustee by the Issuer.

            (c) Nothing in this Section 112 shall affect the right of any party
to serve legal process in any other manner permitted by law or affect the right
of any party


                                       7


to bring any action or proceeding against any other party or its property in the
courts of other jurisdictions.

            SECTION 113. Legal Holidays. If any Payment Date, Redemption Date or
Stated Maturity of any Note or of any installment of principal thereof or
payment of interest thereon, or any date on which any defaulted interest is
proposed to be paid, shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of any Note) payment
of interest or principal (or Make-Whole Premium, if any) need not be made at
such Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if made
on the Payment Date or Redemption Date, or at the Stated Maturity, or on the
date on which the defaulted interest is proposed to be paid; provided, that no
interest shall accrue on the amount then due for the period from and after such
Payment Date, Redemption Date, Stated Maturity or the date on which the
defaulted interest is proposed to be paid, as the case may be, to the date of
such payment.

            SECTION 114. Incorporators, Shareholders, Members, Officers and
Directors of Issuer Exempt from Individual Liability. No recourse under or upon
any obligation, covenant or agreement contained in this Indenture or any
Security Document, or because of any indebtedness evidenced thereby, shall be
had against any incorporator, as such, or against any past, present or future
stockholder, member, manager, officer or director, as such, of the Issuer or the
Issuer's Members, or of any successor, either directly or through the Issuer or
the Issuer's Members, as the case may be, or any successor, under any rule of
law, statute, or constitutional provision or by the enforcement of any
assessment or by any legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the acceptance of the Notes by
the Holders and as part of the consideration for the issuance of the Notes.
Nothing contained in this Section 114 shall, however, limit the liability of any
Person for any fraud, gross negligence or willful misconduct on their part.

            SECTION 115. Execution in Counterparts. This instrument may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.

                                  ARTICLE TWO
                                 FORM OF NOTES

            SECTION 201. Form of Note. (a) The Notes due 2006 and the
accompanying Trustee's certificate of authentication shall be substantially in
the form annexed hereto as Exhibit B1. The Notes due 2010 and the accompanying
Trustee's certificate of authentication shall be substantially in the form
annexed hereto as Exhibit B2. The Notes may have such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture and may have letters, notations or other marks of identification
and such notations, legends or endorsements required by law, the rules of any
stock exchange, agreements to which the Issuer is subject or usage. Any portion
of the text of any Note may be set forth on the reverse thereof, with an


                                       8


appropriate reference thereto on the face of the Note. The Issuer shall approve
the form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.

            (b) The definitive Notes shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner permitted by
the rules under any applicable securities laws, all as determined by the
officers of the Issuer executing such Notes, as evidenced by their execution of
such Notes.

            (c) The terms and provisions contained in the form of the Notes
annexed hereto as Exhibit B1 or B2, as applicable shall constitute, and are
hereby expressly made, a part of this Indenture; provided, that to the extent
any provision of any Note conflicts with the express provisions of this
Indenture, the provisions of this Indenture shall govern and be controlling. To
the extent applicable, the Issuer and the Trustee, by their execution and
delivery of this Indenture, and the Holders and beneficial owners of the Notes
by their acceptance of the Notes expressly agree to such terms and provisions
and to be bound thereby.

            (d) Notes offered and sold to QIBs in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Notes in registered
form, substantially in the form set forth in Exhibit B1 or B2, as applicable
(each, a "Rule 144A Global Note"), deposited with the Trustee as custodian for
DTC and registered in the name of a nominee of DTC, duly executed by the Issuer
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of each Rule 144A Global Note may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for DTC or its nominee, as hereinafter provided.

            (e) Notes offered and sold in offshore transactions in reliance on
Regulation S shall be initially issued in the form of one or more temporary
global Notes in registered form, substantially in the form set forth in Exhibit
B1 or B2, as applicable (each, a "Temporary Regulation S Global Note"),
deposited with the Trustee as custodian for DTC and registered in the name of a
nominee of DTC for the accounts of Euroclear Bank, S.A./N.V., as operator of
Euroclear and Clearstream Luxembourg, duly executed by the Issuer and
authenticated by the Trustee as hereinafter provided. Each Temporary Regulation
S Global Note will be exchangeable for one or more permanent global Notes (each,
a "Permanent Regulation S Global Note"; and together with the Temporary
Regulation S Global Notes, the "Regulation S Global Notes") after the fortieth
(40th) day following the Closing Date, upon certification (substantially in the
form of Exhibit C) that the beneficial interests in such global Note are owned
by either Non-U.S. Persons or U.S. Persons who purchased such interests pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. The aggregate principal amount of each
Regulation S Global Note may from time to time be increased or decreased by
adjustments made in the records of the Trustee, as custodian for DTC or its
nominee, as herein provided.

            (f) Notes offered and sold to institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who are
not QIBs


                                       9


(excluding Non-U.S. Persons) shall initially be issued in the form of permanent
certificated Notes in registered form in substantially the form of Exhibit B1 or
B2, as applicable ("U.S. Physical Notes"). Notes issued pursuant to Section 306
in exchange for or upon transfer of interests in a Rule 144A Global Note or a
Regulation S Global Note shall be in the form of U.S. Physical Notes and
permanent certificated Notes in registered form substantially in the form set
forth in Exhibit B1 or B2, as applicable (the "Regulation S Physical Note"),
respectively.

            (g) The U.S. Physical Notes and the Regulation S Physical Notes are
sometimes collectively herein referred to as the "Physical Notes." The
Regulation S Global Notes and the Rule 144A Global Notes are sometimes
collectively referred to as the "Global Notes."

            SECTION 202. Restrictive Legends. (a) (i) Each Rule 144A Global Note
and each U.S. Physical Note shall bear the legend set forth below (the "Private
Placement Legend") on the face thereof, except as otherwise provided in Section
307(e), and (ii), and each Regulation S Global Note and each Regulation S
Physical Note shall bear the legend set forth below on the face thereof until at
least July 23, 2003, and receipt by the Issuer and the Trustee of a certificate
substantially in the form of Exhibit C:

            THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
            AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
            NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
            OFFERED, RESOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
            OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
            SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
            REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
            LAWS. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER
            OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
            SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

            THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES THAT ANY
            OFFER, SALE OR OTHER TRANSFER OF SUCH SECURITY, PRIOR TO THE DATE
            WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF
            AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER
            WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) (THE
            "RESALE RESTRICTION TERMINATION


                                       10


            DATE"), SHALL ONLY BE MADE: (A) TO THE ISSUER OR ANY SUBSIDIARY, (B)
            PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
            ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT
            TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
            REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER," AS DEFINED
            IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
            OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
            TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
            OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
            STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT,
            (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
            SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
            SECURITIES ACT THAT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT, OR
            FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
            INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO, OR FOR OFFER OR
            RESALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
            SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR (F) PURSUANT
            TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
            THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT,
            PRIOR TO ANY SUCH OFFER, RESALE OR TRANSFER (i) PURSUANT TO CLAUSE
            (D) PRIOR TO THE END OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD
            WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR
            PURSUANT TO CLAUSE (E) OR (F) PRIOR TO THE RESALE RESTRICTION
            TERMINATION DATE, TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
            CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM
            AND FURTHER SUBJECT, IN EACH OF THE FOREGOING CASES, EXCEPT (D), TO
            COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (ii) IN EACH
            OF THE FOREGOING CASES, TO REQUIRE THAT A


                                       11


            CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS
            COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS
            LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
            RESTRICTION TERMINATION DATE.

            (b) Each Global Note shall also bear the following legend on the
face thereof

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

            TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
            WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
            THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
            THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE
            WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE
            INDENTURE. THE HOLDER OF THIS GLOBAL NOTE REPRESENTS THAT (i) IT IS
            NOT AN EMPLOYEE BENEFIT PLAN AS DEFINED IN SECTION 3(3) OF THE
            EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
            ("ERISA") (AN "ERISA PLAN") OR OTHER PLAN, AN ENTITY WHOSE
            UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER
            PLAN OR A GOVERNMENTAL PLAN THAT IS SUBSTANTIALLY SIMILAR TO THE
            PROVISIONS OF SECTION 406 OF


                                       12


            ERISA OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
            AMENDED (THE "CODE"), OR (ii) THE PURCHASE AND HOLDING BY IT OF THIS
            NOTE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406
            OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF A
            GOVERNMENTAL PLAN, ANY SUBSTANTIALLY SIMILAR FEDERAL, STATE OR LOCAL
            LAW) FOR WHICH AN EXEMPTION IS NOT AVAILABLE.

                                 ARTICLE THREE
                                   THE NOTES

            SECTION 301. Amount. (a) The Notes due 2006 and the Notes due 2010
to be issued under this indenture are hereby created. The maximum aggregate
principal amount of Notes due 2006 that may be authenticated and delivered under
this Indenture on the Closing Date is $339,929,000 and the maximum aggregate
principal amount of Notes due 2010 that may be authenticated and delivered under
this Indenture on the Closing Date is $462,317,000.

            (b) The Notes due 2006 shall be known and designated as the "5.200%
Senior Secured Notes due 2006" of the Issuer and the Notes due 2010 shall be
known and designated as the "6.256% Senior Secured Notes due 2010" of the
Issuer. The Stated Maturity of the Notes due 2006 shall be February 1, 2006 and
the Stated Maturity of the Notes due 2010 shall be February 1, 2010. Interest on
the Notes due 2006 will accrue at the rate of 5.200% per annum and interest on
the Notes due 2010 will accrue at the rate of 6.256% per annum, in each case
from the Closing Date, or from the most recent Interest Payment Date on which
interest has been paid or duly provided for, payable each applicable Interest
Payment Date, until the full principal thereof is paid or duly provided for.

            (c) Principal payments on the Notes due 2006 will be made on the
Principal Payment Dates in an amount equal to the amount, if any, set forth
opposite the applicable Principal Payment Date on the amortization schedule set
out below. The aggregate principal amount of the Notes due 2006 payable on each
Principal Payment Date is:



            Principal Payment Date                Principal Payable Amount
            ----------------------                ------------------------
                                               
            February 1, 2004                            $  43,150,835
            August 1, 2004                              $  70,728,895
            February 1, 2005                            $  74,102,631
            August 1, 2005                              $  73,994,448
            February 1, 2006                            $  77,952,191



                                       13


            (d) Principal payments on the Notes due 2010 will be made on the
Principal Payment Dates in an amount equal to the amount, if any, set forth
opposite the applicable Principal Payment Date on the amortization schedule set
out below. The aggregate principal amount of the Notes due 2010 payable on each
Principal Payment Date is:



            Principal Payment Date                  Principal Payable Amount
            ----------------------                  ------------------------
                                                 
            February 1, 2004                             $            0
            August 1, 2004                               $            0
            February 1, 2005                             $            0
            August 1, 2005                               $            0
            February 1, 2006                             $            0
            August 1, 2006                               $   77,945,061
            February 1, 2007                             $   82,418,034
            August 1, 2007                               $   45,757,654
            February 1, 2008                             $   48,607,171
            August 1, 2008                               $   49,017,109
            February 1, 2009                             $   51,660,859
            August 1, 2009                               $   52,056,612
            February 1, 2010                             $   54,854,500


            (e) The principal of, Make-Whole Premium, if any, and interest on,
the Notes shall be payable to, and the Notes shall be exchangeable and
transferable by, at the office or agency of the Issuer in the Borough of
Manhattan, the City of New York, maintained for such purposes (which initially
shall be the Corporate Trust Office of the Trustee), the Person in whose name
such Note is registered at the close of business on the Regular Record Date
applicable to each Principal Payment Date or otherwise in accordance with
Section 309.

            (f) The Notes shall be redeemable as provided in Article Thirteen.

            (g) This Indenture shall, to the extent applicable, incorporate and
be governed by the provisions of the Trust Indenture Act that are required to be
part of and to govern indentures qualified under the Trust Indenture Act.

            SECTION 302. Denominations. The Notes shall be issuable only in
registered form without coupons and initially only in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof; provided, that
initial purchases of the Notes by purchasers who are institutional "accredited
investors" who are not QIBs shall be in minimum amounts of $250,000; and
provided, further that after initial issuance, Notes may be issued upon exchange
or transfer in such amounts as may be necessary to evidence the entire unpaid
principal amount of any Note surrendered or exchanged.

            SECTION 303. Execution, Authentication, Delivery and Dating. (a) The
Notes shall be executed on behalf of the Issuer by its President or a Vice


                                       14


President and attested by a Vice President, its Secretary or an Assistant
Secretary. The signature of any of these officers on the Notes may be manual or
facsimile signatures of the present or any future such authorized officer and
may be imprinted or otherwise reproduced on the Notes.

            (b) Notes bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.

            (c) At any time and from time to time after the execution and
delivery of this Indenture, the Issuer may deliver Notes executed by the Issuer
to the Trustee for authentication, together with an Issuer Order for the
authentication and delivery of such Notes, directing the Trustee to authenticate
the Notes; and the Trustee, in accordance with such Issuer Order, shall
authenticate and deliver such Notes as in this Indenture provided and not
otherwise. Each such Issuer Order shall specify the Series and amount of Notes
to be authenticated, the date on which the Notes are to be authenticated,
whether the Notes are to be Initial Notes or Unrestricted Notes and whether the
Notes are to be issued as Physical Notes or Global Notes or such other
information as the Trustee may reasonably request. The Trustee shall receive, as
part of any such Issuer Order, an Officer's Certificate certifying that all
conditions precedent to the issuance of Notes contained herein have been fully
complied with. Any Issuer Order and Officer's Certificate delivered by the
Issuer to the Trustee pursuant to this Section 303(c) shall be substantially in
the form annexed hereto as Exhibit F. The Trustee may also request an Opinion of
Counsel of the Issuer in connection with such authentication of Notes. Upon
receipt of any such Issuer Order, the Trustee shall, in accordance with such
Issuer Order, authenticate Notes due 2006 for original issue in the aggregate
principal amount not to exceed $339,929,000 and Notes due 2010 for original
issue in the aggregate principal amount not to exceed $462,317,000. The
aggregate principal amount of Notes due 2006 outstanding at any time may not
exceed $339,929,000 and the aggregate principal amount of Notes due 2010
outstanding at any time may not exceed $462,317,000.

            (d) Each Note shall be dated the date of its authentication.

            (e) The Trustee may appoint an authenticating agent or agents
reasonably acceptable to the Issuer to authenticate Notes. Unless limited by
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Any authenticating agent has the same rights as
an agent to deal with the Issuer or an Affiliate of the Issuer.

            (f) No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in Exhibit
B1 or B2, as applicable duly executed by the Trustee by manual signature of an
authorized signatory, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such


                                       15


Note has been duly authenticated and delivered hereunder and is entitled to the
benefits of this Indenture.

            (g) In case the Issuer shall have executed an indenture supplemental
hereto with the Trustee pursuant to Section 1001(a), any of the Notes
authenticated or delivered prior to the assumption of the Issuer's obligations
by any successor Person, may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance and of like tenor as the Notes surrendered for such
exchange and of like principal amount, and the Trustee, upon Issuer Request of
the successor Person, shall authenticate and deliver Notes as specified in such
request for the purpose of such exchange. If Notes shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section 303 in exchange or substitution for or upon registration of
transfer of any Notes, such successor Person, at the option of the Holders but
without expense to them, shall provide for the exchange of all Notes at the time
Outstanding for Notes authenticated and delivered in such new name.

            SECTION 304. Temporary Notes. (a) Pending the preparation of
definitive Notes, the Issuer may execute, and upon an Issuer Order, the Trustee
shall authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Notes may determine, as conclusively
evidenced by their execution of such Notes.

            (b) If temporary Notes are issued, the Issuer will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Issuer
designated for such purpose pursuant to Section 1102, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Issuer shall execute, and the Trustee, upon receipt of an Issuer Order, shall
authenticate and deliver, in exchange therefor a like principal amount of
definitive Notes of authorized denominations. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as definitive Notes.

            SECTION 305. Registration, Registration of Transfer and Exchange.
(a) The Issuer shall cause to be kept at the Corporate Trust Office of the
Registrar a register which, subject to such reasonable regulations as the Issuer
may prescribe, shall provide for the registration of Notes and for the
registration of transfers and exchanges of Notes, and the Trustee is hereby
appointed "Registrar" for the purposes of registering Notes and transfers and
exchanges of Notes as herein provided. This register shall be sometimes referred
to herein as the "Security Register," and shall be in written form or any other
form capable of being converted into written form within a


                                       16


reasonable time. At all reasonable times, the Security Register shall be open to
inspection by the Trustee.

            (b) The Notes shall be transferable only upon the surrender of a
Note to the Issuer for registration of transfer. Subject to the provisions of
Section 307, upon surrender for registration of transfer of any Note at the
office or agency of the Issuer designated pursuant to Section 1102, the Issuer
shall execute, and the Trustee, upon receipt of an Issuer Order, shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of any authorized denomination or
denominations of a like aggregate principal amount.

            (c) At the option of the Holder thereof, Notes may be exchanged for
other Notes to be registered in the name of such Holder, of authorized
denominations and of like tenor, maturity and aggregate principal amount, upon
surrender of the Notes to be exchanged at any office or agency maintained for
such purpose. Whenever any Notes are so surrendered for exchange, the Issuer
shall execute, and the Trustee, upon receipt of an Issuer Order, shall
authenticate and make available for delivery, the Notes which the Holder making
the exchange is entitled to receive.

            (d) All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.

            (e) Every Note presented or surrendered for registration of transfer
or for exchange shall (if so required by the Issuer or the Registrar) be duly
endorsed or be accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Registrar, duly executed by the Holder
thereof or his or her attorney duly authorized in writing.

            (f) No service charge shall be made for any registration of transfer
or exchange or redemption of Notes; provided, that the Issuer may require
payment in certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Notes, other than exchanges pursuant to Section 304,
1006 or 1307 not involving any transfer.

            (g) The Issuer shall not be required (i) to issue, register the
transfer of or exchange any Notes during a period beginning at the opening of
business 15 days before the selection of Notes to be redeemed under Section 1303
and ending at the close of business on the day of such mailing of the relevant
notice of redemption or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.

            SECTION 306. Book Entry Provisions for Global Notes. (a) Each Global
Note initially shall (i) be registered in the name of Cede & Co., as nominee of
DTC (such nominee being referred to herein as the "Global Note Holder"), (ii) be


                                       17


deposited with, or on behalf of, DTC or with the Trustee, as custodian for DTC
and (iii) bear legends as set forth in Section 202.

            (b) Members of, or participants in, DTC (collectively, the
"Participants" or the "DTC Participants") shall have no rights under this
Indenture with respect to any Global Note held on their behalf by DTC, or the
Trustee as its custodian, or under any Global Note, and DTC may be treated by
the Issuer, the Trustee and any agent of the Issuer or the Trustee as the
absolute owner of such Global Note for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Issuer, the Trustee or any agent
of the Issuer or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by DTC or shall impair, as between DTC
and its Participants, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.

            (c) Transfers of any Global Note shall be limited to transfers of
such Global Note in whole, but not in part, to DTC, its successors or their
respective nominees. Interests of beneficial owners in a Global Note may be
transferred in accordance with the applicable rules and procedures of DTC and
the provisions of Section 307. In addition, U.S. Physical Notes or Regulation S
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in the Rule 144A Global Notes or Regulation S Global
Notes, respectively, if (i) the Issuer notifies the Trustee in writing that DTC
is unwilling or unable to continue as depository for the Global Notes or DTC
ceases to be a "Clearing Agency" registered under the Exchange Act and a
successor depository is not appointed by the Issuer within ninety (90) days or
(ii) the Issuer, at its option, notifies the Trustee in writing that it elects
to have the Physical Notes so issued.

            (d) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.

            (e) In connection with the transfer of an entire Rule 144A Global
Note or Regulation S Global Note to beneficial owners pursuant to paragraph (c)
of this Section 306, the Rule 144A Global Note or Regulation S Global Note, as
the case may be, shall be deemed to be surrendered to the Trustee for
cancellation, and the Issuer shall execute, and the Trustee, upon receipt of an
Issuer Order, shall authenticate and deliver, to each beneficial owner
identified by DTC in exchange for its beneficial interest in the Rule 144A
Global Note or Regulation S Global Note, as the case may be, an equal aggregate
principal amount of Physical Notes of authorized denominations.

            (f) Any U.S. Physical Note delivered in exchange for an interest in
the Rule 144A Global Note pursuant to subsection (c) of this Section 306 shall,
unless such exchange is made on or after the Resale Restriction Termination Date
for such Note, bear the Private Placement Legend.


                                       18


            (g) The registered Global Note Holder may grant proxies and
otherwise authorize any person, including DTC's Participants and persons that
may hold interests through DTC's Participants, to take any action which a Holder
is entitled to take under this Indenture or the Notes.

            (h) Any beneficial owner of interests in a Global Note may receive
Physical Notes (which shall bear the Private Placement Legend if required by
Section 202) in accordance with the procedures of DTC. In connection with the
execution, authentication and delivery of such Physical Notes in exchange for
beneficial interests in a Global Note pursuant to this paragraph (h) or
paragraph (c) above, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of the applicable Global Note in an
amount equal to the principal amount of the beneficial interest in such Global
Note to be transferred, and the Issuer shall execute, and the Trustee, upon
receipt of an Issuer Order, shall authenticate and deliver, one or more Physical
Notes of like tenor and having an equal aggregate principal amount.

            SECTION 307. Special Transfer Provisions. Unless and until a Note is
sold under an effective Registration Statement, the following provisions shall
apply:

            (a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) which is not a QIB (excluding Non-U.S. Persons):

                  (i) The Registrar shall register the transfer of any Note,
      whether or not such Note bears the Private Placement Legend, if (x) the
      requested transfer is on or after the Resale Restriction Termination Date
      or (y) the proposed transferee has delivered to the Registrar a
      certificate substantially in the form of Exhibit D.

                  (ii) If the proposed transferor is a DTC Participant holding a
      beneficial interest in the Rule 144A Global Note, upon receipt by the
      Registrar of (x) the documents, if any, required by paragraph (i) above
      and (y) instructions given in accordance with DTC's and the Registrar's
      procedures therefor, the Registrar shall reflect on its books and records
      the date and a decrease in the principal amount of the Rule 144A Global
      Note in an amount equal to the principal amount of the beneficial interest
      in the Rule 144A Global Note to be transferred, and the Issuer shall
      execute, and the Trustee, upon receipt of an Issuer Order, shall
      authenticate and deliver, one or more Physical Notes of like tenor and
      amount.

            (b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a U.S. Physical Note or
an interest in the Rule 144A Global Note to a QIB (excluding Non-U.S. Persons):


                                       19


                  (i) If the Note to be transferred consists of (x) a U.S.
      Physical Note, the Registrar shall register the transfer and the Issuer
      shall execute, and the Trustee shall authenticate and deliver, one or more
      U.S. Physical Notes if such transfer is being made by a proposed
      transferor who has checked the box provided for on the form of Note
      stating, or has otherwise advised the Issuer and the Registrar in writing,
      that the sale has been made in compliance with the provisions of Rule 144A
      to a transferee who has signed the certification provided for on the form
      of Note stating, or has otherwise advised the Issuer and the Registrar in
      writing, that it is purchasing the Note for its own account or an account
      with respect to which it exercises sole investment discretion and that it,
      or the Person on whose behalf it is acting with respect to any such
      account, is a QIB within the meaning of Rule 144A, is aware that the sale
      to it is being made in reliance on Rule 144A and acknowledges that it has
      received such information regarding the Issuer as it has requested
      pursuant to Rule 144A or has determined not to request such information
      and that it is aware that the transferor is relying upon its foregoing
      representations in order to claim the exemption from registration provided
      by Rule 144A or (y) an interest in a Rule 144A Global Note, the transfer
      of such interest may be effected only through the book-entry system
      maintained by DTC.

                  (ii) If the proposed transferee is a DTC Participant, and the
      Notes to be transferred consist of U.S. Physical Notes, upon receipt by
      the Registrar of instructions given in accordance with DTC's and the
      Registrar's procedures therefor, the Registrar shall reflect on its books
      and records the date and an increase in the principal amount of the Rule
      144A Global Note in an amount equal to the principal amount of the U.S.
      Physical Notes to be transferred, and the Trustee shall cancel the U.S.
      Physical Notes so transferred.

            (c) Transfers of Interests in the Regulation S Global Note or
Regulation S Physical Notes to U.S. Persons. The following provisions shall
apply with respect to any transfer of interests in the Regulation S Global Note
or Regulation S Physical Notes to U.S. Persons:

                  (i) prior to the removal of the Private Placement Legend for
      the Regulation S Global Notes or the Regulation S Physical Notes pursuant
      to Section 202, the Registrar shall refuse to register such transfer; and

                  (ii) after such removal pursuant to Section 202, the Registrar
      shall register the transfer of any such Note without requiring any
      additional certification.

            (d) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:


                                       20


                  (i) Prior to July 23, 2003, the Registrar shall register any
      proposed transfer of a Note to a Non-U.S. Person upon receipt of a
      certificate substantially in the form of Exhibit E from the proposed
      transferor and the Issuer shall execute, and the Trustee shall, upon
      receipt of an Issuer Order, authenticate and deliver, one or more
      Temporary Regulation S Global Notes of like tenor and amount.

                  (ii) On and after July 23, 2003, the Registrar shall register
      any proposed transfer to any Non-U.S. Person (x) if the Note to be
      transferred is a Regulation S Physical Note, (y) if the Note to be
      transferred is a U.S. Physical Note or an interest in the Rule 144A Global
      Note, upon receipt of a certificate substantially in the form of Exhibit E
      from the proposed transferor and, (z) in the case of either clause (x) or
      (y), the Issuer shall execute, and the Trustee, upon receipt of an Issuer
      Order, shall authenticate and deliver, one or more Physical Notes of like
      tenor and amount.

                  (iii) If the proposed transferor is a DTC Participant holding
      a beneficial interest in the Rule 144A Global Note, upon receipt by the
      Registrar of (x) the document, if any, required by paragraph (i) and (y)
      instructions in accordance with DTC's and the Registrar's procedures
      therefor, the Registrar shall reflect on its books and records the date
      and a decrease in the principal amount of the Rule 144A Global Note in an
      amount equal to the principal amount of the beneficial interest in the
      Rule 144A Global Note to be transferred and the Issuer shall execute, and
      the Trustee, upon receipt of an Issuer Order, shall authenticate and
      deliver, one or more Regulation S Global Notes or Physical Notes of like
      tenor and amount.

            (e) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend unless the
Issuer has reasonable cause to believe that a Note is a Restricted Security and
delivers to the Trustee an Issuer Order, in which case the Trustee shall
authenticate and deliver a new Note bearing a Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by paragraph (a)(i)(x) of this
Section 307 exist or (ii) there is delivered to the Registrar an Opinion of
Counsel reasonably satisfactory to the Issuer and the Registrar to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act.

            (f) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture and such Note.


                                       21


            (g) Retention of Records. The Registrar shall retain until such time
as no Notes remain Outstanding copies of all letters, notices and other written
communications received pursuant to Section 306 or this Section 307. The Issuer
shall have the right to inspect and make copies of all such letters, notices or
other written communications at any reasonable time upon the giving of
reasonable written notice to the Registrar.

            (h) No Duty to Monitor. Neither the Trustee nor the Registrar shall
have an obligation or duty to monitor, determine or inquire as to compliance
with any restrictions on transfer imposed under this Indenture or under
applicable law with respect to any transfer of any interest in any Note other
than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly
required by the terms of, this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.

            SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes. (a) If any
mutilated Note is surrendered to the Trustee or the Registrar, the Issuer shall
execute, and the Trustee, upon receipt of an Issuer Order and such security or
indemnity as may be required by the Trustee, Registrar and the Issuer to save
each of them and any agent of theirs harmless, shall authenticate and deliver,
in exchange therefor a new Note of like tenor and principal amount and bearing a
number not contemporaneously Outstanding, or, in case any such mutilated Note
has become or is about to become due and payable, the Issuer in its discretion
may, instead of issuing a new Note, pay such Note.

            (b) If there shall be delivered to the Issuer and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Note and
(ii) such security or indemnity as may be required by them to save each of them
and any agent of either of them harmless, then, in the absence of notice to the
Issuer or the Trustee that such Note has been acquired by a bona fide purchaser,
the Issuer shall execute, and the Trustee, upon receipt of an Issuer Order,
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Note, a new Note of like tenor and principal amount and bearing a number not
contemporaneously Outstanding, or, in case any such destroyed, lost or stolen
Note has become or is about to become due and payable, the Issuer in its
discretion may, instead of issuing a new Note, pay such Note.

            (c) Upon the issuance of any new Note under this Section 308, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

            (d) Every new Note issued pursuant to this Section 308 in lieu of
any destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Notes, duly issued hereunder.


                                       22


            (e) The provisions of this Section 308 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.

            SECTION 309. Payment on Notes; Rights Preserved. (a) Principal of,
Make-Whole Premium, if any, and interest on any Note which is payable, and is
punctually paid or duly provided for, on any Payment Date shall be paid in
accordance with Section 502(b) hereof to the Person in whose name such Note (or
one or more Predecessor Notes) is registered at the close of business on the
Regular Record Date applicable to such Payment Date at the office or agency of
the Issuer in the Borough of Manhattan, the City of New York, maintained for
such purposes (which initially shall be the Corporate Trust Office) pursuant to
Section 1102 or, at the option of the Issuer, interest may be paid by check
mailed to the address of the Person entitled thereto pursuant to Section 310 as
such address appears in the Security Register; provided, that (i) all payments
with respect to the Global Notes and Physical Notes the Holders of which have
given wire transfer instructions to the Trustee by the Regular Record Date shall
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof; (ii) the payment of the final
installment of principal of, or interest on, each Note shall only be made upon
presentation and surrender of such Note at the Corporate Trust Office or such
other place as may be designated pursuant to this Indenture; and (iii) upon
written request from any Holder of Outstanding Notes in the aggregate principal
amount of $1,000,000, payments of interest on, or principal (other than the
final payment of principal) of, such Notes shall be made by wire transfer to
such Holder.

            (b) Any principal of, Make-Whole Premium, if any, or interest on any
Note which is payable, but is not punctually paid or duly provided for, on the
relevant Payment Date shall forthwith cease to be payable to the Holder on the
Regular Record Date by virtue of having been such Holder, and such defaulted
principal or interest and (to the extent lawful) interest on such defaulted
principal or interest at the applicable rate borne by such Note plus additional
interest at the rate of one percent (1%) per annum (such defaulted interest and
interest thereon herein collectively called "Defaulted Payments") shall be paid
by the Issuer as provided in clause (c) below.

            (c) The Issuer shall make payment of any Defaulted Payment to the
Persons in whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Payment, which shall be fixed in the following manner. The Issuer
shall notify the Trustee in writing of the amount of the Defaulted Payment
proposed to be paid on each Note and the date of the proposed payment and, at
the same time, the Issuer shall deposit in the Collections Account an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Payment or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to such
Defaulted Payment as provided in this clause (c). Thereupon the Trustee shall
fix a Special Record Date for the payment of such Defaulted Payment, which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10


                                       23


days after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Issuer of such Special Record Date and, in the
name and at the expense of the Issuer, shall cause notice of the proposed
payment of such Defaulted Payment and the Special Record Date therefor to be
given in the manner provided for in Section 106 not less than ten (10) days
prior to such Special Record Date. Notice of the proposed payment of such
Defaulted Payment and the Special Record Date therefor having been so given,
such Defaulted Payment shall be paid by the Trustee to the Persons in whose
names the Notes (or their respective Predecessor Notes) are registered at the
close of business on such Special Record Date.

            (d) Subject to the foregoing provisions of this Section 309, each
Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.

            SECTION 310. Persons Deemed Owners. (a) Prior to the due presentment
of a Note for registration of transfer, the Issuer, the Trustee and any agent of
the Issuer or the Trustee may treat the Person in whose name such Note is
registered as the owner of such Note for the purpose of receiving payment of
principal of, Make-Whole Premium, if any, and (subject to Section 309) interest
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and none of the Issuer, the Trustee or any agent of the Issuer or the
Trustee shall be affected by notice to the contrary.

            (b) None of the Issuer, the Trustee and any agent of the Issuer or
the Trustee shall have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Note in global form or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.

            SECTION 311. Cancellation. All Notes surrendered for payment,
redemption, registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
canceled by the Trustee. The Issuer at any time may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever and any Notes previously authenticated
hereunder which the Issuer has not issued and sold, and all Notes so delivered
shall be promptly canceled by the Trustee. If the Issuer shall so acquire any of
the Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this Section 311, except as expressly permitted by this Indenture. All canceled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures and certification of their disposal delivered to the
Issuer unless by Issuer Order the Issuer shall direct that canceled Notes be
returned to it; provided, that such Issuer Order is timely and the Notes have
not


                                       24


been previously disposed of by the Trustee; and provided further, that the
Trustee shall not be required to destroy such canceled Notes.

            SECTION 312. Computation of Interest. Interest on the Notes shall be
computed on the basis of a 360-day year of twelve 30-day months.

            SECTION 313. CUSIP and CINS Numbers. The Issuer in issuing the Notes
may use "CUSIP" and "CINS" numbers (if then generally in use), and, if so, the
Trustee shall use "CUSIP" or "CINS" numbers in notices of redemption or exchange
as a convenience to Holders; provided, that any such notice shall state that no
representation is made as to the correctness of such numbers either as printed
on the Notes or as contained in any notice of a redemption or exchange, that
reliance may be placed only on the other identification numbers printed on the
Notes and that any such redemption shall not be affected by any defect in or
omission of such numbers.

            SECTION 314. Parity of Notes. All Notes issued and Outstanding
hereunder, regardless of the time or times of their issuance, rank on a parity
with each other Note and each Note shall be secured equally and ratably by this
Indenture and the Security Documents with each other Note, without preference,
priority or distinction of any one thereof over any other by reason of
difference in time of issuance or otherwise, and each Note shall be entitled to
the same benefits and security in this Indenture and the Security Documents as
each other Note.

                                  ARTICLE FOUR
                   APPLICATION OF PROCEEDS FROM SALE OF NOTES

            SECTION 401. Application of Proceeds from Sale of Notes. The Issuer
covenants to use the net proceeds from the issuance and sale of the Notes (a) to
pay approximately $326,000,000 to Calpine Energy Services, L.P. ("CES") in
partial payment for the purchase of the CDWR Power Sales Agreement and the
Morgan Stanley CDWR Guarantee, (b) to pay approximately $361,400,000 to CES in
partial payment for the purchase of the MSCG power purchase agreement and the
Morgan Stanley MSCG Guarantee, (c) to fund the reserve account in an amount
equal to $94,441,188, (d) to pay approximately $20,300,000 for all costs, fees
and expenses incurred in connection with this offering, including fees to Morgan
Stanley & Co. Incorporated for structuring the offering of the Notes and acting
as initial purchaser of the Notes in this offering and (e) to transfer any
remaining amounts to the Working Capital Account.

                                  ARTICLE FIVE
                                    ACCOUNTS

            SECTION 501. Establishment of Accounts. (a) Wilmington Trust
Company, a Delaware banking corporation, is hereby appointed as the "Accounts
Agent" and, in such capacity, will act, in accordance with Article 8 of the UCC,
as the "securities intermediary" with respect to any "securities accounts" and
as a "bank" with respect to any "deposit accounts" (as each such term is defined
in the UCC) in which a security interest may be granted under the UCC pursuant
hereto and pursuant to the Assignment


                                       25


and Security Agreement (together with its successors and permitted assigns in
each such capacity, the "Accounts Agent"). Pursuant hereto and to the Assignment
and Security Agreement, the Accounts Agent shall establish and maintain the
following non-interest bearing accounts (collectively, the "Accounts") in the
name of the Trustee for its own benefit and the equal and ratable benefit of the
Holders as provided in this Indenture: (i) the Collections Account; (ii) the
Working Capital Account; (iii) the Reserve Account; (iv) the Reserve Investments
Account; and (v) the Damages and Indemnity Account (each as defined below). The
Accounts Agent will invest funds in each such Account in accordance with Section
507 and act with respect to all "financial assets" (as such term is defined in
Article 8 of the UCC) credited to the Accounts as a "securities intermediary"
(as such term is defined in Article 8 of the UCC). The Accounts Agent shall hold
and safeguard the Accounts during the term of this Indenture and the Assignment
and Security Agreement and shall treat the "security entitlements" (as such term
is defined in Article 8 of the UCC) in the Accounts as security entitlements
pledged by the Issuer to the Trustee for its own benefit and the equal and
ratable benefit of the Holders to be held in accordance with the provisions of
this Indenture and the Assignment and Security Agreement. Neither the Issuer nor
any Affiliate of the Issuer shall have any rights against the Accounts Agent
hereunder (other than rights which may arise as a result of the Accounts Agent's
gross negligence or willful misconduct as determined by a court of competent
jurisdiction in a final, non-appealable judgment), as a third-party beneficiary
or otherwise, including, any right to direct the Accounts Agent to distribute or
allocate any funds in the Accounts (except as expressly provided herein or as
provided in the Assignment and Security Agreement). The Accounts Agent shall
comply with Part 5 of Article 8 of the UCC.

            (b) All monies and Permitted Investments credited to the Accounts
from time to time shall constitute part of the Collateral and shall be
collateral security for the payment and performance by the Issuer of all its
obligations under the Financing Documents and, subject to the terms of this
Indenture, shall at all times be subject to the sole dominion and control of the
Trustee for the purposes and on the terms set forth in this Indenture and the
other Financing Documents. Until payment and performance of all the obligations
of the Issuer under the Financing Documents in accordance with the provisions
hereof, the Issuer shall have no right to the funds credited to the Accounts,
except as provided in this Article Five. If a Notice of an Actionable Event
shall have been given and be outstanding, the Trustee shall apply all or any of
the monies in the Accounts in accordance with the express terms of the Indenture
and in the order of priority set forth in Section 711.

            SECTION 502. Collections Account. (a) On or prior to the Closing
Date, the Accounts Agent shall establish and maintain a segregated trust account
no. 61186-1, in the name of the Trustee in its trust capacity and entitled
"Collections Account" (the "Collections Account"). Thereafter, without
limitation of any other amounts required under this Indenture to be deposited in
the Collections Account (including any profit or interest earned on the
investment of moneys held in any Account pursuant to Section 507), all
Collections and all Account Transfer Payments shall be deposited with the
Accounts Agent for the benefit of the Trustee in the Collections Account. The
Issuer shall instruct each Person from whom it receives or is entitled to


                                       26


receive Collections to pay such Collections (identifying them as such in writing
to the Trustee) directly to the Trustee for deposit in the Collections Account,
and the Trustee shall be entitled to receive directly all Collections from the
Persons owing the same. In furtherance of the foregoing, the Consents have been
executed and delivered concurrently with the execution and delivery of this
Indenture. In the event that any Collections are remitted directly to, or are
otherwise received by, the Issuer, all such Collections shall be held by the
Issuer as the agent of and in trust for the Trustee, and the Issuer shall
promptly remit such Collections in the form received (with any necessary
endorsement) to the Trustee for deposit in the Collections Account.

            (b) Unless a Notice of an Actionable Event shall have been given in
writing to the Trustee and be outstanding, in which case the provisions of
Section 711 shall be applicable, the Trustee shall apply amounts in the
Collections Account on the dates specified below and in the following order of
priority for payment to the appropriate Person, but in each case only to the
extent that all current and past due amounts ranking prior thereto have been
paid in full:

                  (i) FIRST, on the first day of August of each year, beginning
      on August 1, 2004, to pay to the Trustee the amount of Trustee Fees due
      and payable at such time in connection with the Notes;

                  (ii) SECOND, on or before the later of (A) the twenty first
      day of each month, or (B) the eleventh day after receipt of an invoice
      from Morgan Stanley Capital or, if such day is not a Business Day, then on
      the next Business Day, to pay Morgan Stanley Capital for electric energy
      sold or made available to Issuer by Morgan Stanley Capital under the MSCG
      Power Purchase Agreement (as specified in an Officer's Certificate of the
      Issuer delivered to the Trustee at least three Business Days prior to such
      payment date);

                  (iii) THIRD, on the first day of each month, to pay to the
      payee thereof all governmental fees and other expenses (including legal
      fees and the expenses of the independent members of the Management
      Committee, the Administrative Agent and the Trustee, but excluding the
      annual fees of any of the foregoing) required to be paid by the Issuer to
      third-parties in order for the Issuer to remain in compliance with its
      obligations under this Indenture (as specified in an Officer's Certificate
      of the Issuer delivered to the Trustee at least three Business Days prior
      to the first day of each month);

                  (iv) FOURTH, on each Interest Payment Date, to pay, on a pro
      rata basis to the Holders of each Series of the Notes, an amount equal to
      all interest due and payable (including past due amounts, if any) at such
      time on the Notes;

                  (v) FIFTH, on each Principal Payment Date, to pay, on a pro
      rata basis to the Holders of each Series of the Notes, an amount equal


                                       27


      to the principal and Make-Whole Premium (if any, with respect to any Notes
      called for optional redemption) due and payable (including past due
      amounts, if any) at such time on such Notes (as specified in an Officer's
      Certificate of the Issuer delivered to the Trustee at least three Business
      Days prior to such payment date);

                  (vi) SIXTH, on each Payment Date, to transfer to the Reserve
      Account an amount, if any, necessary to cause the amount on deposit in the
      Reserve Account to be equal to the Reserve Required Balance (as specified
      in an Officer's Certificate of the Issuer delivered to the Trustee at
      least three Business Days prior to such payment date);

                  (vii) SEVENTH, on the first day of August of each year
      (beginning on August 1, 2003), in arrears, to pay to Morgan Stanley
      Capital's an amount equal to the annual fees payable to Morgan Stanley
      Capital under the Scheduling Services Agreement (as specified in an
      Officer's Certificate of the Issuer delivered to the Trustee at least
      three Business Days prior to such payment date);

                  (viii) EIGHTH, on the first day of August of each year
      (beginning on August 1, 2004), to pay (1) to the Administrative Agent an
      amount equal to the annual fees payable to the Administrative Agent under
      the Administrative Services Agreement; (2) the fees of the Issuer's
      independent managers; (3) the fees of the rating agencies; and (4) the
      premiums, fees or other charges for insurance (in each case, as specified
      in an Officer's Certificate of the Issuer delivered to the Trustee at
      least three Business Days prior to such payment date); and

                  (ix) NINTH, on each Payment Date, provided, that (as specified
      in an Officer's Certificate of the Issuer delivered to the Trustee no
      later than 10:00 a.m. (EDT) on such Payment Date) (A) no Event of Default
      or Default has occurred and is continuing on such Payment Date and (B) the
      Debt Service Coverage Ratio calculated as of such Payment Date equals or
      exceeds 1.01 to 1.00, to deposit the remaining Distributable Collections
      in the Working Capital Account.

            SECTION 503. Working Capital Account. On or prior to the Closing
Date, the Accounts Agent shall establish and maintain a segregated trust account
no. 61186-5, in the name of the Trustee in its trust capacity and entitled
"Working Capital Account" (the "Working Capital Account"). The Working Capital
Account shall be funded with all amounts released from the Collections Account
in accordance with clause (ix) of Section 502(b). In addition, any amounts
remaining after application of the proceeds from sale of the Notes will be
transferred to the Working Capital Account. Subject to Section 3(d)(v) of the
Assignment and Security Agreement, any amounts held in the Working Capital
Account may be used by the Issuer pursuant to an Issuer Request to the Trustee
at least three Business Days prior to the requested fund transfer date, for
working capital or other purposes, including for distribution to its Members. So
long as


                                       28


no Event of Default has occurred and is continuing, the Trustee shall not issue
instructions or orders with respect to the Working Capital Account and any funds
held therein which are contrary to those issued by the Issuer pursuant to an
Issuer Request with respect to the Working Capital Account and any funds held
therein.

            SECTION 504. Reserve Account. (a) On or prior to the Closing Date,
the Accounts Agent shall establish and maintain a segregated trust account no.
61186-2, in the name of the Trustee in its trust capacity and entitled "Reserve
Account" (the "Reserve Account"). The Reserve Account shall be funded (i) on the
Closing Date with the net proceeds from the issuance and sale of the Notes in an
amount equal to the Reserve Required Balance as of the Closing Date and (ii)
thereafter, by a transfer of funds, if funds are available for such purpose,
from the Collections Account to the Reserve Account in accordance with clause
(vi) of Section 502(b).

            (b) In the event that on any Interest Payment Date or Principal
Payment Date, as applicable, the aggregate amount of funds on deposit in and
available to be withdrawn from the Collections Account shall be insufficient for
the payment of interest or principal then due and payable on the Notes (any such
deficiency, a "Reserve Deficiency"), the Trustee shall forthwith transfer to the
Collections Account from the Reserve Account an amount equal to such Reserve
Deficiency. If on any Payment Date the aggregate amount of funds on deposit in
and available to be withdrawn from the Reserve Account shall exceed the then
current Reserve Required Balance, any such excess funds shall be transferred on
the next Payment Date to the Collections Account for application in accordance
with the provisions of Section 502.

            SECTION 505. Reserve Investments Account. On or prior to the Closing
Date, the Accounts Agent shall establish and maintain a segregated trust account
no. 61186-3, in the name of the Trustee in its trust capacity and entitled
"Reserve Investments Account" (the "Reserve Investments Account"). Thereafter,
all earnings on Permitted Investments made with funds on deposit in the Reserve
Account shall be deposited and retained in the Reserve Investments Account until
the Trustee shall have received from each of Moody's and Standard & Poor's a
written consent to the release of such amounts in the Reserve Investments
Account. Upon receipt by the Trustee of such consents from Moody's and Standard
& Poor's, the Trustee shall transfer all amounts held in the Reserve Investments
Account to the Collections Account, and following the date of such consents, all
earnings thereafter on Permitted Investments made with funds on deposit in the
Reserve Account shall be deposited in the Collections Account.

            SECTION 506. Damages and Indemnity Account. (a) On or prior to the
Closing Date, the Accounts Agent shall establish and maintain a segregated trust
account no. 61186-4, in the name of the Trustee in its trust capacity and
entitled "Damages and Indemnity Account" (the "Damages and Indemnity Account").
The Damages and Indemnity Account shall be funded with all amounts paid by
Morgan Stanley Capital under the MSCG Power Purchase Agreement and all amounts
paid by Morgan Stanley under the Morgan Stanley MSCG Guarantee, in each case,
with respect to (i) all damages payable by Morgan Stanley Capital to the Issuer
pursuant to Article Four of the MSCG Power Purchase Agreement, (ii) any
Termination Payment payable by Morgan Stanley Capital to the Issuer pursuant to
Article Five of the MSCG Power Purchase Agreement and (iii) all indemnity
payments payable by


                                       29


Morgan Stanley Capital to the Issuer pursuant to Section 10.4 of the MSCG Power
Purchase Agreement. The Damages and Indemnity Account shall also be funded with
all amounts paid by CDWR under the CDWR Power Sales Agreement with respect to
(i) all damages payable by CDWR to the Issuer pursuant to Article Four of the
CDWR Power Sales Agreement, (ii) any Termination Payment payable by CDWR to the
Issuer pursuant to Article Five of the CDWR Power Sales Agreement and (iii) all
indemnity payments payable by CDWR to the Issuer pursuant to Section 10.4 of the
CDWR Power Sales Agreement.

            (b) The Trustee shall, from time to time, as specified in an
Officer's Certificate of the Issuer, withdraw from the Damages and Indemnity
Account and pay to CDWR, when due (i) all damages payable by the Issuer to CDWR
pursuant to Article Four of the CDWR Power Sales Agreement and (ii) all
indemnity payments payable by the Issuer to CDWR pursuant to Section 10.4 of the
CDWR Power Sales Agreement. The Trustee shall, from time to time, as specified
in an Officer's Certificate of the Issuer, withdraw from the Damages and
Indemnity Account and pay to Morgan Stanley Capital, when due (i) all damages
payable by the Issuer to Morgan Stanley Capital pursuant to Article Four of the
MSCG Power Purchase Agreement and (ii) all indemnity payments payable by the
Issuer to Morgan Stanley Capital pursuant to Section 10.4 of the MSCG Power
Purchase Agreement

            (c) In the event any Termination Payment is made into the Damages
and Indemnity Account, the Trustee shall apply amounts in the Damages and
Indemnity Account in the following order of priority for payment to the
appropriate Person:

                  (i) FIRST, if amounts payable under the Notes are accelerated
      as a result of the occurrence and continuation of an Event of Default, to
      pay, on a pro rata basis to the Holders, an amount equal to the entire
      principal amount of the Notes as of the Early Termination Date and any
      interest thereon accrued and unpaid as of the Early Termination Date and,
      in the event such Termination Payment is made by Morgan Stanley Capital as
      a result of its default under the MSCG Power Purchase Agreement and the
      CDWR Power Sales Agreement terminates as a result of such default, a
      Make-Whole Premium on the notes, calculated as if an optional redemption
      pursuant to Section 1302 had occurred on the date such Termination Payment
      is made; provided that the Issuer is obliged to pay such Make-Whole
      Premium if, and only to the extent that an amount equal to such Make-Whole
      Premium is paid to Issuer by Morgan Stanley or Morgan Stanley Capital in
      connection with such Termination Payment.

                  (ii) SECOND, to pay the Termination Payment, if any, payable
      by the Issuer to CDWR pursuant to Article Five of the CDWR Power Sales
      Agreement; and


                                       30


                  (iii) THIRD, to pay the Termination Payment, if any, payable
      by the Issuer to Morgan Stanley Capital pursuant to Article Five of the
      MSCG Power Purchase Agreement.

            SECTION 507. Statements; Investment of Funds. On or before the fifth
(5th) Business Day of each calendar month the Trustee shall provide the Issuer
with a written statement of (a) the balances in each of the Accounts at the end
of the immediately preceding calendar month, (b) the amounts deposited into each
of the Accounts for the immediately preceding calendar month (and the sources of
such amounts) and (c) the application and payees of amounts withdrawn from each
of the Accounts for the immediately preceding calendar month. Funds on deposit
in the Accounts shall be invested by the Trustee, as specified in an Issuer
Order, in Permitted Investments. The Issuer shall deliver to the Trustee on the
date hereof an Issuer Order specifying its initial investment instructions which
shall remain in effect until changed by a subsequent Issuer Order given not less
than five (5) Business Days before the effective date of such change. All such
Permitted Investments shall be maintained in the name of the Trustee and pledged
to the Trustee to be held by it as part of the Collateral hereunder, and the
Trustee shall be authorized to endorse any of such Permitted Investments in a
manner satisfactory to it, on behalf of the Issuer. The Trustee and, as
applicable, the Accounts Agent may rely and shall be fully protected, as
provided in Section 807, in their reliance on an Issuer Order that complies with
the provisions of this Section 507, and shall be indemnified as provided in
Section 806. All earnings on Permitted Investments shall be credited to the
Collections Account upon receipt thereof by the Trustee, provided, that all
earnings on Permitted Investments made with funds on deposit in the Reserve
Account shall be deposited in the Reserve Investments Account in accordance with
Section 505, all earnings on Permitted Investments made with funds on deposit in
the Reserve Investments Account shall be retained in the Reserve Investments
Account in accordance with Section 505 and all such amounts held in the Reserve
Investments Account shall be released in accordance with Section 505. All losses
shall be charged to the applicable Account. Whenever the Trustee or the Accounts
Agent is required or permitted to make any payment or transfer under this
Indenture, the Trustee or the Accounts Agent, as the case may be, shall have the
right, and is hereby irrevocably authorized, to sell or otherwise liquidate any
Permitted Investments to the extent necessary to make such payment or transfer
and shall have no liability for and shall be fully protected from and against
any losses incurred in connection with such sale or liquidation. The Trustee or
the Accounts Agent shall have no obligation to invest and reinvest any cash held
in the Accounts in the absence of timely and specific written investment
direction from the Issuer. Other than by reason of each of their own negligent
failure to act or each of their own willful misconduct, in no event shall the
Trustee or the Accounts Agent, as the case may be, be liable for the selection
of investments or for investment losses incurred thereon. Other than by reason
of each of their own negligent failure to act or each of their own willful
misconduct, the Trustee or the Accounts Agent, as the case may be, shall have no
liability in respect of losses incurred as a result of the liquidation of any
investment prior to its stated maturity or the failure of the Issuer to provide
timely written investment direction.


                                       31


                                  ARTICLE SIX
                           SATISFACTION AND DISCHARGE

            SECTION 601. Satisfaction and Discharge of Indenture. (a) This
Indenture shall, upon receipt by the Trustee of an Issuer Request, cease to be
of further effect with respect to the Notes of either Series (except as to any
surviving rights of registration of transfer or exchange of Notes of such Series
herein expressly provided for and except as otherwise specifically provided in
this Indenture) and the Trustee, at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
when:

                  (i) either:

                              (A) all Notes of such Series theretofore
                  authenticated and delivered (other than (1) Notes of such
                  Series which have been destroyed, lost or stolen and which
                  have been replaced or paid as provided in Section 308 and (2)
                  Notes of such Series for whose payment money has theretofore
                  been deposited in trust with the Trustee or any Paying Agent
                  or segregated and held in trust by the Issuer and thereafter
                  repaid to the Issuer, as provided in Section 1402) have been
                  delivered to the Trustee for cancellation; or

                              (B) all Notes of such Series not theretofore
                  delivered to the Trustee for cancellation

                                    (1) have become due and payable, or

                                    (2) will become due and payable at their
                        Stated Maturity within one year, or

                                    (3) if redeemable at the option of the
                        Issuer, are to be called for redemption within one year
                        under arrangements satisfactory to the Trustee for the
                        giving of notice of redemption by the Trustee in the
                        name, and at the expense, of the Issuer,

      and the Issuer, in the case of (i)(B)(1), (2) or (3) above, has
      irrevocably deposited .or caused to be deposited with the Trustee as trust
      funds in trust for the purpose an amount sufficient to pay and discharge
      the entire indebtedness on such Notes of such Series not theretofore
      delivered to the Trustee for cancellation, for principal, Make-Whole
      Premium, if any, and interest to the date of such deposit (in the case of
      Notes of such Series which have become due and payable) or to the Stated
      Maturity or Redemption Date, as the case may be;


                                       32


                  (ii) the Issuer has paid or caused to be paid all other sums
      then payable hereunder by the Issuer with respect to such Series of the
      Notes; and

                  (iii) the Issuer has delivered to the Trustee an Officer's
      Certificate and an Opinion of Counsel, each stating that all conditions
      precedent herein provided for relating to the satisfaction and discharge
      of this Indenture with respect to such Series of the Notes have been
      complied with.

            (b) Notwithstanding the satisfaction and discharge of this Indenture
pursuant to this Article Six, the obligations of the Issuer to the Trustee or
any agent of the Trustee appointed in accordance with the provisions hereof and
the Paying Agent under Section 806 and, if money shall have been deposited with
the Trustee pursuant to subclause (B) of clause (i) of this Section 601, the
obligations of the Trustee under Section 801 shall survive.

            SECTION 602. Application of Trust Money. All money deposited with
the Trustee pursuant to Section 601 shall be held in trust and applied by the
Trustee, in accordance with the provisions of the Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Issuer
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal, Make-Whole Premium, if any, and interest for
whose payment such money has been deposited with the Trustee; provided, that
such money need not be segregated from other funds except to the extent required
in this Indenture or by law.

                                 ARTICLE SEVEN
                         EVENTS OF DEFAULT AND REMEDIES

            SECTION 701. Events of Default. "Event of Default," wherever used
herein, means the occurrence of any one of the following events with respect to
any Series of the Notes (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
(including, but not limited to, force majeure and any other impossibility of
performance) or pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):

            (a) the Issuer shall default in the payment of any principal or
Make-Whole Premium, if any, with respect to any Notes of such Series called for
optional redemption, on any Notes of such Series when the same shall become due
and payable, whether by scheduled maturity or acceleration, or otherwise, and
such default shall continue for a period of at least five (5) days; or

            (b) the Issuer shall default in the payment of interest required to
be paid with respect to, any of the Notes of such Series in each case when the
same shall become due and payable, and such default shall continue for a period
of at least fifteen (15) days; or


                                       33


            (c) the Issuer shall fail to observe or perform any term, covenant
or obligation of any Material Agreement or Financing Document (including,
without limitation, the furnishing of notices) and such failure (i) could
reasonably be expected to result in a Material Adverse Effect and (ii) shall
continue for a period of at least thirty (30) days after the date notice thereof
shall have been given to the Issuer by the Trustee or by the Majority Holders of
such Series of the Notes; or

            (d) CDWR shall fail to observe or perform any term, covenant or
obligation of the CDWR Power Sales Agreement or the CDWR Consent and such
failure (i) could reasonably be expected to result in a Material Adverse Effect
and (ii) shall continue for a period of at least thirty (30) days after the date
notice thereof shall have been given to the Issuer by the Trustee or by the
Majority Holders of such Series of the Notes; or

            (e) Morgan Stanley shall fail to observe or perform any term,
covenant or obligation of the Morgan Stanley MSCG Guarantee or the Morgan
Stanley Consent and such failure (i) could reasonably be expected to result in a
Material Adverse Effect and (ii) shall continue for a period of at least thirty
(30) days after the date notice thereof shall have been given to the Issuer by
the Trustee or by the Majority Holders of such Series of the Notes; or

            (f) any Material Agreement or Financing Document (other than the
CDWR Power Sales Agreement and the Morgan Stanley MSCG Guarantee) shall cease at
any time to be valid, enforceable and binding and in full force and effect and
such invalidity or unenforceability could reasonably be expected to result in a
Material Adverse Effect; or

            (g) (i) any Lien granted to the Trustee hereunder or under any
Financing Document on any material portion of the Collateral shall cease to be
valid and effective, shall cease to be perfected or otherwise fails to be a
first priority security interest, or (ii) any creditor of the Issuer (other than
the Trustee or the Holders) shall assert any right or interest with respect to
the Collateral and such assertion of rights or interests could reasonably be
expected to result in a Material Adverse Effect, or (iii) the Issuer's right to
receive payments with respect to the Collateral (other than pursuant to any Lien
granted by the Indenture or any Financing Document) shall otherwise be
terminated or impaired and such termination or impairment of the right to
receive payments could reasonably be expected to result in a Material Adverse
Effect; or

            (h) the Issuer shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee, liquidator or
other similar Person of itself or of all or a substantial part of its property,
(ii) admit in writing its inability, or be generally unable, to pay its debts as
such debts become due, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code, (v)
file a petition or any other document seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, composition or
readjustment of debts or other similar laws or (vi) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition or


                                       34


other pleading filed against the Issuer in an involuntary case under the Federal
Bankruptcy Code or any other similar law; or

            (i) a proceeding or case shall be commenced without the application
or consent of the Issuer in any court of competent jurisdiction seeking (i) its
liquidation, reorganization, dissolution, winding-up, the composition or
readjustment of debts or any other similar relief, (ii) the appointment of a
trustee, receiver, custodian, liquidator or other similar Person of the Issuer
under any law relating to bankruptcy, insolvency, reorganization, winding-up,
composition or adjustment of debts or other similar laws, and such proceeding or
case shall continue undismissed, or any order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect for a period of sixty (60) or more consecutive days, or any order for
relief or other similar order against the Issuer shall be entered in an
involuntary case under the Federal Bankruptcy Code or any other similar law; or

            (j) it becomes unlawful for the Issuer to perform any of its
obligations under this Indenture, any Security Document, or any Note of such
Series, or any of its obligations hereunder or thereunder ceases to be valid,
binding and enforceable, unless such event or occurrence could not reasonably be
expected to result in a Material Adverse Effect; or

            (k) the CDWR Power Sales Agreement or the Morgan Stanley MSCG
Guarantee shall for any reason be terminated or abrogated at any time (prior to
its scheduled expiration) or ceases at any time to be valid, enforceable and
binding and in full force and effect; or

            (l) a judgment or judgments for the payment of money in excess of
$30 million in the aggregate, which is or are not adequately covered by
insurance or a payment or performance bond, shall be entered against the Issuer
and such judgment or judgments shall not have been vacated, discharged, stayed
or bonded pending appeal within sixty (60) days from the entry thereof.

            SECTION 702. Acceleration of Maturity: Rescission and Annulment. (a)
If an Event of Default (other than a Bankruptcy Event of Default) occurs and is
continuing, then and in every such case the Trustee, upon the direction of the
Holders of no less than twenty-five percent (25%) of the Outstanding Notes so
affected (for an Event of Default specified in clauses (a) and (b) of Section
701) or the Majority Holders of either Series of the Notes (for any Event of
Default other than those specified in clauses (a) and (b) of Section 701), shall
declare the principal amount of all the Notes to be due and payable immediately,
by a notice in writing to the Issuer (and to the Trustee, if given by the
Holders), and upon any such declaration such principal amount, any accrued and
unpaid interest, any Make-Whole Premium previously due and owing by the Issuer
in connection with an optional redemption pursuant to Section 1302, and all
other amounts payable under the Notes shall become immediately due and payable.

            (b) If a Bankruptcy Event of Default occurs, the principal amount
of, any accrued interest on, any Make-Whole Premium previously due and owing by
the


                                       35


Issuer in connection with an optional redemption pursuant to Section 1302, and
all other amounts payable under the Notes then Outstanding shall become
immediately due and payable.

            (c) In addition, if one or more of the Events of Default (other than
a Bankruptcy Event of Default) shall have occurred and be continuing, the
Trustee may accelerate the maturity of the Notes as provided in clause (a) of
this Section 702 notwithstanding the absence of direction from the Holders if in
the judgment of the Trustee such action is necessary to protect the interests of
the Holders.

            (d) At any time after the principal of the Notes shall have become
due and payable upon a declared acceleration as provided in this Section 702,
and before any judgment or decree for the payment of the money so due, or any
portion thereof, shall be entered, the Majority Holders of either Series of the
Notes, by written notice to the Issuer and the Trustee, may rescind and annul
such declaration and its consequences if all Events of Default giving rise to
such acceleration have been cured or waived.

            (e) At any time after a declaration of acceleration under this
Indenture, but before a judgment or decree for payment of the principal amount
of the Notes (or the applicable Series of the Notes so affected, as the case may
be) then due has been obtained by the Trustee, the Issuer by written notice to a
Responsible Officer of the Trustee, may rescind and annul such declaration and
its consequences if:

                  (i) the Issuer has paid or deposited with the Trustee a sum
      sufficient to pay:

                        (A) all overdue interest on all the Notes;

                        (B) all unpaid principal of and Make-Whole Premium, if
            any, on any Outstanding Notes that have become due otherwise than by
            such declaration of acceleration and interest thereon at the
            respective interest rates borne by the Notes;

                        (C) to the extent that payment of such interest is
            lawful, interest upon overdue interest and overdue principal at the
            rate borne by the Notes; and

                        (D) all sums paid or advanced by the Trustee under this
            Indenture and the reasonable compensation, expenses, disbursements
            and advances of the Trustee, its agents and counsel; and

                  (ii) all Defaults and Events of Default, other than the
      nonpayment of amounts of principal of, Make-Whole Premium, if any, or
      interest on the Notes that have become due solely by such declaration of
      acceleration have been cured or waived as provided in Section 718.


                                       36


No such rescission shall affect any subsequent Default or impair any right
consequent thereon.

            SECTION 703. Remedies upon an Event of Default. If any Event of
Default shall have occurred and be continuing and acceleration shall have
occurred pursuant to Section 702, the Trustee may, subject in each case to the
provisions of Section 807, exercise any or all of the rights and remedies
granted to it in any Security Document. Without limiting the generality of the
foregoing, the Issuer expressly agrees that in any such event the Trustee,
without demand of performance or any other demand, advertisement or notice of
any kind (except the notice specified below of the time and place of public or
private sale) to or upon the Issuer or any other Person (all and each of which
demands, advertisements and/or notices are hereby expressly waived to the extent
permitted by applicable law), may, and at the written instruction of the
Majority Holders of either Series of the Notes shall, subject to the provisions
of the Consents and to the provisions of any law or regulation having the force
of law: (a) collect, receive and appropriate any or all of the Collateral and
exercise any right, remedy, power or privilege of the Issuer under any Material
Agreement; (b) set off against all amounts due and payable hereunder with funds
held in the Accounts; (c) proceed by suit at law or in equity to seek specific
performance of any obligation of the Issuer; (d) take possession of the
Collateral forthwith or any time thereafter, in which case the Issuer shall
marshal and deliver the Collateral to the Trustee or its designee at such time
or times and such place or places as the Trustee may reasonably specify; (e)
subject to the provisions of Section 704, forthwith sell, lease, assign, give an
option or options to purchase or otherwise dispose of and deliver all or any
part of the Collateral (or contract to do so) at one or more public or private
sales, at any exchange, broker's board or at any of the Trustee's offices or
elsewhere at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk; (f) institute legal
proceedings for the appointment of a receiver with respect to any or all of the
Collateral or with respect to the Issuer; or (g) proceed by suit at law or in
equity to foreclose upon, or appoint a receiver with respect to, the Collateral
or exercise any other right or remedy (including specific performance of the
Issuer's obligations under the Financing Documents) available under applicable
law. The Trustee may sell any or all of the Collateral as provided above at any
private or public sale, it being hereby agreed that twenty (20) Business Days'
notice by the Trustee to the Issuer shall be deemed to be reasonable notice of
any such sale. The Issuer hereby waives, to the extent permitted by applicable
law, any claims against the Trustee arising by reason of the fact that the price
at which Collateral may have been sold at any such private sale was less than
the price which might have been obtained at a public sale.

            SECTION 704. Certain Sales of Collateral. In connection with the
exercise of any remedies under Section 703(e) the Trustee will not sell the
Collateral or any portion thereof without the written consent of all of the
Holders of the Notes Outstanding unless the proceeds of such sale will be
sufficient to satisfy all of the outstanding principal amount, accrued and
unpaid interest, Make-Whole Premium, if any, and all other amounts due and
payable under the Notes.


                                       37


            SECTION 705. No Marshaling. To the extent that it lawfully may, the
Issuer hereby agrees that it will not at any time plead, claim or take the
benefit of any appraisement, valuation, stay, extension, moratorium or
redemption law now or hereafter in force and any requirement of marshaling in
the event of foreclosure of the security interests hereby created, the effect of
which might be to prevent or delay the enforcement of any Security Document or
the absolute sale of the whole or any part of the Collateral or the possession
thereof by the Trustee or any purchaser at any sale by the Trustee. The Issuer,
for itself and all who may claim under the Issuer, as far as the Issuer may
lawfully do so, hereby waives and releases the benefit of all such laws. Except
as otherwise expressly provided in this Indenture, to the extent permitted by
applicable law, the Issuer hereby waives presentment, demand, protest or any
notice of any kind in connection with, and not expressly set forth in, any
Security Document or herein.

            SECTION 706. Trustee May Recover Unpaid Indebtedness After Sale of
Collateral. Subject to Section 114, in the case of a sale of the Collateral and
of the application of the proceeds of such sale to the payment of the
indebtedness secured by this Indenture and the Security Documents, the Trustee
in its own name, and as trustee of an express trust, shall be entitled and
empowered, by any appropriate means, legal, equitable or otherwise to enforce
payment of, and to receive all amounts then remaining due and unpaid upon, all
or any of the Notes, for the equal and ratable benefit of the Holders thereof,
and upon any other portion of the indebtedness remaining unpaid, including the
Make-Whole Premium, if any, with interest at the rates specified in the
respective Notes on the overdue principal, Make-Whole Premium, if any, and (to
the extent that payment of such interest is legally enforceable) on the overdue
installments of interest.

            SECTION 707. Recovery of Judgment Does Not Affect Rights. No
recovery of any such judgment or final decree by the Trustee and no levy of any
execution under any such judgment upon any of the Collateral, or upon any other
property, shall in any manner or to any extent affect any rights, powers or
remedies of the Trustee, or any liens, rights, powers or remedies of the
Holders, but all such liens, rights, powers or remedies shall continue
unimpaired as before.

            SECTION 708. Collection of Indebtedness and Suits for Enforcement by
Trustee. (a) The Issuer covenants that if:

                  (i) default is made in the payment of any installment of
      interest on any Note when such interest becomes due and payable and such
      default continues for a period of thirty (30) days, or

                  (ii) default is made in the payment of the principal of or
      Make-Whole Premium, if any, on any Note when such becomes due and payable,

      the Issuer will, upon demand of the Trustee, pay to the Trustee for the
      benefit of the Holders of such Notes, the whole amount then due and
      payable on such Notes for principal, Make-Whole Premium, if any, and
      interest, and interest on any overdue


                                       38


      principal, Make-Whole Premium, if any, and, to the extent that payment of
      such interest shall be legally enforceable, upon any overdue installment
      of interest, at the applicable rate borne by the Notes, and, in addition
      thereto, such further amount as shall be sufficient to cover the costs and
      expenses of collection, including the reasonable compensation, expenses,
      disbursements and advances of the Trustee, its agents and counsel.

            (b) If the Issuer fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, at the
direction of the Holders as set forth herein, may institute a judicial
proceeding for the collection of the sums so due and unpaid, may prosecute such
proceeding to judgment or final decree and may enforce the same against the
Issuer or any other obligor upon the Notes and collect the moneys adjudged or
decreed to be payable in the manner provided by law out of the property of the
Issuer or any other obligor upon the Notes, wherever situated.

            (c) If an Event of Default with respect to the Notes occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders of Notes by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.

            SECTION 709. Trustee May File Proofs of Claim. (a) In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Issuer or any other obligor upon the Notes or the
Property of the Issuer or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Issuer for the payment of
overdue principal, Make-Whole Premium, if any, or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,

                  (i) to file and prove a claim for the whole amount of
      principal (and Make-Whole Premium, if any) and interest owing and unpaid
      in respect of the Notes and to file such other papers or documents as may
      be necessary or advisable in order to have the claims of the Trustee
      (including any claim for the reasonable compensation, expenses,
      disbursements and advances of the Trustee, its agents and counsel) and of
      the Holders allowed in such judicial proceeding, and

                  (ii) to collect and receive any moneys or other property
      payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the


                                       39


reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 806.

            (b) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.

            SECTION 710. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the Holders.

            SECTION 711. Application of Money Collected. Any money collected by
the Trustee pursuant to this Article Seven or the Security Documents shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or Make-Whole
Premium, if any) or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:

            (a) First, to the payment of all amounts due to the Trustee and each
predecessor Trustee, if any, under Section 806;

            (b) Second, to the payment of the amounts then due and unpaid for
principal of, Make-Whole Premium (with respect to Notes called for optional
redemption), if any, and any interest on the Notes in respect of which or for
the benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts then due and payable on such
Notes for principal, Make-Whole Premium, if any, and any interest, respectively;

            (c) Third, to the payment of all amounts due and payable to CDWR
under the CDWR Power Sales Agreement, to Morgan Stanley Capital under the MSCG
Power Purchase Agreement and to the Administrative Agent under the
Administrative Services Agreement, as the case may be, as set forth in an
Officer's Certificate or as determined by a court of competent jurisdiction; and

            (d) Fourth, to the Issuer or to whoever may be lawfully entitled to
receive the same or as a court of competent jurisdiction may direct.


                                       40


            SECTION 712. Limitation on Suits. No Holder of any Note shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless

            (a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default, with respect to the Notes of such Series;

            (b) the Majority Holders of the Outstanding Notes of such Series
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder;

            (c) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;

            (d) the Trustee for sixty (60) days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and

            (e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Majority Holders of the
Outstanding Notes of such Series;

            it being understood and intended that no one or more of such Holders
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes, or to obtain or to seek to obtain priority or preference
over any other of such Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all Holders.

            SECTION 713. Unconditional Right of Holders to Receive Principal,
Make-Whole Premium and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment, as provided herein (including, if applicable,
Article Fourteen), of the principal of, Make-Whole Premium, if any, on and
(subject to Section 309) interest on, such Note on the Stated Maturity expressed
in such Note (or, in the case of redemption, on the Redemption Date), including
any interest accrued during any grace period provided in Section 701, and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.

            SECTION 714. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Issuer, the Trustee and the Holders shall be restored severally and respectively
to their former positions hereunder and


                                       41


thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.

            SECTION 715. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Notes in clause (e) of Section 308, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

            SECTION 716. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article Seven or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.

            SECTION 717. Control by Holders. (a) The Majority Holders of each
Series of the Notes shall have the right to direct in writing the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee, provided, that such
Majority Holders have provided the Trustee with indemnity acceptable to the
Trustee against the costs, expenses (including reasonable attorneys' fees and
expenses) and liabilities to be incurred in following such direction and that
direction shall not be in conflict with any law and the provisions of this
Indenture and provided, further, that (subject to the provisions of Section 801)
the Trustee shall have the right to decline to follow any such direction if such
directions are unclear or inconsistent with any other directives given to the
Trustee or if the Trustee, being advised by counsel, shall determine that the
action or proceeding so directed may not lawfully be taken or if the Trustee in
good faith by a Responsible Officer of the Trustee shall determine that the
action or proceedings so directed would involve the Trustee in personal
liability or if the Trustee in good faith shall so determine that the actions or
forbearances specified in or pursuant to such direction would be unduly
prejudicial to the interests of Holders so affected not joining in the giving of
said direction, it being understood that (subject to Section 801) the Trustee
shall have no duty to ascertain whether or not such actions or forbearances are
unduly prejudicial to such Holders.

            (b) Nothing in this Indenture shall impair the right of the Trustee
in its discretion to take any action deemed proper by the Trustee and which is
not inconsistent with such direction or directions by such Majority Holders.

            SECTION 718. Waiver of Past Defaults. (a) The Majority Holders of
the Outstanding Notes of either Series may on behalf of the Holders of all the
Notes of


                                       42


such Series waive any past default with respect to such Notes, except a default
in the payment of the principal of, Make-Whole Premium, if any, or any interest
on any Note or in respect of a covenant or provision hereof that cannot be
modified or amended without the unanimous affirmative vote of all Holders of
such Series.

            (b) Upon any such waiver, any such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture and the Trustee, Issuer and the Holders of such
Series of the Notes, as the case may be, shall be restored respectively to their
former positions and rights hereunder; provided, that no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.

            SECTION 719. Waiver of Force Majeure and Stay or Extension Laws. The
Issuer covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any force majeure, impossibility of performance and any
stay or extension law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of this Indenture, and the
Issuer (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such force majeure, impossibility or law and
covenants that the Issuer will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted or such force majeure or
impossibility grounds have occurred.

            SECTION 720. Trustee to Give Notice of Default, but May Withhold in
Certain Circumstances. Within forty-five (45) days after a Responsible Officer
assigned to the Corporate Trust Office of the Trustee obtains actual knowledge
of the occurrence of any Default hereunder, the Trustee shall transmit by mail
to all Holders as their names shall appear on the Security Register, in the
manner and to the extent provided in Trust Indenture Act Section 313(c), notice
of such Default hereunder, unless such Default shall have been cured or waived;
provided, that except in the case of a default in the payment of the principal
of, Make-Whole Premium, if any, or interest on any Note, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders.

            SECTION 721. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture, or in any suit against the Trustee
for any action taken, suffered or omitted by it as Trustee, a court may require
any party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs (including reasonable attorneys' fees and expenses)
against any such party litigant, in the manner and to the extent provided in the
Trust Indenture Act; provided, that the provisions of this Section 721 shall not
apply to any suit instituted by the Trustee, or the Issuer to any suit
instituted by any Holder or group of Holders, holding in the aggregate more than
ten percent (10%) in principal amount of the Outstanding Notes of either Series,
or any suit instituted by any Holder for the enforcement of the payment of


                                       43


the principal of, Make-Whole Premium, if any, or interest, if any, on any Note
on or after the respective due dates expressed in such Note (or, in the case of
redemption, on or after the Redemption Date).

                                 ARTICLE EIGHT
                                  THE TRUSTEE

            SECTION 801. Duties and Responsibilities of the Trustee; During
Default; Prior to Default. (a) The Trustee, prior to the occurrence of an Event
of Default and after the curing or waiving of all Events of Default that may
have occurred, shall undertake to perform such duties and only such duties as
are specifically set forth in this Indenture. In case an Event of Default has
occurred (which has not been cured or waived) the Trustee shall exercise such of
the rights and powers vested in it by this Indenture and use the same degree of
care and skill in their exercise as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.

            (b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:

                  (i) during the continuance of an Event of Default:

                        (A) the duties and obligations of the Trustee shall be
            determined solely by the express provisions of this Indenture, and
            the Trustee shall not be liable except for the performance of such
            duties and obligations as are specifically set forth in this
            Indenture, and no implied covenants or obligations shall be read
            into this Indenture against the Trustee; and

                        (B) in the absence of bad faith on the part of the
            Trustee, the Trustee may conclusively rely, as to the truth of the
            statements and the correctness of the opinions expressed therein,
            upon any statements, certificates or opinions furnished to the
            Trustee and conforming to the requirements of this Indenture;
            provided, that in the case of any such statements, certificates or
            opinions which by any provision hereof are specifically required to
            be furnished to the Trustee, the Trustee shall be under a duty to
            examine the same to determine whether or not they conform to the
            requirements of this Indenture (but need not confirm or investigate
            the accuracy of mathematical calculations or other facts stated
            therein);

                  (ii) the Trustee shall not be liable for any error of judgment
      made in good faith by a Responsible Officer or Responsible Officers of the
      Trustee, unless it shall be conclusively determined by a court of
      competent jurisdiction that the Trustee was negligent in ascertaining the
      pertinent facts; and


                                       44


                  (iii) the Trustee shall not be liable with respect to any
      action taken or omitted to be taken by it in good faith in accordance with
      the direction of the Holders pursuant to Section 717 relating to the time,
      method and place of conducting any proceeding for any remedy available to
      the Trustee, or exercising any trust or power conferred upon the Trustee,
      under this Indenture.

            (c) None of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there shall be reasonable ground for
believing that the repayment of such funds or indemnity satisfactory to it
against such liability is not assured to it. Notwithstanding anything to the
contrary contained herein, in no event shall the Trustee be liable under this
Indenture or any of the other Financing Documents to which it is a party for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits).

            SECTION 802. Certain Rights of Trustee. Subject to the provisions of
Section 801:

            (a) the Trustee and, as applicable, the Accounts Agent, may
conclusively rely and shall be fully protected in acting or refraining from
acting in reliance upon any resolution, Officer's Certificate or any other
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;

            (b) any request, direction, order or demand of the Issuer mentioned
herein shall be sufficiently evidenced by an Officer's Certificate, Issuer
Request or Issuer Order (unless other evidence in respect thereof be herein
specifically prescribed), and any Management Committee's Consent may be
sufficiently evidenced to the Trustee by a copy thereof certified by the
secretary or a Member of the Issuer;

            (c) the Trustee may consult with counsel of its selection and any
advice of counsel or Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder or under any Security Document in good faith and in accordance with
such advice or Opinion of Counsel;

            (d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or under any other Financing
Document at the request or direction of any of the Holders pursuant to this
Indenture, unless such Holders shall have offered to the Trustee security or
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities which might be incurred therein or thereby;


                                       45


            (e) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
appraisal, bond, debenture, notice, security or other paper or document unless
requested in writing so to do by the Majority Holders of either Series of the
Notes; provided, that if the payment within a reasonable time to the Trustee of
the costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require indemnity satisfactory to it against such expenses or
liabilities as a condition to proceeding; the reasonable expenses of every such
investigation shall be paid by the Issuer or, if paid by the Trustee, any
predecessor trustee or the Holders of any Outstanding Notes, shall be repaid by
the Issuer upon demand;

            (f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder or under any other Financing Document either
directly or by or through agents or attorneys not regularly in its employ and
the Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder;

            (g) neither the Trustee nor the Accounts Agent shall be liable for
any action taken, suffered or omitted by either of them in good faith and
believed by the Trustee or the Accounts Agent, as the case may be, to be
authorized or within the discretion or rights or powers conferred upon the
Trustee or the Accounts Agent, as the case may be, by this Indenture;

            (h) except during the continuance of an Event of Default, the
Trustee need perform only those duties as are specifically set forth in this
Indenture;

            (i) the Trustee is hereby authorized and directed to enter into the
Security Documents;

            (j) the Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Notes and this Indenture; and

            (k) the rights, privileges, protections, immunities and benefits
given to the Trustee, including its right to be indemnified, are extended to,
and shall be enforceable by, the Trustee in each of its capacities hereunder,
and to each agent, custodian and other Person employed to act hereunder and
under the Security Documents.

            SECTION 803. Trustee Not Responsible for Recitals or Issuance of
Notes. Other than as specifically provided in the Trustee recitals of this
Indenture; the recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Issuer, and the Trustee assumes no


                                       46


responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of any disclosure document or
offering materials or of the Notes. Neither the Trustee nor its agents appointed
in accordance with the provisions hereof shall be accountable for the use or
application by the Issuer of the Notes or the proceeds thereof.

            SECTION 804. May Hold Notes. The Trustee, any Paying Agent, the
Registrar or any other agent of the Issuer or of the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Notes and, subject to
Trust Indenture Act Sections 310(b) and 311, may otherwise deal with the Issuer
with the same rights it would have if it were not the Trustee, any Paying Agent,
the Registrar or any other agent of the Issuer or such agent and, subject to
Sections 809 and 813, if operative, may otherwise deal with the Issuer and
receive, collect, hold and retain collections from the Issuer with the same
rights it would have if it were not the Trustee, any Paying Agent, the Registrar
or any other agent of the Issuer.

            SECTION 805. Money Held In Trust. All moneys received by the Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. Neither the Trustee nor any agent of
the Issuer shall be under any liability for interest on any moneys received by
it hereunder except as otherwise agreed with the Issuer.

            SECTION 806. Compensation and Indemnification of Trustee, Accounts
Agent, Paying Agent and Registrar and Its Prior Claim. (a) The Issuer covenants
and agrees to pay to the Trustee, the Accounts Agent and to each Paying Agent
and Registrar, and the Trustee, the Accounts Agent and each Paying Agent and
Registrar shall be entitled to, such compensation as set forth in any fee
agreement between the Issuer and the Trustee entered into in connection with the
execution and delivery of this Indenture by the parties hereto or in connection
with the issuance of the Notes (which shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust) and the
Issuer covenants and agrees to pay or reimburse the Trustee, the Accounts Agent
and each Paying Agent and Registrar and their respective predecessors upon its
request for all reasonable expenses, disbursements and advances incurred or made
by or on behalf of it in accordance with any of the provisions of this Indenture
(including the reasonable compensation and the reasonable expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ) except any such expenses, disbursement or advance as may arise
from its negligence or bad faith. As security for such payment and for all of
the other obligations of the Issuer set forth in this Section 806 (and any fees
referred to in Section 816), the Trustee shall have a security interest and Lien
prior to the Notes upon all Collateral. The provisions of this Section 806 shall
survive the resignation or removal of the Trustee and the termination of the
other provisions of this Indenture.

            (b) The Issuer also covenants to indemnify the Trustee, the Accounts
Agent and each Paying Agent and Registrar and their respective predecessors,
officers, directors, employees, representatives and agents for, and to hold it
harmless against, any


                                       47


and all loss, liability, damage, claim or expense, including taxes (other than
taxes based on the income of the Trustee, the Accounts Agent and each Paying
Agent and Registrar and their respective predecessors, officers, directors,
employees, representatives and agents) incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance, administration
or enforcement of this Indenture and under the other Financing Documents or the
trusts hereunder and its duties hereunder and the other Financing Documents,
including any liability which the Trustee, the Accounts Agent or any Paying
Agent or Registrar may incur as a result of failure to withhold, pay or report
any tax, assessment or other governmental charge and the costs and expenses of
defending itself against or investigating any claim of liability in the
premises. The obligations of the Issuer under this Section 806(b) to compensate
and indemnify the Trustee, the Accounts Agent and each Paying Agent and
Registrar and their respective predecessors and to pay or reimburse the Trustee,
the Accounts Agent and each Paying Agent and Registrar and their respective
predecessors for expenses, disbursements and advances shall constitute
additional indebtedness hereunder and shall survive the termination,
satisfaction and discharge of this Indenture. References herein to the "Trustee"
shall be deemed to also refer to the Trustee acting in its capacity as Accounts
Agent, Paying Agent, Registrar or in any other capacity as contemplated herein
or in any Financing Document.

            (c) Where the Trustee incurs expenses or renders services in
connection with a Bankruptcy Event of Default, such expenses (including
reasonable attorneys' fees and expenses) and the compensation for the services
are intended to constitute expenses of administration under applicable federal
or state bankruptcy, insolvency or other law.

            SECTION 807. Right of Trustee to Rely on Officer's Certificate, Etc.
Subject to Sections 801 and 802, whenever in the administration of the trusts of
this Indenture the Trustee, or in the carrying out of its duties under Article
Five, the Accounts Agent, shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of bad faith on the part of the
Trustee or the Accounts Agent, as the case may be, be deemed to be conclusively
proved and established by an Officer's Certificate delivered to the Trustee or
the Accounts Agent, as the case may be, and such certificate, in the absence of
bad faith on the part of the Trustee or the Accounts Agent, as the case may be,
shall be full warranty to the Trustee or the Accounts Agent, as the case may be,
for any action taken, suffered or omitted by the Trustee or the Accounts Agent,
as the case may be, under the provisions of this Indenture upon the faith
thereof.

            SECTION 808. Corporate Trustee Required; Eligibility. There shall at
all times be a Trustee hereunder which shall be eligible to act as Trustee under
Trust Indenture Act Section 310(a)(1) and (2) and which shall have a combined
capital and surplus of at least one hundred fifty million Dollars
($150,000,000). If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of federal, state, territorial
or District of Columbia supervising or examining authority, then for the
purposes of this Section 808, the combined capital and surplus of such
corporation


                                       48


shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. The Trustee shall comply with the
provisions of the Trust Indenture Act Section 310(b). If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
808, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article Eight.

            SECTION 809. Qualification of Trustee; Conflicting Interests. If the
Trustee has or shall acquire any conflicting interest within the meaning of the
Trust Indenture Act, the Trustee shall, within 90 days after ascertaining that
it has a conflicting interest and if the Event of Default to which such
conflicting interest relates has not been cured or duly waived before the end of
such 90 day period, either eliminate such conflicting interest or resign, to the
extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.

            SECTION 810. Resignation and Removal; Appointment of Successor
Trustee. (a) The Trustee may at anytime resign by giving written notice of
resignation to the Issuer and by mailing written notice thereof by first-class
mail, postage prepaid, to all Holders at their last addresses as they shall
appear on the Security Register specifying the day upon which the resignation is
to take effect, and such resignation will take effect immediately upon the later
of the appointment of a successor trustee pursuant to this Article Eight and
such specified day. Upon receiving such notice of resignation, the Issuer, by a
Management Committee's Consent, shall promptly appoint a successor trustee
satisfying the requirements of Section 808 by written instrument in duplicate,
one copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee or trustees. If no successor trustee shall have
been so appointed and have accepted appointment within thirty (30) days after
the mailing of such notice of resignation, the resigning Trustee may petition
any court of competent jurisdiction for the appointment of a successor trustee,
or any Holder who has been a bona fide Holder of a Note or Notes for at least
six (6) months may, on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor trustee. Such court
may thereupon, after such notice, if any, as it may deem proper, appoint a
successor trustee.

            (b) In case at any time any of the following shall occur:

                  (i) the Trustee shall fail to comply with the provisions of
      Section 809 and Trust Indenture Act Section 310(b) after written request
      therefor by the Issuer or by any Holder who has been a bona fide Holder
      for at least six (6) months, except when the Trustee's duty to resign is
      stayed in accordance with the provisions of Trust Indenture Act Section
      310(b); or

                  (ii) the Trustee shall cease to be eligible in accordance with
      the provisions of Section 808 and shall fail to resign after written
      request therefor by the Issuer or by any Holder who has been a bona fide
      Holder for at least six (6) months; or


                                       49


                  (iii) the Trustee shall become incapable of acting or shall be
      adjudged a bankrupt or insolvent, or a receiver or liquidator of the
      Trustee or of its property shall be appointed, or any public officer shall
      take charge or control of the Trustee or of its property or affairs for
      the purpose of rehabilitation, conservation or liquidation;

then, in any such case, the Issuer may, by Management Committee's Consent,
remove the Trustee and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Members, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor trustee,
or, subject to the provisions of Section 811, unless the Trustee's duty to
resign is stayed as provided herein, any Holder who has been a bona fide Holder
for at least six (6) months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee.

            (c) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Issuer, by a Management Committee's Consent, shall promptly appoint a successor
trustee satisfying the requirements of Section 808. If, within one year after
such resignation, removal or incapability, or the occurrence of such vacancy, a
successor trustee shall be appointed by an Act of the Majority Holders of either
Series of the Notes delivered to the Issuer and the retiring Trustee, the
successor trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor trustee with respect to such Series of the
Notes and to that extent supersede the successor trustee appointed by the
Issuer. If no successor trustee shall have been so appointed by the Issuer or
the Holders and accepted appointment in the manner hereinafter provided within
60 days, any Holder who has been a bona fide Holder for at least six (6) months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor trustee.

            (d) It is the purpose of this Indenture that there shall be no
violation of any law of any jurisdiction denying or restricting the right of
banking corporations or associations to transact business as an indenture
trustee in such jurisdiction.

            (e) The Issuer shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor trustee in the manner
provided for in Section 106. Each notice shall include the name of the successor
trustee and the address of its Corporate Trust Office.

            (f) The Holders, by Act of the Majority Holders of either Series of
the Notes, may at any time remove the Trustee with respect to such Series of the
Notes and appoint a successor trustee with respect to such Series of the Notes
by delivering to the Trustee so removed, to the successor trustee so appointed
and to the Issuer the evidence provided for in Section 104 of the action in that
regard taken by the Majority Holders of such Series of the Notes.


                                       50


            (g) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to any of the provisions of this Section 810 shall
become effective until the acceptance of appointment by the successor trustee as
provided in Section 811.

            SECTION 811. Acceptance of Appointment by Successor. (a) In case of
the appointment hereunder of a successor trustee, every such successor trustee
so appointed shall execute, acknowledge and deliver to the Issuer and to the
retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
provided, that on the request of the Issuer or the successor trustee, such
retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor trustee all property and money held by such retiring Trustee
hereunder.

            (b) Upon request of any such successor trustee, the Issuer shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred to
in clause (a) of this Section 811.

            (c) No successor trustee shall accept its appointment unless at the
time of such acceptance such successor trustee shall be qualified and eligible
under this Article Eight.

            (d) In no event shall the retiring Trustee be liable for the acts or
omissions of any successor trustee.

            SECTION 812. Merger Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder; provided, that
such corporation shall be otherwise qualified and eligible under this Article
Eight, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor trustee had itself authenticated such Notes; and in case at
that time any of the Notes shall not have been authenticated, any successor
trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Notes or in
this Indenture provided that the certificate of the Trustee shall have;
provided, further, that the right to adopt the certificate of authentication of
any predecessor Trustee or to


                                       51


authenticate Notes in the name of any predecessor trustee shall apply only to
its successor or successors by merger, conversion or consolidation.

            SECTION 813. Preferential Collection of Claims Against Issuer. If
and when the Trustee shall be or become a creditor of the Issuer (or any other
obligor under the Notes), the Trustee shall be subject to the provisions of the
Trust Indenture Act regarding the collection of claims against the Issuer (or
any such other obligor), excluding any creditor relationships described in Trust
Indenture Act Section 311(b). A Trustee who has resigned or has been removed
shall be subject to Trust Indenture Act Section 311 (a) to the extent indicated
therein.

            SECTION 814. No Liability for Clean-up of Hazardous Materials. (a)
In the event that the Trustee is required to acquire title to an asset for any
reason, or take any managerial action of any kind in regard thereto, in order to
carry out any fiduciary or trust obligation for the benefit of another, which in
the Trustee's sole discretion may cause the Trustee to be considered an "owner
or operator" under the provisions of the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), 42 U.S.C. Sections 9601, et seq., or
otherwise cause the Trustee to incur liability under CERCLA or any other
federal, state or local law, the Trustee reserves the right to, instead of
taking such action, either resign as Trustee or arrange for the transfer of the
title or control of the asset to a court appointed receiver.

            (b) The Trustee shall not be liable to the Issuer or Holders or any
other person for any environmental claims or contribution actions under any
federal, state or local law, rule or regulation by reason of the Trustee's
actions and conduct as authorized, empowered and directed hereunder or relating
to the discharge, release or threatened release of hazardous materials into the
environment, except to the extent of the Trustee's negligence or willful
misconduct.

            SECTION 815. Accounts Agent Registrar and Paving Agent. Insofar as
such provisions may be applicable, the Accounts Agent, the Registrar, the Paying
Agent and any other agent appointed in accordance with the provisions hereof
shall enjoy the same protections, immunities and indemnities as are provided for
in this Article Eight with respect to the Trustee.

            SECTION 816. Filing Fees. The Issuer agrees to pay or to reimburse
the Trustee for any and all amounts in respect of all filing, recording and
registration fees which may be payable or determined to be payable in respect of
the execution, delivery, performance and enforcement of the Financing Documents
and agrees to save the Trustee harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omitting to pay such
fees. The obligations of the Issuer under this Section 816 shall survive the
resignation or removal of the Trustee and the termination of the other
provisions of this Indenture.


                                       52


            SECTION 817. Fee Agreement. The Fee Agreement provides for the
compensation of the Trustee hereunder for its services as such, and the Trustee
will not look to the holders of the Notes for any payment for such services,
provided, that this Section 817 shall not alter the provisions of Section
502(b)(i) or the lien provided in Section 806(a).

                                  ARTICLE NINE
                HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER

            SECTION 901. Holder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of the Holders. If the Trustee is not the Registrar, the
Issuer shall furnish to the Trustee at least five (5) Business Days before each
Payment Date, and at such other times as the Trustee may request in writing, a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Holders. The Trustee may conclusively rely upon
such list provided by the Issuer until otherwise notified by the Issuer or such
list is amended by the Issuer.

            SECTION 902. Disclosure of Names and Addresses of Holders. Every
Holder of Notes, by receiving and holding the same, agrees with the Issuer and
the Trustee that none of the Issuer or the Trustee or any agent of either of
them shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with
Trust Indenture Act Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Trust Indenture
Act Section 312(b).

            SECTION 903. Reports by Trustee. (a) Within sixty (60) days after
May 1 of each year commencing with the first May 1 after the first issuance of
Notes pursuant to this Indenture, the Trustee shall transmit to the Holders in
the manner and to the extent provided in Trust Indenture Act Section 313(c), a
brief report dated as of such May 1 if required by Trust Indenture Act Section
313(a).

            (b) The Trustee shall transmit to the Holders, in the manner and to
the extent provided in Trust Indenture Act Section 313(c), a brief report, if
required, by Trust Indenture Act Section 313(b).

            SECTION 904. Reports by Issuer. (a) The Issuer shall:

                  (i) file with the Trustee, within fifteen (15) days after the
      Issuer is required to file the same with the Commission, copies of the
      annual reports and of the information, documents and other reports (or
      copies of such portions of any of the foregoing as the Commission may from
      time to time by rules and regulations prescribe) which the Issuer may be
      required to file with the Commission pursuant to Section 13 or Section
      15(d) of the Securities Exchange Act or, if the Issuer is not required to
      file information, documents or reports pursuant to either of such
      Sections, then


                                       53


      it shall file with the Trustee and the Commission, in accordance with
      rules and regulations prescribed from time to time by the Commission, such
      of the supplementary and periodic information, documents and reports which
      may be required pursuant to Section 13 of the Securities Exchange Act in
      respect of a security listed and registered on a national securities
      exchange as may be prescribed from time to time in such rules and
      regulations;

                  (ii) file with the Trustee and the Commission, in accordance
      with rules and regulations prescribed from time to time by the Commission,
      such additional information, documents and reports with respect to
      compliance by the Issuer with the conditions and covenants of this
      Indenture as may be required from time to time by such rules and
      regulations; and

                  (iii) transmit to all Holders, in the manner and to the extent
      provided in Trust Indenture Act Section 313(c), within thirty (30) days
      after the filing thereof with the Trustee, such summaries of any
      information, documents and reports required to be filed by the Issuer
      pursuant to paragraphs (i) and (ii) of clause (a) of this Section 904 as
      may be required by rules and regulations prescribed from time to time by
      the Commission.

            (b) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Issuer's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officer's Certificates).

                                  ARTICLE TEN
                           SUPPLEMENTS AND AMENDMENTS
                       TO INDENTURE AND SECURITY DOCUMENTS

            SECTION 1001. Without Vote of Holders. Without the vote or approval
of any Holders of either Series of the Notes, the Issuer, when authorized by or
pursuant to a Management Committee's Consent, and the Trustee, at any time and
from time to time, may amend or supplement this Indenture, any Security
Documents or the Notes, in form satisfactory to the Trustee, for any of the
following purposes:

            (a) to evidence the succession of another Person to the Issuer and
the assumption by any such successor of the covenants of the Issuer contained
herein and in the Notes; or

            (b) to add to the covenants of the Issuer for the benefit of the
Holders or to surrender any right or power herein conferred upon the Issuer; or

            (c) to add any additional Events of Default; or


                                       54


            (d) to secure the Notes with additional collateral; or

            (e) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee and to add to or change any of the provisions
hereof as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one trustee; or

            (f) to cure any ambiguity, to correct or supplement any provision
hereof which may be inconsistent with any other provision in this Indenture
provided that such action shall not adversely affect the interests of the
Holders of such Series of the Notes in any material respect; or

            (g) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of the Notes; provided, that any such action does not adversely affect
the interests of the Holders of such Series of the Notes in any material
respect.

            SECTION 1002. With Consent of Holders. (a) The Issuer, when
authorized by or pursuant to a Management Committee's Consent, and the Trustee
may amend or supplement this Indenture or the Notes for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or the Notes or of modifying in any manner the rights of the
Holders under this Indenture with the consent of the Majority Holders of the
Notes affected by such amendment or supplement (voting as a single class), by
Act of said Holders delivered to the Issuer and the Trustee; provided, that no
such amendment or supplement shall, without the consent of the Holder of each
Outstanding Note,

                  (i) change the Stated Maturity of the Principal of, or any
      installment of interest on, any Note;

                  (ii) reduce the principal amount of any Note, or any
      Make-Whole Premium payable upon the redemption of any Note, or reduce the
      rate of interest on any Note, including discharge of repayment of
      principal of or interest on any Note;

                  (iii) reduce the percentage in principal amount of Outstanding
      Notes, the consent of the Holders of which is required for the adoption of
      a resolution or the quorum required at any meeting of Holders at which a
      resolution is adopted or the percentage in principal amount of Outstanding
      Notes the Holders of which are entitled to request the calling of a
      Holder's meeting;

                  (iv) change the percentage rules established for adopting
      resolutions at meetings of Holders or regarding the quorum necessary to
      constitute a meeting;

                  (v) modify any of the provisions of this Section 1002 and
      Section 718, except to increase any percentage specified herein or
      therein;


                                       55


                  (vi) change the place or coin or currency for payment of
      principal of, Make-Whole Premium, if any, or interest on any Note;

                  (vii) impair the right to institute suit for the enforcement
      of any such payment on or after the Stated Maturity thereof or any
      Redemption Date or Payment Date therefor;

                  (viii) permit the creation of any Lien with respect to all or
      any substantial portion of the Collateral, or release or terminate the
      Lien of the Security Documents on all or any substantial portion of the
      Collateral or deprive any Holder of the security afforded by the Lien of
      the Security Documents, except to the extent expressly permitted by this
      Indenture or any of the Security Documents;

                  (ix) modify the ranking or priority of the Notes; or

                  (x) waive a default in the payment of principal of, Make-Whole
      Premium, if any, or interest on, the Notes.

            (b) It shall not be necessary for any Act of Holders under this
Section 1002 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.

            SECTION 1003. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any amended or supplemental
indenture permitted by this Article Ten or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
shall be fully protected in relying upon, an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

            SECTION 1004. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture under this Article Ten, (a) this Indenture or the
applicable Security Document shall be modified in accordance therewith, (b) such
supplemental indenture, amendment, modification or waiver shall form a part of
this Indenture or the applicable Security Document (as the case may be) for all
purposes and (c) every Holder of Notes theretofore or thereafter authenticated
and delivered hereunder shall be bound thereby.

            SECTION 1005. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article Ten shall conform to
the requirements of the Trust Indenture Act as then in effect.

            SECTION 1006. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article Ten may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental


                                       56


indenture. If the Issuer shall so determine, new Notes so modified as to
conform, in the opinion of the Trustee and the Issuer, to any such supplemental
indenture may be prepared and executed by the Issuer, and, upon receipt of an
Issuer Order, authenticated and delivered by the Trustee, in exchange for
Outstanding Notes. Failure to make the appropriate notation or to issue a new
Note shall not affect the validity of such supplemental indenture, amendment,
modification or waiver.

            SECTION 1007. Notice of Supplemental Indentures. Promptly after the
execution by the Issuer and the Trustee of any supplemental indenture,
amendment, modification or waiver pursuant to the provisions of Section 1002,
the Issuer shall give notice thereof to the Holders, in the manner provided for
in Section 106, setting forth in general terms the substance of such
supplemental indenture, amendment, modification or waiver.

                                 ARTICLE ELEVEN
                              AFFIRMATIVE COVENANTS

            SECTION 1101. Payment of Principal and Interest. The Issuer shall
duly and punctually pay the principal of, Make-Whole Premium, if any, and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.

            SECTION 1102. Maintenance of Office or Agency. (a) The Issuer will
maintain in the Borough of Manhattan, the City of New York, and in each Place of
Payment, an office or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Issuer in respect of the Notes and
this Indenture may be served.

            (b) The Issuer will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuer shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee and the Issuer hereby appoints the same as its agent to
receive such respective presentations, surrenders, notices and demands.

            (c) The Issuer may also from time to time designate one or more
other offices or agencies where Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind any such designation;
provided, that no such designation or rescission shall in any manner relieve the
Issuer of its obligation to maintain an office or agency in accordance with the
requirements set forth above for such purposes. The Issuer will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.

            SECTION 1103. Maintenance of Existence, Properties. (a) The Issuer
shall preserve and maintain its legal existence and form as a bankruptcy-remote


                                       57


special purpose entity separate from any other entity, and shall preserve and
maintain all registrations necessary therefor.

            (b) The Issuer shall preserve and maintain all of its licenses,
rights, privileges and franchises necessary for the conduct of its business and
the performance of its obligations under the Material Agreements and the
Financing Documents, except to the extent failure to do so could not reasonably
be expected to result in a Material Adverse Effect.

            SECTION 1104. Payments of Taxes and Other Claims. The Issuer shall
pay and discharge or cause to be paid and discharged, before the same shall
become delinquent, all taxes, assessments and governmental charges levied or
imposed upon the Issuer, and all lawful claims or obligations which, if unpaid,
might by law become a Lien upon the Property of the Issuer; provided, that the
Issuer will not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claims whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which adequate funds have been set aside.

            SECTION 1105. Material Agreements. The Issuer will enforce all of
its rights, powers and remedies under each of the Material Agreements, unless
the failure to enforce such rights, powers and remedies could not reasonably be
expected to result in a Material Adverse Effect.

            SECTION 1106. Notice of Certain Events. The Issuer shall furnish to
the Trustee:

            (a) within 120 days after the end of each fiscal year of the Issuer
ending after the date hereof, an Officer's Certificate of a Responsible Officer
stating that (i) no Default has occurred and is continuing (or if any such
Default has occurred and is continuing, describing such Default in reasonable
detail and describing the steps being taken to remedy such Default) and (ii) the
Issuer is in compliance with all conditions and covenants under this Indenture,
the Notes and the other Financing Documents to which it is a party; and

            (b) each of the following items promptly after the Issuer learns of
the occurrence or existence thereof:

                  (i) written notice of the occurrence of any event or condition
      which constitutes a Default or an Event of Default, stating that such
      event or condition has occurred and describing it and any action being or
      proposed to be taken with respect thereto;

                  (ii) written notice of the Issuer's failure to observe or
      perform any term, covenant or obligation of the LLC Agreement (unless such
      failure could not reasonably be expected to result in a Material Adverse
      Effect), stating that failure has occurred and describing it and any
      action being or proposed to be taken with respect thereto;


                                       58


                  (iii) any actually proposed amendment, termination,
      rescission, discharge (other than by performance) or waiver under or with
      respect to any Financing Document or Material Agreement;

                  (iv) written notice of any Force Majeure Event under the CDWR
      Power Sales Agreement;

                  (v) any written notice requiring the Issuer to make any
      indemnity payments under any Material Agreement;

                  (vi) written notice of any material litigation filed against
      the Issuer; and

                  (vii) written notice of any change which could be reasonably
      expected to result in a Material Adverse Effect.

With respect to the information and documents required to be delivered to the
Trustee pursuant to clauses (a) and (b) of this Section 1106, the Issuer hereby
further covenants and agrees to deliver or cause to be delivered any such
documents and information (i) to each Holder who makes a request in writing to
the Issuer and (ii) to any owner of a beneficial interest in a Global Note who
makes a request in writing to the Issuer (which request may indicate that it is
a continuing request for such information until further notice from a Holder or
such owner of a beneficial interest in a Global Note to the contrary) for such
documents or information. Delivery of such reports, information and documents to
the Trustee is for information purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
(other than an expressly stated notice of Default or Event of Default) or
determinable from information contained therein, including the Issuer's
compliance with any of its covenants hereunder.

            SECTION 1107. Compliance with Laws and Other Agreements. The Issuer
shall comply with (a) all applicable laws, rules, regulations, orders and
directions of any Governmental Agency having jurisdiction over it or its
business and (b) all of its covenants and obligations contained in any agreement
to which the Issuer is a party, unless, in each case, the failure to so comply
could not reasonably be expected to result in a Material Adverse Effect.

            SECTION 1108. Maintenance of Books and Records. The Issuer shall at
all times maintain proper books, accounts and records in accordance with GAAP.
The Issuer shall permit the Trustee and its representatives, upon reasonable
notice and during normal business hours, to visit its premises and inspect all
books, accounts and records of the Issuer.

            SECTION 1109. Approvals. The Issuer will maintain in full force and
effect and comply in all respects with the conditions and obligations under all
applicable Government Approvals which it has obtained or which may from time to
time become necessary in connection with any of (a) the execution, delivery and
performance


                                       59


in accordance with their respective terms of the Material Agreements or the
Financing Documents to which it is a party, and (b) the taking of any action
contemplated hereby or thereby, in each case except to the extent that failure
to do so could not reasonably be expected to result in a Material Adverse
Effect. Without limiting the generality of the foregoing, the Issuer will make
all required filings as a public utility under the FPA on or prior to the time
such filings are required to be made and shall take all actions, if required,
necessary to maintain its FERC market-based rate authority.

            SECTION 1110. Rule 144A Information for the Holders. At any time
when the Issuer is not subject to Section 13 or 15(d) of the Securities Exchange
Act, upon the request of a Holder, the Issuer shall promptly furnish to such
Holder or to a prospective purchaser who is a qualified institutional buyer of
such Note designated by such Holder, as the case may be, information specified
in Rule 144A(d)(4) under the Securities Act ("Rule 144A Information") in order
to permit compliance by such Holder with Rule 144A in connection with the resale
of such Note by such Holder; provided, that the Issuer shall not be required to
furnish Rule 144A Information in connection with any request made on or after
the date which is two (2) years from the later of (a) the date such Note (or any
Predecessor Note) was acquired from the Issuer or (b) the date such Note (or any
Predecessor Note) was last acquired from an "affiliate" of the Issuer within the
meaning of Rule 144 under the Securities Act; provided, further, that the Issuer
shall not be required to furnish such information at any time to a prospective
purchaser located outside the United States who is not a "United States Person"
within the meaning of Regulation S under the Securities Act if such Note may
then be sold to such prospective purchaser in accordance with Rule 904 under the
Securities Act (or any successor provision thereto).

            SECTION 1111. Recording. (a) The Issuer shall cause, at its own
expense, this Indenture and each of the Security Documents, and all amendments
or supplements thereto, to be registered, recorded and filed or re-recorded,
re-filed and renewed in such manner and in such place or places, if any, as may
be required by law in order fully to preserve and protect the security interests
created under the Security Documents and to effectuate and preserve the security
therein granted to the Trustee hereunder for the benefit of the Trustee and the
Holders.

            (b) Without prejudice to the above, the Issuer will comply with all
applicable provisions of the Trust Indenture Act, including Trust Indenture Act
Sections 314(b) and (d).

            SECTION 1112. Further Assurances. The Issuer shall, at its own cost
and expense, execute and deliver, and cause to be executed and delivered, to the
Trustee all such documents, instruments and agreements, and do all such other
acts and things as may be reasonably required to preserve the Liens in favor of
the Trustee with the required first-ranking priority and to enable the Trustee
to exercise and enforce its rights under this Indenture, the Security Documents
and the other documents, instruments and agreements required under this
Indenture and to carry out the intent of this Indenture and the other Financing
Documents.


                                       60


            SECTION 1113. Collateral. The Issuer shall take all actions
necessary to maintain and preserve the perfection and priority of all Liens in
favor of the Trustee on the Collateral, and shall from time to time execute or
cause to be executed and filed any and all further instruments (including
financing statements required by the Uniform Commercial Code, continuation
statements and similar statements with respect to the Liens in favor of the
Trustee created by the Financing Documents) as are necessary to maintain and
preserve such Liens, or which the Trustee may reasonably request.

            SECTION 1114. Performance of Obligations. The Issuer may contract
with other Persons to assist it in performing its duties under this Indenture
and the other Financing Documents, and any performance of such duties by a
Person identified to the Trustee in an Officer's Certificate of the Issuer shall
be deemed to be action taken by the Issuer. As of the Closing Date, the Issuer
has contracted with the Administrative Agent to assist the Issuer in performing
its duties under this Indenture and the other Financing Documents and any action
taken by the Administrative Agent on behalf of the Issuer to assist it in
performing its duties under this Indenture and the other Financing Documents
shall be deemed to be action taken by the Issuer.

            SECTION 1115. Return of Monies Held by Trustee. (a) On any date on
which the principal of any Note becomes due in full, if the outstanding
principal of such Note, together with all interest accruing thereon to the due
date, and any other amounts payable by the Issuer to the Trustee or the Holders
under this Indenture or any other Financing Document, have been finally and
irrevocably paid to the Trustee for the benefit of the Holders, all interest on
such Notes shall cease to accrue on the date of such payment.

            (b) Moneys so deposited with the Trustee or then held by the Issuer
in trust for the payment of the principal of, Make-Whole Premium, if any, or
interest on, any Note which remain unclaimed two (2) years after the date that
all amounts payable by the Issuer to the Trustee or to the Holders under this
Indenture or any other Financing Document has been finally and irrevocably paid
to the Trustee for the benefit of the Holders, shall, at the request of the
Issuer if at the time, to the knowledge of the Trustee, no Event of Default
shall have occurred and be continuing, be paid to the Issuer and the Holders
shall thereafter look solely to the Issuer for payment with respect to amounts
deposited with the Trustee and returned to the Issuer pursuant to this Section
1115(b).

            SECTION 1116. Schedule and Delivery of Energy Under the CDWR Power
Sales Agreement. The Issuer shall schedule and deliver, or cause to be scheduled
and delivered, the full amount of energy required by the CDWR Power Sales
Agreement in accordance with the terms of the CDWR Power Sales Agreement.

                                 ARTICLE TWELVE
                               NEGATIVE COVENANTS

            SECTION 1201. Liens. The Issuer shall not create, incur, assume or
permit to exist any Lien upon any of the Collateral, other than the Liens
created by this


                                       61


Indenture and the Security Documents, unless the failure to so comply could not
reasonably be expected to result in a Material Adverse Effect.

            SECTION 1202. Indebtedness. The Issuer shall not create, assume,
incur or otherwise become or remain obligated in respect of, or permit to remain
outstanding, any Indebtedness, except for Indebtedness represented by the Notes.

            SECTION 1203. Guaranties. The Issuer shall not at any time be or
become obligated, contingently or otherwise, with respect to any Guaranty.

            SECTION 1204. Transactions with Affiliates. The Issuer shall not
effect any transaction with any of its Affiliates on a basis more favorable to
such Affiliate than would at the time be obtainable for a comparable transaction
on an arm's-length dealing with an unrelated third party, except for the
Material Agreements entered into on or before the Closing Date.

            SECTION 1205. Investments, Loans and Advances. The Issuer shall not
purchase, hold or acquire any capital stock, evidences of Indebtedness or other
securities of, make or permit to exist any loans or advances to or make or
permit to exist any investment or other interest in, any other Person, except
Permitted Investments.

            SECTION 1206. Material Agreements; Additional Contracts. (a) The
Issuer shall not assign any of its rights or obligations under any Material
Agreement nor will the Issuer amend in any respect or terminate or suffer any
such amendment or termination of, or grant any waiver of material and timely
performance with respect to, or agree to the assignment of the rights or
obligations of any party to, any Material Agreement; provided, that the Issuer
may make amendments to the Material Agreements which are of a routine,
ministerial or administrative nature to the extent that what is contemplated
under any such amendment is not otherwise expressly prohibited hereunder or
could reasonably be expected to result in a Material Adverse Effect; provided,
however, that any amendment or modification to any Material Agreement which
extends or modifies the time for payment due thereunder shall not be deemed to
be an amendment of a routine, ministerial or administrative nature; provided,
further, that nothing in this Section 1206(a) shall prevent the Issuer or the
Trustee from terminating the Administrative Services Agreement in connection
with a breach thereof by the Administrative Agent in accordance with the
Administrative Agent Consent.

            (b) The Issuer shall not become a party to any contract, lease,
agreement or instrument other than the agreements expressly identified in the
definitions of Material Agreements and Financing Documents to the extent such
action could reasonably be expected to result in a Material Adverse Effect.

            SECTION 1207. Fundamental Change. The Issuer shall not (a) sell,
lease, transfer or otherwise dispose of any of its right, title or interest in
or to the Collateral, unless the failure to so comply could not reasonably be
expected to result in a Material Adverse Effect, (b) conduct any business or own
any assets other than the business and assets conducted and owned by it as of
the Closing Date, (c) directly or


                                       62


indirectly merge, amalgamate or consolidate with any other Person, liquidate,
wind up, terminate, reorganize or dissolve itself, or otherwise wind up, (d)
change its legal form or its state of formation or (e) establish any subsidiary.

            SECTION 1208. Restricted Payments. Except as permitted in accordance
with the conditions set forth in Section 401 and clause (ix) of Section 502(b),
the Issuer shall not, directly or indirectly, (a) make any distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, to its Members or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (b) redeem, purchase, retire or otherwise acquire for value
any such ownership or equity interest or security or (c) set aside or otherwise
segregate any amounts for any such purpose. The Issuer will not, directly or
indirectly, make payments to or distributions from the Collections Account
except in accordance with this Indenture and the Financing Documents.

                                ARTICLE THIRTEEN
                               REDEMPTION OF NOTES

            SECTION 1301. Applicability of Article. Either Series of the Notes
shall be redeemable (in whole or in part) before their Stated Maturity in
accordance with the terms of such Notes and in accordance with this Article
Thirteen.

            SECTION 1302. Election to Redeem; Notice to Trustee. The Issuer may,
at any time and from time to time, elect to redeem either Series of the Notes,
in whole or in part, such election to be evidenced by or pursuant to a
Management Committee's Consent. In case of any redemption at the election of the
Issuer pursuant to this Article 13, the Issuer shall, at least sixty (60) days
prior to the Redemption Date fixed by the Issuer (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1303.

            SECTION 1303. Selection by Trustee of Notes to Be Redeemed. (a) If
less than all the Notes of such Series are to be redeemed pursuant to Section
1302, the particular Notes of such Series to be redeemed shall be selected not
more than sixty (60) days prior to the Redemption Date by the Trustee, from the
Outstanding Notes of such Series not previously called for redemption, by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions of the principal of Notes of such
Series; provided, that no such partial redemption shall reduce the portion of
the principal amount of a Note not redeemed to less than the minimum authorized
denomination for Notes established pursuant to Section 302.

            (b) The Trustee shall promptly notify the Issuer in writing of the
Notes of such Series selected for redemption pursuant to Section 1302 and, in
the case of any Notes selected for partial redemption, the principal amount
thereof to be redeemed.


                                       63


            (c) For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Note redeemed or to be redeemed only in part pursuant to Section
1302, to the portion of the principal amount of such Note which has been or is
to be redeemed.

            SECTION 1304. Notice of Redemption. (a) Notice of redemption
pursuant to Section 1302 shall be given in the manner provided for in Section
106 not less than thirty (30) nor more than sixty (60) days prior to the
Redemption Date to each Holder of Notes of the applicable Series to be redeemed,
but failure to give such notice in the manner herein provided to the Holder of
any Note of the applicable Series designated for redemption in whole or in part,
or any defect in the notice of any such Holder, shall not affect the validity of
the proceedings for the redemption of any other Note or portion thereof.

            (b) Any notice that is mailed to the Holders in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the Holder receives the notice.

            (c) All notices of redemption shall state:

                  (i) the Redemption Date,

                  (ii) the Redemption Price,

                  (iii) if less than all the Outstanding Notes are to be
      redeemed, the identification (and, in the case of partial redemption, the
      principal amounts) of the particular Notes to be redeemed,

                  (iv) that on the Redemption Date the Redemption Price
      (together with accrued interest, if any, to the Redemption Date payable as
      provided in Section 1306) will become due and payable upon each Note, or
      the portion thereof, to be redeemed and, if applicable, that interest
      thereon will cease to accrue on and after said date, and

                  (v) the Place of Payment where such Notes, maturing after the
      Redemption Date, are to be surrendered for payment of the Redemption
      Price.

            (d) Notice of redemption of Notes to be redeemed at the election of
the Issuer shall be given by the Issuer or, at the Issuer's request made not
less than fifteen (15) days prior to the latest date such notice of redemption
may be given, by the Trustee in the name and at the expense of the Issuer.

            SECTION 1305. Deposit of Redemption Price. Not later than one (1)
Business Day before any Redemption Date, the Issuer shall deposit with the
Trustee or with a Paying Agent an amount of money sufficient to pay the
Redemption Price of, and accrued interest on, all the Notes of the applicable
Series which are to be redeemed on that date.


                                       64


            SECTION 1306. Notes Payable on Redemption Date. (a) Notice of
redemption having been given in accordance with Section 1304, the Notes of the
applicable Series to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price thereof (together with accrued interest, if any,
to the Redemption Date), and from and after such Redemption Date (unless the
Issuer shall default in the payment of the Redemption Price and accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note for redemption in accordance with said notice, such Note shall be paid by
the Issuer at the Redemption Price, together with accrued interest, if any, to
the Redemption Date; provided, that installments of interest on Notes whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Notes, or one or more Predecessor Notes, registered as such at
the close of business on the relevant Regular Record Dates according to their
terms and the provisions of Section 310.

            (b) If any Note of the applicable Series called for redemption shall
not be so paid upon surrender thereof for redemption, the principal (and
Make-Whole Premium, if any) shall, until paid, bear interest from the Redemption
Date at the rate of interest set forth in such Note.

            SECTION 1307. Notes Redeemed in Part. Any Note of the applicable
Series which is to be redeemed only in part (pursuant to the provisions of this
Article Thirteen or of Article Fourteen) shall be surrendered at a Place of
Payment therefor (with, if the Issuer or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Issuer and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Issuer shall execute, and, upon
receipt of an Issuer Order, the Trustee shall authenticate and deliver to the
Holder of such Note of the applicable Series without service charge, a new Note
or Notes, of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Note so surrendered.

                                ARTICLE FOURTEEN
                       DEFEASANCE AND COVENANT DEFEASANCE

            SECTION 1401. Issuer's Option to Effect Defeasance or Covenant
Defeasance. The provisions of this Article Fourteen shall apply to the Notes of
either Series, and the Issuer may, at its option by a Management Committee's
Consent, effect defeasance of such Series of the Notes under Section 1402, or
covenant defeasance under Section 1403 in accordance with this Article Fourteen.

            SECTION 1402. Defeasance and Discharge. Upon the Issuer's exercise
of the option provided in Section 1401 applicable to this Section 1402 the
Issuer shall be deemed to have been discharged from its obligations with respect
to the Outstanding Notes of such Series on the date the conditions set forth in
Section 1404 are satisfied (hereinafter, "defeasance"). For this purpose, such
defeasance means that the Issuer shall be deemed to have paid and discharged the
entire indebtedness represented by the Outstanding Notes of such Series, which
shall thereafter be deemed to be


                                       65


"Outstanding" only for the purposes of Section 1405 and the other Sections of
this Indenture referred to in (a) and (b) below, and to have satisfied all of
its other obligations under such Notes and this Indenture insofar as such Notes
are concerned (and the Trustee, at the expense of the Issuer, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of such Outstanding Notes of such Series to receive, solely from the
trust fund described in Section 1404(a) and as more fully set forth in such
Section, payments in respect of the principal of, Make-Whole Premium, if any,
and interest on such Notes when such payments are due; (b) the Issuer's
obligations with respect to such Notes under Sections 305, 306, 307, 308, and
1102; (c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (d) this Article Fourteen. Subject to compliance with this Article
Fourteen, the Issuer may exercise its option under this Section 1402
notwithstanding the prior exercise of its option under Section 1403.

            SECTION 1403. Covenant Defeasance. Upon the Issuer's exercise of the
option provided in Section 1401 applicable to this Section 1403, (a) the Issuer
shall be released from its obligations under Sections 1104 through 1116,
inclusive, and Sections 1201 through 1208, inclusive and (b) the occurrence of
any event specified in Section 701(c) (with respect to any of Sections 1104
through 1116, inclusive, and Sections 1201 through 1208, inclusive) shall be
deemed not to be an Event of Default on or after the date the conditions set
forth in Section 1404 are satisfied (hereinafter, "covenant defeasance"). For
this purpose, such covenant defeasance means that the Issuer may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such Section or clause, whether directly or indirectly, by
reason of any reference elsewhere herein to any such Section or clause or by
reason of reference in any such Section or clause to any other provision herein
or in any other document and any such omission shall not be deemed to be an
Event of Default, but, the remainder of this Indenture and such Notes shall be
unaffected thereby.

            SECTION 1404. Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to application of either Section 1402 or
Section 1403 to the Outstanding Notes of either Series:

            (a) The Issuer shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements of
Section 808 who shall agree to comply with the provisions of this Article
Fourteen applicable to such trustee) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of the Notes of such Series, an
amount sufficient, in the opinion of an internationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied by
the Trustee (or other qualifying trustee) to pay and discharge, (i) the
principal of and installment of interest on the Outstanding Notes of such Series
on the Stated Maturity (or Redemption Date, if applicable) of such principal,
Make-Whole Premium, if any, or installment of interest and (ii) any mandatory
sinking fund payments or analogous payments applicable to the Outstanding Notes
of such Series on the day on which such


                                       66


payments are due and payable in accordance with the terms of this Indenture and
of the Notes.

            (b) In the case of an election under Section 1402, the Issuer shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the Issuer
has received from, or there has been published by, the Internal Revenue Service
a ruling, or (ii) since the date of execution of this Indenture, there has been
a change in the applicable United States federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm that, the
Holders of Outstanding Notes of such Series will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance had not occurred.

            (c) In the case of an election under Section 1403, the Issuer shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of Outstanding Notes of such Series will not recognize gain or loss for
United States federal income tax purposes as a result of such covenant
defeasance and will be subject to United States federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.

            (d) The Issuer shall have delivered to the Trustee an Officer's
Certificate to the effect that the Notes of such Series, if then listed on any
securities exchange, will not be delisted as a result of such deposit.

            (e) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
Bankruptcy Events of Default are concerned, at any time during the period ending
on the one hundred twenty-first (121") day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until the
expiration of such period).

            (f) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest as defined in Section 809 and for
purposes of the Trust Indenture Act with respect to any securities of the
Issuer.

            (g) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Issuer is a party or by
which it is bound.

            (h) The Issuer shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1402 or
the covenant defeasance under Section 1403 (as the case may be) have been
complied with, and that such defeasance or covenant defeasance shall not result
in the trust arising from such deposit constituting an "investment company," as
defined in the Investment Company Act of 1940, as amended, or such trust shall
be qualified under such act or exempt from regulation thereunder.


                                       67


            SECTION 1405. Deposited Money to Be Held in Trust; Other
Miscellaneous Provisions. (a) All money (or other property as may be provided
hereunder) (including the proceeds thereof) deposited with the Trustee or other
qualifying trustee (collectively for purposes of this Section 1405 and Section
1406, the "Trustee") pursuant to Section 1404 in respect of Outstanding Notes of
such Series shall be held in trust and applied by the Trustee, in accordance
with the provisions of the Notes and this Indenture, to the payment, either
directly or through any Paying Agent (including the Issuer acting as its own
Paying Agent) as the Trustee may determine, to the Holders of the Notes of such
Series of all sums due and to become due thereon in respect of principal,
Make-Whole Premium, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law.

            (b) Anything in this Article Fourteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Issuer from time to
time upon Issuer Request any money (or other property and any proceeds
therefrom) held by it as provided in Section 1404 which, in the opinion of an
internationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, is in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent defeasance or covenant defeasance, as applicable, in accordance with
this Article Fourteen.

            SECTION 1406. Reinstatement. If the Trustee or any Paying Agent is
unable to apply any money in accordance with Section 1405 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Issuer's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 1402 or 1403, as the case may be, until such time
as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 1405; provided, that if the Issuer makes any payment of
principal of, Make-Whole Premium, if any, or interest on any Note following the
reinstatement of its obligations, the Issuer shall be subrogated to the rights
of the Holders of such Note to receive such payment from the money held by the
Trustee or Paying Agent.

                                ARTICLE FIFTEEN
                          MEETINGS OF HOLDERS OF NOTES

            SECTION 1501. Purposes for Which Holders' Meetings May Be Called. A
meeting of Holders may be called at any time and from time to time pursuant to
this Article Fifteen for any of the following purposes:

            (a) to give any notice to the Issuer or to the Trustee, or to give
any directions to the Trustee, or to waive or to consent to the waiving of any
Default hereunder with respect to such Series of the Notes and its consequences,
or to take any other action authorized to be taken by Holders of either Series
of the Notes pursuant to Article Seven;


                                       68


            (b) to remove the Trustee as trustee with respect to such Series of
the Notes pursuant to Section 810;

            (c) to consent to the execution of an indenture or indentures
supplemental hereto with respect to such Series of the Notes pursuant to Section
1002; or

            (d) to take any other action authorized to be taken by or on behalf
of the Holders of any specified aggregate principal amount of the Notes of such
Series under any other provision of this Indenture or under applicable law.

            SECTION 1502. Call of Meetings by Trustee. The Trustee may at any
time call a meeting of Holders of either Series of the Notes to be held at such
time and at such place in the Borough of Manhattan, the City of New York, for
any purpose specified in Section 1501 as the Trustee at the time shall
determine. Notice of every meeting of Holders, setting forth the time and the
place of such meeting and in general terms the action proposed to be taken at
such meetings shall be given by the Trustee, in the manner provided in Section
106, not less than twenty (20) nor more than one hundred twenty (120) days prior
to the date fixed for the meeting, to the Holders.

            SECTION 1503. Issuer and Holders May Call Meeting. In case the
Issuer, pursuant to a Management Committee's Consent, or the Holders of at least
ten percent (10%) in aggregate principal amount of the Notes of such Series then
outstanding, shall have requested the Trustee to call a meeting of Holders of
such Series, by written request setting forth in general terms the action
proposed to be taken at the meeting, and the Trustee shall not have made the
mailing of the notice of such meeting within twenty (20) days after receipt of
such request, then the Issuer or the Holders in the amount above specified may
determine the time and the place in the Borough of Manhattan, the City of New
York, for such meeting and may call such meeting to take any action authorized
in Section 1501 by giving notice thereof as provided in Section 1502.

            SECTION 1504. Persons Entitled to Vote at Meeting. To be entitled to
vote at any meeting of Holders of such Series a person shall be (a) a Holder of
one or more Notes of such Series or (b) a person appointed by an instrument in
writing as proxy for a Holder of such Series of the Notes. The only persons who
shall be entitled to be present or to speak at any meeting of Holders of such
Series of the Notes shall be the persons entitled to vote at such meeting and
their counsel and any representatives of the Trustee and its counsel and any
representatives of the Issuer and its counsel.

            SECTION 1505. Determination of Voting Rights: Conduct and
Adjournment of Meeting. (a) Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Holders of Notes of either Series, in regard to
proof of the holding of Notes and of the appointment of proxies, and in regard
to the appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to vote,
and such other matters concerning the conduct of the meeting as it shall think
fit. Such regulations may provide that written instruments


                                       69


appointing proxies, regular on their face, may be presumed valid and genuine
without the proof specified in Section 104 or other proof. Except as otherwise
permitted or required by any such regulations, the holding of Notes of such
Series shall be proved in the manner specified in Section 104 and the
appointment of any proxy shall be proved in the manner specified in said Section
104 or by having the signature of the person executing the proxy witnessed or
guaranteed by any bank, banker, trust company or firm satisfactory to the
Trustee.

            (b) The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Issuer or by Holders as provided in Section 1503, in which case the Issuer
or the Holders calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the Holders of a majority in principal
amount of the Notes represented at the meeting and entitled to vote.

            (c) At any meeting, each Holder of a Note or a proxy shall be
entitled to one vote for each $1,000 principal amount of Notes held or
represented by it. The chairman of the meeting shall have no right to vote other
than by virtue of Notes held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Holders. Any meeting of
Holders duly called pursuant to Section 1502 or 1503 may be adjourned from time
to time to a place, date and time announced at such meeting, and the meeting may
be held as so adjourned without further notice.

            (d) At any meeting duly called pursuant to this Article Fifteen, the
presence of persons holding or representing Notes of either Series in an
aggregate principal amount sufficient to take action upon the business for the
transaction of which such meeting was called shall be necessary to constitute a
quorum; provided, that if less than a quorum be present, the persons holding or
representing a majority of the Notes of such Series represented at the meeting
may adjourn such meeting with the same effect, for all intents and purposes, as
though a quorum had been present.

            SECTION 1506. Counting Votes and Recording Action of Meeting. The
vote upon any resolution submitted to any meeting of Holders shall be by written
ballots on which shall be subscribed the signatures of the Holders or of their
representatives by proxy and the serial numbers and principal amounts of the
Notes held or represented by them. The permanent chairman of the meeting shall
appoint two inspectors of votes who shall count all votes cast at the meeting
for or against any resolution and who shall make and file with the secretary of
the meeting their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of Holders
shall be prepared by the secretary of the meeting and there shall be attached to
said record the original reports of the inspectors of votes on any vote by
ballot taken thereat and affidavits by one or more persons having knowledge of
the facts setting forth a copy of the notice of the meeting and showing that
said notice was given as provided in Section 1502. The record shall show the
serial numbers of the Notes voting in favor of or against any resolution. The
record shall be signed and verified by the affidavits of the permanent chairman
and secretary of the meeting and one


                                       70


of the duplicates shall be delivered to the Issuer and the other to the Trustee
to be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting. Any record so signed and verified shall be conclusive
evidence of the matters therein stated.

                                ARTICLE SIXTEEN
                          COVENANTS OF HOLDERS OF NOTES

            SECTION 1601. Treatment of Notes as Indebtedness for Tax Purposes.
Each Holder of a Note by its acceptance of such note covenants and agrees to
treat such Note as indebtedness for United States federal income tax purposes.


                                       71


            IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.

                                     POWER CONTRACT FINANCING,
                                     L.L.C., as Issuer

                                     By: /s/ Eric Pryor
                                        ----------------------------------------
                                        Name:
                                        Title:


                                     WILMINGTON TRUST COMPANY,
                                     as Trustee, Accounts Agent,
                                     Paying Agent and Registrar

                                     By /s/ James J. McGinley
                                        ----------------------------------------
                                        Name: James J. McGinley
                                        Title: Authorized Signer



                                                                       EXHIBIT A
                                   DEFINITIONS

            "Account Transfer Payment" means the amounts that are to be
transferred from the Reserve Account to the Collections Account pursuant to
Section 502(a) of this Indenture.

            "Accountant" means a Person engaged in the practice of accounting
who (except when this Indenture provides that an Accountant must be Independent)
may be employed by or affiliated with the Issuer or an Affiliate of the Issuer.

            "Accounts" has the meaning specified in Section 501 of this
Indenture.

            "Accounts Agent" means the Person named as the "Accounts Agent" in
Section 501 (a) of this Indenture until a successor Accounts Agent shall have
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Accounts Agent" shall mean such successor Accounts Agent.

            "Act" when used with respect to any Holder, has the meaning
specified in Section 104 of this Indenture.

            "Administrative Agent" means, initially, Lord Securities Corporation
pursuant to the original Administrative Services Agreement and, thereafter, any
other Person that has entered into an Administrative Services Agreement with the
Issuer.

            "Administrative Agent Consent" means the Consent and Agreement,
dated as of the date of this Indenture, among the Administrative Agent, the
Issuer and the Trustee as it may from time to time be supplemented, amended or
restated pursuant to the applicable provisions thereof.

            "Administrative Services Agreement" means the Administrative
Services Agreement, dated as of the date of this Indenture, between the
Administrative Agent and the Issuer as originally executed and as it may from
time to time be supplemented, amended or restated pursuant to the applicable
provisions thereof, and any replacement agreement substantially in the form of
the original Administrative Services Agreement between a replacement
Administrative Agent and the Issuer and entered into as contemplated by the
Administrative Agent Consent.

            "Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

            "Assignment and Security Agreement" means the Assignment and
Security Agreement among the Issuer, the Trustee and the Accounts Agent, for the


                                      A-1


benefit of the Trustee and the Holders, dated as of the date of this Indenture,
as originally executed and as it may from time to time be supplemented, amended
or restated pursuant to the applicable provisions thereof.

            "Bankruptcy Event of Default" means the events described in clause
(h) or (i) of Section 701 of this Indenture.

            "Business Day" means, each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the same jurisdiction
as the Corporate Trust Office of the Trustee or of any relevant Place of Payment
or other relevant location are authorized or obligated by law or executive order
to close.

            "Capacity" has the meaning ascribed thereto under the MSCG Power
Purchase Agreement.

            "CDWR" means the State of California Department of Water Resources
or any successor to CDWR as the counterparty to a Replacement Agreement (as
defined in the CDWR Power Sales Agreement) or assignee of CDWR pursuant to the
CDWR Power Sales Agreement.

            "CDWR Consent" means the Consent and Agreement, dated as of the date
of this Indenture, among CDWR and the Trustee, as it may from time to time be
supplemented, amended or restated pursuant to the applicable provisions thereof.

            "CDWR Letter Agreement" means the Letter Agreement, dated as of June
5, 2003, among CES and CDWR, as it may from time to time be supplemented,
amended or restated pursuant to the applicable provisions thereof.

            "CDWR Power Sales Agreement" means the EEI Master Power Purchase and
Sale Agreement, dated as of April 22, 2002, between CDWR and the Issuer, as
modified by the amended and restated cover sheet, dated as of April 22, 2002,
between CDWR and the Issuer and the amended and restated confirmation letter
related thereto referred to as "Calpine 1", dated as of April 22, 2002, between
CDWR and the Issuer, or any Replacement Agreement (as defined in the CDWR Power
Sales Agreement) pursuant to Section 10.5 of the CDWR Power Sales Agreement.

            "Clearstream Luxembourg" means Clearstream Banking, societe anonyme.

            "Closing Date" means June 13, 2003, being the date of issuance and
delivery of the Initial Notes.

            "Collateral" has the meaning ascribed thereto in the Assignment and
Security Agreement.

            "Collections" means all amounts payable to the Issuer from CDWR
pursuant to the CDWR Power Sales Agreement and all earnings on Permitted
Investments made with funds in any Account.


                                      A-2


            "Collections Account" has the meaning set forth in Section 502(a) of
this Indenture.

            "Collections Period" means the period from January 1 through June 30
of each year (for August Payment Dates) and from July 1 through December 31 of
each year (for February Payment Dates), and the final Payment Date of February
1, 2006 with respect to the Notes due 2006 and February 1, 2010 with respect to
the Notes due 2010. (except with respect to the first payment date of February
1, 2004, for which the collections period is the period from the closing date of
the offering of these notes through December 31, 2003).

            "Commission" means the U.S. Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act, or, if
at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.

            "Consent" means, individually, the Administrative Agent Consent, the
Scheduling Services Consent, the CDWR Consent, the Morgan Stanley Capital
Consent and the Morgan Stanley Consent; collectively, the "Consents."

            "Corporate Trust Office" means the corporate trust office of the
Trustee, at which, at any particular time, its corporate trust business shall be
principally administered, which office on the date of execution of this
Indenture is located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, except that with respect to presentation of Notes
for payment or for registration of transfer or exchange, such term shall mean
the office or agency of the Trustee at which, at any particular time, its
corporate agency business shall be conducted.

            "Damages and Indemnity Account" shall have the meaning set forth in
Section 506(a) of this Indenture.

            "Debt Service Coverage Ratio" means, as of each Payment Date, the
ratio of (a) Net Collections for the Collections Period preceding such Payment
Date divided by (b) Mandatory Debt Service payable on such Payment Date.

            "Default" means any condition or event that, with the giving of
notice or lapse of time or both, would become an Event of Default.

            "Defaulted Payments" has the meaning specified in Section 309(b) of
this Indenture.

            "Distributable Collections" means, as of any Payment Date, the
amount of Collections then on deposit in the Collections Account after the
operation of priorities first through eighth of Section 502(b) and corresponding
to electric energy actually delivered, or that should have been delivered, to
CDWR during the Collections Period preceding the Payment Date.


                                      A-3


            "Dollar" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.

            "DTC" means The Depository Trust Company, its nominees and
successors.

            "DTC Participants" or "Participants" has the meaning set forth in
Section 306(b) of this Indenture.

            "Early Termination Date" has the meaning ascribed thereto in the
MSCG Power Purchase Agreement.

            "Energy" has the meaning ascribed thereto in the MSCG Power Purchase
Agreement.

            "Euroclear" means the accounts of purchasers at the Euroclear
System.

            "Event of Default" has the meaning specified in Section 701 of this
Indenture.

            "Federal Bankruptcy Code" means Title 11 of the United States Code
or any other Federal Bankruptcy Code hereafter in effect.

            "Fee Agreement" means the Schedule of Fees, dated as of June 13,
2003, between the Issuer and the Trustee.

            "FERC" means the Federal Energy Regulatory Commission and any
successor thereto.

            "Financing Document" means, individually, the Indenture, each
Security Document, each Note, the Fee Agreement and any and all purchase
agreements, filings and other instruments evidencing, securing or relating in
any way to the Collateral or any other Financing Document, as shall from time to
time be executed and delivered to the Trustee by or on behalf of the Issuer or
any other Person pursuant to or as contemplated by this Indenture; collectively,
the "Financing Documents."

            "Force Majeure Event" shall mean an event of "Force Majeure" as
described in Section 1.23 of the CDWR Power Sales Agreement.

            "FPA" means the Federal Power Act of 1920, as amended.

            "GAAP" means, as of any date of determination, generally accepted
accounting principles then in effect in the United States of America, applied on
a consistent basis.

            "Global Note" or "Global Notes" collectively or individually, as the
case may be, has the meaning set forth in Section 201(g) of this Indenture.


                                      A-4


            "Global Note Holder" has the meaning set forth in Section 306(a) of
this Indenture.

            "Governmental Agency" means any public legal entity or public agency
of the United States, whether created by federal, state or local government or
any other legal entity now existing or hereafter created, or now or hereafter
owned or controlled, directly or indirectly, by any public legal entity or
public agency of the United States.

            "Government Approval" means any authorization, approval, consent,
waiver, exception, license, filing, registration, ruling, permit, tariff,
certification, exemption and other action or requirement by or with any
Governmental Agency. Without limiting the generality of the foregoing, with
respect to the Issuer, Governmental Approvals shall include the approval from
the FERC pursuant to Section 205 of the FPA for the rates to be charged by the
Issuer under the CDWR Power Sales Agreement.

            "Guaranty" of or "Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such Person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness, or (c) to maintain working capital, equity capital
or other financial statement condition or liquidity of the primary obligor so as
to enable the primary obligor to pay such Indebtedness; provided, that the terms
Guarantee and Guaranty shall not include endorsements for collection or deposit,
in either case in the ordinary course of business.

            "Holder" means the Person in whose name a Note is registered in the
Security Register.

            "Indebtedness" means with respect to any Person, (a) any liability
of such Person (i) for borrowed money, or under any reimbursement obligation
relating to a letter of credit, or (ii) evidenced by a bond, note, debenture or
similar instrument (including a purchase money obligation) given in connection
with the acquisition of any businesses, properties or assets of any kind (other
than a trade payable or a current liability arising in the ordinary course of
business), or (iii) for the payment of money relating to any obligations under
any capital lease of real or personal property which has been recorded as a
capitalized lease obligation, (b) all redeemable stock issued by such Person
(the amount of Indebtedness represented by any involuntary liquidation
preference plus accrued and unpaid dividends), (c) any liability of others
described in the preceding clause (a) that the Person has guaranteed or that is
otherwise its legal liability; and (d) (without duplication) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a), (b) and (c) above. For
purposes of determining any particular amount of Indebtedness under this
definition, guarantees of (or obligations with respect to letters of credit
supporting)


                                      A-5


Indebtedness otherwise included in the determination of such amount shall not
also be included.

            "Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.

            "Independent," when used with respect to any specified Person, means
a Person who (a) is in fact independent of the Issuer and any other obligor upon
the Notes and of any Affiliate of the Issuer or of such other obligor, (b) does
not have any direct financial interest or any material indirect financial
interest in the Issuer or in any such other obligor or in any Affiliate of the
Issuer or of such other obligor and (c) is not connected with the Issuer or any
such other obligor or any Affiliate of the Issuer or of such other obligor as an
officer, member employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions. Whenever it is herein provided that any
Independent Person's opinion or certificate shall be furnished to the Trustee,
such Person shall be appointed by an Issuer Order and approved by the Trustee in
the exercise of reasonable care and such opinion or certificate shall state that
the signer has read this definition and that the signer is Independent within
the meaning hereof. "Independent Investment Banker" means Morgan Stanley & Co.
Incorporated, or its successor.

            "Initial Notes" means collectively, the Initial Notes due 2006 and
the Initial Notes due 2010.

            "Initial Notes due 2006" means the Notes due 2006 of the Issuer
issued on the Closing Date for so long as such securities constitute Restricted
Securities.

            "Initial Notes due 2010" means the Notes due 2010 of the Issuer
issued on the Closing Date for so long as such securities constitute Restricted
Securities.

            "Interest Payment Date" means the first (1st) calendar day of each
February and August commencing on and from February 1, 2004 (or if any such day
is not a Business Day, then the next succeeding Business Day).

            "Issuer" means the Person named as the "Issuer" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter "Issuer"
shall mean such successor Person.

            "Issuer Request" or "Issuer Order" means a written request or order
signed in the name of the Issuer by its President or a Vice President or the
President or Vice President of the Administrative Agent acting on behalf of the
Issuer and delivered to the Trustee.

            "Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, assignment in trust, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority or other security agreement
(including, without limitation,


                                      A-6


any conditional sale or other title retention agreement, any financing lease
having substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code of any state
of the United States or comparable law of any jurisdiction).

            "LLC Agreement" means the limited liability company operating
agreement of the Issuer, dated as of June 13, 2003

            "Majority Holders" means with respect to any Series of the Notes,
Holders of not less than fifty-one percent (51%) in aggregate principal amount
of the Outstanding Notes of such Series (voting as a single class).

            "Make-Whole Premium" means, with respect to the Notes of either
Series, an amount calculated by the Issuer equal to the Discounted Present Value
calculated for any Note of such Series called for redemption less the unpaid
principal amount of that Note; provided, that the Make-Whole Premium shall not
be less than zero; provided, further, that a Make-Whole Premium shall not be due
for any reason, or result from any event, other than in connection with an
optional redemption of the Notes of such Series pursuant to Section 1302 of this
Indenture or in the event Morgan Stanley Capital makes a Termination Payment to
the Issuer that includes a Make-Whole Premium. For purposes of this definition,
the "Discounted Present Value" of any Note subject to redemption shall be equal
to the discounted present value of all principal and interest payments scheduled
to become due in respect of that Note after the date of this redemption,
calculated by an Independent Investment Banker using a discount rate equal to
the sum of (a) the yield to maturity on the United States treasury security
having an average life equal to the remaining average life of that Note and
trading in the secondary market at the price closest to par and (b) thirty seven
and one-half (37.5) basis points; provided, that, if there is no United States
treasury security having an average life equal to the remaining average life of
that Note, this discount rate shall be calculated using a yield to maturity
interpolated or extrapolated on a straight-line basis (rounding to the nearest
month, if necessary) from the yields to maturity for two United States treasury
securities having average lives most closely corresponding to the remaining
average life of that Note and trading in the secondary market at the price
closest to par.

            "Management Committee" means the management committee of the Issuer.

            "Management Committee's Consent" means a copy of a consent certified
by a Responsible Officer of the Issuer to have been duly adopted by the
Management Committee and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

            "Mandatory Debt Service" means all scheduled interest and principal
payments on the Notes due on any Payment Date.

            "Material Adverse Effect" means, with respect to either Series of
the Notes, an event, occurrence or condition which has or could reasonably be
expected to


                                      A-7


have a material adverse effect on (a) the business, operations, property,
condition (financial or otherwise) of the Issuer, (b) the rights or remedies of
the Trustee in respect of such Series of the Notes or Holders of such Series of
the Notes under the Financing Documents, (c) the ability of any of the Issuer,
Morgan Stanley, Morgan Stanley Capital or CDWR to perform its obligations under
the Financing Documents or the Material Agreements to which it is a party or (d)
the validity, enforceability or priority of the Liens on the Collateral.

            "Material Agreement" means, individually, the CDWR Power Sales
Agreement, the MSCG Power Purchase Agreement, the PPA Purchase Agreement; the
Administrative Services Agreement, the Scheduling Services Agreement, the Morgan
Stanley MSCG Guarantee, the Morgan Stanley CDWR Guarantee the Administrative
Agent Consent, the Scheduling Services Consent, the Morgan Stanley Consent, the
Morgan Stanley Capital Consent, the CDWR Consent, the CDWR Letter Agreement and
the LLC Agreement; collectively, the "Material Agreements."

            "Maturity," when used with respect to any Note, means the date on
which the principal of such Note or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.

            "Member" means any member of the Issuer; collectively, the "Members"
of the Issuer.

            "Moody's" means Moody's Investors Service, Inc.

            "Morgan Stanley" means Morgan Stanley, a Delaware corporation, or
its successors or assigns under the Morgan Stanley MSCG Guarantee.

            "Morgan Stanley Capital" means Morgan Stanley Capital Group Inc., a
Delaware corporation, or any Replacement Supplier (as defined in the MSCG Power
Purchase Agreement) or other successor to or assignee of Morgan Stanley Capital
pursuant to the MSCG Power Purchase Agreement.

            "Morgan Stanley Capital Consent" means the Consent and Agreement,
dated as of the date of this Indenture, among Morgan Stanley Capital, the Issuer
and the Trustee as it may from time to time be supplemented, amended or restated
pursuant to the applicable provisions thereof.

            "Morgan Stanley Capital Payments" for any month, means the amount
payable to Morgan Stanley Capital by the Issuer pursuant to the MSCG Power
Purchase Agreement for Energy and Capacity provided to the Issuer by Morgan
Stanley Capital in such month.

            "Morgan Stanley Consent" means the Consent and Agreement, dated as
of the date of this Indenture, among Morgan Stanley, the Issuer and the Trustee
as it may from time to time be supplemented, amended or restated pursuant to the
applicable provisions thereof.


                                      A-8


            "Morgan Stanley CDWR Guarantee" means the Guarantee Agreement, dated
as of May 1, 2002, between Calpine Corporation and CDWR, which was assumed by
Morgan Stanley pursuant to the Assignment and Assumption Agreement, dated as of
June 13, 2003, between Morgan Stanley and Calpine, and pursuant to which Morgan
Stanley provides a guarantee in favor of CDWR with respect to the Issuer's
payment obligations under the CDWR Power Sales Agreement, as it may from time to
time be supplemented, amended or restated pursuant to the applicable provisions
thereof.

            "Morgan Stanley MSCG Guarantee" means the Guarantee, dated as of
June 13, 2003, by Morgan Stanley in favor of the Issuer with respect to Morgan
Stanley Capital's payment obligations under the MSCG Power Purchase Agreement,
as it may from time to time be supplemented, amended or restated pursuant to the
applicable provisions thereof.

            "MSCG Power Purchase Agreement" means the EEI Master Power Purchase
and Sale Agreement, dated as of June 13, 2003, between Morgan Stanley Capital
and the Issuer, as modified by a cover sheet, dated as of June 13, 2003, between
Morgan Stanley Capital and the Issuer and the confirmation letter related
thereto, dated as of June 13, 2003, between Morgan Stanley Capital and the
Issuer, as it may from time to time be replaced, supplemented, amended or
restated pursuant to the applicable provisions thereof.

            "Net Collections" means, for any Collections Period, the difference,
if positive, between (a) all Collections corresponding to energy actually
delivered, or that should have been delivered, to CDWR during the Collections
Period minus (b) the sum of all amounts paid during the Collections Period
pursuant to clauses (i), (ii), (vi), (vii) (viii) of Section 502(b).

            "Non-U.S. Person" means a Person that is not a "U.S. Person" as
defined in Regulation S and certified to the Trustee and the Registrar by such
Person.

            "Notes" means, collectively, the Initial Notes and the Unrestricted
Notes, as amended or supplemented from time to time in accordance with the terms
of this Indenture, that are authenticated and delivered pursuant to this
Indenture; individually, a "Note;" it being understood that "Notes" may, but
does not necessarily include Notes of more than one Series.

            "Notes due 2006" has the meaning specified in the first recital.

            "Notes due 2010" has the meaning specified in the first recital.

            "Notice of an Actionable Event" means (a) a certificate of any
Holder that an Event of Default has occurred or (b) whether or not any
certificate or notice thereof shall have been delivered to the Trustee, a
Bankruptcy Event of Default. A Notice of an Actionable Event has been "given"
(i) in the case of a Bankruptcy Event of Default, when such Bankruptcy Event of
Default occurs or (ii) in the case of any other Notice of an Actionable Event,
when the certificate referred to in clause (a) of the immediately preceding
sentence has actually been received by a Responsible Officer of the Trustee. A


                                      A-9


Notice of an Actionable Event has been "rescinded" when, after a Notice of an
Actionable Event (other than in connection with a Bankruptcy Event of Default)
has been given, the Majority Holders have subsequently delivered to a
Responsible Officer of the Trustee a certificate stating that such Event of
Default has been waived or cured or when, after a Bankruptcy Event of Default,
such Bankruptcy Event of Default is no longer continuing and a Responsible
Officer of the Trustee has received a certificate to this effect from the
Majority Holders or the Issuer, provided, that a Notice of an Actionable Event
may not be rescinded without the consent of the Holders of all of the Notes
unless all amounts of interest on the Notes and all payments on account of the
principal of and Make-Whole Premium (if any) on the Notes, other than amounts of
principal of and Make-Whole Premium, if any, on any Outstanding Notes that have
become due solely by reason of a declared acceleration as provided in Section
702 or interest thereon (with interest on such principal, Make-Whole Premium (if
any) and, to the extent permitted by law, on overdue payments of interest, at
the rates specified herein and the Notes with respect to overdue payments), and
an additional amount sufficient to reimburse the Holders for the reasonable
costs and expenses incurred in connection with the giving and rescinding of any
such Notice of an Actionable Event shall have been paid prior to the entry of
any judgment in respect of such amounts. A Notice of an Actionable Event is
"outstanding" at all times after such Notice of an Actionable Event has been
given until such time, if any, as such Notice of an Actionable Event has been
rescinded.

            "Officer's Certificate" means a certificate signed by the president
or any Vice President of the Issuer or any of the foregoing officers of the
Administrative Agent acting on behalf of the Issuer, as the case may be, and by
the principal accounting officer or the principal financial officer or the
secretary of the Issuer or any of the foregoing officers of the Administrative
Agent acting on behalf of the Issuer, as the case may be, and delivered to the
Trustee.

            "Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Issuer or the Administrative Agent, acting on behalf of the
Issuer, including an employee of the Issuer or the Administrative Agent, acting
on behalf of the Issuer, and who shall be acceptable to the Trustee.

            "Outstanding," when used with respect to Notes, means, as of the
date of determination, all Notes theretofore authenticated and delivered under
this Indenture, except:

                  (a) Notes theretofore cancelled by the Trustee or delivered to
            the Trustee for cancellation;

                  (b) Notes, or portions thereof, for whose payment or
            redemption money in the necessary amount has been theretofore
            deposited with the Trustee or any Paying Agent (other than the
            Issuer) in trust or set aside and segregated in trust by the Issuer
            (if the Issuer shall act as its own Paying Agent) for the Holders of
            such Notes; provided, that if such Notes are to be redeemed, notice
            of such redemption has been duly given


                                      A-10


            pursuant to this Indenture or provision therefor satisfactory to the
            Trustee has been made;

                  (c) Notes, except to the extent provided in Sections 1402 and
            1403 of this Indenture, with respect to which the Issuer has
            effected defeasance and/or covenant defeasance as provided in
            Article Fourteen; and

                  (d) Notes which have been paid pursuant to Section 309 of this
            Indenture or in exchange for or in lieu of which other Notes have
            been authenticated and delivered pursuant to this Indenture, other
            than any such Notes in respect of which there shall have been
            presented to the Trustee proof satisfactory to it that such Notes
            are held by a bona fide purchaser in whose hands such Notes are
            valid obligations of the Issuer;

provided, that for purposes of Section 303 of this Indenture and for purposes of
determining whether the Holders of the requisite principal amount of the
Outstanding Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or are present at a meeting of Holders for
quorum purposes, and for the purpose of making the calculations required by
Trust Indenture Act Section 313, Notes owned by the Issuer or any other obligor
upon the Notes or any Affiliate of the Issuer or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making such calculation or in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer or any other obligor upon the Notes or any Affiliate
of the Issuer or such other obligor.

            "Paying Agent" means the Trustee or any other Person (including the
Issuer acting as Paying Agent) authorized by the Issuer to pay the principal of
or interest on any Notes on behalf of the Issuer.

            "Payment Date" means an Interest Payment Date and/or a Principal
Payment Date.

            "Permanent Regulation S Global Note" has the meaning set forth in
Section 201(e) of this Indenture.

            "Permitted Investments" means the following investments maturing, in
each case, not less than one (1) Business Day before the Payment Date next
following the date such investment is made; provided, however, that in the case
of any investment pursuant to clause (b) of this definition which is made with
the Trustee, such investment may mature on such Payment Date:


                                      A-11


                  (a) any direct obligations of, or obligations fully and
            unconditionally guaranteed by, the United States of America, or any
            agency or instrumentality of the United States of America, the
            obligations of which are fully and unconditionally backed by the
            full faith and credit of the United States of America;

                  (b) demand and time deposits in, certificates of deposit of,
            bankers' acceptances issued by, or federal funds sold by any
            depository institution or trust company incorporated under the laws
            of the United States of America or any state thereof and subject to
            supervision and examination by federal and/or state authorities, or
            incorporated under the laws of any other jurisdiction, so long as at
            the time of such investment or contractual commitment providing for
            such investment the unsecured commercial paper or other unsecured
            short-term debt obligations of such depository institution or trust
            company have at least the Required Credit Rating from Moody's and
            Standard & Poor's;

                  (c) repurchase obligations with respect to any security
            described in clauses (a) or (b) above, in each case entered into
            with either (i) a depository institution or trust company (acting as
            principal) which in respect of its short-term unsecured debt has
            credit ratings of at least the Required Credit Rating from Moody's
            and Standard & Poor's or (ii) a money market fiend maintained by a
            broker which in respect of its short-term unsecured debt has at
            least the Required Credit Rating from Moody's and Standard & Poor's;

                  (d) unsecured debt securities bearing interest or sold at a
            discount issued by any corporation incorporated under the laws of
            the United States of America or any state thereof which have at the
            time of such investment at least the Required Credit Rating from
            Moody's and Standard & Poor's;

                  (e) unsecured commercial paper which has at the time of such
            investment a rating of at least the Required Credit Rating from
            Moody's and Standard & Poor's; and

                  (f) investments in money market funds or money market mutual
            funds which have at the time of such investment at least the
            Required Credit Rating from Moody's and Standard & Poor's (including
            such funds for which the Trustee or any of its Affiliates is
            investment manager or advisor and for which the Trustee or any of
            its Affiliates may receive a fee).

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


                                      A-12


            "Physical Note" or "Physical Notes" collectively or individually, as
the case may be, has the meaning set forth in Section 201(g) of this Indenture.

            "Place of Payment" means, when used with respect to the Notes, the
place or places where the principal of, Make-Whole Premium, if any, and interest
on the Notes are payable as specified as contemplated by Sections 301(e) and
1102 of this Indenture.

            "PPA Purchase Agreement" means the Purchase Agreement and Assignment
Agreement, dated as of June 13, 2003, among CES and the Issuer, as it may from
time to time be supplemented, amended or restated pursuant to the applicable
provisions thereof.

            "Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note and, for the purposes of this definition, any Note authenticated
and delivered under Section 308 of this Indenture in exchange for or in lieu of
a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.

            "Principal Payment Date of the Notes" means the first (1st) calendar
day of each February and August commencing on and from February 1, 2004 (or if
such day is not a Business Day, then the next succeeding Business Day).

            "Private Placement Legend" has the meaning set forth in Section
202(a) of this Indenture.

            "Property" means any asset, revenue or any other property, whether
tangible or intangible, real or personal, including, without limitation, any
right to receive income.

            "QIB" means a "Qualified Institutional Buyer" under Rule 144A.

            "Rating Agencies" means Moody's and Standard & Poor's to the extent
that, at the relevant time of determination, each such Rating Agency has an
active rating in effect on the Notes or, if fewer than all such Rating Agencies
have a current rating in effect on the Notes, each such Rating Agency that has
an active rating in effect on the Notes; provided, that if none of such Rating
Agencies has a current rating in effect on the Notes at any relevant time of
determination, at least two (2) other internationally recognized rating
institutions selected in good faith by the Management Committee.

            "Redemption Date" when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.

            "Redemption Price" when used with respect to any Note to be
redeemed, means the price at which such Note is to be redeemed pursuant to this
Indenture.


                                      A-13


            "Registrar" means the Trustee, until a successor Registrar shall
have become such pursuant to the applicable provisions of this Indenture, and,
thereafter, "Registrar" shall mean such successor Registrar.

            "Registration Statement" means a registration statement with respect
to the Notes meeting the requirements of the Securities Act.

            "Regular Record Date," with respect to any Payment Date, means the
date which is fifteen (15) Business Days immediately preceding such Payment
Date.

            "Regulation S" means Regulation S under the Securities Act.

            "Regulation S Global Note" has the meaning set forth in Section
201(e) of this Indenture.

            "Regulation S Physical Note" has the meaning set forth in Section
201(f) of this Indenture.

            "Required Credit Rating" means A-1 (or its equivalent) or higher
from Standard & Poor's and P-1 (or its equivalent) or higher from Moody's, as
the case may be.

            "Resale Restriction Termination Date" means the date that is two
years after the later of the original issue date and the last date on which the
Issuer or any Affiliate of the Issuer was the owner of a Note (or any
Predecessor Note).

            "Reserve Account" has the meaning specified in Section 504(a) of
this Indenture.

            "Reserve Deficiency" has the meaning specified in Section 504(b) of
this Indenture.

            "Reserve Investments Account" has the meaning specified in Section
505 of this Indenture.

            "Reserve Required Balance" means an amount equal to the greatest
scheduled payment of principal and interest due on the Notes on any Payment
Date.

            "Responsible Officer" means, with respect to any person other than
the Trustee or the Issuer, a duly elected or appointed authorized and acting
officer, agent or representative of such Person. "Responsible Officer" when used
with respect to the Trustee, means the chairman or any vice-chairman of the
board of directors, the chairman or any vice-chairman of the executive committee
of the board of directors, the chairman of the trust committee, the president,
any Vice President, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller or any assistant controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above-designated officers, and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge


                                      A-14


of and familiarity with the particular subject. "Responsible Officer" when used
with respect to the Issuer means, unless the context otherwise requires, the
managing member, president, chief executive officer, chief financial officer,
vice president, principal accounting officer or treasurer of the Issuer or any
of the foregoing officers of the Administrative Agent acting on behalf of the
Issuer or other executive officer of the Issuer or the Administrative Agent
acting on behalf of the Issuer who in the normal performance of his or her
operational duties would have knowledge of the subject matter relating to any
certificate, report or notice to be delivered or given under this Indenture or
knowledge of any Default or Event of Default thereunder.

            "Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, that the Trustee shall be entitled
to request and conclusively rely on an Opinion of Counsel with respect to
whether any Note constitutes a Restricted Security.

            "Rule 144A" means Rule 144A under the Securities Act.

            "Rule 144A Global Note" has the meaning set forth in Section 201 (d)
of this Indenture.

            "Rule 144A Information" has the meaning set forth in Section 1110 of
this Indenture.

            "Scheduling Services Agreement" means the Scheduling Services
Agreement, dated as of the date of this Indenture, between the Morgan Stanley
Capital and the Issuer as originally executed and as it may from time to time be
supplemented, amended or restated pursuant to the applicable provisions thereof,
and any replacement agreement substantially in the form of the original
Scheduling Services Agreement between a replacement scheduling coordinator and
the Issuer and entered into as contemplated by the Morgan Stanley Capital
Consent.

            "Scheduling Services Consent" means the Consent and Agreement, dated
as of the date of this Indenture, among the Morgan Stanley Capital, the Issuer
and the Trustee as it may from time to time be supplemented, amended or restated
pursuant to the applicable provisions thereof with respect to the Scheduling
Services Agreement.

            "Securities Act" means the Securities Act of 1933, as from time to
time amended.

            "Securities Exchange Act" means the Securities Exchange Act of 1934,
as from time to time amended.

            "Security Document" means, individually, the Assignment and Security
Agreement, the Consents and all UCC financing statements required by this
Indenture in connection with the Collateral; collectively, the "Security
Documents."

            "Security Register" has the meaning specified in Section 305(a) of
this Indenture.


                                      A-15


            "Series" means either the Notes due 2010 or the Notes due 2006, but
not both, as the context requires.

            "Special Record Date" for the payment of any defaulted principal or
interest on the Notes means a date fixed by the Trustee pursuant to Section
309(c) of this Indenture.

            "Standard & Poor's" means Standards & Poor's Rating Services.

            "Stated Maturity" when used with respect to any Note or any
installment of principal thereof or interest thereon, means the date specified
in such Note as the fixed date on which the principal of such Note or such
installment of principal or interest is due and payable.

            "Temporary Regulation S Global Note" has the meaning set forth in
Section 201 (e) of this Indenture.

            "Termination Payment" (a) when used with respect to the MSCG Power
Purchase Agreement has the meaning ascribed thereto in the MSCG Power Purchase
Agreement and (b) when used with respect to the CDWR Power Sales Agreement has
the meaning ascribed thereto in the CDWR Power Sales Agreement.

            "Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force on the date this Indenture was executed, except as provided in Section
1005 of this Indenture.

            "Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder.

            "Trustee Fees" means the amount of fees, expenses (including
reasonable attorneys fees and expenses) and indemnities due to the Trustee, the
Accounts Agent, each Paying Agent and the Registrar under this Indenture, the
Fee Agreement and the other Financing Documents.

            "Uniform Commercial Code" or "UCC" means the Uniform Commercial Code
as in effect from time to time in the State of New York and any other
jurisdiction the laws of which control the creation or perfection of security
interests under the Security Documents.

            "United States" or "U.S." means the United States of America
(including the states and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction.

            "Unrestricted Notes" means one or more Notes that do not and are not
required to bear the restrictive legends set forth in Section 202.


                                      A-16


            "U.S. Person" has the meaning ascribed to such term in Regulation S
and certified to the Trustee and the Registrar by such Person.

            "U.S. Physical Note" has the meaning set forth in Section 201(f) of
this Indenture.

            "Vice President" when used with respect to the Issuer or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "Vice President."

            "Working Capital Account" has the meaning specified in Section 503
of this Indenture.


                                      A-17


                                                                      EXHIBIT B1

                              FORM OF FACE OF NOTE
                        POWER CONTRACT FINANCING, L.L.C.
                       5.200% SENIOR SECURED NOTE DUE 2006

                                                              CUSIP [__________]

No. [__________]                                                     $[________]

            POWER CONTRACT FINANCING, L.L.C., a Delaware limited liability
company (the "Issuer," which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to [_________], or
its registered assigns, the outstanding principal sum of [WRITTEN AMOUNT]
($[amount]), on or prior to February 1, 2006, or such earlier date as this Note
due 2006 may be redeemed (the "Maturity Date"), such payment to be made in
semi-annual installments on February 1 and August 1 in each year commencing on
February 1, 2004, and ending on the Maturity Date set forth above (or if any
such day is not a Business Day, then the next succeeding Business Day), each
such installment to be in the amount set forth opposite the applicable Payment
Date on Annex A attached hereto (provided, that the portion of the principal
amount remaining unpaid on the Maturity Date, together with all interest accrued
and unpaid thereon, shall in any and all cases be due and payable on the
Maturity Date), and to pay interest thereon from the Closing Date or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semi-annually on February 1 and August 1 in each year commencing
on February 1, 2004 in each year (or, if any such day is not a Business Day,
then the next succeeding Business Day), at a rate of 5.200% per annum, until the
principal hereof is paid or made available for payment, plus additional interest
(to the extent that the payment of such interest shall be legally enforceable)
at the rate of 1.0% per annum on any overdue principal and Make-Whole Premium
and on any overdue installment of interest. The principal and interest so
payable, and punctually paid or duly provided for, on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Note due
2006 (or one or more Predecessor Notes) is registered at the close of business
on the Regular Record Date next preceding such Payment Date. Any such principal
or interest not so punctually paid or duly provided for (collectively,
"Defaulted Payments") will forthwith cease to be payable to the Holder on such
Regular Record Date and shall be paid to the Person in whose name this Note due
2006 (or one or more Predecessor Notes) is registered at the close of business
on a Special Record Date for the payment of such Defaulted Payment to be fixed
by the Issuer, notice whereof shall be given by the Trustee to Holders of Notes
due 2006 not less than 10 days prior to such Special Record Date.

            Reference is hereby made to the further provisions of this Note due
2006 set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.

            Terms used but not otherwise defined in this Note due 2006 shall
have the meanings as defined in the Indenture. The provisions of this Note due
2006 do not


                                      B1-1


purport to be complete and are subject to, and qualified in their entirety by
reference to, the provisions of the Indenture.

            Unless the certificate of authentication hereon has been executed by
the Trustee referred to below by manual signature, this Note due 2006 shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.

            IN WITNESS WHEREOF, the Issuer has caused this Note due 2006 to be
duly executed manually or by facsimile by its duly authorized officers.

Dated: ________________

                                             POWER CONTRACT FINANCING, L.L.C.


                                             By_________________________________
                                               Name:
                                               Title: [President/Vice President]

Attest:


By______________________________________
  Name:
  Title: [Secretary/Assistant Secretary]


                                      B1-2


                          CERTIFICATE OF AUTHENTICATION

Dated:______________

            This is one of the 5.200% Senior Secured Notes due 2006 of the
Issuer described in the within-mentioned Indenture.

                                               Wilmington Trust Company,
                                                 as Trustee


                                               By_______________________________
                                                       Authorized Signatory


                                      B1-3


                          FORM OF REVERSE SIDE OF NOTE
                        POWER CONTRACT FINANCING, L.L.C.
                       5.200% SENIOR SECURED NOTE DUE 2006

1.    Principal and Interest.

            The Issuer will pay the principal of this Note due 2006 on or prior
to February 1, 2006, in the manner set forth on the face of this Note due 2006.

            The Issuer promises to pay accrued and unpaid interest on the
principal amount of this Note due 2006 on each Interest Payment Date, as set
forth below, at the rate per annum shown above.

            Principal of and interest on this Note will be payable semi-annually
(to the Holders of record of the Notes (or any predecessor Notes) at the close
of business on the Regular Record Date immediately preceding the Principal
Payment Date) on each Principal Payment Date and on each Interest Payment Date
commencing February 1, 2004.

            Interest on this Note due 2006 will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the
Closing Date; provided, that if there is no existing default in the payment of
interest and if this Note due 2006 is authenticated between a Regular Record
Date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such Interest Payment Date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

2.    Method of Payment.

            The principal of, Make-Whole Premium, if any, and interest on the
Notes due 2006 shall be payable and the Notes due 2006 shall be exchangeable and
transferable at the office or agency of the Issuer in the Borough of Manhattan,
the City of New York, maintained for such purposes (which initially shall be the
Corporate Trust Office of the Trustee) or, at the option of the Issuer, interest
may be paid by check mailed to the address of the Person entitled thereto as
such address shall appear on the Security Register; provided, that (a) all
payments with respect to the Global Notes and the Physical Notes the Holders of
which have given wire transfer instructions to the Trustee by the Regular Record
Date shall be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof; (b) the payment of the
final installment of principal of, or interest on, each Note due 2006 shall only
be made upon presentation and surrender of such Note due 2006 at the Corporate
Trust Office, or such other place as may be designated pursuant to the
Indenture; and (c) pursuant to the Indenture, upon written request from any
Holder of Outstanding Notes due 2006 in the aggregate principal amount of
$1,000,000 payments of interest on, or principal (other than the final payment
of principal) of, such Notes due 2006 shall be made by wire transfer to such
Holder. The Notes due 2006 will not be entitled to the benefit of any sinking
fund.


                                      B1-4


3.    Registrar.

            The Trustee will act as the Registrar.

4.    Indenture; Limitations.

            The Issuer issued the Notes due 2006 under an Indenture dated as of
June 13, 2003 (the "Indenture"), between the Issuer and Wilmington Trust
Company, as trustee (the "Trustee"). The terms of the Notes due 2006 include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act. The Notes due 2006 are subject to all such terms and
Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note due 2006 and the terms
of the Indenture, the terms of the Indenture shall control.

            The Notes due 2006 are general obligations of the Issuer. The
aggregate principal amount of Notes due 2006 issued on the Closing Date is
$339,929,000.

5.    Optional Redemption.

            The Notes due 2006 may be redeemed at the option of the Issuer, in
whole or in part, at any time and from time to time at a Redemption Price equal
to 100% of the Outstanding principal amount, plus accrued and unpaid interest to
but excluding the Redemption Date, plus a Make-Whole Premium, if any.

            Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of a Note due 2006 to be
redeemed at such Holder's last address as it appears in the Security Register.
On and after the Redemption Date, interest ceases to accrue on Notes due 2006 or
portions of Notes due 2006 called for redemption, unless the Issuer defaults in
the payment of the Redemption Price described above.

6.    Denominations; Transfer; Exchange.

            The Notes due 2006 are issued only in registered form without
coupons and initially only in minimum denominations of $100,000 and any integral
multiple of $1,000 above that amount; provided, that initial purchases of the
Notes due 2006 by purchasers who are institutional "accredited investors" who
are not Qualified Institutional Buyers shall be in minimum amounts of $250,000;
and provided, further that, after initial issuance, Notes due 2006 may be issued
upon exchange or transfer in such amounts as may be necessary to evidence the
entire unpaid principal amount of any Note due 2006 surrendered or exchanged. A
Holder may register the transfer or exchange of Notes due 2006 in accordance
with the Indenture. The Issuer may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Issuer need not register
the transfer or exchange of any Notes due 2006 selected for redemption (except
the unredeemed portion of any Note due 2006 being redeemed in part). Also, it
need not


                                      B1-5


register the transfer or exchange of any Notes due 2006 for a period of 15 days
before a selection of Notes due 2006 to be redeemed is made.

7.    Persons Deemed Owners.

            A Holder may be treated as the owner of a Note due 2006 for all
purposes.

8.    Treatment of Notes as Indebtedness for Tax Purposes.

            Each Holder of a Note due 2006 by its acceptance of such Note due
2006 covenants and agrees to treat such Note as indebtedness for United States
federal income tax purposes.

9.    Unclaimed Money.

            If money for the payment of principal, Make-Whole Premium, if any,
or interest remains unclaimed for two years after the date that all amounts
payable by the Issuer to the Trustee or the Holders under any Financing Document
have been finally and irrevocably paid to the Trustee for the benefit of the
Holders, the Trustee will pay the money back to the Issuer at its request. After
that, the Holders entitled to the money must look solely to the Issuer for
payment and all liability of the Trustee will cease with respect to money
deposited with the Trustee or held in trust by the Issuer and returned to the
Issuer as unclaimed money.

10.   Discharge Prior to Redemption or Maturity.

            If the Issuer irrevocably deposits, or causes to be deposited, with
the Trustee money sufficient to pay the then outstanding principal of,
Make-Whole Premium, if any, and accrued and unpaid interest on the Notes due
2006 to redemption or maturity, the Issuer will be discharged from the Indenture
and the Notes due 2006, except in certain circumstances for certain sections
thereof.

11.   Amendment; Supplement; Waiver.

            Subject to certain exceptions, the Indenture or the Notes due 2006
may be amended or supplemented with the consent of the Majority Holders of any
Outstanding Notes due 2006, and any existing default or compliance with any
provision may be waived with the consent of the Majority Holders (other than for
a default in the payment of the principal of, Make-Whole Premium, if any, or
interest on any Note due 2006 or in respect of a covenant or provision of the
Indenture that cannot be modified or amended without the unanimous affirmative
vote of all Holders) of the principal amount of the Notes due 2006 then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Notes due 2006 to, among other
things, cure any ambiguity, defect or inconsistency; provided, that such cure
shall not materially adversely affect the interests of the Holders.

12.   Restrictive Covenants.


                                      B1-6


            The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness of
the Issuer; (ii) restricted payments; (iii) transactions with Affiliates; (iv)
fundamental change; and (v) compliance with Material Agreements.

13.   Successor Persons.

            When a successor person or other entity assumes all the obligations
of its predecessor under the Notes due 2006 and the Indenture, the predecessor
person will be released from those obligations.

14.   Remedies for Events of Default.

            If an Event of Default (other than a Bankruptcy Event of Default)
occurs and is continuing, then and in every such case the Trustee, upon the
direction of Holders of no less than 25% of the Outstanding Notes due 2006 (for
an Event of Default with respect to a default in payment of principal,
Make-Whole Premium, if any, or interest) or either the Majority Holders of the
Outstanding Notes due 2006 (for any other Event of Default), shall declare the
principal amount of all the Notes due 2006 to be due and payable immediately, by
a notice in writing to the Issuer, and, upon any such declaration, such
principal amount, any accrued and unpaid interest and all other amounts payable
under the Notes due 2006 shall become immediately due and payable.

            If a Bankruptcy Event of Default occurs, the principal amount of,
any accrued interest on and all other amounts payable under the Notes due 2006
then Outstanding shall become immediately due and payable. The Trustee may
require indemnity reasonably satisfactory to it before it enforces the Indenture
or the Notes due 2006. Subject to certain limitations, the Majority Holders may
direct the Trustee in its exercise of any trust or power.

15.   Trustee Dealings with Issuer.

            The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes due 2006 and may make loans
to, accept deposits from, perform services for, and otherwise deal with, the
Issuer and its Affiliates as if it were not the Trustee; provided, that no
conflicting interest results.

16.   No Recourse Against Certain Others.

            Except as otherwise specifically provided in the Material
Agreements, no recourse under or upon any obligation, covenant or agreement
contained in this Note due 2006, the Indenture or any Security Document, or
because of any indebtedness evidenced thereby, shall be had against any
incorporator, as such, or against any past, present or future stockholder,
member, manager, officer or director, as such, of the Issuer or the Issuer's
Members or of any successor, either directly or through the Issuer or the
Issuer's. Members, as the case may be, or any successor, under any rule of law,
statute, or constitutional provision or by the enforcement of any assessment or
by any legal or equitable proceeding or otherwise, all such liability being
expressly waived and released


                                      B1-7


by the acceptance of the Notes due 2006 by the Holders thereof and as part of
the consideration for the issuance of the Notes due 2006. Nothing contained
herein shall, however, limit the liability of any Person for any fraud, gross
negligence or willful misconduct on their part.

17.   Authentication.

            This Note due 2006 shall not be valid until the Trustee manually
signs the certificate of authentication on the other side of this Note due 2006.

18.   Governing Law.

            The Indenture and this Note due 2006 shall be governed by, and
construed in accordance with, the law of the State of New York without giving
effect to the principles thereof relating to conflicts of law except Section
5-1401 of the New York General Obligations Law.

            The Issuer will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to POWER CONTRACT
FINANCING, L.L.C., 50 West San Fernando Street, Suite 670, San Jose, California
95113, Attention: President.


                                      B1-8


                                                                      ANNEX A to
                                                                            Note
                       REPAYMENT SCHEDULE FOR INITIAL NOTE



        Principal Payment Date              Principal Amount Payable
        ----------------------              ------------------------
                                         
      February 1, 2004                             $
      August 1, 2004                               $
      February 1, 2005                             $
      August 1, 2005                               $
      February 1, 2006                             $



                                      B1-9


                             Form of Transfer Notice

(To be executed by the registered Holder if such Holder desires to transfer this
Note)

To    [__________]
      [__________]
      Attention: [__________]

            FOR VALUE RECEIVED the undersigned registered Holder hereby sells,
assigns and transfers unto:

Name of Assignee:______________________________________________

Taxpayer Identification Number of Assignee:__________________________

(Please print or typewrite name and address including zip code of assignee)

      [_________]
      [_________]
      [_________]

the within Note and all rights thereunder, hereby irrevocably constituting and
appointing [__________] attorney to transfer such Note on the books of the
Issuer with full power of substitution in the premises.

[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES EXCEPT PERMANENT
REGULATION S PHYSICAL NOTES]

            In connection with any transfer of this Note occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
[__________] the undersigned confirms that without utilizing any general
solicitation or general advertising that:

            [Check One]

            | |(a) this Note is being transferred in compliance with the
                   exemption from registration under the Securities Act of 1933,
                   as amended, provided by Rule 144A thereunder.

            or

            | |(b) this Note is being transferred other than in accordance
                   with (a) above and documents are being furnished which comply
                   with the conditions of transfer set forth in this Note and
                   the Indenture.

If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof


                                     B1-10


unless and until the conditions to any such transfer of registration set forth
herein and in Section 307 of the Indenture shall have been satisfied.

Dated:____________________


                                          By____________________________________
                                            NOTICE: The signature to this
                                            assignment must correspond with the
                                            name as written upon the face of the
                                            within-mentioned instrument in every
                                            particular, without alteration or
                                            any change whatsoever.

Signature Guarantee:

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

            The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Issuer as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.

Dated:


                                          By____________________________________
                                            NOTICE: To be executed by an
                                            executive officer


                                     B1-11


                                                                      EXHIBIT B2

                              FORM OF FACE OF NOTE
                        POWER CONTRACT FINANCING, L.L.C.
                       6.256% SENIOR SECURED NOTE DUE 2010

                                                              CUSIP [__________]

No. [__________]                                                     $[________]

            POWER CONTRACT FINANCING, L.L.C., a Delaware limited liability
company (the "Issuer," which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to [_________], or
its registered assigns, the outstanding principal sum of [WRITTEN AMOUNT]
($[amount]), on or prior to February 1, 2010, or such earlier date as this Note
due 2010 may be redeemed (the "Maturity Date"), such payment to be made in
semi-annual installments on February 1 and August 1 in each year commencing on
February 1, 2004, and ending on the Maturity Date set forth above (or if any
such day is not a Business Day, then the next succeeding Business Day), each
such installment to be in the amount set forth opposite the applicable Payment
Date on Annex A attached hereto (provided, that the portion of the principal
amount remaining unpaid on the Maturity Date, together with all interest accrued
and unpaid thereon, shall in any and all cases be due and payable on the
Maturity Date), and to pay interest thereon from the Closing Date or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semi-annually on February 1 and August 1 in each year commencing
on February 1, 2004 in each year (or, if any such day is not a Business Day,
then the next succeeding Business Day), at a rate of 6.256% per annum, until the
principal hereof is paid or made available for payment, plus additional interest
(to the extent that the payment of such interest shall be legally enforceable)
at the rate of 1.0% per annum on any overdue principal and Make-Whole Premium
and on any overdue installment of interest. The principal and interest so
payable, and punctually paid or duly provided for, on any Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Note due
2010 (or one or more Predecessor Notes) is registered at the close of business
on the Regular Record Date next preceding such Payment Date. Any such principal
or interest not so punctually paid or duly provided for (collectively,
"Defaulted Payments") will forthwith cease to be payable to the Holder on such
Regular Record Date and shall be paid to the Person in whose name this Note due
2010 (or one or more Predecessor Notes) is registered at the close of business
on a Special Record Date for the payment of such Defaulted Payment to be fixed
by the Issuer, notice whereof shall be given by the Trustee to Holders of Notes
due 2010 not less than 10 days prior to such Special Record Date.

            Reference is hereby made to the further provisions of this Note due
2010 set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.

            Terms used but not otherwise defined in this Note due 2010 shall
have the meanings as defined in the Indenture. The provisions of this Note due
2010 do not


                                      B2-1


purport to be complete and are subject to, and qualified in their entirety by
reference to, the provisions of the Indenture.

            Unless the certificate of authentication hereon has been executed by
the Trustee referred to below by manual signature, this Note due 2010 shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.

            IN WITNESS WHEREOF, the Issuer has caused this Note due 2010 to be
duly executed manually or by facsimile by its duly authorized officers.

Dated: _____________________
                                        POWER CONTRACT FINANCING, L.L.C.


                                        By _____________________________________
                                           Name:
                                           Title: [President/Vice President]

Attest:


By ______________________________________
   Name:
   Title: [Secretary/Assistant Secretary]


                                      B2-2


                          CERTIFICATE OF AUTHENTICATION

Dated:__________________

            This is one of the 6.256% Senior Secured Notes due 2010 of the
Issuer described in the within-mentioned Indenture.

                                               Wilmington Trust Company,
                                                 as Trustee


                                               By_______________________________
                                                      Authorized Signatory


                                      B2-3


                          FORM OF REVERSE SIDE OF NOTE
                        POWER CONTRACT FINANCING, L.L.C.
                       6.256% SENIOR SECURED NOTE DUE 2010

1.    Principal and Interest.

            The Issuer will pay the principal of this Note due 2010 on or prior
to February 1, 2010, in the manner set forth on the face of this Note due 2010.

            The Issuer promises to pay accrued and unpaid interest on the
principal amount of this Note due 2010 on each Interest Payment Date, as set
forth below, at the rate per annum shown above.

            Principal of and interest on this Note will be payable semi-annually
(to the Holders of record of the Notes (or any predecessor Notes) at the close
of business on the Regular Record Date immediately preceding the Principal
Payment Date) on each Principal Payment Date and on each Interest Payment Date
commencing February 1, 2004.

            Interest on this Note due 2010 will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the
Closing Date; provided, that if there is no existing default in the payment of
interest and if this Note due 2010 is authenticated between a Regular Record
Date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such Interest Payment Date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

2.    Method of Payment.

            The principal of, Make-Whole Premium, if any, and interest on the
Notes due 2010 shall be payable and the Notes due 2010 shall be exchangeable and
transferable at the office or agency of the Issuer in the Borough of Manhattan,
the City of New York, maintained for such purposes (which initially shall be the
Corporate Trust Office of the Trustee) or, at the option of the Issuer, interest
may be paid by check mailed to the address of the Person entitled thereto as
such address shall appear on the Security Register; provided, that (a) all
payments with respect to the Global Notes and the Physical Notes the Holders of
which have given wire transfer instructions to the Trustee by the Regular Record
Date shall be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof; (b) the payment of the
final installment of principal of, or interest on, each Note due 2010 shall only
be made upon presentation and surrender of such Note due 2010 at the Corporate
Trust Office, or such other place as may be designated pursuant to the
Indenture; and (c) pursuant to the Indenture, upon written request from any
Holder of Outstanding Notes due 2010 in the aggregate principal amount of
$1,000,000 payments of interest on, or principal (other than the final payment
of principal) of, such Notes due 2010 shall be made by wire transfer to such
Holder. The Notes due 2010 will not be entitled to the benefit of any sinking
fund.


                                      B2-4


3.    Registrar.

            The Trustee will act as the Registrar.

4.    Indenture; Limitations.

            The Issuer issued the Notes due 2010 under an Indenture dated as of
June 13, 2003 (the "Indenture"), between the Issuer and Wilmington Trust
Company, as trustee (the "Trustee"). The terms of the Notes due 2010 include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act. The Notes due 2010 are subject to all such terms and
Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note due 2010 and the terms
of the Indenture, the terms of the Indenture shall control.

            The Notes due 2010 are general obligations of the Issuer. The
aggregate principal amount of Notes due 2010 issued on the Closing Date is
$462,317,000.

5.    Optional Redemption.

            The Notes due 2010 may be redeemed at the option of the Issuer, in
whole or in part, at any time and from time to time at a Redemption Price equal
to 100% of the Outstanding principal amount, plus accrued and unpaid interest to
but excluding the Redemption Date, plus a Make-Whole Premium, if any.

            Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of a Note due 2010 to be
redeemed at such Holder's last address as it appears in the Security Register.
On and after the Redemption Date, interest ceases to accrue on Notes due 2010 or
portions of Notes due 2010 called for redemption, unless the Issuer defaults in
the payment of the Redemption Price described above.

6.    Denominations; Transfer; Exchange.

            The Notes due 2010 are issued only in registered form without
coupons and initially only in minimum denominations of $100,000 and any integral
multiple of $1,000 above that amount; provided, that initial purchases of the
Notes due 2010 by purchasers who are institutional "accredited investors" who
are not Qualified Institutional Buyers shall be in minimum amounts of $250,000;
and provided, further that, after initial issuance, Notes due 2010 may be issued
upon exchange or transfer in such amounts as may be necessary to evidence the
entire unpaid principal amount of any Note due 2010 surrendered or exchanged. A
Holder may register the transfer or exchange of Notes due 2010 in accordance
with the Indenture. The Issuer may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Issuer need not register
the transfer or exchange of any Notes due 2010 selected for redemption (except
the unredeemed portion of any Note due 2010 being redeemed in part). Also, it
need not


                                      B2-5


register the transfer or exchange of any Notes due 2010 for a period of 15 days
before a selection of Notes due 2010 to be redeemed is made.

7.    Persons Deemed Owners.

            A Holder may be treated as the owner of a Note due 2010 for all
purposes.

8.    Treatment of Notes as Indebtedness for Tax Purposes.

            Each Holder of a Note due 2010 by its acceptance of such Note due
2010 covenants and agrees to treat such Note as indebtedness for United States
federal income tax purposes.

9.    Unclaimed Money.

            If money for the payment of principal, Make-Whole Premium, if any,
or interest remains unclaimed for two years after the date that all amounts
payable by the Issuer to the Trustee or the Holders under any Financing Document
have been finally and irrevocably paid to the Trustee for the benefit of the
Holders, the Trustee will pay the money back to the Issuer at its request. After
that, the Holders entitled to the money must look solely to the Issuer for
payment and all liability of the Trustee will cease with respect to money
deposited with the Trustee or held in trust by the Issuer and returned to the
Issuer as unclaimed money.

10.   Discharge Prior to Redemption or Maturity.

            If the Issuer irrevocably deposits, or causes to be deposited, with
the Trustee money sufficient to pay the then outstanding principal of,
Make-Whole Premium, if any, and accrued and unpaid interest on the Notes due
2010 to redemption or maturity, the Issuer will be discharged from the Indenture
and the Notes due 2010, except in certain circumstances for certain sections
thereof.

11.   Amendment; Supplement; Waiver.

            Subject to certain exceptions, the Indenture or the Notes due 2010
may be amended or supplemented with the consent of the Majority Holders of any
Outstanding Notes due 2010, and any existing default or compliance with any
provision may be waived with the consent of the Majority Holders (other than for
a default in the payment of the principal of, Make-Whole Premium, if any, or
interest on any Note due 2010 or in respect of a covenant or provision of the
Indenture that cannot be modified or amended without the unanimous affirmative
vote of all Holders) of the principal amount of the Notes due 2010 then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Notes due 2010 to, among other
things, cure any ambiguity, defect or inconsistency; provided, that such cure
shall not materially adversely affect the interests of the Holders.

12.   Restrictive Covenants.


                                      B2-6


            The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness of
the Issuer; (ii) restricted payments; (iii) transactions with Affiliates; (iv)
fundamental change; and (v) compliance with Material Agreements.

13.   Successor Persons.

            When a successor person or other entity assumes all the obligations
of its predecessor under the Notes due 2010 and the Indenture, the predecessor
person will be released from those obligations.

14.   Remedies for Events of Default.

            If an Event of Default (other than a Bankruptcy Event of Default)
occurs and is continuing, then and in every such case the Trustee, upon the
direction of Holders of no less than 25% of the Outstanding Notes due 2010 (for
an Event of Default with respect to a default in payment of principal,
Make-Whole Premium, if any, or interest) or either the Majority Holders of the
Outstanding Notes due 2010 (for any other Event of Default), shall declare the
principal amount of all the Notes due 2010 to be due and payable immediately, by
a notice in writing to the Issuer, and, upon any such declaration, such
principal amount, any accrued and unpaid interest and all other amounts payable
under the Notes due 2010 shall become immediately due and payable.

            If a Bankruptcy Event of Default occurs, the principal amount of,
any accrued interest on and all other amounts payable under the Notes due 2010
then Outstanding shall become immediately due and payable. The Trustee may
require indemnity reasonably satisfactory to it before it enforces the Indenture
or the Notes due 2010. Subject to certain limitations, the Majority Holders may
direct the Trustee in its exercise of any trust or power.

15.   Trustee Dealings with Issuer.

            The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes due 2010 and may make loans
to, accept deposits from, perform services for, and otherwise deal with, the
Issuer and its Affiliates as if it were not the Trustee; provided, that no
conflicting interest results.

16.   No Recourse Against Certain Others.

            Except as otherwise specifically provided in the Material
Agreements, no recourse under or upon any obligation, covenant or agreement
contained in this Note due 2010, the Indenture or any Security Document, or
because of any indebtedness evidenced thereby, shall be had against any
incorporator, as such, or against any past, present or future stockholder,
member, manager, officer or director, as such, of the Issuer or the Issuer's
Members or of any successor, either directly or through the Issuer or the
Issuer's. Members, as the case may be, or any successor, under any rule of law,
statute, or constitutional provision or by the enforcement of any assessment or
by any legal or equitable proceeding or otherwise, all such liability being
expressly waived and released


                                      B2-7


by the acceptance of the Notes due 2010 by the Holders thereof and as part of
the consideration for the issuance of the Notes due 2010. Nothing contained
herein shall, however, limit the liability of any Person for any fraud, gross
negligence or willful misconduct on their part.

17.   Authentication.

            This Note due 2010 shall not be valid until the Trustee manually
signs the certificate of authentication on the other side of this Note due 2010.

18.   Governing Law.

            The Indenture and this Note due 2010 shall be governed by, and
construed in accordance with, the law of the State of New York without giving
effect to the principles thereof relating to conflicts of law except Section
5-1401 of the New York General Obligations Law.

            The Issuer will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to POWER CONTRACT
FINANCING, L.L.C., 50 West San Fernando Street, Suite 670, San Jose, California
95113, Attention: President.


                                      B2-8


                                                                      ANNEX A to
                                                                            Note

                       REPAYMENT SCHEDULE FOR INITIAL NOTE



             Principal Payment Date          Principal Amount Payable
             ----------------------          ------------------------
                                          
           February 1, 2004                        $         --
           August 1, 2004                          $         --
           February 1, 2005                        $
           August 1, 2005                          $
           February 1, 2006                        $
           August 1, 2006                          $
           February 1, 2007                        $
           August 1, 2007                          $
           February 1, 2008                        $
           August 1, 2008                          $
           February 1, 2009                        $
           August 1, 2009                          $
           February 1, 2010                        $



                                      B2-9


                             Form of Transfer Notice

(To be executed by the registered Holder if such Holder desires to transfer this
Note)

To    [__________]
      [__________]
      Attention: [__________]

            FOR VALUE RECEIVED the undersigned registered Holder hereby sells,
assigns and transfers unto:

Name of Assignee:___________________________________

Taxpayer Identification Number of Assignee:_____________________

(Please print or typewrite name and address including zip code of assignee)

      [__________]
      [__________]
      [__________]

the within Note and all rights thereunder, hereby irrevocably constituting and
appointing [__________] attorney to transfer such Note on the books of the
Issuer with full power of substitution in the premises.

[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES EXCEPT PERMANENT
REGULATION S PHYSICAL NOTES]

            In connection with any transfer of this Note occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
[__________] the undersigned confirms that without utilizing any general
solicitation or general advertising that:

            [Check One]

            | |(a) this Note is being transferred in compliance with the
                   exemption from registration under the Securities Act of 1933,
                   as amended, provided by Rule 144A thereunder.

            or

            | |(b) this Note is being transferred other than in accordance with
                   (a) above and documents are being furnished which comply with
                   the conditions of transfer set forth in this Note and the
                   Indenture.

If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof


                                     B2-10


unless and until the conditions to any such transfer of registration set forth
herein and in Section 307 of the Indenture shall have been satisfied.

Dated:____________________

                                          By____________________________________
                                            NOTICE: The signature to this
                                            assignment must correspond with the
                                            name as written upon the face of
                                            the within-mentioned instrument in
                                            every particular, without
                                            alteration or any change
                                            whatsoever.

Signature Guarantee:

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

            The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Issuer as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.

Dated:


                                          By____________________________________
     NOTICE: To be executed by an executive officer


                                     B2-11


                                                                       EXHIBIT C

              FORM OF CERTIFICATE TO BE DELIVERED UPON TERMINATION
         OF DISTRIBUTION COMPLIANCE PERIOD ON OR AFTER FEBRUARY 1, 2004

                                     [date]

Power Contract Financing, L.L.C.
50 West San Fernando Street
San Jose, California 95113
Attn: Secretary

Wilmington Trust Company, as Trustee
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Corporate Trust Office

      Re:   Power Contract Financing, L.L.C. (the "Issuer") [ ]% Senior Secured
            Notes due 20[ ] (the "Notes")

Ladies and Gentlemen:

            This letter relates to U.S.$ __________ principal amount of Notes
represented by the Regulation S Global Note (as defined in the Indenture) which
bears a legend outlining restrictions upon transfer of such Regulation S Global
Note. Pursuant to Section 201 of the Indenture (the "Indenture"), dated as of
June 13, 2003, relating to the Notes, we hereby certify that we are (or we will
hold such Notes on behalf of) a person who is not a U.S. person, as defined in
Regulation S ("Regulation S") promulgated under the Securities Act of 1933, as
amended (the "Securities Act") or who is a U.S. person who purchased such
interests pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act. Accordingly, you are hereby
requested to exchange the legended certificate for an unlegended certificate
representing an identical principal amount at maturity of Notes, all in the
manner provided by the Indenture.

            You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.

                                                 Very truly yours,

                                                 [Name of Holder]


                                                 By_____________________________
                                                        Authorized Signature


                                      C-1


                                                                       EXHIBIT D

                       FORM OF CERTIFICATE TO BE DELIVERED
                     IN CONNECTION WITH TRANSFERS TO NON-QIB
                       INSTITUTIONAL ACCREDITED INVESTORS

                                     [date]

Wilmington Trust Company, as Trustee
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Corporate Trust Office

Power Contract Financing, L.L.C.
50 West San Fernando Street
San Jose, California 95113
Attn: Secretary

      Re:   Power Contract Financing, L.L.C. (the "Issuer") [ ]% Senior Secured
            Notes due 20[ ] (the "Notes")

Ladies and Gentlemen:

            In connection with our proposed purchase of $[__________] aggregate
principal amount of the Notes:

            1. We understand that the Notes have not been and will not be
      registered under the Securities Act of 1933, as amended (the "Securities
      Act"), and may not be sold except as permitted in the following sentence.
      We agree on our own behalf and on behalf of any investor account for which
      we are purchasing the Notes to offer, sell or otherwise transfer such
      Notes prior to the date which is two years after the later of the date of
      original issue and the last date on which the Issuer or any affiliate of
      the Issuer was the owner of such Notes, or any predecessor thereto (the
      "Resale Restriction Termination Date") only (a) to the Issuer, (b)
      pursuant to a registration statement which has been declared effective
      under the Securities Act, (c) for so long as the Notes are eligible for
      resale pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a
      person we reasonably believe is a qualified institutional buyer under Rule
      144A (a "QIB") that purchases for its own account or for the account of a
      QIB to whom notice is given that the transfer is being made in reliance on
      Rule 144A, (d) pursuant to offers and sales to Non-U.S. Persons (as
      defined in the Indenture pursuant to which the Notes were issued) that
      occur outside the United States within the meaning of Regulations S under
      the Securities Act, (e) to an institutional "accredited investor" within
      the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
      Securities Act


                                      D-1


      that is acquiring the Notes for its own account or for the account of such
      an institutional "accredited investor" for investment purposes and not
      with a view to, or for offer or sale in connection with, any distribution
      thereof in violation of the Securities Act or (f) pursuant to any other
      available exemption from the registration requirements of the Securities
      Act, subject in each of the foregoing cases to any requirement of law that
      the disposition of our property and the property of such investor account
      or accounts be at all times within our or their control and to compliance
      with any applicable state securities laws. The foregoing restrictions on
      resale will not apply subsequent to the Resale Restriction Termination
      Date. If any resale or other transfer of the Notes is proposed to be made
      pursuant to clause (e) above prior to the Resale Restriction Termination
      Date, the transferor shall deliver a letter from the transferee
      substantially in the form of this letter to the Trustee, which shall
      provide, among other things, that the transferee is an institutional
      "accredited investor" within the meaning of subparagraph (a)(1), (2), (3)
      or (7) or Rule 501 under the Securities Act and that it is acquiring such
      Notes for investment purposes and not for distribution in violation of the
      Securities Act. We acknowledge that the Issuer and the Trustee reserve the
      right prior to any offer, sale or other transfer prior to the Resale
      Restriction Termination Date of the Notes pursuant to clauses (d), (e) and
      (t) above to require the delivery of an Opinion of Counsel (as defined in
      the Indenture pursuant to which the Notes were issued) certifications
      and/or other information satisfactory to the Issuer and the Trustee.

            2. We are an institutional "accredited investor" (as defined in Rule
      501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
      purchasing for our own account or for the account of such an institutional
      "accredited investor," and we are acquiring the Notes for investment
      purposes and not with a view to, or for offer or sale in connection with,
      any distribution in violation of the Securities Act and we have such
      knowledge and experience in financial and business matters as to be
      capable of evaluating the merits and risks of our investment in the Notes,
      and we and any accounts for which we are acting are each able to bear the
      economic risk of our or its investment.

            3. We are acquiring the Notes purchased by us for our own account,
      or for one or more accounts as to each of which we exercise sole
      investment discretion and have authority to make, and do make, the
      statements contained in this letter.

            4. You are entitled to rely upon this letter and you are irrevocably
      authorized to produce this letter or a copy hereof to any interested party
      in any administrative or legal proceeding or official inquiry with respect
      to the matters covered hereby.


                                      D-2


                                                  Very truly yours,

                                                  [Insert Name of Transferor]


                                                  By____________________________
                                                    Name:
                                                    Title:
Dated:_______________

            Upon transfer, the Notes should be registered in the name of the new
beneficial owner as follows:

Name:

Address:

Taxpayer ID Number:


                                      D-3


                                                                       EXHIBIT E

                       FORM OF CERTIFICATE TO BE DELIVERED
              IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S

                                     [date]

Power Contract Financing, L.L.C.
50 West San Fernando Street
San Jose, California 95113

Wilmington Trust Company, as Trustee
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Corporate Trust Office

      Re:   Power Contract Financing, L.L.C. (the "Issuer") [  ]% Senior Secured
            Notes due 20[ ] (the "Notes")

Ladies and Gentlemen:

            In connection with our proposed sale of $[__________] aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S ("Regulation S") under the
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:

            (1) the offer of the Notes was not made to a person in the United
States and the proposed transferee is a Non-U.S. Person (as defined in the
Indenture pursuant to which the Notes were issued);

            (2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States or
(b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf knows that the transaction has been prearranged with a buyer in the
United States;

            (3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable; and

            (4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.

            In addition, if the sale is made during a distribution compliance
period and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S
are applicable thereto,


                                      E-1


we confirm that such sale has been made in accordance with the applicable
provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.

            You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.

                                           Very truly yours,

                                           [Insert Name of Transferor]


                                           By___________________________________
                                             Name:
                                             Title:
Dated:_______________________


                                      E-2


                                                                       EXHIBIT F

                 FORM OF ISSUER ORDER AND OFFICER'S CERTIFICATE
                                       OF
                        POWER CONTRACT FINANCING, L.L.C.

Wilmington Trust Company
   as Trustee under the Indenture,
   dated as of June 13, 2003,
   between Wilmington Trust Company and
   Power Contract Financing, L.L.C.

Attention: Corporate Trust Department

      Re:   Delivery to Trustee of $[__________] Power Contract
            Financing, L.L.C. [  ]% Senior Secured Notes due 20[ ]

Ladies and Gentlemen:

            The undersigned, Power Contract Financing, L.L.C. (the "Issuer"),
hereby delivers to you, in your capacity as Trustee under the above-referenced
Indenture (the "Indenture"), $[__________] in aggregate principal amount of the
Issuer's [ ]% Senior Secured Notes due 20[ ] (the "Notes"). This Issuer Order
and Officer's Certificate (this "Issuer Order") is delivered pursuant to Section
303(c) of the Indenture and terms used and not otherwise defined herein have the
respective meanings assigned to such terms in the Indenture. The Notes delivered
with this Issuer Order are [Initial Notes/Unrestricted Notes], are to be issued
as [Physical Notes/Global Notes] in accordance with the terms of the Indenture
and are to be authenticated as of the date of this Issuer Order. Pursuant to
Section 303(c) of the Indenture, the Issuer hereby directs that you (i)
authenticate the Notes and (ii) upon such authentication, deliver each of such
Notes to the respective Holder thereof or to special New York counsel for such
Holder, acting on such Holder's behalf.

            The Issuer hereby certifies that the Notes delivered with this
Issuer Order have been duly executed by the Issuer and that all conditions
precedent to the issuance of the Notes contained in the Indenture have been
fully complied with.

                                            Very truly yours,

                                            POWER CONTRACT FINANCING, L.L.C.


                                            By:_________________________________
                                               Name:
                                               Title: [President/Vice President]
                                               Dated:___________________________


                                      F-1

EX-10.15

                                                                   EXHIBIT 10.15
                                                                  EXECUTION COPY

                      AMENDED AND RESTATED CREDIT AGREEMENT

                           dated as of July 16, 2003,

                                      among

                              CALPINE CORPORATION,
                                as the Borrower,

                    CERTAIN COMMERCIAL LENDING INSTITUTIONS,
                                 as the Lenders,

                             THE BANK OF NOVA SCOTIA
      as Administrative Agent, Funding Agent, Lead Arranger and Bookrunner,

                  BAYERISCHE LANDESBANK, CAYMAN ISLANDS BRANCH
             as Lead Arranger, Co-Bookrunner and Documentation Agent

                                       and

                ING CAPITAL LLC and TORONTO DOMINION (TEXAS) INC.
           as Lead Arrangers, Co-Bookrunners and Co-Syndication Agents



                                TABLE OF CONTENTS



                                                                                                                     PAGE
                                                                                                                  
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.......................................................................      1

         SECTION 1.1.   Defined Terms............................................................................      1
         SECTION 1.2.   Use of Defined Terms.....................................................................     31
         SECTION 1.3.   Cross-References.........................................................................     31
         SECTION 1.4.   Accounting and Financial Determinations..................................................     31

ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES...........................................................     31

         SECTION 2.1.   Commitments/Loans........................................................................     31
         SECTION 2.2.   Reduction of Revolving Commitment Amount and Term B Loans................................     33
         SECTION 2.3.   Borrowing Procedure......................................................................     34
         SECTION 2.4.   Continuation and Conversion Elections....................................................     34
         SECTION 2.5.   Funding .................................................................................     34
         SECTION 2.6.   Notes; Register..........................................................................     35

ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES...........................................................     35

         SECTION 3.1.   Repayments and Prepayments...............................................................     35
         SECTION 3.2.   Interest Provisions......................................................................     40
         SECTION 3.3.   Fees ....................................................................................     41

ARTICLE IV LETTERS OF CREDIT.....................................................................................     42

         SECTION 4.1.   Issuance Requests........................................................................     42
         SECTION 4.2.   Issuances and Extensions.................................................................     43
         SECTION 4.3.   Expenses ................................................................................     44
         SECTION 4.4.   Other Revolving Lenders' Participation...................................................     44
         SECTION 4.5.   Disbursements............................................................................     45
         SECTION 4.6.   Reimbursement............................................................................     45
         SECTION 4.7.   Cash Collateral..........................................................................     46
         SECTION 4.8.   Nature of Reimbursement Obligations......................................................     46
         SECTION 4.9.   Increased Costs; Indemnity...............................................................     48
         SECTION 4.10.   Existing Letters of Credit..............................................................     49
         SECTION 4.11.   Equivalent Amount Determinations........................................................     49
         SECTION 4.12.   Currency Fluctuations, etc..............................................................     49

ARTICLE V CERTAIN LIBO RATE AND OTHER PROVISIONS.................................................................     50

         SECTION 5.1.   LIBO Rate Lending Unlawful...............................................................     50
         SECTION 5.2.   Deposits Unavailable.....................................................................     50
         SECTION 5.3.   Increased LIBO Rate Loan Costs, etc......................................................     50
         SECTION 5.4.   Funding Losses...........................................................................     51
         SECTION 5.5.   Increased Capital Costs..................................................................     51


                                        i



                                                                                                                   
         SECTION 5.6.   Taxes ...................................................................................     52
         SECTION 5.7.   Payments, Computations, etc..............................................................     53
         SECTION 5.8.   Sharing of Payments......................................................................     54
         SECTION 5.9.   Use of Proceeds..........................................................................     54

ARTICLE VI CONDITIONS PRECEDENT..................................................................................     55

         SECTION 6.1.   Effectiveness; Initial Credit Extension..................................................     55
         SECTION 6.2.   All Credit Extensions....................................................................     57

ARTICLE VII REPRESENTATIONS AND WARRANTIES.......................................................................     59

         SECTION 7.1.   Organization, etc........................................................................     59
         SECTION 7.2.   Due Authorization, Non-Contravention, etc................................................     59
         SECTION 7.3.   Government Approval, Regulation, etc.....................................................     59
         SECTION 7.4.   Validity, etc............................................................................     60
         SECTION 7.5.   Financial Information....................................................................     60
         SECTION 7.6.   No Material Adverse Effect...............................................................     60
         SECTION 7.7.   Litigation, Labor Controversies, etc.....................................................     60
         SECTION 7.8.   Subsidiaries.............................................................................     60
         SECTION 7.9.   Ownership of Properties..................................................................     61
         SECTION 7.10.   Taxes ..................................................................................     61
         SECTION 7.11.   Pension and Welfare Plans...............................................................     61
         SECTION 7.12.   Environmental Warranties................................................................     61
         SECTION 7.13.   Regulations U and X.....................................................................     63
         SECTION 7.14.   Accuracy of Information.................................................................     63
         SECTION 7.15.   Protection under Security Documents.....................................................     63
         SECTION 7.16.   Indebtedness of Certain Subsidiaries....................................................     63
         SECTION 7.17.   Designation of Subsidiaries.............................................................     63

ARTICLE VIII COVENANTS...........................................................................................     63

         SECTION 8.1.   Affirmative Covenants....................................................................     63
         SECTION 8.2.   Negative Covenants.......................................................................     69
         SECTION 8.3.   No Restriction on Payments to the Borrower...............................................     82

ARTICLE IX EVENTS OF DEFAULT.....................................................................................     82

         SECTION 9.1.   Listing of Events of Default.............................................................     82
         SECTION 9.2.   Action if Bankruptcy.....................................................................     85
         SECTION 9.3.   Action if Other Event of Default.........................................................     85

ARTICLE X THE AGENT..............................................................................................     85

         SECTION 10.1.   Actions.................................................................................     85
         SECTION 10.2.   Funding Reliance, etc...................................................................     86
         SECTION 10.3.   Exculpation.............................................................................     86
         SECTION 10.4.   Successor...............................................................................     86



                                       ii



                                                                                                                   
         SECTION 10.5.   Loans or Letters of Credit Issued by Agent or any Issuer................................     87
         SECTION 10.6.   Credit Decisions........................................................................     87
         SECTION 10.7.   Copies, etc.............................................................................     87
         SECTION 10.8.   Other Agents; Lead Arrangers............................................................     87
         SECTION 10.9.   Collateral Matters......................................................................     88

ARTICLE XI MISCELLANEOUS PROVISIONS..............................................................................     89

         SECTION 11.1.   Waivers, Amendments, etc................................................................     89
         SECTION 11.2.   Notices.................................................................................     90
         SECTION 11.3.   Payment of Costs and Expenses...........................................................     90
         SECTION 11.4.   Indemnification.........................................................................     91
         SECTION 11.5.   Survival ...............................................................................     93
         SECTION 11.6.   Severability............................................................................     93
         SECTION 11.7.   Headings ...............................................................................     93
         SECTION 11.8.   Execution in Counterparts, Effectiveness, etc...........................................     93
         SECTION 11.9.   Governing Law; Entire Agreement.........................................................     93
         SECTION 11.10.   Successors and Assigns.................................................................     93
         SECTION 11.11.   Sale and Transfer of Loans and Notes; Participations in Loans and Notes................     94
         SECTION 11.12.   Other Transactions.....................................................................     97
         SECTION 11.13.   Forum Selection and Consent to Jurisdiction............................................     97
         SECTION 11.14.   Waiver of Jury Trial...................................................................     98
         SECTION 11.15.   Confidentiality........................................................................     98
         SECTION 11.16.   Judgment Currency......................................................................     99



                                       iii



SCHEDULE I       -   Disclosure Schedule
SCHEDULE II      -   Percentages
SCHEDULE 1.1     -   Organizational Chart
SCHEDULE 4.10    -   Existing Letters of Credit

EXHIBIT A-1      -   Form of Revolving Note
EXHIBIT A-2      -   Form of Term Note
EXHIBIT B        -   Form of Borrowing Request
EXHIBIT C        -   Form of Continuation/Conversion Notice
EXHIBIT D        -   Form of Issuance Request
EXHIBIT E        -   Form of Lender Assignment Agreement
EXHIBIT F-1      -   Form of Opinion of general counsel of the Borrower
EXHIBIT F-2      -   Form of Opinion of special counsel to the Borrower
EXHIBIT G        -   Form of Prepayment Option Notice
EXHIBIT H        -   Form of Canadian Stock Pledge Agreement
EXHIBIT I        -   Form of Collateral Trust Agreement
EXHIBIT J        -   Form of Gilroy Assignment Agreement
EXHIBIT K        -   Form of LLC Pledge Agreement
EXHIBIT L        -   Form of Note Pledge Agreement
EXHIBIT M        -   Form of Guarantee and Collateral Agreement
EXHIBIT N        -   Form of Stock Pledge Agreement

                                       iv



                      AMENDED AND RESTATED CREDIT AGREEMENT

         THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 16, 2003,
among CALPINE CORPORATION, a Delaware corporation (together with its successors,
the "Borrower"), the various financial institutions as are or may become parties
hereto (collectively, the "Lenders"), various lead Arrangers (as defined below),
and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as administrative agent and
funding agent (in such capacity, the "Agent").

                              W I T N E S S E T H:

         WHEREAS, the Borrower is a party to the Credit Agreement, dated as of
March 8, 2002, as amended (the "2002 Credit Agreement"), with the lenders party
thereto, the agents named therein, and Scotia Capital, as joint administrative
agent and funding agent;

         WHEREAS, the Borrower has requested that the Lenders and the Agent
amend and restate the 2002 Credit Agreement in its entirety to, among other
things, (i) extend the maturity of the Revolving Loan Commitments until July 15,
2005, (ii) decrease the aggregate Revolving Loan Commitments to an amount equal
to $300,000,000 and (iii) provide for a new term B loan facility in an aggregate
principal amount equal to $200,000,000;

         WHEREAS, the Lenders and the Agent are willing to amend and restate the
2002 Credit Agreement and to make credit facilities available to the Borrower
upon and subject to the terms and conditions hereinafter set forth; and

         WHEREAS, (i) the 2002 Credit Agreement is being amended and restated
pursuant to this Agreement, (ii) certain indebtedness under the 2002 Credit
Agreement, as amended and restated in connection with this Agreement, will be
continued under this Agreement and (iii) all obligations of the Borrower under
the Loan Documents and all liens and security interests created under the Loan
Documents will be continued, amended and restated as provided herein and therein
and will not be cancelled or discharged;

         NOW, THEREFORE, the parties hereto agree that the 2002 Credit Agreement
shall be amended and restated in its entirety as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

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

         "Acquisition" means an acquisition by the Borrower or any of its
Subsidiaries of power projects, reserves of geothermal steam and fluids, natural
gas reserves, and other assets within the scope of its existing business.



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

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

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

         "Agent" is defined in the preamble and includes each other Person as
shall have subsequently been appointed as the successor Agent pursuant to
Section 10.4.

         "Aggregate Percentage" means, relative to any Lender, the percentage
set forth opposite its name on Schedule II under the caption "Aggregate
Percentage" or as set forth in its Lender Assignment Agreement, as such
percentage may be adjusted from time to time pursuant to Lender Assignment
Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered
pursuant to Section 11.11.

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

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

                  (a) the rate of interest most recently established by Scotia
         Capital at its Domestic Office as its base rate; and

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

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

         "Applicable Margin" means (i) for any Base Rate Loan, 3.00% per annum
and (ii) for any LIBO Rate Loan or L/C Advance, 4.00% per annum.

         "Approved Fund" means (i) a CLO and (ii) with respect to any Lender
that is a fund which invests in bank loans and similar extensions of credit, any
other fund that invests in bank loans and similar extensions of credit and is
managed by the same investment advisor as such Lender or by an Affiliate of such
investment advisor.

                                        2



         "Arranger" or "Arrangers" means, individually or collectively as the
case may be, each of Scotia Capital, BayernLB, Toronto Dominion (Texas) Inc. and
ING Capital LLC.

         "Asset Sale" means any sale, transfer, lease or other disposition of
property or assets, other than (i) a transfer of assets between or among the
Borrower and its Subsidiaries, (ii) the sale or disposition of cash or Cash
Equivalent Investments, (iii) the sale or lease of products, services or
accounts receivable in the ordinary course of business and (iv) the sale or
disposition of Excluded Assets.

         "Assignee Lender" is defined in Section 11.11.1.

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

         "Authorized Officer" means, relative to any Obligor, the president, any
executive vice president, any senior vice president, the vice president -
finance, the chief financial officer and the treasurer, in each case for whom a
signature and incumbency certificate has been delivered to the Agent.

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

         "BayernLB" means Bayerische Landesbank, Cayman Islands Branch.

         "Borrower" is defined in the preamble.

         "Borrower EBITDA" means, for any period, the consolidated EBITDA of the
Borrower and its Subsidiaries, minus that portion of Consolidated Interest
Expense payable by the consolidating Subsidiaries, minus the principal payments
of the consolidating Subsidiaries, minus the consolidated non-discretionary
Capital Expenditures (i.e., Capital Expenditures which are expressly required to
be made under any agreement, contract, instrument, permit, license, law,
regulation, judgment or other arrangement (other than those arrangements and
contracts that relate to the performance of the work for which the Capital
Expenditure is being made) binding on the Borrower or any Subsidiary) of the
Borrower and its Subsidiaries, plus, without duplication, cash and Cash
Equivalent Investments of the Borrower's Wholly Owned Subsidiaries and Cogen
America that are legally and contractually available to each such Subsidiary for
the payment of dividends, but only to the extent the source of such cash and
Cash Equivalent Investments is from such Subsidiary's EBITDA or from repayments
to such Subsidiary of loans made by such Subsidiary.

         "Borrower Interest Expense" means, for any period, as applied to the
Borrower, the sum of (a) the total interest expense of the Borrower for such
period as determined in accordance with GAAP, including, without limitation, all
interest paid by the Borrower under its subordinated debt securities issued to a
Trust, plus (b) all but the principal component of rentals in respect of
Capitalized Lease Liabilities paid, accrued, or scheduled to be paid or accrued
by the Borrower,

                                        3



plus (c) one-third of all operating lease obligations paid, accrued and/or
scheduled to be paid by the Borrower, plus (d) capitalized interest, plus (e)
dividends paid in respect of preferred stock of the Borrower held by Persons
other than the Borrower, plus (f) cash contributions to any employee stock
ownership plan to the extent such contributions are used by such employee stock
ownership plan to pay interest or fees to any person (other than Borrower) in
connection with loans incurred by such employee stock ownership plan to purchase
capital stock of the Borrower.

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

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

         "Business Day" means

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

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

         "Calpine Gilroy" means Calpine Gilroy Cogen, L.P., a Delaware limited
partnership and an indirect, Wholly Owned Subsidiary of the Borrower.

         "Calpine Holdings" means Calpine CCFC Holdings, Inc., an indirect,
Wholly Owned Subsidiary of the Borrower.

         "Canadian Dollars" and the sign "Cdn$" shall each mean freely
transferable lawful money of Canada.

         "Canadian Gas Reserves" means the oil and gas reserves of the
Borrower's Canadian Subsidiaries.

         "Canadian Stock Pledge Agreement" means the First Amendment Pledge
Agreement, dated as of July 16, 2003, by QM, JOQ and QCH in favor of the
Collateral Trustee (for the benefit of, among others, the Lenders), in the form
attached hereto as Exhibit H, as amended, supplemented, restated or otherwise
modified from time to time.

         "Capex Requirement" means, with respect to the utilization for Capital
Expenditures of the Net Available Cash from any Asset Sale, Monetization,
Insurance Event or incurrence of secured Indebtedness covered by any of those
clauses of Section 3.1.1(c) which include a statement referring to the Capex
Requirement, the requirement that, if such Net Available Cash is derived from
assets owned by the Borrower, any Pledged Entity or any Subsidiary of a Pledged
Entity, such Net Available Cash may only be used to make Capital Expenditures by
the Borrower, any Pledged Entity or any Subsidiary of a Pledged Entity.

                                        4



         "Capital Expenditures" means, for any period, the aggregate amount of
all (i) construction expenditures, (ii) major maintenance and gas drilling
expenditures, (iii) equipment expenditures and (iv) general development
expenditures of the Borrower and its Subsidiaries made during such period, in
each case determined in accordance with GAAP.

         "Capitalized Lease Liabilities" means all rental obligations of the
Borrower or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized leases, and,
for purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.

         "Cash Equivalent Investment" means, at any time:

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

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

                           (i)      a corporation (excluding Affiliates of the
                  Borrower) organized under the laws of any state of the United
                  States or of the District of Columbia and rated at least A-l
                  by S&P or P-l by Moody's, or

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

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

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

                           (ii)     any Lender;

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

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

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

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

                                        5



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

                  (g) any other investment approved by the Required Lenders.

         "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited
liability company and an indirect, Wholly Owned Subsidiary of the Borrower.

         "CCEF" means Calpine Canada Energy Finance ULC, a Nova Scotia unlimited
liability company and a direct, Wholly Owned Subsidiary of QCH.

         "CCEF Indenture" means that certain Indenture dated as of April 25,
2001, between CCEF and Wilmington Trust Company, as Trustee, as amended by the
Amended and Restated Indenture, dated as of October 16, 2001, between CCEF and
such Trustee.

         "CCEF Notes" means the $2,030,000,000 of 8 1/2% Senior Notes due 2008
and the Cdn$200,000,000 of 8 3/4% Senior Notes due 2007, in each case issued by
CCEF pursuant to the CCEF Indenture.

         "CCEFII" means Calpine Canada Energy Finance II ULC, a Nova Scotia
unlimited liability company and a direct, Wholly Owned Subsidiary of CCRC.

         "CCEFII Indenture" means that certain Indenture dated as of October 18,
2001, as supplemented by the First Supplemental Indenture, dated as of October
18, 2002, between CCEFII and Wilmington Trust Company, as Trustee.

         "CCEFII Notes" means the (pound)200,000,000 of 8 7/8% Senior Notes due
2011 and the (euro)175,000,000 of 8 3/8% Senior Notes due 2008, in each case
issued by CCEFII pursuant to the CCEFII Indenture.

         "CCFCI" means Calpine Construction Finance Company, L.P., a Delaware
limited partnership and an indirect, Wholly Owned Subsidiary of the Borrower.

         "CCFCI Credit Agreement" means the Amended and Restated Credit
Agreement, dated as of February 15, 2001, among CCFCI, the lenders party
thereto, Credit Suisse First Boston, as Lead Arranger, Syndication Agent and
Bookrunner, The Bank of Nova Scotia, as Lead Arranger LC Bank and Administrative
Agent, TD Securities (USA) Inc., as Co-Arranger and Co-Documentation Agent, and
CIBC World Markets Corp., as Co-Arranger and Co-Documentation Agent, as amended,
supplemented, restated or otherwise modified from time to time.

         "CCFCII" means Calpine Construction Finance Company II, LLC, a Delaware
limited liability company and an indirect, Wholly Owned Subsidiary of the
Borrower.

         "CCFCII Credit Agreement" means the Credit Agreement, dated as of
October 16, 2000, among CCFCII, the lenders party thereto, Credit Suisse First
Boston, as Lead Arranger and Administrative Agent, The Bank of Nova Scotia, as
Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities
LLC, as Arranger and Co-Syndication Agent, ING

                                        6



(U.S.) Capital LLC, as Arranger and Co-Syndication Agent, Bayerische Landesbank
Girozentrale, as Arranger, Co-Documentation Agent, and LC Bank, CIBC World
Markets Corp., as Arranger and Co-Documentation Agent, Dresdner Kleinwort Benson
North America Services LLC, as Arranger and Co-Documentation Agent, TD
Securities (USA) Inc., as Arranger and Co-Documentation Agent, as amended,
supplemented, restated or otherwise modified from time to time.

         "CCI" means Calpine Calgary, Inc., a Delaware corporation and an
indirect, Wholly Owned Subsidiary of the Borrower.

         "CCNGC" means Calpine Canada Natural Gas Company, a Nova Scotia
corporation and an indirect, Wholly Owned Subsidiary of the Borrower.

         "CCNGP" means Calpine Canada Natural Gas Partnership, an Alberta
general partnership and an indirect, Wholly Owned Subsidiary of the Borrower.

         "CCRC" means Calpine Canada Resources Company, an Alberta corporation
and an indirect, Wholly Owned Subsidiary of the Borrower.

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

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

         "CES" means Calpine Energy Services, L.P., a Delaware limited
partnership and an indirect, Wholly Owned Subsidiary of the Borrower.

         "CES Assets" means all assets owned by CES or any of its Subsidiaries
on the Closing Date and any additional assets to the extent CES or any of its
Subsidiaries obtains an interest in such assets after the Closing Date.

         "CES Credit Facility" means any credit facility in favor of CES, the
proceeds of which are used solely for monthly purchases by CES of natural gas on
a commodity basis.

         "Change in Control" means (i) the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock
of the Borrower and/or (ii) any "Change of Control" under (and as defined in)
the High Yield Indentures.

         "CLO" means, with respect to any Lender, any entity (whether a
corporation, partnership, trust or otherwise) that is engaged in making,
purchasing, holding or otherwise investing in bank loans and similar extensions
of credit in the ordinary course of its business and is administered or managed
by such Lender or an Affiliate of such Lender.

                                        7



         "Closing Date" means the date specified in a written notice from the
Agent on which this Agreement becomes effective pursuant to Section 11.8 and
which is intended to be July 16, 2003.

         "CNGH" means Calpine Natural Gas Holdings, LLC, a Delaware limited
liability company, and a direct, Wholly-Owned Subsidiary of the Borrower.

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

         "Cogen America" means Calpine Cogeneration Corporation (previously
named Cogeneration Corporation of America), a Delaware corporation of which the
Borrower indirectly owns not less than 50% of the outstanding voting stock.

         "Collateral" means any property of or other items belonging to the
Borrower or certain of its Subsidiaries subject or purported to be subject from
time to time to a Lien under any Loan Document to secure any or all of the
Obligations.

         "Collateral Trust Agreement" means the Collateral Trust Agreement,
dated as of July 16, 2003, among the Borrower, the Agent, the Collateral
Trustee, Wilmington Trust Company and Goldman Sachs Credit Partners, L.P., in
the form attached hereto as Exhibit I, as amended, supplemented, restated or
otherwise modified from time to time.

         "Collateral Trustee" means The Bank of New York, as Collateral Trustee
under the Collateral Trust Agreement, and any successor collateral trustee
serving from time to time thereunder.

         "Commitment" means, relative to any Term B Lender, its Term B Loan
Commitment and, relative to any Revolving Lender, its Revolving Loan Commitment.

         "Commitment Amount" means, as the context may require, either the Term
B Loan Commitment Amount or the Revolving Commitment Amount.

         "Commitment Fee" is defined in Section 3.3.1.

         "Commitment Termination Date" means, as the context may require, either
the Revolving Loan Commitment Termination Date or the Term B Loan Commitment
Termination Date.

         "Commitment/Loan Termination Event" means

                  (a) the occurrence of any Default described in clauses (a)
         through (d) of Section 9.1.9 with respect to the Borrower or any
         Significant Subsidiary; or

                  (b) the occurrence and continuance of any other Event of
         Default and either

                           (i)      the declaration of the Loans to be due and
                  payable pursuant to Section 9.3, or

                                        8



                           (ii)     in the absence of such declaration, the
                  giving of notice by the Agent, acting at the direction of the
                  Required Lenders, to the Borrower that the Commitments have
                  been terminated.

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

         "Consolidated Interest Expense" means, for any period, as applied to
the Borrower, the sum of (a) the total interest expense of the Borrower and its
consolidated Subsidiaries for such period as determined in accordance with GAAP,
plus (b) all but the principal component of rentals in respect of Capitalized
Lease Liabilities paid, accrued, or scheduled to be paid or accrued by the
Borrower or its consolidated Subsidiaries, plus (c) one-third of all operating
lease obligations paid, accrued, and/or scheduled to be paid by the Borrower and
its consolidated Subsidiaries, plus (d) capitalized interest, plus (e) dividends
paid in respect of preferred stock of the Borrower or any Subsidiary held by
Persons other than the Borrower or a Wholly Owned Subsidiary, including, without
limitation, but without duplication of payments by the Borrower to a Trust, all
payments by a Trust of dividends and distributions with respect to the
Guaranteed Preferred Securities, plus (f) cash contributions to any employee
stock ownership plan to the extent such contributions are used by such employee
stock ownership plan to pay interest or fees to any Person (other than the
Borrower or a Subsidiary) in connection with loans incurred by such employee
stock ownership plan to purchase capital stock of the Borrower.

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

                                        9



the tax liability of any parent of the Borrower to the extent of payments made
to such parent by the Borrower pursuant to any tax sharing agreement or other
arrangement for such period.

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

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

         "Control Agreement" means one or more control agreements establishing a
perfected first priority security interest over cash collateral required under
the Loan Documents, with the Agent or other institution satisfactory to it
acting as intermediary thereunder.

         "Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.

         "Convertible Senior Notes" means the $1,200,000,000 of 4% Convertible
Senior Notes Due 2006 issued by the Borrower pursuant to the Shelf Indenture.

         "Convertible Subordinated Debentures" means the up to $284,536,100 of
Convertible Subordinated Debentures due 2029 issued by the Borrower pursuant to
the Indenture dated November 2, 1999, the up to $371,134,100 of Convertible
Subordinated Debentures due 2030 issued by the Borrower pursuant to the
Indenture dated January 31, 2000 and the up to $535,000,000 of Convertible
Subordinated Debentures due 2030 issued by the Borrower pursuant to the
Indenture dated August 9, 2000.

                                       10



         "Credit Extension" means and includes (a) the advancing of any Loans by
the applicable Lenders in connection with a Borrowing, and (b) any issuance or
extension by an Issuer of a Letter of Credit.

         "Debt" means the outstanding principal amount of all Indebtedness of
the Borrower and its consolidated Subsidiaries of the nature referred to in
clauses (a), (b), (c) and (f) of the definition of "Indebtedness," and (without
duplication) all Contingent Liabilities in respect of any of the foregoing.

         "Deeds of Trust" means, collectively, (i) in connection with the
Domestic Gas Reserves, the Existing Deeds of Trust, as amended and restated by
the Amended and Restated Mortgage, Deed of Trust, Assignment, Security
Agreement, Financing Statement and Fixture Filing, dated as of July 16, 2003,
and each other mortgage, deed of trust or other real property collateral
security instrument with respect to the Domestic Gas Reserves, from the Borrower
to the Collateral Trustee (for the benefit of, among others, the Lenders), dated
as of July 16, 2003 and delivered pursuant to Article VI hereof, as amended,
supplemented, restated or otherwise modified from time to time and (ii) in
connection with the Pledged Power Projects, each mortgage, deed of trust or
other real property collateral security instrument with respect to a Pledged
Power Project, from the Borrower to the Collateral Trustee (for the benefit of,
among others, the Lenders), dated as of July 16, 2003 and delivered pursuant to
Article VI hereof, as amended, supplemented, restated or otherwise modified from
time to time.

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

         "Designated Assets" means all geothermal energy assets (including any
related extraction, processing or similar equipment and geothermal power plants)
and all Domestic Gas Reserves and Canadian Gas Reserves (including any related
extraction, processing or similar equipment, other than natural gas power
plants) owned by the Borrower or any of its Subsidiaries from time to time,
including the equity interests of any Subsidiary owning any Designated Assets,
but excluding (i) any geothermal energy assets that are both unproven and
undeveloped and (ii) contracts for the purchase or sale of natural gas and
natural gas supplied under such contracts.

         "Disbursement" is defined in Section 4.5.

         "Disbursement Date" is defined in Section 4.5.

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

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

         "Domestic Gas Reserves" means the oil and gas reserves of the Borrower
and its Subsidiaries located in the United States.

                                       11



         "Domestic Office" means, relative to any Lender, the office of such
Lender designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender (or any successor or
assign of such Lender) within the United States as may be designated from time
to time by notice from such Lender, as the case may be, to each other Person
party hereto. A Lender may have separate Domestic Offices for purposes of
making, maintaining or continuing Base Rate Loans.

         "EBITDA" means, for any period, as applied to the Borrower, the sum of
Consolidated Net Income (Loss) (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent included in calculating Consolidated Net Income
(Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest Expense,
(c) depreciation expense, (d) amortization expense and (e) all other non-cash
items reducing Consolidated Net Income, less all non-cash items increasing
Consolidated Net Income, in each case for such period; provided that, if the
Borrower has any Subsidiary that is not a Wholly Owned Subsidiary, EBITDA shall
be reduced (to the extent not otherwise reduced by GAAP) by an amount equal to
(A) the consolidated net income (loss) of such Subsidiary (to the extent
included in Consolidated Net Income (Loss)) multiplied by (B) the quotient of
(1) the number of shares of outstanding common stock of such Subsidiary not
owned on the last day of such period by the Borrower or any Wholly Owned
Subsidiary of the Borrower divided by (2) the total number of shares of
outstanding common stock of such Subsidiary on the last day of such period.

         "8 1/4% Senior Notes" means the $250,000,000 of 8 1/4% Senior Notes due
2005 issued by the Borrower pursuant to the Shelf Indenture.

         "8 1/2% Senior Notes" means the $2,000,000,000 of 8 1/2% Senior Notes
due 2011 issued by the Borrower pursuant to the Shelf Indenture.

         "8 3/4% Senior Note Indenture" means that certain Indenture dated as of
July 8, 1997, as supplemented by the First Supplemental Indenture dated as of
September 10, 1997 and the Second Supplemental Indenture dated as of July 31,
2000, between the Borrower and The Bank of New York, as Trustee.

         "8 3/4% Senior Notes" means the $275,000,000 of 8 3/4% Senior Notes due
2007 issued by the Borrower pursuant to the 8 3/4% Senior Note Indenture.

         "8 5/8% Senior Notes" means the $750,000,000 of 8 5/8% Senior Notes due
2010 issued by the Borrower pursuant to the Shelf Indenture.

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

         "Equivalent Amount" means, on any date, and in respect of any Foreign
Currency Letter of Credit, the equivalent amount in U.S. Dollars of the Stated
Amount of any such Foreign Currency Letter of Credit (or any related
Reimbursement Obligations or Disbursements) denominated in either Canadian
Dollars or Sterling, as the case may be, determined by using the

                                       12



quoted spot rate at which the Issuer of such Letter of Credit offers to exchange
Dollars for such Canadian Dollars or Sterling at the opening of business on such
date.

         "Equivalent Amount Determination Date" is defined in Section 4.12.

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

         "Event of Default" is defined in Section 9.1.

         "Excess Proceeds Basket" is defined in Section 8.2.6(b).

         "Excluded Assets" shall have the meaning set forth in the Collateral
Trust Agreement.

         "Existing Deeds of Trust" means each mortgage, deed of trust, or other
real property collateral security instrument from the Borrower in favor of the
agent under the 2002 Credit Agreement, as amended, supplemented, restated or
otherwise modified from time to time.

         "Existing Letters of Credit" means the letters of credit and bank
guarantee described in Schedule 4.10.

         "Facility" means a power generation facility or energy producing
facility and all related assets and facilities, including any related fuel
reserves.

         "Fair Market Value" means the value that would be paid by a willing
buyer to a willing seller in a transaction not involving duress or necessity of
either party.

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

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

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

         "Fee Letters" means the fee letter agreements, each dated as of July
15, 2003, between the Borrower and the Agent.

         "Fiscal Quarter" means any period of three consecutive months ending on
March 31, June 30, September 30 or December 31 of any year.

                                       13



         "Fiscal Year" means any period of twelve consecutive calendar months
ending on December 31; references to a Fiscal Year with a number corresponding
to any calendar year (e.g. the "2003 Fiscal Year") refer to the Fiscal Year
ending on the December 31 occurring during such calendar year.

         "Foreign Currency Letter of Credit" means any Letter of Credit
denominated in either Canadian Dollars or Sterling.

         "Foreign Currency Letter of Credit Commitment Amount" means
$200,000,000.

         "Foreign Currency Letter of Credit Outstandings" means any Letter of
Credit Outstandings in respect of Foreign Currency Letters of Credit.

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

         "GAAP" is defined in Section 1.4.

         "Gilroy Assignment Agreement" means the First Amendment Assignment and
Security Agreement, dated as of July 16, 2003, by the Borrower in favor of the
Collateral Trustee (for the benefit of, among others, the Lenders), in the form
attached hereto as Exhibit J, as amended, supplemented, restated or otherwise
modified from time to time.

         "Gilroy Receivable" means the Borrower's right, title and interest in
all amounts due and payable to Calpine Gilroy by Pacific Gas & Electric Company
under that certain Agreement, dated as of July 1, 1999, as amended, between
Pacific Gas & Electric Company and Calpine Gilroy L.P., a California limited
partnership (PG&E Log No. 08C002) For Termination and Buy-Out of Standard Offer
4 Power Purchase Agreement.

         "Granting Lender" is defined in Section 11.11.3.

         "Guaranteed Preferred Securities" means the preferred securities issued
by one of the Trusts, from time to time, including, without limitation the
$276,000,000 of principal amount of such securities issued in November, 1999,
the $300,000,000 of principal amount of such securities issued in January, 2000,
the $60,000,000 of principal amount of such securities issued in February, 2000,
and the $517,500,000 of principal amount of such securities issued in August,
2000.

         "Guarantors" means, collectively, QM, JOQ and QCH and any other
Subsidiary of the Borrower that executes a joinder to the Security Agreement and
becomes a party thereto.

         "Hazardous Material" means

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

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

                                       14



                  (c) any petroleum product; or

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

         "Hazardous Materials Indemnity" means, collectively (i) the Amended and
Restated Hazardous Materials Undertaking and Indemnity (Multistate), dated as of
July 16, 2003, by the Borrower in favor of the Collateral Trustee (for the
benefit of, among others, the Lenders) and (ii) the Amended and Restated
Hazardous Materials Undertaking and Unsecured Indemnity (California), dated as
of July 16, 2003, by the Borrower in favor of the Collateral Trustee (for the
benefit of, among others, the Lenders), in each case in a form reasonably
satisfactory to the Agent, as amended, supplemented, restated or otherwise
modified from time to time.

         "Hedging Obligations" means, with respect to any Person, the net
liabilities of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, foreign exchange
contracts, currency swap agreements and all other agreements or arrangements
designed to protect such Person against fluctuations in interest rates or
currency exchange rates and (b) commodity or power swap or exchange agreements.

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

         "High Yield Indentures" means the Senior Note Indentures (other than
the Shelf Indenture).

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

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

                  (b) which relates to the limited scope of examination of
         matters relevant to such financial statement; or

                  (c) which relates to the treatment or classification of any
         item in such financial statement and which, as a condition to its
         removal, would require an adjustment to such item the effect of which
         would be to cause such Obligor to be in default of any of its
         obligations under Section 8.2.4.

         "including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which

                                       15



is followed by or referable to an enumeration of specific matters, to matters
similar to the matters specifically mentioned.

         "Indebtedness" of any Person means, without duplication:

                  (a) all obligations of such Person for borrowed money and all
         obligations of such Person evidenced by bonds, debentures, notes or
         other similar instruments (excluding the Convertible Subordinated
         Debentures and any other subordinated debt securities issued by the
         Borrower to a Trust and the Guaranteed Preferred Securities or any
         similar securities);

                  (b) all obligations, contingent or otherwise, relative to the
         stated amount of all letters of credit, whether or not drawn, and
         banker's acceptances issued for the account of such Person; provided,
         however, that if a letter of credit or banker's acceptance has been
         issued to support or secure any other form of Indebtedness, only the
         greater of the stated amount of such letter of credit or banker's
         acceptance or the outstanding principal amount of Indebtedness
         supported or secured, but not both, will be considered Indebtedness
         hereunder;

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

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

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

                  (f) whether or not so included as liabilities in accordance
         with GAAP, all net obligations of such Person to pay the deferred
         purchase price of property or services (excluding accounts payable
         incurred in the ordinary course of business), and indebtedness
         (excluding prepaid interest thereon) secured by a Lien on property
         owned or being purchased by such Person (including indebtedness arising
         under conditional sales or other title retention agreements), whether
         or not such indebtedness shall have been assumed by such Person or is
         limited in recourse, but excluding any royalties or similar payments to
         be made by such Person which are based on production or performance;
         and

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

For all purposes of this Agreement, the Indebtedness of any Person (i) shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer, unless the indebtedness of such
partnership or joint venture is expressly nonrecourse to such Person and (ii)
shall exclude any preferred stock if, at the time of the incurrence or issuance
thereof, it would not be recorded as debt of such Person, in accordance with
GAAP.

         "Indemnified Liabilities" is defined in Section 11.4.

                                       16



         "Indemnified Parties" is defined in Section 11.4.

         "Insurance Event" means an event resulting in receipt of the proceeds
described in clause (b) of the definition of Net Available Cash.

         "Interest Coverage Ratio" means, for any period of four Fiscal
Quarters, the ratio of (x) the consolidated EBITDA of the Borrower and its
Subsidiaries during such period to (y) the Consolidated Interest Expense of the
Borrower and its Subsidiaries (excluding from Consolidated Interest Expense for
purposes of this clause (y) interest capitalized in connection with the
construction of a new Facility which interest is capitalized during the
construction of such Facility) incurred during such period. This ratio shall be
calculated after giving pro forma effect to any Acquisition based upon the
historical audited financial statements of the project that was the subject of
the Acquisition. It is agreed that for purposes of clause (f)(i) of Section
8.2.2 only, the Interest Coverage Ratio shall be calculated in conformity in all
respects with the calculation of "Consolidated Coverage Ratio" under the
Pre-2000 Indentures.

         "Interest Coverage Ratio (Parent Only)" means, for any period of four
Fiscal Quarters, the ratio of (x) the Borrower EBITDA during such period to (y)
the Borrower Interest Expense (excluding from Borrower Interest Expense for
purposes of this clause (y) interest capitalized in connection with the
construction of a new Facility which interest is capitalized during the
construction of such Facility) during such period; provided, however, that if
the Interest Coverage Ratio (Parent Only) as so calculated falls below 1.70 to
1.00, then for purposes of Section 6.2.4, the Interest Coverage Ratio (Parent
Only) shall be calculated as of the end of any calendar month on a rolling
twelve month basis until the Interest Coverage Ratio (Parent Only) equals or
exceeds 1.70 to 1.00, at which time such ratio shall again be tested quarterly.
This ratio shall be calculated after giving pro forma effect to any Acquisition.

         "Interest Period" means, relative to any LIBO Rate Loans, the period
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4
and ending on (but excluding) the day which numerically corresponds to such date
one, three or six months thereafter (or, if such month has no numerically
corresponding day, on the last Business Day of such month), in each case as the
Borrower may select in its relevant notice pursuant to Section 2.3 or 2.4;
provided, however, that

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

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

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

                  (d) no Interest Period may end later than the applicable
         Stated Maturity Date.

                                       17



         "Investment" means, relative to any Person, without duplication,

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

                  (b) any Contingent Liability of such Person; and

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

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

         "Investment Joint Venture" means, with respect to any Person, any
corporation, partnership or other Person of which 25% or more of the outstanding
capital stock or other comparable ownership interest having ordinary voting
power to elect not less than 25% of the board of directors of such corporation
(irrespective or whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.

         "Issuance Request" means a request and certificate duly executed by the
chief executive, accounting or financial Authorized Officer of the Borrower, in
substantially the form of Exhibit D (with such changes thereto as may be agreed
upon from time to time by the Agent and the Borrower), together with a properly
completed application for a Letter of Credit on an Issuer's standard form,
executed by an Authorized Officer of the Borrower. In the event of a conflict
between the terms of an application for a Letter of Credit and the terms of this
Agreement, the terms of this Agreement shall prevail.

         "Issuer" means Scotia Capital, BayernLB, or any Affiliate or unit of
agency of either, and any other Lender acceptable to the Borrower and the Agent,
and any successor to any of the foregoing Persons.

         "Joint Venture" means, with respect to any Person, any corporation,
partnership or other Person of which 50% of the outstanding capital stock or
other comparable ownership interest having ordinary voting power to elect not
less than 50% of the board of directors of such corporation (irrespective or
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.

         "JOQ" means JOQ Canada, Inc., a Delaware corporation and indirect,
Wholly Owned Subsidiary of CNGH.

                                       18



         "Judgment Currency" is defined in Section 11.16.

         "knowledge" or "to the Borrower's knowledge" means the knowledge of or
to the knowledge of the president, any vice president, the general counsel, the
secretary, the chief financial officer, the controller or the vice
president-finance of the Borrower.

         "L/C Advances" is defined in Section 4.5.

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

         "Lenders" is defined in the preamble.

         "Letter of Credit" is defined in Section 4.1.

         "Letter of Credit Agreement" means the Letter of Credit Agreement,
dated as of July 16, 2003, among the Borrower, various lenders parties thereto,
Scotia Capital, as administrative agent thereunder, and Scotia Capital and
BayernLB, as issuers thereunder.

         "Letter of Credit Outstandings" means, at any time, an amount equal to
the sum of (a) the aggregate Stated Amount at such time of all Letters of Credit
then outstanding and undrawn (as such aggregate Stated Amount shall be adjusted,
from time to time, as a result of drawings, the issuance of Letters of Credit,
or otherwise) after converting the aggregate Stated Amounts of all Foreign
Currency Letters of Credit to the Equivalent Amount thereof, plus (b) the then
aggregate amount of all unpaid and outstanding Reimbursement Obligations (after
converting the aggregate Reimbursement Obligations with respect to Disbursements
made in either Canadian Dollars or Sterling to the Equivalent Amount thereof).

         "Leverage Ratio" means the ratio of (a) Debt to (b) Debt plus Tangible
Net Worth.

         "LIBO Rate" is defined in Section 3.2.1.

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

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

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

         "LIBOR Reserve Percentage" is defined in Section 3.2.1.

         "Lien" means any security interest, mortgage, pledge, hypothecation,
assignment for security, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge against or

                                       19



interest in property to secure payment of a debt or performance of an obligation
or other priority or preferential arrangement of any kind or nature whatsoever.

         "LLC Pledge Agreement" means the Second Amendment Pledge Agreement
(Membership Interests), dated as of July 16, 2003, by the Borrower in favor of
the Collateral Trustee (for the benefit of, among others, the Lenders), in the
form attached hereto as Exhibit K, as amended, supplemented, restated or
otherwise modified from time to time.

         "Loan" means, as the context may require, either a Term B Loan or a
Revolving Loan.

         "Loan Documents" means this Agreement, the Notes, the Security
Agreement, the Deeds of Trust, the Fee Letters, the Collateral Trust Agreement,
the Control Agreements, the Stock Pledge Agreement, the Gilroy Assignment
Agreement, the LLC Pledge Agreement, the Note Pledge Agreement, the Canadian
Stock Pledge Agreement, the Hazardous Materials Indemnity and each other
relevant agreement, document or instrument delivered in connection therewith.

         "Mandatory Prepayment Date" is defined in Section 3.1.1.

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

         "Material Designated Assets" means Designated Assets having a Fair
Market Value in the aggregate in excess of $50,000,000.

         "Monetization" means, in respect of any tangible or intangible asset,
any transaction or arrangement pursuant to which funds or access to cash or
similar liquidity are obtained by subjecting such asset to any agreement,
participation, production payment, forward sale, option or other right or
disposition, assignment or transfer including any securitization involving such
asset, but excluding (i) a transfer of assets between or among the Borrower and
its Subsidiaries, (ii) the sale or disposition of cash or Cash Equivalent
Investments, (iii) the sale or lease of products, services or accounts
receivable in the ordinary course of business, (iv) any transaction or
arrangement resulting in the creation of Indebtedness of the Borrower or any
Subsidiary of the Borrower, (v) the sale or disposition of Excluded Assets and
(vi) any Asset Sale.

         "Moody's" means Moody's Investor Service, Inc.

         "Net Available Cash" means, (a) with respect to any Asset Sale, the
cash or cash equivalent payments received by the Borrower or any of its
Subsidiaries in connection with such Asset Sale (including any cash received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as or when received and also including the
proceeds of other property received when converted to cash or cash equivalents)
net of the sum of, without duplication, (i) all reasonable legal, title and
recording tax expenses, reasonable commissions, and other reasonable fees and
expenses incurred directly relating to such Asset Sale, (ii) all local, state,
federal and foreign taxes required to be paid or accrued as a liability by the
Borrower or any of its Subsidiaries as a consequence of such Asset Sale, (iii)
payments made to repay Indebtedness which is secured by any assets subject to
such Asset Sale in accordance

                                       20



with the terms of any Lien upon or other security agreement of any kind with
respect to such assets, or which must by its terms, or by applicable law, be
repaid out of the proceeds from such Asset Sale and (iv) all distributions
required by any contract entered into other than in contemplation of such Asset
Sale to be paid to any holder of a minority equity interest in such Subsidiary
as a result of such Asset Sale, so long as such distributions do not exceed such
minority holder's pro rata portion (based on such minority holder's
proportionate equity interest) of the cash or cash equivalent payments described
above, net of the amounts set forth in clauses (i)-(iii) above; (b) all cash
insurance proceeds received by the Borrower or any of its Subsidiaries from any
condemnation awards or casualty losses (excluding proceeds of business
interruption insurance) in respect of any asset the sale, transfer, lease or
other disposition of which would constitute an Asset Sale, net of all payments
made to repay Indebtedness which is secured by the assets which were the subject
of such condemnation or casualty; provided, however, so long as no Event of
Default shall have occurred and be continuing, upon the Borrower's request
within 90 days after the date of such occurrence, such proceeds shall be
retained by the Borrower or such Subsidiary or delivered to the Borrower or such
Subsidiary to repair or replace the property subject to such casualty so long as
the Borrower or such Subsidiary has undertaken and is diligently pursuing the
repair of such property; provided, however, that if such repairs cease or if,
after such repairs are completed, the Borrower or such Subsidiary retains any of
such proceeds, such proceeds shall thereupon be applied as provided in Sections
2.2.2 and 3.1.1; and (c) with respect to any Monetization or any incurrence of
Indebtedness, the cash proceeds received by the Borrower or any of its
Subsidiaries from such Monetization or incurrence, net of attorneys' fees and
expenses, banking and/or investment banking fees and expenses, accountants' fees
and expenses, underwriting discounts and commissions and other customary fees
and expenses actually incurred in connection therewith.

         "Net Equity Proceeds" means, with respect to any issuance by the
Borrower or a Trust of any equity securities (including the Guaranteed Preferred
Securities), the gross consideration received by or for the account of the
issuer, net of attorneys' fees and expenses, banking and/or investment banking
fees and expenses, accountants' fees and expenses, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.

         "Nonmaterial Subsidiary Default" means any Default (excluding any Event
of Default) arising or resulting from the default or potential default by a
Subsidiary (other than a Significant Subsidiary) under any obligation or
condition under Section 8.1 of this Agreement (but not any other section of this
Agreement) or under any other agreement, contract or undertaking binding on such
Subsidiary other than (i) the failure by such Subsidiary to make a required
payment under any Indebtedness of such Subsidiary having a principal amount in
excess of $10,000,000 and (ii) a default in the performance or observance of any
obligation or condition with respect to any Indebtedness of such Subsidiary
having a principal amount in excess of $10,000,000 and, as a result thereof, the
holder or holders of such Indebtedness, or any trustee or agent for such
holders, causes such Indebtedness to be repaid more quickly than theretofore
scheduled, whether through the introduction of a "cash sweep," the increase of
an existing "cash sweep" or otherwise.

         "Non-Recourse Debt" means Indebtedness of any Subsidiary of the
Borrower (other than any Subsidiary that owns, directly or indirectly, any
Material Designated Assets) that is incurred

                                       21



to finance the exploration, drilling, development, construction or purchase of
or by, or repairs, improvements or additions to, property or assets of the
Borrower or any Subsidiary (including power generation facilities); provided
that such Indebtedness is without recourse to the Borrower (except as permitted
by Section 8.2.3(n)) or any Subsidiary or to any property or assets of the
Borrower or any Subsidiary other than property or assets (including capital
stock or other comparable ownership interest) of a Subsidiary subject to a Lien
permitted pursuant to Section 8.2.3(n) or property or assets (including capital
stock or other comparable ownership interest) of a Subsidiary subject to a Lien
permitted pursuant to Section 8.2.3(s).

         "Note" means, as the context may require, either a Revolving Note or a
Term Note.

         "Note Pledge Agreement" means the First Amendment Note Pledge
Agreement, dated as of July 16, 2003, by the Borrower in favor of the Collateral
Trustee (for the benefit of, among others, the Lenders), in the form attached
hereto as Exhibit L, as amended, supplemented, restated or otherwise modified
from time to time.

         "Notes" means the Revolving Notes and the Term Notes.

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

         "Obligor" means the Borrower, each Guarantor or any other Person (other
than the Agent or any Lender) obligated under, or otherwise a party to, any Loan
Document.

         "Organic Document" means, relative to any Obligor, its certificate of
incorporation, partnership agreement, or similar organizational document, its
by-laws and all shareholder agreements, voting trusts and similar arrangements
applicable to any of its authorized shares of capital stock or other ownership
interests.

         "Original Currency" is defined in Section 11.16.

         "Parity Lien Debt" means any Indebtedness incurred in compliance with
the 2003 Senior Note Indenture that is secured by the Collateral on a parity
basis with the 2003 Senior Notes and the Second Priority B Loans.

         "Participant" is defined in Section 11.11.2.

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

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

                                       22



         "Percentage" means, as the context may require, a Lender's Revolving
Percentage, Term Percentage or Aggregate Percentage.

         "Permitted Sale" means any individual sale, transfer, lease,
contribution, conveyance or Monetization of a portion of the Domestic Gas
Reserves or Canadian Gas Reserves (together with related tangible personal
property) having a value, according to the most recent, year-end report
evaluating the Domestic Gas Reserves and Canadian Gas Reserves prepared by an
independent petroleum engineer acceptable to the Agent, of $5,000,000 or less;
provided no such sale, transfer, lease, contribution or conveyance shall be a
Permitted Sale to the extent that it would cause the aggregate value of all
Permitted Sales during any period of twelve consecutive calendar months to
exceed $25,000,000.

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

         "Plan" means any Pension Plan or Welfare Plan.

         "Pledged Entity" means (i) any Subsidiary of the Borrower, (ii) any
Investment Joint Venture and (iii) any trading joint venture or similar
arrangement in which the Borrower has made an Investment of any capital stock or
equity related securities of CES or any CES Assets pursuant to Section 8.2.5(d),
all of the Borrower's (and its Subsidiaries') equity in which Subsidiary,
Investment Joint Venture or trading joint venture or similar arrangement has
been directly pledged to the Collateral Trustee (for the benefit of, among
others, the Lenders hereunder) pursuant to the Security Documents.

         "Pledged Power Project" means the power generation property and related
equipment at each of the following locations: (i) the Goldendale Energy Center
in Goldendale, Washington; (ii) the Otay Mesa Energy Center near San Diego,
California; (iii) the Metcalf Energy Center near San Jose, California; (iv) the
Santa Rosa Energy Center in Santa Rosa County, Florida; (v) the Washington
Parish Energy Center near Bogalusa, Louisiana; (vi) the Deer Park Energy Center
in Deer Park, Texas; and (vii) the Augusta Energy Center in Augusta, Georgia.

         "Prepayment Option Notice" is defined in Section 3.1.1.

         "Prepayment Letter Agreement" means the letter, dated as of July 16,
2003, from the Agent to the Borrower in connection with the payment or
prepayment of the Convertible Senior Notes.

         "Pre-2000 Indentures" means the Senior Note Indentures (other than the
Shelf Indenture, the 2003 Senior Note Indenture, the Second Priority Term Loan
Agreement, any other documentation under which the Parity Lien Debt is incurred,
the CCEF Indenture and the CCEFII Indenture).

         "pro forma" or "pro forma basis" means, for any period, that if the
Borrower or any Subsidiary shall have made any acquisition or disposition of
assets or capital stock (occurring by merger or otherwise) since the beginning
of such period (including any acquisition or disposition of assets or capital
stock occurring in connection with a transaction causing a calculation to be

                                       23



made hereunder), subject to the qualifications set forth in the definitions
thereof, the Interest Coverage Ratio and Interest Coverage Ratio (Parent Only)
calculated for such period shall be calculated after giving pro forma effect to
such acquisition or disposition, based upon the historical audited financial
statements covering the assets or stock so acquired or disposed.

         "Projected Cash Flow Statement" is defined in Section 6.1.12.

         "PUD" means any portion of the Domestic Gas Reserves or Canadian Gas
Reserves to which only proved undeveloped oil and gas reserves or any category
of unproved oil and gas reserves are attributed, or undeveloped acreage to which
no oil and gas reserves are attributed.

         "QCH" means Quintana Canada Holdings, LLC, a Delaware limited liability
company and indirect, Wholly Owned Subsidiary of CNGH.

         "QM" means Quintana Minerals (USA), Inc., a Delaware corporation and
indirect, Wholly Owned Subsidiary of CNGH.

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

         "Rating" means, as used in Section 8.2.9(a), the rating by the
applicable Rating Agency of the senior secured debt (or, if no such rating
exists, the implied rating thereof) of the Borrower (or, if the Borrower shall
not be the survivor of a merger permitted under Section 8.2.9(a), of such
survivor); provided that at any time after the credit facilities established by
this Agreement shall be rated by such Rating Agency, "Rating" shall mean such
rating.

         "Rating Agencies" means S&P and Moody's.

         "Register" is defined in Section 2.6.

         "Reimbursement Obligation" is defined in Section 4.6.

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

         "Repayable Restricted Capital" means all Restricted Capital of the
Borrower and its Subsidiaries, other than the Convertible Senior Notes, the
Convertible Subordinated Debentures, the Guaranteed Preferred Securities, any
Subordinated Debt and any Contingent Liabilities in respect of any of the
foregoing.

         "Required Lenders" means, at any time, Lenders owed or holding (a) if
the Revolving Loan Commitments shall not have been terminated, at least 51% of
the aggregate of all Term B Loans then outstanding, all unfunded Term B Loan
Commitments, all Revolving Loans then outstanding, all Letter of Credit
Outstandings on such date, and all unfunded Revolving Loan Commitments or (b) if
the Revolving Loan Commitments shall have been terminated, at least 51% of the
aggregate amount of all Loans and L/C Advances then outstanding.

         "Required Revolving Lenders" means, at any time, Revolving Lenders
having Revolving Percentages aggregating at least 51%.

                                       24



         "Reset Date" is defined in Section 4.12.

         "Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect
from time to time.

         "Restricted Capital" means (i) any Senior Notes, Subordinated Debt or
Convertible Senior Notes and (ii) any other Indebtedness of the Borrower
described in clause (a) of the definition thereof without giving effect to the
parenthetical thereto and clause (g) thereof to the extent guaranteeing
Indebtedness of the type described in clause (a) thereof or clause (ii) of this
definition, and including, for avoidance of doubt, any such Indebtedness related
to preferred or trust preferred or similar capital, or convertible to equity
capital, but excluding any Indebtedness permitted to be incurred under Section
8.2.2(a)(i), (a)(iii) or (d).

         "Restricted Capital Payment" is defined in Section 8.2.6(b).

         "Restricted Subsidiary" has the meaning given in the Pre-2000
Indentures.

         "Revolving Commitment Amount" means, on any date, $300,000,000, as such
amount may be reduced from time to time pursuant to Section 2.2.

         "Revolving Commitment Availability" means, on any date, the excess of
(a) the then Revolving Commitment Amount, over (b) the sum of (i) the
outstanding principal amount of all Revolving Loans on such date plus (ii) the
Letter of Credit Outstandings on such date.

         "Revolving Lender" means each Lender that holds a Revolving Loan
Commitment or a Revolving Loan.

         "Revolving Loans" is defined in Section 2.1.2.

         "Revolving Loan Commitment" is defined in Section 2.1.2.

         "Revolving Loan Commitment Termination Date" means the earliest of

                  (a) July 15, 2005;

                  (b) the date on which the Revolving Loan Commitments of the
         Revolving Lenders are terminated in full or reduced to zero pursuant to
         Section 2.2; and

                  (c) the date on which any Commitment/Loan Termination Event
         occurs.

Upon the occurrence of any event described in clause (b) or (c), the Revolving
Loan Commitments shall terminate automatically and without any further action.

         "Revolving Note" means a promissory note of the Borrower payable to the
order of any Revolving Lender, in the form of Exhibit A-1 (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to such Revolving Lender
resulting from its outstanding Revolving Loans and L/C

                                       25



Advances, and also means all other promissory notes accepted from time to time
in substitution therefor or renewal thereof.

         "Revolving Percentage" means, relative to any Revolving Lender, the
percentage set forth opposite its name on Schedule II under the caption
"Revolving Percentage" or as set forth in its Lender Assignment Agreement, as
such percentage may be adjusted from time to time pursuant to Lender Assignment
Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered
pursuant to Section 11.11. After the Revolving Loan Commitment Termination Date,
relative to any Revolving Lender, at any time, such Revolving Lender's
"Revolving Percentage" shall be as in effect immediately prior to the Revolving
Loan Commitment Termination Date and after giving effect to any Lender
Assignment Agreement(s) of such Lender executed by such Lender and its Assignee
Lender(s) and delivered pursuant to Section 11.11 at or prior to such time.

         "S&P" means Standard & Poor's Ratings Group.

         "Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Borrower or a Subsidiary transfers
such property to a Person and leases it back from such Person, other than leases
for a term of not more than 36 months or between the Borrower and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries. "Sale/Leaseback Transactions"
shall not include any arrangements or transactions constituting Capitalized
Lease Liabilities.

         "Saltend" means Saltend Cogeneration Company Limited, UK private
limited company, a United Kingdom private limited company and an indirect,
Wholly Owned Subsidiary of the Borrower.

         "Scotia Capital" is defined in the preamble.

         "Second Priority B Loans" means the $750,000,000 of Second Priority
Secured Term B Loans incurred by the Borrower pursuant to the Second Priority
Term Loan Agreement.

         "Second Priority Term Loan Agreement" means the Credit Agreement, dated
as of July 16, 2003, among the Borrower, Goldman Sachs Credit Partners L.P., as
sole lead arranger, sole bookrunner and administrative agent, Scotia Capital, as
arranger and syndication agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC
and Landesbank Hessen-Thuringen, as co-arrangers, and Credit Lyonnais New York
Branch and Union Bank of California, N.A., as managing agents.

         "Security Agreement" means the Guarantee and Collateral Agreement,
dated as of July 16, 2003, by the Borrower, QM, JOQ and QCH in favor of the
Collateral Trustee (for the benefit of, among others, the Lenders), in the form
attached hereto as Exhibit M, as amended, supplemented, restated or otherwise
modified from time to time.

         "Security Documents" means the Security Agreement, the Deeds of Trust,
the Collateral Trust Agreement, the Stock Pledge Agreement, the Gilroy
Assignment Agreement, the LLC Pledge Agreement, the Note Pledge Agreement, the
Canadian Stock Pledge Agreement, the

                                       26



Control Agreements and each other relevant agreement, document or instrument
delivered in connection therewith.

         "Senior Note Indentures" means, collectively, the 7 3/4% Senior Note
Indenture, the 7 5/8% Senior Note Indenture, the 7 7/8% Senior Note Indenture,
the 8 3/4% Senior Note Indenture, the Shelf Indenture (to the extent relating
solely to the Senior Notes), the 10 1/2% Senior Note Indenture, the 2003 Senior
Note Indenture, the Second Priority Term Loan Agreement, any other documentation
under which the Parity Lien Debt is incurred, the CCEF Indenture and the CCEFII
Indenture.

         "Senior Notes" means, collectively, the 7 3/4% Senior Notes, the 7 5/8%
Senior Notes, the 7 7/8% Senior Notes, the 8 1/4% Senior Notes, the 8 1/2%
Senior Notes, the 8 3/4% Senior Notes, the 8 5/8% Senior Notes, the 10 1/2%
Senior Notes, the Convertible Senior Notes, the 2003 Senior Notes, the Second
Priority B Loans, the Parity Lien Debt, the CCEF Notes and the CCEFII Notes.

         "Senior Notes Basket" is defined in Section 8.2.6(b)(A)(y).

         "7 5/8% Senior Note Indenture" means that certain Indenture dated as of
March 29, 1999, as supplemented by the First Supplemental Indenture dated as of
July 31, 2000, between the Borrower and The Bank of New York, as Trustee.

         "7 5/8% Senior Notes" means the $250,000,000 of 7 5/8% Senior Notes due
2006 issued by the Borrower pursuant to the 7 5/8% Senior Note Indenture.

         "7 7/8% Senior Note Indenture" means that certain Indenture dated as of
March 31, 1998, as supplemented by the First Supplemental Indenture dated as of
July 24, 1998 and the Second Supplemental Indenture dated as of July 31, 2000,
between the Borrower and The Bank of New York, as Trustee.

         "7 7/8% Senior Notes" means the $400,000,000 of 7 7/8% Senior Notes due
2008 issued by the Borrower pursuant to the 7 7/8% Senior Note Indenture.

         "7 3/4% Senior Note Indenture" means that certain Indenture dated as of
March 29, 1999, as supplemented by the First Supplemental Indenture dated as of
July 31, 2000, between the Borrower and The Bank of New York, as Trustee.

         "7 3/4% Senior Notes" means the $350,000,000 of 7 3/4% Senior Notes due
2009 issued by the Borrower pursuant to the 7 3/4% Senior Note Indenture.

         "Shelf Indenture" means that certain Indenture dated as of August 10,
2000, as supplemented from time to time, between the Borrower and Wilmington
Trust Company, as Trustee.

         "Significant Subsidiary" means each Subsidiary of the Borrower that

                  (a) accounted for at least 10% of consolidated revenues of the
         Borrower and its Subsidiaries or 10% of consolidated earnings of the
         Borrower and its Subsidiaries

                                       27



         before interest and taxes, in each case for the last four full Fiscal
         Quarters immediately preceding the date as of which any such
         determination is made; or

                  (b) has assets which represent at least 10% of the
         consolidated assets of the Borrower and its Subsidiaries as of the last
         day of the last Fiscal Quarter of the Borrower immediately preceding
         the date as of which any such determination is made,

all of which shall be as reflected on the financial statements of the Borrower
for the period, or as of the date, in question. Notwithstanding the foregoing,
(i) CCFCI shall be deemed to be a Significant Subsidiary for all purposes of
this Agreement until such date as all Indebtedness under the CCFCI Credit
Agreement shall have been repaid in full and all commitments to lend thereunder
have been terminated and, thereafter, at any time when CCFCI meets the criteria
set forth in the first sentence of this definition and (ii) CCFCII shall be
deemed to be a Significant Subsidiary for all purposes of this Agreement until
such date as all Indebtedness under the CCFCII Credit Agreement shall have been
repaid in full and all commitments to lend thereunder have been terminated and,
thereafter, at any time when CCFCII meets the criteria set forth in the first
sentence of this definition.

         "Solvent" means, as to any Person at any time, that (i) the fair value
of the property of such Person is greater than the amount of such Person's
liabilities (whether subordinated, contingent, unmatured, unliquidated or
otherwise); (ii) the present fair saleable value of the property of such Person
is not less than the amount that will be required to pay the probable liability
of such Person on its debts as they become absolute and matured; (iii) such
Person is able to pay its debts and other liabilities as they mature in the
normal course of business; (iv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital.

         "SPC" is defined in Section 11.11.3.

         "Stated Amount" of each Letter of Credit means the "Stated Amount" as
defined therein.

         "Stated Expiry Date" is defined in Section 4.1(b).

         "Stated Maturity Date" means, in the case of the Revolving Loans, July
15, 2005 and, in the case of the Term B Loans, July 15, 2007.

         "Sterling" and the sign "(pound)" shall mean freely transferable lawful
money of the United Kingdom.

         "Stock Pledge Agreement" means the Second Amendment Pledge Agreement,
dated as of July 16, 2003, by the Borrower in favor of the Collateral Trustee
(for the benefit of, among others, the Lenders), in the form attached hereto as
Exhibit N, as amended, supplemented, restated or otherwise modified from time to
time.

                                       28



         "Subordinated Debt" means all unsecured Indebtedness of the Borrower
for money borrowed which is subordinated, upon terms satisfactory to the Agent
and the Required Lenders, in right of payment to the payment in full in cash of
all Obligations.

         "Subsidiary" means, with respect to any Person, any corporation,
partnership or other Person of which at least 50% of the outstanding capital
stock or other comparable ownership interest having ordinary voting power to
elect a majority of the board of directors of such corporation, partnership or
other Person (irrespective of whether at the time capital stock of any other
class or classes of such corporation, partnership or other Person shall or might
have voting power upon the occurrence of any contingency) is at the time
directly or indirectly owned by such Person, by such Person and one or more
other Subsidiaries of such Person, or by one or more other Subsidiaries of such
Person.

         "Supermajority Lenders" means, at any time, Lenders owed or holding (a)
if the Revolving Loan Commitments shall not have been terminated, at least 66
2/3% of the aggregate of all Term B Loans then outstanding, all unfunded Term B
Loan Commitments, all Revolving Loans then outstanding, all Letter of Credit
Outstandings on such date, and all unfunded Revolving Loan Commitments or (b) if
the Revolving Loan Commitments shall have been terminated, at least 66 2/3% of
the aggregate amount of all Loans and L/C Advances then outstanding.

         "Tangible Net Worth" means the consolidated net worth of the Borrower
and its Subsidiaries, including the aggregate outstanding face amount of the
Guaranteed Preferred Securities, after subtracting therefrom the aggregate
amount of any intangible assets of the Borrower and its Subsidiaries, including
goodwill, franchises, licenses, patents, trademarks, trade names, copyrights,
service marks and brand names.

         "Taxes" is defined in Section 5.6.

         "10 1/2% Senior Note Indenture" means that certain Indenture dated as
of May 16, 1996, as supplemented by the First Supplemental Indenture dated as of
August 1, 2000, between the Borrower and State Street Bank and Trust Company (as
successor trustee to Fleet National Bank), as Trustee.

         "10 1/2% Senior Notes" means the $180,000,000 of 10 1/2% Senior Notes
due 2006 issued by the Borrower pursuant to the 10 1/2% Senior Note Indenture.

         "Term B Lender" means each Lender that holds a Term B Loan Commitment
or a Term B Loan.

         "Term B Loan" is defined in Section 2.1.1.

         "Term B Loan Commitment" is defined in Section 2.1.1.

         "Term B Loan Commitment Amount" means, on any date, $200,000,000, as
such amount may be reduced from time to time pursuant to Section 2.2.

         "Term B Loan Commitment Termination Date" means the earliest of

                                       29



                  (a) July 15, 2003;

                  (b) the date on which the Term B Loan Commitments of the Term
         B Lenders are terminated in full or reduced to zero in accordance with
         Section 2.2; and

                  (c) the date on which any Commitment/Loan Termination Event
         occurs.

         Upon the occurrence of any event described above, the Term B Loan
Commitments shall terminate automatically and without further action.

         "Term B Prepayment Amount" is defined in Section 3.1.1.

         "Term Note" means a promissory note of the Borrower payable to the
order of any Term B Lender, in the form of Exhibit A-2 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Borrower to such Term B
Lender resulting from its outstanding Term B Loan, and also means all other
promissory notes accepted from time to time in substitution therefor or renewal
thereof.

         "Term Percentage" means, relative to any Term B Lender, the percentage
set forth opposite its name on Schedule II under the caption "Term Percentage"
or as set forth in its Lender Assignment Agreement, as such percentage may be
adjusted from time to time pursuant to Lender Assignment Agreement(s) executed
by such Lender and its Assignee Lender(s) and delivered pursuant to Section
11.11.

         "Third Party Indebtedness" means Indebtedness owed to and held by any
Person other than the Borrower or any of its Subsidiaries.

         "Trust" means Calpine Capital Trust, Calpine Capital Trust II and
Calpine Capital Trust III, each a Delaware business trust.

         "2000 Credit Agreement" means the Second Amended and Restated Credit
Agreement, dated as of May 23, 2000, as amended, among the Borrower, Scotia
Capital and the lenders party thereto.

         "2003 Senior Notes" means the $2,550,000,000 of Second Priority Senior
Secured Floating Rate Notes due 2007, 8 1/2% Second Priority Senior Secured
Notes due 2010 and 8 3/4% Second Priority Senior Secured Notes due 2013, in each
case issued by the Borrower pursuant to the 2003 Senior Note Indenture.

         "2003 Senior Note Indenture" means that certain Indenture dated as of
July 16, 2003 between the Borrower and Wilmington Trust Company, as Trustee.

         "2002 Credit Agreement" is defined in the recitals.

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

                                       30



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

         "U.S. Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States of America.

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

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

         SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each Note, Borrowing Request, Continuation/Conversion Notice, Loan Document,
notice and other communication delivered from time to time in connection with
this Agreement or any other Loan Document.

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

         SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 8.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, generally accepted accounting principles ("GAAP") in effect in
the United States from time to time.

                                   ARTICLE II

                   COMMITMENTS, BORROWING PROCEDURES AND NOTES

         SECTION 2.1. Commitments/Loans. On the terms and subject to the
conditions of this Agreement (including Article VI), each Lender severally
agrees to continue or make Loans pursuant to the Commitments described in this
Section 2.1.

         SECTION 2.1.1. Term B Loan Commitment. On the Closing Date, each Term B
Lender severally will make loans in U.S. Dollars (relative to such Lender, its
"Term B Loan") to the Borrower equal to such Lender's Term Percentage of the
aggregate amount of the Borrowing of Term B Loans requested by the Borrower to
be made on such day. The Commitment of each Term B Lender described in this
Section 2.1.1 is herein referred to as its "Term B Loan Commitment". At 2:00
p.m. (San Francisco time) on the Term B Commitment Termination Date, the Term B
Loan Commitment shall terminate, and any portion of the Term B Loan Commitment
Amount that is not borrowed prior to such time shall be extinguished. No amounts
paid or prepaid with respect to Term B Loans may be reborrowed.

                                       31



         SECTION 2.1.2. Revolving Loan Commitment. From time to time on any
Business Day occurring prior to the Revolving Loan Commitment Termination Date,
each Revolving Lender severally will make loans in U.S. Dollars (relative to
such Lender, its "Revolving Loans") to the Borrower equal to such Lender's
Revolving Percentage of the aggregate amount of the Borrowing of Revolving Loans
requested by the Borrower to be made on such day. The Commitment of each
Revolving Lender described in this Section 2.1.2 to make Revolving Loans is
herein referred to as its "Revolving Loan Commitment". On the terms and subject
to the conditions hereof, the Borrower may from time to time borrow, prepay and
reborrow Revolving Loans.

         SECTION 2.1.3. Commitment to Issue Letters of Credit. From time to time
on any Business Day, an Issuer will issue, and each Revolving Lender will
participate in, the Letters of Credit, in accordance with Article IV.

         SECTION 2.1.4. Lenders Not Permitted or Required To Make Loans or Issue
or Participate in Letters of Credit Under Certain Circumstances. No Lender or
Issuer, as the case may be, shall be permitted or required to

                  (a) make its Term B Loan if, after giving effect thereto,

                           (i)      the aggregate outstanding principal amount
                  of all Term B Loans of all Lenders would exceed the Term B
                  Loan Commitment Amount, or

                           (ii)     the outstanding principal amount of the Term
                  B Loans of such Lender would exceed such Lender's Term
                  Percentage of the Term B Loan Commitment Amount;

                  (b) make any Revolving Loan if, after giving effect thereto,

                           (i)      the aggregate outstanding principal amount
                  of all Revolving Loans of all Lenders, together with all
                  Letter of Credit Outstandings, would exceed the Revolving
                  Commitment Amount, or

                           (ii)     the aggregate outstanding principal amount
                  of all Revolving Loans of such Lender, together with its
                  Revolving Percentage of all Letter of Credit Outstandings,
                  would exceed such Lender's Revolving Percentage of the
                  Revolving Commitment Amount; or

                  (c) issue (in the case of an Issuer) or participate in (in the
         case of each Revolving Lender) any Letter of Credit prior to the
         Revolving Loan Commitment Termination Date, if, after giving effect
         thereto

                           (i)      all Letter of Credit Outstandings together
                  with the aggregate outstanding principal amount of all
                  Revolving Loans of all Lenders would exceed the Revolving
                  Commitment Amount,

                           (ii)     in the case of the issuance of any Foreign
                  Currency Letter of Credit, the Equivalent Amount of all
                  Foreign Currency Letter of Credit

                                       32



                  Outstandings would exceed the Foreign Currency Letter of
                  Credit Commitment Amount, or

                           (iii)    such Lender's Revolving Percentage of all
                  Letter of Credit Outstandings together with the aggregate
                  outstanding principal amount of all Revolving Loans of such
                  Lender would exceed such Lender's Revolving Percentage of the
                  then Revolving Commitment Amount.

         SECTION 2.2. Reduction of Revolving Commitment Amount and Term B Loans.
The Revolving Commitment Amount and the Term B Loans are subject to reduction
and prepayment from time to time pursuant to this Section 2.2. Each prepayment
of the Loans under this Section 2.2 shall be accompanied by accrued interest to
the date of such prepayment on the amount prepaid.

         SECTION 2.2.1. Optional Reduction. The Borrower may, from time to time
on any Business Day, make a voluntary prepayment of the Term B Loans in
accordance with Section 3.1.1. The Borrower may, from time to time on any
Business Day voluntarily reduce the Revolving Commitment Amount; provided,
however, that (i) all such reductions shall require at least three Business
Days' prior notice to the Agent and be permanent reductions of the Revolving
Commitment Amount, (ii) any partial reduction of the Revolving Commitment Amount
shall be in a minimum amount of $2,000,000 and in an integral multiple of
$500,000 and (iii) the last two sentences of Section 2.2.2(b) shall be
applicable to each such reduction.

         SECTION 2.2.2. Mandatory Reductions.

                  (a) There shall be a mandatory prepayment of the outstanding
         Term B Loans and reduction of the Revolving Commitment Amount by the
         amounts and in the circumstances set forth in Section 3.1.1.

                  (b) Any prepayment of the outstanding Term B Loans and
         reduction of the Revolving Commitment Amount described in clause (a)
         shall be effective on the first Business Day following the Borrower's
         receipt of any related Net Available Cash. All such amounts shall be
         applied to the ratable (i) prepayment of the outstanding Term B Loans
         and (ii) permanent reduction of the Revolving Commitment Amount. Any
         such reduction of the Revolving Commitment Amount shall be accompanied
         by prepayment of the Revolving Loans to the extent, if any, that the
         sum of (i) the aggregate principal amount of all outstanding Revolving
         Loans plus (ii) the aggregate Letter of Credit Outstandings exceeds the
         amount of the Revolving Commitment Amount as so reduced, provided that
         if the aggregate principal amount of Revolving Loans then outstanding
         is less than the amount of such excess (because Letter of Credit
         Outstandings constitute a portion thereof), the Borrower shall, to the
         extent of the balance of such excess, deposit an amount in cash in a
         cash collateral account, consistent with and subject to the procedures
         set forth in Section 4.7 hereof, established with the Agent for the
         benefit of the Lenders. The application of any prepayment pursuant to
         Section 2.2 shall be made, first, to Base Rate Loans and, second, to
         LIBO Rate Loans.

                                       33



         SECTION 2.2.3. Post Default Application. After the occurrence and
during the continuance of an Event of Default, all optional and mandatory
prepayments of outstanding Term B Loans and reductions of the Revolving
Commitment Amount under Section 2.2.1 and Section 2.2.2 shall be applied to the
pro rata prepayment of all outstanding Revolving Loans and Term B Loans and
cash-collateralization of any Letters of Credit outstanding hereunder.

         SECTION 2.3. Borrowing Procedure. By delivering a Borrowing Request to
the Agent on or before 10:00 a.m., San Francisco time, on a Business Day, an
Authorized Officer of the Borrower may from time to time irrevocably request, on
not less than three days, in the case of LIBO Rate Loans, or one day in the case
of Base Rate Loans, nor more than five Business Days' notice, that a Borrowing
be made in a minimum amount of $2,000,000 or in the unused amount of the
applicable Commitment. The Agent shall promptly transmit the information in the
Borrower's request to each applicable Lender. On the terms and subject to the
conditions of this Agreement, each Borrowing shall be comprised of the type of
Loans, and shall be made on the Business Day, specified in such Borrowing
Request. On or before 11:00 a.m. (San Francisco time) on the Business Day
specified in such Borrowing Request each applicable Lender shall deposit with
the Agent same day funds in an amount equal to such Lender's applicable
Percentage of the requested Borrowing. Such deposit will be made to an account
which the Agent shall specify from time to time by notice to the Lenders. To the
extent funds are received from the applicable Lenders, the Agent shall make such
funds available to the Borrower by wire transfer to the accounts the Borrower
shall have specified in its Borrowing Request. No Lender's obligation to make
any Loan or L/C Advance shall be affected by any other Lender's failure to make
any Loan or L/C Advance.

         SECTION 2.4. Continuation and Conversion Elections. By delivering a
Continuation/ Conversion Notice to the Agent on or before 10:00 a.m., San
Francisco time, on a Business Day, an Authorized Officer of the Borrower may
from time to time irrevocably elect, on not less than three nor more than five
Business Days' notice that all, or any portion in an aggregate minimum amount of
$2,000,000 of any Loans be, in the case of Base Rate Loans, converted into LIBO
Rate Loans or, in the case of LIBO Rate Loans, be converted into a Base Rate
Loan or continued as a LIBO Rate Loan (in the absence of delivery of a
Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three
Business Days before the last day of the then current Interest Period with
respect thereto, such LIBO Rate Loan shall, on such last day, automatically
convert to a Base Rate Loan); provided, however, that (i) each such conversion
or continuation shall be pro rated among the applicable outstanding Loans of all
Lenders, and (ii) no portion of the outstanding principal amount of any Loans
may be continued as, or be converted into, LIBO Rate Loans when any Default has
occurred and is continuing. The Agent shall promptly transmit the information in
each Continuation/Conversion Notice to each Lender.

         SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility; provided, further,
that each Lender shall use reasonable efforts in making any such election to
minimize the costs payable by the Borrower

                                       34



hereunder with respect to any Loan, Commitment or Letter of Credit. In addition,
the Borrower hereby consents and agrees that, for purposes of any determination
to be made for purposes of Section 5.1, 5.2, 5.3 or 5.4, it shall be
conclusively assumed that each Lender elected to fund all LIBO Rate Loans by
purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market.

         SECTION 2.6. Notes; Register. Unless the Agent shall have been advised
by a Lender that it does not want to receive a Note, each Lender's Loans under
each of its Commitments shall be evidenced by a Note payable to the order of
such Lender in a maximum principal amount equal to such Lender's applicable
Percentage of the original applicable Commitment Amount. Whether or not a Loan
is evidenced by a Note, the Borrower hereby designates Agent to serve as its
agent, solely for the purposes of this Section, to maintain a register (the
"Register") on which Agent will record the name and address of each Lender, the
Commitments and Loans and each repayment in respect of the principal amount of
the Loans of each Lender from time to time. No payment with respect to the
outstanding principal and interest applicable for each of the Loans shall be
made to any Person other than the Person identified in such Register as the
Lender. Failure to make any such recordation or any errors in such recordation
shall not affect the Borrower's obligations in respect of such Loans. The
entries in the Register shall be conclusive and binding on the Borrower absent
manifest error. Upon reasonable notice and during normal business hours,
representatives of the Borrower may from time to time inspect the Register. The
Borrower hereby irrevocably authorizes each Lender to make (or cause to be made)
appropriate notations on the grid attached to such Lender's Notes (or on any
continuation of such grid), which notations, if made, shall evidence, inter
alia, the date of, the outstanding principal of, and the interest rate and
Interest Period applicable to the Loans and L/C Advances evidenced thereby. Such
notations shall be conclusive and binding on the Borrower absent manifest error;
provided, however, that the failure of any Lender to make any such notations
shall not limit or otherwise affect any Obligations of the Borrower or any other
Obligor.

                                  ARTICLE III

                   REPAYMENTS, PREPAYMENTS, INTEREST AND FEES

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

         SECTION 3.1.1. Payment Terms. Prior to the Stated Maturity Date of each
Loan, the Borrower

                  (a) shall repay the Term B Loans of each Term B Lender in 16
         consecutive quarterly installments, commencing on October 15, 2003 and
         ending on July 15, 2007, each of which shall be in an amount equal to
         such Lender's Term Percentage multiplied by $500,000; provided that the
         final installment shall be in an amount equal to such Lender's Term
         Percentage multiplied by $192,500,000;

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

                                       35



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

                           (ii)     no such prepayment of any LIBO Rate Loan may
                  be made on any day other than the last day of the Interest
                  Period for such Loan, unless the Borrower also pays all losses
                  and expenses (for which the Borrower has received written
                  notice, including calculations in reasonable detail) as a
                  result of such prepayment as provided in Section 5.4;

                           (iii)    each such voluntary prepayment shall require
                  at least three but no more than five Business Days' prior
                  written notice to the Agent specifying whether such prepayment
                  is of Revolving Loans or (subject to clause (v) below) Term B
                  Loans or both;

                           (iv)     each such voluntary partial prepayment shall
                  be in an aggregate minimum amount of $2,000,000; and

                           (v)      no voluntary prepayment of the Term B Loans
                  shall be permitted unless the Revolving Commitment Amount is
                  reduced pursuant to Section 2.2.1 by at least a ratable
                  amount;

                  (c) shall, upon receipt by the Borrower or any Subsidiary of
         Net Available Cash from any Asset Sale, Monetization, Insurance Event
         or incurrence of secured Indebtedness permitted under Section 8.2.2(l)
         or (m) (excluding the CES Credit Facility), apply an amount equal to
         100% of such Net Available Cash pro rata to prepayments of the
         outstanding Term B Loans and the reductions of the Revolving Loan
         Commitments (and to any related prepayments of the then outstanding
         Revolving Loans and to cash collateralization the Letters of Credit),
         in each case as contemplated under Section 2.2.2; provided that
         conversion of any non-cash proceeds realized from any Asset Sale,
         Monetization or Insurance Event to cash (including both the principal
         amount of such non-cash proceeds and any interest attributable thereto)
         shall be deemed to be Net Available Cash upon such conversion and
         applied pursuant to this clause (c); provided, further, that no such
         prepayments and reductions shall be required as a consequence of:

                           (i)      without duplication of any other clause of
                  this paragraph (c), any Asset Sale or Monetization by the
                  Borrower of the Gilroy Receivable or any Asset Sale of
                  uninstalled turbines or equipment, to the extent that an
                  amount equal to the Net Available Cash with respect thereto is
                  applied within 355 days of the consummation of such Asset Sale
                  or Monetization (A) to make Restricted Capital Payments in
                  respect of Repayable Restricted Capital pursuant to Section
                  8.2.6(b)(B) or (B) to make Capital Expenditures to the extent
                  permitted under Section 8.2.7 (subject, however, to the Capex
                  Requirement); provided that to the extent any such Net
                  Available Cash is not so applied during such 355-day period,
                  the Borrower shall make the mandatory prepayments and
                  commitment reductions required by this paragraph (c) by the
                  close of business on the last day of such 355-day period in an
                  aggregate amount equal to the portion of such Net Available
                  Cash not so applied; or

                                       36



                           (ii)     without duplication of any other clause of
                  this paragraph (c), any Asset Sale or Monetization of, or
                  Insurance Event with respect to, assets that are not
                  Designated Assets or CES Assets, to the extent that an amount
                  equal to the Net Available Cash with respect thereto is
                  applied within 355 days after the consummation of such Asset
                  Sale or Monetization, or the receipt by the Borrower of the
                  Net Available Cash with respect to such Insurance Event, to
                  make Capital Expenditures to the extent permitted under
                  Section 8.2.7 (subject, however, to the Capex Requirement);
                  provided that to the extent any such Net Available Cash is not
                  so applied during such 355-day period, the Borrower shall make
                  the mandatory prepayments and commitment reductions required
                  by this paragraph (c) by the close of business on the last day
                  of such 355-day period in an aggregate amount equal to the
                  portion of such Net Available Cash not so applied; and
                  provided, further, that to the extent that at any time the
                  aggregate amount of Net Available Cash described in this
                  clause (ii) that has not been applied to make Capital
                  Expenditures in accordance with this clause (ii) shall exceed
                  the aggregate amount of Capital Expenditures then permitted to
                  be made with such Net Available Cash under Section 8.2.7
                  during the applicable 355-day period described above, an
                  amount equal to such excess shall, immediately thereafter, be
                  applied in accordance with the immediately preceding proviso;
                  or

                           (iii)    without duplication of any other clause of
                  this paragraph (c), any Permitted Sale; or

                           (iv)     without duplication of any other clause of
                  this paragraph (c), any sale, transfer, lease, contribution or
                  conveyance by the Borrower or any of its Subsidiaries to any
                  Person of an interest in a PUD pursuant to an agreement under
                  which such Person commits to develop or to provide financing
                  and/or funding to the Borrower or such Subsidiary solely for
                  the development of such PUD; provided that (A) the Fair Market
                  Value of such PUD interest (determined as of the date such
                  agreement is entered into) is less than $25,000,000, (B) the
                  aggregate Fair Market Value of all PUD interests (determined,
                  in the case of each PUD, as of the date the agreement with
                  respect to such PUD is entered into) sold, transferred,
                  leased, contributed or conveyed as set forth in this clause
                  (iv) is less than $100,000,000, (C) the Borrower or such
                  Subsidiary shall retain legal ownership of the entirety of
                  such PUD (except to the extent of the interest so sold,
                  transferred, leased, contributed or conveyed) and (D) the
                  Borrower shall have delivered to the Agent a certificate of an
                  Authorized Officer of the Borrower as to the satisfaction of
                  the conditions set forth in clauses (A) and (B) above (it
                  being understood that the Borrower shall, before or within a
                  reasonable time after consummation of the relevant
                  transaction, deliver to the Agent such other information in
                  connection therewith as the Agent may reasonably request); or

                           (v)      without duplication of any other clause of
                  this paragraph (c), any Asset Sale or Monetization of Domestic
                  Gas Reserves, Canadian Gas Reserves or geothermal energy
                  assets, to the extent that an amount equal to the Net
                  Available Cash with respect thereto is applied within 355 days
                  after the consummation of such Asset Sale or Monetization (A)
                  to make Capital Expenditures to the extent

                                       37



                  permitted under Section 8.2.7 (subject, however, to the Capex
                  Requirement) or (B) to purchase additional Domestic Gas
                  Reserves, Canadian Gas Reserves or geothermal energy assets,
                  which additional assets (I) become Collateral under the
                  Security Documents (in the case of any such Domestic Gas
                  Reserves and domestic geothermal energy assets) or (II) are
                  owned by CCNGP (in the case of any such Canadian Gas Reserves
                  and Canadian geothermal energy assets); provided that to the
                  extent any such Net Available Cash is not so applied during
                  such 355-day period, the Borrower shall make the mandatory
                  prepayments and commitment reductions required by this
                  paragraph (c) by the close of business on the last day of such
                  355-day period in an aggregate amount equal to the portion of
                  such Net Available Cash not so applied; and provided further
                  that the sum of (x) the net proceeds of all such Asset Sales
                  of Domestic Gas Reserves and Canadian Gas Reserves and (y) the
                  gross proceeds of all such Asset Sales of geothermal energy
                  assets under this clause (v) shall not exceed $50,000,000 in
                  the aggregate; or

                           (vi)     without duplication of any other clause of
                  this paragraph (c), any Asset Sale or Monetization of CES
                  Assets permitted under Section 8.2.10(c)(v) and any incurrence
                  of Non-Recourse Debt by CES permitted under Section 8.2.2(m)
                  (exclusive of the CES Credit Facility), to the extent that an
                  amount equal to the Net Available Cash with respect thereto is
                  applied within 355 days after the consummation of such Asset
                  Sale or Monetization, or the incurrence of such Indebtedness,
                  to make Capital Expenditures to the extent permitted under
                  Section 8.2.7 (subject, however, to the Capex Requirement);
                  provided that to the extent any such Net Available Cash is not
                  so applied during such 355-day period, the Borrower shall make
                  the mandatory prepayments and commitment reductions required
                  by this paragraph (c) by the close of business on the last day
                  of such 355-day period in an aggregate amount equal to the
                  portion of such Net Available Cash not so applied; and
                  provided, further, that to the extent that at any time the
                  aggregate amount of Net Available Cash with respect to any
                  Asset Sale or Monetization described in this clause (vi) that
                  has not been applied to make Capital Expenditures in
                  accordance with this clause (vi) shall exceed the aggregate
                  amount of Capital Expenditures then permitted to be made with
                  such Net Available Cash under Section 8.2.7 during the
                  applicable 355-day period described above, an amount equal to
                  such excess shall, immediately thereafter, be applied in
                  accordance with the immediately preceding proviso; or

                           (vii)    without duplication of any other clause of
                  this paragraph (c), any Asset Sale of any Canadian Gas
                  Reserves to a royalty trust or income fund, to the extent that
                  an amount equal to the Net Available Cash with respect thereto
                  is applied within 355 days after the consummation of such
                  Asset Sale (A) to repurchase or prepay the CCEFII Notes, (B)
                  to make Capital Expenditures to the extent permitted under
                  Section 8.2.7 (subject, however, to the Capex Requirement) or
                  (C) to purchase additional Domestic Gas Reserves, Canadian Gas
                  Reserves or geothermal energy assets, which additional assets
                  (I) become Collateral under the Security Documents (in the
                  case of any such Domestic Gas Reserves and domestic geothermal
                  energy assets) or (II) are owned by CCNGP

                                       38



                  (in the case of any such Canadian Gas Reserves and Canadian
                  geothermal energy assets); provided that to the extent any
                  such Net Available Cash is not so applied during such 355-day
                  period, the Borrower shall make the mandatory prepayments and
                  commitment reductions required by this paragraph (c) by the
                  close of business on the last day of such 355-day period in an
                  aggregate amount equal to the portion of such Net Available
                  Cash not so applied; and provided further that (x) the
                  aggregate Fair Market Value of all Canadian Gas Reserves
                  subject to such Asset Sales is less than Cdn$300,000,000 and
                  (y) the Borrower and/or one or more of its Subsidiaries shall
                  at all times own not less than 25% of the units issued by such
                  royalty trust or income fund (subject to dilution in
                  accordance with the terms of such royalty trust or income
                  fund) and such units shall be (I) if owned by the Borrower,
                  pledged to the Collateral Trustee (for the benefit of, among
                  others, the Lenders hereunder), (II) owned by a Pledged Entity
                  or (III) if material adverse tax consequences to the Borrower
                  or the Lenders would arise out of or result from the taking of
                  either of the actions set forth in clauses (I) or (II) above,
                  owned by a Subsidiary of a Pledged Entity; and

                  (d) shall, immediately upon any acceleration of any Loans or
         either Commitment Termination Date pursuant to Section 9.2 or Section
         9.3, repay all Loans, unless, pursuant to Section 9.3, only a portion
         of all Loans is so accelerated.

Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 5.4, and, in the case
of clause (c) above, shall be made by the close of business of the day of
receipt or deemed receipt of the relevant Net Available Proceeds. No voluntary
prepayment of principal of any Revolving Loans shall cause a reduction in the
Revolving Commitment Amount.

Notwithstanding anything to the contrary in Section 2.2.2 or 3.1.1, with respect
to the amount of any mandatory prepayment described in Section 2.2.2 or 3.1.1
that is allocated to Term B Loans (such amount, the "Term B Prepayment Amount")
at any time when Revolving Loan Commitments remain outstanding, the Borrower
will, in lieu of applying such amount to the prepayment of the Term B Loans, on
the date specified for such prepayment, give the Agent telephonic notice
(promptly confirmed in writing) requesting that the Agent prepare and provide to
each Term B Lender a notice (each, a "Prepayment Option Notice") as described
below. As promptly as practicable after receiving such notice from the Borrower,
the Agent will send to each Term B Lender a Prepayment Option Notice, which
shall be in the form of Exhibit G, and shall include an offer by the Borrower to
prepay on the date (each a "Mandatory Prepayment Date") that is ten calendar
days after the date of the Prepayment Option Notice (but in no event later than
the date which is 365 days after the applicable Asset Sale, Monetization or
Insurance Event) the relevant Term B Loans of such Lender by an amount equal to
the portion of the Term B Prepayment Amount indicated in such Lender's
Prepayment Option Notice as being applicable to such Lender's Term B Loans. On
the Mandatory Prepayment Date, (i) the Borrower shall pay to the relevant Term B
Lenders the aggregate amount necessary to prepay that portion of the outstanding
Term B Loans in respect of which such Lenders have accepted prepayment as
described above and (ii) the Borrower shall permanently reduce the Revolving
Loan Commitments (and prepay Revolving Loans and cash collateralize the Letters
of Credit) as

                                       39



contemplated under Section 2.2.2 by an amount equal to the portion of the Term B
Prepayment Amount not accepted by the relevant Term B Lenders.

         SECTION 3.1.2. Post Default Application of Payments. Notwithstanding
any provision of Sections 2.2.2 or 3.1.1 to the contrary, after the occurrence
and during the continuance of an Event of Default, all optional and mandatory
payments under Section 3.1.1 shall be applied first to pay any fees and expenses
then due and owing hereunder, second to the pro rata payment of accrued and
unpaid interest on all Loans hereunder and third as set forth in Section
2.2.2(b).

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

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

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

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

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

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

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

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

         "LIBOR Reserve Percentage" means, for each day of any Interest Period
for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to
the maximum aggregate reserve requirements (including all basic, emergency,
supplemental, marginal and other reserves and

                                       40



taking into account any transitional adjustments or other scheduled changes in
reserve requirements) specified from time to time under regulations issued from
time to time by the F.R.S. Board and then applicable to assets or liabilities
consisting of and including "Eurocurrency Liabilities", as currently defined in
Regulation D of the F.R.S. Board.

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

         SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount
of any Loan is due and payable (whether on the applicable Stated Maturity Date,
upon acceleration or otherwise), or after any other monetary Obligation of the
Borrower shall have become due and payable, the Borrower shall pay, but only to
the extent permitted by law, interest (after as well as before judgment) on such
amounts at a rate per annum equal to the Alternate Base Rate plus the Applicable
Margin plus a margin of 2%.

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

                  (a) on the Stated Maturity Date therefor;

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

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

                  (d) with respect to LIBO Rate Loans, on the last day of each
         applicable Interest Period (and, if such Interest Period shall exceed
         three months, at the end of the third month of such Interest Period);

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

                  (f) on that portion of any Loans the Stated Maturity Date of
         which is accelerated pursuant to Section 9.2 or Section 9.3,
         immediately upon such acceleration.

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

         SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in
this Section 3.3. All such fees shall be non-refundable.

         SECTION 3.3.1. Commitment Fees. The Borrower agrees to pay to the Agent
for the account of each Revolving Lender, for the period (including any portion
thereof when any of its Commitments are suspended by reason of the Borrower's
inability to satisfy any condition of

                                       41



Article VI) commencing on the Closing Date and continuing through the Revolving
Loan Commitment Termination Date, a commitment fee (the "Commitment Fee") at the
rate of 0.50% per annum, calculated on such Lender's Revolving Percentage of the
average daily unused portion of the Revolving Commitment Amount. Commitment Fees
shall be payable by the Borrower in arrears on each Quarterly Payment Date,
commencing with the first such day following the Closing Date, and on the
Revolving Loan Commitment Termination Date.

         SECTION 3.3.2. Fees. The Borrower agrees to pay to the Agent and the
Lenders for their own accounts the fees described in the Fee Letters, at the
times required in such letter.

         SECTION 3.3.3. Letter of Credit Fee. The Borrower agrees to pay to the
Agent, for the account of the Revolving Lenders, for each Letter of Credit for
the period from and including the date of the issuance of such Letter of Credit
to (and including) the date upon which (or on the next succeeding Business Day
upon which) such Letter of Credit expires or is returned to the Issuer that
issued such Letter of Credit, a fee, in Dollars, on the average daily stated
amount of such Letter of Credit (or the Equivalent Amount thereof with respect
to Foreign Currency Letters of Credit) calculated at a per annum rate equal to
the Applicable Margin for LIBO Rate Loans in effect from time to time. Such fee
shall be payable by the Borrower in arrears on each Quarterly Payment Date, and
on the date of termination or expiry of the last Letter of Credit outstanding
hereunder (for any period then ending for which such fee shall not theretofore
have been paid), commencing on the first such date after the issuance of such
Letter of Credit.

         SECTION 3.3.4. Letter of Credit Issuing Fee. The Borrower agrees to pay
to the Agent, for the account of each Issuer, an issuing fee, in Dollars, for
each Letter of Credit issued by such Issuer for the period from and including
the date of issuance of such Letter of Credit to (and including) the date upon
which such Letter of Credit expires or is returned to the Issuer that issued
such Letter of Credit at such rates as may be agreed in writing by the Borrower
and the Issuers from time to time. Such fee shall be payable by the Borrower in
arrears on each Quarterly Payment Date and on the date of termination or expiry
of the last Letter of Credit outstanding hereunder for any period then ending
for which such fee shall not theretofore have been paid, commencing on the first
such date after the issuance of such Letter of Credit. For any Foreign Currency
Letter of Credit, such issuing fee shall be calculated on the Equivalent Amount
of the average daily stated amount thereof.

                                   ARTICLE IV

                                LETTERS OF CREDIT

         SECTION 4.1. Issuance Requests. By delivering to the Agent and an
Issuer an Issuance Request on or before 12:00 noon, New York time, the Borrower
may request, from time to time prior to the Revolving Loan Commitment
Termination Date and on not less than three nor more than ten Business Days'
notice, that such Issuer issue an irrevocable standby letter of credit, in
Dollars, Canadian Dollars or Sterling (provided that the Equivalent Amount of
the aggregate Stated Amount of all Foreign Currency Letters of Credit after
giving effect to such issuance shall not exceed the Foreign Currency Letter of
Credit Commitment Amount) and in such form as may be requested by the Borrower
and approved by such Issuer (each, together with the Existing Letters of Credit
and any Foreign Currency Letters of Credit, a "Letter of Credit"), in support of

                                       42



the general corporate purposes of the Borrower and its Subsidiaries (including
credit support by the Borrower for gas and power contracts for CES, Calpine
Energy Services Canada Partnership and Calpine Energy Services UK Limited) and
which are described in such Issuance Request, provided that no Letter of Credit
may be used (i) to finance acquisitions (other than acquisitions of equipment,
sites and property in the ordinary course of the Borrower and its Subsidiaries'
business, but in no event may Letters of Credit be used to finance acquisitions
of power projects, reserves of geothermal steam and fluids and material gas
reserves) or make any Investments in any third parties (other than
Subsidiaries), directly or indirectly, through the Borrower or any of its
Subsidiaries or Affiliates or (ii) to defease, repurchase or prepay any
Subordinated Debt or any Senior Notes; and provided, further, that Letters of
Credit shall only be used to secure or support obligations (other than for the
deferred purchase price of property) entered into in the ordinary course of
business of the Borrower and its Subsidiaries. Upon receipt of an Issuance
Request, the Agent shall promptly notify the Revolving Lenders thereof. Each
Letter of Credit shall by its terms:

                  (a) be issued in a Stated Amount which

                           (i)      is at least the Equivalent Amount of
                  $500,000 or such lesser amount as may be agreed by the Agent;

                           (ii)     does not exceed (or would not exceed) the
                  then Revolving Commitment Availability;

                  (b) be stated to expire on a date (its "Stated Expiry Date")
         no later than the earlier of (i) one year from its date of issuance and
         (ii) five days prior to the Stated Maturity Date for Revolving Loans;
         provided, however, that a Letter of Credit may provide that if it is
         not renewed prior to its Stated Expiry Date, it may be drawn by the
         beneficiary thereof; and

                  (c) on or prior to its Stated Expiry Date

                           (i)      terminate immediately upon notice to the
                  Issuer thereof from the beneficiary thereunder that all
                  obligations covered thereby have been terminated, paid, or
                  otherwise satisfied in full and surrender by the beneficiary
                  of the Letter of Credit to such Issuer, and

                           (ii)     reduce in part immediately and to the extent
                  the beneficiary thereunder has notified the Issuer thereof
                  that the obligations covered thereby have been paid or
                  otherwise satisfied in part and that the Letter of Credit may
                  be reduced.

         SECTION 4.2. Issuances and Extensions. On the terms and subject to the
conditions of this Agreement (including Article VI), the Issuer to whom notice
was given under Section 4.1 shall issue Letters of Credit, in accordance with
the Issuance Requests made therefor. Such Issuer will make available the
original of each Letter of Credit which it issues in accordance with the
Issuance Request therefor to the beneficiary thereof (and will notify the Agent
of any issuance or amendment and such notice will be accompanied by a copy of
each Letter of Credit issued and any amendment thereto) and will notify the
beneficiary under any Letter of Credit of

                                       43



any extension of the Stated Expiry Date thereof. The Agent will promptly notify
the Revolving Lenders of issuances and amendments and, if requested in writing
by a Revolving Lender, will provide copies of issuances and amendments to such
requesting Revolving Lender.

         SECTION 4.3. Expenses. The Borrower agrees to pay to the Agent for the
account of each Issuer the standard charges of such Issuer in connection with
the issuance, maintenance, modification (if any) and administration of each
Letter of Credit issued by such Issuer upon demand from time to time.

         SECTION 4.4. Other Revolving Lenders' Participation. Each Letter of
Credit issued pursuant to Section 4.2 shall, effective upon its issuance and
without further action, be issued on behalf of all Revolving Lenders (including
the Issuer thereof) pro rata according to their respective Revolving
Percentages. Each Revolving Lender shall, to the extent of its Revolving
Percentage, be deemed irrevocably to have participated in the issuance of such
Letter of Credit and shall be responsible to pay promptly to the Issuer thereof
such Lender's Revolving Percentage of any unreimbursed drawings under a Letter
of Credit which have not been reimbursed by the Borrower in accordance with
Section 4.5, or which have been reimbursed by the Borrower but must be returned,
restored or disgorged by the Issuer thereof for any reason, and each Revolving
Lender shall, to the extent of its Revolving Percentage, be entitled to receive
from the Agent a ratable portion of the letter of credit fees received by the
Agent pursuant to Section 3.3.3, with respect to each Letter of Credit. Each
Revolving Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this Section 4.4 in respect of Letters of Credit
issued or amended while such Revolving Lender remains a party to this Agreement
is absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment of any Letter of Credit or the occurrence
and continuation of a Default or Event of Default or reduction or termination of
the Revolving Loan Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever. In the event that
the Borrower shall fail to reimburse the Issuer thereof, or if for any reason
Revolving Loans shall not be made to fund any Reimbursement Obligation, all as
provided in Section 4.5 and Section 4.6 and in an amount equal to the amount of
any drawing honored by such Issuer under a Letter of Credit issued by it, or in
the event such Issuer must for any reason return or disgorge such reimbursement,
such Issuer shall promptly notify each Revolving Lender of the unreimbursed
amount of such drawing and of such Revolving Lender's respective participation
therein. Each Revolving Lender shall make available to such Issuer, whether or
not any Default shall have occurred and be continuing, an amount equal to its
respective participation in same day or immediately available funds at the
office of such Issuer specified in such notice not later than 2:00 p.m., New
York time, on the Business Day (under the laws of the jurisdiction of such
Issuer) after the date notified by such Issuer. In the event that any Revolving
Lender fails to make available to an Issuer the amount of such Revolving
Lender's participation in such Letter of Credit as provided herein, such Issuer
shall be entitled to recover such amount on demand from such Revolving Lender
together with interest at the daily average Federal Funds Rate for three
Business Days and thereafter at the Alternate Base Rate plus 2%. Nothing in this
Section shall be deemed to prejudice the right of any Revolving Lender to
recover from any Issuer any amounts made available by such Revolving Lender to
an Issuer pursuant to this Section in the event that it is determined by a court
of competent jurisdiction that the payment with respect to a Letter of Credit by
the Issuer thereof in respect of which payment was made by such Revolving Lender
constituted gross

                                       44



negligence or willful misconduct on the part of such Issuer. Each Issuer shall
distribute to each Revolving Lender which has paid all amounts payable by it
under this Section with respect to any Letter of Credit issued by such Issuer
such Lender's Revolving Percentage of all payments received by such Issuer from
the Borrower in reimbursement of drawings honored by such Issuer under such
Letter of Credit when such payments are received.

         SECTION 4.5. Disbursements. Each Issuer will notify the Borrower and
the Agent promptly of the presentment for payment of any Letter of Credit issued
by it, together with notice of the date (a "Disbursement Date") such payment
shall be made (each such payment, a "Disbursement"). Unless otherwise agreed by
the applicable Issuer and the Borrower, drawings under any Letter of Credit
issued under Section 4.1 shall be made on sight. Subject to the terms and
provisions of such Letter of Credit, each Issuer shall make such payment to the
beneficiary (or its designee) of such Letter of Credit. Prior to 2:00 p.m., New
York time, on the Disbursement Date, the Borrower will reimburse each Issuer for
all amounts in the currency which it has disbursed under the Letter of Credit or
will notify such Issuer that it elects to make such reimbursement by requesting
the Revolving Lenders to make a Revolving Loan in the Equivalent Amount of such
required reimbursement. If Borrower elects to make such reimbursement by
requesting a Revolving Loan in such amount and the conditions precedent in
Article VI shall have been satisfied, the Revolving Lenders shall fund such
Reimbursement Obligation by making Base Rate Loans in the appropriate Equivalent
Amounts in accordance with Section 2.3. To the extent an Issuer is not
reimbursed in full on the date payment is made under a Letter of Credit, the
Borrower's Reimbursement Obligation shall accrue interest at the Alternate Base
Rate plus the Applicable Base Rate Margin for two Business Days and thereafter
at the Post-Maturity Rate described in Section 3.2.2, payable on demand, until
reimbursed in full. In the event an Issuer is not reimbursed by the Borrower on
any Disbursement Date, or if an Issuer must for any reason return or disgorge
such reimbursement, the Revolving Lenders (including such Issuer) shall fund the
Reimbursement Obligation therefor by making, on the next Business Day, Loans
(or, if the Revolving Loan Commitments shall no longer then be in effect,
advances ("L/C Advances") that are payable on demand and have the same
characteristics as Loans and which shall be Obligations hereunder) in the
appropriate Equivalent Amounts which are Base Rate Revolving Loans (or L/C
Advances bearing interest by reference to the Base Rate) (except that such
Revolving Loans or L/C Advances shall be made upon demand by the Agent rather
than upon notice by the Borrower and shall be made, notwithstanding anything in
this Agreement to the contrary, without regard to the satisfaction of the
conditions precedent to the making of Revolving Loans set forth in Article VI of
this Agreement and notwithstanding any termination of the Commitments). Each
Revolving Lender's obligation to make Revolving Loans or L/C Advances in the
amount of its Revolving Percentage of any unreimbursed amounts outstanding under
a Letter of Credit pursuant hereto is several, and not joint or joint and
several. Except as specifically noted herein, all terms and provisions that are
applicable to Revolving Loans under this Agreement shall be equally applicable
to L/C Advances. For example, and without limitation, the provisions of Sections
3.1.1(c), 3.2.2, 3.2.3, 5.5, 5.6, 5.8, 5.9, 7.13, 8.2.10(c), 9.1.1, 10.5,
11.1(c), 11.4(a) and 11.11 shall equally apply to L/C Advances as well as Loans.

         SECTION 4.6. Reimbursement. The Borrower's obligation (a "Reimbursement
Obligation") under Section 4.5 to reimburse an Issuer with respect to each
disbursement (including interest thereon), and each Revolving Lender's
obligation to make participation

                                       45



payments in each drawing which has not been reimbursed by the Borrower, shall be
absolute and unconditional under any and all circumstances and irrespective of
any setoff, counterclaim, or defense to payment which the Borrower may have or
have had against any Revolving Lender or any beneficiary of a Letter of Credit,
including any defense based upon the occurrence of any Default, any draft,
demand or certificate or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient, the failure of any
disbursement to conform to the terms of the applicable Letter of Credit (if, in
such Issuer's good faith opinion, such disbursement is determined to be
appropriate) or any non-application or misapplication by the beneficiary of the
proceeds of such disbursement, or the legality, validity, form, regularity, or
enforceability of such Letter of Credit; provided, however, that nothing herein
shall adversely affect the right of the Borrower to commence any proceeding
against an Issuer for any wrongful disbursement made by such Issuer under a
Letter of Credit as a result of acts or omissions constituting gross negligence
or willful misconduct on the part of such Issuer.

         SECTION 4.7. Cash Collateral. In the circumstances set forth in Section
2.2.2(b) or 3.1.1, or upon the occurrence and during the continuation of any
Event of Default described in Section 9.1.9, or, at the election of the Agent
acting on instructions from the Required Revolving Lenders, upon notice to the
Borrower after the occurrence and during the continuation of any other Event of
Default, an amount equal to that portion of Letter of Credit Outstandings
attributable to outstanding and undrawn Letters of Credit (or a lesser amount,
if applicable, required pursuant to Section 2.2.2(b)) shall be deemed to have
been paid or disbursed by the Issuers under the Letters of Credit
(notwithstanding that such amount may not in fact have been paid or disbursed),
and, upon notification by the Issuers to the Agent and the Borrower of its
obligations under this Section, the Borrower shall be immediately obligated to
reimburse the Agent the amount deemed to have been so paid or disbursed by the
Issuers. Any amounts so received by the Agent from the Borrower pursuant to this
Section shall be held as collateral security for the repayment of the Borrower's
obligations in connection with the Letters of Credit. At any time when such a
Letter of Credit shall terminate and all L/C Advances and Obligations of the
Borrower to the Issuers in respect of such Letter of Credit are either
terminated or paid or reimbursed to the Revolving Lenders and the Issuers in
full, the Obligations of the Borrower under this Section with respect to such
Letter of Credit shall also terminate (subject, however, to reinstatement in the
event any payment in respect of such Letter of Credit is recovered in any manner
from any Issuer or Revolving Lender), and the Agent will return to the Borrower
the aggregate amount deposited by the Borrower with the Agent in respect of such
Letter of Credit and not theretofore applied by the Agent to any Reimbursement
Obligation.

         At such time when all Events of Default shall have been cured or
waived, the Agent shall return to the Borrower all amounts then on deposit with
it pursuant to this Section. All amounts on deposit pursuant to this Section
shall, until their application to any Reimbursement Obligation or their return
to the Borrower, as the case may be, bear interest at the daily average Federal
Funds Rate from time to time in effect (net of the costs of any reserve
requirements, in respect of amounts on deposit pursuant to this Section,
pursuant to F.R.S. Board Regulation D), which interest shall be held by the
Agent as additional collateral security for the repayment of the Borrower's
Obligations in connection with the Letters of Credit issued by the Issuers.

         SECTION 4.8. Nature of Reimbursement Obligations. The Borrower shall
assume all risks of the acts, omissions, or misuse of any Letter of Credit by
the beneficiary thereof. Neither

                                       46



any Issuer (except to the extent of its own gross negligence or willful
misconduct) nor any Revolving Lender shall be responsible for:

                  (a) the form, validity, sufficiency, accuracy, genuineness, or
         legal effect of any document submitted by any party in connection with
         the application for and issuance of a Letter of Credit, even if it
         should in fact prove to be in any or all respects invalid,
         insufficient, inaccurate, fraudulent, or forged;

                  (b) the form, validity, sufficiency, accuracy, genuineness, or
         legal effect of any instrument transferring or assigning or purporting
         to transfer or assign a Letter of Credit or the rights or benefits
         thereunder or proceeds thereof in whole or in part, which may prove to
         be invalid or ineffective for any reason;

                  (c) failure of the beneficiary to comply fully with conditions
         required in order to demand payment under a Letter of Credit;

                  (d) errors, omissions, interruptions, or delays in
         transmission or delivery of any messages, by mail, cable, telegraph,
         telex, or otherwise;

                  (e) any error, omission, interruption, loss or delay in the
         transmission or delivery of any draft, notice or other communication
         under or relating to any Letter of Credit (including any document
         required in order to make a Disbursement thereunder) or of the proceeds
         thereof;

                  (f) any error in interpretation of technical terms;

                  (g) the performance of any transaction which underlies any
         Letter of Credit;

                  (h) any act or omission of any Person other than the Issuer
         and the Revolving Lenders;

                  (i) loss or destruction of any draft, demand, or document in
         transit or in the possession of others;

                  (j) lack of knowledge of any particular trade usage (other
         than standard United States and Western European banking usage as used
         in the normal course of business); or

                  (k) any consequence arising from causes beyond the control of
         the Issuer and the Revolving Lenders.

None of the foregoing shall affect, impair, or prevent the vesting of any of the
rights or powers granted any Issuer or any Revolving Lender hereunder. In
furtherance and extension, and not in limitation or derogation, of any of the
foregoing, any action taken or omitted to be taken by an Issuer in good faith
and which is not grossly negligent shall be binding upon the Borrower and shall
not put such Issuer under any resulting liability to the Borrower; provided,
however, that nothing herein shall relieve any Issuer, the Agent or any
Revolving Lender for any liability for its gross negligence or willful
misconduct.

                                       47



         SECTION 4.9. Increased Costs; Indemnity. If by reason of

                  (a) any change after the Closing Date in applicable law,
         regulation, rule, decree or regulatory requirement or any change after
         the Closing Date in the interpretation or application by any judicial
         or regulatory authority of any law, regulation, rule, decree or
         regulatory requirement, or

                  (b) compliance by any Issuer or any Revolving Lender with any
         new or modified (after the Closing Date) direction, request or
         requirement (whether or not having the force of law) of any
         governmental or monetary authority, including Regulation D of the
         F.R.S. Board:

                           (i)      any Issuer or any Revolving Lender shall be
                  subject to any tax (other than franchise taxes or taxes
                  measured by net income or receipts), levy, charge or
                  withholding of any nature or to any variation thereof or to
                  any penalty with respect to the maintenance or fulfillment of
                  its obligations under this Article IV, whether directly or by
                  such being imposed on or suffered by any Issuer or any
                  Revolving Lender;

                           (ii)     any reserve, deposit or similar requirement
                  is or shall be applicable, imposed or modified in respect of
                  any Letters of Credit issued by any Issuer or participations
                  therein purchased by any Revolving Lender; or

                           (iii)    there shall be imposed on any Issuer or any
                  Revolving Lender any other condition regarding this Article
                  IV, any Letter of Credit or any participation therein;

and the result of the foregoing is directly or indirectly to increase the cost
to an Issuer or such Revolving Lender of issuing, making or maintaining any
Letter of Credit or of purchasing or maintaining any participation therein, or
to reduce any amount receivable in respect thereof by such Issuer or such
Revolving Lender, then and in any such case such Issuer or such Revolving Lender
may, at any time after the additional cost is incurred or the amount received is
reduced, notify the Borrower thereof and provide Borrower with data and
calculations supporting such costs, and the Borrower shall pay such amounts as
such Issuer or Revolving Lender may specify to be necessary to compensate such
Issuer or Revolving Lender for such additional cost or reduced receipt within
ten (10) Business Days after receiving such notice, together with interest on
such amount from the date of receipt of such notice until payment in full
thereof at a rate equal at all times to the Alternate Base Rate plus the
Applicable Margin; provided, however, that Section 5.6, rather than this Section
4.9 shall govern Borrower's obligations with respect to Taxes relating to
payments by the Borrower described in the first sentence of Section 5.6(a). The
good faith determination by an Issuer or Revolving Lender, as the case may be,
of any amount due pursuant to this Section 4.9, as set forth in a statement
setting forth the calculation thereof in reasonable detail, shall, in the
absence of manifest error, be final and conclusive and binding on all of the
parties hereto. In addition to amounts payable as elsewhere provided in this
Article IV, the Borrower hereby agrees to protect, indemnify, pay and save the
Issuers and the Revolving Lenders harmless from and against any and all claims,
demands, liabilities, damages, losses,

                                       48



costs, charges and expenses (including reasonable attorneys' fees) which any
Issuer or any Revolving Lender may incur or be subject to as a consequence,
direct or indirect, of

                  (x) the issuance of the Letters of Credit, other than as a
         result of the gross negligence or willful misconduct of an Issuer as
         determined by a court of competent jurisdiction, or

                  (y) the failure of an Issuer to honor a drawing under any
         Letter of Credit as a result of any act or omission, whether rightful
         or wrongful, of any present or future de jure or de facto government or
         governmental authority.

         SECTION 4.10. Existing Letters of Credit. On the Closing Date, the
Existing Letters of Credit shall continue to be deemed for all purposes to be
Letters of Credit outstanding under this Agreement and entitled to the benefits
of this Agreement and the other Loan Documents, and shall be governed by the
applications and agreements pertaining thereto and by this Agreement. Each
Revolving Lender shall be deemed to, and hereby irrevocably and unconditionally
agrees to, purchase from the Issuers on the Closing Date a participation in each
such Letter of Credit and each drawing thereunder in an amount equal to the
product of (i) such Lender's Revolving Percentage times (ii) the maximum amount
available to be drawn under such Letter of Credit and the amount of such
drawing, respectively. For purposes of Section 2.1.2, the Existing Letters of
Credit shall be deemed to utilize pro rata the Revolving Loan Commitment of each
Revolving Lender.

         SECTION 4.11. Equivalent Amount Determinations. For purposes of
determining the amount of Foreign Currency Letter of Credit Outstandings and for
purposes of calculating fees payable under Section 3.3.3 with respect to Foreign
Currency Letter of Credit Outstandings, the principal amount of such Foreign
Currency Letter of Credit Outstandings shall be deemed to be, as of any date of
determination, the Equivalent Amount thereof at such date. The initial
Equivalent Amount of any Foreign Currency Letter of Credit shall be determined
by the Issuer of such Letter of Credit and notified by such Issuer in writing to
the Agent and the Borrower on the date of issuance thereof. If a Disbursement is
made by an Issuer under any Foreign Currency Letter of Credit, the Equivalent
Amount of such Disbursement shall be determined by the relevant Issuer on the
Disbursement Date related thereto, and such Issuer shall notify the Agent and
the Borrower promptly of such Equivalent Amount.

         SECTION 4.12. Currency Fluctuations, etc. Not later than 12:00 p.m.,
New York time, on each Quarterly Payment Date and on each other date specified
by the Agent (each, an "Equivalent Amount Determination Date"), each Issuer
shall determine the Equivalent Amount as of such Equivalent Amount Determination
Date with respect to each Foreign Currency for which there are at such time
outstanding Foreign Currency Letters of Credit issued by such Issuer or in
respect thereof (after giving effect to any Loans to be made or repaid or
Letters of Credit to be issued or Reimbursement Obligations to be repaid on such
date). Each Issuer shall notify the Borrower, the Revolving Lenders and the
Agent of such Equivalent Amount. The Equivalent Amount so determined shall
become effective on the first Business Day immediately following the relevant
Equivalent Amount Determination Date (each, a "Reset Date") and shall remain
effective until the next succeeding Reset Date.

                                       49



                                   ARTICLE V

                     CERTAIN LIBO RATE AND OTHER PROVISIONS

         SECTION 5.1. LIBO Rate Lending Unlawful. If any Lender shall determine
in good faith (which good faith determination shall, upon notice thereof to the
Borrower and the Lenders, be conclusive and binding on the Borrower) that the
introduction of or any change in or in the interpretation of any law makes it
unlawful, or any central bank or other governmental authority asserts that it is
unlawful, for such Lender to make, continue or maintain any Loan as, or to
convert any Loan into, a LIBO Rate Loan, the obligations of all Lenders to make,
continue, maintain or convert into any such Loans shall, upon such
determination, forthwith be suspended until such Lender shall notify the Agent
that the circumstances causing such suspension no longer exist, and all LIBO
Rate Loans of such type shall automatically convert into Base Rate Loans at the
end of the then current Interest Periods with respect thereto or sooner, if
required by such law or assertion. Until such time as such Lender's obligation
to make, continue and maintain LIBO Rate Loans is reinstated, the Borrower shall
have the right (with the prior written consent of the Agent, which consent shall
not be unreasonably withheld) to replace such affected Lender by obtaining
another financial institution that is willing to purchase such affected Lender's
interest herein for the full amount of any outstanding Loans, Reimbursement
Obligations and other amounts owed hereunder (including principal, accrued
interest, breakage costs and any other unreimbursed costs and expenses owed to
such Lender), to assume such affected Lender's obligations under this Agreement
and to become a Lender hereunder. In such event, the affected Lender shall, upon
ten (10) Business Days notice from Borrower, assign one hundred percent (100%)
of its interest hereunder to such replacement lender for the price described in
the previous sentence.

         SECTION 5.2. Deposits Unavailable. If the Agent shall have determined
that

                  (a) Dollar deposits in the relevant amount and for the
         relevant Interest Period are not available to the Agent or any Lender
         in its relevant market; or

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

then, upon notice from the Agent to the Borrower and the Lenders, the
obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue
any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be
suspended (at the end of the applicable Interest Period, in the case of
outstanding LIBO Rate Loans) until the Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist.

         SECTION 5.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees
to reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, LIBO Rate Loans as a result in any change after the Closing Date, in
applicable law, regulation, rule, decree or regulatory requirement or in the
interpretation or

                                       50



application by any judicial or regulatory authority of any law, regulation,
rule, decree or regulatory requirement. Such Lender shall promptly notify the
Agent and the Borrower in writing of the occurrence of any such event, such
notice to state, in reasonable detail, the reasons therefor and the additional
amount required fully to compensate such Lender for such increased cost or
reduced amount. Such additional amounts shall be payable by the Borrower
directly to such Lender within five Business Days of its receipt of such notice,
and such notice shall, in the absence of manifest error and if given in good
faith, be conclusive and binding on the Borrower. If such increased costs do not
affect all of the Lenders, the Borrower shall have the right (with the prior
written consent of the Agent, which consent shall not be unreasonably withheld)
to replace the affected Lender by obtaining another financial institution that
is willing to purchase such affected Lender's interest herein for the full
amount of any outstanding Loans and Reimbursement Obligations (principal and
accrued interest), to assume such affected Lender's obligations under this
Agreement and to become a Lender hereunder. In such event, the affected Lender
shall, upon five (5) Business Days notice from Borrower, assign one hundred
percent (100%) of its interests hereunder to such replacement lender for the
price described in the previous sentence and thereafter such Lender shall have
no further obligations hereunder.

         SECTION 5.4. Funding Losses. In the event any Lender shall incur any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any Loan
as, or to convert any portion of the principal amount of any Loan into, a LIBO
Rate Loan) as a result of

                  (a) any conversion or repayment or prepayment of the principal
         amount of any LIBO Rate Loans on a date other than the scheduled last
         day of the Interest Period applicable thereto;

                  (b) any Loans not being made as LIBO Rate Loans in accordance
         with the Borrowing Request therefor other than as a result of any act
         or omission by such Lender;

                  (c) any Loans not being continued as, or converted into, LIBO
         Rate Loans in accordance with the Continuation/ Conversion Notice
         therefor other than as a result of any act or omission by such Lender;
         or

                  (d) any LIBO Rate Loan not being prepaid in accordance with a
         notice of prepayment,

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

         SECTION 5.5. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank,

                                       51



regulator or other governmental authority causes the amount of capital required
or expected to be maintained by any Lender or any Person controlling such Lender
attributable to or based upon the Loans, the Letters of Credit or Commitments
hereunder to be increased, and such Lender determines (in its reasonable
discretion) that the rate of return on its or such controlling Person's capital
as a consequence of its Commitments, issuance of or participation in Letters of
Credit or the Loans made by such Lender is reduced to a level below that which
such Lender or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by such Lender to the Borrower, the Borrower shall immediately pay
directly to such Lender additional amounts sufficient to compensate such Lender
or such controlling Person for such reduction in rate of return. A statement of
such Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error and if
made in good faith, be conclusive and binding on the Borrower. In determining
such amount, such Lender may use any method of averaging and attribution that it
(in its good faith discretion) shall deem applicable.

         SECTION 5.6. Taxes. (a) Subject to each Lender's compliance with this
Section 5.6, all payments by the Borrower of principal of, and interest on, the
Loans and all other amounts payable hereunder shall be made free and clear of
and without deduction for any present or future income, excise, stamp or
franchise taxes and other taxes, fees, duties, withholdings or other charges of
any nature whatsoever imposed by any taxing authority, but excluding franchise
taxes and taxes imposed on or measured by any Lender's net income or receipts
(such non-excluded items being called "Taxes"). In the event that any
withholding or deduction from any payment to be made by the Borrower hereunder
is required in respect of any Taxes pursuant to any applicable law, rule or
regulation, then the Borrower will

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

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

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

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

                  If the Borrower fails to pay any Taxes when due to the
         appropriate taxing authority or fails to remit to the Agent, for the
         account of the respective Lenders, the

                                       52



         required receipts or other required documentary evidence, the Borrower
         shall indemnify the Lenders for any incremental Taxes, interest or
         penalties that may become payable by any Lender as a result of any such
         failure. For purposes of this Section 5.6, a distribution hereunder by
         the Agent or any Lender to or for the account of any Lender shall be
         deemed a payment by the Borrower.

                  (b) Upon the request of the Borrower or the Agent, each Lender
         (including, any participant or Assignee Lender) that is (a) organized
         under the laws of the United States or a state thereof shall execute
         and deliver to the Borrower and the Agent one or more (as the Borrower
         or the Agent may reasonably request) appropriately completed United
         States Internal Revenue Service Forms W-9 (or any successor forms or
         documents) and (b) organized under the laws of a jurisdiction other
         than the United States shall, prior to the due date of and as a
         condition to any payments hereunder or under the Notes, execute and
         deliver to the Borrower and the Agent one or more (as the Borrower or
         the Agent may reasonably request) United States Internal Revenue
         Service Forms W-8ECI or Forms W-8BEN or such other forms or documents
         (or successor forms or documents), appropriately completed, as may be
         applicable to establish that such Lender (or participant or Assignee
         Lender) is entitled to receive payments under this Agreement without
         deduction or withholding of any United States federal income taxes.

                  The Borrower shall not be required to pay any additional
         amounts to any Lender (or participant or Assignee Lender) in respect of
         Taxes pursuant to this Section 5.6 if the obligation to pay such
         additional amounts would not have arisen but for a failure by such
         Lender (or participant or Assignee Lender) to comply with the
         provisions of this Section 5.6 unless such failure results from (a) a
         change in applicable treaty, law or regulation or interpretation
         thereof or (b) an amendment, modification or revocation of any
         applicable tax treaty or a change in official position regarding the
         application or interpretation thereof, in each case after the date such
         Lender (or participant or Assignee Lender) becomes a party to this
         Agreement.

         SECTION 5.7. Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement, the Notes or
any other Loan Document shall be made by the Borrower to the Agent for the pro
rata account of the Lenders entitled to receive such payment. All such payments
required to be made to the Agent shall be made, without setoff, deduction or
counterclaim, not later than 11:00 a.m., San Francisco time, on the date due, in
same day or immediately available funds, to such account as the Agent shall
specify from time to time by notice to the Borrower. Funds received after that
time shall be deemed to have been received by the Agent on the next succeeding
Business Day. The Agent shall promptly remit in same day funds to each Lender
its share, if any, of such payments received by the Agent for the account of
such Lender. All interest and fees shall be computed on the basis of the actual
number of days (including the first day but excluding the last day) occurring
during the period for which such interest or fee is payable over a year
comprised of 360 days (or, in the case of interest on a Base Rate Loan (other
than when calculated with respect to the Federal Funds Rate), 365 days or, if
appropriate, 366 days). Whenever any payment to be made shall otherwise be due
on a day which is not a Business Day, such payment shall (except as otherwise
required by clause (c) of the definition of the term "Interest Period" with
respect to LIBO Rate Loans) be

                                       53



made on the next succeeding Business Day and such extension of time shall be
included in computing interest and fees, if any, in connection with such
payment.

         SECTION 5.8. Sharing of Payments. If any Lender shall obtain any
payment or other recovery as a result of its receipt of any collateral or
otherwise (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan (other than pursuant to the terms of Sections
5.3, 5.4 and 5.5) or Letter of Credit in excess of its pro rata share of
payments then or therewith obtained by all Lenders, such Lender shall purchase
from the other Lenders such participations in Loans made by them and/or Letters
of Credit as shall be necessary to cause such purchasing Lender to share the
excess payment or other recovery ratably with each of them; provided, however,
that if all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing Lender, the purchase shall be rescinded and each
Lender which has sold a participation to the purchasing Lender shall repay to
the purchasing Lender the purchase price to the ratable extent of such recovery
together with an amount equal to such selling Lender's ratable share (according
to the proportion of (a) the amount of such selling Lender's required repayment
to the purchasing Lender to (b) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section may, to the fullest extent permitted by law, exercise
all its rights of payment (including pursuant to Section 5.9) with respect to
such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured claim
in lieu of a setoff to which this Section applies, such Lender shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this Section to
share in the benefits of any recovery on such secured claim.

         SECTION 5.9. Use of Proceeds. The Borrower shall apply the proceeds of
each Borrowing of Revolving Loans to the general corporate purposes of the
Borrower and its Subsidiaries, including Capital Expenditures; Letters of Credit
shall be used for general corporate purposes of the Borrower and its
Subsidiaries (including credit support by the Borrower for gas and power
contracts for CES, Calpine Energy Services Canada Partnership and Calpine Energy
Services UK Limited). The Borrower shall apply the proceeds of the Term B Loans
and of the 2003 Senior Notes and the Second Priority B Loans (a) to repay all
amounts owing under the 2000 Credit Agreement and, except to the extent
continued hereunder, the 2002 Credit Agreement and (b) after application as set
forth in clause (a) above, to general corporate purposes. Without limiting the
foregoing, no Letter of Credit or proceeds of any Loan will be used to (i)
acquire any equity security of a class which is registered pursuant to Section
12 of the Securities Exchange Act of 1934 or any "margin stock", as defined in
F.R.S. Board Regulation U, (ii) finance acquisitions (other than the acquisition
of equipment, sites and property in the ordinary course of the Borrower and its
Subsidiaries' business, but in no event may Loans or Letters of Credit be used
to finance acquisitions of power projects, reserves of geothermal steam and
fluids and natural gas reserves), (iii) make Investments in any third parties
(other than Investments in Subsidiaries), directly or indirectly, through the
Borrower or any of its Subsidiaries or Affiliates, or (iv) defease, repurchase
or prepay any Subordinated Debt or any Senior Notes.

                                       54



                                   ARTICLE VI

                              CONDITIONS PRECEDENT

         SECTION 6.1. Effectiveness; Initial Credit Extension. The effectiveness
of this Agreement and the obligation of each Lender to make its initial Credit
Extension shall be subject to the prior or concurrent satisfaction of each of
the conditions precedent set forth in this Section 6.1.

         SECTION 6.1.1. Credit Agreement; Other Loan Documents. The Agent shall
have received, on or before the Closing Date, (i) this Agreement, executed and
delivered by the Agent, the Borrower and each of the Lenders, (ii) the Security
Agreement, executed and delivered by the Borrower, QM, JOQ and QCH in favor of
the Collateral Trustee (for the benefit of, among others, the Lenders), (iii)
the Collateral Trust Agreement, executed and delivered by the Agent, the
Collateral Trustee and the Trustee under the 2003 Senior Note Indenture, (iv)
the Deeds of Trust, executed and delivered by the Borrower to the Collateral
Trustee (for the benefit of, among others, the Lenders), together with any
additional supporting documentation as shall be reasonably requested by the
Agent, including (w) title and security title opinions from title examiners, and
in form and substance, reasonably acceptable to the Agent, confirming the
Borrower's ownership of, and the first perfected lien and security interest of
the Collateral Trustee in, Domestic Gas Reserves having an aggregate value of
not less than ninety percent (90%) of all proven reserves shown in the report
from Netherland, Sewell & Associates, Inc. entitled "Estimate of Reserves and
Future Revenue to the Calpine Corporation Interest in Certain Oil and Gas
Properties located in the United States as of December 31, 2002", a copy of
which shall be delivered to the Agent; (x) a certificate from the Borrower's
insurance advisor as to the sufficiency of the Borrower's insurance program and
compliance with the insurance requirements of the Loan Documents, (y) the
Hazardous Materials Indemnity, executed and delivered by the Borrower, and (z)
copies of all consents and approvals required in connection with the execution
and delivery by the Borrower of the Deeds of Trust, (v) the Stock Pledge
Agreement, executed and delivered by the Borrower in favor of the Collateral
Trustee (for the benefit of, among others, the Lenders), (vi) the Gilroy
Assignment Agreement, executed and delivered by the Borrower in favor of the
Collateral Trustee (for the benefit of, among others, the Lenders), (vii) the
LLC Pledge Agreement, executed and delivered by the Borrower in favor of the
Collateral Trustee (for the benefit of, among others, the Lenders), (viii) the
Note Pledge Agreement, executed and delivered by the Borrower in favor of the
Collateral Trustee (for the benefit of, among others, the Lenders), and (ix) the
Canadian Stock Pledge Agreement, executed and delivered by QM, JOQ and QCH in
favor of the Collateral Trustee (for the benefit of, among others, the Lenders).
The Collateral Trustee shall be in possession of (a) all share certificates
subject to the Security Documents together with undated stock powers duly
executed in blank and (b) all promissory notes subject to the Security Documents
together with all necessary instruments of transfer or assignment duly executed
in blank.

         SECTION 6.1.2. Resolutions, etc. The Agent shall have received from
each Obligor a certificate, dated the Closing Date, of its Secretary or
Assistant Secretary, as to

                                       55



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

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

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

         SECTION 6.1.3. Delivery of Notes. The Agent shall have received (i) for
the account of each Revolving Lender requesting same, its Revolving Note duly
executed and delivered by the Borrower and (ii) for the account of each Term B
Lender requesting same, its Term Note duly executed and delivered by the
Borrower.

         SECTION 6.1.4. Lien Searches. The Agent shall have received the results
of a recent lien search in the jurisdictions of incorporation of the Borrower
and the Guarantors and where the Borrower's and the Guarantors' chief executive
offices are located, and such search shall reveal no liens on any of the assets
of the Borrower or the Guarantors except for liens permitted by Section 8.2.3 or
discharged on or prior to the Closing Date pursuant to documentation
satisfactory to the Agent.

         SECTION 6.1.5. Compliance Certificate. The Agent shall have received a
certificate, executed by an Authorized Officer of the Borrower, showing
compliance with the financial covenants in Sections 6.2.4 and 8.2.4 as of
December 31, 2002.

         SECTION 6.1.6. Fee Letters. The Agent shall have received the Fee
Letters duly executed by all parties thereto.

         SECTION 6.1.7. Opinions of Counsel. The Agent shall have received
opinions, dated the date of the Closing Date and addressed to the Agent and all
Lenders, from

                  (a) Lisa Bodensteiner, Esq., general counsel of the Borrower,
         and Covington & Burling, special counsel to the Borrower, substantially
         in the forms of Exhibits F-1 and F-2, respectively; and

                  (b) Such other special and local counsel (including, without
         limitation, local counsel with respect to the Deeds of Trust) as may be
         required by the Agent, in each case in form and substance satisfactory
         to the Agent.

         SECTION 6.1.8. Closing Fees, Expenses, etc. The Agent shall have
received for its own account, or for the account of each Lender, as the case may
be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and
11.3, if then invoiced.

         SECTION 6.1.9. No Material Adverse Effect. No Material Adverse Effect
shall have occurred since December 31, 2002.

                                       56



         SECTION 6.1.10. Required Proceeds from Issuance of 2003 Senior Notes.
The Borrower shall have received at least $1,800,000,000 in aggregate gross cash
proceeds from the issuance of the 2003 Senior Notes and the Second Priority B
Loans.

         SECTION 6.1.11. Termination of Existing Facilities. The Agent shall
have received evidence satisfactory to it that (i) the 2000 Credit Agreement and
all commitments thereunder shall have been terminated and all amounts
outstanding thereunder shall have been paid in full and (ii) except to the
extent continued hereunder, all amounts outstanding under the 2002 Credit
Agreement shall have been paid in full, in each case with the proceeds of the
Term B Loans and of the 2003 Senior Notes and the Second Priority B Loans.

         SECTION 6.1.12. Projections. The Agent shall have received from the
Borrower a consolidated statement of projected cash flows (including sources and
uses of cash) for the Borrower and its Subsidiaries through the Stated Maturity
Date for Revolving Loans (the "Projected Cash Flow Statement"), certified by an
Authorized Officer of the Borrower.

         SECTION 6.1.13. Pledged Power Projects. The Agent shall have received
evidence satisfactory to it that ownership of the Pledged Power Projects has
been conveyed to the Borrower by merger or otherwise.

         SECTION 6.2. All Credit Extensions. The obligation of each Lender to
make any Credit Extension (including the initial Credit Extension) shall be
subject to the satisfaction of each of the conditions precedent set forth in
this Section 6.2.

         SECTION 6.2.1. Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Credit Extension (but, if any Default of the
nature referred to in Section 9.1.5 shall have occurred with respect to any
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds of any Borrowing) the following statements shall be
true and correct

                  (a) the representations and warranties set forth in Article
         VII (excluding, however, those contained in Section 7.7) and in each
         other Loan Document (excluding the representations and warranties set
         forth in the Deeds of Trust except to the extent that a breach thereof
         would reasonably be expected to cause a Material Adverse Effect) shall
         be true and correct in all material respects with the same effect as if
         then made (unless stated to relate solely to an earlier date, in which
         case such representations and warranties shall be true and correct as
         of such earlier date);

                  (b) except as disclosed by the Borrower to the Agent and the
         Lenders pursuant to Section 7.7

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

                                       57



                           (ii)     no development shall have occurred in any
                  labor controversy, litigation, arbitration or governmental
                  investigation or proceeding disclosed pursuant to Section 7.7
                  which might have a Material Adverse Effect; and

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

         SECTION 6.2.2. Credit Request. The Agent shall have received a
Borrowing Request or Issuance Request, as the case may be, for such Credit
Extension. Each of the delivery of a Borrowing Request or an Issuance Request
and the acceptance by the Borrower of the proceeds of the Borrowing or the
issuance of the Letter of Credit, as applicable, shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
(both immediately before and after giving effect to such Borrowing and the
application of the proceeds thereof) or the issuance of the Letter of Credit, as
applicable, the statements made in Section 6.2.1 are true and correct.

         SECTION 6.2.3. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries or any other Obligors shall be satisfactory in form and substance
to the Agent and its counsel; the Agent and its counsel shall have received all
information, approvals, opinions, documents or instruments as the Agent or its
counsel may reasonably request.

         SECTION 6.2.4. Interest Coverage Ratio (Parent Only). The Interest
Coverage Ratio (Parent Only), calculated as of the end of the most recently
ended Fiscal Quarter or, if the Interest Coverage Ratio (Parent Only) had
previously fallen below 1.70 to 1.00 and had not subsequently returned to 1.70
to 1.00 or better, calculated as of the end of the most recently ended calendar
month, shall be at least 1.70 to 1.00 for the previous 12 months.

         SECTION 6.2.5. Indentures. (a) The Borrower shall have certified to the
         Agent that its incurrence of the Indebtedness under such Borrowing is
         permitted under the terms of Section 3.4 of the Pre-2000 Indentures. To
         the extent that the Borrower is relying on clause (a) of Section 3.4 of
         the Pre-2000 Indentures, the Borrower shall have delivered to the Agent
         a certificate of an Authorized Officer of the Borrower demonstrating
         its compliance with the incurrence test set forth therein.

                  (b) The Borrower shall have certified to the Agent that the
         incurrence of Liens in respect of such Borrowing is permitted under the
         terms of Section 3.7 of the Pre-2000 Indentures and Section 3.4 of the
         Shelf Indenture; provided that the Borrower may not rely upon Section
         3.7(d) of the Pre-2000 Indentures in making such analysis and
         certification. To the extent the Borrower is relying on Section
         3.7(f)(1) of each of the Pre-2000 Indentures and on Section 3.4(a)(i)
         of the Shelf Indenture, the Borrower shall have delivered to the Agent
         a certificate of an Authorized Officer of the Borrower demonstrating
         its compliance with the provisions thereof. To the extent that the
         Borrower is relying on the proviso to Section 3.7 of each of the
         Pre-2000 Indentures and

                                       58



         the proviso to Section 3.4 of the Shelf Indenture, the Borrower shall
         have delivered to the Agent a certificate of an Authorized Officer of
         the Borrower demonstrating its compliance with the incurrence tests set
         forth therein.

         SECTION 6.2.6. Solvency. Both before and after giving effect to any
Borrowing of Loans or issuance of any Letter of Credit hereunder, the Borrower
and its Subsidiaries, on a consolidated basis, shall be Solvent.

                                  ARTICLE VII

                         REPRESENTATIONS AND WARRANTIES

         In order to induce the Lenders and the Agent to enter into this
Agreement and to make Loans or L/C Advances and issue Letters of Credit
hereunder, the Borrower represents and warrants unto the Agent and each Lender
as set forth in this Article VII.

         SECTION 7.1. Organization, etc. The Borrower and each of its
Significant Subsidiaries is a corporation, partnership, limited liability
company or similar entity validly organized and existing and in good standing
under the laws of the State of its organization, is duly qualified to do
business and is in good standing as a foreign organization in each jurisdiction
where the nature of its business requires such qualification and where the
failure to so qualify would have a material adverse effect on the Borrower's or
any Obligor's ability to perform its obligations under the Loan Documents to
which it is a party, and has full power and authority and holds all requisite
governmental licenses, permits and other approvals to enter into and perform its
Obligations under this Agreement, the Notes and each other Loan Document to
which it is a party and to own or hold under lease its property and to conduct
its business substantially as currently conducted by it.

         SECTION 7.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower of this Agreement, the Notes and each
other Loan Document executed or to be executed by it, and the execution,
delivery and performance by each other Obligor of each Loan Document executed or
to be executed by it are within the Borrower's and each such Obligor's corporate
powers, have been duly authorized by all necessary corporate action, and do not

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

                  (b) contravene any contractual restriction (including, without
         limitation, the Senior Note Indentures), law or governmental regulation
         or court decree or order binding on or affecting the Borrower or any
         such Obligor; or

                  (c) result in, or require the creation or imposition of, any
         Lien on any of the Borrower's or any other Obligor's properties.

         SECTION 7.3. Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Borrower or any other Obligor of this Agreement,
the Notes or any other Loan Document to which it is a party,

                                       59



other than any such authorization, approval, action, notice or filing that has
been obtained or made or, with respect to the Pledged Power Projects, will be
obtained or made within its required period of time or the failure to obtain or
make which would not have a Material Adverse Effect. Neither the Borrower nor
any of its Significant Subsidiaries is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.

         SECTION 7.4. Validity, etc. This Agreement constitutes, and the Notes
and each other Loan Document executed by the Borrower will, on the due execution
and delivery thereof, constitute, the legal, valid and binding obligations of
the Borrower enforceable in accordance with their respective terms except as
enforceability may be subject to or limited by (i) bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting the
rights of creditors or (ii) general principles of equity, including the possible
unavailability of specific performance or injunctive relief; and each Loan
Document executed pursuant hereto by each other Obligor will, on the due
execution and delivery thereof by such Obligor, be the legal, valid and binding
obligation of such Obligor enforceable in accordance with its terms except as
enforceability may be subject to or limited by (i) bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting the
rights of creditors or (ii) general principles of equity, including the possible
unavailability of specific performance or injunctive relief.

         SECTION 7.5. Financial Information. The balance sheets of the Borrower
and each of its Subsidiaries as at December 31, 2002 and the related statements
of earnings and cash flow of the Borrower and each of its Subsidiaries, copies
of which have been furnished to the Agent and each Lender, have been prepared in
accordance with GAAP consistently applied, and present fairly the consolidated
financial condition of the corporations covered thereby as at the date thereof
and the results of their operations for the period then ended.

         SECTION 7.6. No Material Adverse Effect. Since December 31, 2002, there
has been no Material Adverse Effect.

         SECTION 7.7. Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrower, threatened litigation, action, proceeding,
investigation, or labor controversy affecting the Borrower or any of its
Significant Subsidiaries, or any of their respective properties, businesses,
assets or revenues, which would reasonably be expected to have a Material
Adverse Effect or which purports to materially and adversely affect the
legality, validity or enforceability of this Agreement, the Notes or any other
Loan Document.

         SECTION 7.8. Subsidiaries. The Borrower has no Significant
Subsidiaries, except those Significant Subsidiaries

                  (a) which are identified in Item 7.8 ("Existing Significant
         Subsidiaries") of the Disclosure Schedule; or

                                       60



                  (b) which are permitted to have been acquired in accordance
         with Section 8.2.5 or 8.2.9.

         The organizational chart attached hereto as Schedule 1.1 accurately
reflects the ownership structures of the Borrower's equity interests in its
Foreign Subsidiaries as of the Closing Date.

         SECTION 7.9. Ownership of Properties. The Borrower and each of its
Significant Subsidiaries owns good and marketable title to all of its material
properties and assets, real and personal, tangible and intangible, of any nature
whatsoever (including patents, trademarks, trade names, service marks and
copyrights), free and clear of all Liens, charges or claims (including
infringement claims with respect to patents, trademarks, copyrights and the
like) except as permitted pursuant to Section 8.2.3. As of the Closing Date, the
Borrower owns all of the equity interests in CNGH, CNGH owns all of the equity
interests in Calpine Holdings, the Canadian Gas Reserves are owned by CCNGP,
substantially all of the Domestic Gas Reserves are owned by the Borrower and
Calpine Holdings directly owns all of the partnership interests of CCFCI, and
Saltend is indirectly owned by CCEC. All governmental filings necessary to
perfect and protect, and establish and, so long as continuation statements are
duly filed with the Secretary of State of the State of Delaware within the time
periods required under the Uniform Commercial Code, maintain the priority of,
the Liens created by the Security Documents have been duly effected or taken.

         SECTION 7.10. Taxes. The Borrower and each of its Significant
Subsidiaries has filed all tax returns and reports required by law to have been
filed by it and has paid all taxes and governmental charges thereby shown to be
owing, except any such taxes or charges which are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books.

         SECTION 7.11. Pension and Welfare Plans. No steps have been taken to
terminate any Pension Plan, and no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a Lien under Section
302(f) of ERISA. No condition exists or event or transaction has occurred with
respect to any Pension Plan which might result in the incurrence by the Borrower
or any member of the Controlled Group of any material liability, fine or
penalty. Neither the Borrower nor any member of the Controlled Group has any
contingent liability with respect to any post-retirement benefit under a Welfare
Plan, other than liability for continuation coverage described in Part 6 of
Title I of ERISA.

         SECTION 7.12. Environmental Warranties. Except as set forth in Item
7.12 of the Disclosure Schedule,

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

                  (b) There have been no past, and there are no pending or, to
         the Borrower's knowledge, threatened

                                       61



                           (i)      claims, complaints, notices or requests for
                  information received by the Borrower or any of its Significant
                  Subsidiaries with respect to any alleged violation of any
                  Environmental Law that, singly or in the aggregate, may
                  reasonably be expected to result in a Material Adverse Effect,
                  or

                           (ii)     complaints, notices or inquiries to the
                  Borrower or any of its Significant Subsidiaries regarding
                  potential liability under any Environmental Law that, singly
                  or in the aggregate, may reasonably be expected to result in a
                  Material Adverse Effect;

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

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

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

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

                  (g) Neither Borrower nor any Significant Subsidiary of the
         Borrower has directly transported or directly arranged for the
         transportation of any Hazardous Material to any location which is
         listed or proposed for listing on the National Priorities List pursuant
         to CERCLA, on the CERCLIS or on any similar state list or which is the
         subject of federal, state or local enforcement actions or other
         investigations which may lead to material claims against the Borrower
         or such Significant Subsidiary thereof for any remedial work, damage to
         natural resources or personal injury, including claims under CERCLA;

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

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

                                       62



         SECTION 7.13. Regulations U and X. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock, and no proceeds of any Loans will be used for a purpose which violates
F.R.S. Board Regulation U or X. Terms for which meanings are provided in F.R.S.
Board Regulation U or X or any regulations substituted therefor, as from time to
time in effect, are used in this Section with such meanings.

         SECTION 7.14. Accuracy of Information. All factual information (which
shall not include projections) heretofore or contemporaneously furnished by or
on behalf of the Borrower in writing to the Agent, any Issuer or any Lender for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all other such factual information hereafter furnished by or on
behalf of the Borrower to the Agent or any Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified (except with respect to the financial statements of Borrower and its
Subsidiaries, which will fairly present the financial condition of the entities
covered thereby as of the date thereof) and, with respect to information
provided prior to the execution of this Agreement, as of the date of execution
and delivery of this Agreement by the Agent and such Lender, and such
information is not, or shall not be, as the case may be, incomplete by omitting
to state any material fact necessary to make such information not misleading.

         SECTION 7.15. Protection under Security Documents. Subject to the
exceptions agreed to in the agreed form of such documents, the Security
Documents create valid perfected first priority Liens in favor of the Collateral
Trustee (for the benefit of, among others, the Lenders) on the property subject
thereto. The Borrower hereby further represents and warrants to the Agent and
each Lender that all stock certificates, LLC interest certificates and
promissory notes required to be pledged under this Agreement and the Security
Documents in accordance herewith and therewith have been delivered to the
Collateral Trustee together with all necessary instruments of transfer or
assignment duly executed in blank.

         SECTION 7.16. Indebtedness of Certain Subsidiaries. As of March 31,
2003, the only outstanding Third Party Indebtedness of any of Calpine Holdings
and its Subsidiaries, CNGH and its Subsidiaries, QM, JOQ, QCH and CCEC and its
Subsidiaries is as set forth on Item 7.16 of the Disclosure Schedule.

         SECTION 7.17. Designation of Subsidiaries. As of the Closing Date, each
of CCEC and its Subsidiaries is an Unrestricted Subsidiary, as such term is
defined in the Pre-2000 Indentures.

                                  ARTICLE VIII

                                    COVENANTS

         SECTION 8.1. Affirmative Covenants. The Borrower agrees with the Agent
and each Lender that, from and after the Closing Date, until all Revolving Loan
Commitments have terminated and all Obligations have been paid and performed in
full, the Borrower will perform the obligations set forth in this Section 8.1.

                                       63



         SECTION 8.1.1. Financial Information, Reports, Notices, etc. The
Borrower will furnish, or will cause to be furnished, to each Lender and the
Agent copies of the following financial statements, reports, notices and
information:

                  (a) as soon as available and in any event within 60 days after
         the end of each of the first three Fiscal Quarters of each Fiscal Year
         of the Borrower, (i) the consolidated balance sheet, statement of
         earnings and cash flow statement of the Borrower and its Subsidiaries
         for such Fiscal Quarter and for the period commencing at the end of the
         previous Fiscal Year and ending with the end of such Fiscal Quarter,
         certified by an Authorized Officer of the Borrower and (ii) a
         consolidating balance sheet and a consolidating statement of earnings
         of the Borrower and its Subsidiaries for such Fiscal Quarter and for
         the period commencing at the end of the previous Fiscal Year and ending
         with the end of such Fiscal Quarter, certified by an Authorized Officer
         of the Borrower;

                  (b) as soon as available and in any event within 120 days
         after the end of each Fiscal Year of the Borrower, (i) a copy of the
         annual audit report for such Fiscal Year for the Borrower and its
         Subsidiaries, including therein the consolidated balance sheet,
         statement of earnings and cash flow statement of the Borrower and its
         Subsidiaries as of the end of such Fiscal Year, in each case certified
         (without any Impermissible Qualification) in a manner acceptable to the
         Agent and the Required Lenders by PricewaterhouseCoopers LLC or other
         independent public accountants acceptable to the Agent and the Required
         Lenders and (ii) a consolidating balance sheet and a consolidating
         statements of earnings of the Borrower and its Subsidiaries as of the
         end of such Fiscal Year, certified by an Authorized Officer of the
         Borrower;

                  (c) as soon as available and in any event within 60 days after
         the end of each of the first three Fiscal Quarters of each Fiscal Year
         and within 120 days after the end of each Fiscal Year, a certificate,
         executed by an Authorized Officer of the Borrower, showing (in
         reasonable detail and with appropriate calculations and computations in
         all respects satisfactory to the Agent) compliance with the financial
         covenants set forth in Sections 6.2.4 and 8.2.4, and a certificate,
         executed by an Authorized Officer of the Borrower, showing (i) a
         computation of the amounts described in Section 3.1.1(c) and in clauses
         (x) and (y) of the last sentence of Section 8.2.3 and (ii) a
         computation of the utilization of all baskets contained within the
         negative covenants set forth in Section 8.2 as of the end of such
         period;

                  (d) as soon as available and in any event within 90 days after
         the end of each Fiscal Year of the Borrower, a consolidated budget for
         the Borrower and its Subsidiaries for the following Fiscal Year, in
         form and substance satisfactory to the Revolving Lenders;

                  (e) if the Interest Coverage Ratio (Parent Only), calculated
         as of the end of the most recently ended Fiscal Quarter, had previously
         fallen below 1.70 to 1.00 and had not subsequently returned to 1.70 to
         1.00 or better, as soon as available and in any event within 30 days
         after the end of each calendar month thereafter, a certificate,
         executed by an Authorized Officer of the Borrower, showing (in
         reasonable detail and with appropriate calculations and computations in
         all respect satisfactory to the Agent) the

                                       64



         calculation of the Interest Coverage Ratio (Parent Only) as of the end
         of such calendar month;

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

                  (g) as soon as possible and in any event within five days
         after the Borrower obtains knowledge of (x) any adverse development
         with respect to any litigation, action, proceeding, or labor
         controversy described in Section 7.7, (y) the commencement of any labor
         controversy, litigation, action, proceeding of the type described in
         Section 7.7, or (z) any other Material Adverse Effect, notice thereof
         and copies of all documentation relating thereto;

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

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

                  (j) as soon as available and in any event within 30 days after
         the end of each month during the 2003 and 2004 Fiscal Years of the
         Borrower, and thereafter within 60 days after the end of each Fiscal
         Quarter of the Borrower, an update of the Projected Cash Flow
         Statement, certified by an Authorized Officer of the Borrower;

                  (k) as soon as available and in any event within 30 days after
         the end of each month, a certificate signed by an Authorized Officer of
         the Borrower setting forth (i) the Borrower's consolidated cash balance
         as at the end of such month (identifying both the restricted and
         unrestricted portions thereof) and (ii) actual sources and uses of cash
         of the Borrower and its Subsidiaries on a consolidated basis during
         such month;

                  (l) within 30 days after any Asset Sale or Monetization by the
         Borrower or any of its Subsidiaries, an officer's certificate with
         respect to such Asset Sale or Monetization, which certificate shall be
         in form and substance reasonably satisfactory to the Agent and shall
         provide details of such Asset Sale or Monetization, including the
         amount of

                                       65



         proceeds thereof, the date of receipt thereof and any planned
         reinvestment to be made therewith;

                  (m) on or before August 15, 2003, an update of Item 7.16 of
         the Disclosure Schedule through June 30, 2003; and

                  (n) such other information respecting the condition or
         operations, financial or otherwise, of the Borrower or any of its
         Significant Subsidiaries as any Lender through the Agent may from time
         to time reasonably request and which the Borrower is legally permitted
         to provide to such Lender.

The Borrower may provide some or all of the information required in clauses (a)
and (b) above by providing copies of its Forms 10-Q and/or 10-K filed with the
Securities and Exchange Commission.

         SECTION 8.1.2. Compliance with Laws, etc. The Borrower will, and will
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include
(without limitation):

                  (a) the maintenance and preservation of its existence and, if
         applicable, qualification as a foreign corporation or comparable
         entity; and

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

         SECTION 8.1.3. Maintenance of Properties. The Borrower will, and will
cause each of its Subsidiaries to, maintain, preserve, protect and keep its
material properties in good repair, working order and condition, and make
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times unless
the Borrower determines in good faith that the continued maintenance of any of
its properties is no longer economically desirable.

         SECTION 8.1.4. Insurance.

                  (a) Except as provided in Section 8.1.4(b), the Borrower will,
         and will cause each of its Subsidiaries to, maintain or cause to be
         maintained with responsible insurance companies insurance with respect
         to its properties and business (including business interruption
         insurance) against such casualties and contingencies and of such types
         and in such amounts as is customary in the case of similar businesses
         and will, upon request of the Agent, furnish to each Lender at
         reasonable intervals a certificate of an Authorized Officer of the
         Borrower setting forth the nature and extent of all insurance
         maintained by the Borrower and its Subsidiaries in accordance with this
         Section. All insurance policies required to be maintained under the
         Deeds of Trust shall be in amounts satisfactory to the Agent and shall
         be issued on forms and by companies and with endorsements acceptable to
         the Agent.

                                       66



                  (b) With respect to the Domestic Gas Reserves, the Borrower
         will, and will cause each of its Subsidiaries to, maintain or cause to
         be maintained the insurance required by the Deeds of Trust.

         SECTION 8.1.5. Books and Records. The Borrower will, and will cause
each of its Subsidiaries to, keep books and records which accurately reflect all
of its business affairs and transactions and permit the Agent or any of its
representatives or any Lender, at reasonable times and intervals, to visit all
of its offices, to discuss its financial matters with its officers and
independent public accountant (and the Borrower hereby authorizes such
independent public accountant to discuss the Borrower's financial matters with
the Agent or its representatives whether or not any representative of the
Borrower is present) and to examine (and, at the expense of the Borrower,
photocopy extracts from) any of its books or other corporate records. The
Borrower shall pay any fees of such independent public accountant incurred in
connection with the exercise by the Agent of its rights pursuant to this
Section; provided, however, after the occurrence and during the continuance of
any Default, the Borrower shall pay for all fees of such independent accountants
incurred with each exercise by the Agent or any Lender of its rights pursuant to
this Section.

         SECTION 8.1.6. Environmental Covenant. The Borrower will, and will
cause each of its Significant Subsidiaries to,

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

                  (b) immediately notify the Agent and provide copies upon
         receipt of all material written claims, complaints, notices or
         inquiries relating to the condition of its facilities and properties or
         compliance with Environmental Laws; and

                  (c) provide such information and certifications which the
         Agent may reasonably request from time to time to evidence compliance
         with this Section 8.1.6.

         SECTION 8.1.7. Dividends of Subsidiaries. Promptly upon (but in no case
more than five (5) Business Days after) the occurrence of an Event of Default,
the Borrower shall cause each of its Wholly Owned Subsidiaries to declare and
pay dividends on, or to make payments or distributions on account of, the shares
of all classes of stock of such entity in an amount equal to (x) all funds
legally and contractually available at such time to such Subsidiary for the
payment of dividends minus (y) without duplication, such Wholly Owned
Subsidiary's budgeted working capital and budgeted cash requirements for the
following six months.

         SECTION 8.1.8. Intercompany Notes. The Borrower will, promptly upon the
creation of any additional Indebtedness owing from any of its Subsidiaries that
has not been evidenced by a non-recourse secured note pledged to the Collateral
Trustee, cause such Indebtedness to be evidenced by a promissory note and
pledged to the Collateral Trustee, pursuant to the Security Documents, as
collateral security for the Obligations. It is understood and agreed that (i)
upon

                                       67



the conversion to equity of all Indebtedness owing from a Subsidiary to the
Borrower or the repayment of all Indebtedness from a Subsidiary to the Borrower,
the promissory note of such Subsidiary shall be released from the Security
Documents and cancelled and (ii) subject to the approval of the Agent (not to be
unreasonably withheld), the Borrower may substitute new non-recourse secured
promissory notes for promissory notes previously pledged to the Collateral
Trustee. If all of the Indebtedness owing to the Borrower from a Subsidiary that
is a Pledged Entity shall be converted to equity, not later than ten days
thereafter the Borrower shall pledge to the Collateral Trustee such equity
interest and deliver to the Collateral Trustee the stock certificate, if any,
evidencing such interest together with duly executed stock powers, in blank.

         SECTION 8.1.9. Additional Collateral, etc. (a) With respect to any
         personal property acquired after the Closing Date directly by the
         Borrower (other than any Excluded Assets and other than any property
         described in clause (b) below) as to which the Collateral Trustee, for
         the benefit of, among others, the Lenders, does not have a perfected
         Lien, the Borrower shall promptly (i) execute and deliver to the
         Collateral Trustee such amendments to the Security Documents or such
         other documents as the Agent reasonably deems necessary or advisable to
         grant to the Collateral Trustee, for the benefit of, among others, the
         Lenders, a security interest in such property and (ii) take all actions
         necessary or advisable to grant to the Collateral Trustee, for the
         benefit of, among others, the Lenders, a perfected first priority
         security interest in such property, including the filing of Uniform
         Commercial Code financing statements in such jurisdictions as may be
         required by the Guarantee and Collateral Agreement or by law or as may
         be requested by the Agent.

                  (b) With respect to any new direct Subsidiary (other than a
         Subsidiary that is an Excluded Asset) created or acquired after the
         Closing Date by the Borrower, the Borrower shall promptly (i) execute
         and deliver to the Collateral Trustee such amendments to the Security
         Documents as the Agent deems necessary or advisable to grant to the
         Collateral Trustee, for the benefit of, among others, the Lenders, a
         perfected first priority security interest in the capital stock of such
         new Subsidiary, (ii) deliver to the Collateral Trustee the certificates
         representing such capital stock, together with undated stock powers, in
         blank, executed and delivered by a duly authorized officer of the
         Borrower, and (iii) if reasonably requested by the Agent, deliver to
         the Agent legal opinions (which may be from in-house counsel) relating
         to the matters described above, which opinions shall be in form and
         substance, and from counsel, reasonably satisfactory to the Agent.

         SECTION 8.1.10. Ownership Interests. CNGH shall at all times directly
or indirectly own 100% of all equity interests of CCEC, which shall, in turn,
directly or indirectly own 100% of the equity interests in Saltend and in CCNGP.
CCNGP shall at all times own all of the Canadian Gas Reserves. The Borrower
shall at all times own 100% of the equity interests of CNGH. The Borrower shall
at all times own 100% of the equity interests of Calpine Holdings. Calpine
Holdings shall at all times own 100% of the equity interests of CCFCI. CNGH
shall at all times own 100% of the equity interests of CCI; CCI shall at all
times own 100% of the equity interests of QM, JOQ, and QCH; QM, JOQ and QCH
shall at all times own 100% of the equity interests of CCEC; CCEC shall at all
times own 100% of the equity interests of CCRC and CCNGC; and CCRC and CCNGC
shall at all times own 100% of the equity interests of CCNGP.

                                       68



Nothing in this Section 8.1.10 shall, however, be deemed to limit (i) the
reorganization of CCNGP's direct ownership such that the partnership interests
in CCNGP are owned and held by (A) a Subsidiary of the Borrower formed as a
result of the consolidation or merger of CCRC and CCNGC and (B) another
Subsidiary of the Borrower or a new Subsidiary of the Borrower formed by the
Borrower or one of its Subsidiaries, (ii) the ability of any one or more of QM,
JOQ or QCH to merge or consolidate with one or more of the others (subject only
to a delivery of a certificate in a form reasonably satisfactory to the Agent to
the effect that the merged entity would not be liable for any Obligations of
CCEF) or (iii) the ability of the Borrower and its Subsidiaries to enter into
transactions that are contemplated by Section 3.1.1(c)(i) through (vii) and
permitted under Section 8.2.10.

         SECTION 8.1.11. Incremental Domestic Gas Reserves. The Borrower shall
cause all acquisitions of additional Domestic Gas Reserves after the Closing
Date to be made by the Borrower, a Subsidiary of the Borrower that is a Pledged
Entity or a Subsidiary of any such Subsidiary.

         SECTION 8.1.12. Gas Reserves. Within 60 days after the acquisition of
any Domestic Gas Reserves by the Borrower after the Closing Date, the Borrower
shall execute and deliver to the Collateral Trustee such mortgages, deeds of
trust, assignments, security agreements, financing statements and/or fixture
filings, together with any additional supporting documentation, as shall be
reasonably requested by the Agent in order to perfect a security interest in
favor of the Collateral Trustee (on behalf of, among others, the Lenders) with
respect to such Domestic Gas Reserves. The Borrower (a) shall notify the Lenders
promptly after each acquisition by the Borrower or any of its Subsidiaries (in
one transaction or a series of related transactions) of Domestic Gas Reserves or
Canadian Gas Reserves having an aggregate value in excess of $5,000,000 and (b)
shall provide to the Lenders updates not less frequently than every six months
with respect to acquisitions by the Borrower and its Subsidiaries of Domestic
Gas Reserves and Canadian Gas Reserves, in each case indicating the size,
location and purchase price of such reserves.

         SECTION 8.2. Negative Covenants. The Borrower agrees with the Agent and
each Lender that, from and after the Closing Date until all Revolving Loan
Commitments have terminated and all Obligations have been paid and performed in
full, the Borrower will perform the obligations set forth in this Section 8.2.

         SECTION 8.2.1. Business Activities. The Borrower will not, and will not
permit any of its Subsidiaries or Joint Ventures to, engage in any business
activity, except the business of acquiring, developing, constructing, owning and
operating power generation facilities, purchasing, developing and selling
electricity and steam (including geothermal steam and fluids), purchasing,
developing and selling natural gas and other fuels and related marketing
activities, and such activities as may be incidental or related thereto;
provided, however, that up to ten percent (10%) of the consolidated net assets
of the Borrower and its Subsidiaries may be used for unrelated businesses.

         SECTION 8.2.2. Indebtedness. The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:

                                       69



                  (a) (i) Indebtedness created in connection with any Loan
         Document, (ii) any Indebtedness existing as of the Closing Date, (iii)
         any Indebtedness evidenced by promissory notes pledged to the
         Collateral Trustee pursuant to the Security Documents and (iv) the 2003
         Senior Notes, the Second Priority B Loans and any Parity Lien Debt;

                  (b) Indebtedness which is incurred by the Borrower or any of
         the Borrower's Subsidiaries to a vendor of any assets to finance the
         acquisition of such assets so long as the only recourse of such vendor
         is to some or all of the assets so financed;

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

                  (d) (i) Indebtedness of the Borrower which is owed to and held
         by a Subsidiary (it being understood and agreed that the obligations of
         the Borrower under its subordinated debt securities issued to a Trust
         in connection with the Guaranteed Preferred Securities are not
         considered Indebtedness for purposes of this Agreement), (ii)
         Indebtedness of a Subsidiary which is owed to and held by the Borrower
         and (iii) Indebtedness of a Subsidiary which is owed to and held by a
         Subsidiary; provided, however, that any subsequent transfer of such
         Indebtedness (other than to the Borrower or a Subsidiary) shall be
         deemed, in each case, to constitute the incurrence of such Indebtedness
         by the Borrower or by a Subsidiary, as the case may be;

                  (e) Non-Recourse Debt of a Subsidiary of the Borrower other
         than CES;

                  (f) (i) Unsecured Subordinated Debt of the Borrower and other
         unsecured Indebtedness of the Borrower if, after giving effect to the
         issuance thereof, the Interest Coverage Ratio calculated as of the end
         of the most recent Fiscal Quarter on a pro forma basis is equal to or
         greater than 2.00 to 1.00 and (ii) unsecured Indebtedness of any
         Subsidiary of the Borrower (other than Indebtedness for borrowed money)
         incurred in the ordinary course of business up to an aggregate
         principal amount of $100,000,000 at any one time outstanding;

                  (g) Indebtedness secured by property or assets acquired by, or
         owned by any Person acquired by, the Borrower or any of its
         Subsidiaries that was in existence at the time such property, assets or
         Person are acquired so long as such Indebtedness was not incurred in
         contemplation of such acquisition; provided, however, that the Borrower
         would have been able to incur such Indebtedness at the time of closing
         of such acquisition pursuant to clause (f) above (assuming for purposes
         of this proviso that such Indebtedness was unsecured);

                  (h) unsecured Indebtedness of the Borrower or any of its
         Subsidiaries arising from the endorsements of instruments for
         collection in the ordinary course of business;

                  (i) Indebtedness of the Borrower or any of its Subsidiaries
         with respect to surety, appeal, indemnity, performance or other similar
         bonds in the ordinary course of business;

                                       70



                  (j) Hedging Obligations and Contingent Obligations associated
         therewith and other unsecured Contingent Liabilities of the Borrower or
         any of its Subsidiaries, in each case incurred in the ordinary course
         of business and not for speculative purposes and consistent with
         applicable risk management guidelines established by the Borrower from
         time to time;

                  (k) Indebtedness in respect of commercial paper issued and
         sold in the commercial paper market in an aggregate principal or stated
         amount not to exceed the unused availability under this Agreement;

                  (l) secured Indebtedness of the Borrower or any of its
         Subsidiaries (other than Indebtedness permitted under clause (e) above
         or clause (m) below) so long as (i) recourse for any such Indebtedness
         is limited solely to the asset or assets securing such Indebtedness and
         (ii) the Net Available Cash with respect thereto is applied in
         accordance with Section 3.1.1(c);

                  (m) Non-Recourse Debt of CES (including any CES Credit
         Facility) so long as (i) the aggregate outstanding principal amount of
         such Indebtedness, together with the aggregate Fair Market Value of CES
         Assets subject to Asset Sales and other Monetizations by CES which have
         been permitted under Section 8.2.10(c)(v), shall not exceed
         $500,000,000 during the term of this Agreement and (ii) other than with
         respect to the CES Credit Facility, the Net Available Cash with respect
         thereto is applied in accordance with Section 3.1.1(c);

                  (n) Contingent Liabilities of the Borrower in respect of
         Indebtedness of any Subsidiary which, but for such Contingent
         Liabilities, would be permitted to be incurred pursuant to clause (e)
         above; provided that the aggregate principal amount of Indebtedness
         incurred pursuant to this clause (n) shall not exceed $100,000,000 at
         any one time outstanding;

                  (o) Indebtedness incurred by any Subsidiary of the Borrower
         represented by letters of credit (or Contingent Liabilities in
         connection therewith) entered into in the ordinary course of business
         to the extent that such letters of credit are not drawn upon or, if and
         to the extent drawn upon, such drawing is reimbursed no later than the
         tenth Business Day following a demand for reimbursement following
         payment on the letter of credit; provided that no such letter of credit
         shall constitute Indebtedness permitted pursuant to this clause (o) if
         it is issued in support of Indebtedness;

                  (p) Indebtedness of Thomassen Turbine Services B.V., a Dutch
         company, incurred for working capital purposes in an aggregate
         principal amount not to exceed $5,000,000 (or the equivalent thereof)
         at any one time outstanding;

                  (q) Indebtedness of the Borrower under the Letter of Credit
         Agreement; and

                  (r) refinancings, refundings, extensions, renewals or
         replacements of any of the foregoing permitted Indebtedness; provided
         that the outstanding principal amount of such Indebtedness is not
         increased (other than by an amount necessary to pay fees and expenses,
         including premiums, related to the refinancing, refunding, extension,
         renewal

                                       71



         or replacement of such Indebtedness), no obligor under such
         Indebtedness is liable for any such Indebtedness except to the extent
         it was liable for the Indebtedness so renewed or refinanced and if the
         Indebtedness being refinanced is subordinated to the Obligations, such
         Indebtedness shall be subordinated at least to the same extent;
         provided, further, that the limitations set forth in this clause (r)
         shall not apply to Indebtedness which is otherwise permitted under this
         Section 8.2.2, even if such Indebtedness is used to repay or refinance
         other existing Indebtedness.

provided, however, that no Indebtedness otherwise permitted by clauses (d)(ii),
(f), (g), (j) or (k) shall be incurred if, after giving effect to the incurrence
thereof, any Default (other than a Nonmaterial Subsidiary Default) shall have
occurred and be continuing and provided further that in no event shall CCNGP or
any of its direct or indirect parent entities (other than any direct or indirect
parent entities of QM, JOQ or QCH) create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness other than, without
duplication, Indebtedness permitted by clauses (a), (b), (c), (d)(ii), (d)(iii)
(provided that any such Indebtedness permitted by clause (d)(iii) shall be owed
to and held by a Subsidiary that is a Pledged Entity or a Subsidiary of a
Pledged Entity), (h), (i) and (r) of this Section 8.2.2.

         SECTION 8.2.3. Liens. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any
of its property, revenues or assets, whether now owned or hereafter acquired,
except:

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

                  (b) Liens granted prior to the Closing Date to secure payment
         of Indebtedness of the type permitted and described in clause (a) of
         Section 8.2.2;

                  (c) Liens granted to secure payment of Indebtedness of the
         type permitted and described in clause (b) of Section 8.2.2 where
         recourse is limited as described in clause (b) of Section 8.2.2;

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

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

                  (f) Liens incurred in the ordinary course of business in
         connection with workmen's compensation, unemployment insurance or other
         forms of governmental insurance or benefits, or to secure performance
         of tenders, statutory obligations, leases and contracts (other than for
         borrowed money) entered into in the ordinary course of business or to
         secure obligations on surety or appeal bonds;

                                       72



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

                  (h) Liens granted to secure payment of Indebtedness of the
         type permitted and described in clauses (g) and (l) of Section 8.2.2
         where recourse is limited as described in clauses (g) or (l), as
         applicable, of Section 8.2.2;

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

                  (j) Liens on the property or assets of any Subsidiary of the
         Borrower in favor of the Borrower;

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

                  (l) Landlord's Liens and similar Liens in respect of leased
         property;

                  (m) Liens securing Attributable Debt with respect to
         outstanding leases entered into pursuant to Sale/Leaseback Transactions
         so long as, with respect to Sale/Leaseback Transactions closing after
         January 1, 2002, the amount thereof does not exceed 10% of the
         consolidated tangible assets of the Borrower and its Subsidiaries;

                  (n) (A) Liens on assets or property of a Subsidiary (other
than Material Designated Assets) incurred by any Subsidiary to secure
Indebtedness of such Subsidiary incurred to finance the exploration, drilling,
development, construction or purchase of or by, or repairs, improvements or
additions to, property or assets of the Borrower or such Subsidiary, which Liens
may include Liens on the capital stock or other comparable ownership interest of
such Subsidiary (other than CES or any Subsidiary that (i) is a direct
Subsidiary of the Borrower, (ii) owns, directly or indirectly, Material
Designated Assets or (iii) is a Pledged Entity); (B) Liens (other than Liens on
Material Designated Assets) incurred by any Subsidiary that does not own,
directly or indirectly, at the time of original incurrence of such a Lien under
this clause (B) any Material Designated Assets or any operating properties or
assets, securing Indebtedness incurred to finance the exploration, drilling,
development, construction or purchase of or by, or repairs, improvements or
additions to, property or assets of any Subsidiary that does not, directly or
indirectly, own any operating properties or assets at the time of the original
incurrence of such Lien, which Liens contemplated by this clause (n) may include
Liens on the capital stock or other comparable ownership interest of one or more
Subsidiaries (other than CES) that (i) are not direct Subsidiaries of the
Borrower, (ii) do not, directly or indirectly, own any Material Designated
Assets or operating properties or assets at the time of original incurrence of
such Lien and (iii) are not Pledged Entities; or (C) without duplication, Liens
(other than Liens on Material Designated Assets) incurred by any Subsidiary
(which Liens may include Liens on the capital stock or other comparable

                                       73



ownership interest of such Subsidiary (other than CES) so long as such
Subsidiary is not a Pledged Entity) that owns as of the Closing Date all or part
of one or more of the peaking power plants (and no other significant unrelated
assets) constructed for the purpose of providing peaking capacity and energy to
the California Department of Water Resources; provided that the Indebtedness
secured by any such Lien contemplated by this clause (n) may not be issued more
than 365 days (or, in the case of clause (C) above, two years) after the later
of the exploration, drilling, development, completion of construction, purchase,
repair, improvement, addition or commencement of full commercial operation of
the property or asset being so financed;

                  (o) Liens on assets of Subsidiaries to secure letters of
         credit issued pursuant to Section 8.2.2(o); provided that if and to the
         extent such letters of credit are drawn upon, such drawing is
         reimbursed no later than the tenth Business Day following a demand for
         reimbursement following payment on the letter of credit;

                  (p) Liens (i) on cash and short-term investments of
         Subsidiaries to secure obligations with respect to (A) contracts for
         commercial and trading activities in the ordinary course of business
         and contracts (including physical delivery, option (whether cash or
         financial), exchange, swap and futures contracts) for the purchase,
         transmission, distribution, sale, lease or hedge of any energy-related
         commodity or service or (B) interest rate, commodity price, or currency
         rate management contracts or derivatives and (ii) encumbering assets of
         a Subsidiary, other than (A) Material Designated Assets or (B) accounts
         or receivables, which Liens arise out of contracts or agreements
         relating to the generation, distribution or transmission or sale of
         energy and/or fuel; provided that all such agreements or contracts are
         entered into in the ordinary course of business;

                  (q) Liens on assets of Thomassen Turbine Services B.V., a
         Dutch company, securing Indebtedness permitted under Section 8.2.2(p);

                  (r) Liens incurred by the Borrower on cash in an amount not to
         exceed $200,000,000 plus any earnings thereon, which Liens secure
         obligations of the Borrower under the Letter of Credit Agreement; and

                  (s) Liens incurred in connection with the refinancing,
         refunding, extension, renewal or replacement (or successive
         refinancings, refundings, extensions, renewals or replacements) of
         Indebtedness secured by Liens permitted and described in clauses (b),
         (c), (h), (n), (o), (q) and (r) of this Section 8.2.3; provided,
         however, that (x) such new Lien shall be limited to all or part of the
         same property or assets that secured the original Lien (plus repairs,
         expansions, enhancements, improvements and additions to such property
         or assets) and (y) the Indebtedness secured by such Lien at such time
         is not increased (other than by an amount necessary to pay fees and
         expenses, including premiums, related to the refinancing, refunding,
         extension, renewal or replacement of such Indebtedness); provided,
         further, that the limitations set forth in this clause (s) shall not
         apply to Liens which are otherwise permitted under this Section 8.2.3,
         even if such Liens secure Indebtedness issued to repay or refinance
         existing Indebtedness permitted and described in clauses (b), (c), (h),
         (n), (o), (q) and (r) of this Section 8.2.3.

                                       74



         Without limitation of the foregoing, in no event shall CCNGP or any of
         its direct or indirect parent entities (other than any direct or
         indirect parent entities of QM, JOQ or QCH) create, incur, assume or
         suffer to exist a Lien upon any of its property, revenues, or assets,
         whether now owned or hereafter acquired, except for Liens permitted by
         clauses (a) through (g), (i) through (l), (o), (p) and (s) of this
         Section 8.2.3.

         SECTION 8.2.4. Financial Condition. The Borrower will not permit:

                  (a) Its Tangible Net Worth to be less than (i) $4,200,000,000
         plus (ii) 50% of the Consolidated Net Income of the Borrower and its
         Subsidiaries (without giving effect to any losses) for each Fiscal
         Quarter ending on or after June 30, 2003 plus (iii) 100% of the Net
         Equity Proceeds from any equity offering by the Borrower after the
         Closing Date.

                  (b) Its Leverage Ratio to be greater than .80 to 1.00 as of
         the end of any Fiscal Quarter.

                  (c) Its Interest Coverage Ratio as of the end of any Fiscal
         Quarter, to be less than 1.75 to 1.00 for the twelve (12) month period
         comprising the four previous Fiscal Quarters.

                  (d) Its Interest Coverage Ratio (Parent Only) as of the end of
         any Fiscal Quarter, to be less than 1.60 to 1.00 for the twelve (12)
         month period comprising the four previous Fiscal Quarters.

         SECTION 8.2.5. Investments. The Borrower will not, and will not permit
any of its Subsidiaries to, make, incur, assume or suffer to exist any
Investment in any other Person, whether done in a single transaction or a series
of related transactions, except:

                  (a) Investments existing on the Closing Date;

                  (b) Cash Equivalent Investments or Investments (as defined in
         the High Yield Indentures) by a Restricted Subsidiary in the Borrower
         or any other Restricted Subsidiary;

                  (c) Investments by the Borrower in any of its Subsidiaries or
         in any Person that becomes a Subsidiary as a result of such Investment
         or in any Investment Joint Venture of the Borrower or Investments by
         the Borrower's Subsidiaries in other Subsidiaries or in any Person that
         becomes a Subsidiary as a result of such Investment or in any
         Investment Joint Venture of the Borrower, whether now existing or
         hereafter organized in lines of business of the Borrower and its
         Subsidiaries permitted under Section 8.2.1 by way of contributions to
         capital or loans or advances (including guarantees and other forms of
         Contingent Liabilities to the extent that the occurrence of the
         obligations being guaranteed or supported would otherwise be permitted
         hereunder);

                  (d) Investments by the Borrower or any of its Subsidiaries
         constituting contributions of the stock or assets of CES to Persons
         that are neither Subsidiaries of the Borrower nor Investment Joint
         Ventures of the Borrower in connection with the establishment of a
         trading joint venture or similar arrangement; provided that no such

                                       75



         Investment shall be permitted hereunder unless the equity interests of
         the Borrower in such trading joint venture or similar arrangement are
         pledged by the Borrower to the Collateral Trustee for the benefit of,
         among others, the Lenders pursuant to a pledge agreement to be executed
         concurrently with the making of such Investment; and

                  (e) from and after the Closing Date, in the ordinary course of
         business, Investments by the Borrower or any of its Subsidiaries in
         Persons that are not Subsidiaries of the Borrower or Investment Joint
         Ventures of the Borrower so long as such Persons are engaged only in
         permitted lines of business of the Borrower and its Subsidiaries and
         lines of business related thereto and so long as no such single
         Investment (or series of related Investments) exceeds 5% of the
         Borrower's consolidated tangible assets as of the end of the most
         recent Fiscal Quarter for which the Borrower has delivered the
         financial statements required under Section 8.1.1 hereof and the
         aggregate of all such Investments at any time outstanding does not
         exceed 10% of the Borrower's consolidated tangible assets as of the end
         of the most recent Fiscal Quarter for which the Borrower has delivered
         the financial statements required under Section 8.1.1 hereof;

provided, however, that

                  (f) any Investment which when made complies with the
         requirements of the definition of the term "Cash Equivalent Investment"
         may continue to be held notwithstanding that such Investment if made
         thereafter would not comply with such requirements; and

                  (g) no Investment otherwise permitted by clauses (c), (d) or
         (e) shall be permitted to be made if, immediately after giving effect
         thereto, any Material Adverse Effect or any Default (other than a
         Nonmaterial Subsidiary Default) shall have occurred and be continuing.

         SECTION 8.2.6. Restricted Payments, etc. On and at all times after the
Closing Date:

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

                  (b) the Borrower will not, and will not permit any of its
         Subsidiaries to make any payment or prepayment of principal of, or make
         any payment of interest in respect of, or

                                       76



         redeem, purchase or defease any Restricted Capital (any such payment,
         prepayment, redemption, purchase or defeasance, a "Restricted Capital
         Payment"), other than Restricted Capital Payments on the scheduled
         dates and in the amounts provided in the documentation therefor as in
         effect on the Closing Date (provided that any such payments would not
         violate the subordination provisions of any Subordinated Debt),
         provided that, subject to each of the other clauses of this Section
         8.2.6, (A) the Borrower shall be permitted to make Restricted Capital
         Payments in respect of all or a portion of the Repayable Restricted
         Capital if (x) both before and after giving effect thereto, no Default
         shall have occurred or be continuing and there are no Loans outstanding
         or Letter of Credit Outstandings hereunder or (y) both before and after
         giving effect thereto, no Default shall have occurred and be continuing
         and the aggregate amount of all such Restricted Capital Payments shall
         not exceed $400,000,000 (the "Senior Notes Basket"); (B) the Borrower
         shall be permitted to make Restricted Capital Payments in respect of
         all or a portion of the Repayable Restricted Capital, in addition to
         those permitted by clause (A) immediately preceding, with the sum (the
         "Excess Proceeds Basket") of (x) the gross proceeds of the offering of
         the 2003 Senior Notes and the Second Priority B Loans to the extent
         such gross proceeds exceed $1,800,000,000, (y) an amount equal to the
         aggregate Net Available Cash with respect to any Asset Sale or
         Monetization by the Borrower of the Gilroy Receivable and/or any Asset
         Sale of uninstalled turbines or equipment, to the extent that the
         Borrower is entitled to use such amount for such purpose pursuant to
         Section 3.1.1(c)(i)(A) and (z) an amount equal to 50% of the portion
         that has not been utilized pursuant to clause (G)(ii) below of the Net
         Equity Proceeds with respect to common stock of the Borrower issued
         more than 60 days prior to the date of such Restricted Capital Payment;
         (C) the Borrower shall be permitted to make Restricted Capital Payments
         (i) in connection with refinancings, refundings, extensions, renewals
         or replacements of Indebtedness permitted under Section 8.2.2(r) or
         (ii) with the proceeds of Parity Lien Debt; (D) any Restricted Capital
         Payment in respect of Repayable Restricted Capital permitted hereunder
         shall be at a price in respect of principal thereof not to exceed $1.00
         per $1.00 of the principal amount of such Repayable Restricted Capital,
         (E) no Restricted Capital Payment in respect of Repayable Restricted
         Capital having a final maturity date prior to the Stated Maturity Date
         of the Term B Loans shall be made with the proceeds of any Indebtedness
         (other than the 2003 Senior Notes, the Second Priority B Loans and any
         Parity Lien Debt); (F) Restricted Capital Payments may be made with
         respect to Convertible Senior Notes, Guaranteed Preferred Securities
         and/or Convertible Subordinated Debentures (i) in accordance with the
         Prepayment Letter Agreement and (ii) with the proceeds of, or in
         exchange for, securities having substantially similar terms to the
         securities in respect of which such Restricted Capital Payment is made,
         except that such newly issued securities must have (x) a later final
         maturity and a longer weighted average life to maturity than the
         securities refinanced therewith and (y) an interest or dividend rate,
         as applicable, consistent with those prevailing at the time of issuance
         thereof in the market for similar securities; and (G) any Restricted
         Capital Payment may be made with (i) common stock of the Borrower or
         (ii) the Net Equity Proceeds with respect to common stock of the
         Borrower issued not more than 60 days prior to the date of such
         Restricted Capital Payment, in which case such Restricted Capital
         Payment shall not be deemed a usage of the Senior Notes Basket or the
         Excess Proceeds Basket and the limitations imposed by clause (D) above
         shall not be applicable thereto;

                                       77



                  (c) the Borrower will not, and will not permit any Subsidiary
         to, make any deposit for any of the purposes described in clauses (a)
         or (b) of this Section 8.2.6 except to the extent a payment, prepayment
         or other Restricted Capital Payment would be otherwise permitted
         hereunder; and

                  (d) the Borrower will not, and will not permit any of its
         Subsidiaries to, make any voluntary prepayment of principal of any
         Indebtedness (other than the Loans and payments by any Subsidiary on
         Indebtedness permitted to be incurred under Section 8.2.2(d)(ii) or
         (d)(iii) (provided that any such Indebtedness shall be owed to and held
         by (i) a Restricted Subsidiary or (ii) a Subsidiary that is a Pledged
         Entity or a Subsidiary of a Pledged Entity)), if either before or after
         giving effect thereto, there shall exist a Default (other than a
         Nonmaterial Subsidiary Default) or an Event of Default.

         SECTION 8.2.7. Capital Expenditures and Investments. The Borrower will
not, and will not permit any of its Subsidiaries to, (a) make or commit to make
Capital Expenditures for or Investments in, or in connection with, any new
project if a Default or Event of Default shall have occurred and be continuing
or (b) make Capital Expenditures (excluding for purposes of this clause (b) any
such Capital Expenditure or portion thereof made with the proceeds of any
Non-Recourse Debt which is permitted to be incurred under Section 8.2.2) during
any period set forth below in an aggregate amount for the Borrower and its
Subsidiaries in excess of the amount set forth for such period below.



             PERIOD                                                        AMOUNT
             ------                                                        ------
                                                                    
Closing Date through December 31, 2003                                 $  862,500,000
2004 Fiscal Year                                                       $1,150,000,000
2005 Fiscal Year                                                       $  500,000,000


         SECTION 8.2.8. Rental Obligations. The Borrower shall not enter into
any arrangement which does not create a Capitalized Lease Liability or a
Sale/Leaseback Transaction and which involves the leasing by the Borrower from
any lessor of any real or personal property (or any interest therein), except
for arrangements which, together with all other such arrangements which shall
then be in effect, will not require the payment of an aggregate amount of
rentals by the Borrower in excess of (excluding escalations resulting from a
rise in the consumer price or similar index) $25,000,000 in any Fiscal Year;
provided, however, that any calculation made for purposes of this Section 8.2.8
shall exclude any amounts required to be expended for maintenance and repairs,
insurance, taxes, assessments, and other similar charges.

         SECTION 8.2.9. Consolidation, Merger, etc. The Borrower will not, and
will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate
with, or merge into or with, any other corporation, or purchase or otherwise
acquire all or substantially all of the assets of any Person (or of any division
thereof) except:

                  (a) the Borrower or a Wholly Owned Subsidiary may merge with
         another Person if (i) (A) Borrower or such Subsidiary is the continuing
         Person following such merger or (B) in the case of a merger by the
         Borrower, the Person (if other than the Borrower)

                                       78



         formed by such merger (including a consolidation effected by a sale or
         transfer of all or substantially all of the assets of a Person) is a
         corporation organized and existing under the laws of the United States
         or any State thereof or the District of Columbia and expressly assumes
         the obligations of the Borrower under this Agreement, (ii) such merger
         or consolidation is otherwise permitted under the Senior Note
         Indentures, (iii) no Default (other than a Nonmaterial Subsidiary
         Default) has occurred and is continuing or would occur after giving
         effect thereto and (iv) after giving effect thereto, (x) the Rating by
         S&P shall be BB- or higher or the Rating by Moody's shall be Ba3 or
         higher; provided that if the Ratings by the Rating Agencies shall be at
         different levels, the Rating by the Rating Agency with the lower of
         such Ratings shall be no more than one level below the Rating of the
         Rating Agency with the higher of such Ratings;

                  (b) any Subsidiary may liquidate or dissolve voluntarily into,
         and may merge with and into, the Borrower or any other Subsidiary, and
         the assets or stock of any Subsidiary may be purchased or otherwise
         acquired by the Borrower or any other Subsidiary; provided, however,
         that if any Subsidiary that is a Pledged Entity shall merge with any
         other Subsidiary that is not a Pledged Entity, such Pledged Entity
         shall be the continuing Person following such merger; and provided,
         further, that if any Subsidiary that is a Pledged Entity shall
         liquidate or dissolve voluntarily into, or merge into, the Borrower or
         any other Subsidiary, or the assets or stock of any such Subsidiary are
         purchased or otherwise acquired by the Borrower or any other
         Subsidiary, the assets of such Subsidiary shall be transferred (whether
         by means of merger or otherwise) (i) to the Borrower (and pledged by
         the Borrower as collateral security for the Obligations) or (ii) to
         another Subsidiary that is a Pledged Entity;

                  (c) so long as no Default (other than a Nonmaterial Subsidiary
         Default) has occurred and is continuing or would occur after giving
         effect thereto, the Borrower or any of its Subsidiaries may purchase
         all or substantially all of the assets or stock of any Person if
         permitted by Section 8.2.5 and Section 8.2.7; and

                  (d) a Subsidiary may consolidate with, or merge into or with,
         another Person that is not the Borrower or a Subsidiary of the Borrower
         to the extent otherwise permitted under Section 8.2.10.

         SECTION 8.2.10. Asset Dispositions, etc. The Borrower will not, and
will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or
otherwise convey, or grant options, warrants or other rights with respect to,
all or any substantial part of its assets (including accounts receivable and
capital stock of Subsidiaries) to any Person (other than to the Borrower or any
Subsidiary), whether done in a single transaction or a series of related
transactions, unless

                  (a) such sale, transfer, lease, contribution or conveyance is
         (i) in the ordinary course of its business or (ii) permitted by Section
         8.2.9; or

                  (b) in the event such sale, transfer, lease, contribution or
         conveyance involves the Domestic Gas Reserves or Canadian Gas Reserves,
         such sale, transfer, lease, contribution or conveyance, individually
         and taken together with all sales, transfers, leases, contributions or
         conveyances within the period of twelve consecutive calendar months

                                       79



         during which such sale, transfer, lease, contribution or conveyance
         occurs, is a Permitted Sale; or

                  (c) such sale, transfer, lease, contribution or conveyance is
         not covered by clauses (a) or (b) above and (i) the Borrower or its
         Subsidiary receives consideration at the time of such sale, transfer,
         lease, contribution or conveyance at least equal to the Fair Market
         Value of assets being sold, transferred, leased, contributed or
         conveyed; (ii) at least seventy-five percent (75%) of the consideration
         received by the Borrower or such Subsidiary is in the form of cash or
         cash equivalents (other than with respect to the sale of the Gilroy
         Receivable, as to which there shall not be any minimum cash
         consideration requirement); (iii) in the case of all Asset Sales (other
         than the sale of the Gilroy Receivable), any non-cash consideration
         received by the Borrower or such Subsidiary in the form of Restricted
         Capital shall be deemed to be a usage of the Senior Notes Basket in an
         amount equal to the Fair Market Value of such Restricted Capital as of
         the date of consummation of such Asset Sale; (iv) in the case of the
         sale of the Gilroy Receivable, any non-cash consideration received by
         the Borrower or such Subsidiary shall not be deemed to be a usage of
         the Senior Notes Basket; (v) in the case of any Asset Sale or
         Monetization of CES Assets by CES (including any incurrence of secured
         Indebtedness by CES permitted under Section 8.2.2(m)), (A) such Asset
         Sale or Monetization provides for no recourse to the Borrower or any of
         its Subsidiaries (other than representations, warranties, covenants and
         indemnities entered into by the Borrower or any of its Subsidiaries
         which are customary in comparable Asset Sale or Monetization
         transactions) or any Lien on or recourse to any of their assets other
         than to CES and its Subsidiaries or to CES Assets (excluding, for
         avoidance of doubt, any capital stock of CES) and (B) the aggregate
         Fair Market Value of the CES Assets subject to all such Asset Sales and
         Monetizations, together with the aggregate outstanding principal amount
         of Non-Recourse Debt of CES incurred under Section 8.2.2(m), shall not
         exceed $500,000,000 during the term of this Agreement; (vi) in the case
         of any assets sold, transferred, leased, contributed or conveyed by the
         Borrower or any Subsidiary of the Borrower organized under the laws of
         the United States (or any State thereof, including the District of
         Columbia) to any Subsidiary of the Borrower organized under the laws of
         Canada or any province or territory thereof, the aggregate Fair Market
         Value of all such assets shall not exceed $100,000,000; and (vii) all
         prepayments required in respect thereof pursuant to Sections 2.2.2 and
         3.1.1 are made in accordance therewith.

         SECTION 8.2.11. Modification of Certain Agreements. The Borrower will
not consent to any amendment, supplement or other modification of any of the
terms or provisions contained in, or applicable to, any Restricted Capital
described in clause (i) of the definition thereof, or any document or instrument
evidencing or applicable thereto, other than (i) any amendment, supplement or
other modification which (A) extends the date or reduces the amount of any
required repayment or redemption or (B) cures any ambiguity, omission, defect or
inconsistency therein or in any documentation under which such Restricted
Capital is issued or incurred so long as such a cure is not adverse to the
interests of the Lenders or (ii) any other change that is not adverse to the
interests of the Lenders or that has been approved by the Required Lenders.

         SECTION 8.2.12. Transactions with Affiliates. Except for transactions
between the Borrower and its Wholly Owned Subsidiaries or Cogen America or
between one Wholly Owned

                                       80



Subsidiary and another Wholly Owned Subsidiary or Cogen America, the Borrower
will not, and will not permit any of its Subsidiaries to, enter into, or cause,
suffer or permit to exist any arrangement or contract with any of its other
Affiliates unless such arrangement or contract is fair and equitable to the
Borrower or such Subsidiary and is an arrangement or contract of the kind which
would be entered into by a prudent Person in the position of the Borrower or
such Subsidiary with a Person which is not one of its Affiliates.

         SECTION 8.2.13. Negative Pledges, Restrictive Agreements, etc. The
Borrower will not, and will not permit any of its Subsidiaries to, enter into
any agreement which:

                           (i)      prohibits the creation or assumption of any
                  Lien upon its properties, revenues or assets, whether now
                  owned or hereafter acquired, or the ability of the Borrower or
                  any other Obligor to amend or otherwise modify this Agreement
                  or any other Loan Document; or

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

provided, however, that the above restriction shall not be applicable to (A)
this Agreement or any other Loan Document; (B) any agreement governing
Indebtedness permitted under Section 8.2.2(a), (b), (e), (f), (g), (j) (provided
that the Borrower has delivered to the Agent a certificate of an Authorized
Officer of the Borrower certifying that the provision contained in such
agreement, which would otherwise cause such agreement to violate this Section
8.2.13, (I) is required in order to enter into such agreement, (II) is customary
for such agreements and (III) applies only to the Person entering into such
agreement and its Subsidiaries), (l), (m), (o) (provided that any such
agreement, but for this proviso, would violate only clause (i) of this Section
8.2.13) or (p) (and refinancings, extensions and renewals of such Indebtedness
permitted under Section 8.2.2(r)); (C) any agreement in respect of a
Sale/Leaseback Transaction permitted under Section 8.2.3(m); or (D) any
agreement pursuant to which any preferred equity shall be issued (provided that
the provision contained in such agreement, which would otherwise cause such
agreement to violate this Section 8.2.13, restricts only the right of the issuer
of such preferred equity to pay dividends on the common equity of such issuer
while any arrearage exists in the payment of dividends on such preferred
equity).

         SECTION 8.2.14. Amendments to Canadian Documentation. The Borrower will
not, and will not permit CCEC, CCEF or QCH, to amend the contractual
arrangements among CCEC, QCH and CCEF in respect of the term debentures dated
April 25, 2001, August 14, 2001 and August 23, 2001 between CCEC and CCEF and
the documentation executed in connection therewith or the memorandum of
association or articles of association of CCEC without the prior written consent
of the Agent and the Arrangers, which consent shall not be unreasonably withheld
or delayed. The Borrower will not permit any amendments to be made to the
articles of incorporation of any Guarantor without the prior written consent of
the Agent and the Arrangers, which consent shall not be unreasonably withheld or
delayed. Nothing in this Section 8.2.14

                                       81



shall, however, be deemed to limit the ability of any one or more of QM, JOQ or
QCH to merge or consolidate with one or more of the others (subject only to a
delivery of a certificate in a form reasonably satisfactory to the Agent to the
effect that the merged entity would not be liable for any Obligations of CCEF).

         SECTION 8.2.15. Restrictions on Issuance of Preferred Equity. No
Subsidiary of the Borrower shall issue any preferred or preference capital stock
or other capital stock with rights prior to or in addition to those contained in
common equity, other than any such equity issued by a Subsidiary of the Borrower
(other than a Subsidiary that owns, directly or indirectly, any Material
Designated Assets), the net proceeds of which are applied to finance the
exploration, drilling, development, construction or purchase of or by, or
repairs or improvements or additions to, property or assets of the Borrower or
any Subsidiary.

         SECTION 8.3. No Restriction on Payments to the Borrower. Nothing herein
shall restrict the ability of any Subsidiary of the Borrower to make any payment
by way of dividends, advances, repayments of loans or advances, reimbursements
of management and other intercompany charges, expenses and accruals or other
returns on investments or any other payment, directly or indirectly, to the
Borrower.

                                   ARTICLE IX

                                EVENTS OF DEFAULT

         SECTION 9.1. Listing of Events of Default. Each of the following events
or occurrences described in this Section 9.1 shall constitute an "Event of
Default".

         SECTION 9.1.1. Non-Payment of Obligations. The Borrower shall default
in the payment or prepayment when due of any principal of any Loan, the Borrower
shall default in the payment when due of any Reimbursement Obligation, or the
Borrower shall default (and such default shall continue unremedied for a period
of five days) in the payment when due of interest on any Loan, any fee or of any
other Obligation.

         SECTION 9.1.2. Breach of Warranty. Any representation or warranty of
the Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the Borrower or any other Obligor to the Agent or any Lender
for the purposes of or in connection with this Agreement or any such other Loan
Document (including any certificates delivered pursuant to Article VI) is or
shall be incorrect when made in any material respect.

         SECTION 9.1.3. Non-Performance of Certain Covenants and Obligations.
The Borrower shall default in the due performance and observance of any of its
obligations under Section 8.2 or the Fee Letter and such default shall continue
unremedied for a period of 10 days after the earlier of (i) actual knowledge
thereof by the Borrower or (ii) notice thereof has been given to the Borrower by
the Agent or by any Lender.

         SECTION 9.1.4. Non-Performance of Other Covenants and Obligations. Any
Obligor shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document executed by it, and
such default shall continue unremedied for a

                                       82



period of 30 days after notice thereof shall have been given to the Borrower by
the Agent or any Lender (or such longer period as the Required Lenders in their
discretion, may agree, provided that such Obligor has commenced such cure within
such 30 day period and thereafter diligently pursues such cure to completion).

         SECTION 9.1.5. Default on Other Indebtedness. (a) A default shall occur
in the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 9.1.1) of the Borrower or any of its Significant
Subsidiaries or any other Obligor having a principal amount, individually or in
the aggregate, in excess of $10,000,000, (b) a default shall occur in the
performance or observance of any obligation or condition with respect to such
Indebtedness if the effect of such default is to accelerate the maturity of any
such Indebtedness or, in the case of the Borrower only, such default shall
continue unremedied for any applicable period of time sufficient to permit the
holder or holders of such Indebtedness, or any trustee or agent for such
holders, to cause such Indebtedness to become due and payable prior to its
expressed maturity (and notice of such default has been given to the relevant
borrower), (c) a default shall occur in the performance or observance of any
obligation or condition with respect to the Borrower's debt securities issued to
a Trust or to any Indebtedness of any Significant Subsidiary (other than CCFCI
and CCFCII) or Obligor, in either case having a principal amount in excess of
$10,000,000, and, as a result thereof, the holder or holders of such debt
securities or such Indebtedness, or any trustee or agent for such holders,
causes such securities or Indebtedness to be repaid more quickly than
theretofore scheduled, whether through the introduction of a "cash sweep," the
increase of an existing "cash sweep" or otherwise, or (d) a default of a type
described in clause (b) above shall occur with respect to any Indebtedness of
CCFCI or CCFCII having an unpaid principal amount in excess of $10,000,000
(whether or not such default actually results in the acceleration of the
applicable Indebtedness) and, as a result thereof, the holder or holders of such
debt securities or such Indebtedness, or any trustee or agent for such holders,
causes such securities or Indebtedness to be repaid more quickly than
theretofore scheduled, whether through the introduction of a "cash sweep," the
increase of an existing "cash sweep" or otherwise.

         SECTION 9.1.6. Judgments. Any final judgment or order (not covered by
insurance) for the payment of money shall be rendered against the Borrower or
any Significant Subsidiary or any other Obligor in an amount in excess of
$25,000,000 (or its foreign currency equivalent) (treating any deductibles,
self-insurance or retention as not so covered) which is not stayed or discharged
within 30 days after entry of such final judgment or order, and there shall be
any period of more than 30 consecutive days following entry of the final
judgment or order in excess of $25,000,000 (or its foreign currency equivalent)
during which a stay of enforcement of such final judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect.

         SECTION 9.1.7. Pension Plans. Any of the following events shall occur
with respect to any Pension Plan

                  (a) the institution of any steps by the Borrower, any member
         of its Controlled Group or any other Person to terminate a Pension Plan
         if, as a result of such termination, the Borrower or any such member
         could be required to make a contribution to such

                                       83



         Pension Plan, or could reasonably expect to incur a liability or
         obligation to such Pension Plan, in excess of $10,000,000; or

                  (b) a contribution failure occurs with respect to any Pension
         Plan sufficient to give rise to a Lien under Section 302(f) of ERISA.

         SECTION 9.1.8. Control of the Borrower. Any Change in Control shall
occur.

         SECTION 9.1.9. Bankruptcy, Insolvency, etc. The Borrower or any of its
Significant Subsidiaries or any other Obligor shall

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

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

                  (c) in the absence of such application, consent or
         acquiescence, permit or suffer to exist the appointment of a trustee,
         receiver, sequestrator or other custodian for the Borrower or any of
         its Significant Subsidiaries or any other Obligor or for a substantial
         part of the property of any thereof, and such trustee, receiver,
         sequestrator or other custodian shall not be discharged within 60 days,
         provided that the Borrower, each Significant Subsidiary and each other
         Obligor hereby expressly authorizes the Agent and each Lender to appear
         in any court conducting any relevant proceeding during such 60-day
         period to preserve, protect and defend their rights under the Loan
         Documents;

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

                  (e) take any action authorizing any of the foregoing.

         SECTION 9.1.10. Impairment of Security, etc. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto; or the
Borrower, any other Obligor or any Subsidiary shall, directly or indirectly,
contest in any manner such effectiveness, validity, binding nature or
enforceability; or

                                       84



any Lien securing any Obligation shall, in whole or in part, cease to be a
perfected first priority Lien, subject only to those exceptions expressly
permitted by such Loan Document.

         SECTION 9.2. Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 9.1.9 shall occur with respect to the
Borrower or any Significant Subsidiary or any other Obligor, the Commitments (if
not theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other Obligations shall
automatically be and become immediately due and payable, without notice or
demand.

         SECTION 9.3. Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of Section
9.1.9 with respect to the Borrower or any Significant Subsidiary or any other
Obligor) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Agent, upon the direction of the Required Lenders, shall by
notice to the Borrower declare all or any portion of the outstanding principal
amount of the Loans and other Obligations to be due and payable and/or the
Commitments (if not theretofore terminated) to be terminated, whereupon the full
unpaid amount of such Loans and other Obligations which shall be so declared due
and payable shall be and become immediately due and payable, without further
notice, demand or presentment, and/or, as the case may be, the Commitments shall
terminate and the Agent may thereupon exercise any and all remedies available
under the Loan Documents and applicable law.

                                   ARTICLE X

                                    THE AGENT

         SECTION 10.1. Actions. Each Lender hereby appoints Scotia Capital as
its Agent under and for purposes of this Agreement, the Notes and each other
Loan Document. Each Lender authorizes the Agent to act on behalf of such Lender
under this Agreement, the Notes and each other Loan Document and, in the absence
of other written instructions from the Required Lenders received from time to
time by such Person (with respect to which such Person agrees that it will
comply, except as otherwise provided in this Section or as otherwise advised by
counsel), to exercise such powers hereunder and thereunder as are specifically
delegated to or required of the Agent by the terms hereof and thereof, together
with such powers as may be reasonably incidental thereto. Each Lender hereby
indemnifies (which indemnity shall survive any termination of this Agreement)
the Agent and the Arrangers, pro rata according to such Lender's Aggregate
Percentage, from and against any and all liabilities, obligations, losses,
damages, claims, costs or expenses of any kind or nature whatsoever which may at
any time be imposed on, incurred by, or asserted against, the Agent or any
Arranger in any way relating to or arising out of this Agreement, the Notes and
any other Loan Document, including reasonable attorneys' fees, and as to which
the Agent or any Arranger is not reimbursed by the Borrower; provided, however,
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, claims, costs or expenses which are
determined by a court of competent jurisdiction in a final proceeding to have
resulted from the Agent's or any Arranger's, as the case may be, gross
negligence or willful misconduct. The Agent and the Arrangers shall not be
required to take any action hereunder, under the Notes or under any other Loan
Document, or to prosecute or defend any suit in respect of this Agreement, the
Notes or

                                       85



any other Loan Document, unless they are indemnified hereunder to its
satisfaction. If any indemnity in favor of the Agent or any Arranger shall be or
become, in such Person's determination, inadequate, such Person may call for
additional indemnification from the Lenders and cease to do the acts indemnified
against hereunder until such additional indemnity is given.

         SECTION 10.2. Funding Reliance, etc. Unless the Agent shall have been
notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., San
Francisco time, on the day prior to a Borrowing that such Lender will not make
available the amount which would constitute its applicable Percentage of such
Borrowing on the date specified therefor, the Agent may assume that such Lender
has made such amount available to the Agent and, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If and to the
extent that such Lender shall not have made such amount available to the Agent,
such Lender and the Borrower severally agree to repay the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date the Agent made such amount available to the Borrower to the date
such amount is repaid to the Agent, at the interest rate applicable at the time
to Loans comprising such Borrowing.

         SECTION 10.3. Exculpation. Neither the Agent nor any of their
respective directors, officers, employees or agents shall be liable to any
Lender for any action taken or omitted to be taken by it under this Agreement or
any other Loan Document, or in connection herewith or therewith, except for its
own willful misconduct or gross negligence, nor responsible for any recitals or
warranties herein or therein, nor for the effectiveness, enforceability,
validity or due execution of this Agreement or any other Loan Document, nor for
the creation, perfection or priority of any Liens purported to be created by any
of the Loan Documents, or the validity, genuineness, enforceability, existence,
value or sufficiency of any collateral security, nor to make any inquiry
respecting the performance by the Borrower of its obligations hereunder or under
any other Loan Document. Any such inquiry which may be made by the Agent shall
not obligate it to make any further inquiry or to take any action. The Agent
shall be entitled to rely upon advice of counsel concerning legal matters and
upon any notice, consent, certificate, statement or writing which it believes to
be genuine and to have been presented by a proper Person.

         SECTION 10.4. Successor. The Agent may resign as such at any time upon
at least 30 days' prior notice to the Borrower and all Lenders. If the Agent at
any time shall resign, the Required Lenders may appoint another Lender as a
successor thereto which shall thereupon become the Agent, as applicable,
hereunder. If no successor shall have been so appointed by the Required Lenders,
and shall have accepted such appointment, within 30 days after the retiring
Agent's giving notice of resignation, then the retiring Person may, on behalf of
the Lenders, appoint a successor, which shall be one of the Lenders or a
commercial banking institution organized under the laws of the U.S. (or any
State thereof) or a U.S. branch or agency of a commercial banking institution,
and having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor shall be entitled to receive from the retiring Agent such documents of
transfer and assignment as such successor may reasonably request, and shall
thereupon succeed to and become vested with all rights, powers, privileges and
duties of the retiring Agent, as applicable, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent's resignation hereunder as the Agent, the provisions of

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

                  (b) Section 11.3 (with respect to expenses incurred prior to
         resignation) and Section 11.4 shall continue to inure to its benefit.

         SECTION 10.5. Loans or Letters of Credit Issued by Agent or any Issuer.

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

                  (b) Each Issuer shall have the same rights and powers with
         respect to (x) the Loans made by it or any of its Affiliates, (y) the
         Notes held by it or any of its Affiliates, and (z) its participating
         interests in the Letters of Credit as any other Lender and may exercise
         the same as if it were not an Issuer. Each Issuer and its Affiliates
         may accept deposits from, lend money to, and generally engage in any
         kind of business with the Borrower or any Subsidiary or Affiliate of
         the Borrower as if it were not an Issuer hereunder.

         SECTION 10.6. Credit Decisions. Each Lender acknowledges that it has,
independently of the Agent and each other Lender, and based on such Lender's
review of the financial information of the Borrower, this Agreement, the other
Loan Documents (the terms and provisions of which being satisfactory to such
Lender) and such other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend its Commitments.
Each Lender also acknowledges that it will, independently of the Agent and each
other Lender, and based on such other documents, information and investigations
as it shall deem appropriate at any time, continue to make its own credit
decisions as to exercising or not exercising from time to time any rights and
privileges available to it under this Agreement or any other Loan Document.

         SECTION 10.7. Copies, etc. The Agent shall give prompt notice to each
Lender of each notice or request required or permitted to be given to the Agent
by the Borrower pursuant to the terms of this Agreement (unless concurrently
delivered to the Lenders by the Borrower). The Agent will distribute to each
Lender each document or instrument received for its account and copies of all
other communications received by the Agent from the Borrower for distribution to
the Lenders by the Agent in accordance with the terms of this Agreement.

         SECTION 10.8. Other Agents; Lead Arrangers. None of the Lenders
identified on the facing page or signature pages of this Agreement as a
"bookrunner," or "lead arranger" shall have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those
applicable to all Lenders as such. Without limiting the foregoing, none of the
Lenders so identified shall have or be deemed to have any fiduciary relationship
with any Lender. Each

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Lender acknowledges that it has not relied, and will not rely, on any of the
Lenders so identified in deciding to enter into this Agreement or in taking or
not taking action hereunder.

         SECTION 10.9. Collateral Matters.

                  (a) Each of the Lenders hereby acknowledges and agrees that
         Liens upon the Collateral granted to or held by the Agent or the
         Collateral Trustee under any Loan Document will be released:

                           (i)      in whole, upon termination of the Revolving
                  Loan Commitments and payment in full of all Obligations (other
                  than contingent indemnification obligations) and the
                  expiration or termination of all Letters of Credit;

                           (ii)     as to any Collateral that is sold,
                  transferred or otherwise disposed of, or to be sold,
                  transferred or otherwise disposed of, as part of any sale,
                  transfer or other disposition, or proposed sale, transfer or
                  other disposition permitted under Sections 8.2.9 or 8.2.10
                  (exclusive of any transfer (whether by means of merger or
                  otherwise) to any Subsidiary of the Borrower permitted under
                  Sections 8.2.9 or 8.2.10; provided, however, that if any
                  Pledged Power Project is transferred from the Borrower to a
                  Subsidiary that is a Pledged Entity or a Subsidiary of a
                  Pledged Entity, the Lien created by the applicable Security
                  Document thereon shall be so released);

                           (iii)    in connection with any abandonment,
                  forfeiture, surrender or release of oil and gas assets
                  permitted under the Deeds of Trust;

                           (iv)     as to any Excluded Assets; and

                           (v)      to the extent permitted by Section 11.1(f).

                  (b) Each Lender hereby authorizes the Agent to act under the
         Collateral Trust Agreement to release the Collateral Trustee's Lien on
         applicable Collateral to the extent set forth in clause (a) above.

                  (c) Each Lender hereby authorizes and directs the Agent to
         transfer to the Collateral Trustee all Liens and security interests
         held by the Agent under the 2002 Credit Agreement, including the
         Agent's interest as beneficiary or mortgagee under the Existing Deeds
         of Trust, its interest as secured party under related financing
         statements and all rights, powers, duties and obligations under the
         Existing Deeds of Trust necessary or helpful in the exercise of the
         Collateral Trustee's duties and obligations under the Collateral Trust
         Agreement.

                  (d) The Borrower agrees that, in the case of any Lien to be
         released in connection with a proposed sale, transfer or other
         disposition pursuant to clause (a)(ii) above, (i) such release will
         only become effective in connection with a Permitted Sale, (ii) no Lien
         on such property has or will be granted to any other Person other than
         the Collateral Trustee (for the benefit of, among others, the Lenders
         hereunder) during the period between the date of such release and the
         date of the consummation of the Permitted Sale and (iii) in

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         the event that the consummation of the Permitted Sale does not take
         place (or a definitive binding agreement with respect to such Permitted
         Sale is not entered into) with 60 days of such release, the Lien of the
         Collateral Trustee (for the benefit of, among others, the Lenders
         hereunder) on such property will immediately and automatically be
         reinstated.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

         SECTION 11.1. Waivers, Amendments, etc. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and, except as set forth in the second proviso
below, the Required Lenders; provided, however, that no such amendment,
modification or waiver which would:

                  (a) modify this Section 11.1 or modify any requirement
         hereunder that any particular action be taken by all the Lenders or by
         the Required Lenders shall be effective unless consented to by each
         Lender;

                  (b) modify any requirement hereunder that any particular
         action be taken by the Required Revolving Lenders or change the
         definition of "Required Revolving Lenders" shall be effective unless
         consented to by each Revolving Lender;

                  (c) (i) increase (A) the Revolving Commitment Amount of any
         Revolving Lender or (B) the Revolving Percentage of any Revolving
         Lender shall be made without the consent of such Lender or (ii) extend
         the Revolving Loan Commitment Termination Date or change any provision
         expressly requiring the consent of all Revolving Lenders shall be made
         without the consent of each Revolving Lender;

                  (d) (i) increase (A) the Term B Loan Commitment Amount of any
         Term B Lender or (B) the Term Percentage of any Term B Lender shall be
         made without the consent of such Lender or (ii) change any provision
         expressly requiring the consent of all Term B Lenders shall be made
         without the consent of each Term B Lender;

                  (e) reduce any fees described in Article III shall be made
         without the consent of each Lender affected thereby or extend the due
         date for, or reduce the amount of, any scheduled payment of principal,
         interest or fees on any Loan (or reduce the principal amount of or rate
         of interest on any Loan) shall be made without the consent of the
         Lender holding the Note evidencing such Loan;

                  (f) authorize the release of any Lien created by a Loan
         Document shall be effective without the consent of Lenders having at
         least 75% of the aggregate of all Term B Loans then outstanding, all
         unfunded Term B Loan Commitments, all Revolving Loans then outstanding,
         all Letter of Credit Outstandings on such date, and all unfunded
         Revolving Loan Commitments, except that no such consent shall be
         required to the extent that the sale or other disposition of the asset
         subject to the Lien is permitted hereunder and the proceeds thereof are
         applied as required by this Agreement;

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                  (g) modify the application of payments specified under
         Sections 2.2.2 and 3.1.1(c) shall be effective without the consent of
         the Supermajority Lenders;

                  (h) release any Guarantor shall be effective without the
         consent of all Lenders unless all or substantially all of the
         Collateral has been released hereunder;

                  (i) extend the due date for, or reduce the amount of, any
         Reimbursement Obligation for a Letter of Credit which has been drawn
         shall be made without the consent of the Issuer thereof and each
         Revolving Lender;

                  (j) affect adversely the interests, rights or obligations of
         an Issuer qua an Issuer shall be made without the consent of such
         Issuer; or

                  (k) affect adversely the interests, rights or obligations of
         the Agent qua the Agent shall be made without consent of the Agent; and

provided, further, that (a) none of the matters referred to in clauses (b),
(c)(i)(B), (c)(ii) or (i) of the immediately preceding proviso shall require the
consent of any Term B Lender and (b) none of the matters referred to in clauses
(d)(i)(B) or (d)(ii) of the immediately preceding proviso shall require the
consent of any Revolving Lender.

Notwithstanding the foregoing, Section 10.3 shall not be amended without the
consent of the Agent. No failure or delay on the part of the Agent, any Lender
or the holder of any Note in exercising any power or right under this Agreement
or any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Borrower in any case shall entitle it to any notice or
demand in similar or other circumstances. No waiver or approval by the Agent,
any Lender or the holder of any Note under this Agreement or any other Loan
Document shall, except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.

         SECTION 11.2. Notices. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party at
its address or facsimile number set forth below its signature hereto or set
forth in the Lender Assignment Agreement or at such other address or facsimile
number as may be designated by such party in a notice to the other parties. Any
notice, if mailed and properly addressed with postage prepaid or if properly
addressed and sent by pre-paid courier service, shall be deemed given when
received; any notice, if transmitted by facsimile, shall be deemed given when
transmitted.

         SECTION 11.3. Payment of Costs and Expenses. The Borrower agrees to pay
on demand all reasonable expenses of the Agent and the Arrangers (including the
reasonable fees and out-of-pocket expenses of one special oil and gas counsel to
the Agent and the Arrangers and one counsel to the Agent and the Arrangers
covering all other matters, and of local counsel, if any, who may be retained by
counsel to the Agent and the Arrangers) in connection with

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

                  (b) the filing, recording, refiling or rerecording of any
         Uniform Commercial Code financing statements and all amendments,
         supplements and modifications to any thereof and any and all other
         documents or instruments of further assurance required to be filed or
         recorded or refiled or rerecorded by the terms hereof, and

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

If the Agent or its counsel shall be precluded from undertaking the duties
described in clause (b) above due to a conflict of interest, the Lenders may
appoint another Lender and/or counsel to discharge such duties and the Borrower
shall be responsible for the reasonable expenses of such Lender and counsel. The
Borrower further agrees to pay, and to save the Agent, each Issuer and the
Lenders harmless from all liability for, any stamp or other taxes (other than
income taxes) which may be payable in connection with the execution or delivery
of this Agreement, the borrowings hereunder, the issuance of the Notes, the
issuance of the Letters of Credit, or any other Loan Documents. The Borrower
also agrees to reimburse the Agent, each Issuer and each Lender upon demand for
all reasonable out-of-pocket expenses (including attorneys' fees and legal
expenses) incurred by the Agent or such Lender in connection with (x) the
negotiation of any restructuring or "work-out", whether or not consummated, of
any Obligations and (y) the enforcement of any Obligations upon and during the
continuing of an Event of Default.

         SECTION 11.4. Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds the Agent, the Arrangers,
the Issuers and each Lender and each of their respective Affiliates, officers,
directors, employees and agents, and each other person controlling any of the
foregoing within the meaning of either Section 15 of the Securities Act of 1933,
as amended, or Section 20 of the Securities Exchange Act of 1934, as amended
(collectively, the "Indemnified Parties") free and harmless from and against any
and all actions, causes of action, suits, losses, costs, claims, liabilities and
damages, and expenses incurred by any Indemnified Party in connection therewith
(irrespective of whether any such Indemnified Party is a party to the action for
which indemnification hereunder is sought), including reasonable attorneys' fees
and disbursements (collectively, the "Indemnified Liabilities"), incurred by the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to

                  (a) any transaction financed or to be financed in whole or in
         part, directly or indirectly, with the proceeds of any Loan or the use
         of any Letter of Credit;

                  (b) the entering into and performance of this Agreement and
         any other Loan Document by any of the Indemnified Parties (including
         any action brought by or on behalf of the Borrower as the result of the
         Required Lenders' refusal to make any Credit Extension as a result of
         the Borrower's failure to satisfy the conditions in Article VI

                                       91



         hereof but not including any breach of this Agreement or any other Loan
         Document by the Agent or any of the Lenders);

                  (c) any investigation, litigation or proceeding related to any
         acquisition or proposed acquisition by the Borrower or any of its
         Subsidiaries of all or any portion of the stock or assets of any
         Person, whether or not the Agent or such Lender is party thereto;

                  (d) any investigation, litigation or proceeding related to any
         environmental cleanup, audit, compliance or other matter relating to
         the protection of the environment or the Release by the Borrower or any
         of its Subsidiaries of any Hazardous Material; or

                  (e) the presence on or under, or the escape, seepage, leakage,
         spillage, discharge, emission, discharging or releases from, any real
         property owned or operated by the Borrower or any Subsidiary thereof of
         any Hazardous Material (including any losses, liabilities, damages,
         injuries, costs, expenses or claims asserted or arising under any
         Environmental Law), regardless of whether caused by, or within the
         control of, the Borrower or such Subsidiary,

except for any such Indemnified Liabilities resulting from, arising out of or
relating to the relevant Indemnified Party's gross negligence or willful
misconduct. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. In addition to the
foregoing, the Borrower hereby waives any and all rights to seek or obtain
consequential damages from any Indemnified Party.

         The Lenders agree to indemnify each Issuer with respect to any acts
taken or omissions suffered by the Issuer in connection with each Letter of
Credit issued by it or proposed to be issued by it and the related Issuance
Request (to the extent not reimbursed by the Borrower), ratably according to
their respective Aggregate Percentages, from and against any and all claims,
damages, losses, liabilities and expenses (including without limitation,
reasonable fees and disbursements of counsel) of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against any Issuer in any way
relating to or arising out of any of the Loan Documents or the Letters of Credit
or any action taken or omitted by such Issuer under the Loan Documents or the
Letters of Credit (EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY
OR EXPENSE ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF THE
ISSUER, BUT EXCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR EXPENSE
ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ISSUER). IT IS
THE INTENT OF THE PARTIES HERETO THAT THE ISSUER SHALL, TO THE EXTENT PROVIDED
IN THIS SECTION 11.4, BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY
NEGLIGENCE. Without limitation of the foregoing, each Lender agrees to reimburse
each Issuer promptly upon demand for such Lender's ratable share of any
reasonable out-of-pocket expenses (including reasonable counsel fees) incurred
by such Issuer in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in

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respect of rights or responsibilities under, the Loan Documents or the Letters
of Credit, or any of them, to the extent that the Issuer is not reimbursed for
such expenses by the Borrower.

         SECTION 11.5. Survival. The obligations of the Borrower under Sections
5.3, 5.4, 5.5, 5.6, 11.3 and 11.4, and the obligations of the Lenders under
Section 10.1, shall in each case survive any termination of this Agreement, the
payment in full of all Obligations and the termination of all Commitments. The
representations and warranties made by each Obligor in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.

         SECTION 11.6. Severability. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.

         SECTION 11.7. Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.

         SECTION 11.8. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be executed by the Borrower and the Agent and be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when counterparts hereof
executed on behalf of the Borrower and each Lender (or notice thereof
satisfactory to the Agent) shall have been received by the Agent, and the
conditions precedent set forth in Section 6.1 shall have been satisfied.

         SECTION 11.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE
NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK. This Agreement, the Notes and the other Loan Documents
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof and supersede any prior agreements, written or oral, with
respect thereto.

         SECTION 11.10. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:

                  (a) the Borrower may not assign or transfer its rights or
         obligations hereunder without the prior written consent of the Agent
         and all Lenders; and

                  (b) the rights of sale, assignment and transfer of the Lenders
         are subject to Section 11.11.

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         SECTION 11.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes. Each Lender may assign, or sell participations in, its Loans,
Notes and Revolving Loan Commitments to one or more other Persons in accordance
with this Section 11.11.

         SECTION 11.11.1. Assignments. Any Lender,

                  (a) with the written consent of the Borrower and the Agent
         (which consents shall not be unreasonably withheld and which consent,
         in the case of the Borrower, shall be deemed to have been given in the
         absence of a written notice delivered by the Borrower to the Agent, on
         or before the fifth Business Day after receipt by the Borrower of such
         Lender's request for consent, stating, in reasonable detail, the
         reasons why the Borrower proposes to withhold such consent and which
         consent shall not be required from the Borrower after the occurrence
         and during the continuance of an Event of Default) and each Issuer
         (which consent may be granted or withheld in its sole unfettered
         discretion) may at any time assign and delegate its Revolving Loans
         and/or Revolving Loan Commitments to one or more commercial banks or
         other financial institutions; provided that, in addition to the
         consents of the Agent and each Issuer as set forth above, only notice
         to and not the consent of the Borrower shall be required for the
         assignment and delegation of Revolving Loans and/or Revolving Loan
         Commitments (i) to any Affiliate or Approved Fund of such Lender or
         (ii) in connection with the primary syndication of the Revolving Loans
         and/or Revolving Loan Commitments by the Arrangers, and

                  (b) with the written consent of the Borrower and the Agent
         (which consents shall not be unreasonably withheld and which consent,
         in the case of the Borrower, shall be deemed to have been given in the
         absence of a written notice delivered by the Borrower to the Agent, on
         or before the fifth Business Day after receipt by the Borrower of such
         Lender's request for consent, stating, in reasonable detail, the
         reasons why the Borrower proposes to withhold such consent and which
         consent shall not be required from the Borrower after the occurrence
         and during the continuance of an Event of Default or in connection with
         the assignment and delegation of any Term B Loans) may at any time
         assign and delegate its Term B Loans to one or more commercial banks or
         other financial institutions; provided that, in addition to the consent
         of the Agent as set forth above, only notice to and not the consent of
         the Borrower shall be required for the assignment and delegation of
         Term B Loans (i) to any Affiliate or Approved Fund of such Lender or
         (ii) in connection with the primary syndication of the Term B Loans by
         the Arrangers,

(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), which assignment and delegation shall be of a
constant, and not a varying, percentage of all the assigning Lender's Loans,
Commitments and other interests, in a minimum aggregate amount of $5,000,000 in
the case of Revolving Loan Commitments or, if less, the amount of such Lender's
Revolving Loan Commitment; provided, however, that any such Assignee Lender will
comply, if applicable, with the provisions contained in Section 5.6 and further,
provided, however, that, the Borrower, each other Obligor and the Agent shall be
entitled to continue to deal solely and directly with such Lender in connection
with the interests so assigned and delegated to an Assignee Lender until

                                       94



                           (i)      written notice of such assignment and
                  delegation, together with payment instructions, addresses and
                  related information with respect to such Assignee Lender,
                  shall have been given to the Borrower and the Agent by such
                  Lender and such Assignee Lender,

                           (ii)     such Assignee Lender shall have executed and
                  delivered to the Borrower and the Agent a Lender Assignment
                  Agreement, and to the extent and on the terms required herein,
                  such agreement shall have been accepted by the Agent and the
                  Borrower, and

                           (iii)    the processing fees described below shall
                  have been paid.

From and after the date that the Agent accepts such Lender Assignment Agreement,
(x) the Assignee Lender thereunder shall be deemed automatically to have become
a party hereto and to the extent that rights and obligations hereunder have been
assigned and delegated to such Assignee Lender in connection with such Lender
Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and under the other Loan Documents, and (y) the assignor Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan Documents with
respect to obligations arising after the date of assignment. Within five
Business Days after its receipt of notice that the Agent has received an
executed Lender Assignment Agreement, the Borrower shall, if requested by the
Assignee Lender, execute and deliver to the Agent (for delivery to the relevant
Assignee Lender) new Notes evidencing such Assignee Lender's assigned Loans and
Commitments and, if the assignor Lender has retained Loans and Commitments
hereunder, replacement Notes in the principal amount of the Loans and
Commitments retained by the assignor Lender hereunder (such Notes to be in
exchange for, but not in payment of, those Notes then held by such assignor
Lender). Each such Note shall be dated the date of the predecessor Notes. The
assignor Lender shall mark the predecessor Notes "exchanged" and deliver them to
the Borrower. Such assignor Lender or such Assignee Lender must also pay a
processing fee to the Agent upon delivery of any Lender Assignment Agreement in
the amount of $3,000. Any attempted assignment and delegation not made in
accordance with this Section 11.11.1 shall be null and void. In addition to the
foregoing, and notwithstanding any other provision hereof, (i) any Lender may at
any time without notice to or consent by any other Person assign its rights
under this Agreement to any Federal Reserve Bank and (ii) the Agent shall
provide notice to the Lenders of any assignments by it under this Section
11.11.1.

         SECTION 11.11.2. Participations. Any Lender may at any time sell to one
or more commercial banks or other Persons (each of such commercial banks and
other Persons being herein called a "Participant") participating interests (or a
sub-participating interest, in the case of a Lender's participating interest in
a Letter of Credit) in any of the Loans, Commitments, or other interests of such
Lender hereunder; provided, however, that

                  (a) no participation or sub-participation contemplated in this
         Section 11.11 shall relieve such Lender from its Commitments or its
         other obligations hereunder or under any other Loan Document,

                                       95



                  (b) such Lender shall remain solely responsible for the
         performance of its Commitments and such other obligations,

                  (c) the Borrower and each other Obligor and the Agent shall
         continue to deal solely and directly with such Lender in connection
         with such Lender's rights and obligations under this Agreement and each
         of the other Loan Documents,

                  (d) no Participant, unless such Participant is an Affiliate of
         such Lender, or is itself a Lender, shall be entitled to require such
         Lender to take or refrain from taking any action hereunder or under any
         other Loan Document, except that such Lender may agree with any
         Participant that such Lender will not, without such Participant's
         consent, take any actions of the type described in clause (b) of
         Section 11.1, and

                  (e) the Borrower shall not be required to pay any amount under
         Section 5.6 that is greater than the amount which it would have been
         required to pay had no participating interest been sold.

The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 5.3, 5.4, 5.5, 5.6, 5.8, 5.9, 11.3 and 11.4, shall be considered a
Lender.

         SECTION 11.11.3. Special Funding Vehicles. Notwithstanding anything to
the contrary contained herein, any Lender (a "Granting Lender") may grant to a
special purpose funding vehicle (a "SPC"), identified as such in writing from
time to time by the Granting Lender to the Agent and the Borrower, the option to
provide to the Borrower all or any part of any Loan that such Granting Lender is
obligated to make to the Borrower pursuant to this Agreement; provided that (i)
nothing herein shall constitute a commitment by any SPC to make any Loan, (ii)
if an SPC elects not to exercise such option or otherwise fails to provide all
or any part of such Loan, the Granting Lender shall remain obligated to make
such Loan pursuant to the terms hereof, (iii) the Borrower shall not be required
to pay any amount under Section 5.6 that is greater than the amount which it
would have been required to pay had there been no grant to an SPC and any SPC
(or assignee of an SPC) will comply, if applicable, with the provisions
contained in Section 5.6. No grant by any Granting Lender to an SPC agreeing to
provide a Loan or making of such Loan by any SPC shall operate to relieve such
Granting Lender of its liabilities and obligations hereunder, except to the
extent of the making of such Loan by such SPC. The making of a Loan by an SPC
hereunder shall utilize the Commitment of the Granting Lender to the same
extent, and as if, such Loan were made by such Granting Lender. Each party
hereto hereby agrees that no SPC shall be liable for any indemnity or similar
payment obligation under this Agreement (all liability for which shall remain
with the Granting Lender). In addition, each party hereto hereby agrees (which
agreement shall survive the termination of this Agreement) that, any SPC may (i)
with notice to, but without the prior written consent of, the Borrower and the
Agent and without paying any processing fee therefor, assign all or a portion of
its interests in any Loans to the Granting Lender or to any financial
institutions (consented to by the Borrower and the Agent, each in its sole
discretion) providing liquidity and/or credit support to or for the account of
such SPC to support the funding or maintenance of Loans and (ii) disclose on a
confidential basis any non-public information relating to its Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC. This Section may not be amended
without the written consent of any SPC that

                                       96



holds an option to provide Loans. No recourse under any obligation, covenant, or
agreement of the SPC contained in this Agreement shall be had against any
shareholder, officer, agent or director of the SPC as such, by the enforcement
of any assessment or by any proceeding, by virtue of any statute or otherwise;
it being expressly agreed and understood that this Agreement is a corporate
obligation of the SPC and no personal liability shall attach to or be incurred
by any officer, agents or member of the SPC as such, or any of them under or by
reason of any of the obligations, covenants or agreements of the SPC contained
in this Agreement, or implied therefrom, and that any and all personal liability
for breaches by the SPC of any such obligations, covenants or agreements, either
at law or by statute or constitution, of every such shareholder, officer, agent
or director is hereby expressly waived by all parties to this Agreement as a
condition of and consideration for the SPC entering into this Agreement;
provided, however, that the foregoing shall not relieve any such person or
entity of any liability they might otherwise have as a result of fraudulent
actions or omissions taken by them. All parties to this Agreement acknowledge
and agree that the SPC shall only be liable for any claims that each of them may
have against the SPC only to the extent of the SPC's assets. The provisions of
this clause shall survive the termination of this Agreement.

         SECTION 11.12. Other Transactions. Nothing contained herein shall
preclude the Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.

         SECTION 11.13. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE
LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK OR IN ANY MANNER PROVIDED BY LAW. THE BORROWER
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM
THAT ANY SUCH

                                       97



LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE
BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

         SECTION 11.14. Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION AMONG ANY OF THE AGENT,
THE LENDERS AND THE BORROWER BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND
EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS
ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.

         SECTION 11.15. Confidentiality. The Lenders shall hold all non-public
information (which has been identified as such by the Borrower) obtained
pursuant to the requirements of this Agreement in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to any of their examiners, their Affiliates, outside auditors,
counsel and other professional advisors in connection with this Agreement or as
reasonably required by any bona fide transferee, participant or assignee or as
required or requested by any governmental agency or representative thereof or
pursuant to legal process; provided, however, that

                  (a) unless specifically prohibited by applicable law or court
         order, each Lender shall notify the Borrower of any request by any
         governmental agency or representative thereof (other than any such
         request in connection with an examination of the financial condition of
         such Lender by such governmental agency) for disclosure of any such
         non-public information prior to disclosure of such information;

                  (b) prior to any such disclosure pursuant to this Section
         11.15, each Lender shall require any such bona fide transferee,
         participant and assignee receiving a disclosure of non-public
         information to agree in writing

                           (i)      to be bound by this Section 11.15;

                                       98



                           (ii)     to require such Person to require any other
                  Person to whom such Person discloses such non-public
                  information to be similarly bound by this Section 11.15;

                  (c) except as may be required by an order of a court of
         competent jurisdiction and to the extent set forth therein, no Lender
         shall be obligated or required to return any materials furnished by the
         Borrower or any Subsidiary; and

                  (d) to any direct or indirect contractual counterparty in swap
         agreements or to such contractual counterparty's advisor (so long as
         such contractual counterparty or advisor agrees to be bound by the
         provisions of this Section 11.15).

Notwithstanding anything herein to the contrary, the parties to this Agreement
(and their employees, representatives or other agents) may disclose to any and
all persons, without limitation of any kind, the U.S. federal income tax
treatment and tax structure of the transactions contemplated by this Agreement
and all materials of any kind (including opinions or other tax analyses)
relating to such tax treatment and tax structure. However, no such party shall
disclose any information relating to such tax treatment or tax structure to the
extent nondisclosure is reasonably necessary in order to comply with applicable
securities laws. For this purpose, "tax structure" is limited to facts relevant
to the U.S. federal income tax treatment of the transactions contemplated by
this Agreement and does not include information relating to the identity of the
Borrower, its affiliates, agents or advisors.

         SECTION 11.16. Judgment Currency. The Obligations of the Borrower and
any other Obligor in respect of any sum due to any Lender or the Agent
hereunder, under the Notes or under or in respect of any other Loan Document
shall, notwithstanding any judgment in a currency (the "Judgment Currency")
other than the currency in which such sum was originally denominated (the
"Original Currency"), be discharged only to the extent that on the Business Day
following receipt by such Lender or the Agent of any sum adjudged to be so due
in the Judgment Currency, such Lender or the Agent, in accordance with normal
banking procedures, purchases the Original Currency with the Judgment Currency.
If the amount of Original Currency so purchased is less than the sum originally
due to such Lender or the Agent, the Borrower agrees as a separate obligation
and notwithstanding any such judgment, to indemnify each Lender and the Agent,
as the case may be, against such loss, and if the amount of Original Currency so
purchased exceeds the sum originally due to such Lender and the Agent, as the
case may be, each Lender and the Agent agree to remit any excess to the
applicable Obligor. If, for the purpose of obtaining judgment in any court, it
is necessary to convert a sum due under any Loan Document in another currency
into Dollars, Canadian Dollars or Sterling, as the case may be, the parties
hereto agree, to the fullest extent that they may effectively do so, that the
rate of exchange used shall be that at which, in accordance with normal banking
procedures, the applicable Lender could purchase such other currency with
Dollars, Canadian Dollars or Sterling, as the case may be, in New York, at the
close of business on the Business Day immediately preceding the day on which
final judgment is given, together with any premiums and costs of exchange
payable in connection with such purchase.

                                       99



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.

                                           CALPINE CORPORATION

                                           By: /s/ Michael Thomas
                                               ---------------------------------
                                               Name: Michael Thomas
                                               Title:

                                           Address: 50 West San Fernando Avenue
                                                    San Jose, CA 95113

                                           Facsimile No.: (408) 995-0505

                                           Attention: Treasurer



                             THE BANK OF NOVA SCOTIA,
                             as Agent

                             By: /s/ Denis P. O'Meara
                                 -----------------------------------------
                                 Name: Denis P. O'Meara
                                 Title: Managing Director

                             Address: Scotia Capital
                                      One Liberty Plaza
                                      New York, NY 10006

                             Facsimile No.: (212) 225-5480

                             Attention: Denis P. O'Meara

                             with a copy to: The Bank of Nova Scotia
                                             600 Peachtree Street N.E.
                                             Suite 2700
                                             Atlanta, GA 30308

                             Facsimile No.: (404) 888-8998

                             Attention: Hilma Gabbidon
                                        Administrative Agent
                                        Loan Administration



                             BAYERISCHE LANDESBANK, CAYMAN ISLANDS BRANCH,
                             as Lender

                             By: /s/ Dietmar Rieg             /s/ James H. Boyle
                                 -----------------------------------------------
                                 Name: Dietmar Rieg               James H. Boyle
                                 Title: First Vice President      Vice President

                             Address: 560 Lexington Avenue
                                      New York, New York 10022

                             Facsimile No.: 212-310-9930

                             Attention: Loan Administration



                             CREDIT LYONNAIS NEW YORK BRANCH,
                             as Lender

                             By: /s/ Martin C. Livingston
                                 -------------------------------------------
                                 Name: Martin C. Livingston
                                 Title: Vice President

                             Address: 1301 Avenue of the Americas
                                      New York, NY 10019

                             Facsimile No.: 212.261.3421

                             Attention: Project Finance Department



                             ING CAPITAL LLC,
                             as Lender

                             By: /s/ Charles M. O'Neil
                                 -----------------------------------------
                                 Name: Charles M. O'Neil
                                 Title: Managing Director

                             By: /s/ G. Dominick Bellamy, Jr.
                                 -----------------------------------------
                                 Name: G. Dominick Bellamy, Jr.
                                 Title: Director

                             Address: 1325 Avenue of the Americas
                                      7th Floor
                                      New York, New York 10019

                             Facsimile No.: 646-424-6440 / 6441

                             Attention: Charmen Smith



                             UNION BANK OF CALIFORNIA, N.A.,
                             as Lender

                             By: /s/ Bryan Read
                                ------------------------------------------------
                                Name: Bryan Read
                                Title: Vice President

                             Address: Union Bank of California, N.A.
                                      Energy Capital Services
                                      445 South Figueroa St. 15th Floor
                                      Los Angeles, CA 90071

                             Facsimile No.: (213) 236-4096

                             Attention: Bryan Read



                             TORONTO DOMINION (TEXAS) INC.,
                             as Lender

                             By: /s/ Lynn Chasin
                                 -----------------------------------------------
                                 Name: Lynn Chasin
                                 Title: Vice President

                             Address: 909 Fannin St.,
                                      Suite 1700
                                      Houston, Texas 77010

                             Facsimile No.: 713-951-9921

                             Attention: Lynn Chasin

EX-10.16

                                                                   Exhibit 10.16

            FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

         This FIRST AMENDMENT, dated as of August 7, 2003 (this "Amendment"), to
the Amended and Restated Credit Agreement, dated as of July 16, 2003 (as the
same may be amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among CALPINE CORPORATION, a Delaware corporation (together
with its successors, the "Borrower"), the various financial institutions as are
or may become parties hereto (collectively, the "Lenders"), various lead
Arrangers (as defined below), and THE BANK OF NOVA SCOTIA ("Scotia Capital"), as
administrative agent and funding agent (in such capacity, the "Agent").

                              W I T N E S S E T H:

         WHEREAS, the Borrower, the Lenders and the Agent have heretofore
entered into the Credit Agreement; and

         WHEREAS, the Borrower, the Lenders and the Agent now desire to amend
the Credit Agreement in certain respects, as hereinafter provided;

         NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the Borrower, the Lenders and the Agent
hereby agree as follows:

         SECTION 1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings set forth in the Credit Agreement.

         SECTION 2. Amendment to Section 1.1 (Defined Terms). Section 1.1 of the
Credit Agreement is hereby amended by deleting therefrom the definition of
"Applicable Margin" in its entirety and substituting in place thereof the
following new definition:

         "Applicable Margin" means (i) for any Revolving Loan that is a Base
Rate Loan, 3.00% per annum, (ii) for any Revolving Loan that is a LIBO Rate Loan
or L/C Advance, 4.00% per annum, (iii) for any Term B Loan that is a Base Rate
Loan, 2.50% per annum, and (iv) for any Term B Loan that is a LIBO Rate Loan,
3.50% per annum.

         SECTION 3. Amendment to Section 3.3.3 (Letter of Credit Fee). Section
3.3.3 of the Credit Agreement is hereby amended by deleting the text of such
Section 3.3.3 in its entirety and substituting in its place the following new
text:

         "The Borrower agrees to pay to the Agent, for the account of the
Revolving Lenders, for each Letter of Credit for the period from and including
the date of the issuance of such Letter of Credit to (and including) the date
upon which (or on the next succeeding Business Day upon which) such Letter of
Credit expires or is returned to the Issuer that issued such Letter of Credit, a
fee, in Dollars, on the average daily stated amount of such Letter of Credit (or
the Equivalent Amount thereof with respect to Foreign Currency Letters of
Credit) calculated at a per annum rate equal to the Applicable Margin for
Revolving Loans that are LIBO Rate Loans in effect from time to time. Such fee
shall be payable by the Borrower in arrears on each Quarterly Payment Date, and
on the date of termination or expiry of the last Letter of Credit outstanding



hereunder (for any period then ending for which such fee shall not theretofore
have been paid), commencing on the first such date after the issuance of such
Letter of Credit."

         SECTION 4. Effectiveness. This Amendment shall become effective upon
fulfillment of the following conditions precedent: (a) the Borrower shall have
delivered to the Agent a duly executed copy of this Amendment, (b) the Agent
shall have received duly executed copies of this Amendment from the Required
Lenders and each Term B Lender, (c) the Agent shall have received such other
documents as the Agent shall have reasonably requested, and (d) no Default or
Event of Default shall have occurred and be continuing on the date hereof after
giving effect to this Amendment.

         SECTION 5. Representations and Warranties. The Borrower hereby
represents and warrants that the representations and warranties contained in the
Credit Agreement (except those which expressly speak as of a certain date) will
be, after giving effect to this Amendment, true and correct in all material
respects, as if made on and as of the date hereof.

         SECTION 6. Continuing Effect of Credit Agreement. This Amendment shall
not constitute an amendment or waiver of any other provision of the Credit
Agreement or the Loan Documents not expressly referred to herein and shall not
be construed as a waiver or consent to any further or future action on the part
of the Borrower that would require a waiver or consent of the Agent and/or the
Lenders. Except as expressly amended hereby, the provisions of the Credit
Agreement and the Loan Documents shall remain in full force and effect. All
references to the Credit Agreement in any other document, instrument, agreement
or writing shall hereafter be deemed to refer to the Credit Agreement as amended
hereby.

         SECTION 7. Counterparts. This Amendment may be executed in counterparts
and all of the said counterparts taken together shall be deemed to constitute
one and the same instrument. Delivery of an executed signature page of this
Amendment by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof.

         SECTION 8. Governing Law. THIS AMENDMENT SHALL EACH BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK.

         SECTION 9. Expenses. The Borrower agrees to pay or reimburse the Agent
for all of its out-of-pocket costs and expenses incurred in connection with the
preparation, negotiation and execution of this Amendment, including the fees and
disbursements of counsel to the Agent.



         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.

                                         CALPINE CORPORATION

                                         By: /s/ Michael Thomas
                                             -----------------------------------
                                             Name: Michael Thomas
                                             Title: SVP & Corporate Treasurer



                                         THE BANK OF NOVA SCOTIA,
                                         as Agent

                                         By: /s/ Denis P. O'Meara
                                             -----------------------------------
                                             Name: Denis P. O'Meara
                                             Title: Managing Director



                                         BAYERISCHE LANDESBANK, CAYMAN
                                         ISLANDS BRANCH,
                                         as Lender

                                         By: /s/ Dietmar Rieg
                                             -----------------------------------
                                             Name: Dietmar Rieg
                                             Title: First Vice President

                                         By: /s/ James H. Boyle
                                             -----------------------------------
                                             Name: James H. Boyle
                                             Title: Vice President



                                         CREDIT LYONNAIS NEW YORK BRANCH,
                                         as Lender

                                         By: /s/ Martin C. Livingston
                                             -----------------------------------
                                             Name: Martin C. Livingston
                                             Title: Vice President



                                         ING CAPITAL LLC,
                                         as Lender

                                         By: /s/ Erwin Thomet
                                             -----------------------------------
                                             Name: Erwin Thomet
                                             Title: Managing Director

                                             /s/ G. D. Bellany, Jr.
                                             Name: G.D. Bellany, Jr.
                                             Title: Director



                                         UNION BANK OF CALIFORNIA, N.A.,
                                         as Lender

                                         By: /s/ Bryan Read
                                             -----------------------------------
                                             Name: Bryan Read
                                             Title: Vice President



                                         TORONTO DOMINION (TEXAS) INC.,
                                         as Lender

                                         By: /s/ Lynn Chasin
                                             -----------------------------------
                                             Name: Lynn Chasin
                                             Title: Vice President



                               American Express Certificate Company
                               By: American Express Asset Management Group, Inc.
                               as Collateral Manager

                               By: /s/ Yvonne E. Stevens
                                   ---------------------------------------------
                                   Name: Yvonne E. Stevens
                                   Title: Senior Managing Director



                                         Centurion CDO II, Ltd.
                                         By: American Express Asset Management
                                         Group, Inc. as Collateral Manager

                                         By: /s/ Leanne Stavrakis
                                             -----------------------------------
                                             Name: Leanne Stavrakis
                                             Title: Director-Operations



                                         Centurion CDO VI, Ltd.
                                         By:  American Express Asset Management
                                         Group, Inc. As Collateral Manager

                                         By: /s/ Leanne Stavrakis
                                             -----------------------------------
                                             Name: Leanne Stavrakis
                                             Title: Director - Operations



                                         ELT LTD., as Lender

                                         By: /s/ Ann E. Morris
                                             -----------------------------------
                                             Name: Ann E. Morris
                                             Title: Authorized Agent



                                         FOOTHILL INCOME TRUST, L.P.,
                                         as Lender

                                         By: /s/ Jeff Nikora
                                             -----------------------------------
                                             Name: Jeff Nikora
                                             Title: Managing Member



                                         GALLATIN FUNDING I LTD.,
                                         By: Bear Stearns Asset Management Inc.
                                         as its Collateral Manager

                                         By: /s/ Jonathan Berg
                                             -----------------------------------
                                             Name: Jonathan Berg
                                             Title: Vice President



                                         HIGHLAND OFFSHORE PARTNERS, L.P.,
                                         as Lender

                                         By: Highland Capital Management, L.P.
                                         As General Partner

                                         By: /s/ Mark Okada
                                             -----------------------------------
                                             Name: Mark Okada
                                             Title: Chief Investment Officer
                                             Highland Capital Management, L.P.



                               IDS Life Insurance Company
                               By: American Express Asset Management Group, Inc.
                               as Collateral Manager

                               By: /s/ Yvonne E. Stevens
                                   ---------------------------------------------
                                   Name: Yvonne E. Stevens
                                   Title: Senior Managing Director



                                         JUPITER LOAN FUNDING LLC,
                                         as Lender

                                         By: /s/ Ann E. Morris
                                             -----------------------------------
                                             Name: Ann E. Morris
                                             Title: Asst Vice President



                                         ORIX FINANCE CORP. I,
                                         as Lender

                                         By: /s/ Sheppard H.C. Davis, Jr.
                                             -----------------------------------
                                             Name: Sheppard H.C. Davis, Jr.
                                             Title: Authorized Representative



                                         PROTECTIVE LIFE INSURANCE COMPANY,
                                         as Lender

                                         By: /s/ Richard J. Bielen
                                             -----------------------------------
                                             Name: Richard J. Bielen
                                             Title: Sr. VP, CIO & Treasurer



                                         SEABOARD CLO 2000, LTD.,
                                         as Lender, by ORIX Capital Markets, LLC
                                                     Its Collateral Manager

                                         By: /s/ Sheppard H.C. Davis, Jr.
                                             -----------------------------------
                                             Name: Sheppard H.C. Davis, Jr.
                                             Title: Managing Director



                                         SEMINOLE FUNDING LLC,
                                         as Lender

                                         By: ___________________________________
                                             Name:
                                             Title:



                                         Sequils-Centurion V, Ltd.
                                         By: American Express Asset
                                         Management Group, Inc.
                                         as Collateral Manager

                                         By: /s/ Leanne Stavrakis
                                             -----------------------------------
                                             Name: Leanne Stavrakis
                                             Title: Director - Operations



                                         STANWICH LOAN FUNDING LLC,
                                         as Lender

                                         By: /s/ Ann E. Morris
                                             -----------------------------------
                                             Name: Ann E. Morris
                                             Title: Asst Vice President



                                         VENTURE CDO 2002, LIMITED
                                         By its investment advisor,
                                         Barclays Capital Asset
                                         Management Limited,

                                         By its sub-advisor, Barclays Bank PLC,
                                         New York Branch
                                         as Lender

                                         By: /s/ Martin F. Davey
                                             -----------------------------------
                                             Name: Martin F. Davey
                                             Title: Director



                                         VENTURE II CDO 2002,
                                         LIMITED By its investment
                                         advisor, Barclays Bank PLC,
                                         New York Branch
                                         as Lender

                                         By: /s/ Martin F. Davey
                                             -----------------------------------
                                             Name: Martin F. Davey
                                             Title: Director



                                         WINGED FOOT FUNDING TRUST,
                                         as Lender

                                         By: /s/ Ann E. Morris
                                             -----------------------------------
                                             Name: Ann E. Morris
                                             Title: Authorized Agent



                                         AIMCO CDO SERIES 2000-A,
                                         as Lender

                                         By: /s/  [illegible]
                                             -----------------------------------
                                             Name:
                                             Title:

                                         By: /s/  [illegible]



                                         ALLSTATE LIFE INSURANCE COMPANY,
                                         as Lender

                                         By: /s/ [illegible]
                                             -----------------------------------
                                             Name:
                                             Title:

                                         By: /s/ [illegible]



                                         ARCHIMEDES FUNDING IV (CAYMAN), LTD.

                                         BY: ING Capital Advisors LLC,
                                                 as Collateral Manager

                                         BY: /s/ Gordon R. Cook
                                             -----------------------------------
                                             Name: Gordon R. Cook
                                             Title: Managing Director

                                         BALANCED HIGH YIELD FUND II LTD.

                                         BY: ING Capital Advisors LLC,
                                                 as Asset Manager

                                         BY: /s/ Gordon R. Cook
                                             -----------------------------------
                                             Name: Gordon R. Cook
                                             Title: Managing Director

                                         ENDURANCE CLO I, LTD.

                                         c/o ING Capital Advisors LLC,
                                             as Collateral Manager

                                         BY: /s/ Gordon R. Cook
                                             -----------------------------------
                                             Name: Gordon R. Cook
                                             Title: Managing Director

                                         SEQUILS-ING I (HBDGM), LTD.

                                         BY: ING Capital Advisors LLC,
                                                 as Collateral Manager

                                         By: /s/ Gordon R. Cook
                                             -----------------------------------
                                             Name: Gordon R. Cook
                                             Title: Managing Director



                                         CARLYLE HIGH YIELD PARTNERS II, LTD.,
                                         as Lender

                                         By: /s/ Linda Pace
                                             -----------------------------------
                                             Name: Linda Pace
                                             Title: Principal



                                         CARLYLE HIGH YIELD PARTNERS III, LTD.,
                                         as Lender

                                         By: /s/ Linda Pace
                                             -----------------------------------
                                             Name: Linda Pace
                                             Title: Principal



                                         CARLYLE HIGH YIELD PARTNERS IV, LTD.,
                                         as Lender

                                         By: /s/ Linda Pace
                                             -----------------------------------
                                             Name: Linda Pace
                                             Title: Principal



                                         CARLYLE HIGH YIELD PARTNERS, L.P.,
                                         as Lender

                                         By: /s/ Linda Pace
                                             -----------------------------------
                                             Name: Linda Pace
                                             Title: Principal



                                         CARLYLE LOAN OPPORTUNITY FUND,
                                         as Lender

                                         By: /s/ Linda Pace
                                             -----------------------------------
                                             Name: Linda Pace
                                             Title: Principal



                                         FRANKLIN CLO I, LIMITED,
                                         as Lender

                                         By: /s/ Richard D'Addario
                                             -----------------------------------
                                             Name: Richard D'Addario
                                             Title: Senior Vice President



                                         FRANKLIN CLO II, LIMITED,
                                         as Lender

                                         By: /s/ Richard D'Addario
                                             -----------------------------------
                                             Name: Richard D'Addario
                                             Title: Senior Vice President



                                         FRANKLIN CLO III, LIMITED,
                                         as Lender

                                         By: /s/ Richard D'Addario
                                             -----------------------------------
                                             Name: Richard D'Addario
                                             Title: Senior Vice President



                                         FRANKLIN CLO IV, LIMITED,
                                         as Lender

                                         By: /s/ Richard D'Addario
                                             -----------------------------------
                                             Name: Richard D'Addario
                                             Title: Senior Vice President



                                         FRANKLIN FLOATING RATE DAILY
                                         ACCESS FUND, as Lender

                                         By: /s/ Richard D'Addario
                                             -----------------------------------
                                             Name: Richard D'Addario
                                             Title: Senior Vice President



                                         FRANKLIN FLOATING RATE MASTER SERIES,
                                         as Lender

                                         By: /s/ Richard D'Addario
                                             -----------------------------------
                                             Name: Richard D'Addario
                                             Title: Senior Vice President



                                         FRANKLIN FLOATING RATE TRUST,
                                         as Lender

                                         By: /s/ Madeline Lam
                                             -----------------------------------
                                             Name: Madeline Lam
                                             Title: Vice President



                                         GLENEAGLES TRADING LLC,
                                         as Lender

                                         By: /s/ Ann E. Morris
                                             -----------------------------------
                                             Name: Ann E. Morris
                                             Title: Asst Vice President



                                         ING-ORYX CLO, LTD.

                                         BY: ING Capital Advisors LLC,
                                                 as Collateral Manager

                                         By: /s/ Gordon R. Cook
                                             -----------------------------------
                                             Name: Gordon R. Cook
                                             Title: Managing Director

                                         NEMEAN CLO, LTD.

                                         BY: ING Capital Advisors LLC,
                                             as Investment Manager

                                         BY: /s/ Gordon R. Cook
                                             -----------------------------------
                                             Name: Gordon R. Cook
                                             Title: Managing Director



                                         KATONAH I, LTD.,
                                         as Lender

                                         By: /s/ Ralph Della Rocca
                                             -----------------------------------
                                             Name: Ralph Della Rocca
                                             Title: Authorized Officer
                                                    Katonah Capital, L.L.C.
                                                    As Manager



                                         KATONAH II, LTD.,
                                         as Lender

                                         By: /s/ Ralph Della Rocca
                                             -----------------------------------
                                             Name: Ralph Della Rocca
                                             Title: Authorized Officer
                                                    Katonah Capital, L.L.C.
                                                    As Manager



                                         KATONAH III, LTD.,
                                         as Lender

                                         By: /s/ Ralph Della Rocca
                                             -----------------------------------
                                             Name:  Ralph Della Rocca
                                             Title: Authorized Officer
                                                    Katonah Capital, L.L.C.
                                                    As Manager



                                         KATONAH IV, LTD.,
                                         as Lender

                                         By: /s/ Ralph Della Rocca
                                             -----------------------------------
                                             Name: Ralph Della Rocca
                                             Title: Authorized Officer
                                                    Katonah Capital, L.L.C.
                                                    As Manager



                                         KZH CNC LLC,
                                         as Lender

                                         By: ___________________________________
                                             Name:
                                             Title:



                                         KZH CYPRESSTREE-1 LLC

                                         By: /s/ Hi Hua
                                             -----------------------------------
                                             Name: Hi Hua
                                             Title: Authorized Agent



                                         KZH ING-2 LLC

                                         By: /s/ Hi Hua
                                             -----------------------------------
                                             Name: Hi Hua
                                             Title: Authorized Agent



                                         KZH PONDVIEW LLC

                                         By: /s/ Hi Hua
                                             -----------------------------------
                                             Name: Hi Hua
                                             Title: Authorized Agent



                                         KZH RIVERSIDE LLC

                                         By: /s/ Hi Hua
                                             -----------------------------------
                                             Name: Hi Hua
                                             Title: Authorized Agent



                                         KZH SOLEIL LLC

                                         By: /s/ Hi Hua
                                             -----------------------------------
                                             Name: Hi Hua
                                             Title: Authorized Agent



                                         KZH STERLING LLC

                                         By: /s/ Hi Hua
                                             -----------------------------------
                                             Name: Hi Hua
                                             Title: Authorized Agent



                                         KZH WATERSIDE LLC

                                         By: /s/ Hi Hua
                                             -----------------------------------
                                             Name: Hi Hua
                                             Title: Authorized Agent



                                         LEHMAN COMMERCIAL PAPER INC.,
                                         as Lender

                                         By: ___________________________________
                                             Name:
                                             Title:



                                         MAGNETITE IV CLO, LIMITED,
                                         as Lender

                                         By: /s/ Mark J. Williams
                                             -----------------------------------
                                             Name: Mark J. Williams
                                             Title: Authorized Signatory



                                         MAGNETITE V CLO, LIMITED,
                                         as Lender

                                         By: /s/ Mark J. Williams
                                             -----------------------------------
                                             Name: Mark J. Williams
                                             Title: Authorized Signatory



                                         NORTHWOODS CAPITAL II, LIMITED,
                                         as Lender

                                         By: Angelo, Gordon & Co., L.P.
                                             as Collateral Manager

                                         By: /s/ John W. Fraser
                                             -----------------------------------
                                             Name: John W. Fraser
                                             Title: Managing Director



                                         NORTHWOODS CAPITAL III, LIMITED,
                                         as Lender

                                         By: Angelo, Gordon & Co., L.P.
                                             as Collateral Manager

                                         By: /s/ John W. Fraser
                                             -----------------------------------
                                             Name: John W. Fraser
                                             Title: Managing Director



                                         NORTHWOODS CAPITAL, LIMITED,
                                         as Lender

                                         By: Angelo, Gordon & Co., L.P.
                                             as Collateral Manager

                                         By: /s/ John W. Fraser
                                             -----------------------------------
                                             Name: John W. Fraser
                                             Title: Managing Director



                                         OAK HILL CREDIT PARTNERS I, LIMITED,
                                         as Lender

                                         By: Oak Hill CLO Management I, LLC,
                                             As Investment Manager

                                         By: /s/ Scott D. Krase
                                             -----------------------------------
                                             Name: Scott D. Krase
                                             Title: Vice President



                                         OAK HILL CREDIT PARTNERS II, LIMITED,
                                         as Lender

                                         By: Oak Hill CLO Management II, LLC,
                                             As Investment Manager

                                         By: /s/ Scott D. Krase
                                             -----------------------------------
                                             Name: Scott D. Krase
                                             Title: Vice President



                                         OAK HILL SECURITIES FUND II, L.P.,
                                         as Lender

                                         By: Oak Hill Securities GenPar II, L.P.
                                             its General Partner

                                         By: Oak Hill Securities MGP II, Inc.,
                                             its General Partner

                                         By: /s/ Scott D. Krase
                                             -----------------------------------
                                             Name: Scott D. Krase
                                             Title: Vice President



                                         OAK HILL SECURITIES FUND, L.P.,
                                         as Lender

                                         By: Oak Hill Securities GenPar, L.P.
                                             its General Partner

                                         By: Oak Hill Securities MGP, Inc.,
                                             its General Partner

                                         By: /s/ Scott D. Krase
                                             -----------------------------------
                                             Name: Scott D. Krase
                                             Title: Vice President



                                         OCTAGON INVESTMENT PARTNERS III LTD.,
                                         as Lender

                                         By: ___________________________________
                                             Name:
                                             Title:



                                         PACIFICA CDO II, LTD,
                                         as Lender

                                         By: /s/ Tom Colwell
                                             -----------------------------------
                                             Name: Tom Colwell
                                             Title: Sr VP



                                         SUNTRUST BANK,
                                         as Lender

                                         By: ___________________________________
                                             Name:
                                             Title:



                                         TRUMBULL THC, LTD.,
                                         as Lender

                                         By: /s/ Stacey Malek
                                             -----------------------------------
                                             Name: Stacey Malek
                                             Title: Attorney In Fact

EX-10.17

                                                                   Exhibit 10.17

                                                                  EXECUTION COPY

================================================================================

                               CALPINE CORPORATION

                       SENIOR SECURED TERM LOANS DUE 2007

                                CREDIT AGREEMENT

                            Dated as of July 16, 2003

                       GOLDMAN SACHS CREDIT PARTNERS L.P.
          Sole Lead Arranger, Sole Bookrunner and Administrative Agent

                             THE BANK OF NOVA SCOTIA
                         Arranger and Syndication Agent

              TD SECURITIES (USA) INC., ING (U.S.) CAPITAL LLC AND
                           LANDESBANK HESSEN-THURINGEN
                                  Co-Arrangers

                CREDIT LYONNAIS NEW YORK BRANCH AND UNION BANK OF
                                CALIFORNIA, N.A.
                                 Managing Agents

================================================================================



                                TABLE OF CONTENTS



                                                                                                      PAGE
                                                                                                   
                                            ARTICLE I
                           DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01.     Definitions..................................................................         3

SECTION 1.02.     Other Definitions............................................................        40

SECTION 1.03.     Rules of Construction........................................................        41

                                           ARTICLE II
                                         THE TERM LOANS

SECTION 2.01.     Term Loans...................................................................        42

SECTION 2.02.     Pro Rata Shares; Availability of Funds.......................................        43

SECTION 2.03.     Use of Proceeds..............................................................        44

SECTION 2.04.     Evidence of Debt; Register; Lenders' Books and Records; Notes................        44

SECTION 2.05.     Interest.....................................................................        45

SECTION 2.06.     Conversion/Continuation......................................................        46

SECTION 2.07.     Default Interest.............................................................        47

SECTION 2.08.     Fees.........................................................................        47

SECTION 2.09.     Scheduled Payments/Commitment Reductions.....................................        47

SECTION 2.10.     Voluntary Prepayments........................................................        49

SECTION 2.11.     Mandatory Offers.............................................................        51

SECTION 2.12.     Application of Prepayments...................................................        53

SECTION 2.13.     General Provisions Regarding Payments........................................        53

SECTION 2.14.     Ratable Sharing..............................................................        54

SECTION 2.15.     Making or Maintaining Eurodollar Rate Loans..................................        55

SECTION 2.16.     Increased Costs; Capital Adequacy............................................        57


                                       i



                                                                                                    
SECTION 2.17.     Taxes; Withholding, etc......................................................        59

SECTION 2.18.     Removal or Replacement of a Lender...........................................        61

SECTION 2.19.     Additional Term Loans........................................................        62

                                           ARTICLE III
                                      CONDITIONS PRECEDENT

SECTION 3.01.     Closing Date.................................................................        65

SECTION 3.02.     Conditions to Each Term Loan.................................................        70

                                           ARTICLE IV
                                 REPRESENTATIONS AND WARRANTIES

                                            ARTICLE V
                                            COVENANTS

SECTION 5.01.     [Intentionally Omitted.].....................................................        81

SECTION 5.02.     [Intentionally Omitted.].....................................................        81

SECTION 5.03.     Reports......................................................................        81

SECTION 5.04.     Compliance Certificate.......................................................        82

SECTION 5.05.     Taxes........................................................................        83

SECTION 5.06.     Stay, Extension and Usury Laws...............................................        83

SECTION 5.07.     Restricted Payments..........................................................        83

SECTION 5.08.     Dividend and Other Payment Restrictions Affecting Subsidiaries...............        86

SECTION 5.09.     Incurrence of Indebtedness and Issuance of Preferred Stock...................        88

SECTION 5.10.     Asset Sales..................................................................        92

SECTION 5.11.     Transactions with Affiliates.................................................        95

SECTION 5.12.     Liens........................................................................        97

SECTION 5.13.     Limitation on Changes in the Nature of Business..............................        98

SECTION 5.14.     Corporate Existence..........................................................        98



                                       ii



                                                                                                   
SECTION 5.15.     Offer to Repurchase Upon Change of Control..................................         99

SECTION 5.16.     Limitation on Sale and Leaseback Transactions...............................        100

SECTION 5.17.     [Intentionally Omitted.]....................................................        100

SECTION 5.18.     [Intentionally Omitted.]....................................................        100

SECTION 5.19.     Limitation on Issuances of Guarantees of Indebtedness.......................        100

SECTION 5.20.     [Intentionally Omitted.]....................................................        101

SECTION 5.21.     Payments for Consent........................................................        101

SECTION 5.22.     Designation of Restricted and Unrestricted Subsidiaries.....................        101

SECTION 5.23.     Suspension of Covenants.....................................................        101

                                           ARTICLE VI
                                           SUCCESSORS

SECTION 6.01.     Merger, Consolidation, or Sale of Assets....................................        102

SECTION 6.02.     Successor Corporation Substituted...........................................        104

                                           ARTICLE VII
                                      DEFAULTS AND REMEDIES

SECTION 7.01.     Events of Default...........................................................        104

SECTION 7.02.     Acceleration................................................................        107

SECTION 7.03.     Other Remedies..............................................................        107

SECTION 7.04.     Waiver of Past Defaults.....................................................        107

SECTION 7.05.     Control by Majority.........................................................        108

SECTION 7.06.     [Intentionally Omitted.]....................................................        108

SECTION 7.07.     [Intentionally Omitted.]....................................................        108

SECTION 7.08.     Collection Suit by Administrative Agent.....................................        108

SECTION 7.09.     Priorities..................................................................        108

                                                   ARTICLE VIII
                                                      AGENTS



                                      iii



                                                                                                   
SECTION 8.01.     Appointment of Agents.......................................................        109

SECTION 8.02.     Powers and Duties...........................................................        109

SECTION 8.03.     General Immunity............................................................        109

SECTION 8.04.     Agents Entitled to Act as Lender............................................        110

SECTION 8.05.     Lenders' Representations, Warranties and Acknowledgment.....................        111

SECTION 8.06.     Right to Indemnity..........................................................        111

SECTION 8.07.     Successor Administrative Agent..............................................        112

                                           ARTICLE IX
                                     COLLATERAL AND SECURITY

                                            ARTICLE X
                                        RANKING OF LIENS

                                           ARTICLE XI
                                       COLLATERAL SHARING

SECTION 11.01.    Equal and Ratable Lien Sharing by holders of Parity Lien Debt...............        113

SECTION 11.02.    Enforcement.................................................................        113

SECTION 11.03.    Amendment...................................................................        114

                                           ARTICLE XII
                                      INTENTIONALLY OMITTED

                                          ARTICLE XIII
                                          MISCELLANEOUS

SECTION 13.01.    Notices.....................................................................        114

SECTION 13.02.    Expenses....................................................................        115

SECTION 13.03.    Indemnity...................................................................        116

SECTION 13.04.    Set-Off.....................................................................        117

SECTION 13.05.    Amendments and Waivers......................................................        117

SECTION 13.06.    Successors and Assigns; Participations......................................        119



                                       iv



                                                                                                   
SECTION 13.07.    Independence of Covenants...................................................        124

SECTION 13.08.    Survival of Representations, Warranties and Agreements......................        124

SECTION 13.09.    No Waiver; Remedies Cumulative..............................................        124

SECTION 13.10.    Marshalling; Payments Set Aside.............................................        124

SECTION 13.11.    Severability................................................................        124

SECTION 13.12.    Term Loan Obligations Several; Independent Nature of Lenders' Rights........        125

SECTION 13.13.    Headings....................................................................        125

SECTION 13.14.    Applicable Law..............................................................        125

SECTION 13.15.    Consent to Jurisdiction.....................................................        125

SECTION 13.16.    Waiver Of Jury Trial........................................................        125

SECTION 13.17.    Confidentiality.............................................................        126

SECTION 13.18.    Usury Savings Clause........................................................        127

SECTION 13.19.    Counterparts................................................................        128

SECTION 13.20.    Effectiveness...............................................................        128

SECTION 13.21.    Statements Required in Certificate or Opinion...............................        128



                                       v



APPENDICES:  A                Initial Term Loan Commitments
             B                Notice Addresses

SCHEDULES:   1.01(a)          Mortgaged Properties
             1.01(b)          Pledged Subsidiaries
             4.01(c)          Capital Stock Matters
             4.01(aa)         Subsidiary Companies of Holding Companies
             4.01(cc)         First-Tier Public Utility Subsidiaries
             4.01(dd)         Exempt Wholesale Generators
             4.01(ee)         Texas Subsidiaries
             4.01(hh)         Retail Service Subsidiaries
             4.01(ii)         FERC Complaints

EXHIBITS:    A                Assignment Agreement
             B                Certificate Re Non-Bank Status
             C                Conversion/Continuation Notice
             D                Funding Notice
             E                Lender Addendum
             F                Lender Joinder Agreement
             G                Term Loan Note

                                       vi



This CREDIT AGREEMENT, dated as of July 16, 2003, is entered into by and among
CALPINE CORPORATION, a Delaware corporation (the "Company"), the Lenders party
hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Administrative
Agent (together with its successors in such capacity, the "Administrative
Agent") and as Sole Lead Arranger and Sole Bookrunner (in such capacity, the
"Sole Lead Arranger"), THE BANK OF NOVA SCOTIA, as Arranger and Syndication
Agent, TD SECURITIES (USA) INC., ING (U.S.) CAPITAL LLC and LANDESBANK
HESSEN-THURINGEN, as Co-Arrangers, and CREDIT LYONNAISE NEW YORK BRANCH and
UNION BANK OF CALIFORNIA, N.A., as Managing Agents.

                                    RECITALS:



1.                                  The Company intends to borrow $750,000,000
in aggregate principal amount of Term Loans (the "Initial Term Loans") under
this Agreement.

2.                                  The Company intends to issue (i)
$500,000,000 in aggregate principal amount of Second-Priority Senior Secured
Floating Rate Notes due 2007, (the "2007 Notes") pursuant to the Indenture,
dated as of July 16, 2003 (the "2007 Indenture"), by and among the Company and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2007 Trustee"), (ii) $1,150,000,000 in aggregate principal of
8.50% Second Priority Senior Secured Notes due 2010, (the "2010 Notes") pursuant
to the Indenture, dated as of July 16, 2003 (the "2010 Indenture"), by and among
the Company and Wilmington Trust Company, as Trustee (together with its
successors in such capacity, the "2010 Trustee") and (iii) $900,000,000 in
aggregate principal amount of 8.75% Second Priority Senior Secured Notes due
2013, (the "2013 Notes", together with the 2007 Notes and the 2010 Notes, the
"Initial Notes") pursuant to the Indenture, dated as of July 16, 2003 (the "2013
Indenture", together with the 2007 Indenture and the 2010 Indenture, the
"Indentures"), by and among the Company and Wilmington Trust Company, as Trustee
(together with its successors in such capacity, the "2013 Trustee", together
with the 2007 Trustee and the 2010 Trustee, the "Trustees").

3.                                  The Company intends to enter into an Amended
and Restated Credit Agreement dated as of July 16, 2003 (as amended, modified,
renewed, restated or replaced from time to time, the "Credit Agreement"), among,
inter alia, the Company, the lenders referred to therein, and The Bank of Nova
Scotia, as administrative agent, relating to a $500,000,000 senior secured
credit facility to be made available in the form of revolving loans and term
loans, including letters of credit to be issued thereunder.

4.                                  Pursuant to the Guarantee and Collateral
Agreement, dated as of July 16, 2003 (the "Guarantee and Collateral Agreement"),
by and among the Company, the Canadian Guarantors (as defined below) and the
Collateral Trustee (as defined below), the Canadian Guarantors shall guarantee,
on a limited basis as provided therein, payment of the Initial Term Loans, all
other Term Loan Obligations and all other Secured Obligations (such terms as
defined below).

5.                                  The Company intends to secure the Initial
Term Loans, all other Term Loan Obligations and all other Secured Obligations,
including its obligations under the Credit Agreement and any future Priority
Lien Debt (as defined below), on a priority basis, and, subject to such
priority, its obligations under the 2007 Notes, 2010 Notes, 2013 Notes and
Initial Term Loans and any future Parity Lien Debt (as defined below) Equally
and Ratably (as defined below), with security interests in all present and
future Collateral (as defined below).

6.                                  The Company has entered into the Collateral
Trust Agreement (as defined below) which sets forth the terms on which the
Company has appointed the Collateral Trustee as trustee for the present and
future holders of the Secured Obligations to receive, hold, maintain,
administer, enforce and distribute all Security Documents, and all guarantees
granted thereunder, at any time delivered to the Collateral Trustee and all
interests, rights, powers and remedies of the Collateral Trustee thereunder and
the proceeds thereof.

                                       2



                                   ARTICLE I

                   DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.01      Definitions.

"Acquired Debt" means, with respect to any specified Person:

                  (1) Indebtedness of any other Person existing at the time such
         other Person is merged with or into or became a Restricted Subsidiary
         of such specified Person, whether or not such Indebtedness is incurred
         in connection with, or in contemplation of, such other Person merging
         with or into, or becoming a Restricted Subsidiary of, such specified
         Person; and

                  (2) Indebtedness secured by a Lien encumbering any asset
         acquired by such specified Person.

Acquired Debt shall be deemed to be incurred on the date the acquired Person
becomes a Restricted Subsidiary.

         "Additional Notes" means, with respect to any series of the Initial
Notes, Notes (other than the Initial Notes) issued under the applicable
Indenture in accordance with Sections 2.02 and 4.09 thereof, as part of the same
series as the applicable Initial Notes.

         "Adjusted Eurodollar Rate" means, with respect to a Eurodollar Rate
Loan for the relevant Interest Period, the sum of the quotient of (a) the
Eurodollar Base Rate applicable to such Interest Period, divided by (b) one
minus the Applicable Reserve Requirement (expressed as a decimal) applicable to
such Interest Period.

         "Administrative Agent" is defined in the Recitals hereto.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings. For purposes of Section 5.11 herein,
"Affiliate" shall also mean any Person of which the Company owns 10% or more of
any class of Capital Stock or rights to acquire 10% or more of any class of
Capital Stock and any Person who would be an Affiliate of any such Person
pursuant to the first sentence hereof.

"Agents" means the Administrative Agent and the Sole Lead Arranger.

"Agreement" means this Credit Agreement, dated as of July 16, 2003.

"Applicable Reserve Requirement" means, at any time, for any Eurodollar Rate
Loan, the maximum rate, expressed as a decimal, at which reserves (including,
without limitation, any

                                       3



basic marginal, special, supplemental, emergency or other reserves) are required
to be maintained with respect thereto against "Eurocurrency liabilities" (as
such term is defined in Regulation D) under regulations issued from time to time
by the Board of Governors of the Federal Reserve System or other applicable
banking regulator. Without limiting the effect of the foregoing, the Applicable
Reserve Requirement shall reflect any other reserves required to be maintained
by such member banks with respect to (i) any category of liabilities which
includes deposits by reference to which the applicable Adjusted Eurodollar Rate
or any other interest rate of a Term Loan is to be determined, or (ii) any
category of extensions of credit or other assets which include Eurodollar Rate
Loans. A Eurodollar Rate Loan shall be deemed to constitute Eurocurrency
liabilities and as such shall be deemed subject to reserve requirements without
benefits of credit for proration, exceptions or offsets that may be available
from time to time to the applicable Lender. The rate of interest on Eurodollar
Rate Loans shall be adjusted automatically on and as of the effective date of
any change in the Applicable Reserve Requirement.

         "Asset Sale" means:

                  (1) the sale, lease, conveyance or other disposition of any
         assets or rights; provided that the sale, conveyance or other
         disposition of all or substantially all of the assets of the Company
         and its Restricted Subsidiaries taken as a whole shall be governed by
         Sections 5.15 and 6.01 of this Agreement and not by Section 5.10; and

                  (2) the issuance of Equity Interests in any of the Company's
         Restricted Subsidiaries or the sale of Equity Interests in any of its
         Subsidiaries.

         Notwithstanding the preceding, none of the following items shall be
deemed to be an Asset Sale:

                  (1)(A) any single transaction or series of related
         transactions that involves the sale of uninstalled turbines and related
         equipment, and (B) any single transaction or series of related
         transactions that involves other assets having a Fair Market Value of
         less than $50.0 million, it being understood that, in connection with
         any sale, lease, conveyance or other disposition of any Designated
         Assets or rights relating thereto in connection with a farm-out
         transaction, such transaction shall be valued as at the time of
         execution and delivery of binding contractual arrangements relating
         thereto;

                  (2) a transfer of assets between or among the Company and its
         Restricted Subsidiaries,

                  (3) an issuance of Equity Interests by a Restricted Subsidiary
         to the Company or to a Restricted Subsidiary of the Company;

                  (4) the sale or lease of products, services or accounts
         receivable in the ordinary course of business and any sale or other
         disposition of damaged, worn-out or obsolete assets in the ordinary
         course of business;

                                       4



                  (5) a Restricted Payment that does not violate Section 5.07 or
         a Permitted Investment;

                  (6) the sale or other disposition of cash or Cash Equivalents;
         and

                  (7) the sale or other disposition of all or any part of the
         Company's right to amounts that have or are to become due and payable
         by Pacific Gas & Electric Company under that certain Agreement dated as
         of July 1, 1999, as amended, between Pacific Gas & Electric Company and
         Calpine Gilroy L.P., a California limited partnership (PG&E Log No.
         08C002) For Termination and Buy-Out of Standard Offer 4 Power Purchase
         Agreement, as such rights were purchased from Calpine Gilroy Cogen L.P.
         by the Company pursuant to the Purchase Agreement dated as of March 8,
         2002, as amended, between Calpine Gilroy Cogen L.P. and the Company.

"Assignment Agreement" means an Assignment and Assumption Agreement
substantially in the form of Exhibit A with such amendments or modifications as
may be approved by the Administrative Agent.

"Attributable Debt" in respect of a sale and leaseback transaction means, at the
time of determination, the present value of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such sale and
leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP; provided, that if such
sale and leaseback transaction results in a Capital Lease Obligation, the amount
of Indebtedness represented thereby shall be determined in accordance with the
definition of "Capital Lease Obligation."

"Bankruptcy Case" means any case under Title 11 of the United States Code or any
successor bankruptcy law commenced voluntarily or involuntarily against the
Company or any other Obligor.

"Bankruptcy Code" means Title 11, U.S. Code, as amended, or any similar federal
or state law for the relief of debtors.

"Base Rate" means, for any day, a fluctuating rate of interest per annum equal
to the higher of (i) the Prime Rate for such day and (ii) the sum of (a) the
Federal Funds Effective Rate for such day and (b) one-half of one percent (0.5%)
per annum.

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

"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by

                                       5



conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only after the passage of time. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.

         "Board of Directors" means:

                  (1) with respect to a corporation, the Board of Directors of
         the corporation or any committee thereof duly authorized to act on
         behalf of such board;

                  (2) with respect to a partnership, the Board of Directors of
         the general partner of the partnership;

                  (3) with respect to a limited liability company, the managing
         member or members or any controlling committee of managing members
         thereof; and

                  (4) with respect to any other Person, the board or committee
         of such Person serving a similar function.

"Business Day" means (i) any day excluding Saturday, Sunday or any day which is
a legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close and (ii) with respect to all notices,
determinations, fundings and payments in connection with the Adjusted Eurodollar
Rate or Eurodollar Rate Loans, the term "Business Day" shall mean any day which
is a Business Day described in clause (i) and which is also a day for trading by
and between banks in Dollar deposits in the London interbank market.

"Calculation Date" shall have the meaning provided in the definition of "Fixed
Charge Coverage Ratio."

"Canadian Gas Assets" means Designated Assets owned by a direct or indirect
Restricted Subsidiary of one or more Canadian Guarantors.

"Canadian Guarantors" means Quintana Minerals (USA) Inc., a Delaware
corporation, JOQ Canada, Inc., a Delaware limited liability company and Quintana
Canada Holdings LLC, a Delaware limited liability company, and any successor to
any of the foregoing.

"Capital Lease Obligation" means, at the time any determination is to be made,
the amount of the liability in respect of a capital lease that would at that
time be required to be capitalized on a balance sheet in accordance with GAAP,
and the Stated Maturity thereof shall be the date of the last payment of rent or
any other amount due under such lease prior to the first date upon which such
lease may be prepaid by the lessee without payment of a penalty.

"Capital Stock" means:

                  (1) in the case of a corporation, corporate stock;

                                       6



                  (2) in the case of an association or business entity, any and
         all shares, interests, participations, rights or other equivalents
         (however designated) of corporate stock;

                  (3) in the case of a partnership or limited liability company,
         partnership interests (whether general or limited) or membership
         interests; and

                  (4) any other interest or participation that confers on a
         Person the right to receive a share of the profits and losses of, or
         distributions of assets of, the issuing Person, but excluding from all
         of the foregoing any debt securities convertible into Capital Stock,
         whether or not such debt securities include any right of participation
         with Capital Stock.

                  "Cash Equivalents" means:

                  (1) the lawful currency of any country where the Company owns
         or operates a Facility;

                  (2) securities issued or directly and fully guaranteed or
         insured by the United States government or any state thereof (or any
         agency or instrumentality thereof), by the Canadian government (or any
         agency or instrumentality thereof), or by the government of a member
         state of the European Union (or any agency or instrumentality thereof),
         in each case the payment of which is backed by the full faith and
         credit of the United States, Canada or the relevant member state of the
         European Union, as the case may be, and having maturities of not more
         than six months from the date of acquisition;

                  (3) certificates of deposit and eurodollar time deposits with
         maturities of six months or less from the date of acquisition, bankers'
         acceptances with maturities not exceeding six months and overnight bank
         deposits, in each case, with any lender party to the Credit Agreement
         or with any domestic commercial bank having capital and surplus in
         excess of $500.0 million and a Thomson Bank Watch or successor rating
         agency rating of "B" or better;

                  (4) repurchase obligations with a term of not more than seven
         days for underlying securities of the types described in clauses (2)
         and (3) above entered into with any financial institution meeting the
         qualifications specified in clause (3) above;

                  (5) commercial paper having one of the two highest ratings
         obtainable from Moody's or S&P and maturing within six months after the
         date of acquisition; and

                  (6) money market funds at least 95% of the assets of which
         constitute Cash Equivalents of the kinds described in clauses (1)
         through (5) of this definition.

         "CCEC" means Calpine Canada Energy Ltd., a Nova Scotia limited
liability company that is wholly-owned by the Canadian Guarantors.

                                       7



"Certificate re Non-Bank Status" means a certificate substantially in the form
of Exhibit B.

"Change of Control" means the occurrence of any of the following:

                  (1) the direct or indirect sale, transfer, conveyance or other
         disposition (other than by way of merger or consolidation), in one or a
         series of related transactions, of all or substantially all of the
         properties or assets of the Company and its Restricted Subsidiaries
         taken as a whole to any "person" (as that term is used in Section 13(d)
         of the Exchange Act);

                  (2) the adoption of a plan relating to the liquidation or
         dissolution of the Company;

                  (3) the consummation of any transaction (including any merger
         or consolidation) the result of which is that any "person" (as defined
         above) becomes the Beneficial Owner, directly or indirectly, of more
         than 50% of the Voting Stock of the Company, measured by voting power
         rather than number of shares;

                  (4) the Company consolidates with, or merges with or into, any
         Person, or any Person consolidates with, or merges with or into, the
         Company, in any such event pursuant to a transaction in which any of
         the outstanding Voting Stock of the Company or such other Person is
         converted into or exchanged for cash, securities or other property,
         other than any such transaction where the Voting Stock of the Company
         outstanding immediately prior to such transaction is converted into or
         exchanged for Voting Stock (other than Disqualified Stock) of the
         surviving or transferee Person constituting a majority of the
         outstanding shares of such Voting Stock of such surviving or transferee
         Person (immediately after giving effect to such issuance); or

                  (5) the first day on which a majority of the members of the
         Board of Directors of the Company are not Continuing Directors.

"Closing Date" means the date on which the Initial Term Loans are made.

"Code" means the Internal Revenue Code of 1986, as amended to the date hereof
and from time to time hereafter, and any successor statute.

"Collateral" means all properties and assets at any time owned or acquired by
the Company, except the Excluded Assets, and the Canadian Guarantors' ownership
interest in 65% of the aggregate outstanding Voting Stock of CCEC.

"Collateral Trust Agreement" the Collateral Trust Agreement dated as of July 16,
2003, among the Company, the Trustees, the Administrative Agent and the
Collateral Trustee.

"Collateral Trustee" means The Bank of New York in its capacity as collateral
trustee under the Collateral Trust Agreement, together with its successors in
such capacity.

                                       8



"Company" means Calpine Corporation, and any and all successors thereto.

"Consolidated Cash Flow" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period plus, without
duplication:

(1) an amount equal to any extraordinary loss plus any net loss realized by such
Person or any of its Restricted Subsidiaries in connection with an Asset Sale,
to the extent such losses were deducted in computing such Consolidated Net
Income; plus

(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Net Income; plus

(3) the Fixed Charges of such Person and its Restricted Subsidiaries for such
period, to the extent that such Fixed Charges were deducted in computing such
Consolidated Net Income; plus

(4) depreciation, amortization (including amortization of intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash expenses (excluding any such non-cash expense to the
extent that it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income;

         minus non-cash items increasing such Consolidated Net Income for such
         period, other than the accrual of revenue in the ordinary course of
         business;

         in each case, on a consolidated basis and determined in accordance with
         GAAP.

         "Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; provided that:

                  (1) the Net Income (but not loss) of any Person that is not a
         Restricted Subsidiary or that is accounted for by the equity method of
         accounting shall be included only to the extent of the amount of
         dividends or similar distributions paid in cash to the specified Person
         or a Restricted Subsidiary of the Person;

                  (2) the Net Income of any Restricted Subsidiary shall be
         excluded to the extent that the declaration or payment of dividends or
         similar distributions by that Restricted Subsidiary of that Net Income
         is not at the date of determination permitted without any prior
         governmental approval (that has not been obtained) or, directly or
         indirectly, by operation of the terms of its charter or any agreement,
         instrument, judgment, decree, order, statute, rule or governmental
         regulation applicable to that Restricted Subsidiary or its
         stockholders; and

                                       9



                  (3) the cumulative effect of a change in accounting principles
         shall be excluded.

         "Consolidated Net Worth" means, with respect to any specified Person as
of any date, the sum of:

                  (1) the consolidated equity of the common stockholders of such
         Person and its consolidated Subsidiaries as of such date; plus

                  (2) the respective amounts reported on such Person's balance
         sheet as of such date with respect to any series of preferred stock
         (other than Disqualified Stock) that by its terms is not entitled to
         the payment of dividends unless such dividends may be declared and paid
         only out of net earnings in respect of the year of such declaration and
         payment, but only to the extent of any cash received by such Person
         upon issuance of such preferred stock.

"Conversion/Continuation Date" means the effective date of a continuation or
conversion, as the case may be, as set forth in the applicable
Conversion/Continuation Notice.

"Conversion/Continuation Notice" means a Conversion/Continuation Notice
substantially in the form of Exhibit C

         "Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who:

                  (1) was a member of such Board of Directors on the date of
         this Agreement; or

                  (2) was nominated for election or elected to such Board of
         Directors with the approval of a majority of the Continuing Directors
         then still in office or with the approval of a majority of Directors
         whose election was previously so approved from time to time.

"Control Agreement" means the Designated Asset Sale Proceeds Account Control
Agreement dated July 16, 2003, among the Company, the Collateral Trustee and an
institution reasonably acceptable to the Initial Purchasers, as depository
agent.

"Credit Date" means the date that a Term Loan is made.

"Credit Agreement" is defined in the recitals hereto.

"Credit Agreement Agent" means, at any time, the Person serving at such time as
the "Agent" or "Administrative Agent" under the Credit Agreement or any other
representative of the lenders thereunder then most recently designated by a
majority of such lenders, in a written notice delivered to each Parity Debt
Representative and the Collateral Trustee, as the Credit Agreement Agent for the
purposes of the Parity Lien Debt Documents.

                                       10



"Credit Facilities" means one or more debt facilities (including the Credit
Agreement) with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced
(including by means of sales of debt securities to institutional investors) in
whole or in part from time to time.

"Default" means any event that is or with the passage of time or the giving of
notice (or both) would be an Event of Default.

"Designated Assets" means all geothermal energy assets (including any related
extraction, processing or similar equipment and geothermal power plants) and all
natural gas assets (including any related extraction, processing or similar
equipment, other than natural gas power plants) owned by the Company or any of
its Restricted Subsidiaries from time to time, including the equity interests of
any Restricted Subsidiary owning any Designated Assets, but excluding (i) any
geothermal energy assets that are both unproven and undeveloped and (ii)
contracts for the purchase or sale of natural gas and natural gas supplied under
such contracts.

"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible, or for which it is exchangeable,
in each case at the option of the holder of the Capital Stock), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
of the Capital Stock, in whole or in part, on or prior to the date that is 91
days after the Maturity Date. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders of the Capital Stock have the right to require the Company to repurchase
such Capital Stock upon the occurrence of a change of control or an asset sale
shall not constitute Disqualified Stock. The amount of Disqualified Stock deemed
to be outstanding at any time for purposes of this Agreement shall be the
maximum amount that the Company and its Restricted Subsidiaries may become
obligated to pay upon the maturity of, or pursuant to any mandatory redemption
provisions of, such Disqualified Stock, exclusive of accrued dividends.

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

"Eligible Assignee" means (i) any Lender, any Affiliate of any Lender and any
Related Fund (any two or more Related Funds being treated as a single Eligible
Assignee for all purposes hereof), and (ii) any commercial bank, insurance
company, investment or mutual fund or other entity that is an "accredited
investor" (as defined in Regulation D under the Securities Act) and which
extends credit or buys loans as one of its businesses.

"Environmental Claim" means any investigation, notice, notice of violation,
claim, action, suit, proceeding, demand, abatement order or other order or
directive (conditional or otherwise) by any Governmental Authority or any other
Person arising (i) pursuant to or in connection with any actual or alleged
violation of any Environmental Law, (ii) in connection with any Hazardous
Material or any actual or alleged Hazardous Materials Activity or (iii) in
connection with any

                                       11



actual or alleged damage, injury, threat or harm to health, safety, natural
resources or the environment.

"Equally and Ratably" means, in reference to sharing of Liens or proceeds
thereof as between the holders of Parity Lien Obligations with respect to each
outstanding Series of Parity Lien Debt, that such Liens or proceeds:

                  (1) shall be allocated and distributed first to each Parity
         Debt Representative for each outstanding series of Parity Lien Debt,
         for account of the holders of such Series of Parity Lien Debt, ratably
         in proportion to the principal of and interest and premium (if any)
         outstanding on each outstanding Series of Parity Lien Debt when the
         allocation or distribution is made, and thereafter

                  (2) shall be allocated and distributed (if any remain after
         payment in full of all of the principal of and interest and premium (if
         any) on all outstanding Parity Lien Debt) to each Parity Debt
         Representative for each outstanding series of Parity Lien Debt, for
         account of the holders of any remaining Parity Lien Obligations with
         respect to such outstanding Series of Parity Lien Debt, ratably in
         proportion to the aggregate unpaid amount of such remaining Parity Lien
         Obligations due and demanded (with written notice to the applicable
         Parity Debt Representative and the Collateral Trustee) prior to the
         date such distribution is made.

"Equity Interests" means Capital Stock and all warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).

"Eurodollar Base Rate" means, with respect to a Eurodollar Rate Loan for the
relevant Interest Period, the applicable British Bankers' Association LIBOR rate
for deposits in Dollars as reported by any generally recognized financial
information service as of 11:00 a.m. (London time) two (2) Business Days prior
to the first day of such Interest Period, and having a maturity equal to such
Interest Period, provided that, if no such British Bankers' Association LIBOR
rate is available to the Administrative Agent, the applicable Eurodollar Base
Rate for the relevant Interest Period shall instead be (a) the rate determined
by the Administrative Agent to be the offered rate on such other page or other
service which displays an average British Bankers Association Interest
Settlement Rate for deposits (for delivery on the first day of such period) with
a term equivalent to such period in Dollars, determined as of approximately
11:00 a.m. (London time) two (2) Business Days prior to the first day of such
Interest Period, or (b) in the event the rates referenced in the preceding
clauses (a) is not available, the rate per annum equal to the offered quotation
rate to first class banks in the London interbank market by GSCP for deposits
(for delivery on the first day of the relevant period) in Dollars of amounts in
same day funds comparable to the principal amount of the applicable Term Loan of
the Administrative Agent, in its capacity as a Lender, for which the Adjusted
Eurodollar Rate is then being determined with maturities comparable to such
period as of approximately 11:00 a.m. (London time) two (2) Business Days prior
to the first day of such Interest Period.

                                       12



"Eurodollar Rate Loan" means a Term Loan bearing interest at a rate determined
by reference to the Adjusted Eurodollar Rate.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Excluded Assets" means:

                  (1) any lease of property other than (i) a lease of a
         geothermal energy or natural gas interest or property, (ii) a lease of
         real estate underlying a power generation property or (iii) a capital
         lease;

                  (2) all deposit accounts (as defined in Article 9 of the
         Uniform Commercial Code of any relevant jurisdiction) and deposits
         therein to the extent not exceeding $50.0 million in the aggregate,
         except for the Designated Assets Sale Proceeds Account and any deposit
         account and deposits therein holding amounts referred to in clause (7)
         of this definition;

                  (3) the fixtures and equipment relating to any pipeline if, to
         the extent that and for so long as (i) the ownership or operation of
         such pipeline is regulated by any federal or state regulatory authority
         and (ii) under the law applicable to such regulatory authority the
         grant of a security interest in such fixtures and equipment is
         prohibited or a security interest in such fixtures and equipment may be
         granted only after completion of a filing with, or receipt of consent
         from, such regulatory authority which has not been effectively
         completed or received; provided, that (a) such fixtures and equipment
         shall be an Excluded Asset only to the extent and for so long as the
         conditions set forth in clauses (i) and (ii) in this clause (3) are and
         remain satisfied and to the extent such assets otherwise constitute
         Collateral, shall cease to be an Excluded Asset, and shall become
         subject to the security interests granted to the Collateral Trustee
         under the Security Documents, immediately and automatically at such
         time as such conditions cease to exist, including by reason of the
         effective completion of any required filing or effective receipt of any
         required regulatory approval, and (b) unless prohibited by law, the
         proceeds of any sale, lease or other disposition of any such fixtures
         or equipment that are Excluded Assets shall not be an Excluded Asset
         and shall at all times be and remain subject to the security interests
         granted to the Collateral Trustee under the Security Documents except
         as such proceeds are applied and used by the Company in the ordinary
         course of business and applied in accordance with Section 5.10 herein;

                  (4) all easements, rights-of-way, licenses and other real
         property interests for or pertaining to the construction, operation,
         use or maintenance of any pipeline over, upon or under land owned by
         another Person;

                  (5) with respect to personal property, any lease, license,
         permit, franchise, power, authority or right if, to the extent that and
         for so long as (i) the grant of a security interest therein constitutes
         or would result in the abandonment, invalidation or unenforceability of
         such lease, license, permit, franchise, power, authority or right or
         the termination of or a default under the instrument or agreement by
         which such lease, license, permit, franchise,

                                       13



         power, authority or right is governed and (ii) such abandonment,
         invalidation, unenforceability, termination or default is not rendered
         ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the
         Uniform Commercial Code (or any successor provisions) of any relevant
         jurisdiction or any other applicable law (including the United States
         bankruptcy code); provided, that (a) such lease, license, permit,
         franchise, power, authority or right shall be an Excluded Asset only to
         the extent and for so long as the conditions set forth in clauses (i)
         and (ii) of this clause (5) are and remain satisfied and to the extent
         that such assets otherwise constitute Collateral, shall cease to be an
         Excluded Asset, and shall become subject to the security interests
         granted to the Collateral Trustee under the Security Documents,
         immediately and automatically at such time as such conditions cease to
         exist, including by reason of any waiver or consent under the
         applicable instrument or agreement, and (b) the proceeds of any sale,
         lease or other disposition of any such lease, license, permit,
         franchise, power, authority or right that is or becomes an Excluded
         Asset shall not be an Excluded Asset and shall at all times be and
         remain subject to the security interests granted to the Collateral
         Trustee under the Security Documents except as such proceeds are
         applied and used by the Company in the ordinary course of business and
         applied in accordance with Section 5.10 herein;

                  (6) with respect to any real property, any lease, license,
         permit, franchise, power, authority or right if, to the extent that and
         for so long as the grant of a security interest therein (i) requires a
         third party consent which has not been obtained or (ii) constitutes or
         would result in the abandonment, invalidation or unenforceability of
         such lease, license, permit, franchise, power, authority or right or
         the termination of or a default under the instrument or agreement by
         which such lease, license, permit, franchise, power, authority or right
         is governed; provided, that such lease, license, permit, franchise,
         power, authority or right shall be an Excluded Asset only to the extent
         and for as long as the conditions set forth in clause (i) or (ii) of
         this clause (6) are and remain satisfied and to the extent such assets
         otherwise constitute Collateral, shall cease to be an Excluded Asset,
         and shall become subject to the security interests granted to the
         Collateral Trustee under the Security Documents immediately and
         automatically at such time as such conditions cease to exist except as
         such proceeds are applied and used by the Company in the ordinary
         course of business and applied in accordance with Section 5.10 herein;

                  (7) any cash proceeds (including earnings thereon) of Priority
         Lien Debt that are pledged to cash collateralize letters of credit;

                  (8) any turbines which serve as collateral pursuant to that
         certain General Agreement dated as of January 31, 2002 among the
         Company, various Subsidiaries of the Company and Siemens Westinghouse
         Power Corporation relating to various purchase contracts and letters of
         intent for gas turbine generators, steam turbine generators and related
         accessories;

                  (9) proved oil and gas reserves located in Oklahoma and
         undeveloped reserves and unproven acreage located in California, Texas,
         Wyoming, Montana, Colorado, New

                                       14



         Mexico and offshore Louisiana; provided that such reserves and acreage
         has a Fair Market Value not exceeding $20.0 million in the aggregate;

                  (10) Capital Stock of Subsidiaries designated by the Company,
         but only for so long as (i) the Capital Stock of such Subsidiaries is
         not pledged to any Person (other than the Collateral Trustee on behalf
         of all holders of all Secured Debt) and (ii) such Subsidiaries
         collectively own less than 5.0% of the Company's total consolidated
         assets and collectively account for less than 5.0% of the Company's
         Consolidated Cash Flow; and

                  (11) any other property in which a security interest cannot be
         perfected by the filing of a financing statement under the Uniform
         Commercial Code of the relevant jurisdiction; provided that such
         property has a Fair Market Value not exceeding $25.0 million in the
         aggregate.

"Existing Guarantees" means the Guarantees of the Term Loans, the Notes and
certain obligations under the Credit Agreement that exist on the date of this
Agreement.

         "Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries in existence on the date of this Agreement, until such amounts are
repaid.

         "Existing Senior Secured Credit Facilities" means the 2000 Credit
Agreement and the 2002 Credit Agreement.

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

         "Fair Market Value" means the value that would be paid by a willing
buyer to a willing seller in a transaction not involving distress or necessity
of either party, determined in good faith by the Board of Directors of the
Company (unless otherwise provided in this Agreement).

          "Federal Funds Effective Rate" means for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the Federal Funds Rate for such day shall be the average rate
charged to the Administrative Agent, in its capacity as a Lender, on such day on
such transactions as determined by the Administrative Agent.

         "FERC" means the Federal Energy Regulatory Commission.

         "Final Offering Circular" means the final offering circular dated July
10, 2003 (such offering circular, as amended or supplemented, and including all
material incorporated by reference therein).

                                       15



"First Amendment Assignment and Security Agreement" means the First Amendment
Assignment and Security Agreement dated as of July 16, 2003, between the Company
and the Collateral Trustee.

"First Amendment Note Pledge Agreement" means the First Amendment Note Pledge
Agreement dated as of July 16, 2003, between the Company and the Collateral
Trustee.

"First Amendment Pledge Agreement" means the First Amendment Pledge Agreement
dated as of July 16, 2003, between the Company and the Collateral Trustee.

"Fixed Charge Coverage Ratio" means, with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases, redeems, defeases or otherwise discharges any
Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase, redemption, defeasance or other
discharge of Indebtedness, or such issuance, repurchase or redemption of
preferred stock, and the use of the proceeds therefrom, as if the same had
occurred at the beginning of the applicable four-quarter reference period.

         In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:

                  (1) acquisitions that have been made by the specified Person
         or any of its Restricted Subsidiaries, including through mergers or
         consolidations or acquisitions of assets, or any Person or any of its
         Restricted Subsidiaries acquired by merger, consolidation, or the
         acquisition of all or substantially all of its assets by the specified
         Person or any of its Restricted Subsidiaries, and including any related
         financing transactions and including increases in ownership of
         Restricted Subsidiaries, during the four-quarter reference period or
         subsequent to such reference period and on or prior to the Calculation
         Date shall be given pro forma effect (in accordance with Regulation S-X
         under the Securities Act) as if they had occurred on the first day of
         the four-quarter reference period;

                  (2) the Consolidated Cash Flow attributable to discontinued
         operations, as determined in accordance with GAAP, and operations or
         businesses (and ownership interests therein) disposed of prior to the
         Calculation Date, shall be excluded;

                  (3) the Fixed Charges attributable to discontinued operations,
         as determined in accordance with GAAP, and operations or businesses
         (and ownership interests therein) disposed of prior to the Calculation
         Date, shall be excluded, but only to the extent that the obligations
         giving rise to such Fixed Charges shall not be obligations of the
         specified Person or any of its Restricted Subsidiaries following the
         Calculation Date;

                                       16



                  (4) any Person that is a Restricted Subsidiary on the
         Calculation Date shall be deemed to have been a Restricted Subsidiary
         at all times during such four-quarter period;

                  (5) any Person that is not a Restricted Subsidiary on such
         Calculation Date shall be deemed not to have been a Restricted
         Subsidiary at any time during such four-quarter period; and

                  (6) if any Indebtedness bears a floating rate of interest, the
         interest expense on such Indebtedness shall be calculated as if the
         rate in effect on the Calculation Date had been the applicable rate for
         the entire period (taking into account any Hedging Obligation
         applicable to such Indebtedness if such Hedging Obligation has a
         remaining term as at the Calculation Date in excess of 12 months).

"Fixed Charges" means, with respect to any specified Person for any period, the
sum, without duplication, of:

                  (1) the consolidated interest expense of such Person and its
         Restricted Subsidiaries for such period, whether paid or accrued,
         including amortization of debt issuance costs and original issue
         discount, non-cash interest payments, the interest component of any
         deferred payment obligations, the interest component of all payments
         associated with Capital Lease Obligations, commissions, discounts and
         other fees and charges incurred in respect of letter of credit or
         bankers' acceptance financings, and net of the effect of all payments
         made or received pursuant to Hedging Obligations in respect of interest
         rates, plus one-third of all payments with respect to operating leases;
         plus

                  (2) the consolidated interest of such Person and its
         Restricted Subsidiaries that was capitalized during such period, except
         interest on Indebtedness incurred to finance the development or
         construction of a Facility; plus

                  (3) any interest accruing on Indebtedness of another Person
         that is Guaranteed by such Person or one of its Restricted Subsidiaries
         or secured by a Lien on assets of such Person or one of its Restricted
         Subsidiaries, whether or not such Guarantee or Lien is called upon, but
         excluding any such Guarantee or Lien in effect on the date of this
         Agreement unless the same is called upon; plus

                  (4) the product of (a) all dividends, whether paid or accrued
         and whether or not in cash, on any series of preferred stock of such
         Person or any of its Restricted Subsidiaries, other than dividends on
         Equity Interests payable solely in Equity Interests of the Company
         (other than Disqualified Stock) or to the Company or a Restricted
         Subsidiary of the Company, times (b) a fraction, the numerator of which
         is one and the denominator of which is one minus the effective combined
         federal, state and local statutory tax rate of such Person for the
         immediately preceding fiscal year, expressed as a decimal, in each
         case, on a consolidated basis and in accordance with GAAP.

         "Foreign Asset Sale" means an Asset Sale in respect of the Capital
Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type
described in Section 936 of the Code to

                                       17



the extent that the proceeds of such Asset Sale are received by a Person subject
in respect of such proceeds to the tax laws of a jurisdiction other than the
United States of America or any State thereof or the District of Columbia.

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

"Funding Notice" means a notice substantially in the form of Exhibit D

"GAAP" means generally accepted accounting principles set forth in the
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect and, to
the extent optional, adopted by the Company, on the applicable date of
determination.

"Gilroy Agreement" means the Gilroy Receivables Assignment Agreement dated as of
July 16, 2003, between the Company and the Collateral Trustee.

"Governmental Authority" means any federal, state, municipal, national or other
government, governmental department, commission, board, bureau, court, agency or
instrumentality or political subdivision thereof or any entity or officer
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a foreign
entity or government.

"GSCP" means Goldman Sachs Credit Partners L.P.

"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including by way of a pledge of assets or through
letters of credit or reimbursement agreements in respect thereof, of all or any
part of any Indebtedness (whether arising by virtue of partnership arrangements,
or by agreements to keep-well, to purchase assets, goods, securities or
services, to take or pay or to maintain financial statement conditions or
otherwise).

"Guarantors" means the Canadian Guarantors and each other Subsidiary of the
Company that Guarantees the Term Loans.

"Guarantee and Collateral Agreement" means the Guarantee and Collateral
Agreement dated as of July 16, 2003, among Quintana Minerals, (USA), Inc., JOQ
Canada, Inc. and Quintana Canada Holdings, LLC, the Company, the Trustees, the
Collateral Trustee, the Administrative Agent and the Bank of Nova Scotia, as
Credit Agreement Agent.

"Hazardous Materials" means any chemical, material or substance, exposure to
which is prohibited, limited or regulated by any Governmental Authority or which
may or could pose a

                                       18



hazard to the health and safety of the owners, occupants or any Persons in the
vicinity of any Facility or the indoor or outdoor environment.

"Hazardous Materials Activity" means any past, current, proposed or threatened
activity, event or occurrence involving any Hazardous Materials, including the
use, manufacture, possession, storage, holding, presence, existence, location,
release, threatened release, discharge, placement, generation, transportation,
processing, construction, treatment, abatement, removal, remediation, disposal,
disposition, or handling of any Hazardous Materials, and any corrective action
or reponse action with respect to any of the foregoing.

         "Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:

                  (1) interest rate swap agreements (whether from fixed to
         floating or from floating to fixed), interest rate cap agreements and
         interest rate collar agreements;

                  (2) other agreements or arrangements designed to manage
         interest rate risk; and

                  (3) other agreements or arrangements designed to protect such
         Person against fluctuations in currency exchange rates or commodity
         prices.

"Highest Lawful Rate" means the maximum lawful interest rate, if any, that at
any time or from time to time may be contracted for, charged, or received under
the laws applicable to any Lender which are presently in effect or, to the
extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.

"Indebtedness" means, with respect to any specified Person, any indebtedness of
such Person (excluding accrued expenses and trade payables), whether or not
contingent:

                  (1) in respect of borrowed money;

                  (2) evidenced by bonds, notes, debentures or similar
         instruments or letters of credit (or reimbursement agreements in
         respect thereof);

                  (3) in respect of banker's acceptances;

                  (4) representing Capital Lease Obligations or Attributable
         Debt in respect of sale and leaseback transactions;

                  (5) representing the balance deferred and unpaid of the
         purchase price of any property or services due more than six months
         after such property is acquired or such services are completed; or

                  (6) representing any Hedging Obligations,

                                       19



         if and to the extent any of the preceding items (other than letters of
         credit, Attributable Debt and Hedging Obligations) would appear as a
         liability upon a balance sheet of the specified Person prepared in
         accordance with GAAP. In addition, the term "Indebtedness" includes all
         Indebtedness of others secured by a Lien on any asset of the specified
         Person (whether or not such Indebtedness is assumed by the specified
         Person) and, to the extent not otherwise included, the Guarantee by the
         specified Person of any Indebtedness of any other Person.

         The amount of any Indebtedness outstanding as of any date shall be:

                  (1) the accreted value of the Indebtedness, in the case of any
         Indebtedness issued with original issue discount;

                  (2) the principal amount of the Indebtedness, in the case of
         any other Indebtedness; and

                  (3) in respect of Indebtedness of another Person secured by a
         Lien on the assets of the specified Person, the lesser of:

                      (A) the Fair Market Value of such asset at such date of
                  determination, and

                      (B) the amount of the Indebtedness of such other Person.

         Notwithstanding anything to the contrary in this definition of
         Indebtedness, with respect to any contingent obligations (other than
         with respect to contractual obligations to repurchase goods sold or
         distributed, which shall be included to the extent reflected on the
         balance sheet of such Person in accordance with GAAP) of a Person, the
         maximum liability of such Indebtedness shall be as determined by such
         Person's Board of Directors, in good faith, as, in light of the facts
         and circumstances existing at the time, reasonably likely to be
         incurred upon the occurrence of the contingency giving rise to such
         obligation.

"Indemnified Liabilities" means, collectively, any and all liabilities,
obligations, losses, damages (including natural resource damages), penalties,
claims (including Environmental Claims), costs (including the costs of any
investigation, study, sampling, testing, abatement, cleanup, removal,
remediation or other response action necessary to remove, remediate, clean up or
abate any Hazardous Materials Activity), expenses and disbursements of any kind
or nature whatsoever (including the reasonable fees and disbursements of counsel
for Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened by any Person, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or

                                       20



arising out of (i) this Agreement or the other Term Loan Documents or the
transactions contemplated hereby or thereby (including Lenders' agreement to
make Term Loans or the use or intended use of the proceeds thereof, or any
enforcement of any of the Term Loan Documents (including any sale of, collection
from, or other realization upon any of the Collateral or the enforcement of any
Guarantee of the Term Loan Obligations)); or (ii) any Environmental Claim or any
Hazardous Materials Activity relating to or arising from, directly or
indirectly, any past or present activity, operation, land ownership or practice
of the Company and any of its Affiliates.

"Indentures" is defined in the Recitals.

"Initial Purchasers" means Goldman, Sachs & Co., Credit Lyonnais (USA) Inc., ING
Financial Markets LLC, Scotia Capital (USA) Inc. and TD Securities (USA) Inc.

"Initial Term Loan" means an Initial Term Loan made by a Lender to the Company
pursuant to Section 2.1(a) (Term Loans).

"Initial Term Loan Commitment" means the commitment of a Lender to make or
otherwise fund an Initial Term Loan and "Initial Term Loan Commitments" means
such commitments of all Lenders in the aggregate. The amount of each Lender's
Initial Term Loan Commitment, if any, is set forth on Appendix A, on Schedule 1
to the Lender Addendum delivered by such Lender or in the applicable Assignment
Agreement, subject to any adjustment or reduction pursuant to the terms and
conditions hereof. The aggregate amount of the Initial Term Loan Commitments as
of the Closing Date is $750,000,000.

"Initial Notes" is defined in the Recitals.

"Insolvency Proceeding" means:

                  (1) any proceeding for the reorganization, recapitalization or
         adjustment or marshalling of the assets or liabilities of the Company
         or any other Obligor, any receivership or assignment for the benefit of
         creditors relating to the Company or any other Obligor or any similar
         case or proceeding relative to the Company or any other Obligor or its
         creditors, as such, in each case whether or not voluntary;

                  (2) any liquidation, dissolution, marshalling of assets or
         liabilities or other winding up of or relating to the Company or any
         other Obligor, in each case whether or not voluntary and whether or not
         involving bankruptcy or insolvency; or

                  (3) any other proceeding of any type or nature in which
         substantially all claims of creditors of the Company or any other
         Obligor are determined and any payment or distribution is or may be
         made on account of such claims.

"Interest Payment Date" means with respect to (i) any Base Rate Loan, each April
15, July 15, October 15 and January 15 of each year, commencing on the first
such date to occur after the Closing Date and the final maturity date of such
Term Loan; and (ii) any Eurodollar Rate Loan,

                                       21



the last day of each Interest Period applicable to such Term Loan; provided, in
the case of each Interest Period of longer than three months "Interest Payment
Date" shall also include each date that is three months, or an integral multiple
thereof, after the commencement of such Interest Period.

"Interest Period" means, in connection with a Eurodollar Rate Loan, an interest
period of one, two, three or six months, as selected by the Company in the
applicable Funding Notice or Conversion/Continuation Notice, (i) initially,
commencing on the Credit Date or Conversion/Continuation Date; and (ii)
thereafter, commencing on the day on which the immediately preceding Interest
Period expires; provided, (a) if an Interest Period would otherwise expire on a
day that is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day unless no further Business Day occurs in such month, in
which case such Interest Period shall expire on the immediately preceding
Business Day; (b) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clause (c), of this definition, end on the last Business Day of a calendar
month; and (c) no Interest shall extend beyond the Maturity Date.

"Interest Rate Determination Date" means, with respect to any Interest Period,
the date that is two Business Days prior to the first day of such Interest
Period.

"Investment Grade Rating" means a rating equal to or higher than Baa3 (or the
equivalent) by Moody's or BBB- (or the equivalent) by S&P.

"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market
Value of the Company's Investments in such Subsidiary that were not sold or
disposed of in an amount determined as provided in Section 5.07. Except as
otherwise provided in this Agreement, the amount of an Investment shall be
determined at the time the Investment is made and without giving effect to
subsequent changes in value.

"Lender" means each financial institution listed on the signature pages hereto
as a Lender, and any other Person that becomes a party hereto pursuant to an
Assignment Agreement or a Lender Joinder Agreement.

                                       22



"Lender Addendum" means with respect to any initial Lender, a Lender Addendum,
substantially in the form of Exhibit E to be executed and delivered by such
Lender on the Closing Date as provided in Section 13.06(j).

"Lender Joinder Agreement" means an agreement substantially in the form of
Exhibit F

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.

"Magic Valley Generating Assets" means the Magic Valley Generating Station, a
natural gas fired power plant in commercial operation in Edinburg, Texas.

"Material Adverse Effect" has the meaning in Section 2(o) of the Purchase
Agreement.

"Material Designated Assets" means Designated Assets having a Fair Market Value
in the aggregate in excess of $50.0 million.

"Maturity Date" means the earlier of (i) July 16, 2007, and (ii) the date that
all Term Loans shall become due and payable in full hereunder, whether by
acceleration or otherwise.

"Moody's" means Moody's Investors Service, Inc. (or, if such entity ceases to
rate the Term Loans for reasons outside of the control of the Company, the
equivalent investment grade credit rating from any other "nationally recognized
statistical rating organization" (or successor concept) within the meaning of
Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision)
selected by the Company as a replacement agency).

"Mortgages" the mortgages or deeds of trust listed on Schedule 1.01(a) hereto.

"Net Income" means, with respect to any specified Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, without duplication:

                  (1) any gain (but not loss), together with any related
         provision for taxes on such gain (but not loss), realized in connection
         with: (a) any Asset Sale; or (b) the disposition of any securities by
         such Person or any of its Restricted Subsidiaries or the extinguishment
         of any Indebtedness of such Person or any of its Restricted
         Subsidiaries; and

                  (2) any extraordinary gain (but not loss), together with any
         related provision for taxes on such extraordinary gain (but not loss).

                                       23



         "Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including legal, accounting and investment banking fees, and
sales commissions, and any relocation expenses incurred as a result of the Asset
Sale, taxes paid or payable as a result of the Asset Sale, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Priority Debt, secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.

"New Credit Facility" means the senior secured credit facility provided under
the Credit Agreement providing for up to $500.0 million of revolving credit and
term loan borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, restated, modified, renewed, refunded, replaced or
refinanced (including by means of sales of debt securities to institutional
investors) in whole or in part from time to time.

"Non-Recourse Debt" means Indebtedness of any Restricted Subsidiary that is
incurred to finance the exploration, drilling, development, construction or
purchase of or by, or repairs, improvements or additions to, property or assets
of the Company or any Restricted Subsidiary; provided that such Indebtedness is
without recourse to the Company (except as permitted by clause (8) of the
definition of Permitted Debt) or any Restricted Subsidiary or to any property or
assets of the Company or any Restricted Subsidiary other than property or assets
(including Capital Stock) of a Restricted Subsidiary subject to a Lien permitted
pursuant to clause (8) of the definition of Permitted Liens or property or
assets (including Capital Stock) of a Restricted Subsidiary subject to a Lien
permitted pursuant to clause (19) of the definition of Permitted Liens.

"Note Documents" means each Indenture, each of the Notes, each Sharing
Confirmation and the Security Documents.

"Note Obligations" means each of the Notes (including any Additional Notes
issued under the applicable Indenture) and all other Obligations of any Obligor
under the applicable Indenture, the applicable Notes (including any Additional
Notes issued under the applicable Indenture) and the Security Documents.

"Notes" means the Initial Notes and any Additional Notes.

"Notice" means a Funding Notice or a Conversion/Continuation Notice.

"Obligations" means any principal, interest (including any interest accruing at
the then applicable rate provided in any applicable Secured Debt Document after
the maturity of the Indebtedness thereunder and any reimbursement obligations
therein and interest accruing at the then applicable rate provided in any
applicable Secured Debt Document after the filing of any

                                       24



petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Company, whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

"Obligor" means the Company and each Restricted Subsidiary of the Company (if
any) that at any time guarantees or provides collateral security or credit
support for any Secured Obligations.

"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.

"Officers' Certificate" means a certificate signed on behalf of the Company by
two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company, that meets the requirements of Section 13.21
hereof.

"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Administrative Agent, that meets the requirements of Section
13.21 hereof. The counsel may be an employee of, or counsel to, the Company, any
Subsidiary of the Company or the Administrative Agent.

"Parity Debt Representative" means:

                  (1) in the case of any of the Notes, the applicable Trustee;

                  (2) in the case of the Term Loans, the Administrative Agent;
         or

                  (3) in the case of any other Series of Parity Debt, the
         trustee, agent or representative of the holders of such Series of
         Parity Lien Debt who maintains the transfer register for such Series of
         Parity Lien Debt and is appointed as a Parity Debt Representative (for
         purposes related to the administration of the Security Documents)
         pursuant to the indenture or other agreement governing such Series of
         Parity Lien Debt.

         "Parity Lien" means a Lien granted by a Security Document to the
Collateral Trustee upon any property of the Company or any other Obligor to
secure Parity Lien Obligations.

         "Parity Lien Debt" means:

                  (1) the Notes;

                  (2) the Term Loans; and

                  (3) any other Indebtedness (including Additional Notes and
         Additional Term Loans) that:

                                       25



                      (A) is permitted to be incurred by the covenant described
                  under Section 5.09 herein; and

                      (B) is permitted to be secured by Parity Liens by
                  clause (2) of the definition of Permitted Liens;

         provided, in the case of each issue or series of Indebtedness referred
         to in this clause (3), that:

                  (i) on or before the date on which such Indebtedness was
         incurred by the Company such Indebtedness is designated by the Company,
         in an officers' certificate delivered to each Parity Debt
         Representative and the Collateral Trustee on or before such date, as
         Parity Lien Debt for the purposes of this Agreement and the Collateral
         Trust Agreement,

                  (ii) such Indebtedness is governed by an indenture or other
         agreement that includes a Sharing Confirmation and

                  (iii) all requirements set forth in the Collateral Trust
         Agreement as to the confirmation, grant or perfection of the Collateral
         Trustee's Liens to secure such Indebtedness or Obligations in respect
         thereof are satisfied

         (and the satisfaction of such requirements and the other provisions of
         this clause (3) shall be conclusively established, for purposes of
         entitling the holders of such Indebtedness to share Equally and Ratably
         with the other holders of Parity Lien Debt in the benefits and proceeds
         of the Collateral Trustee's Liens on the Collateral, if the Company
         delivers to the Collateral Trustee an officers' certificate in the form
         required pursuant to the Collateral Trust Agreement stating that such
         requirements and other provisions have been satisfied and that such
         Indebtedness is Parity Lien Debt, together with an Opinion of Counsel
         stating that such officers' certificate has been duly authorized by the
         Board of Directors of the Company and has been duly executed and
         delivered, and the holders of such Indebtedness and Obligations in
         respect thereof shall be entitled to rely conclusively thereon).

         "Parity Lien Debt Documents" means, collectively, the Term Loan
Documents, the Note Documents, and the indenture or agreement governing each
other Series of Parity Lien Debt and all agreements binding on any Obligor
related thereto.

         "Parity Lien Obligations" means Parity Lien Debt and all other
Obligations in respect thereof.

"Permitted Business" means the business of acquiring, constructing, managing,
developing, improving, owning and operating Facilities, as well as any other
activities reasonably related to the foregoing activities (including acquiring
and holding reserves), including investing in Facilities.

                                       26



         "Permitted Investments" means:

                  (1) any Investment in the Company or in a Restricted
         Subsidiary of the Company;

                  (2) any Investment in Cash Equivalents;

                  (3) any Investment by the Company or any Restricted Subsidiary
         of the Company in a Person, if as a result of such Investment:

                      (a) such Person becomes a Restricted Subsidiary of the
                  Company; or

                      (b) such Person is merged, consolidated or amalgamated
                  with or into, or transfers or conveys substantially all of its
                  assets to, or is liquidated into, the Company or a Restricted
                  Subsidiary of the Company;

                  (4) any Investment made as a result of the receipt of non-cash
         consideration from an Asset Sale that was made pursuant to and in
         compliance with Section 5.10 herein;

                  (5) any acquisition of assets or Capital Stock solely in
         exchange for the issuance of Equity Interests (other than Disqualified
         Stock) of the Company;

                  (6) any Investments received in compromise or resolution of
         (A) obligations of trade creditors or customers that were incurred in
         the ordinary course of business of the Company or any of its Restricted
         Subsidiaries, including pursuant to any plan of reorganization or
         similar arrangement upon the bankruptcy or insolvency of any trade
         creditor or customer; or (B) litigation, arbitration or other disputes
         with Persons who are not Affiliates;

                  (7) Investments represented by Hedging Obligations;

                  (8) loans or advances to employees made in the ordinary course
         of business consistent with past practices of the Company or such
         Restricted Subsidiary in an aggregate principal amount not to exceed
         $5.0 million at any one time outstanding;

                  (9) repurchases of the Notes and repayments of the Term Loans;
         and

                  (10) other Investments in any Person having an aggregate Fair
         Market Value (measured on the date each such Investment was made and
         without giving effect to subsequent changes in value), when taken
         together with all other Investments made pursuant to this clause (10)
         that are at the time outstanding not to exceed $100.0 million;

         provided that Designated Assets held by the Company may not be invested
         in, leased to or otherwise transferred to any Restricted Subsidiary;
         provided, however, that the Company may transfer proven undeveloped gas
         reserves to its Restricted Subsidiaries in

                                       27



         the ordinary course of business for consumption in the power generating
         business of such Restricted Subsidiaries during the 12-month period
         following transfer.

         "Permitted Liens" means:

                  (1) Liens on assets of the Company or any Canadian Guarantor
         securing Obligations of the Company or such Canadian Guarantor under
         one or more Credit Facilities in an aggregate amount not exceeding the
         Priority Lien Cap;

                  (2) Liens held by the Collateral Trustee Equally and Ratably
         securing the Initial Notes and the Term Loans to be issued on the date
         of this Agreement and all future Parity Lien Debt and other Parity Lien
         Obligations; provided that the Collateral Trustee's Liens may secure
         Parity Lien Debt incurred after the date of this Agreement or
         Obligations in respect thereof only if, on the date of the incurrence
         of such Parity Lien Debt, after giving pro forma effect to the
         incurrence thereof and the application of the proceeds therefrom, the
         Secured Leverage Ratio is not greater than 2.75:1.0;

                  (3) Liens in favor of the Company;

                  (4) Pledges or deposits made under workers' compensation,
         unemployment insurance laws or similar legislation, or good faith
         deposits in connection with bids, tenders, contracts (other than for
         payment of Indebtedness) or leases to which such Person is a party, and
         Liens or deposits to secure the performance of statutory obligations,
         surety or appeal bonds, performance bonds or other obligations of a
         like nature incurred in the ordinary course of business;

                  (5) Liens to secure Indebtedness (including Capital Lease
         Obligations) permitted by clause (4) of the definition of Permitted
         Debt covering only the assets acquired, designed, constructed,
         installed or improved with or financed by such Indebtedness;

                  (6) Liens existing on the date of this Agreement;

                  (7) Liens securing Indebtedness or other obligations of a
         Restricted Subsidiary owing to the Company or a Restricted Subsidiary;

                  (8) (A) Liens on assets or property of a Restricted Subsidiary
         (other than Material Designated Assets) incurred by any Restricted
         Subsidiary to secure Indebtedness of such Restricted Subsidiary
         incurred to finance the exploration, drilling, development,
         construction or purchase of or by, or repairs, improvements or
         additions to, property or assets of the Company or such Restricted
         Subsidiary, which Liens may include Liens on the Capital Stock of such
         Restricted Subsidiary (other than a Restricted Subsidiary that (i) is a
         direct Subsidiary of the Company or (ii) owns, directly or indirectly,
         Material Designated Assets), (B) Liens (other than Liens on Material
         Designated Assets) incurred by any Restricted Subsidiary that does not
         own, directly or indirectly, at the time of original incurrence of such
         a Lien under this clause (B) any Material Designated Assets

                                       28



         or any operating properties or assets, securing Indebtedness incurred
         to finance the exploration, drilling, development, construction or
         purchase of or by, or repairs, improvements or additions to, property
         or assets of any Restricted Subsidiary that does not, directly or
         indirectly, own any operating properties or assets at the time of the
         original incurrence of such Lien, which Liens contemplated by this
         clause (8) may include Liens on the Capital Stock of one or more
         Restricted Subsidiaries that (i) are not direct Subsidiaries of the
         Company and (ii) do not, directly or indirectly, own any Material
         Designated Assets or operating properties or assets at the time of
         original incurrence of such Lien; or (C) without duplication, Liens
         (other than Liens on Material Designated Assets) incurred by any
         Restricted Subsidiary (which Liens may include Liens on the Capital
         Stock of such Restricted Subsidiary so long as the Capital Stock of
         such Restricted Subsidiary is not pledged as Collateral) that owns as
         of the date of this Agreement one or more of the peaking power plants
         (and no other significant assets) constructed for the purpose of
         providing peaking capacity and energy to the California Department of
         Water Resources; provided, that the Indebtedness secured by any such
         Lien contemplated by this clause (8) may not be issued more than 365
         days (or, in the case of clause (C) above, two years) after the later
         of the exploration, drilling, development, completion of construction,
         purchase, repair, improvement, addition or commencement of full
         commercial operation of the property or asset being so financed;

                  (9) Liens on property or shares of Capital Stock of a
         Subsidiary at the time such Person becomes a Subsidiary; provided that
         any such Lien may not extend to any other property owned by the
         Company;

                  (10) Liens on property at the time a Subsidiary acquires the
         property, including any acquisition by means of a merger or
         consolidation with or into the Subsidiary; provided that such Liens are
         not incurred in connection with, or in contemplation of, such merger or
         consolidation; and provided, further, that the Lien may not extend to
         any other property owned by the Company or any Restricted Subsidiary;

                  (11) Liens incurred by a Person other than the Company or any
         Subsidiary on assets that are the subject of a Capitalized Lease
         Obligation to which the Company or a Subsidiary is a party; provided
         that any such Lien may not secure Indebtedness of the Company or any
         Subsidiary (except Indebtedness secured by a Lien on any property or
         assets of the Company or such Subsidiary incurred in connection with
         Indebtedness of another Person), with the amount of such obligation
         being deemed to be the lesser of the value of such property or assets
         or the amount of the obligation so secured) and may not extend to any
         other property owned by the Company or any Restricted Subsidiary;

                  (12) Liens on assets of the Company Construction Finance
         Company, L.P. (and/or any other Restricted Subsidiary that subsequently
         owns any such assets) relating to the Magic Valley Generating Station;

                                       29



                  (13) Liens not in respect of Indebtedness arising from Uniform
         Commercial Code financing statements for informational purposes with
         respect to leases incurred in the ordinary course of business and not
         otherwise prohibited by this Agreement;

                  (14) Liens not in respect of Indebtedness consisting of the
         interest of the lessor under any lease entered into in the ordinary
         course of business and not otherwise prohibited by this Agreement; and
         Liens on shares of Capital Stock of a subsidiary that does not own any
         significant assets other than a lessee's interest in a Facility or on
         the Capital Stock of a subsidiary whose only significant asset is its
         direct or indirect interest in such lessee subsidiary; provided that in
         no event shall this clause (14) allow a lien on any Capital Stock
         constituting Collateral;

                  (15) Liens which constitute banker's liens, rights of set-off
         or similar rights and remedies as to deposit accounts or other funds
         maintained with any bank or other financial institution, whether
         arising by operation of law or pursuant to contract;

                  (16) Liens for taxes, assessments or governmental charges or
         claims that are not yet delinquent or that are being contested in good
         faith by appropriate proceedings promptly instituted and diligently
         concluded; provided that any reserve or other appropriate provision as
         is required in conformity with GAAP has been made therefor;

                  (17) Liens imposed by law such as carriers', warehousemen's
         and mechanics' Liens, in each case, arising in the ordinary course of
         business and with respect to amounts not yet due or being contested in
         good faith by appropriate legal proceedings promptly instituted and
         diligently conducted and for which a reserve or other appropriate
         provision, if any, as shall be required in conformity with GAAP shall
         have been made; or other Liens arising out of judgments or awards
         against such Person with respect to which such Person shall then be
         diligently prosecuting appeal or other proceedings for review;

                  (18) survey exceptions, easements or reservations of, or
         rights of others for, licenses, rights-of-way, sewers, electric lines,
         telegraph and telephone lines and other similar purposes, or zoning or
         other restrictions as to the use of real property or Liens incidental
         to the conduct of the business of the Company or any Restricted
         Subsidiary or to the ownership of its properties that were not incurred
         in connection with Indebtedness and that do not in the aggregate
         materially adversely affect the value of said properties or materially
         impair their use in the operation of the business of the Company or any
         Restricted Subsidiary;

                  (19) Liens to secure any refinancing, refunding, extension,
         renewal or replacement (or successive refinancings, refundings,
         extensions, renewals or replacements) as a whole, or in part, of any
         Indebtedness secured by any Lien referred to in the foregoing clauses
         (6), (8), (9) and (10); provided that (A) such new Lien shall be
         limited to all or part of the same property or assets that secured the
         original Lien (plus repairs, improvements and additions to such
         property or assets and Liens on the stock or other ownership interest
         in one or more Restricted Subsidiaries beneficially owning such
         property or assets) and (B)

                                       30



         the amount of the Indebtedness secured by such Lien at such time (or,
         if the amount that may be realized in respect of such Lien is limited,
         by contract or otherwise, such limited lesser amount) is not increased
         (other than by an amount necessary to pay fees and expenses, including
         premiums, related to the refinancing, refunding, extension, renewal or
         replacement of such Indebtedness);

                  (20) Liens on assets of Restricted Subsidiaries to secure
         letters of credit issued pursuant to clause (14) of the definition of
         Permitted Debt; provided if and to the extent such letters of credit
         are drawn upon, such drawing is reimbursed no later than the tenth
         Business Day following a demand for reimbursement following payment on
         the letter of credit and Liens to secure letters of credit incurred
         pursuant to clause (15) of the definition of Permitted Debt on cash
         Collateral constituting the proceeds of Priority Lien Debt;

                  (21) Liens (A) on cash and short-term investments of
         Restricted Subsidiaries to secure obligations with respect to (i)
         contracts for commercial and trading activities in the ordinary course
         of business and contracts (including physical delivery, option (whether
         cash or financial), exchange, swap and futures contracts) for the
         purchase, transmission, distribution, sale, lease or hedge of any
         energy-related commodity or service or (ii) interest rate, commodity
         price, or currency rate management contracts or derivatives and (B)
         encumbering assets of a Restricted Subsidiary, other than (i) Material
         Designated Assets or (ii) accounts or receivables, which Liens arise
         out of contracts or agreements relating to the generation, distribution
         or transmission or sale of energy and/or fuel; provided that all such
         agreements or contracts are entered into in the ordinary course of
         business; and

                  (22) other Liens to secure Indebtedness in an aggregate amount
         not to exceed $50.0 million at any time outstanding.

"Permitted Prior Liens" means (a) Liens securing Priority Lien Obligations not
exceeding the Priority Lien Cap, (b) Liens described in clauses (5), (6), (10)
or (11) of the definition of "Permitted Liens" and (c) Liens that arise by
operation of law and are not voluntarily granted, to the extent entitled by law
to priority over the security interests created by the Security Documents.

"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:

                  (1) the principal amount (or accreted value, if applicable) of
         such Permitted Refinancing Indebtedness does not exceed the principal
         amount (or accreted value, if applicable) of the Indebtedness extended,
         refinanced, renewed, replaced, defeased or refunded (plus all accrued
         or accumulated interest on the Indebtedness and the amount of

                                       31



         all fees, costs, expenses and premiums, including swap breakage and
         defeasance costs, incurred in connection therewith);

                  (2) such Permitted Refinancing Indebtedness has a final
         maturity date equal to or later than the final maturity date of, and
         has a Weighted Average Life to Maturity equal to or greater than the
         Weighted Average Life to Maturity of, the Indebtedness being extended,
         refinanced, renewed, replaced, defeased or refunded; provided that such
         Permitted Refinancing Indebtedness may have such shorter final maturity
         date and Weighted Average Life to Maturity as is equal to or greater
         than the latest maturity date of any Term Loans borrowed under this
         Agreement; and

                  (3) if the Indebtedness being extended, refinanced, renewed,
         replaced, defeased or refunded is subordinated in right of payment to
         the Term Loans, such Permitted Refinancing Indebtedness has a final
         maturity date equal to or later than the final maturity date of, and is
         subordinated in right of payment to, the Term Loans on terms at least
         as favorable to the Lenders as those contained in the documentation
         governing the Indebtedness being extended, refinanced, renewed,
         replaced, defeased or refunded;

provided that Permitted Refinancing Indebtedness shall not include (A)
Indebtedness of the Company incurred to refinance Non-Recourse Debt of a
Restricted Subsidiary, (B) Indebtedness of a Restricted Subsidiary of the
Company that refinances Indebtedness of the Company or (C) Indebtedness of the
Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.

"Pledged Subsidiaries" means the first-tier subsidiaries listed on Schedule
1.01(b) hereto.

"preferred stock" means any Capital Stock of a Person, however designated, which
entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of the
other Capital Stock issued by such Person.

"Prime Rate" means the rate of interest per annum that Goldman Sachs Credit
Partners L.P. announces from time to time as its prime lending rate, as in
effect from time to time. The Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer.
Goldman Sachs Credit Partners L.P. or any other Lender may make commercial loans
or other loans at rates of interest at, above or below the Prime Rate.

"Principal Office" means, for the Administrative Agent, its "Principal Office"
as set forth on Appendix B, or such other office as the Administrative Agent may
from time to time designate in writing to the Company, the Administrative Agent
and each Lender.

                                       32



"Priority Lien" means a Lien granted by a Security Document to the Collateral
Trustee upon any property of the Company or any other Obligor to secure Priority
Lien Obligations not exceeding the Priority Lien Cap.

"Priority Lien Agent" means the Credit Agreement Agent or any other agent for
holders of Priority Lien Debt.

"Priority Lien Cap" means an amount equal to (a) the Indebtedness outstanding
under the Credit Agreement or any other Credit Facility in an aggregate
principal amount not exceeding the greater of (1) $500.0 million, less the
amount of any Net Proceeds of a Sale of Designated Assets applied to repay
Priority Lien Debt and/or cash collateralize letters of credit that constitute
Priority Lien Debt and (2) the dollar amount that, on the date of incurrence of
such Indebtedness, is equal to 50% of the Company's Consolidated Cash Flow for
the then most recent four-quarter period for which financial information is
available, plus (b) any interest (including any interest accruing at the then
applicable rate provided in any applicable Priority Lien Document after the
maturity of the Indebtedness thereunder and any reimbursement obligations
therein and interest accruing at the then applicable rate provided in any
applicable Priority Lien Document after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Company, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), penalties, premiums,
fees, costs, expenses or other Obligations in respect of such Indebtedness. For
purposes of this definition of Priority Lien Cap, all letters of credit shall be
valued at face amount, whether or not drawn, and all letters of credit
denominated in a currency other than U.S. dollars shall be valued at all times
at the Equivalent Amount (as defined in the Credit Agreement) thereof on the
date of issue thereof.

"Priority Lien Debt" means Indebtedness under (a) the Credit Agreement or (b)
any other Credit Facility that is secured by a Priority Lien that was permitted
to be incurred under clause (1) of the definition of "Permitted Liens" but only
if on or before the day on which such Indebtedness under a Credit Facility
described in clause (b) above is incurred by the Company such Indebtedness is
designated by the Company, in an officers' certificate delivered to each Parity
Debt Representative and the Collateral Trustee on or before such date, as
Priority Lien Debt for the purposes of each of the Parity Lien Debt Documents
(including this Agreement) and the Collateral Trust Agreement.

"Priority Lien Documents" means the Credit Agreement or any other Credit
Facility pursuant to which any Priority Lien Debt is incurred and all other
agreements governing, securing or relating to any Priority Lien Obligations.

"Priority Lien Obligations" means the Priority Lien Debt and all other
Obligations in respect of Priority Lien Debt.

"Pro Rata Share" means with respect to all payments, computations and other
matters relating to the Term Loans of any Lender, the percentage obtained by
dividing (A) an amount equal to the aggregate outstanding Term Loans of that
Lender, by (B) an amount equal to the sum of the aggregate amount of outstanding
Term Loans of all Lenders.

                                       33



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

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

"Purchase Agreement" means the Purchase Agreement dated July 10, 2003, among the
Company and the Initial Purchasers.

"Regulation A" means Regulation A of the Board of Governors of the Federal
Reserve System, as in effect from time to time.

"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.

"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System, as in effect from time to time.

"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.

"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System, as in effect from time to time.

"Related Fund" means, with respect to any Lender that is an investment fund, any
other investment fund that invests in commercial loans and that is managed or
advised by the same investment advisor as such Lender or by an Affiliate of such
investment advisor.

"Requisite Lenders" means one or more Lenders holding more than 50% of the sum
of the aggregate outstanding Term Loans (or, at any time prior to the funding of
the Initial Term Loans, the Initial Term Loan Commitments). For this purpose
only, Term Loans registered in the name of, or beneficially owned by, the
Company or any Affiliate of the Company shall be deemed not to be outstanding.

"Restricted Investment" means an Investment other than a Permitted Investment.

"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.

"S&P" means Standard & Poor's Ratings Group (or, if such entity ceases to rate
the Term Loans for reasons outside of the control of the Company, the equivalent
investment grade credit rating from any other "nationally recognized statistical
rating organization" (or successor concept) within the meaning of Rule
15c3-1(c)(2)(vi)(F) under the Exchange Act (or successor provision) selected by
the Company as a replacement agency).

                                       34



"Sale of Designated Assets" means any Asset Sale involving a sale or other
disposition of Designated Assets.

"SEC" means the Securities and Exchange Commission.

"Second Amendment Pledge Agreement" means the Second Amendment Pledge Agreement
dated as of July 16, 2003, between the Company and the Collateral Trustee.

"Secured Debt" means Parity Lien Debt and Priority Lien Debt.

"Secured Debt Documents" means the Parity Lien Debt Documents and the Priority
Lien Documents.

"Secured Debt Representative" means each Parity Debt Representative and the
Priority Lien Agent.

"Secured Leverage Ratio" means, on any date, the ratio of:

                  (1) the aggregate principal amount of Secured Debt outstanding
         on such date (and, for this purpose, letters of credit shall be deemed
         to have a principal amount equal to the maximum potential liability of
         the Company thereunder) to

                  (2) the aggregate amount of the Company's Consolidated Cash
         Flow for the most recent four-quarter period for which financial
         information is available.

         In addition, for purposes of calculating the Secured Leverage Ratio:

                  (1) acquisitions that have been made by the specified Person
         or any of its Restricted Subsidiaries, including through mergers or
         consolidations or acquisitions of assets, or any Person or any of its
         Restricted Subsidiaries acquired by merger, consolidation or the
         acquisition of all or substantially all of its assets by the specified
         Person or any of its Restricted Subsidiaries, and including any related
         financing transactions and including increases in ownership of
         Restricted Subsidiaries, during the four-quarter reference period or
         subsequent to such reference period and on or prior to the date on
         which the event for which the calculation of the Secured Leverage Ratio
         is made (the "Leverage Calculation Date") shall be given pro forma
         effect in accordance with Regulation S-X under the Securities Act) as
         if they had occurred on the first day of the four-quarter reference
         period;

                  (2) the Consolidated Cash Flow attributable to discontinued
         operations, as determined in accordance with GAAP, and operations or
         businesses (and ownership interests therein) disposed of prior to the
         Leverage Calculation Date, shall be excluded;

                                       35



                  (3) any Person that is a Restricted Subsidiary on the Leverage
         Calculation Date shall be deemed to have been a Restricted Subsidiary
         at all times during such four-quarter period;

                  (5) any Person that is not a Restricted Subsidiary on the
         Leverage Calculation Date shall be deemed not to have been a Restricted
         Subsidiary at any time during such four-quarter period; and

                  (6) if any Indebtedness bears a floating rate of interest, the
         interest expense on such Indebtedness shall be calculated as if the
         rate in effect on the Leverage Calculation Date had been the applicable
         rate for the entire period (taking into account any Hedging Obligation
         applicable to such Indebtedness if such Hedging Obligation has a
         remaining term as at the Calculation Date in excess of 12 months).

"Secured Obligations" means the Parity Lien Obligations and the Priority Lien
Obligations.

"Secured Parties" means any Person, including the Lenders, who is holding a
Secured Obligation (including the Administrative Agent or any other Secured Debt
Representative), at any time.

"Security Documents" means the Guarantee and Collateral Agreement, the First
Amendment Pledge Agreement, the Second Amendment Pledge Agreement, First
Amendment Assignment and Security Agreement, First Amendment Note Pledge
Agreement, the Control Agreement, the Mortgages, the Collateral Trust Agreement
and all other grants or transfers for security, instruments, documents and
agreements delivered by any Obligor pursuant to any Secured Debt Document in
order to grant to the Collateral Trustee for the benefit of the Secured Parties,
a Lien on any Collateral as security for the Secured Obligations, in each case,
as amended, modified, renewed, restated or replaced, in whole or in part, from
time to time, in accordance with its terms.

          "Securities Act" means the Securities Act of 1933, as amended.

"Series of Parity Lien Debt" means, severally, each series of the Notes, the
Term Loans and each other issue or series of Parity Lien Debt for which a single
transfer register is maintained.

"Series of Secured Debt" means, severally, each series of Notes, the Term Loans,
each other issue or series of Parity Lien Debt for which a single transfer
register is maintained and each issue or series of Priority Lien Debt for which
a single register is maintained.

"Sharing Confirmation" means, as to any Series of Parity Lien Debt, the written
agreement of the holders of such Series of Parity Lien Debt, as set forth in the
indenture or agreement governing such Series of Parity Lien Debt, for the
enforceable benefit of all holders of each other existing and future Series of
Parity Lien Debt and each existing and future Parity Debt Representative, that
all Parity Lien Obligations shall be and are secured Equally and Ratably by all
Liens at any time granted by the Company or any other Obligor to secure any
Obligations in

                                       36



respect of such Series of Parity Lien Debt, whether or not upon property
otherwise constituting Collateral, that all such Liens shall be enforceable by
the Collateral Trustee for the benefit of all holders of Parity Lien Obligations
Equally and Ratably, and that the holders of Obligations in respect of such
Series of Parity Lien Debt are bound by the provisions in the Collateral Trust
Agreement relating to the order of application of proceeds from enforcement of
the Collateral Trustee's Liens upon the Collateral, and consent to and direct
the Collateral Trustee to perform its obligations under the Collateral Trust
Agreement.

"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.

"Sole Lead Arranger" is defined in the Preamble.

"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness as of the date of the indenture or other agreement governing
such Indebtedness, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.

"Subsidiary" means, as applied to any Person, any corporation, limited or
general partnership, trust, association or other business entity of which an
aggregate of at least 50% of the outstanding Voting Shares, or an equivalent
controlling interest therein, of such Person is, at the time, directly or
indirectly, owned by such Person and/or one or more Subsidiaries of such Person.

"Tax" means any present or future tax, levy, impost, duty, assessment, charge,
fee, deduction or withholding of any nature and whatever called, by whomsoever,
on whomsoever and wherever imposed, levied, collected, withheld or assessed;
provided, "Tax on the overall net income" of a Person shall be construed as a
reference to a tax imposed by the jurisdiction in which that Person is organized
or in which that Person's applicable principal office (and/or, in the case of a
Lender, its lending office) is located or in which that Person (and/or, in the
case of a Lender, its lending office) is deemed to be doing business on all or
part of the net income, profits or gains (whether worldwide, or only insofar as
such income, profits or gains are considered to arise in or to relate to a
particular jurisdiction, or otherwise) of that Person (and/or, in the case of a
Lender, its applicable lending office).

"Term Loan" means an Initial Term Loan or an Additional Term Loan.

"Term Loan Commitment" means any Initial Term Loan Commitment or Additional Term
Loan Commitment.

"Term Loan Document" means any of this Agreement, the Term Loan Notes, if any,
the Security Documents, each Sharing Confirmation and all other documents,
instruments or agreements

                                       37



executed and delivered by a Obligor for the benefit of any Agent or any Lender
in connection herewith.

"Term Loan Note" means a promissory note in the form of Exhibit G as it may be
amended, supplemented or otherwise modified from time to time.

"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which the Indentures are qualified
under the Trust Indenture Act.

"Trustees" is defined in the Recitals.

"2000 Credit Agreement" means the Second Amended and Restated Credit Agreement,
dated as of May 23, 2000, among the Company, Bayerische Landesbank, as
Co-Arranger and Syndication Agent, The Bank of Nova Scotia, as Lead Arranger and
Administrative Agent, and the Lenders named therein.

"2002 Credit Agreement" means the Credit Agreement, dated as of March 8, 2002,
among the Company, the Lenders named therein, The Bank of Nova Scotia and
Bayerische Landesbank Girozentrale, as lead arrangers and bookrunners, Salomon
Smith Barney Inc. and Deutsche Banc Alex. Brown Inc., as lead arrangers and
bookrunners, Bank of America, National Association, and Credit Suisse First
Boston, Cayman Islands Branch, as lead arrangers and syndication agents, TD
Securities (USA) Inc., as lead arranger, The Bank of Nova Scotia, as joint
administrative agent and funding agent, and Citicorp USA, Inc., as joint
administrative agent .

"Type of Loan" means with respect to any Term Loan, a Base Rate Loan or a
Eurodollar Rate Loan.

"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.

"Unrestricted Subsidiary" means any Subsidiary of the Company that is designated
by the Board of Directors as an Unrestricted Subsidiary (and any subsidiary of
an Unrestricted Subsidiary) pursuant to a Board Resolution passed after the date
of this Agreement, but only to the extent that such Subsidiary:

                  (1) has no Indebtedness other than Indebtedness that is
         non-recourse to the Company and its Restricted Subsidiaries;

                  (2) is not party to any agreement, contract, arrangement or
         understanding with the Company or any Restricted Subsidiary of the
         Company unless the terms of any such agreement, contract, arrangement
         or understanding are no less favorable to the Company or such
         Restricted Subsidiary than those that might be obtained at the time
         from Persons who are not Affiliates of the Company;

                                       38



                  (3) is a Person with respect to which neither the Company nor
         any of its Restricted Subsidiaries has any direct or indirect
         obligation (a) to subscribe for additional Equity Interests or (b) to
         maintain or preserve such Person's financial condition or to cause such
         Person to achieve any specified levels of operating results; and

                  (4) has not guaranteed or otherwise directly or indirectly
         provided credit support for any Indebtedness of the Company or any of
         its Restricted Subsidiaries;

                  provided, however, that a corporation with no significant
         assets created for the sole purpose of serving as a co-obligor to
         facilitate a financing by a partnership of a limited liability company
         may be designated as an Unrestricted Subsidiary.

         Any designation of a Subsidiary of the Company as an Unrestricted
         Subsidiary shall be evidenced to the Administrative Agent by filing
         with the Administrative Agent a certified copy of the Board Resolution
         giving effect to such designation and an Officers' Certificate
         certifying that such designation complied with the preceding conditions
         and was permitted by Section 5.07 herein, regarding Restricted
         Payments. If, at any time, any Unrestricted Subsidiary would fail to
         meet the preceding requirements as an Unrestricted Subsidiary, it shall
         thereafter cease to be an Unrestricted Subsidiary for purposes of this
         Agreement and any Indebtedness of such Subsidiary shall be deemed to be
         incurred by a Restricted Subsidiary of the Company as of such date and,
         if such Indebtedness is not permitted to be incurred as of such date
         under Section 5.09 herein, the Company shall be in default of this
         Agreement. The Board of Directors of the Company may at any time
         designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
         provided that such designation shall be deemed to be an incurrence of
         Indebtedness by a Restricted Subsidiary of the Company of any
         outstanding Indebtedness of such Unrestricted Subsidiary and such
         designation shall only be permitted if (1) such Indebtedness is
         permitted under Section 5.09 herein, calculated on a pro forma basis as
         if such designation had occurred at the beginning of the four-quarter
         reference period; and (2) no Default or Event of Default would be in
         existence following such designation.

"U.S." means the United States of America.

"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

         "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years or portion thereof obtained by
dividing:

                  (1) the sum of the products obtained by multiplying (a) the
         amount of each then remaining installment, sinking fund, serial
         maturity or other required payments of principal, including payment at
         final maturity, in respect of the Indebtedness, by (b) the number of
         years (calculated to the nearest one-twelfth) that shall elapse between
         such date and the making of such payment; by

                                       39



(2)      the then outstanding principal amount of such Indebtedness.

"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of
the outstanding Capital Stock or other ownership interests of which (other than
directors' qualifying shares) shall at the time be owned by such Person or by
one or more Wholly Owned Subsidiaries of such Person or by such Person and one
or more Wholly Owned Subsidiaries of such Person.

SECTION 1.02.     Other Definitions.



                                                                                      DEFINED IN
           TERM                                                                        SECTION
- ---------------------------------------------------------------------------------------------------
                                                                                   
"Additional Term Loan Borrowing Date"..........................................         2.19
"Additional Term Loan Commitments".............................................         2.19
"Additional Term Loans"........................................................         2.19
"Affected Lender"..............................................................         2.15
"Affected Loans"...............................................................         2.15
"Affiliate Transaction" .......................................................         5.11
"Aggregate Amounts Due"........................................................         2.14
"Asset Sale Offer".............................................................         2.11
"Asset Sale Proceeds Account"..................................................         5.10
"Change of Control Offer"......................................................         5.15
"Change of Control Payment"....................................................         5.15
"Change of Control Payment Date"...............................................         5.15
"Environmental Law"............................................................         4.01
"ERCOT" .......................................................................         4.01
"Event of Default".............................................................         7.01
"EWG" .........................................................................         4.01
"Exchange Act" ................................................................         4.01
"Exchange Act Report" .........................................................         4.01
"Filing Agent".................................................................         3.01
"Financing Statements".........................................................         3.01
"FPA" .........................................................................         4.01
"Funding Guarantor"............................................................        12.05
"Increased Cost Lenders".......................................................         2.18
"Indemnitee"...................................................................        13.03
"Installment"..................................................................         2.09
"Installment Date".............................................................         2.09
"Investment Company Act" ......................................................         4.01
"Non-Consenting Lender"........................................................         2.18
"Non-US Lender"................................................................         2.17
"Offer Amount".................................................................         2.11
"Offer Period".................................................................         2.11
"Offering Documents" ..........................................................         4.01
"Oil and Gas Leases" ..........................................................         4.01
"Oil and Gas Properties" ......................................................         4.01


                                       40





                                                                                      DEFINED IN
           TERM                                                                        SECTION
- ---------------------------------------------------------------------------------------------------
                                                                                   
"Payment Default"..............................................................         7.01
"Permitted Debt" ..............................................................         5.09
"Preliminary Offering Circular" ...............................................         4.01
"PUHCA" .......................................................................         4.01
"PURPA" .......................................................................         4.01
"QF" ..........................................................................         4.01
"Register".....................................................................         2.04
"Repayment Date"...............................................................         2.11
"Replacement Lender"...........................................................         2.18
"Restricted Payment" ..........................................................         5.07
"10-K" ........................................................................         4.01
"Terminated Lender"............................................................         2.18
"TPUC" ........................................................................         4.01
"UCC Collateral" ..............................................................         3.01


SECTION 1.03.     Rules of Construction.

Unless the context otherwise requires:

                  (a)      A term has the meaning assigned to it;

                  (b)      An accounting term not otherwise defined has the
         meaning assigned to it in accordance with GAAP;

                  (c)      Any of the terms defined herein may, unless the
         context otherwise requires, be used in the singular or the plural,
         depending on the reference.

                  (d)      Provisions apply to successive events and
         transactions.

                  (e)      Whenever the context may require, any pronoun shall
         include the corresponding masculine, feminine and neuter forms.

                  (f)      Any reference to any agreement or instrument shall be
         deemed to include a reference to such agreement or instrument as
         assigned, amended, amended and restated, supplemented, otherwise
         modified from time to time or replaced in accordance with the terms of
         this Agreement.

                  (g)      The use in this Agreement or any of the Term Loan
         Documents of the word "include" or "including," when following any
         general statement, term or matter, shall not be construed to limit such
         statement, term or matter to the specific items or matters set forth
         immediately following such word or to similar items or matters, whether
         or not nonlimiting language (such as "without limitation" or "but not
         limited to" or words

                                       41



         of similar import) is used with reference thereto, but rather shall be
         deemed to refer to all other items or matters that fall within the
         broadest possible scope of such general statement, term or matter. The
         word "will" shall be construed to have the same meaning and effect as
         the word "shall."

                  (h)      References to sections of or rules under the
         Securities Act shall be deemed to include substitute, replacement of
         successor sections or rules adopted by the SEC from time to time.

                  (i)      References to "Sections" and "clauses" shall be to
         Sections and clauses, respectively, of this Agreement unless otherwise
         specifically provided.

                  (j)      References to "Articles" shall be to Articles of this
         Agreement unless otherwise specifically provided.

                  (k)      References to "Exhibits" and "Schedules" shall be to
         Exhibits and Schedules, respectively, of this Agreement unless
         otherwise specifically provided.

                  (l)      The use in this Agreement of the words "herein,"
         "hereof," and "hereunder," and words of similar import, shall be
         construed to refer to this Agreement in its entirety and not to any
         particular provision hereof.

                  (m)      This Agreement, the other Term Loan Documents and any
         documents or instruments delivered pursuant hereto shall be construed
         without regard to the identity of the party who drafted the various
         provisions of the same. Each and every provision of this Agreement, the
         other Term Loan Documents and instruments and documents entered into
         and delivered in connection therewith shall be construed as though the
         parties participated equally in the drafting of the same. Consequently,
         each of the parties acknowledges and agrees that any rule of
         construction that a document is to be construed against the drafting
         party shall not be applicable either to this Agreement or the other
         Term Loan Documents and instruments and documents entered into and
         delivered in connection therewith.

                                   ARTICLE II

                                 THE TERM LOANS

SECTION 2.01.     Term Loans.

                  (a)      Term Loan Commitments. Subject to the terms and
         conditions hereof, each Lender severally agrees to make, on the Closing
         Date, an Initial Term Loan to the Company in an amount equal to such
         Lender's Initial Term Loan Commitment. The Company may make only one
         borrowing under the Initial Term Loan Commitment which shall be on the
         Closing Date. Any amount borrowed under this Section and subsequently

                                       42



         repaid or prepaid may not be reborrowed. All amounts owed hereunder
         with respect to the Initial Term Loans shall be paid in full no later
         than the Maturity Date. Each Lender's Initial Term Loan Commitment
         shall terminate immediately and without further action on the Closing
         Date after giving effect to the funding of such Lender's Initial Term
         Loan Commitment on such date.

                  (b)      Borrowing Mechanics for Term Loans.

                           (i)      The Company shall deliver to the
                                    Administrative Agent a fully executed
                                    Funding Notice no later than one Business
                                    Day prior to the Closing Date. Promptly upon
                                    receipt by the Administrative Agent of such
                                    Funding Notice, the Administrative Agent
                                    shall notify each Lender of the proposed
                                    borrowing.

                           (ii)     Each Lender shall make its Term Loan
                                    available to the Administrative Agent not
                                    later than 1:00 p.m. (New York City time) on
                                    the Closing Date, by wire transfer of same
                                    day funds in Dollars, at the Administrative
                                    Agent's Principal Office. Upon satisfaction
                                    or waiver of the conditions precedent
                                    specified herein, the Administrative Agent
                                    shall make the proceeds of the Initial Term
                                    Loans available to the Company on the
                                    Closing Date by causing an amount of same
                                    day funds in Dollars equal to the proceeds
                                    of all such Initial Term Loans received by
                                    the Administrative Agent from Lenders to be
                                    credited to the account of the Company at
                                    the Administrative Agent's Principal Office
                                    or to such other account as may be
                                    designated in writing to the Administrative
                                    Agent by the Company.

                           (iii)    The Term Loans shall be funded on the
                                    Closing Date as Base Rate Loans unless the
                                    Company has requested funding as Eurodollar
                                    Rate Loans upon at least three Business
                                    Days' prior notice and agreed to indemnify
                                    the Lenders for the costs as set forth in
                                    Section 2.15(c) in form and substance
                                    reasonably satisfactory to the
                                    Administrative Agent.

SECTION 2.02.     Pro Rata Shares; Availability of Funds.

                  (a)      Pro Rata Shares. All Term Loans shall be made by the
         Lenders simultaneously and proportionately to their respective Pro Rata
         Shares, it being understood that no Lender shall be responsible for any
         default by any other Lender in such other Lender's obligation to make a
         Term Loan requested hereunder nor shall any Term Loan Commitment of any
         Lender be increased or decreased as a result of a default by any other
         Lender in such other Lender's obligation to make a Term Loan requested
         hereunder.

                                       43



                  (b)      Availability of Funds. Unless the Administrative
         Agent shall have been notified by any Lender prior to the applicable
         Credit Date that such Lender does not intend to make available to the
         Administrative Agent the amount of such Lender's Term Loan requested on
         such Credit Date, the Administrative Agent may assume that such Lender
         has made such amount available to the Administrative Agent on such
         Credit Date and the Administrative Agent may, in its sole discretion,
         but shall not be obligated to, make available to the Company a
         corresponding amount on such Credit Date. If such corresponding amount
         is not in fact made available to the Administrative Agent by such
         Lender, the Administrative Agent shall be entitled to recover such
         corresponding amount on demand from such Lender together with interest
         thereon, for each day from such Credit Date until the date such amount
         is paid to the Administrative Agent, at the customary rate set by the
         Administrative Agent for the correction of errors among banks for three
         Business Days and thereafter at the Base Rate. If such Lender does not
         pay such corresponding amount forthwith upon the Administrative Agent's
         demand therefor, the Administrative Agent shall promptly notify the
         Company and the Company shall immediately pay such corresponding amount
         to the Administrative Agent together with interest thereon, for each
         day from such Credit Date until the date such amount is paid to the
         Administrative Agent, at the rate payable hereunder for Base Rate
         Loans. Nothing in this Section 2.02(b) shall be deemed to relieve any
         Lender from its obligation to fulfill its Term Loan Commitments
         hereunder or to prejudice any rights that the Company may have against
         any Lender as a result of any default by such Lender hereunder.

SECTION 2.03.     Use of Proceeds. The proceeds of the Initial Term Loans made
on the Closing Date shall be applied by the Company to provide a portion of the
funding required to retire the Existing Senior Secured Credit Facilities, and
the balance of the proceeds shall be applied by the Company for working capital
and general corporate purposes, all in accordance with the terms and provisions
of the Company's then existing credit facilities and indentures. No portion of
the proceeds of any Term Loans shall be used in any manner that causes or might
cause the funding of the Term Loans or the application of such proceeds to
violate Regulation T, Regulation U or Regulation X of the Board of Governors of
the Federal Reserve System or any other regulation thereof or to violate the
Exchange Act.

SECTION 2.04.     Evidence of Debt; Register; Lenders' Books and Records; Notes.

                  (a)      Lenders' Evidence of Debt. Each Lender shall maintain
         on its internal records an account or accounts evidencing the
         Indebtedness of the Company to such Lender, including the amounts of
         the Term Loans made by it and each repayment and prepayment in respect
         thereof. Any such recordation shall be conclusive and binding on the
         Company, absent manifest error; provided, that the failure to make any
         such recordation, or any error in such recordation, shall not affect
         the Company's Obligations in respect of any Term Loan; and provided
         further, in the event of any inconsistency between the Register and any
         Lender's records, the recordations in the Register shall govern.

                                       44



                  (b)      Register. The Administrative Agent shall maintain at
         its Principal Office a register for the recordation of the names and
         addresses of the Lenders and the Term Loans of each Lender from time to
         time (the "Register"). The Register shall be available for inspection
         by the Company or any Lender at any reasonable time and from time to
         time upon reasonable prior notice. The Administrative Agent shall
         record in the Register the Term Loans, and each repayment or prepayment
         in respect of the principal amount of the Term Loans, and any such
         recordation shall be conclusive and binding on the Company and each
         Lender, absent manifest error; provided, that the failure to make any
         such recordation, or any error in such recordation, shall not affect
         the Company's Obligations in respect of any Term Loan. The Company
         hereby designates GSCP to serve as the Company's agent solely for
         purposes of maintaining the Register as provided in this Section 2.04,
         and the Company hereby agrees that, to the extent GSCP serves in such
         capacity, GSCP and its officers, directors, employees, agents and
         affiliates shall constitute "Indemnitees."

                  (c)      Term Loan Notes. If so requested by any Lender by
         written notice to the Company (with a copy to the Administrative Agent)
         at least two Business Days prior to the Closing Date, or at any time
         thereafter, the Company shall execute and deliver to such Lender
         (and/or, if applicable and if so specified in such notice, to any
         Person who is an assignee of such Lender pursuant to Section 13.06 on
         the Closing Date (or, if such notice is delivered after the Closing
         Date, promptly after the Company's receipt of such notice)), a Term
         Loan Note or Term Loan Notes to evidence such Lender's Initial Term
         Loan.

SECTION 2.05.     Interest.

                  (a)      Except as otherwise set forth herein (and, in the
         case only of Additional Term Loans, except as may be otherwise agreed
         pursuant to any written agreement between the Company and the Lenders
         funding Additional Term Loans), Term Loans shall bear interest on the
         unpaid principal amount thereof from the date made through repayment
         (whether by acceleration or otherwise) thereof as follows:

                           (i)      if a Base Rate Loan, at the Base Rate plus
                                    4.75% per annum; or

                           (ii)     if a Eurodollar Rate Loan, at the Adjusted
                                    Eurodollar Rate plus 5.75% per annum.

                  (b)      The basis for determining the rate of interest with
         respect to any Term Loan, and the Interest Period with respect to any
         Eurodollar Rate Loan, shall be selected by the Company and notified to
         the Administrative Agent and the Lenders pursuant to the applicable
         Funding Notice or Conversion/Continuation Notice, as the case may be.
         If on any day a Term Loan is outstanding with respect to which a
         Funding Notice or Conversion/Continuation Notice has not been delivered
         to the Administrative Agent in accordance with the terms hereof
         specifying the applicable basis for determining the rate of interest,
         then for that day such Term Loan shall be a Base Rate Loan.

                                       45



                  (c)      In connection with Eurodollar Rate Loans there shall
         be no more than five (5) Interest Periods outstanding at any time. In
         the event that the Company fails to specify between a Base Rate Loan or
         a Eurodollar Rate Loan in the applicable Funding Notice or
         Conversion/Continuation Notice, such Term Loan (if outstanding as a
         Eurodollar Rate Loan) shall be automatically converted into a Base Rate
         Loan on the last day of the then-current Interest Period for such Term
         Loan (or if outstanding as a Base Rate Loan shall remain as, or (if not
         then outstanding) shall be made as, a Base Rate Loan). In the event
         that the Company fails to specify an Interest Period for any Eurodollar
         Rate Loan in the applicable Funding Notice or Conversion/Continuation
         Notice, Company shall be deemed to have selected an Interest Period of
         one month. As soon as practicable after 10:00 a.m. (New York City time)
         on each Interest Rate Determination Date, the Administrative Agent
         shall determine (which determination shall, absent manifest error, be
         final, conclusive and binding upon all parties) the interest rate that
         shall apply to the Eurodollar Rate Loans for which an interest rate is
         then being determined for the applicable Interest Period and shall
         promptly give notice thereof (in writing or by telephone confirmed in
         writing) to the Company and each Lender.

                  (d)      Interest payable pursuant to Section 2.05(a) shall be
         computed (i) in the case of Base Rate Loans on the basis of a 365-day
         or 366-day year, as the case may be, and (ii) in the case of Eurodollar
         Rate Loans, on the basis of a 360-day year, in each case for the actual
         number of days elapsed in the period during which it accrues. In
         computing interest on any Term Loan, the date of the making of such
         Term Loan or the first day of an Interest Period applicable to such
         Term Loan or, with respect to a Base Rate Loan being converted from a
         Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate
         Loan to such Base Rate Loan, as the case may be, shall be included, and
         the date of payment of such Term Loan or the expiration date of an
         Interest Period applicable to such Term Loan or, with respect to a Base
         Rate Loan being converted to a Eurodollar Rate Loan, the date of
         conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the
         case may be, shall be excluded; provided, if a Term Loan is repaid on
         the same day on which it is made, one day's interest shall be paid on
         that Term Loan.

                  (e)      Except as otherwise set forth herein, interest on
         each Term Loan shall be payable in arrears on and to (i) each Interest
         Payment Date applicable to that Term Loan; (ii) upon any prepayment of
         that Term Loan, whether voluntary or mandatory, to the extent accrued
         on the amount being prepaid; and (iii) at maturity, including final
         maturity; provided, however, with respect to any voluntary prepayment
         of a Base Rate Loan, accrued interest shall instead be payable on the
         applicable Interest Payment Date.

SECTION 2.06.     Conversion/Continuation.

                  (a)      Subject to Section 2.15 and so long as no Default or
         Event of Default shall have occurred and then be continuing, the
         Company shall have the option:

                           (i)      to convert at any time all or any part of
                                    any Term Loan equal to $5,000,000 and
                                    integral multiples of $1,000,000 in excess
                                    of that

                                       46



                                    amount from one Type of Term Loan to another
                                    Type of Loan; provided, a Eurodollar Rate
                                    Loan may only be converted on the expiration
                                    of the Interest Period applicable to such
                                    Eurodollar Rate Loan unless the Company
                                    shall pay all amounts due under Section 2.15
                                    in connection with any such conversion; or

                           (ii)     upon the expiration of any Interest Period
                                    applicable to any Eurodollar Rate Loan, to
                                    continue all or any portion of such Term
                                    Loan equal to $5,000,000 and integral
                                    multiples of $1,000,000 in excess of that
                                    amount as a Eurodollar Rate Loan.

                  (b)      The Company shall deliver a Conversion/Continuation
         Notice to the Administrative Agent no later than 10:00 a.m. (New York
         City time) at least one Business Day in advance of the proposed
         conversion date (in the case of a conversion to a Base Rate Loan) and
         at least three Business Days in advance of the proposed
         conversion/continuation date (in the case of a conversion to, or a
         continuation of, a Eurodollar Rate Loan). Except as otherwise provided
         herein, a Conversion/Continuation Notice for conversion to, or
         continuation of, any Eurodollar Rate Loans (or telephonic notice in
         lieu thereof) shall be irrevocable on and after the related Interest
         Rate Determination Date, and the Company shall be bound to effect a
         conversion or continuation in accordance therewith.

SECTION 2.07.     Default Interest. If all or a portion of the principal amount
of the Term Loans shall not be paid when due, such overdue principal amount of
Term Loans shall thereafter bear interest (including post-petition interest in
any proceeding under the Bankruptcy Code or other applicable bankruptcy laws)
payable on demand at a rate that is 2.00% per annum in excess of the interest
rate otherwise payable hereunder with respect to the applicable Term Loans;
provided, in the case of Eurodollar Rate Loans, upon the expiration of the
Interest Period in effect at the time any such increase in interest rate is
effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and
shall thereafter bear interest payable upon demand at a rate which is 2.00% per
annum in excess of the interest rate otherwise payable hereunder for Base Rate
Loans. Payment or acceptance of the increased rates of interest provided for in
this Section 2.07 is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of the Administrative Agent or any Lender.

SECTION 2.08.     Fees. The Company agrees to pay to the Agents such fees in the
amounts and at the times separately agreed upon.

SECTION 2.09.     Scheduled Payments/Commitment Reductions.

                  (a)      Scheduled Installments. The principal amounts of the
         Initial Term Loans shall be repaid in consecutive quarterly
         installments (each, an "Installment") in an amount equal to the
         aggregate principal amount of Initial Term Loans made on the

                                       47



         Closing Date multiplied by the percentage set forth below opposite the
         fiscal quarter on the last day of such fiscal quarter (each, an
         "Installment Date"):



- ----------------------------------------------------------
Fiscal Quarter                               Percentage
- ----------------------------------------------------------
                                          
October 15, 2003                               0.25%
- ----------------------------------------------------------
January 15, 2004                               0.25%
- ----------------------------------------------------------
April 15, 2004                                 0.25%
- ----------------------------------------------------------
July 15, 2004                                  0.25%
- ----------------------------------------------------------
October 15, 2004                               0.25%
- ----------------------------------------------------------
January 15, 2005                               0.25%
- ----------------------------------------------------------
April 15, 2005                                 0.25%
- ----------------------------------------------------------
July 15, 2005                                  0.25%
- ----------------------------------------------------------
October 15, 2005                               0.25%
- ----------------------------------------------------------
January 15, 2006                               0.25%
- ----------------------------------------------------------
April 15, 2006                                 0.25%
- ----------------------------------------------------------
July 15, 2006                                  0.25%
- ----------------------------------------------------------
October 15, 2006                               0.25%
- ----------------------------------------------------------
January 15, 2007                               0.25%
- ----------------------------------------------------------
April 15, 2007                                 0.25%
- ----------------------------------------------------------
July 15, 2007                                 96.25%
- ----------------------------------------------------------


                                       48



If any Additional Term Loans are made, such Additional Term Loans shall be
repaid on each Installment Date occurring on or after the applicable date on
which such Additional Term Loans are funded in an amount equal to (i) the
aggregate principal amount of Additional Term Loans, multiplied by (ii) the
ratio (expressed as a percentage) of (y) the amount of all other Initial Term
Loans being repaid on such Installment Date and (z) the total aggregate
principal amount of all other Initial Term Loans outstanding on such funding
date.

Notwithstanding the foregoing, (x) such Installments shall be reduced in
connection with any voluntary or mandatory prepayments of the Initial Term
Loans, in accordance with Sections 2.10, 5.10 and 5.15, as applicable; and (y)
the Term Loans, together with all other amounts owed hereunder with respect
thereto, shall, in any event, be paid in full no later than the Maturity Date.

SECTION 2.10.     Voluntary Prepayments.

                  (a)      Voluntary Prepayments.

                           (i)      The Company may not voluntarily prepay Term
                                    Loans except as provided in clause (b)
                                    below. In the event of any voluntary
                                    prepayment in accordance with clause (b),
                                    the Company may prepay any such Term Loans
                                    on any Business Day in whole or in part, in
                                    an aggregate minimum amount of $1,000,000
                                    and integral multiples of $500,000 in excess
                                    of that amount.

                           (ii)     All such prepayments shall be made:

                                    (A)      upon not less than one Business
                  Day's prior written or telephonic notice in the case of Base
                  Rate Loans;

                                    (B)      upon not less than three Business
                  Days' prior written or telephonic notice in the case of
                  Eurodollar Rate Loans; and

in each case given to the Administrative Agent by 1:00 p.m. (New York City time)
on the date required and, if given by telephone, promptly confirmed in writing
to the Administrative Agent (and the Administrative Agent shall promptly
transmit such telephonic or original notice for Term Loans, by telefacsimile or
telephone to each Lender). Upon the giving of any such notice, the principal
amount of the Term Loans specified in such notice shall become due and payable
on the prepayment date specified therein. Any prepayment of any Term Loan
pursuant to this Section shall be applied on a pro rata basis among the Lenders
and applied to reduce the scheduled remaining Installments of principal on such
Term Loan in inverse order of maturity.

                  (b)      Term Loan Call Protection.

                           (i)      The Company may not voluntarily prepay the
                                    Term Loans prior to July 15, 2005, except
                                    that the Company may on any one or more
                                    occasions make such prepayment with the
                                    proceeds of one or more Public Equity
                                    Offerings as set forth in this clause (i).
                                    In the event that for any reason the Term
                                    Loans are voluntarily prepaid prior to July
                                    15, 2005, the Company shall pay the Lenders
                                    a prepayment premium equal to a percentage
                                    of the principal amount of the Term

                                       49



                                    Loans being prepaid, such percentage equal
                                    to the lesser of (1) the applicable per
                                    annum interest rate pursuant to Section
                                    2.05(a)(i) for the day on which such
                                    prepayment shall occur and (2) the
                                    applicable per annum interest rate pursuant
                                    to Section 2.05(a)(ii) for a one month
                                    Interest Period beginning on the day on
                                    which such prepayment shall occur; provided
                                    that:

                                    (A)      prior to July 15, 2005, the Company
                  shall not be permitted to prepay the Term Loans having a
                  principal amount greater than 35% of the aggregate principal
                  amount of Term Loans extended under this Agreement since the
                  Closing Date;

                                    (B)      the Company may elect to make such
                  prepayment only with the net cash proceeds of one or more
                  Public Equity Offerings; and

                                    (C)      each such prepayment must occur
                  within 45 days of the closing of such Public Equity Offering;

         In the event that for any reason the Term Loans are voluntarily prepaid
on or after July 15, 2005, the Company shall pay to Lenders a prepayment premium
equal to the percentage set forth below opposite the period in which such
prepayment shall occur multiplied by the principal amount of the Term Loans
being prepaid. Term Loans may be prepaid without prepayment premium after July
15, 2006.



- --------------------------------------------------------
Year Ending on                               Percentage
- --------------------------------------------------------
                                          
July 15, 2006                                  3.00%
- --------------------------------------------------------


                  (c)      Notwithstanding anything to the contrary contained in
         this Section 2.10 or any other provision of this Agreement, so long as
         (i) there is no Default or Event of Default and (ii) no Event of
         Default or Default would result therefrom, the Company may purchase all
         or any portion of any Term Loan of any Lender pursuant to an agreement
         between the Company and such Lender and such purchase shall not be
         deemed to be a voluntary prepayment hereunder; provided that the
         Company promptly provides a copy of such agreement to the
         Administrative Agent. The Company shall not make any purchase of a Term
         Loan from a Lender otherwise permitted by this Section 2.10(c) if, at
         the time of such purchase, a repurchase of outstanding Notes by the
         Company without additional disclosure by the Company to the holder of
         such Notes would result in a violation by the Company of Rule 10b-5 of
         the Exchange Act unless, prior to any such purchase of any Term Loans,
         such additional disclosure is made by the Company to such Lender.
         Notwithstanding the provisions of the preceding sentence, the Company,
         the Lenders and the Agents hereby agree that nothing in this Section
         2.10(c) shall be understood to mean or suggest that the Term Loans
         constitute "securities" for

                                       50



         purposes of either the Securities Act or the Exchange Act. Following
         any purchase pursuant to this Section 2.10(c), the Term Loans so
         purchased shall be disregarded and not deemed outstanding (as to which
         the Company hereby agrees) for purposes of (i) the making of, or the
         application of, any payments to the Lenders under this Agreement or any
         other Term Loan Documents, (ii) the making of any request, demand,
         authorization, direction, notice, consent or waiver under this
         Agreement or any other Term Loan Documents or (iii) the determination
         of Requisite Lenders, or for any similar or related purpose, under this
         Agreement or any other Term Loan Documents. Failure by the Company to
         make any payment to a Lender required by an agreement permitted by this
         Section 2.10(c) shall not constitute an Event of Default under Section
         7.01.

SECTION 2.11.     Mandatory Offers.

                  (a)      If the Company is required to prepay any Term Loans
         by reason of any Lender's acceptance of an Asset Sale Offer, the amount
         payable to such Lender shall be paid to the Administrative Agent for
         account of such Lender and credited to the remaining installments to
         become due on the Term Loans outstanding to such Lender. Any prepayment
         of any Term Loan pursuant hereto shall be applied to reduce the
         scheduled remaining Installments of principal on such Term Loan of such
         Lender in inverse order of maturity.

                  (b)      In the event that, pursuant to Section 5.10 hereof,
         the Company shall be required to commence an offer to all Lenders to
         repay Term Loans (an "Asset Sale Offer"), it shall follow the
         procedures specified below.

                                       51



                           (i)      The Asset Sale Offer shall remain open for a
                                    period of 20 Business Days following its
                                    commencement and no longer, except to the
                                    extent that a longer period is required by
                                    applicable law (the "Offer Period"). No
                                    later than five Business Days after the
                                    termination of the Offer Period (the
                                    "Repayment Date"), the Company shall repay
                                    the principal amount of Term Loans required
                                    to be purchased pursuant to Section 5.10
                                    hereof (the "Offer Amount") or, if less than
                                    the Offer Amount has been tendered, all Term
                                    Loans for which repayment was requested in
                                    response to the Asset Sale Offer. Payment
                                    for any Term Loans shall be made in the same
                                    manner as interest payments are made.

                           (ii)     Upon the commencement of an Asset Sale
                                    Offer, the Company shall send a notice to
                                    the Administrative Agent (for delivery to
                                    each Lender). The notice shall contain all
                                    instructions and materials necessary to
                                    enable such Lenders to request repayment for
                                    the Term Loans pursuant to the Asset Sale
                                    Offer. The Asset Sale Offer shall be made to
                                    all Lenders. The notice, which shall govern
                                    the terms of the Asset Sale Offer, shall
                                    state:

                                    (A)      that the Asset Sale Offer is being
                  made pursuant to this Section 2.11 and Section 5.10 hereof and
                  the length of time the Asset Sale Offer shall remain open;

                                    (B)      the Offer Amount, the purchase
                  price and the Repayment Date;

                                    (C)      that any Term Loan for which
                  repayment is not requested or accepted for repayment shall
                  continue to accrete or accrue interest;

                                    (D)      that, unless the Company defaults
                  in making such payment, any Term Loan accepted for payment
                  pursuant to the Asset Sale Offer shall cease to accrete or
                  accrue interest after the Repayment Date;

                                    (E)      that Lenders electing to have Term
                  Loans repaid pursuant to an Asset Sale Offer may only elect to
                  have all of Term Loans repaid and may not elect to have only a
                  portion of its Term Loans;

                                    (F)      that Lenders shall be entitled to
                  withdraw their request if the Company, or the Administrative
                  Agent, as the case may be, receives, not later than the
                  expiration of the Offer Period, a telegram, telex, facsimile
                  transmission or letter setting forth the name of the Lender,
                  the principal amount of the Term Loans for which the Lender
                  requested repayment and a statement that such Lender is
                  withdrawing his request to have Term Loans repaid; and

                                       52



                                    (G)      that, if the aggregate principal
                  amount of Term Loans for which repayment is requested by
                  Lenders exceeds the Offer Amount, the Administrative shall
                  select the Term Loans to be purchased on a pro rata basis.

                           (iii)    On or before the Repayment Date, the Company
                                    shall, to the extent lawful, accept for
                                    payment, on a pro rata basis to the extent
                                    necessary, the Offer Amount of Term Loans or
                                    portions thereof for which repayment is
                                    requested pursuant to the Asset Sale Offer,
                                    or if repayment for Term Loans in an
                                    aggregate amount less than the Offer Amount
                                    have been requested, all Term Loans for
                                    which repayment is requested, and shall
                                    deliver to the Administrative Agent (for
                                    delivery to the Lenders) an Officers'
                                    Certificate stating that such Term Loans or
                                    portions thereof were accepted for payment
                                    by the Company in accordance with the terms
                                    of this Section 2.11. The Company shall
                                    promptly (but in any case not later than
                                    five days after the Repayment Date) deliver
                                    to the Administrative Agent for the account
                                    of each Lender for which repayment is
                                    requested an amount equal to all outstanding
                                    amounts under the Term Loans for which
                                    repayment is requested by all Lenders that
                                    were accepted by the Company for repayment.
                                    The Administrative Agent shall promptly
                                    forward the appropriate amount to each
                                    Lender being repaid.

SECTION 2.12.     Application of Prepayments. Any prepayment of Term Loans shall
be applied first to Base Rate Loans to the full extent thereof before
application to Eurodollar Rate Loans, in each case in a manner which minimizes
the amount of any payments required to be made by the Company pursuant to
Section 2.15(c).

SECTION 2.13.     General Provisions Regarding Payments.

                  (a)      All payments by the Company of principal, interest,
         fees and other Term Loan Obligations shall be made in Dollars in same
         day funds, without defense, setoff or counterclaim, free of any
         restriction or condition, and delivered to the Administrative Agent not
         later than 1:00 p.m. (New York City time) on the date due at the
         Administrative Agent's Principal Office for the account of Lenders.
         Funds received by the Administrative Agent after that time on such due
         date shall be deemed to have been paid by the Company on the next
         succeeding Business Day.

                  (b)      All payments in respect of the principal amount of
         any Term Loan shall include payment of accrued interest on the
         principal amount being repaid or prepaid, and all such payments (and,
         in any event, any payments in respect of any Term Loan on a date when
         interest is due and payable with respect to such Term Loan) shall be
         applied to the payment of interest before application to principal.

                                       53



                  (c)      The Administrative Agent shall promptly distribute to
         each Lender at such address as such Lender shall indicate in writing,
         such Lender's applicable Pro Rata Share of all payments and prepayments
         of principal and interest due hereunder, except that prepayment offers
         accepted by Lenders pursuant to Section 5.10 or 5.15 shall be allocated
         to the accepting Lenders ratably in proportion to the principal amount
         of Term Loans outstanding to each accepting Lender (and not to all
         Lenders based on Pro Rata Shares), together with all other amounts due
         thereto, including, without limitation, all fees payable with respect
         thereto, to the extent received by the Administrative Agent.

                  (d)      Notwithstanding the foregoing provisions hereof, if
         any Conversion/Continuation Notice is withdrawn as to any Affected
         Lender or if any Affected Lender makes Base Rate Loans in lieu of its
         Pro Rata Share of any Eurodollar Rate Loans, the Administrative Agent
         shall give effect thereto in apportioning payments received thereafter.

                  (e)      Subject to the provisos set forth in the definition
         of "Interest Period", whenever any payment to be made hereunder shall
         be stated to be due on a day that is not a Business Day, such payment
         shall be made on the next succeeding Business Day and such extension of
         time shall be included in the computation of the payment of interest
         hereunder.

                  (f)      The Company hereby authorizes the Administrative
         Agent to charge the Company's accounts with the Administrative Agent in
         order to cause timely payment to be made to the Administrative Agent of
         all principal, interest, fees and expenses due hereunder (subject to
         sufficient funds being available in its accounts for that purpose) upon
         the occurrence of any Event of Default in respect of its payment
         obligations hereunder.

                  (g)      The Administrative Agent shall deem any payment by or
         on behalf of the Company hereunder that is not made in same day funds
         prior to 1:00 p.m. (New York City time) to be a non-conforming payment.
         Any such payment shall not be deemed to have been received by the
         Administrative Agent until the later of (i) the time such funds become
         available funds, and (ii) the applicable next Business Day. The
         Administrative Agent shall give prompt telephonic notice to the Company
         and each applicable Lender (confirmed in writing) if any payment is
         non-conforming. Any non-conforming payment may constitute or become a
         Default or Event of Default in accordance with the terms of Section
         7.01. Interest shall continue to accrue on any principal as to which a
         non-conforming payment is made until such funds become available funds
         (but in no event less than the period from the date of such payment to
         the next succeeding applicable Business Day) at the rate determined
         pursuant to Section 2.07 from the date such amount was due and payable
         until the date such amount is paid in full.

SECTION 2.14.     Ratable Sharing. The Lenders hereby agree among themselves
that, except in the case of prepayments offered to and accepted by any Lender
pursuant to Sections 5.10 or 5.15, if any of them shall, whether by voluntary
payment (other than a voluntary

                                       54



prepayment of Term Loans made and applied in accordance with the terms hereof),
through the exercise of any right of set-off or banker's lien, by counterclaim
or cross action or by the enforcement of any right under the Term Loan Documents
or otherwise, or as adequate protection of a deposit treated as cash collateral
under the Bankruptcy Code, receive payment or reduction of a proportion of the
aggregate amount of principal, interest, fees and other amounts then due and
owing to such Lender hereunder or under the other Term Loan Documents
(collectively, the "Aggregate Amounts Due" to such Lender) which is greater than
the proportion received by any other Lender in respect of the Aggregate Amounts
Due to such other Lender, then the Lender receiving such proportionately greater
payment shall (a) notify the Administrative Agent and each other Lender of the
receipt of such payment and (b) apply a portion of such payment to purchase
participations (which it shall be deemed to have purchased from each seller of a
participation simultaneously upon the receipt by such seller of its portion of
such payment) in the Aggregate Amounts Due to the other Lenders so that all such
recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion
to the Aggregate Amounts Due to them; provided, if all or part of such
proportionately greater payment received by such purchasing Lender is thereafter
recovered from such Lender upon the bankruptcy or reorganization of the Company
or otherwise, those purchases shall be rescinded and the purchase prices paid
for such participations shall be returned to such purchasing Lender ratably to
the extent of such recovery, but without interest. The Company expressly
consents to the foregoing arrangement and agrees that any holder of a
participation so purchased may exercise any and all rights of banker's lien,
set-off or counterclaim with respect to any and all monies owing by the Company
to that holder with respect thereto as fully as if that holder were owed the
amount of the participation held by that holder.

SECTION 2.15.     Making or Maintaining Eurodollar Rate Loans.

                  (a)      Inability to Determine Applicable Interest Rate. In
         the event that the Administrative Agent shall have determined (which
         determination shall be final and conclusive and binding upon all
         parties hereto), on any Interest Rate Determination Date with respect
         to any Eurodollar Rate Loans, that by reason of circumstances affecting
         the London interbank market adequate and fair means do not exist for
         ascertaining the interest rate applicable to such Term Loans on the
         basis provided for in the definition of Adjusted Eurodollar Rate, the
         Administrative Agent shall on such date give notice (by telefacsimile
         or by telephone confirmed in writing) to the Company and each Lender of
         such determination, whereupon (i) no Term Loans may be made as, or
         converted to, Eurodollar Rate Loans until such time as the
         Administrative Agent notifies the Company and Lenders that the
         circumstances giving rise to such notice no longer exist, and (ii) any
         Funding Notice or Conversion/Continuation Notice given by the Company
         with respect to the Term Loans in respect of which such determination
         was made shall be deemed to be rescinded by the Company.

                  (b)      Illegality or Impracticability of Eurodollar Rate
         Loans. In the event that on any date any Lender shall have determined
         (which determination shall be final and conclusive and binding upon all
         parties hereto but shall be made only after consultation with the
         Company and the Administrative Agent) that the making, maintaining or

                                       55



         continuation of its Eurodollar Rate Loans (i) has become unlawful as a
         result of compliance by such Lender in good faith with any law, treaty,
         governmental rule, regulation, guideline or order (or would conflict
         with any such treaty, governmental rule, regulation, guideline or order
         not having the force of law even though the failure to comply therewith
         would not be unlawful), or (ii) has become impracticable, as a result
         of contingencies occurring after the date hereof which materially and
         adversely affect the London interbank market or the position of such
         Lender in that market, then, and in any such event, such Lender shall
         be an "Affected Lender" and it shall on that day give notice (by
         telefacsimile or by telephone confirmed in writing) to the Company and
         the Administrative Agent of such determination (which notice the
         Administrative Agent shall promptly transmit to each other Lender).
         Thereafter (1) the obligation of the Affected Lender to make Term Loans
         as, or to convert Term Loans to, Eurodollar Rate Loans shall be
         suspended until such notice shall be withdrawn by the Affected Lender,
         (2) to the extent such determination by the Affected Lender relates to
         a Eurodollar Rate Loan then being requested by the Company pursuant to
         a Funding Notice or a Conversion/Continuation Notice, the Affected
         Lender shall make such Term Loan as (or continue such Term Loan as or
         convert such Term Loan to, as the case may be) a Base Rate Loan, (3)
         the Affected Lender's obligation to maintain its outstanding Eurodollar
         Rate Loans (the "Affected Loans") shall be terminated at the earlier to
         occur of the expiration of the Interest Period then in effect with
         respect to the Affected Loans or when required by law, and (4) the
         Affected Loans shall automatically convert into Base Rate Loans on the
         date of such termination. Notwithstanding the foregoing, to the extent
         a determination by an Affected Lender as described above relates to a
         Eurodollar Rate Loan then being requested by the Company pursuant to a
         Funding Notice or a Conversion/Continuation Notice, the Company shall
         have the option, subject to the provisions of Section 2.15(c), to
         rescind such Funding Notice or Conversion/Continuation Notice as to all
         Lenders by giving notice (by telefacsimile or by telephone confirmed in
         writing) to the Administrative Agent of such rescission on the date on
         which the Affected Lender gives notice of its determination as
         described above (which notice of rescission the Administrative Agent
         shall promptly transmit to each other Lender). Except as provided in
         the immediately preceding sentence, nothing in this Section 2.15(b)
         shall affect the obligation of any Lender other than an Affected Lender
         to make or maintain Term Loans as, or to convert Term Loans to,
         Eurodollar Rate Loans in accordance with the terms hereof.

                  (c)      Compensation for Breakage or Non-Commencement of
         Interest Periods. The Company shall compensate each Lender, upon
         written request by such Lender (which request shall set forth the basis
         for requesting such amounts), for all reasonable losses, expenses and
         liabilities (including any interest paid by such Lender to lenders of
         funds borrowed by it to make or carry its Eurodollar Rate Loans and any
         loss, expense or liability sustained by such Lender in connection with
         the liquidation or re-employment of such funds but excluding loss of
         anticipated profits) which such Lender may sustain: (i) if for any
         reason (other than a default by such Lender) a borrowing of any
         Eurodollar Rate Loan

                                       56



         does not occur on a date specified therefor in a Funding Notice or a
         telephonic request for borrowing, or a conversion to or continuation of
         any Eurodollar Rate Loan does not occur on a date specified therefor in
         a Conversion/Continuation Notice or a telephonic request for conversion
         or continuation; (ii) if any prepayment or other principal payment or
         any conversion of any of its Eurodollar Rate Loans occurs on a date
         prior to the last day of an Interest Period applicable to that Term
         Loan (including, without limitation, pursuant to Section 2.10, 2.11,
         5.10 and 5.15 hereof); or (iii) if any prepayment of any of its
         Eurodollar Rate Loans is not made on any date specified in a notice of
         prepayment given by the Company.

                  (d)      Booking of Eurodollar Rate Loans. Any Lender may
         make, carry or transfer Eurodollar Rate Loans at, to, or for the
         account of any of its branch offices or the office of an Affiliate of
         such Lender.

                  (e)      Assumptions Concerning Funding of Eurodollar Rate
         Loans. Calculation of all amounts payable to a Lender under this
         Section 2.15 and under Section 2.16 shall be made as though such Lender
         had actually funded each of its relevant Eurodollar Rate Loans through
         the purchase of a Eurodollar deposit bearing interest at the rate
         obtained pursuant to clause (i) of the definition of Adjusted
         Eurodollar Rate in an amount equal to the amount of such Eurodollar
         Rate Loan and having a maturity comparable to the relevant Interest
         Period and through the transfer of such Eurodollar deposit from an
         offshore office of such Lender to a domestic office of such Lender in
         the United States of America; provided, however, each Lender may fund
         each of its Eurodollar Rate Loans in any manner it sees fit and the
         foregoing assumptions shall be utilized only for the purposes of
         calculating amounts payable under this Section 2.15 and under Section
         2.16.

SECTION 2.16.     Increased Costs; Capital Adequacy.

                  (a)      Compensation For Increased Costs and Taxes. Subject
         to the provisions of Section 2.17 (which shall be controlling with
         respect to the matters covered thereby), in the event that any Lender
         shall determine (which determination shall, absent manifest error, be
         final and conclusive and binding upon all parties hereto) that any law,
         treaty or governmental rule, regulation or order, or any change therein
         or in the interpretation, administration or application thereof
         (including the introduction of any new law, treaty or governmental
         rule, regulation or order), or any determination of a court or
         governmental authority, in each case that becomes effective after the
         date hereof, or compliance by such Lender with any guideline, request
         or directive issued or made after the date hereof by any central bank
         or other governmental or quasi-governmental authority (whether or not
         having the force of law):

                                       57



                           (i)      subjects such Lender (or its applicable
                                    lending office) to any additional Tax (other
                                    than any Tax on the overall net income of
                                    such Lender) with respect to this Agreement
                                    or any of the other Term Loan Documents or
                                    any of its obligations hereunder or
                                    thereunder or any payments to such Lender
                                    (or its applicable lending office) of
                                    principal, interest, fees or any other
                                    amount payable hereunder;

                           (ii)     imposes, modifies or holds applicable any
                                    reserve (including any marginal, emergency,
                                    supplemental, special or other reserve),
                                    special deposit, compulsory loan, FDIC
                                    insurance or similar requirement against
                                    assets held by, or deposits or other
                                    liabilities in or for the account of, or
                                    advances or loans by, or other credit
                                    extended by, or any other acquisition of
                                    funds by, any office of such Lender (other
                                    than any such reserve or other requirements
                                    with respect to Eurodollar Rate Loans that
                                    are reflected in the definition of Adjusted
                                    Eurodollar Rate); or

                           (iii)    imposes any other condition (other than with
                                    respect to a Tax matter) on or affecting
                                    such Lender (or its applicable lending
                                    office) or its obligations hereunder or the
                                    London interbank market;

and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Term Loans hereunder or to reduce any
amount received or receivable by such Lender (or its applicable lending office)
with respect thereto; then, in any such case, the Company shall promptly pay to
such Lender, upon receipt of the statement referred to in the next sentence,
such additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to the Company (with a copy to the
Administrative Agent) a written statement, setting forth in reasonable detail
the basis for calculating the additional amounts owed to such Lender under this
Section 2.16(a), which statement shall be conclusive and binding upon all
parties hereto absent manifest error.

                  (b)      Capital Adequacy Adjustment. In the event that any
         Lender shall have determined that the adoption, effectiveness, phase-in
         or applicability after the Closing Date of any law, rule or regulation
         (or any provision thereof) regarding capital adequacy, or any change
         therein or in the interpretation or administration thereof by any
         Governmental Authority, central bank or comparable agency charged with
         the interpretation or administration thereof, or compliance by any
         Lender (or its applicable lending office) with any guideline, request
         or directive regarding capital adequacy (whether or not having the
         force of law) of any such Governmental Authority, central bank or
         comparable agency, has or would have the effect of reducing the rate of
         return on the capital of such Lender or any corporation controlling
         such Lender as a consequence of, or with reference to, such Lender's
         Term Loans, or participations therein or other

                                       58



         obligations hereunder with respect to the Term Loans to a level below
         that which such Lender or such controlling corporation could have
         achieved but for such adoption, effectiveness, phase-in, applicability,
         change or compliance (taking into consideration the policies of such
         Lender or such controlling corporation with regard to capital
         adequacy), then from time to time, within five Business Days after
         receipt by the Company from such Lender of the statement referred to in
         the next sentence, the Company shall pay to such Lender such additional
         amount or amounts as shall compensate such Lender or such controlling
         corporation on an after-tax basis for such reduction. Such Lender shall
         deliver to the Company (with a copy to the Administrative Agent) a
         written statement, setting forth in reasonable detail the basis for
         calculating the additional amounts owed to Lender under this Section
         2.16(b), which statement shall be conclusive and binding upon all
         parties hereto absent manifest error.

SECTION 2.17.     Taxes; Withholding, etc.

                  (a)      Payments to Be Free and Clear. All sums payable by
         any Obligor hereunder and under the other Term Loan Documents shall
         (except to the extent required by law) be paid free and clear of, and
         without any deduction or withholding on account of, any Tax (other than
         a Tax on the overall net income of any Lender) imposed, levied,
         collected, withheld or assessed by or within the United States of
         America or any political subdivision in or of the United States of
         America or any other jurisdiction from or to which a payment is made by
         or on behalf of any Obligor or by any federation or organization of
         which the United States of America or any such jurisdiction is a member
         at the time of payment.

                  (b)      Withholding of Taxes. If any Obligor or any other
         Person is required by law to make any deduction or withholding on
         account of any such Tax from any sum paid or payable by any Obligor to
         the Administrative Agent or any Lender under any of the Term Loan
         Documents:

                           (i)      the Company shall notify the Administrative
                                    Agent of any such requirement or any change
                                    in any such requirement as soon as the
                                    Company becomes aware of it;

                           (ii)     the Company shall pay any such Tax before
                                    the date on which penalties attach thereto,
                                    such payment to be made (if the liability to
                                    pay is imposed on any Obligor) for its own
                                    account or (if that liability is imposed on
                                    the Administrative Agent or such Lender, as
                                    the case may be) on behalf of and in the
                                    name of the Administrative Agent or such
                                    Lender;

                           (iii)    the sum payable by such Obligor in respect
                                    of which the relevant deduction, withholding
                                    or payment is required shall be increased to
                                    the extent necessary to ensure that, after
                                    the making of that deduction, withholding or
                                    payment, the Administrative Agent or

                                       59



                                    such Lender, as the case may be, receives on
                                    the due date a net sum equal to what it
                                    would have received had no such deduction,
                                    withholding or payment been required or
                                    made; and

                           (iv)     within thirty (30) days after paying any sum
                                    from which it is required by law to make any
                                    deduction or withholding, and within thirty
                                    (30) days after the due date of payment of
                                    any tax which it is required by clause (ii)
                                    above to pay, the Company shall deliver to
                                    the Administrative Agent evidence
                                    satisfactory to the other affected parties
                                    of such deduction, withholding or payment
                                    and of the remittance thereof to the
                                    relevant taxing or other authority;

provided, no such additional amount shall be required to be paid to any Lender
under clause (iii) above except to the extent that any change after the date
hereof (in the case of each Lender listed on the signature pages hereof on the
Closing Date) or after the effective date of the Assignment Agreement pursuant
to which such Lender became a Lender (in the case of each other Lender) in any
such requirement for a deduction, withholding or payment as is mentioned therein
shall result in an increase in the rate of such deduction, withholding or
payment from that in effect at the date hereof or at the date of such Assignment
Agreement, as the case may be, in respect of payments to such Lender.

                  (c)      Evidence of Exemption From U.S. Withholding Tax. Each
         Lender that is not a United States Person (as such term is defined in
         Section 7701(a)(30) of the Code) for U.S. federal income tax purposes
         (a "Non-US Lender") shall deliver to the Administrative Agent for
         transmission to the Company, on or prior to the Closing Date (in the
         case of each Lender listed on the signature pages hereof on the Closing
         Date) or on or prior to the date of the Assignment Agreement pursuant
         to which it becomes a Lender (in the case of each other Lender), and at
         such other times as may be necessary in the determination of the
         Company or the Administrative Agent (each in the reasonable exercise of
         its discretion):

                           (i)      two original copies of Internal Revenue
                                    Service Form W-8BEN or W-8ECI (or any
                                    successor forms), properly completed and
                                    duly executed by such Lender, and such other
                                    documentation required under the Code and
                                    reasonably requested by the Company to
                                    establish that such Lender is not subject to
                                    deduction or withholding of United States
                                    federal income tax with respect to any
                                    payments to such Lender of principal,
                                    interest, fees or other amounts payable
                                    under any of the Term Loan Documents; or

                           (ii)     if such Lender is not a "bank" or other
                                    Person described in Section 881(c)(3) of the
                                    Code and cannot deliver either Internal
                                    Revenue Service Form W-8BEN or W-8ECI
                                    pursuant to clause (i) above, a Certificate
                                    re Non-Bank Status together with two
                                    original copies of Internal Revenue Service
                                    Form W-8 (or any successor form), properly
                                    completed and duly executed by such Lender,
                                    and

                                       60



                                    such other documentation required under the
                                    Code and reasonably requested by the Company
                                    to establish that such Lender is not subject
                                    to deduction or withholding of United States
                                    federal income tax with respect to any
                                    payments to such Lender of interest payable
                                    under any of the Term Loan Documents.

Each Lender required to deliver any forms, certificates or other evidence with
respect to United States federal income tax withholding matters pursuant to this
Section 2.17(c) hereby agrees, from time to time after the initial delivery by
such Lender of such forms, certificates or other evidence, whenever a lapse in
time or change in circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, that such Lender shall
promptly deliver to the Administrative Agent for transmission to the Company two
new original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a
Certificate re Non-Bank Status and two original copies of Internal Revenue
Service Form W-8, as the case may be, properly completed and duly executed by
such Lender, and such other documentation required under the Code and reasonably
requested by the Company to confirm or establish that such Lender is not subject
to deduction or withholding of United States federal income tax with respect to
payments to such Lender under the Term Loan Documents, or notify the
Administrative Agent and the Company of its inability to deliver any such forms,
certificates or other evidence. The Company shall not be required to pay any
additional amount to any Non-US Lender under Section 2.17(b)(iii) if such Lender
shall have failed (1) to deliver the forms, certificates or other evidence
referred to in the second sentence of this Section 2.17(c), or (2) to notify the
Administrative Agent and the Company of its inability to deliver any such forms,
certificates or other evidence, as the case may be; provided, if such Lender
shall have satisfied the requirements of the first sentence of this Section
2.17(c) on the Closing Date or on the date of the Assignment Agreement pursuant
to which it became a Lender, as applicable, nothing in this last sentence of
Section 2.17(c) shall relieve the Company of its obligation to pay any
additional amounts pursuant to Section 2.16(a) in the event that, as a result of
any change in any applicable law, treaty or governmental rule, regulation or
order, or any change in the interpretation, administration or application
thereof, such Lender is no longer properly entitled to deliver forms,
certificates or other evidence at a subsequent date establishing the fact that
such Lender is not subject to withholding as described herein.

SECTION 2.18.     Removal or Replacement of a Lender. Anything contained herein
to the contrary notwithstanding, in the event that:

                  (a)      (i) any Lender (an "Increased-Cost Lender") shall
         give notice to the Company that such Lender is an Affected Lender or
         that such Lender is entitled to receive payments under Section 2.15,
         2.16 or 2.17, (ii) the circumstances which have caused such Lender to
         be an Affected Lender or which entitle such Lender to receive such
         payments shall remain in effect, and (iii) such Lender shall fail to
         withdraw such notice within five Business Days after the Company's
         request for such withdrawal; or

                  (b)      in connection with any proposed amendment,
         modification, termination, waiver or consent with respect to any of the
         provisions hereof as contemplated by Section 13.05(b), the consent of
         Requisite Lenders shall have been obtained but the consent of

                                       61



         one or more of such other Lenders (each a "Non-Consenting Lender")
         whose consent is required shall not have been obtained;

then, with respect to each such Increased-Cost Lender or Non-Consenting Lender
(the "Terminated Lender"), the Company may, by giving written notice to the
Administrative Agent and any Terminated Lender of its election to do so, elect
to cause such Terminated Lender (and such Terminated Lender hereby irrevocably
agrees) to assign its outstanding Term Loans in full to one or more Eligible
Assignees (each a "Replacement Lender") in accordance with the provisions of
Section 13.06 and Terminated Lender shall pay any fees payable thereunder in
connection with such assignment; provided,

                           (i)      on the date of such assignment, the
                                    Replacement Lender shall pay to Terminated
                                    Lender an amount equal to
                                    the sum of (A) an amount equal to the
                                    principal of, and all accrued interest on,
                                    all outstanding Term Loans of the Terminated
                                    Lender, and (B) an amount equal to all
                                    accrued, but theretofore unpaid fees owing
                                    to such Terminated Lender pursuant to
                                    Section 2.11;

                           (ii)     on the date of such assignment, the Company
                                    shall pay any amounts payable to such
                                    Terminated Lender pursuant to Section
                                    2.15(c), 2.16 or 2.17 or otherwise as if it
                                    were a prepayment; and

                           (iii)    in the event such Terminated Lender is a
                                    Non-Consenting Lender, each Replacement
                                    Lender shall consent, at the time of such
                                    assignment, to each matter in respect of
                                    which such Terminated Lender was a
                                    Non-Consenting Lender.

Upon the prepayment of all amounts owing to any Terminated Lender, such
Terminated Lender shall no longer constitute a "Lender" for purposes hereof;
provided, any rights of such Terminated Lender to indemnification hereunder
shall survive as to such Terminated Lender.

SECTION 2.19.     Additional Term Loans. With the consent of the Administrative
Agent, the Company from time to time after the Closing Date may solicit
commitments ("Additional Term Loan Commitments") for additional Term Loans
("Additional Term Loans") which may become committed and shall be funded on the
following terms:

                  (a)      Additional Term Loans shall be committed and funded
         on the terms and conditions set forth in this Agreement applicable to
         Term Loans (other than those expressly applicable only to Initial Term
         Loans), except that the margins at which interest accrues pursuant to
         Section 2.05(a) in excess of the Base Rate on Base Rate Loans and in
         excess of the Adjusted Eurodollar Rate on Eurodollar Rate Loans may be
         changed with the consent of the Company as set forth in the Additional
         Term Loan Commitments. Without limiting the generality of the
         foregoing, Additional Term Loans shall be payable in full on the
         Maturity Date and shall be secured Equally and Ratably with the Initial
         Term Loans and all other Parity Lien Obligations by all security
         interests granted to the Collateral Trustee pursuant to the Security
         Documents.

                                       62



                  (b)      On each occasion on which Additional Term Loan
         Commitments are solicited, Additional Term Loan Commitments shall be
         solicited and delivered for simultaneous funding in a single drawdown
         on a single Business Day (an "Additional Term Loan Borrowing Date") in
         a minimum amount of $25,000,000. Additional Term Loans that are repaid
         may not be reborrowed.

                  (c)      With the consent of the Company and the
         Administrative Agent, Additional Term Loans may be funded at a discount
         or premium to the stated principal amount thereof, and the compensation
         paid or promised by the Company or any Subsidiary or Affiliate of the
         Company for the arrangement, solicitation, delivery or funding of
         Additional Term Loans shall not be restricted.

                  (d)      Additional Term Loan Commitments shall not be
         solicited, delivered or funded:

                           (i)      in an amount which the Company is not then
                                    permitted to incur under Section 5.09;

                           (ii)     in a stated principal amount which would,
                                    after giving effect to any simultaneous
                                    issuance of Additional Notes under the
                                    Indentures and any simultaneous incurrence
                                    of any other Parity Lien Debt and any
                                    simultaneous use of the proceeds of any such
                                    funding or issuance, result in a violation
                                    of clause (2) of the definition of
                                    "Permitted Liens"; or

                           (iii)    unless the Company and Guarantors deliver to
                                    the Administrative Agent, for the benefit of
                                    the Collateral Trustee, the Administrative
                                    Agent and the Lenders:

                                    (A)      an Officers' Certificate to the
                  effect that, on the Additional Term Loan Borrowing Date for
                  such Additional Term Loans, (1) no Default or Event of Default
                  has occurred and is continuing or resulted from the funding of
                  such Additional Term Loans; (2) no "Default" or "Event of
                  Default", as defined in each of the Parity Lien Debt
                  Documents, has occurred and is continuing and (3) the
                  requirements set forth in Section 2.19(d)(i) and (ii) are
                  satisfied (and each Lender funding an Additional Term Loan
                  shall be entitled to rely conclusively upon such Officers'
                  Certificate as to all of the matters therein set forth for all
                  purposes, including the right of such Additional Term Loan to
                  share Equally and Ratably in the Collateral and all benefits
                  thereof); and

                                    (B)      such representations and
                  warranties, Opinions of Counsel, confirmations and
                  certificates as may reasonably be requested by the
                  Administrative Agent.

                                       63



                  (e)      Neither of the Administrative Agent nor any Lender
         shall have any obligation whatsoever to arrange, commit to make, or
         fund any Additional Term Loan Commitment.

                  (f)      If and whenever it wishes to solicit Additional Term
         Loan Commitments, the Company shall, in consultation with the
         Administrative Agent, offer the opportunity to deliver such Additional
         Term Loan Commitments first to the then existing Lenders, which shall
         have five Business Days to accept such offer, with any such acceptances
         allocated ratably to accepting Lenders. To the extent such Additional
         Term Loan Commitments are not fully subscribed by accepting Lenders
         within the five Business Day period, the Company may solicit and accept
         such Additional Term Loan Commitments, in compliance with all
         applicable laws and legal requirements, from any Eligible Assignee
         reasonably satisfactory to the Administrative Agent.

                  (g)      All Additional Term Loan Commitments shall be
         delivered to the Administrative Agent prior to the relevant Additional
         Term Loan Borrowing Date. Each Eligible Assignee that delivers an
         Additional Term Loan Commitment shall also deliver to the
         Administrative Agent, prior to the relevant Additional Term Loan
         Borrowing Date, the duly executed Lender Joinder Agreement of such
         Eligible Assignee to be bound by and to perform, in respect of the
         Additional Term Loans funded by it, all of the obligations of a Lender
         under this Agreement; and thereupon, but only if and when such
         Additional Term Loans are funded by such Eligible Assignee, such
         Eligible Assignee shall become entitled to enjoy the rights of a Lender
         under this Agreement and such Additional Term Loans shall constitute
         Term Loans for all purposes of this Agreement.

                  (h)      Additional Term Loans shall be Base Rate Loans until
         the last day of the first Interest Period for any Eurodollar Rate Loans
         expiring after the relevant Additional Term Loan Borrowing Date, at
         which time the outstanding Base Rate Loans and Eurodollar Rate Loans
         shall be adjusted so that all Base Rate Loans and all Eurodollar Rate
         Loans are allocated to the Lenders ratably to their Pro Rata Shares. If
         so requested by the Company, the Administrative Agent may make such
         adjustment on any earlier Business Day, by resetting any Interest
         Period that has not then expired, and the Company shall pay
         compensation pursuant to Section 2.15(c) as if such reset constituted a
         prepayment of the affected Eurodollar Rate Loans.

                  (i)      Subject to the foregoing provisions of this Section
         2.19, Additional Term Loans may be solicited, committed to and funded
         without need for any amendment or supplement to this Agreement and
         without need for consent from any other Lenders.

                                       64


                                   ARTICLE III

                              CONDITIONS PRECEDENT

SECTION 3.01.              Closing Date. The obligation of any Lender to make a
Term Loan on the Closing Date is subject to the accuracy of the representations
and warranties on the part of the Company herein on the Closing Date, to the
accuracy of the statements of officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and the satisfaction, or waiver in accordance with Section 13.05, of
the following additional conditions precedent on or before the Closing Date:

                  (a)      [Intentionally Omitted.]

                  (b)      The Chief Financial Officer of the Company shall have
         furnished a certificate, dated the Closing Date, in form and substance
         satisfactory to the Administrative Agent, stating to the effect that:

                                       65



                           (i)      The Company does not intend to or believe
                                    that it has incurred or shall incur debts
                                    that will be beyond its ability to pay as
                                    they mature;

                           (ii)     No Pledged Subsidiary intends to or believes
                                    that it has incurred or shall incur debts
                                    that will be beyond its ability to pay as
                                    they mature;

                           (iii)    No Guarantor intends to or believes that it
                                    has incurred or shall incur debts that will
                                    be beyond its ability to pay as they mature;

                           (iv)     The present fair saleable value of the
                                    assets of the Company exceeds the amount
                                    that will be required to pay the probable
                                    liability on its existing debts (whether
                                    matured or unmatured, liquidated or
                                    unliquidated, absolute, fixed or contingent)
                                    as they become absolute and matured;

                           (v)      The present fair saleable value of the
                                    assets of each Pledged Subsidiary exceeds
                                    the amount that will be required to pay the
                                    probable liability on its existing debts
                                    (whether matured or unmatured, liquidated or
                                    unliquidated, absolute, fixed or contingent)
                                    as they become absolute and matured;

                           (vi)     The Company does not have unreasonably small
                                    capital for it to carry on its businesses as
                                    proposed to be conducted.;

                           (vii)    No Pledged Subsidiary has unreasonably small
                                    capital for it to carry on its business as
                                    proposed to be conducted;

                           (viii)   The Company is not incurring obligations or
                                    making transfers under any evidence of
                                    indebtedness with the intent to hinder,
                                    delay or defraud any entity to which it is
                                    or will become indebted; and

                           (ix)     No Pledged Subsidiary is incurring
                                    obligations or making transfers under any
                                    evidence of indebtedness with the intent to
                                    hinder, delay or defraud any entity to which
                                    it is or will become indebted.

                  (c)      The Collateral Trustee shall have received (with a
         copy for the Lenders) at the Closing Date:

                           (i)      appropriately completed copies, which have
                                    been duly authorized for filing by the
                                    appropriate Person, of Uniform Commercial
                                    Code Financing Statements naming the Company
                                    as a debtor and the Collateral Trustee as
                                    the secured party, or other similar
                                    instruments or documents to be filed under
                                    the UCC of all jurisdictions as may be
                                    necessary or, in the reasonable opinion of
                                    the Administrative

                                       66



                                    Agent and its counsel, desirable to perfect
                                    the security interests of the Collateral
                                    Trustee pursuant to the Security Documents;

                           (ii)     appropriately completed copies, which have
                                    been duly authorized for filing by the
                                    appropriate Person, of Uniform Commercial
                                    Code Form UCC-3 termination statements, if
                                    any, necessary to release all Liens (other
                                    than Permitted Prior Liens) of any Person in
                                    any Collateral described in the Security
                                    Documents previously granted by any Person;

                           (iii)    certified copies of Uniform Commercial Code
                                    Requests for Information or Copies (Form
                                    UCC-11), or a similar search report
                                    certified by a party acceptable to the
                                    Administrative Agent, dated a date
                                    reasonably near to the Closing Date, listing
                                    all effective Financing Statements which
                                    name the Company (under its present name and
                                    any previous names) as the debtor, together
                                    with copies of such Financing Statements
                                    (none of which shall cover any Collateral
                                    described in the Security Documents, other
                                    than such Financing Statements that evidence
                                    Permitted Prior Liens);

                           (iv)     such releases, reconveyances, satisfactions
                                    or other instruments as it may request to
                                    confirm the release, satisfaction and
                                    discharge in full of all mortgages and deeds
                                    of trust at any time delivered by the
                                    Company to secure any Obligations in respect
                                    of the Existing Senior Secured Credit
                                    Facilities, duly executed, delivered and
                                    acknowledged in recordable form by the
                                    grantee named therein or its of record
                                    successors or assigns;

                           (v)      evidence reasonably satisfactory to the
                                    Lenders that (i) the 2000 Credit Agreement
                                    and all commitments thereunder shall have
                                    been terminated and all commitments
                                    thereunder shall have been paid in full and
                                    (ii) except to the extent continued under
                                    the New Credit Facility, all amounts
                                    outstanding under the 2002 Credit Agreement
                                    shall have been paid in full;

                           (vi)     evidence that all liens granted to the agent
                                    under the 2002 Credit Agreement have been
                                    assigned in a manner reasonably satisfactory
                                    to the Lenders and the Collateral Trustee;

                           (vii)    a copy of the Collateral Trust Agreement
                                    executed by the Credit Agreement Agent under
                                    the New Credit Facility;

                           (viii)   a certificate of insurance satisfactory to
                                    the Lenders confirming that all insurance
                                    requirements of the Guarantee and Collateral
                                    Agreement are satisfied; and

                                       67



                           (ix)     such other approvals, opinions or documents
                                    as the Administrative Agent, Lenders or the
                                    Collateral Trustee may reasonably request in
                                    form and substance satisfactory to each of
                                    them.

                  (d)      All Uniform Commercial Code Financing Statements or
         other similar Financing Statements and Uniform Commercial Code Form
         UCC-3 termination statements required pursuant to clauses (c)(i) and
         (ii) above (collectively, the "Financing Statements") shall have been
         delivered to CT Corporation System or another similar filing service
         company acceptable to the Administrative Agent (the "Filing Agent").
         The Filing Agent shall have acknowledged in a writing reasonably
         satisfactory to the Administrative Agent and its counsel (i) the Filing
         Agent's receipt of all Financing Statements, (ii) that the Financing
         Statements have either been submitted for filing in the appropriate
         filing offices or shall be submitted for filing in the appropriate
         offices within ten days following the Closing Date and (iii) that the
         Filing Agent shall notify the Administrative Agent and its counsel of
         the results of such submissions within 30 days following the Closing
         Date.

                  (e)      The Company shall have (i) consummated the New Credit
         Facility, and such New Credit Facility shall have been funded prior to,
         or shall be funded simultaneously with, the Closing Date on
         substantially the terms described in the Final Offering Circular and
         other terms satisfactory to the Administrative Agent, and the
         Administrative Agent shall have received counterparts, conformed as
         executed, of the Credit Agreement and such other documentation as they
         deem necessary to evidence the consummation thereof and (ii)
         consummated the offering of the Notes, and such Notes shall have been
         issued prior to, or shall be issued simultaneously with, the Closing
         Date on substantially the terms described in the Final Offering
         Circular and other terms satisfactory to the Administrative Agent, and
         the Administrative Agent shall have received counterparts, conformed as
         executed, of the Indentures and such other documentation as they deem
         necessary to evidence the consummation thereof.

                  (f)      Prior to or simultaneously with the Closing Date, the
         Company shall have received cash proceeds from borrowings under the New
         Credit Facility and this Agreement in an amount sufficient, when added
         to the cash proceeds from the sale of the Notes (net of underwriting
         discounts and commissions), to pay in full in cash the payout amounts
         and all other fees, costs and expenses payable by the Company in
         connection with the closing of the financing transaction and shall have
         authorized disbursement of such cash proceeds directly to pay the
         payout amounts and such fees, costs and expenses pursuant to a
         disbursement authorization letter (in form and substance reasonably
         satisfactory to the Adminstrative Agent) executed and delivered by the
         Company, and the Administrative Agent shall have received such other
         confirmation as any of them may reasonably request as to the amendment
         and restatement of the Existing Senior Secured Credit Facilities in the
         form of the New Credit Facility.

                  (g)      Subsequent to the execution and delivery of this
         Agreement, there shall not have occurred (i) any change, or any
         development or event involving a prospective

                                       68



         change, in the condition (financial or other), business, properties or
         results of operations of the Company and its subsidiaries taken as a
         whole which, in the judgment of the Administrative Agent, is material
         and adverse and makes it impractical or inadvisable to proceed with the
         borrowing of the Term Loans hereunder; (ii) any downgrading in the
         rating of any debt securities or preferred stock of the Company to CCC+
         or below by S&P or Caa1 or below by Moody's; (iii) any suspension or
         material limitation of trading in securities generally on the New York
         Stock Exchange, or any setting of minimum prices for trading on such
         exchange, or any suspension of trading of any securities of the Company
         on any exchange or in the over-the-counter market; (iv) a general
         moratorium on commercial banking activities declared by either Federal
         or New York State authorities or a material disruption in commercial
         banking or securities settlement or clearance services in the United
         States which, in the judgment of the Administrative Agent, makes it
         impracticable or inadvisable to proceed with the borrowing of the Term
         Loans hereunder; or (vi) any outbreak or escalation of major
         hostilities in which the United States is involved, any declaration of
         war by Congress or any other substantial national or international
         calamity or emergency if, in the judgment the Administrative Agent, the
         effect of any such outbreak, escalation, declaration, calamity or
         emergency makes it impractical or inadvisable to proceed with the
         completion of the borrowing of the Term Loans hereunder.

                  (h)      The Lenders shall have received an opinion, in form
         and substance reasonably satisfactory to the Lenders and their counsel,
         dated such Closing Date, of Covington & Burling, counsel for the
         Company, including those matters described in Section 6(i) of the
         Purchase Agreement, as appropriately modified to reflect the borrowing
         of the Term Loans hereunder.

The Lenders shall have received an opinion, in form and substance reasonably
satisfactory to the Lenders and their counsel, dated such Closing Date, of Lisa
Bodensteiner, Vice President and General Counsel of the Company, including those
matters described in Section 6(j) of the Purchase Agreement, as appropriately
modified to reflect the borrowing of the Term Loans hereunder.

                  (i)      [Intentionally Omitted.]

                  (j)      The Administrative Agent shall have received a
         certificate, dated the Closing Date, of the President or any Vice
         President and a principal financial or accounting officer of the
         Company in which such officers, to the best of their knowledge after
         reasonable investigation, shall state that the representations and
         warranties of the Company in this Agreement are true and correct; the
         Company has complied with all agreements and satisfied all conditions
         on their part to be performed or satisfied hereunder at or prior to the
         Closing Date; and, subsequent to the date of the most recent financial
         statements in the Offering Documents (as defined below), there has been
         no material adverse change, nor any development or event involving a
         prospective material adverse change, in the condition (financial or
         other), business, properties or results of

                                       69



         operations of the Company and its subsidiaries taken as a whole except
         as set forth in or contemplated by the Offering Document or as
         described in such certificate.

                  (k)      [Intentionally Omitted.]

                  (l)      Local counsel to the Company in California, Colorado,
         Louisiana, New Mexico and Texas shall have furnished to the Lenders
         their written opinions, dated the Closing Date, in form and substance
         reasonably satisfactory to the Lenders and their counsel as agreed as
         of the date hereof, as to such matters under the laws of their
         respective states as the Lenders may reasonably request, it being
         understood that such opinions shall be substantively similar to the
         opinions provided in connection with the closing of the Existing Senior
         Secured Credit Facilities.

The Company shall furnish the Lenders with conformed copies of such other
opinions, certificates, letters and documents as the Lenders reasonably request.
The Lenders may in their sole discretion waive compliance with any conditions to
the obligations of the Lenders hereunder.

SECTION 3.02.              Conditions to Each Term Loan.

                  (a)      Conditions Precedent. The obligation of each Lender
         to make any Term Loan on any Credit Date, including the Closing Date,
         are subject to the satisfaction, or waiver in accordance with Section
         13.05, of the following conditions precedent:

                           (i)      the Administrative Agent shall have received
                                    a fully executed and delivered Funding
                                    Notice; and

                           (ii)     as of such Credit Date, no event shall have
                                    occurred and be continuing or would result
                                    from the consummation of the applicable Term
                                    Loan that would constitute an Event of
                                    Default or a Default.

The Administrative Agent is entitled, but not obligated to, request and receive,
prior to the making of any Term Loan, additional information reasonably
satisfactory to the requesting party confirming the satisfaction of any of the
foregoing if, in the good faith judgment of the Administrative Agent such
request is warranted under the circumstances.

                  (b)      Notices. Any Notice shall be executed by an Officer
         in a writing delivered to the Administrative Agent. In lieu of
         delivering a Notice, the Company may give the Administrative Agent
         telephonic notice by the required time of any proposed borrowing or
         conversion/continuation; provided each such notice shall be promptly
         confirmed in writing by delivery of the applicable Notice to the
         Administrative Agent on or before the applicable date of borrowing or
         continuation/conversion. Neither the Administrative Agent nor any
         Lender shall incur any liability to the Company in acting upon any
         telephonic notice referred to above that the Administrative Agent
         believes in good faith to have been given by a duly authorized officer
         or other Person authorized on behalf of the Company or for otherwise
         acting in good faith.

                                       70



                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

In order to induce the Lenders to enter into this Agreement and to make the
Initial Term Loans to be made hereby, the Company represents and warrants to,
and agrees with, each Lender that:

                  (a)      A preliminary offering circular dated July 3, 2003
         (such offering circular, as amended or supplemented, and including all
         material incorporated by reference therein, the "Preliminary Offering
         Circular") and a Final Offering Circular relating to the Notes to be
         offered by the Initial Purchasers have been prepared by the Company and
         delivered to the Initial Purchasers at such place or places as they may
         direct, at or prior to such time as the Initial Purchasers request.
         Such Preliminary Offering Circular and Final Offering Circular,
         together with any other document approved by the Company for use in
         connection with the contemplated resale of the Notes, are hereinafter
         collectively referred to as the "Offering Documents." The Offering
         Documents did not and shall not, as of their respective dates, include
         any untrue statement of a material fact or omit to state any material
         fact necessary in order to make the statements therein, in the light of
         the circumstances under which they were made, not misleading. The
         preceding sentence does not apply to statements in or omissions from
         the Offering Document based upon written information furnished to the
         Company by the Initial Purchasers specifically for use therein. Except
         as disclosed in the Offering Documents, on the date of this Agreement,
         the Company's Annual Report on Form 10-K (the "10-K") most recently
         filed with the SEC and all subsequent reports (collectively, the
         "Exchange Act Reports") which have been filed by the Company with the
         Commission or sent to stockholders pursuant to the Securities Exchange
         Act of 1934 (the "Exchange Act") do not include any untrue statement of
         a material fact or omit to state any material fact necessary to make
         the statements therein, in the light of the circumstances under which
         they were made, not misleading. Such documents, when they were filed
         with the Commission, conformed in all material respects to the
         requirements of the Exchange Act and the rules and regulations of the
         Commission thereunder.

                  (b)      The Company has been duly incorporated and is an
         existing corporation in good standing under the laws of the State of
         Delaware, with power and authority (corporate and other) to own its
         properties and conduct its business as described in the Offering
         Documents; and the Company is duly qualified to do business as a
         foreign corporation in good standing in all other jurisdictions in
         which its ownership or lease of property or the conduct of its business
         requires such qualification.

                  (c)      Each subsidiary of the Company (x) other than those
         subsidiaries specified in clause (y) of this subparagraph has been duly
         incorporated and is an existing corporation in good standing under the
         laws of the jurisdiction of its incorporation, with power and authority
         (corporate and other) to own its properties and conduct its business as
         described in the Offering Documents; or (y) that is not a corporation
         is a limited

                                       71



         partnership, a limited liability company or business trust, has been
         duly formed and is validly existing as a limited partnership, a limited
         liability company or a business trust, as the case may be, in good
         standing under the laws of the jurisdiction of its formation, and has
         full power and authority to own its properties and conduct its business
         as described in the Offering Documents; each subsidiary of the Company
         is duly qualified to do business as a foreign corporation, limited
         partnership, limited liability company or business trust, as the case
         may be, in good standing in all other jurisdictions in which its
         ownership or lease of property or the conduct of its business requires
         such qualification; all of the issued and outstanding capital stock of
         each subsidiary of the Company has been duly authorized and validly
         issued and is fully paid and nonassessable; except as set forth on
         Schedule 4.01(c) hereto, the capital stock of each subsidiary owned by
         the Company, directly or through subsidiaries, is owned free from
         liens, encumbrances and defects; and the Company is not a general
         partner in any partnership.

                  (d)      The Indentures have been duly authorized and conform
         to the description thereof contained in the Final Offering Circular;
         the Notes have been duly authorized, and when the Notes are delivered
         and paid for pursuant to the Purchase Agreement on the Closing Date,
         the Indentures shall have been duly executed and delivered, such Notes
         shall have been duly executed, authenticated, issued and delivered and
         shall conform to the description thereof contained in the Final
         Offering Circular and the Indentures and such Notes shall constitute
         valid and legally binding obligations of the Company, enforceable in
         accordance with their terms, subject to bankruptcy, insolvency,
         fraudulent transfer, reorganization, moratorium and similar laws of
         general applicability relating to or affecting creditors' rights and to
         general equity principles.

                  (e)      Each of the Security Documents has been duly
         authorized by the Company and the Guarantors (as applicable), when
         executed and delivered, shall conform in all material respects to the
         description thereof contained in the Final Offering Circular. Each of
         the Security Documents, when validly executed and delivered by the
         Company and the Guarantors (as applicable), shall constitute a valid
         and legally binding obligation of the Company and shall be enforceable
         against the Company and the Guarantors (as applicable) in accordance
         with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
         reorganization, moratorium and similar laws of general applicability
         relating to or affecting creditors' rights and to general equity
         principles.

                  (f)      The Purchase Agreement has been duly authorized,
         executed and delivered by the Company and conforms in all material
         respects to the description thereof contained in the Final Offering
         Circular.

                  (g)      When executed and delivered to the Collateral Trustee
         at the Closing Date, (i) the Security Documents shall grant and create,
         in favor of the Collateral Trustee for the benefit of the Secured
         Parties as security for all of the Secured Obligations, a valid
         second-priority security interest in the personal property Collateral
         defined in each of such instruments and (ii) each Mortgage shall grant
         and create, in favor of the Collateral Trustee for the benefit of the
         Secured Parties as security for all of the Secured

                                       72



         Obligations, a valid second-priority mortgage lien and/or security
         interest in the collateral defined in each of such instruments; and
         when the filings referred to in the following sentences are made, such
         second-priority security interests shall be perfected security
         interests and/or mortgage liens (subject only to Permitted Prior Liens
         and the provisions with respect to priority set forth in the Collateral
         Trust Agreement). When delivered at the Closing Date, each Mortgage
         shall be delivered, duly acknowledged and, if required for recordation,
         attested and otherwise shall be in recordable form. At the Closing
         Date, (i) all pledged Collateral shall be represented by certificated
         securities and (ii) all such certificated securities and all promissory
         notes and other instruments then evidencing or representing any
         Collateral shall be delivered to the Collateral Trustee in pledge for
         the benefit of the Secured Parties (and the lenders under the New
         Credit Facility) as security for all of the Secured Obligations, duly
         endorsed by an effective endorsement.

                  (h)      At the Closing Date, the representations and
         warranties contained in the Security Documents shall be true and
         correct in all respects.

                  (i)      Except as shall be disclosed in the Offering
         Documents, there are no contracts, agreements or understandings between
         the Company and any person that would give rise to a valid claim
         against the Company or the Initial Purchasers for a brokerage
         commission, finder's fee or other like payment in connection with the
         offering of the Notes.

                  (j)      Except as (i) set forth on Schedule 4.01(c) hereto
         and (ii) provided for in the Purchase Agreement there are no contracts,
         agreements or understandings between the Company and any person
         granting such person the right to require the Company to file a
         registration statement under the Securities Act with respect to any
         securities of the Company owned or to be owned by such person or to
         require the Company to include such securities with any other
         securities being registered pursuant to any other registration
         statement filed by the Company under the Securities Act

                  (k)      No consent, approval, authorization, or order of, or
         filing with, any governmental agency or body or any court is required
         for the consummation of the transactions contemplated by this
         Agreement, the Indentures, the Security Documents or the Purchase
         Agreement or otherwise in connection with the borrowing of the Term
         Loans by the Company or the grant and perfection of the security
         interests in the Collateral pursuant to the Security Documents, except
         (i) such consents, approvals, authorizations and orders as have already
         been obtained, (ii) filings required to perfect the Collateral
         Trustee's security interests granted pursuant to the Security Documents
         and (iii) as would not, in the aggregate, have a Material Adverse
         Effect.

                  (l)      The execution, delivery and performance of this
         Agreement, the Indentures, the Security Documents and the Purchase
         Agreement by the Company and the Guarantors (as applicable), the
         borrowing of the Term Loans by the Company, the grant and perfection of
         the security interests in the Collateral pursuant to the Security
         Documents, compliance with the terms and provisions of each of the
         foregoing by the

                                       73



         Company and the consummation by the Company and the Guarantors (as
         applicable) of the transactions contemplated herein and therein shall
         not result in a breach or violation of any of the terms and provisions
         of, or conflict with or constitute a default under, or result in the
         imposition or creation of (or the obligation to create or impose) a
         Lien (other than in favor of the Secured Parties or the lenders under
         the New Credit Facility and in connection with the $150 million cash
         collateralization of certain letters of credit and liens on certain
         turbines owned directly by the Company that may arise as a result of
         the transactions contemplated hereby), any statute, any rule,
         regulation or order of any governmental agency or body or any court,
         domestic or foreign, having jurisdiction over the Company or any
         subsidiary of the Company or any of their properties, or any agreement
         or instrument to which the Company or any such subsidiary is a party or
         by which the Company or any such subsidiary is bound or to which any of
         the properties of the Company or any such subsidiary is subject, or the
         charter, by-laws or other organizational document of the Company or any
         such subsidiary, except in each case as would not have a Material
         Adverse Effect, and the Company has full power and authority to borrow
         the Term Loans as contemplated by this Agreement.

                  (m)      This Agreement has been duly authorized, executed and
         delivered by the Company and constitutes a valid and legally binding
         obligation of the Company enforceable against the Company in accordance
         with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
         reorganization, moratorium and similar laws of general applicability
         relating to or affecting creditors' rights and to general equity
         principles.

                  (n)      Except as disclosed in the Offering Documents, the
         Company and its subsidiaries have good and marketable title to all real
         properties and all other properties and assets owned by them, in each
         case free from liens, encumbrances and defects that would materially
         affect the value thereof or materially interfere with the use made or
         to be made thereof by them; and except as shall be disclosed in the
         Offering Documents, the Company and its subsidiaries hold any leased
         real or personal property under valid and enforceable leases with no
         exceptions that would materially interfere with the use made or to be
         made thereof by them. No Financing Statements (as defined below) in
         respect of any property or assets of the Company shall be on file in
         favor of any person other than those in respect of Permitted Prior
         Liens and those to be terminated with respect to existing indebtedness.

                  (o)      The Company and its subsidiaries possess adequate
         certificates, authorities or permits issued by appropriate governmental
         agencies or bodies necessary to conduct the business now operated by
         them and have not received any notice of proceedings relating to the
         revocation or modification of any such certificate, authority or permit
         that, if determined adversely to the Company or any of its
         subsidiaries, would individually or in the aggregate have a Material
         Adverse Effect.

                  (p)      No labor dispute with the employees of the Company or
         any subsidiary exists or, to the knowledge of the Company, is imminent
         that might have a Material Adverse Effect.

                                       74



                  (q)      The Company and its subsidiaries own, possess or can
         acquire on reasonable terms, adequate trademarks, trade names and other
         rights to inventions, know-how, patents, copyrights, confidential
         information and other intellectual property (collectively,
         "intellectual property rights") necessary to conduct the business now
         operated by them, or presently employed by them, and have not received
         any notice of infringement of or conflict with asserted rights of
         others with respect to any intellectual property rights that, if
         determined adversely to the Company or any of its subsidiaries, would
         individually or in the aggregate have a Material Adverse Effect.

                  (r)      Except as shall be disclosed in the Final Offering
         Circular, neither the Company nor any of its subsidiaries is in
         violation of any statute, any rule, regulation, decision or order of
         any governmental agency or body or any court domestic or foreign,
         relating to the use, disposal or release of hazardous or toxic
         substances or relating to the protection or restoration of the
         environment or human exposure to hazardous or toxic substances
         (collectively, "Environmental Laws"), owns or operates any real
         property contaminated with any substance that is subject to any
         Environmental Laws, is liable for any off-site disposal or
         contamination pursuant to any Environmental Laws, or is subject to any
         claim relating to any Environmental Laws, which violation,
         contamination, liability or claim would individually or in the
         aggregate have a Material Adverse Effect; and the Company is not aware
         of any pending investigation which might lead to such a claim.

                  (s)      Except as shall be disclosed in the Final Offering
         Circular, there are no pending actions, suits or proceedings against or
         affecting the Company, any of its subsidiaries or any of their
         respective properties that, if determined adversely to the Company or
         any of its subsidiaries, would individually or in the aggregate have a
         Material Adverse Effect, or would materially and adversely affect the
         ability of the Company to perform its obligations under, or
         contemplated by, this Agreement, the Indentures, the Security Documents
         or the Purchase Agreement, or which are otherwise material in the
         context of the borrowing of the Term Loans; and no such actions, suits
         or proceedings are threatened or, to the knowledge of the Company,
         contemplated.

                  (t)      The financial information included in the Final
         Offering Circular present fairly the financial position of the Company
         and its consolidated subsidiaries as of the dates shown and their
         results of operations and cash flows for the periods shown, and, except
         as otherwise shall be disclosed in the Offering Documents, such
         financial statements shall have been prepared in conformity with the
         GAAP applied on a consistent basis; and the assumptions used in
         preparing the pro forma financial statements included in the Final
         Offering Circular shall provide a reasonable basis for presenting the
         significant effects directly attributable to the transactions or events
         described therein, the related pro forma adjustments shall give
         appropriate effect to those assumptions, and the pro forma columns
         therein shall reflect the proper application of those adjustments to
         the corresponding historical financial statement amounts.

                                       75



                  (u)      The statistical and market-related data (other than
         market-related data and statistical data provided by the Company)
         included in the Final Offering Circular shall be based on or derived
         from sources which the Company believes to be reliable and accurate, it
         being understood, however, that the Company has conducted no
         independent investigation of the accuracy thereof.

                  (v)      Except as shall be disclosed in the Final Offering
         Circular, since the date of the latest audited financial statements
         that shall be included in the Final Offering Circular there shall have
         been no material adverse change, nor any development or event involving
         a prospective material adverse change, in the condition (financial or
         other), business, properties or results of operations of the Company
         and its subsidiaries taken as a whole, and, except as disclosed in or
         contemplated by the Final Offering Circular, there has been no change
         in the capital stock or long-term debt of the Company or any of its
         subsidiaries and no dividend or distribution of any kind declared, paid
         or made by the Company on any class of its capital stock.

                  (w)      The Company is not an open-end investment company,
         unit investment trust or face-amount certificate company that is or is
         required to be registered under Section 8 of the United States
         Investment Company Act of 1940, as amended (the "Investment Company
         Act"); the Company is not and, after giving effect to the offering, the
         borrowing of the Term Loans and the application of the proceeds thereof
         as described in the Offering Documents, and the consummation of the
         transactions contemplated by this Agreement, the Indentures, the
         Security Documents and the Purchase Agreement, shall not be an
         "investment company" as defined in the Investment Company Act of 1940.

                  (x)      [Intentionally Omitted.]

                  (y)      [Intentionally Omitted.]

                  (z)      [Intentionally Omitted.]

                  (aa)     Neither the Company nor any "subsidiary company" as
         that term is defined in the Public Utility Holding Company Act of 1935
         ("PUHCA"), of the Company is, or after giving effect to the borrowing
         of the Term Loans, shall be, subject to regulation (i) as a "holding
         company," a "subsidiary company" of a holding company or a
         "public-utility company," as those terms are defined in PUHCA (except
         that Calpine Cogeneration Corporation and the other "subsidiary
         companies" of the Company listed on Schedule 4.01(aa), each of which is
         an EWG (as defined herein) or a QF (as defined herein), are "subsidiary
         companies" of holding companies); (ii) under the Federal Power Act, as
         amended ("FPA"), other than (A) as a power marketer or an "exempt
         wholesale generator" ("EWG"), as that term is defined Section 32 of
         PUHCA, that is a "public utility" with market-based rate authority
         under Section 205 of the FPA, or (B) as a "qualifying facility" ("QF")
         under the Public Utility Regulatory Policies Act of 1978, as amended
         ("PURPA"), as contemplated by 18 C.F.R. Section 292.601(c); or (iii)
         under any

                                       76



         state law or regulation with respect to rates or the financial or
         organizational regulation of electric utilities, other than, with
         respect to subsidiaries of the Company that are QFs, as contemplated by
         18 C.F.R. Section 292.602(c).

                  (bb)     Each of the power generation projects in which the
         Company or its subsidiaries has an interest which is subject to the
         requirements under PURPA and the regulations of FERC promulgated
         thereunder, as amended from time to time, necessary to be a "qualifying
         cogeneration facility" and/or a "qualifying small power production
         facility" meets such requirements.

                  (cc)     Each of the Company's subsidiaries listed on Schedule
         4.01(cc) hereto has validly-issued orders from the FERC, not subject to
         any pending challenge, investigation, or proceeding (other than the
         FERC's generic proceeding initiated in Docket No. EL01-118-000), (i)
         authorizing such subsidiary to engage in wholesale sales of
         electricity, ancillary services and, to the extent permitted under its
         market-based rate tariff, other services at market-based rates, and
         (ii) granting such waivers and blanket authorizations as are
         customarily granted to entities with market-based rate authority. With
         respect to each such subsidiary, the FERC has not imposed any rate caps
         or mitigation measures other than rate caps and mitigation measures
         generally applicable to similarly situated marketers or generators
         selling electricity, ancillary services or other services at wholesale
         in the geographic market where such subsidiary conducts its business.

                  (dd)     All of the Company's subsidiaries listed on Schedule
         4.01(dd) hereto own and/or operate Eligible Facilities within the
         meaning of Section 32 of PUHCA, and each such subsidiary has received a
         determination from FERC, not subject to any pending challenge or
         appeal, that it is an Exempt Wholesale Generator, within the meaning of
         Section 32 of PUHCA.

                  (ee)     Each of the Company's subsidiaries listed on Schedule
         4.01(ee) hereto providing retail electric service in the Electric
         Reliability Council of Texas, Inc. ("ERCOT") has validly issued orders
         from the Texas Public Utilities Commission ("TPUC"), not subject to any
         pending challenge, investigation, or proceeding, authorizing such
         subsidiary to engage in sales of electricity at retail under the laws
         of the State of Texas. Each of the Company's subsidiaries listed on
         Schedule 4.01(ee) that are participating in the Texas wholesale
         electric market has registered with the TPUC and the TPUC has not
         imposed on any such subsidiary any specific rate cap or mitigation
         measures

                  (ff)     No consent, approval, authorization, or order of, or
         filing with the applicable state public utility commission under any
         public utility law of the State or any regulation promulgated pursuant
         to such law with respect to the rates or the financial or
         organizational regulation of electric utilities is required for the
         consummation of the merger of Goldendale Energy, Inc., Otay Mesa
         Generating Company, LLC, Metcalf Energy Center, LLC, Santa Rosa Energy,
         LLC, Washington Parish Energy Center, LLC, Deer Park Energy Center, LP
         and Augusta Energy LLC into the Company.

                                       77



                  (gg)     No consent, approval, authorization, or order of, or
         filing with any governmental agency or body or any court under the FPA,
         PUHCA or PURPA, or any regulation promulgated pursuant to such laws, is
         required for the consummation of the merger of Goldendale Energy, Inc.,
         Otay Mesa Generating Company, LLC, Metcalf Energy Center, LLC, Santa
         Rosa Energy, LLC, Washington Parish Energy Center, LLC, Deer Park
         Energy Center, LP and Augusta Energy LLC into the Company, except such
         filings as could not be expected to delay or hinder such mergers.

                  (hh)     Each of the Company's subsidiaries listed on Schedule
         4.01(hh) hereto providing retail energy services has full authorization
         to provide retail energy services to retail industrial, commercial and
         residential customers in its applicable states under the applicable
         Energy Laws. "Energy Laws" shall mean any state and local energy laws
         and regulations, in each of the states, regions or other applicable
         jurisdictions in which the Company and its subsidiaries are organized
         or otherwise conduct business, applicable to: (i) the ownership,
         operation, or control of electric generation, transmission, and
         distribution facilities; (ii) the purchase, sale, transmission,
         distribution, marketing or trading of electric energy; and (iii)
         organizational, financial and rate regulation of entities engaged in
         (i) and (ii) above.

                  (ii)     Other than the proceedings listed in Schedule
         4.01(ii), there are no pending complaints filed with the FERC seeking
         abrogation or modification of a contract for the sale of power by the
         Company or any of its subsidiaries.

                  (jj)     Except as described in the Final Offering Circular
         (i) all royalties, rentals, deposits and other amounts due on the oil
         and gas properties of the Company have been properly and timely paid,
         and no proceeds from the sale or production attributable to the oil and
         gas properties of the Company are currently being held in suspense by
         any purchaser thereof, and (ii) there are no claims under take-or-pay
         contracts pursuant to which natural gas purchasers have any make-up
         rights affecting the interests of the Company in its oil and gas
         properties, except in any event under (i) or (ii) as would not have a
         Material Adverse Effect.

                  (kk)     As of the date hereof, the aggregate undiscounted
         monetary liability of the Company for oil or natural gas taken or
         received under any operating or other agreement relating to its oil and
         gas properties that permits any person to receive any portion of the
         interest of the Company in oil and natural gas or to receive cash or
         other payments to balance any disproportionate allocation of oil or
         natural gas could not have a Material Adverse Effect.

                  (ll)     To the Company's knowledge, each of the Company's and
         the Company's subsidiaries' surface and mineral leases (the "Oil and
         Gas Leases") is in full force and effect and all rentals, royalties,
         shut-in well payments, bonuses and other payments due or payable from
         or by the Company or the Company's subsidiaries under Oil and Gas
         Leases and applicable laws, rules and regulations, have been properly
         and timely paid, except where the failure to have in full force and
         effect or to pay properly and timely

                                       78



         would not have a Material Adverse Effect, and all conditions necessary
         to keep the Oil and Gas Leases in full force and effect in accordance
         with their terms as of the date hereof, except where the failure to
         satisfy such conditions would not have a Material Adverse Effect.

                  (mm)     The Company and its subsidiaries are entitled to
         receive (and are currently receiving with respect to producing Oil and
         Gas Leases), without present suspense or presently required indemnity
         against asserted or known defects or disputes regarding the Company's
         and any of the Company's subsidiaries' ownership, from each purchaser
         of its production, or from the person receiving payments from any such
         purchasers, the proceeds attributable to the net revenue interest in
         production from each of the Oil and Gas Leases, except where the
         failure to receive such proceeds would not have a Material Adverse
         Effect.

                  (nn)     All production from the wells operated by the Company
         has been properly accounted for and all proceeds attributable thereto
         have been properly paid in the ordinary course of business consistent
         with past practices.

                  (oo)     The reserve report issued by Netherland, Sewell &
         Associates, Inc. dated February 11, 2003 is accurate in all material
         respects and reflects all proved reserves and future revenues in the
         Company's oil and gas properties (the "Oil and Gas Properties") located
         in the United States, and the Mortgages shall create valid and first
         priority mortgage liens on all of the interests of the Company referred
         to in such Reserve Report. The reserve report issued by Gilbert
         Laustsen Jung Associates Ltd. dated February 26, 2003 is accurate in
         all material respects and reflects all proved reserves and future
         revenues in the Company's oil and gas properties located in Canada.

                  (pp)     At the Closing Date, the Company shall own the Oil
         and Gas Properties free and clear of all Liens (other than Permitted
         Liens), and no Financing Statements (as defined below) in respect of
         any property or assets of the Company shall be on file in favor of any
         person other than those in respect of Permitted Prior Liens and those
         to be terminated with respect to existing indebtedness.

                  (qq)     Prior to the date hereof, neither the Company nor any
         of its subsidiaries has entered into a contract pursuant to which oil
         and gas assets would be sold to any party other than subsidiaries or
         purchasers for fair market value.

                  (rr)     The Company is subject to Section 13 or 15(d) of the
         Exchange Act.

                  (ss)     None of the transactions contemplated by this
         Agreement (including, without limitation, the use of the proceeds from
         the borrowing of the Term Loans) shall violate or result in a violation
         of Section 7 of the Exchange Act, or any regulation promulgated
         thereunder, including, without limitation, Regulations G, T, U, and X
         of the Board of Governors of the Federal Reserve System

                                       79



                  (tt)     Prior to the date hereof, neither the Company nor any
         of its affiliates has taken any action which is designed to or which
         has constituted or which might have been expected to cause or result in
         stabilization or manipulation of the price of any security of the
         Company in connection with the borrowing of the Term Loans.

                  (uu)     Neither the Company nor any of its subsidiaries is in
         violation of its Certificate of Incorporation or By-laws or in default
         in the performance or observance of any material obligation, covenant
         or condition contained in any indenture, mortgage, deed of trust, loan
         agreement, lease or other material agreement or instrument to which it
         is a party or by which it or any of its properties may be bound.

                  (vv)     The statements set forth in the Final Offering
         Circular under the captions "Description of Certain Indebtedness" and
         "Description of the Notes," insofar as they purport to describe the
         provisions of the documents referred to therein, are accurate, complete
         and fair in all material respects.

                  (ww)     The description of the Collateral set forth in the
         Final Offering Circular under the caption "Description of the
         Collateral" is accurate and complete.

                  (xx)     Deloitte & Touche LLP and Pricewaterhouse Coopers
         LLP, who have certified certain financial statements of the Company and
         its subsidiaries, are each independent public accountants as required
         by the Act and the rules and regulations of the Commission thereunder.

                  (yy)     Each of Netherland, Sewell & Associates Inc. and
         Gilbert Laustsen Jung Associates Ltd. is an independent petroleum
         engineering firm and nothing has come to the Company's attention to
         cause it to believe that either such firm is not qualified to pass on
         questions relating to the reserves and production of the Company's oil
         and gas properties as set forth or incorporated by reference in the
         Final Offering Circular.

                  (zz)     The present fair saleable value of the assets of the
         Company and each of its subsidiaries exceeds the amount required to pay
         the probable liability on its and their existing debts, respectively
         (whether matured or unmatured, liquidated or unliquidated, absolute,
         fixed or contingent), as they become absolute and matured, and as a
         result of consummation of the transactions contemplated herein and in
         the Final Offering Circular, shall continue to exceed such amount.

                  (aaa)    The Company and each of its subsidiaries, does not,
         and, as a result of consummation of the transactions contemplated
         herein and in the Final Offering Circular, shall not, have unreasonably
         small capital for it to carry on its business as proposed to be
         conducted.

                  (bbb)    Neither the Company nor any of its subsidiaries are
         incurring obligations or making transfers under any evidence of
         indebtedness with the intent to hinder, delay or defraud any entity to
         which it is or shall become indebted.

                                       80



                                    ARTICLE V

                                    COVENANTS

SECTION 5.01.              [Intentionally Omitted.]

SECTION 5.02.              [Intentionally Omitted.]

SECTION 5.03.              Reports.

                  (a)      Whether or not required by the SEC's rules and
         regulations, so long as any Term Loan Obligations are outstanding, the
         Company shall furnish to the Administrative Agent, within the time
         periods specified in the SEC's rules and regulations:

                           (i)      all quarterly and annual reports that would
                                    be required to be filed with the SEC on
                                    Forms 10-Q and 10-K if the Company were
                                    required to file such reports; and

                           (ii)     all current reports that would be required
                                    to be filed with the SEC on Form 8-K if the
                                    Company were required to file such reports.

                  (b)      All such reports shall be prepared in all material
         respects in accordance with all of the rules and regulations applicable
         to such reports. Each annual report on Form 10-K shall include a report
         on the Company's consolidated financial statements by the Company's
         certified independent accountants. In addition, the Company shall file
         a copy of each of the reports referred to in clauses (i) and (ii) above
         with the SEC for public availability within the time periods specified
         in the rules and regulations applicable to such reports (unless the SEC
         shall not accept such a filing) and make such information available to
         securities analysts and prospective investors upon request.

                  (c)      If, at any time, the Company is no longer subject to
         the periodic reporting requirements of the Exchange Act for any reason,
         the Company shall nevertheless continue filing the reports specified in
         Section 5.03(a) with the SEC within the time periods specified above
         unless the SEC shall not accept such a filing. The Company agrees that
         it shall not take any action for the purpose of causing the SEC not to
         accept any such filings. If, notwithstanding the foregoing, the SEC
         shall not accept the Company's filings for any reason, the Company
         shall post the reports referred to in Section 5.03(a) on its website
         within the time periods that would apply if the Company were required
         to file those reports with the SEC.

                  (d)      If the Company has designated any of its Subsidiaries
         as Unrestricted Subsidiaries, then the quarterly and annual financial
         information required by Section 5.03(a) shall include a reasonably
         detailed presentation, either on the face of the financial statements
         or in the footnotes thereto, and in "Management's Discussion and
         Analysis of Financial Condition and Results of Operations" in the Final
         Offering Memorandum, of

                                       81



         the financial condition and results of operations of the Company and
         its Restricted Subsidiaries separate from the financial condition and
         results of operations of the Unrestricted Subsidiaries of the Company.

                  (e)      In addition, the Company agrees that, for so long as
         any Term Loan Obligations remain outstanding, at any time it is not
         required to file the reports required by Section 5.03(a) with the
         Commission, it shall furnish to the Administrative Agent, upon its
         request, the information required to be delivered pursuant to Rule
         144A(d)(4) under the Securities Act.

SECTION 5.04.              Compliance Certificate.

                  (a)      The Company shall deliver to the Administrative Agent
         (for delivery to each Lender), within 90 days after the end of each
         fiscal year, an Officers' Certificate stating that a review of the
         activities of the Company and its Subsidiaries during the preceding
         fiscal year has been made under the supervision of the signing officers
         with a view to determining whether the Company has kept, observed,
         performed and fulfilled its obligations under this Agreement, and
         further stating, as to each such Officer signing such certificate, that
         to the best of his or her knowledge the Company has kept, observed,
         performed and fulfilled each and every covenant contained in this
         Agreement and is not in default in the performance or observance of any
         of the terms, provisions and conditions of this Agreement (or, if a
         Default or Event of Default has occurred, describing all such Defaults
         or Events of Default of which he or she may have knowledge and what
         action the Company is taking or proposes to take with respect thereto)
         and that to the best of his or her knowledge no event has occurred and
         remains in existence by reason of which payments on account of the
         principal of or interest, if any, on the Term Loans borrowed under this
         Agreement is prohibited or if such event has occurred, a description of
         the event and what action the Company is taking or proposes to take
         with respect thereto.

                  (b)      So long as not contrary to the then current
         recommendations of the American Institute of Certified Public
         Accountants, the year-end financial statements delivered pursuant to
         Section 5.03(a) above shall be accompanied by a written statement of
         the Company's independent public accountants (who shall be a firm of
         established national reputation) that in making the examination
         necessary for certification of such financial statements, nothing has
         come to their attention that would lead them to believe that the
         Company has violated any provisions of Article V or Article VI hereof
         or, if any such violation has occurred, specifying the nature and
         period of existence thereof, it being understood that such accountants
         shall not be liable directly or indirectly to any Person for any
         failure to obtain knowledge of any such violation.

                  (c)      So long as any of the Term Loan Obligations are
         outstanding, the Company shall deliver to the Administrative Agent,
         forthwith upon any Officer becoming aware of any Default or Event of
         Default, an Officers' Certificate specifying such Default

                                       82



         or Event of Default and what action the Company is taking or proposes
         to take with respect thereto.

SECTION 5.05.              Taxes.

The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to
delinquency, all material taxes, assessments, and governmental levies except
such as are contested in good faith and by appropriate proceedings or where the
failure to effect such payment is not adverse in any material respect to the
Lenders.

SECTION 5.06.              Stay, Extension and Usury Laws.

The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the
performance of this Agreement; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Administrative Agent,
but shall suffer and permit the execution of every such power as though no such
law has been enacted.

SECTION 5.07.              Restricted Payments.

                  (a)      The Company shall not, and shall not permit any of
         its Subsidiaries to, directly or indirectly:

                           (i)      declare or pay any dividend or make any
                                    other payment or distribution on account of
                                    the Company's or any of its Restricted
                                    Subsidiaries' Equity Interests (including
                                    any payment in connection with any merger or
                                    consolidation involving the Company or any
                                    of its Restricted Subsidiaries) or to the
                                    direct or indirect holders of the Company's
                                    or any of its Restricted Subsidiaries'
                                    Equity Interests in their capacity as such
                                    (other than dividends or distributions
                                    payable in Equity Interests (other than
                                    Disqualified Stock) of the Company or
                                    dividends or distributions payable to the
                                    Company or a Restricted Subsidiary of the
                                    Company);

                           (ii)     purchase, redeem or otherwise acquire or
                                    retire for value (including in connection
                                    with any merger or consolidation involving
                                    the Company) any Equity Interests of the
                                    Company or any direct or indirect parent of
                                    the Company;

                           (iii)    make any payment on or with respect to, or
                                    purchase, redeem, defease or otherwise
                                    acquire or retire for value any Indebtedness
                                    of the Company that is contractually
                                    subordinated to the Term Loans

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                                    (excluding any intercompany Indebtedness
                                    between or among the Company and any of its
                                    Restricted Subsidiaries and excluding the
                                    purchase, repurchase or other acquisition of
                                    such subordinated Indebtedness purchased in
                                    anticipation of satisfying a sinking fund
                                    obligation, principal installment or final
                                    maturity, in each case due within one year
                                    of the date of acquisition), except a
                                    payment of interest or principal at the
                                    Stated Maturity thereof; or

                           (iv)     make any Restricted Investment

(all such payments and other actions set forth in these clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"), unless after
giving effect to such Restricted Payment:

                           (v)      no Default or Event of Default has occurred
                                    and is continuing or would occur as a
                                    consequence of such Restricted Payment
                                    (other than any Default or Event of Default
                                    that is cured as a result of such Restricted
                                    Payment);

                           (vi)     the Company would, after giving pro forma
                                    effect thereto as if such Restricted Payment
                                    had been made at the beginning of the
                                    applicable four-quarter period, have been
                                    permitted to incur at least $1.00 of
                                    additional Indebtedness pursuant to the
                                    Fixed Charge Coverage Ratio test set forth
                                    in Section 5.09(a) herein; and

                           (vii)    such Restricted Payment, together with the
                                    aggregate amount of all other Restricted
                                    Payments made by the Company and its
                                    Restricted Subsidiaries since the date of
                                    this Agreement (excluding Restricted
                                    Payments permitted by clauses (2), (3), (4),
                                    (5), (6), and (9) of the next succeeding
                                    paragraph), is less than the sum, without
                                    duplication, of:

                                    (A)      50% of the Consolidated Net Income
                  of the Company for the period (taken as one accounting period)
                  from the beginning of the first fiscal quarter commencing
                  after the date of this Agreement to the end of the Company's
                  most recently ended fiscal quarter for which internal
                  financial statements are available at the time of such
                  Restricted Payment (or, if such Consolidated Net Income for
                  such period is a deficit, less 100% of such deficit), plus

                                    (B)      100% of the aggregate net cash
                  proceeds received by the Company since the date of this
                  Agreement as a contribution to its common equity capital or
                  from the issue or sale of Equity Interests of the Company
                  (other than Disqualified Stock) or from the issue or sale of
                  convertible or exchangeable Disqualified Stock or convertible
                  or exchangeable debt securities of the Company that have been
                  converted into or exchanged for such Equity Interests (other
                  than

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                  Equity Interests (or Disqualified Stock or debt securities)
                  sold to a Subsidiary of the Company), plus

                                    (C)      to the extent that any Restricted
                  Investment that was made after the date of this Agreement is
                  sold for cash or otherwise liquidated or repaid for cash, the
                  lesser of (i) the cash return of capital with respect to such
                  Restricted Investment (less the cost of disposition, if any)
                  and (ii) the initial amount of such Restricted Investment,
                  plus

                                    (D)      to the extent that any Unrestricted
                  Subsidiary of the Company designated as such after the date of
                  this Agreement is redesignated as a Restricted Subsidiary
                  after the date of this Agreement, the Fair Market Value of the
                  Company's Investment in such Subsidiary as of the date of such
                  redesignation, plus

                                    (E)      100% of any payments of interest on
                  Indebtedness, dividends, repayments of loans or advances, or
                  other transfers of assets received by the Company or a
                  Restricted Subsidiary of the Company after the date of this
                  Agreement from an Unrestricted Subsidiary of the Company, to
                  the extent that such payments, dividends, repayments or
                  transfers were not otherwise included in Consolidated Net
                  Income of the Company for such period, plus

                                    (F)      $628.3 million (which is the amount
                  currently available for Restricted Payments under the
                  Company's indentures entered into prior to August 10, 2000).

         The preceding provisions shall not prohibit:

                  (1) the payment of any dividend within 60 days after the date
of declaration of the dividend, if at the date of declaration the dividend
payment would have complied with the provisions of this Agreement;

                  (2) the making of any Restricted Payment in exchange for, or
out of the net cash proceeds of the substantially concurrent sale (other than to
a Subsidiary of the Company) of, Equity Interests of the Company (other than
Disqualified Stock) or from the substantially concurrent contribution of common
equity capital to the Company; provided that the amount of any such net cash
proceeds that are utilized for any such Restricted Payment shall be excluded
from clause (3)(B) of the preceding paragraph;

                  (3) the defeasance, redemption, repurchase or other
acquisition of Indebtedness of the Company that is contractually subordinated to
the Term Loans with the net cash proceeds from a substantially concurrent
incurrence of Permitted Refinancing Indebtedness, so long as no Default has
occurred and is continuing or would be caused thereby;

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                  (4) the payment of any dividend (or, in the case of any
partnership or limited liability company, any similar distribution) by a
Restricted Subsidiary of the Company to the holders of any class or series of
such Restricted Subsidiary's Equity Interests on a pro rata basis;

                  (5) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any current or former officer, direct or
employee of the Company (or any of its Restricted Subsidiaries) pursuant to any
equity subscription agreement, stock option agreement, shareholders' agreement
or similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0
million in any twelve-month period, so long as no Default has occurred and is
continuing or would be caused thereby;

                  (6) the repurchase of Equity Interests deemed to occur upon
the exercise of stock options to the extent such Equity Interests represent a
portion of the exercise price of those stock options;

                  (7) the declaration and payment of dividends to holders of any
class or series of Disqualified Stock of the Company or any Restricted
Subsidiary of the Company issued on or after the date of this Agreement in
accordance with the Fixed Charge Coverage test described under Section 5.09
herein; provided that no Default has occurred and is continuing or would be
caused thereby (other than any Default or Event of Default that is cured as a
result of such Restricted Payment); and

                  (8) any purchase, redemption, defeasance or other acquisition
or retirement for value of subordinated Indebtedness upon a Change of Control or
an Asset Sale to the extent required by the indentures or other agreement
pursuant to which such subordinated Indebtedness was issued, but only if the
Company (a) in the case of a Change of Control, has made an offer to repay the
Term Loans as described under Section 5.15 herein or (b) in the case of an Asset
Sale, has applied the Net Proceeds from such Asset Sale in accordance with the
provisions described under Section 5.10 herein, so long as no Default has
occurred and is continuing or would be caused thereby.

                  (b)      The amount of all Restricted Payments (other than
         cash) shall be the Fair Market Value on the date of the Restricted
         Payment of the asset(s) or securities proposed to be transferred or
         issued by the Company or such Restricted Subsidiary, as the case may
         be, pursuant to the Restricted Payment.

SECTION 5.08.              Dividend and Other Payment Restrictions Affecting
Subsidiaries.

                  (a)      The Company shall not, and shall not permit any of
         its Restricted Subsidiaries to, directly or indirectly, create or
         permit to exist or become effective any consensual encumbrance or
         restriction on the ability of any Restricted Subsidiary to:

                           (i)      pay dividends or make any other
                                    distributions on its Capital Stock to the
                                    Company or any of its Restricted
                                    Subsidiaries, or with

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                                    respect to any other interest or
                                    participation in, or measured by, its
                                    profits, or pay any indebtedness owed to the
                                    Company or any of its Restricted
                                    Subsidiaries;

                           (ii)     make loans or advances to the Company or any
                                    of its Restricted Subsidiaries; or

                           (iii)    transfer any of its properties or assets to
                                    the Company or any of its Restricted
                                    Subsidiaries.

         However, the preceding restrictions shall not apply to encumbrances or
restrictions existing under or by reason of:

                                    (A)      agreements governing Existing
                  Indebtedness and Credit Facilities as in effect on the date of
                  this Agreement and any amendments, modifications,
                  restatements, renewals, increases, supplements, refundings,
                  replacements or refinancings of those agreements; provided
                  that the amendments, modifications, restatements, renewals,
                  increases, supplements, refundings, replacements or
                  refinancings are no more restrictive, taken as a whole, with
                  respect to such dividend and other payment restrictions than
                  those contained in those agreements on the date of this
                  Agreement;

                                    (B)      this Agreement, any of the
                  Indentures and any of the Notes issued pursuant to the
                  Indentures or any other indenture governing letters of credit,
                  loans or debt securities issued by or on behalf of the Company
                  that are no more restrictive, taken as a whole, with respect
                  to such dividend, distribution or other payment restrictions
                  and loan or investment restrictions than those contained in
                  this Agreement, the Indentures, and the Initial Notes as in
                  effect on the date of this Agreement;

                                    (C)      applicable law, rule, regulation or
                  order;

                                    (D)      customary non-assignment provisions
                  in leases, contracts and licenses entered into in the ordinary
                  course of business and consistent with past practices;

                                    (E)      purchase money obligations for
                  property acquired in the ordinary course of business and
                  Capital Lease Obligations that impose restrictions on the
                  property purchased or leased of the nature described in clause
                  (iii) of the preceding paragraph;

                                    (F)      any agreement for the sale or other
                  disposition of a Restricted Subsidiary that restricts
                  distributions by that Restricted Subsidiary pending the sale
                  or other disposition;

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                                    (G)      Permitted Refinancing Indebtedness;
                  provided that the restrictions contained in the agreements
                  governing such Permitted Refinancing Indebtedness are not
                  materially more restrictive, taken as a whole, than those
                  contained in the agreements governing the Indebtedness being
                  refinanced;

                                    (H)      Liens securing Indebtedness
                  otherwise permitted to be incurred under the provisions of the
                  covenant described above under Section 5.12 herein that limit
                  the right of the debtor to dispose of the assets subject to
                  such Liens;

                                    (I)      provisions limiting or prohibiting
                  the disposition or distribution of assets or property in joint
                  venture agreements, asset sale agreements, sale-leaseback
                  agreements, stock sale agreements and other similar agreements
                  entered into with the approval of the Company's Board of
                  Directors, which limitation or prohibition is applicable only
                  to the assets that are the subject of such agreements;

                                    (J)      any encumbrance or restriction
                  imposed pursuant to the terms of any Non-Recourse Debt
                  incurred pursuant to clause (vi) of the definition of
                  Permitted Debt described in Section 5.09(b) or any preferred
                  stock issued pursuant to clause (vii) of the definition of
                  Permitted Debt described in Section 5.09(b); provided that
                  such encumbrance or restriction, in the written opinion of the
                  President, Vice Chairman, Chief Operating Officer or Chief
                  Financial Officer of the Company, (x) is required in order to
                  obtain such financing or to place such preferred stock, (y) is
                  customary for such financings or placements and (z) applies
                  only to the assets or revenues of the applicable Restricted
                  Subsidiary;

                                    (K)      any encumbrance or restriction with
                  respect to a Restricted Subsidiary pursuant to an agreement
                  relating to any Acquired Debt incurred pursuant to clause (x)
                  of the definition of Permitted Debt described in Section
                  5.09(b); provided that such encumbrance or restriction was not
                  incurred in connection with or in contemplation of such
                  Restricted Subsidiary becoming a Restricted Subsidiary; and

                                    (L)      restrictions on cash or other
                  deposits or net worth imposed by customers or suppliers under
                  contracts entered into in the ordinary course of business.

SECTION 5.09.              Incurrence of Indebtedness and Issuance of Preferred
Stock.

                  (a)      The Company shall not, and shall not permit any of
         its Restricted Subsidiaries to, directly or indirectly, create, incur,
         issue, assume, guarantee or otherwise become directly or indirectly
         liable, contingently or otherwise, with respect to (collectively,
         "incur") any Indebtedness (including Acquired Debt), and the Company
         shall not issue any Disqualified Stock and shall not permit any of its
         Restricted Subsidiaries to issue any shares of preferred stock;
         provided, however, that the Company

                                       88



         may incur Indebtedness (including Acquired Debt) or issue Disqualified
         Stock if the Fixed Charge Coverage Ratio for the Company's most
         recently ended four full fiscal quarters for which internal financial
         statements are available immediately preceding the date on which such
         additional Indebtedness is incurred or such Disqualified Stock is
         issued would have been at least 2.0 to 1, determined on a pro forma
         basis (including a pro forma application of the net proceeds
         therefrom), as if the additional Indebtedness had been incurred or the
         Disqualified Stock had been issued, as the case may be, at the
         beginning of such four-quarter period.

                  (b)      Section 5.09(a) shall not prohibit the incurrence of
         any of the following items (collectively, "Permitted Debt"):

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                           (i)      the incurrence by the Company and the
                                    Guarantee by the Canadian Guarantors of
                                    additional Indebtedness and letters of
                                    credit under Credit Facilities in an
                                    aggregate principal amount at any one time
                                    outstanding under this clause (i) (with
                                    letters of credit being deemed to have a
                                    principal amount equal to the maximum
                                    potential liability of the Company
                                    thereunder) not to exceed on any date of
                                    incurrence the greater of (A) $500.0 million
                                    or (B) the dollar amount that is equal to
                                    50% of the Company's Consolidated Cash Flow
                                    for the then most recent four-quarter period
                                    for which financial information is
                                    available;

                           (ii)     the incurrence by the Company and its
                                    Restricted Subsidiaries of the Existing
                                    Indebtedness;

                           (iii)    the incurrence by the Company and the
                                    Canadian Guarantors of Indebtedness
                                    represented by the 2007 Notes, the 2010
                                    Notes and the 2013 Notes and the Term Loans
                                    to be issued on the date of this Agreement,
                                    and in each case the related Guarantees;

                           (iv)     the incurrence by the Company or any of its
                                    Restricted Subsidiaries of Indebtedness
                                    represented by Capital Lease Obligations,
                                    mortgage financings or purchase money
                                    obligations, in each case, incurred for the
                                    purpose of financing all or any part of the
                                    purchase price or cost of design,
                                    construction, installation or improvement of
                                    property, plant or equipment used in the
                                    business of the Company or any of its
                                    Restricted Subsidiaries, in an aggregate
                                    principal amount (or accreted value, as
                                    applicable), including all Permitted
                                    Refinancing Indebtedness incurred to extend,
                                    refund, refinance, renew, replace or defease
                                    any Indebtedness incurred pursuant to this
                                    clause (iv), not to exceed $100.0 million at
                                    any one time outstanding;

                           (v)      Indebtedness of the Company which is owed to
                                    and owned by a Restricted Subsidiary and
                                    Indebtedness of a Restricted Subsidiary that
                                    is owed to and owned by the Company or a
                                    Restricted Subsidiary; provided that any
                                    subsequent issuance or transfer of any
                                    Capital Stock that results in any such
                                    Restricted Subsidiary ceasing to be a
                                    Restricted Subsidiary or any transfer of
                                    such Indebtedness (other than to the Company
                                    or a Restricted Subsidiary) shall be deemed,
                                    in each case, to constitute the incurrence
                                    of such Indebtedness by the Company or by a
                                    Restricted Subsidiary, as the case may be;

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                           (vi)     the incurrence of Non-Recourse Debt by any
                                    Restricted Subsidiary of the Company (other
                                    than a Restricted Subsidiary that owns,
                                    directly or indirectly, any Material
                                    Designated Assets);

                           (vii)    the issuance of preferred stock by a
                                    Restricted Subsidiary of the Company (other
                                    than a Restricted Subsidiary that owns,
                                    directly or indirectly, any Material
                                    Designated Assets), the net proceeds of
                                    which are applied to finance the
                                    exploration, drilling, development,
                                    construction or purchase of or by, or
                                    repairs or improvements or additions to,
                                    property or assets of the Company or any
                                    Restricted Subsidiary;

                           (viii)   the incurrence by the Company of Guarantees
                                    of Indebtedness of Restricted Subsidiaries
                                    which, but for such Guarantees, would be
                                    permitted to be incurred pursuant to clause
                                    (vi) of this Section 5.09(b); provided that
                                    the aggregate principal amount of
                                    Indebtedness incurred pursuant to this
                                    clause (viii) does not exceed $100.0 million
                                    at any one time outstanding;

                           (ix)     the incurrence by the Company or any of its
                                    Restricted Subsidiaries of Permitted
                                    Refinancing Indebtedness in exchange for, or
                                    the net proceeds of which are used to
                                    refund, refinance, replace, defease or
                                    discharge Indebtedness (other than
                                    intercompany Indebtedness) that was
                                    permitted by this Agreement to be incurred
                                    under the first paragraph of this covenant
                                    or clauses (ii), (iii), (iv), (v), (vi),
                                    (viii) or (x) of this Section 5.09(b) or
                                    this clause (ix);

                           (x)      the incurrence of Acquired Debt by any
                                    Restricted Subsidiary of the Company at the
                                    time such Restricted Subsidiary becomes a
                                    Restricted Subsidiary of the Company so long
                                    as such Acquired Debt was not incurred in
                                    connection with or in contemplation of such
                                    Person becoming a Restricted Subsidiary of
                                    the Company; provided that the Company would
                                    have been able to incur such Indebtedness at
                                    the time of incurrence thereof by the
                                    Restricted Subsidiary pursuant to Section
                                    5.09(a);

                           (xi)     the incurrence of Indebtedness pursuant to
                                    Hedging Obligations incurred in the ordinary
                                    course of business and not for speculative
                                    purposes;

                           (xii)    the incurrence by the Company or any of its
                                    Restricted Subsidiaries of Indebtedness in
                                    respect of workers' compensation claims,
                                    self-insurance obligations, bankers'
                                    acceptances and performance and surety bonds
                                    in the ordinary course of business;

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                           (xiii)   the incurrence by the Company or any of its
                                    Restricted Subsidiaries of Indebtedness
                                    arising from the honoring by a bank or other
                                    financial institution of a check, draft or
                                    similar instrument inadvertently drawn
                                    against insufficient funds, so long as such
                                    Indebtedness is covered within five business
                                    days;

                           (xiv)    the incurrence by any Restricted Subsidiary
                                    of Indebtedness represented by letters of
                                    credit (or Guarantees thereof) entered into
                                    in the ordinary course of business to the
                                    extent that such letters of credit are not
                                    drawn upon or, if and to the extent drawn
                                    upon, such drawing is reimbursed no later
                                    than the tenth Business Day following a
                                    demand for reimbursement following payment
                                    on the letter of credit; provided that such
                                    letters of credit shall not constitute
                                    Permitted Debt pursuant to this clause (xiv)
                                    if they are issued in support of
                                    Indebtedness;

                           (xv)     the incurrence of Indebtedness by the
                                    Company represented by letters of credit
                                    cash collateralized with the proceeds of
                                    Priority Lien Debt; and

                           (xvi)    the incurrence by the Company or any of its
                                    Restricted Subsidiaries of additional
                                    Indebtedness in an aggregate principal
                                    amount (or accreted value, as applicable) at
                                    any time outstanding, including all
                                    Permitted Refinancing Indebtedness incurred
                                    to extend, refinance, renew, replace,
                                    defease or refund any Indebtedness incurred
                                    pursuant to this clause (xvi), not to exceed
                                    $100.0 million.

The Company shall not incur any Indebtedness (including Permitted Debt) that is
contractually subordinated in right of payment to any other Indebtedness of the
Company unless such Indebtedness is also contractually subordinated in right of
payment to the Term Loans on substantially identical terms; provided, however,
that no Indebtedness of the Company shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company solely
by virtue of being unsecured or by virtue of being secured on a junior basis.

SECTION 5.10.              Asset Sales.

                  (a)      The Company shall not, and shall not permit any of
         its Restricted Subsidiaries to, consummate an Asset Sale (including a
         Sale of Designated Assets) unless:

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                           (i)      the Company (or the Restricted Subsidiary,
                                    as the case may be) receives consideration
                                    at the time of the Asset Sale at least equal
                                    to the Fair Market Value of the assets or
                                    Equity Interests issued or sold or otherwise
                                    disposed of;

                           (ii)     at least 75% of the consideration received
                                    in the Asset Sale by the Company or such
                                    Restricted Subsidiary is in the form of cash
                                    or Cash Equivalents. For purposes of this
                                    provision, each of the following shall be
                                    deemed to be cash:

                                    (A)      any liabilities, as shown on the
                  Company's most recent consolidated balance sheet, of the
                  Company or any Restricted Subsidiary (other than contingent
                  liabilities and liabilities that are by their terms
                  subordinated to the Term Loans) that are assumed by the
                  transferee of any such assets pursuant to a customary novation
                  or similar agreement that releases the Company or such
                  Restricted Subsidiary from further liability;

                                    (B)      any securities, notes or other
                  obligations received by the Company or any such Restricted
                  Subsidiary from such transferee that are promptly, subject to
                  ordinary settlement periods, converted by the Company or such
                  Restricted Subsidiary into cash, to the extent of the cash
                  received in that conversion; and

                                    (C)      except in the case of a Sale of
                  Designated Assets, any stock or assets of the kind referred to
                  in clauses (iv) or (vi) of Section 5.10(b); and

                           (iii)    in the case of a Sale of Designated Assets
                                    other than Canadian Gas Assets, the Company
                                    (or the Restricted Subsidiary, as the case
                                    may be) shall deposit the Net Proceeds as
                                    cash collateral in a segregated account (a
                                    "Designated Asset Sale Proceeds Account")
                                    held by the Collateral Trustee or its agent
                                    to secure the Secured Obligations; provided,
                                    that for so long as the terms of any of the
                                    Company's senior unsecured notes that were
                                    issued prior to August 10, 2000 would
                                    prevent such a pledge by a Restricted
                                    Subsidiary, the Company shall deposit with
                                    the Collateral Trustee or its agent an
                                    amount of cash equal to the Net Proceeds as
                                    cash collateral to secure the Secured
                                    Obligations, and the applicable Restricted
                                    Subsidiary shall not be obligated to do so.

                  (b)      Within 365 days after the receipt of any Net Proceeds
         from an Asset Sale, other than a Sale of Designated Assets that are not
         Canadian Gas Assets, the Company (or the applicable Restricted
         Subsidiary, as the case may be) may apply those Net Proceeds:

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                           (i)      to repay Priority Lien Debt and/or cash
                                    collateralize letters of credit constituting
                                    Priority Lien Debt;

                           (ii)     in the case of an Asset Sale by a Restricted
                                    Subsidiary, to repay or repurchase
                                    Indebtedness of Calpine Canada Energy
                                    Finance ULC and/or Calpine Canada Energy
                                    Finance II ULC existing on the date of this
                                    Agreement;

                           (iii)    in the case of an Asset Sale by a Restricted
                                    Subsidiary, to repay or repurchase
                                    Indebtedness of any Restricted Subsidiary
                                    and, if such Indebtedness is revolving
                                    credit Indebtedness, to correspondingly
                                    reduce commitments with respect thereto;

                           (iv)     to acquire all or substantially all of the
                                    assets of, or any Capital Stock of, another
                                    Permitted Business, if, after giving effect
                                    to any such acquisition of Capital Stock,
                                    the Permitted Business is or becomes a
                                    Restricted Subsidiary of the Company;

                           (v)      to make a capital expenditure; or

                           (vi)     to acquire other assets that are not
                                    classified as current assets under GAAP and
                                    that are used or useful in a Permitted
                                    Business.

                  (c)      Within 180 days after the receipt of any Net Proceeds
         from an Asset Sale that constitutes a Sale of Designated Assets other
         than Canadian Gas Assets, the Company (or the Restricted Subsidiary
         that disposed of those Designated Assets, as the case may be) may apply
         those Net Proceeds to purchase other assets that would constitute
         Designated Assets or to repay Priority Lien Debt and/or cash
         collateralize letters of credit constituting Priority Lien Debt and, if
         such Priority Lien Debt is revolving credit Indebtedness, to
         correspondingly reduce commitments with respect thereto.

                  (d)      Any Net Proceeds from Asset Sales (including Sales of
         Designated Assets) that are not applied or invested as provided in the
         preceding clauses of this Section 5.10 shall constitute "Excess
         Proceeds." When the aggregate amount of Excess Proceeds exceeds $50.0
         million, or at such earlier point as may be elected by the Company, the
         Company shall make an offer to all Lenders and all holders of other
         Indebtedness that is pari passu with the Term Loans Equally and Ratably
         secured with the Term Loans containing provisions similar to those set
         forth in this Agreement with respect to offers to prepay, purchase or
         redeem with the proceeds of sales of assets, including the Notes and
         each series of Existing Indebtedness that contains similar asset sale
         provisions, when applicable, to prepay the maximum principal amount of
         Term Loans and such other pari passu Indebtedness that may be prepaid,
         purchased or redeemed out of the Excess Proceeds (including each series
         of Existing Indebtedness that contains similar asset sale provisions).
         The offer price in any Asset Sale Offer shall be equal to 100% of
         principal amount plus accrued and unpaid interest, if any, to the date
         of prepayment or purchase, and shall be payable in cash in accordance
         with the procedures

                                       94



         set forth in Section 2.11 hereof. If any Excess Proceeds remain after
         consummation of an Asset Sale Offer, the Company may use those Excess
         Proceeds for any purpose not otherwise prohibited by this Agreement. If
         the aggregate principal amount of Term Loans and other pari passu
         Indebtedness tendered into such Asset Sale Offer exceeds the amount of
         Excess Proceeds, the Company shall select the Term Loans and such other
         pari passu Indebtedness to be purchased on a pro rata basis. Upon
         completion of each Asset Sale Offer, the amount of Excess Proceeds
         shall be reset at zero.

                  (e)      Notwithstanding the foregoing, to the extent that any
         or all of the Net Proceeds of any Foreign Asset Sale is prohibited or
         delayed by applicable local law from being repatriated to the United
         States, the portion of such Net Proceeds so affected shall not be
         required to be applied at the time provided above, but may be retained
         by the applicable Restricted Subsidiary so long, but only so long, as
         the applicable local law shall not permit repatriation to the United
         States. The Company shall promptly take or cause the applicable
         Restricted Subsidiary to promptly take all actions required by the
         applicable local law to permit such repatriation. Once such
         repatriation of any of the affected Net Proceeds is permitted under the
         applicable local law, the repatriation shall be immediately effected
         and the repatriated Net Proceeds shall be applied in the manner set
         forth in this Section 5.10 as if the Asset Sale had occurred on the
         date of such repatriation.

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

SECTION 5.11.              Transactions with Affiliates.

                  (a)      The Company shall not, and shall not permit any of
         its Restricted Subsidiaries to, make any payment to, or sell, lease,
         transfer or otherwise dispose of any of its properties or assets to, or
         purchase any property or assets from, or enter into or make or amend
         any transaction, contract, agreement, understanding, loan, advance or
         guarantee with, or for the benefit of, any Affiliate of the Company
         (each, an "Affiliate Transaction"), unless:

                                       95



                           (i)      the Affiliate Transaction is on terms that
                                    are no less favorable to the Company or the
                                    relevant Restricted Subsidiary than those
                                    that would have been obtained in a
                                    comparable transaction by the Company or
                                    such Restricted Subsidiary with an unrelated
                                    Person; and

                           (ii)     the Company delivers to the Administrative
                                    Agent:

                                    (A)      with respect to any Affiliate
                  Transaction or series of related Affiliate Transactions
                  involving aggregate consideration in excess of $2.5 million,
                  an Officers' Certificate certifying that such Affiliate
                  Transaction complies with this covenant; and

                                    (B)      with respect to any Affiliate
                  Transaction or series of related Affiliate Transactions
                  involving aggregate consideration in excess of $10.0 million,
                  a resolution of the Board of Directors set forth in an
                  Officers' Certificate certifying that such Affiliate
                  Transaction complies with this covenant and that such
                  Affiliate Transaction has been approved by a majority of the
                  disinterested members of the Board of Directors or, if there
                  are no disinterested members of the Board of Directors, the
                  Board of Directors shall have received a written opinion of an
                  accounting, appraisal or investment banking firm of national
                  standing stating that such Affiliate Transaction or series of
                  Affiliate Transactions is fair to the Company or such
                  Restricted Subsidiary from a financial point of view.

                  (b)      The following items shall not be deemed to be
         Affiliate Transactions and, therefore, shall not be subject to the
         provisions of Section 5.11(a):

                                       96



                           (i)      any employment agreement, employee benefit
                                    plan, stock option plan, officer and
                                    director indemnification agreement or any
                                    similar arrangement entered into by the
                                    Company or any of its Restricted
                                    Subsidiaries in the ordinary course of
                                    business;

                           (ii)     transactions between or among the Company
                                    and its Restricted Subsidiaries and between
                                    or among the Company's Restricted
                                    Subsidiaries;

                           (iii)    transactions with a Person (other than an
                                    Unrestricted Subsidiary of the Company) that
                                    is an Affiliate of the Company solely
                                    because the Company owns, directly or
                                    through a Restricted Subsidiary, an Equity
                                    Interest in, or controls, such Person;

                           (iv)     payment of reasonable directors' fees to
                                    Persons who are not otherwise Affiliates of
                                    the Company;

                           (v)      any issuance of Equity Interests (other than
                                    Disqualified Stock) of the Company to
                                    Affiliates of the Company;

                           (vi)     Restricted Payments that do not violate the
                                    provisions of this Agreement as described in
                                    Section 5.07 hereof;

                           (vii)    loans or advances to employees in the
                                    ordinary course of business;

                           (viii)   any repurchase, redemption or other
                                    retirement of Capital Stock of the Company
                                    held by employees of the Company or any of
                                    its Subsidiaries upon death, disability or
                                    termination of employment at a price not in
                                    excess of the Fair Market Value thereof
                                    approved by the Board of Directors;

                           (ix)     any transaction between or among the Company
                                    and any of its Subsidiaries in the ordinary
                                    course of business and consistent with past
                                    practices of the Company and its
                                    Subsidiaries; and

                           (x)      any agreement to do any of the foregoing.

                  (c)      Any transaction which has been determined, in the
         written opinion of an independent nationally recognized investment
         banking firm, to be fair, from a financial point of view, to the
         Company or the applicable Restricted Subsidiary shall be deemed to be
         in compliance with this Section 5.11.

                                       97



SECTION 5.12.              Liens.

                  (a)      The Company shall not, and shall not permit any of
         its Restricted Subsidiaries to, directly or indirectly, create, incur,
         assume or suffer to exist any Lien of any kind on any asset now owned
         or hereafter acquired, except Permitted Liens.

                  (b)      The Company shall not, and shall not permit any of
         its Restricted Subsidiaries to, grant or permit to exist a Lien upon
         any property (whether then held by it or to be acquired by it at a
         future time) as security for any Priority Lien Debt, unless (1) such
         Lien secures all Priority Lien Debt on an equal and ratable basis and
         (2) the Collateral Trustee holds an enforceable and perfected Lien upon
         such property as security Equally and Ratably for all Parity Lien
         Obligations in second priority to Priority Lien Debt.

SECTION 5.13.              Limitation on Changes in the Nature of Business.

         The Company and its Restricted Subsidiaries shall engage only in
Permitted Businesses, except to such extent as would not be material to the
Company and its Restricted Subsidiaries taken as a whole. In addition, the
Company shall, and shall cause its Subsidiaries, to conduct their respective
businesses in a manner so as to maintain the exemption of the Company and its
Subsidiaries from treatment as a public utility holding company under PUHCA or
an electric utility or public utility under any federal, state or local law;
provided to the extent that any such law is amended following the date of this
Agreement in such a manner that would (absent application of this proviso) make
non-compliance with this Section 5.13 not result in a material adverse effect on
the Company's results of operations or financial condition, then the Company
shall not be required to comply with this Section 5.13, but only to the extent
of actions or failures to act that would (absent application of this Section
5.13) constitute violations of this Section 5.13 solely as a result of such
amendment.

SECTION 5.14.              Corporate Existence.

Subject to Article 6 hereof, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect:

                           (i)      its corporate existence, and the corporate,
                                    partnership or other existence of each of
                                    its Subsidiaries, in accordance with the
                                    respective organizational documents (as the
                                    same may be amended from time to time) of
                                    the Company or any such Subsidiary; and

                           (ii)     the rights (charter and statutory), licenses
                                    and franchises of the Company and its
                                    Subsidiaries; provided, however, that the
                                    Company shall not be required to preserve
                                    any such right, license or franchise, or the
                                    corporate, partnership or other existence of
                                    any of its Subsidiaries, if the Board of
                                    Directors shall determine that the
                                    preservation thereof is no longer desirable
                                    in the conduct of the business of the
                                    Company and its Subsidiaries, taken as a
                                    whole,

                                       98



                                    and that the loss thereof is not adverse in
                                    any material respect to the Lenders.

SECTION 5.15.              Offer to Repurchase Upon Change of Control.

                  (a)      If a Change of Control occurs, each Lender shall have
         the right to require the Company to repay all or any part (equal to
         $1,000 or an integral multiple of $1,000) of that Lender's Term Loans
         pursuant to the offer described below (the "Change of Control Offer")
         on the terms set forth in this Agreement. In the Change of Control
         Offer, the Company shall offer a payment in cash equal to 101% of the
         aggregate principal amount thereof plus accrued and unpaid interest,
         (the "Change of Control Payment"), to but excluding the date of
         repayment. Within 30 days following any Change of Control, the Company
         shall mail a notice to the Administrative Agent (for delivery to each
         Lender) describing the transaction or transactions that constitute the
         Change of Control and offering to repay all Term Loans on the change of
         control payment date (the "Change of Control Payment Date") specified
         in the notice, which date shall be no earlier than 30 days and no later
         than 60 days from the date such notice is mailed, pursuant to the
         procedures required by this Agreement and described in such notice.

                  (b)      On the Change of Control Payment Date, the Company
         shall, to the extent lawful:

                           (i)      transfer to the Administrative Agent in
                                    immediately available funds an amount equal
                                    to the Change of Control Payment in respect
                                    of all Term Loans or portions thereof for
                                    which repayment has been requested; and

                           (ii)     deliver or cause to be delivered to the
                                    Adminstrative Agent an Officers' Certificate
                                    stating the aggregate principal amount of
                                    Term Loans or portions thereof being repaid
                                    by the Company.

                  (c)      The Administrative Agent shall promptly mail to each
         Lender so requesting the Change of Control Payment for such Term Loans.

                  (d)      The Company shall publicly announce the results of
         the Change of Control Offer on or as soon as practicable after the
         Change of Control Payment Date.

                  (e)      The provisions described above that require the
         Company to make a Change of Control Offer following a Change of Control
         shall be applicable whether or not any other provisions of this
         Agreement are applicable.

                  (f)      The Company shall not be required to make a Change of
         Control Offer upon a Change of Control if (i) a third party makes the
         Change of Control Offer in the manner, at the times and otherwise in
         compliance with the requirements set forth in this Agreement applicable
         to a Change of Control Offer made by the Company and repays all Term
         Loans not withdrawn under the Change of Control Offer or (ii) notice of
         voluntary

                                       99



         prepayment has been given in accordancy with Section 2.10 unless and
         until there is a default in payment of the applicable prepayment price.

SECTION 5.16.              Limitation on Sale and Leaseback Transactions.

                  (a)      The Company shall not enter into any sale and
         leaseback transaction; provided that the Company may enter into a sale
         and leaseback transaction if:

                           (i)      the Company could have (a) incurred
                                    Indebtedness in an amount equal to the
                                    Attributable Debt relating to such sale and
                                    leaseback transaction under the Fixed Charge
                                    Coverage Ratio test in Section 5.09 (a)
                                    herein and (b) incurred a Lien to secure
                                    such Indebtedness pursuant to Section 5.12
                                    herein;

                           (ii)     the gross cash proceeds of that sale and
                                    leaseback transaction are at least equal to
                                    the Fair Market Value, as determined in good
                                    faith by the Board of Directors and set
                                    forth in an Officers' Certificate delivered
                                    to the Administrative Agent, of the property
                                    that is the subject of that sale and
                                    leaseback transaction; and

                           (iii)    the transfer of assets in that sale and
                                    leaseback transaction is permitted by, and
                                    the Company applies the proceeds of such
                                    transaction in compliance with, Section 5.10
                                    herein.

                  (b)      This Section 5.16 shall not apply to the Company's
         Subsidiaries.

SECTION 5.17.              [Intentionally Omitted.]

SECTION 5.18.              [Intentionally Omitted.]

SECTION 5.19.              Limitation on Issuances of Guarantees of
Indebtedness.

The Company shall not permit any of its Restricted Subsidiaries, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of the Company (other than the Existing Guarantees by the Canadian
Guarantors) unless such Restricted Subsidiary simultaneously executes and
delivers (1) supplemental agreements providing for the Guarantees of the payment
of the Term Loans by such Restricted Subsidiary, which Guarantees shall be
senior to such Restricted Subsidiary's Guarantee of or pledge to secure such
other Indebtedness unless the Indebtedness of the Company so Guaranteed or
secured is senior Indebtedness of the Company, in which case the Guarantees of
the Term Loans may be pari passu with such Restricted Subsidiary's Guarantee of
or pledge to secure such other Indebtedness of the Company, and (2) a pledge or
security agreement providing for a pledge of such assets to secure the Term
Loans and all other Parity Lien Debt on an Equal and Ratable basis (subject only
to Permitted Prior Liens).

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SECTION 5.20.              [Intentionally Omitted.]

SECTION 5.21.              Payments for Consent.

The Company shall not, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Lender for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of this
Agreement or any other Term Loan Document unless such consideration is offered
to be paid or agreed to be paid to all Lenders that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.

SECTION 5.22.              Designation of Restricted and Unrestricted
Subsidiaries.

         The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
Fair Market Value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary designated as Unrestricted shall be
deemed to be an Investment made as of the time of the designation and shall
reduce the remaining amount available for Restricted Payments under Section 5.07
herein or under one or more clauses of the definition of Permitted Investments,
as determined by the Company. That designation shall only be permitted if the
Investment would be permitted at that time and if the Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if that redesignation would not cause a Default.

SECTION 5.23.              Suspension of Covenants.

                  (a)      If on any date following the date of this Agreement:

                           (i)      the Term Loans are rated Baa3 or better by
                                    Moody's and BBB--or better by S&P; and

                           (ii)     no Default or Event of Default shall have
                                    occurred and be continuing, then, beginning
                                    on that day and subject to the provisions of
                                    the following paragraph, the Company and its
                                    Restricted Subsidiaries shall no longer be
                                    subject to Sections 5.07, 5.08, 5.09, 5.10
                                    (provided that the provisions of Section
                                    5.10 relating to the Sale of Designated
                                    Assets and the application of the proceeds
                                    therefrom shall remain in full force and
                                    effect and shall not be suspended), 5.11,
                                    5.13, 5.22 and 6.01(iv) hereof (the
                                    "Suspended Covenants"); provided that all
                                    other provisions of this Agreement shall
                                    continue to be in full force and effect.

         Notwithstanding the foregoing, if the rating assigned by either such
rating agency should subsequently decline to below Baa3 or BBB--, respectively,
the Suspended Covenants shall be

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reinstituted as of and from the date of such rating decline. Calculations under
the reinstated Section 5.07 shall be made as if the covenant set forth in
Section 5.07 had been in effect since the date of this Agreement except that no
Default shall be deemed to have occurred solely by reason of a Restricted
Payment made while Section 5.07 was suspended. The covenant suspension
provisions of this Section 5.23 shall continue to be applicable following any
such reinstatement.

                                   ARTICLE VI

                                   SUCCESSORS

SECTION 6.01.              Merger, Consolidation, or Sale of Assets.

         The Company may not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:

                           (i)      either:

                                    (A)      the Company is the surviving
                  corporation; or

                                    (B)      the Person formed by or surviving
                  any such consolidation or merger (if other than the Company)
                  or to which such sale, assignment, transfer, conveyance or
                  other disposition has been made is a corporation organized or
                  existing under the laws of the United States, any state of the
                  United States or the District of Columbia;

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                           (ii)     the Person formed by or surviving any such
                                    consolidation or merger (if other than the
                                    Company) or the Person to which such sale,
                                    assignment, transfer, conveyance or other
                                    disposition has been made assumes all the
                                    obligations of the Company under this
                                    Agreement and the other Term Loan Documents
                                    pursuant to agreements reasonably
                                    satisfactory to the Administrative Agent and
                                    the Collateral Trustee;

                           (iii)    immediately after such transaction, no
                                    Default or Event of Default exists;

                           (iv)     the Company or the Person formed by or
                                    surviving any such consolidation or merger
                                    (if other than the Company), or to which
                                    such sale, assignment, transfer, conveyance
                                    or other disposition has been made:

                                    (A)      shall have Consolidated Net Worth
                  immediately after the transaction equal to or greater than the
                  Consolidated Net Worth of the Company immediately preceding
                  the transaction; and

                                    (B)      shall, on the date of such
                  transaction after giving pro forma effect thereto and any
                  related financing transactions as if the same had occurred at
                  the beginning of the applicable four-quarter period, be
                  permitted to incur at least $1.00 of additional Indebtedness
                  pursuant to the Fixed Charge Coverage Ratio test set forth in
                  Section 5.09(a) herein; and

                           (v)      such transaction shall not impair the
                                    ability of the Company or any of its
                                    Subsidiaries to conduct their respective
                                    businesses in a manner so as to maintain the
                                    exemption of the Company and its
                                    Subsidiaries from treatment as a public
                                    utility holding company under PUHCA or an
                                    electric utility or public utility under any
                                    federal, state or local law, unless such
                                    exemption is no longer material to the
                                    Company and its Restricted Subsidiaries
                                    taken as a whole or to the Person formed by
                                    or surviving any such consolidation or
                                    merger (if other then the Company) and its
                                    Restricted Subsidiaries taken as a whole.

         In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.

         Notwithstanding the foregoing:

                                    (A)      the Company may merge with an
                  Affiliate solely for the purpose of reincorporating the
                  Company in another jurisdiction; and

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                                    (B)      the Company and its Restricted
                  Subsidiaries may sell, assign, transfer, lease, convey or
                  otherwise dispose of assets between or among each other
                  (including by way of merger).

SECTION 6.02.              Successor Corporation Substituted.

         Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in a transaction that is subject to, and that complies with the
provisions of, Section 6.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Agreement referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Agreement with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Term Loans except in the case of a sale of all
of the Company's assets in a transaction that is subject to, and that complies
with the provisions of, Section 6.01 hereof.

                                   ARTICLE VII

                              DEFAULTS AND REMEDIES

SECTION 7.01.              Events of Default.

Each of the following is an "Event of Default":

                           (i)      default for 30 days in the payment when due
                                    of interest on the Term Loans;

                           (ii)     default in payment when due of the principal
                                    of, or premium, if any, on the Term Loans;

                           (iii)    failure to comply with Section 5.10 or 5.15;

                           (iv)     failure by the Company or any of its
                                    Restricted Subsidiaries for 30 days after
                                    written notice from the Administrative Agent
                                    or Lenders holding at least 25% in
                                    outstanding aggregate principal amount of
                                    the Term Loans then outstanding to comply
                                    with any of the other agreements in this
                                    Agreement or the other Term Loan Documents;

                           (v)      default under any mortgage, indenture or
                                    instrument under which there may be issued
                                    or by which there may be secured or

                                      104



                                    evidenced any Indebtedness for money
                                    borrowed by the Company or any of its
                                    Restricted Subsidiaries (or the payment of
                                    which is guaranteed by the Company or any of
                                    its Restricted Subsidiaries) whether such
                                    Indebtedness or guarantee now exists, or is
                                    created after the date of this Agreement, if
                                    that default:

                                    (A)      is caused by a failure to pay
                  principal of, or interest or premium, if any, on such
                  Indebtedness prior to the expiration of the grace period
                  provided in such Indebtedness on the date of such default (a
                  "Payment Default"); or

                                    (B)      results in the acceleration of such
                  Indebtedness prior to its express maturity,

         and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $50.0 million or more, and such default shall not have
been cured or waived or any such acceleration rescinded, or such Indebtedness
repaid, within 20 days of the Company or such Restricted Subsidiary becoming
aware of such default; provided that the provisions of this clause (v) shall not
apply to any default on Non-Recourse Debt;

                                      105



                           (vi)     failure by the Company or any of its
                                    Significant Subsidiaries to pay final
                                    judgments (not covered by insurance)
                                    aggregating in excess of $50.0 million,
                                    which judgments are not paid, discharged or
                                    stayed for a period of 30 days;

                           (vii)    the repudiation by the Company or any of its
                                    Restricted Subsidiaries of any of its
                                    obligations under the Security Documents or
                                    the unenforceability of the Security
                                    Documents against the Company or any of its
                                    Restricted Subsidiaries for any reason;
                                    provided that such breach, repudiation or
                                    unenforceability relates to Collateral
                                    having an aggregate Fair Market Value of
                                    $50.0 million or more;

                           (viii)   except as permitted by this Agreement, any
                                    Guarantee of the Term Loan Obligations shall
                                    be held in any judicial proceeding to be
                                    unenforceable or invalid or shall cease for
                                    any reason to be in full force and effect or
                                    any Canadian Guarantor, or any Person acting
                                    on behalf of any Canadian Guarantor, shall
                                    deny or disaffirm its obligations under its
                                    Guarantee of the Term Loan Obligations and
                                    such condition shall not have been cured
                                    within 30 days of written notice from the
                                    Administrative Agent or Lenders holding at
                                    least 25% in outstanding aggregate principal
                                    amount of the Term Loans then outstanding;
                                    and

                           (ix)     (a) the Company or any of its Significant
                                    Subsidiaries or any group of Subsidiaries
                                    that, when take together, would consitute a
                                    Significant Subsidiary pursuant to or within
                                    the meaning of the Bankruptcy Code: (1)
                                    commences a voluntary case, (2) consents to
                                    the entry of an order for relief against it
                                    in an involuntary case, (3) consents to the
                                    appointment of a custodian of it or for all
                                    or substantially all of its property, (4)
                                    makes a general assignment for the benefit
                                    of its creditors or (5) generally is not
                                    paying its debts as they become due or (b) a
                                    court of competent jurisdiction enters an
                                    order or decree under the Bankruptcy Code
                                    that: (1) is for relief against the Company
                                    or any of its Significant Subsidiaries or
                                    any group of Subsidiaries that, when taken
                                    together, would constitute a Significant
                                    Subsidiary, in an involuntary case, (2)
                                    appoints a custodian of the Company or any
                                    of its Significant Subsidiaries or any group
                                    of Subsidiaries that, when taken together,
                                    would constitute a Significant Subsidiary,
                                    or for all or substantially all of the
                                    property of the Company or any of its
                                    Significant Subsidiaries or any group of
                                    Subsidiaries that, when taken together,
                                    would constitute a Significant Subsidiary or
                                    (3) orders the liquidation of the Company or
                                    any of its Significant Subsidiaries or any
                                    group of Subsidiaries that, when taken
                                    together, would constitute a

                                      106



                                    Significant Subsidiary, and in any case
                                    under this clause (b) the order or decree
                                    remains unstayed and in effect for 60
                                    consecutive days.

SECTION 7.02.              Acceleration.

                  (a)      In the case of an Event of Default specified in
          clause (ix) of Section 7.01 hereof, with respect to the Company or any
         of its Significant Subsidiaries or any group of Subsidiaries that,
         taken as a whole, would constitute a Significant Subsidiary, all
         outstanding Term Loans shall become due and payable immediately without
         further action or notice. If any other Event of Default occurs and is
         continuing, the Administrative Agent or Lenders holding at least 25% in
         outstanding aggregate principal amount of the Term Loans then
         outstanding may declare all the Term Loans to be due and payable
         immediately.

                  (b)      Upon any such declaration, the Term Loans shall
         become due and payable immediately. Notwithstanding the foregoing, if
         an Event of Default specified in clause (ix) of Section 7.01 hereof
         occurs with respect to the Company, any of its Significant Subsidiaries
         or any group of Subsidiaries that, taken as a whole, would constitute a
         Significant Subsidiary, all outstanding Term Loans shall be due and
         payable immediately without further action or notice. Lenders holding
         at least 25% in outstanding aggregate principal amount of the Term
         Loans then outstanding by written notice to the Administrative Agent
         may on behalf of all of the Lenders rescind an acceleration and its
         consequences if the rescission would not conflict with any judgment or
         decree and if all existing Events of Default (except nonpayment of
         principal, interest or premium that has become due solely because of
         the acceleration) have been cured or waived.

SECTION 7.03.              Other Remedies.

                  (a)      If an Event of Default occurs and is continuing, the
         Administrative Agent may pursue any available remedy to collect the
         payment of principal, premium, if any, and interest on the Term Loans
         or to enforce the performance of this Agreement.

                  (b)      The Administrative Agent may maintain a proceeding
         even if it does not possess any of the Term Loans. A delay or omission
         by the Administrative Agent or any Lender in exercising any right or
         remedy accruing upon an Event of Default shall not impair the right or
         remedy or constitute a waiver of or acquiescence in the Event of
         Default. All remedies are cumulative to the extent permitted by law.

SECTION 7.04.              Waiver of Past Defaults.

The Requisite Lenders by notice to the Administrative Agent may on behalf of the
Lenders waive an existing Default or Event of Default and its consequences
hereunder, except a continuing Default or Event of Default in the payment of the
principal of, premium, if any, or interest on, the Term Loans (including in
connection with an offer to purchase); provided, however, that the Requisite
Lenders may rescind an acceleration and its consequences, including

                                      107



any related payment default that resulted from such acceleration. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Agremeent; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.

SECTION 7.05.              Control by Majority.

The Requisite Lenders may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Administrative Agent or
exercising any trust or power conferred on it. However, the Administrative Agent
may refuse to follow any direction that conflicts with law or this Agreement
that the Administrative Agent determines may be unduly prejudicial to the rights
of other Lenders or that may involve the Administrative Agent in personal
liability.

SECTION 7.06.              [Intentionally Omitted.]

SECTION 7.07.              [Intentionally Omitted.]

SECTION 7.08.              Collection Suit by Administrative Agent.

If an Event of Default specified in Section 7.01(1) or (2) occurs and is
continuing, the Administrative Agent is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and interest remaining unpaid on the
Term Loans and interest on overdue principal and, to the extent lawful, interest
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Administrative Agent, its agents and counsel.

SECTION 7.09.              Priorities.

If the Administrative Agent collects any money pursuant to this Article 7, it
shall pay out the money in the following order:

First: to the Administrative Agent, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Administrative Agent and the
costs and expenses of collection;

Second: to the Lenders for amounts due and unpaid on the Term Loans for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Term Loans
for principal, premium, if any and interest, respectively; and

Third: to the Company or to such party as a court of competent jurisdiction
shall direct.

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The Administrative Agent may fix a record date and payment date for any payment
to Lenders pursuant to this Section 7.10.

                                  ARTICLE VIII

                                     AGENTS

SECTION 8.01.              Appointment of Agents. The Company and the Lenders
acknowledge and agree that GSCP has acted and shall be credited as sole lead
arranger and sole bookrunner of the Initial Term Loans and that GSCP is hereby
appointed Administrative Agent hereunder and under the other Term Loan
Documents. Each Lender hereby authorizes the Sole Lead Arranger and the
Administrative Agent to act as its agent in accordance with the terms hereof and
the other Term Loan Documents. The Administrative Agent hereby agrees to act
upon the express conditions contained herein and the other Term Loan Documents,
as applicable. The provisions of this Article VIII are solely for the benefit of
Agents and Lenders and no Obligor shall have any rights as a third party
beneficiary of any of the provisions thereof. In performing its functions and
duties hereunder, the Administrative Agent shall act solely as an agent of
Lenders and no Agent does or shall assume or be deemed to have assumed any
obligation towards or relationship of agency or trust with or for the Company or
any of its Restricted Subsidiaries. The Sole Lead Arranger, without consent of
or notice to any party hereto, may assign any and all of its rights or
obligations hereunder to any of its Affiliates. GSCP in its capacity as the Sole
Lead Arranger shall not have any duties, liabilities or obligations under the
Term Loan Documents but shall be entitled to all benefits of this Article VIII.

SECTION 8.02.              Powers and Duties. Each Lender irrevocably authorizes
each Agent to take such action on such Lender's behalf and to exercise such
powers, rights and remedies hereunder and under the other Term Loan Documents as
are specifically delegated or granted to such Agent by the terms hereof and
thereof, together with such powers, rights and remedies as are reasonably
incidental thereto. Each Agent shall have only those duties and responsibilities
that are expressly specified herein and the other Term Loan Documents. Each
Agent may exercise such powers, rights and remedies and perform such duties by
or through its agents or employees. No Agent shall have, by reason hereof or any
of the other Term Loan Documents, a fiduciary relationship in respect of any
Lender; and nothing herein or any of the other Term Loan Documents, expressed or
implied, is intended to or shall be so construed as to impose upon any Agent any
obligations in respect hereof or any of the other Term Loan Documents except as
expressly set forth herein or therein.

SECTION 8.03.              General Immunity.

                  (a)      No Responsibility for Certain Matters. No Agent shall
         be responsible to any Lender for the execution, effectiveness,
         genuineness, validity, enforceability, collectibility or sufficiency
         hereof or any other Term Loan Document or for any representations,
         warranties, recitals or statements made herein or therein or made in
         any

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         written or oral statements or in any financial or other statements,
         instruments, reports or certificates or any other documents furnished
         or made by any Agent to Lenders or by or on behalf of any Obligor to
         any Agent or any Lender in connection with the Term Loan Documents and
         the transactions contemplated thereby or for the financial condition or
         business affairs of any Obligor or any other Person liable for the
         payment of any Term Loan Obligations, nor shall any Agent be required
         to ascertain or inquire as to the performance or observance of any of
         the terms, conditions, provisions, covenants or agreements contained in
         any of the Term Loan Documents or as to the use of the proceeds of the
         Term Loans or as to the existence or possible existence of any Event of
         Default or Default or to make any disclosures with respect to the
         foregoing. Anything contained herein to the contrary notwithstanding,
         the Administrative Agent shall not have any liability arising from
         confirmations of the amount of outstanding Term Loans or the component
         amounts thereof.

                  (b)      Exculpatory Provisions. No Agent nor any of its
         officers, partners, directors, employees or agents shall be liable to
         Lenders for any action taken or omitted by any Agent under or in
         connection with any of the Term Loan Documents except to the extent
         caused by such Agent's gross negligence or willful misconduct. Each
         Agent shall be entitled to refrain from any act or the taking of any
         action (including the failure to take an action) in connection herewith
         or any of the other Term Loan Documents or from the exercise of any
         power, discretion or authority vested in it hereunder or thereunder
         unless and until such Agent shall have received instructions in respect
         thereof from Requisite Lenders (or such other Lenders as may be
         required to give such instructions under Section 13.05) and, upon
         receipt of such instructions from Requisite Lenders (or such other
         Lenders, as the case may be), such Agent shall be entitled to act or
         (where so instructed) refrain from acting, or to exercise such power,
         discretion or authority, in accordance with such instructions. Without
         prejudice to the generality of the foregoing, (i) each Agent shall be
         entitled to rely, and shall be fully protected in relying, upon any
         communication, instrument or document believed by it to be genuine and
         correct and to have been signed or sent by the proper Person or
         Persons, and shall be entitled to rely and shall be protected in
         relying on opinions and judgments of attorneys (who may be attorneys
         for the Company and its Restricted Subsidiaries), accountants, experts
         and other professional advisors selected by it; and (ii) no Lender
         shall have any right of action whatsoever against any Agent as a result
         of such Agent acting or (where so instructed) refraining from acting
         hereunder or any of the other Term Loan Documents in accordance with
         the instructions of Requisite Lenders (or such other Lenders as may be
         required to give such instructions under Section 13.05).

SECTION 8.04.              Agents Entitled to Act as Lender. The agency hereby
created shall in no way impair or affect any of the rights and powers of, or
impose any duties or obligations upon, any Agent in its individual capacity as a
Lender hereunder. With respect to its participation in the Term Loans, each
Agent shall have the same rights and powers hereunder as any other Lender and
may exercise the same as if it were not performing the duties and functions
delegated to it hereunder, and the term "Lender" shall, unless the context
clearly otherwise indicates, include each Agent in its individual capacity. Any
Agent and its Affiliates may accept deposits

                                      110



from, lend money to, own securities of, and generally engage in any kind of
banking, trust, financial advisory or other business with the Company or any of
its Affiliates as if it were not performing the duties specified herein, and may
accept fees and other consideration from the Company for services in connection
herewith and otherwise without having to account for the same to Lenders.

SECTION 8.05.              Lenders' Representations, Warranties and
Acknowledgment.

                  (a)      Each Lender represents and warrants that it has made
         its own independent investigation of the financial condition and
         affairs of the Company and its Restricted Subsidiaries in connection
         with its Term Loans hereunder and that it has made and shall continue
         to make its own appraisal of the creditworthiness of the Company and
         its Restricted Subsidiaries. No Agent shall have any duty or
         responsibility, either initially or on a continuing basis, to make any
         such investigation or any such appraisal on behalf of Lenders or to
         provide any Lender with any credit or other information with respect
         thereto, whether coming into its possession before the making of the
         Term Loans or at any time or times thereafter, and no Agent shall have
         any responsibility with respect to the accuracy of or the completeness
         of any information provided to Lenders.

                  (b)      Each Lender, by delivering its signature page to this
         Agreement and funding its Initial Term Loan on the Closing Date, shall
         be deemed to have acknowledged receipt of, and consented to and
         approved, each Term Loan Document and each other document required to
         be approved by any Agent, Requisite Lenders or Lenders, as applicable
         on the Closing Date.

SECTION 8.06.              Right to Indemnity. Each Lender, in proportion to its
Pro Rata Share, severally agrees to indemnify each Agent, to the extent that
such Agent shall not have been reimbursed by any Obligor, for and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against such Agent in exercising its powers, rights and remedies
or performing its duties hereunder or under the other Term Loan Documents or
otherwise in its capacity as such Agent in any way relating to or arising out of
this Agreement or the other Term Loan Documents; provided, no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such Agent's gross negligence or willful misconduct. If any indemnity
furnished to any Agent for any purpose shall, in the opinion of such Agent, be
insufficient or become impaired, such Agent may call for additional indemnity
and cease, or not commence, to do the acts indemnified against until such
additional indemnity is furnished; provided, in no event shall this sentence
require any Lender to indemnify any Agent against any liability, obligation,
loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in
excess of such Lender's Pro Rata Share thereof; and provided further, this
sentence shall not be deemed to require any Lender to indemnify any Agent
against any liability, obligation, loss, damage, penalty, action, judgment,
suit, cost, expense or disbursement described in the proviso in the immediately
preceding sentence.

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SECTION 8.07.              Successor Administrative Agent. The Administrative
Agent may resign at any time by giving thirty (30) days' prior written notice
thereof to Lenders and the Company, and the Administrative Agent may be removed
at any time with or without cause by an instrument or concurrent instruments in
writing delivered to the Company and the Administrative Agent and signed by the
Requisite Lenders. Upon any such notice of resignation or any such removal,
Requisite Lenders shall have the right, upon five Business Days' notice to the
Company, to appoint a successor Administrative Agent. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, that successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Administrative Agent and the retiring or removed Administrative Agent
shall promptly transfer to such successor Administrative Agent all sums,
together with all records and other documents necessary or appropriate in
connection with the performance of the duties of the successor Administrative
Agent under the Term Loan Documents, whereupon such retiring or removed
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring or removed Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Article VIII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent hereunder.

                                   ARTICLE IX

                             COLLATERAL AND SECURITY

         The Collateral Trustee's Liens upon the Collateral shall no longer
secure the Term Loan Obligations outstanding under this Agreement, and the right
of Lenders to the benefits and proceeds of the Collateral Trustee's Liens on
Collateral shall terminate and be discharged:

         (1) upon payment in full and discharge of all outstanding Term Loans
    and all other Term Loan Obligations that are outstanding, due and payable at
    the timeall of the Term Loans are paid in full and discharged; or

         (2) with the prior written consent of each Lender.

                                    ARTICLE X

                                RANKING OF LIENS

         Notwithstanding: (i) anything to the contrary contained in the Security
Documents; (ii) the time of incurrence of any Series of Secured Debt; (iii) the
order or method of attachment or perfection of any Liens securing any Series of
Secured Debt; (iv) the time or order of filing or recording of financing
statements, mortgages or other documents filed or recorded to perfect any Lien
upon any Collateral; (v) the time of taking possession or control over any
Collateral or (vi)

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the rules for determining priority under any law governing relative priorities
of Liens, all Liens at any time granted by the Company or any other Obligor to
secure any of the Parity Lien Debt shall be subject and subordinate to Priority
Liens securing Priority Lien Obligations up to the Priority Lien Cap.

         The foregoing provision is intended for the benefit of, and shall be
enforceable as a third party beneficiary by, each present and future holder of
Priority Lien Obligations, each present and future Priority Lien Agent and the
Collateral Trustee as holder of Priority Liens. No other Person shall be
entitled to rely on, have the benefit of or enforce this provision.

         In addition, the foregoing provision is intended solely to set forth
the relative ranking, as Liens, of the Liens securing Parity Lien Debt as
against the Priority Liens. Neither the Notes nor the Term Loans nor any other
Parity Lien Obligations nor the exercise or enforcement of any right or remedy
for the payment or collection thereof are intended to be, or shall ever be by
reason of the foregoing provision, in any respect subordinated, deferred,
postponed, restricted or prejudiced.

                                   ARTICLE XI

                               COLLATERAL SHARING

SECTION 11.01.             Equal and Ratable Lien Sharing by holders of Parity
Lien Debt.

Notwithstanding (i) anything to the contrary contained in the Security
Documents; (ii) the time of incurrence of any Series of Parity Lien Debt; (iii)
the order or method of attachment or perfection of any Liens securing any Series
of Parity Lien Debt; (iv) the time or order of filing or recording of financing
statements, mortgages or other documents filed or recorded to perfect any Lien
upon any Collateral; (v) the time of taking possession or control over any
Collateral or (vi) the rules for determining priority under any law governing
relative priorities of Liens:

                  (a)      all Liens at any time granted by the Company or any
         other Obligor to secure any Parity Lien Obligations shall secure
         Equally and Ratably all present and future Parity Lien Obligations and

                  (b)      all proceeds of all Liens at any time granted by the
         Company or any Obligor to secure any of the Parity Lien Debt and other
         Parity Lien Obligations shall be allocated and distributed Equally and
         Ratably on account of the Parity Lien Debt and other Parity Lien
         Obligations; provided that, for the avoidance of doubt, in the absence
         of an Event of Default, the Company shall be entitled to utilize cash
         proceeds of Collateral in the ordinary course of its business.

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SECTION 11.02.             Enforcement.

The provisions of Section 11.01 are binding upon and intended for the benefit of
the Collateral Trustee and each present and future holder of Parity Lien
Obligations, each of whom shall be entitled to enforce such provisions as a
third party beneficiary thereof.

SECTION 11.03.             Amendment.

                  (a)      No amendment or supplement to the provisions of this
         Article XI that adversely affects the right of any holder of Parity
         Lien Obligations to share in the Collateral Equally and Ratably shall
         become effective without the consent of each such holder.

                  (b)      Any such amendment or supplement that imposes any
         obligation upon the Collateral Trustee or adversely affects the rights
         of the Collateral Trustee in its individual capacity shall become
         effective only with the consent of the Collateral Trustee.

                  (c)      No waiver of the provisions of this Article XI shall
         in any event be effective unless set forth in a writing signed and
         consented to, as required for an amendment under this Section 11.03, by
         the party to be bound thereby.

                                  ARTICLE XII

                              INTENTIONALLY OMITTED

                                  ARTICLE XIII

                                  MISCELLANEOUS

SECTION 13.01.             Notices. Unless otherwise specifically provided
herein, any notice or other communication herein required or permitted to be
given to any Obligor, the Sole Lead Arranger, the Collateral Trustee or the
Administrative Agent shall be sent to such Person's address as set forth on
Appendix B or in the other relevant Term Loan Document, and in the case of any
Lender, the address as indicated on Appendix B or otherwise indicated to the
Administrative Agent in writing. Each notice hereunder shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service and signed for against receipt thereof, upon
receipt of telefacsimile or telex, or three Business Days after depositing it in
the United States mail with postage prepaid and properly addressed; provided, no
notice to any Agent shall be effective until received by such Agent. Documents,
notices or reports required to be delivered to the Lenders pursuant to Sections
2.11, 5.03(a), 5.04 and 5.15 may be delivered electronically and posted
electronically on IntraLinks/IntraAgency or other relevant website to which the
Lenders have access (whether a commercial, third-party website or whether
sponsored by Administrative Agent), if any; provided that (i) the Administrative
Agent shall deliver paper copies of such reports to any Lender upon written
request therefor; and (ii) the Administrative Agent shall notify (which may be
by facsimile or electronic mail) each Lender of

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the posting of any such reports and provide to each Lender by email electronic
versions (i.e. soft copies) of such reports.

SECTION 13.02.             Expenses. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to pay promptly:

                  (a)      all expenses associated with the creation and
         perfection of security interests and associated documents, including,
         without limitation, the Security Documents and all Financing
         Statements, including filing fees and the reasonable fees and
         disbursements of Latham & Watkins LLP, counsel to the Sole Lead
         Arranger, incurred in connection therewith and the fees and
         disbursements of local counsel incurred in connection therewith, in
         each case, prior to the Closing Date;

                  (b)      all the actual and reasonable costs and expenses
         incurred after the Closing Date of preparation of the Term Loan
         Documents and any consents, amendments, waivers or other modifications
         thereto;

                  (c)      all the costs incurred after the Closing Date of
         furnishing all opinions by counsel for the Company and the other
         Obligors;

                  (d)      after the Closing Date, the reasonable fees, expenses
         and disbursements of counsel to Agents in connection with the
         negotiation, preparation, execution and administration of the Term Loan
         Documents and any consents, amendments, waivers or other modifications
         thereto and any other documents or matters requested by the Company;

                  (e)      all the actual costs and reasonable expenses of
         creating and perfecting Liens in favor of Collateral Trustee, for the
         benefit of Lenders pursuant hereto, including filing and recording
         fees, expenses and taxes, stamp or documentary taxes, search fees,
         title insurance premiums and reasonable fees, expenses and
         disbursements of counsel to each Agent and of counsel providing any
         opinions that any Agent or Requisite Lenders may request in respect of
         the Collateral or the Liens created pursuant to the Security Documents;

                  (f)      all the actual costs and reasonable fees, expenses
         and disbursements of any auditors, accountants, consultants or
         appraisers;

                  (g)      all the actual costs and reasonable expenses
         (including the reasonable fees, expenses and disbursements of any
         appraisers, consultants, advisors and agents employed or retained by
         Collateral Trustee and its counsel) in connection with the custody or
         preservation of any of the Collateral;

                  (h)      all other actual and reasonable costs and expenses
         incurred by each Agent in connection with the syndication of the Term
         Loans and Term Loan Commitments and the negotiation, preparation and
         execution of the Term Loan Documents and any

                                      115



         consents, amendments, waivers or other modifications thereto and the
         transactions contemplated thereby; and

                  (i)      after the occurrence of a Default or an Event of
         Default, all costs and expenses, including reasonable attorneys' fees
         and costs of settlement, incurred by any Agent and Lenders in enforcing
         any Term Loan Obligations of or in collecting any payments due from any
         Obligor hereunder or under the other Term Loan Documents by reason of
         such Default or Event of Default (including in connection with the sale
         of, collection from, or other realization upon any of the Collateral or
         the enforcement of the Term Loan Guarantee) or in connection with any
         refinancing or restructuring of the credit arrangements provided
         hereunder in the nature of a "work-out" or pursuant to any insolvency
         or bankruptcy cases or proceedings.

SECTION 13.03.             Indemnity.

                  (a)      In addition to the payment of costs and expenses
         pursuant to Section 13.02, whether or not the transactions contemplated
         hereby shall be consummated, the Company agrees to defend (subject to
         Indemnitees' selection of counsel), indemnify, pay and hold harmless
         the Administrative Agent and Lender and each of their respective
         Affiliates and each and all of the directors, officers, partners,
         trustees, employees, attorneys and agents, and (in each case) their
         respective heirs, representatives, successors and assigns (each of the
         foregoing, an "Indemnitee") from and against any and all Indemnified
         Liabilities; provided, no Indemnitee shall be entitled to
         indemnification hereunder with respect to any Indemnified Liability to
         the extent such Indemnified Liability is found by a final and
         nonappealable decision of a court of competent jurisdiction to have
         resulted directly and primarily from the gross negligence or willful
         misconduct of such Indemnitee.

                  (b)      All amounts due under Section 13.03(a) shall be
         payable not later than 10 days after written demand therefor.

                  (c)      To the extent that the undertakings to defend,
         indemnify, pay and hold harmless set forth in Section 13.03(a) may be
         unenforceable in whole or in part because they are violative of any law
         or public policy, the Company shall contribute the maximum portion that
         it is permitted to pay and satisfy under applicable law to the payment
         and satisfaction of all Indemnified Liabilities incurred by Indemnitees
         or any of them.

                  (d)      The Company shall not assert any claim against any
         Indemnitee, on any theory of liability, for any lost profits or
         special, indirect or consequential damages or (to the fullest extent
         lawful) any punitive damages arising out of, in connection with, or as
         a result of, this Agreement or any other Term Loan Document or any
         agreement or instrument or transaction contemplated hereby or relating
         in any respect to any Indemnified Liability, and the Company hereby
         forever waives, releases and agrees not to sue upon any claim for any
         such lost profits or special, indirect, consequential or (to the

                                      116



         fullest extent lawful) punitive damages, whether or not accrued and
         whether or not known or suspected to exist in its favor.

                  (e)      The agreements in this Section 13.03 shall survive
         repayment of the Term Loans and all other amounts payable hereunder.

SECTION 13.04.             Set-Off. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence of any Event of Default each Lender is hereby authorized by
each Obligor at any time or from time to time subject to the consent of the
Administrative Agent, without prior written notice to any Obligor or to any
other Person (other than the Administrative Agent), any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including Indebtedness evidenced by certificates
of deposit, whether matured or unmatured, but not including trust accounts) and
any other Indebtedness at any time held or owing by such Lender to or for the
credit or the account of any Obligor against and on account of the obligations
and liabilities of any Obligor to such Lender hereunder, and under the other
Term Loan Documents, including all claims of any nature or description arising
out of or connected hereto, or with any other Term Loan Document, irrespective
of whether or not (a) such Lender shall have made any demand hereunder or (b)
the principal of or the interest on the Term Loans or any other amounts due
hereunder shall have become due and payable pursuant to Article II and although
such obligations and liabilities, or any of them, may be contingent or
unmatured. Each Obligor hereby further grants to the Administrative Agent and
each Lender a security interest in all deposit accounts maintained with the
Administrative Agent or such Lender as security for the Term Loan Obligations.

SECTION 13.05.             Amendments and Waivers.

                  (a)      Requisite Lenders' Consent. Subject to Section
         13.05(e), no amendment, modification, termination or waiver of any
         provision of the Term Loan Documents, or consent to any departure by
         any Obligor therefrom, shall in any event be effective without the
         written concurrence of the Requisite Lenders and any additional
         consents required by Sections 13.05(b) and (c).

                  (b)      Affected Lenders' Consent. No amendment,
         modification, termination, or consent shall be effective if the effect
         thereof would:

                           (i)      extend the scheduled final maturity of any
                                    Term Loan or Term Loan Note outstanding to
                                    any Lender without the prior written consent
                                    of that Lender;

                           (ii)     waive, reduce or postpone any scheduled
                                    repayment (but not prepayment) due to any
                                    Lender without the prior written consent of
                                    that Lender;

                           (iii)    reduce the rate of interest on any Term Loan
                                    (other than any waiver of any increase in
                                    the interest rate applicable to any Term

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                                    Loan pursuant to Section 2.07) payable to
                                    any Lender or reduce or extend any fee
                                    payable hereunder to any Lender without the
                                    prior written consent of that Lender;

                           (iv)     reduce the principal amount of any Term Loan
                                    outstanding to any Lender without the prior
                                    written consent of that Lender;

                           (v)      amend, modify, terminate or waive any
                                    provision of this Section 13.05(b), as it
                                    applies to any Lender without the prior
                                    written consent of that Lender;

                           (vi)     amend the definition of "Requisite Lenders"
                                    or "Pro Rata Share"; provided, without the
                                    consent of the Requisite Lenders as set
                                    forth in Section 2.19 hereof and otherwise
                                    with the consent of the Requisite Lenders
                                    additional extensions of credit pursuant
                                    hereto may be included in the determination
                                    of "Requisite Lenders" or "Pro Rata Share"
                                    on substantially the same basis as the
                                    Initial Term Loan Commitments and the
                                    Initial Term Loans are included on the
                                    Closing Date;

                           (vii)    (x) release all or substantially all of the
                                    Collateral or all or substantially all of
                                    the Guarantors from the Guarantee under the
                                    Guarantee and Collateral Agreement without
                                    the prior written consent of all Lenders or
                                    (y) release any Collateral from the Liens
                                    created by the Security Documents except as
                                    specifically provided for in this Agreement
                                    and the Security Documents; or

                           (viii)   consent to the assignment or transfer by any
                                    Obligor of any of its rights and obligations
                                    under any Term Loan Document without the
                                    prior written consent of all Lenders.

                  (c)      Other Consents. No amendment, modification,
         termination or waiver of any provision of the Term Loan Documents, or
         consent to any departure by any Obligor therefrom, shall amend, modify,
         terminate or waive any provision of Article VIII as the same applies to
         the Administrative Agent, or any other provision hereof as the same
         applies to the rights or obligations of any Agent, in each case without
         the consent of the Administrative Agent.

                  (d)      Execution of Amendments, etc. The Administrative
         Agent may, but shall have no obligation to, with the concurrence of any
         Lender, execute amendments, modifications, waivers or consents on
         behalf of such Lender. Any waiver or consent shall be effective only in
         the specific instance and for the specific purpose for which it was
         given. No notice to or demand on any Obligor in any case shall entitle
         any Obligor to any other or further notice or demand in similar or
         other circumstances. Any amendment, modification, termination, waiver
         or consent effected in accordance with this

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         Section 13.05 shall be binding upon each Lender at the time
         outstanding, each future Lender and, if signed by a Obligor, on such
         Obligor.

                  (e)      Certain Amendments. Notwithstanding the preceding
         provisions of this Section 13.05, the Company and the Administrative
         Agent may amend or supplement the Term Loan Documents without the
         consent of any Lender:

                           (i)      to cure any ambiguity, defect or
                                    inconsistency;

                           (ii)     to provide for the assumption of the
                                    Company's obligations to the Lenders by a
                                    successor to the Company pursuant to Article
                                    V hereof;

                           (iii)    to make any change that would provide any
                                    additional rights or benefits to the Lenders
                                    or that does not adversely affect the legal
                                    rights hereunder of any Lender;

                           (iv)     to allow any Guarantor to execute a
                                    supplemental Guarantee with respect to the
                                    Term Loans;

                           (v)      to make, complete or confirm any grant of
                                    Collateral permitted or required by this
                                    Agreement or any of the Security Documents
                                    or any release of Collateral that becomes
                                    effective as set forth in this Agreement or
                                    any of the Security Documents;

                           (vi)     to conform the text of this Agreement, the
                                    Term Loan Notes or the Security Documents to
                                    any provision of the Description of the
                                    Notes section of the Offering Circular to
                                    the extent that such provision of the
                                    Description of the Notes section of the
                                    Offering Circular was intended to be a
                                    verbatim recitation of a provision of this
                                    Agreement, the Term Loan Notes or the
                                    Security Documents; or

                           (vii)    to reflect any waiver or termination of any
                                    right arising under the provisions of this
                                    Agreement that otherwise would be
                                    enforceable by any holder of the Initial
                                    Notes, if such waiver or termination is set
                                    forth in the indentures governing such
                                    Initial Notes, provided that no such waiver
                                    or amendment shall adversely affect the
                                    rights of the Lenders.

SECTION 13.06.             Successors and Assigns; Participations.

                  (a)      Generally. This Agreement shall be binding upon the
         parties hereto and their respective successors and assigns and shall
         inure to the benefit of the parties hereto and the successors and
         assigns of Lenders and the other parties hereto. No Obligor's rights or
         obligations hereunder nor any interest therein may be assigned or
         delegated by

                                      119



         any Obligor without the prior written consent of all Lenders. Nothing
         in this Agreement, expressed or implied, shall be construed to confer
         upon any Person (other than the parties hereto, their respective
         successors and assigns permitted hereby and, to the extent expressly
         contemplated hereby, Affiliates of each of the Agents and the Lenders)
         any legal or equitable right, remedy or claim under or by reason of
         this Agreement.

                  (b)      Register. The Company, the Administrative Agent and
         Lenders shall deem and treat the Persons listed as Lenders in the
         Register as the holders and owners of the corresponding Term Loan
         Commitments and Term Loans listed therein for all purposes hereof, and
         no assignment or transfer of any such Term Loan Commitment or Term Loan
         shall be effective, in each case, unless and until an Assignment
         Agreement effecting the assignment or transfer thereof shall have been
         delivered to and accepted by the Administrative Agent and recorded in
         the Register as provided in Section 13.06(e). Prior to such
         recordation, all amounts owed with respect to the applicable Term Loan
         Commitment or Term Loan shall be owed to the Lender listed in the
         Register as the owner thereof, and any request, authority or consent of
         any Person who, at the time of making such request or giving such
         authority or consent, is listed in the Register as a Lender shall be
         conclusive and binding on any subsequent holder, assignee or transferee
         of the corresponding Term Loan Commitments or Term Loans.

                  (c)      Right to Assign. Each Lender shall have the right at
         any time to sell, assign or transfer all or a portion of its rights and
         obligations under this Agreement, including, without limitation, all or
         a portion of its Term Loan Commitment or Term Loans owing to it or
         other Term Loan Obligation (provided, however, that each such
         assignment shall be of a uniform, and not varying, percentage of all
         rights and obligations under and in respect of any Term Loan and any
         related Term Loan Commitments):

                           (i)      to any Person meeting the criteria of clause
                                    (i) of the definition of the term of
                                    "Eligible Assignee" upon the giving of
                                    notice to the Company and the Administrative
                                    Agent; and

                           (ii)     to any Person meeting the criteria of clause
                                    (ii) of the definition of the term of
                                    "Eligible Assignee";

provided, further each such assignment pursuant to this Section 13.06(c) shall
be in an aggregate amount of not less than $1,000,000 (or such lesser amount as
may be agreed to by the Company and the Administrative Agent or as shall
constitute the aggregate amount of the Term Loan Commitments and Term Loans
outstanding to the assigning Lender).

                  (d)      Mechanics. The assigning Lender and the assignee
         thereof shall execute and deliver to the Administrative Agent an
         Assignment Agreement, together with such forms, certificates or other
         evidence, if any, with respect to United States federal income tax
         withholding matters as the assignee under such Assignment Agreement may
         be required to deliver to the Administrative Agent pursuant to Section
         2.17(c).

                                      120



                  (e)      Notice of Assignment. Upon its receipt of a duly
         executed and completed Assignment Agreement (and any forms,
         certificates or other evidence required by this Agreement in connection
         therewith), the Administrative Agent shall record the information
         contained in such Assignment Agreement in the Register, shall give
         prompt notice thereof to the Company and shall maintain a copy of such
         Assignment Agreement.

                  (f)      Representations and Warranties of Assignee. Each
         Lender, upon execution and delivery hereof or upon executing and
         delivering an Assignment Agreement, as the case may be, represents and
         warrants as of the Closing Date or as of the applicable Effective Date
         (as defined in the applicable Assignment Agreement) that (i) it is an
         Eligible Assignee; (ii) it has experience and expertise in the making
         of or investing in commitments or loans such as the applicable Term
         Loan Commitments or Term Loans, as the case may be; and (iii) it shall
         make or invest in, as the case may be, its Term Loan Commitments or
         Term Loans for its own account in the ordinary course of its business
         and without a view to distribution of such Term Loan Commitments or
         Term Loans within the meaning of the Securities Act or the Exchange Act
         or other federal securities laws (it being understood that, subject to
         the provisions of this Section 13.06, the disposition of such Term Loan
         Commitments or Term Loans or any interests therein shall at all times
         remain within its exclusive control).

                  (g)      Effect of Assignment. Subject to the terms and
         conditions of this Section 13.06, as of the "Effective Date" specified
         in the applicable Assignment Agreement:

                                      121



                           (i)      the assignee thereunder shall have the
                                    rights and obligations of a "Lender"
                                    hereunder to the extent such rights and
                                    obligations hereunder have been assigned to
                                    it pursuant to such Assignment Agreement and
                                    shall thereafter be a party hereto and a
                                    "Lender" for all purposes hereof;

                           (ii)     the assigning Lender thereunder shall, to
                                    the extent that rights and obligations
                                    hereunder have been assigned thereby
                                    pursuant to such Assignment Agreement,
                                    relinquish its rights (other than any rights
                                    which survive the termination hereof under
                                    Section 13.08 and be released from its
                                    obligations hereunder (and, in the case of
                                    an Assignment Agreement covering all or the
                                    remaining portion of an assigning Lender's
                                    rights and obligations hereunder, such
                                    Lender shall cease to be a party hereto;
                                    provided, anything contained in any of the
                                    Term Loan Documents to the contrary
                                    notwithstanding, such assigning Lender shall
                                    continue to be entitled to the benefit of
                                    all indemnities hereunder as specified
                                    herein with respect to matters arising out
                                    of the prior involvement of such assigning
                                    Lender as a Lender hereunder);

                           (iii)    the Term Loan Commitments shall be modified
                                    to reflect the Term Loan Commitment of such
                                    assignee; and

                           (iv)     if any such assignment occurs after the
                                    issuance of any Term Loan Note hereunder,
                                    the assigning Lender shall, upon the
                                    effectiveness of such assignment or as
                                    promptly thereafter as practicable,
                                    surrender its applicable Term Loan Notes to
                                    the Administrative Agent for cancellation,
                                    and thereupon the Company shall issue and
                                    deliver new Term Loan Notes, if so requested
                                    by the assignee and/or assigning Lender, to
                                    such assignee and/or to such assigning
                                    Lender, with appropriate insertions, to
                                    reflect the new outstanding Term Loans of
                                    the assignee and/or the assigning Lender.

                  (h)      Participations. Each Lender shall have the right at
         any time to sell one or more participations to any Person (other than
         the Company, any of its Restricted Subsidiaries or any of its
         Affiliates) in all or any part of its Term Loan Commitments, Term Loans
         or in any other Term Loan Obligation. The holder of any such
         participation, other than an Affiliate of the Lender granting such
         participation, shall not be entitled to require such Lender to take or
         omit to take any action hereunder except with respect to any amendment,
         modification or waiver that would:

                           (i)      extend the final scheduled maturity of any
                                    Term Loan or Term Loan Note in which such
                                    participant is participating, or reduce the
                                    rate or extend the time of payment of
                                    interest or fees thereon (except in
                                    connection with a waiver of applicability of
                                    any post-

                                      122



                                    default increase in interest rates) or
                                    reduce the principal amount thereof, or
                                    increase the amount of the participant's
                                    participation over the amount thereof then
                                    in effect (it being understood that a waiver
                                    of any Default or Event of Default or of a
                                    mandatory reduction in the Term Loan
                                    Commitment shall not constitute a change in
                                    the terms of such participation, and that an
                                    increase in any Term Loan Commitment or Term
                                    Loan shall be permitted without the consent
                                    of any participant if the participant's
                                    participation is not increased as a result
                                    thereof);

                           (ii)     consent to the assignment or transfer by any
                                    Obligor of any of its rights and obligations
                                    under this Agreement; or

                           (iii)    release all or substantially all of the
                                    Collateral under the Security Documents
                                    (except as expressly provided in the Term
                                    Loan Documents) supporting the Term Loans
                                    hereunder in which such participant is
                                    participating.

The Company agrees that each participant shall be entitled to the benefits of
Sections 2.15(c), 2.16 and 2.17 to the same extent as if it were a Lender and
had acquired its interest by assignment pursuant to paragraph (c) of this
Section; provided, (i) a participant shall not be entitled to receive any
greater payment under Section 2.16 or 2.17 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
participant, unless the sale of the participation to such participant is made
with the Company's prior written consent and (ii) a participant that would be a
Non-US Lender if it were a Lender shall not be entitled to the benefits of
Section 2.17 unless the Company is notified of the participation sold to such
participant and such participant agrees, for the benefit of the Company, to
comply with Section 2.17 as though it were a Lender. To the extent permitted by
law, each participant also shall be entitled to the benefits of Section 13.04 as
though it were a Lender, provided such Participant agrees to be subject to
Section 2.14 as though it were a Lender.

                  (i)      Certain Other Assignments. In addition to any other
         assignment permitted pursuant to this Section 13.06, any Lender may
         assign and/or pledge all or any portion of its Term Loans, the other
         Term Loan Obligations owed by or to such Lender, and its Term Loan
         Notes, if any, to secure obligations of such Lender including, without
         limitation, (i) to any Federal Reserve Bank as collateral security
         pursuant to Regulation A of the Board of Governors of the Federal
         Reserve System and any operating circular issued by such Federal
         Reserve Bank and (ii) with respect to any Lender that is a fund that
         invests in bank loans, to any trustee or holder of obligations owed, or
         securities issued by, such fund as security for such obligations or
         securities or to any other representative of such holders; provided, no
         Lender, as between the Company and such Lender, shall be relieved of
         any of its obligations hereunder as a result of any such assignment and
         pledge, and provided further, in no event shall the applicable Federal
         Reserve Bank, trustee or such holder of obligations be considered to be
         a "Lender" or be entitled to require the assigning Lender to take or
         omit to take any action hereunder.

                                      123



                  (j)      Delivery of Lender Addenda. Each initial Lender shall
         become a party to this Agreement by delivering to the Administrative
         Agent a Lender Addendum duly executed by such Lender, the Borrower and
         the Administrative Agent.

SECTION 13.07.             Independence of Covenants. All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or would otherwise be within the limitations of, another
covenant shall not avoid the occurrence of a Default or an Event of Default if
such action is taken or condition exists.

SECTION 13.08.             Survival of Representations, Warranties and
Agreements. All representations, warranties and agreements made herein shall
survive the execution and delivery hereof and the making of any Term Loan.
Notwithstanding anything herein or implied by law to the contrary, the
agreements of each Obligor set forth in Sections 2.15(c), 2.16, 2.17, 13.02,
13.03, 13.04, 13.15, 13.16 and 13.17 and the agreements of Lenders set forth in
Sections 2.14, 8.03(b) and 8.06 shall survive the payment of the Term Loans and
the termination hereof.

SECTION 13.09.             No Waiver; Remedies Cumulative. No failure or delay
on the part of any Agent or any Lender in the exercise of any power, right or
privilege hereunder or under any other Term Loan Document shall impair such
power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other power, right or privilege. The rights, powers and remedies given to each
Agent and each Lender hereby are cumulative and shall be in addition to and
independent of all rights, powers and remedies existing by virtue of any statute
or rule of law or in any of the other Term Loan Documents. Any forbearance or
failure to exercise, and any delay in exercising, any right, power or remedy
hereunder shall not impair any such right, power or remedy or be construed to be
a waiver thereof, nor shall it preclude the further exercise of any such right,
power or remedy.

SECTION 13.10.             Marshalling; Payments Set Aside. Neither any Agent
nor any Lender shall be under any obligation to marshal any assets in favor of
any Obligor or any other Person or against or in payment of any or all of the
Term Loan Obligations. To the extent that any Obligor makes a payment or
payments to the Administrative Agent or Lenders (or to the Administrative Agent,
on behalf of Lenders), or the Administrative Agent or Lenders enforce any
security interests or exercise their rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, any other state or federal law, common law or any equitable
cause, then, to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied, and all Liens, rights and remedies therefor
or related thereto, shall be revived and continued in full force and effect as
if such payment or payments had not been made or such enforcement or setoff had
not occurred.

SECTION 13.11.             Severability. In case any provision in or obligation
under any Term Loan Document shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and

                                      124



enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.

SECTION 13.12.             Term Loan Obligations Several; Independent Nature of
Lenders' Rights. The obligations of Lenders hereunder are several and no Lender
shall be responsible for the obligations or Term Loan Commitment of any other
Lender hereunder. Nothing contained herein or in any other Term Loan Document,
and no action taken by Lenders pursuant hereto or thereto, shall be deemed to
constitute Lenders as a partnership, an association, a joint venture or any
other kind of entity. The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt, and each Lender shall be entitled to
protect and enforce its rights arising out hereof and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.

SECTION 13.13.             Headings. Section headings herein are included
herein for convenience of reference only and shall not constitute a part hereof
for any other purpose or be given any substantive effect.

SECTION 13.14.             Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of New York
without regard to conflict of laws principles thereof.

SECTION 13.15.             Consent to Jurisdiction. All judicial proceedings
brought against any party hereto arising out of or relating hereto or any other
Term Loan Document, or any of the Term Loan Obligations, may be brought in any
state or federal court of competent jurisdiction in the State, County and City
of New York. By executing and delivering this agreement, each party hereto, for
itself and in connection with its properties, irrevocably (a) accepts generally
and unconditionally the nonexclusive jurisdiction and venue of such courts; (b)
waives any defense of forum non conveniens; (c) agrees that service of all
process in any such proceeding in any such court may be made by registered or
certified mail, return receipt requested, to the applicable Obligor at its
address provided in accordance with Section 13.01; (d) agrees that service as
provided in clause (c) above is sufficient to confer personal jurisdiction over
the applicable Obligor in any such proceeding in any such court, and otherwise
constitutes effective and binding service in every respect; and (e) agrees
Agents and Lenders retain the right to serve process in any other manner
permitted by law or to bring proceedings against any Obligor in the courts of
any other jurisdiction.

SECTION 13.16.             Waiver Of Jury Trial. EACH OF THE PARTIES HERETO
HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER TERM
LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING
ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY
AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT

                                      125



CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER
IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS
WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
SPECIFICALLY REFERRING TO THIS SECTION 13.16 AND EXECUTED BY EACH OF THE PARTIES
HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER TERM LOAN DOCUMENTS OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.

SECTION 13.17.             Confidentiality. Each Lender shall hold all non-
public information regarding the Company and its business identified as such by
the Company and obtained by such Lender pursuant to the requirements hereof in
accordance with such Lender's customary procedures for handling confidential
information of such nature, it being understood and agreed by the Company that,
in any event, a Lender may make:

                  (i)      disclosures of such information to Affiliates of such
                           Lender and to their agents and advisors (and to other
                           Persons authorized by a Lender or Agent to organize,
                           present or disseminate such information in connection
                           with disclosures otherwise made in accordance with
                           this Section 13.17);

                  (ii)     disclosures of such information reasonably required
                           by any bona fide or potential assignee, transferee or
                           participant in connection with the contemplated
                           assignment, transfer or participation by such Lender
                           of any Term Loans or any participations therein or by
                           any direct or indirect contractual counterparties (or
                           the professional advisors thereto) in Commodity Hedge
                           Agreements and Financial Hedge Agreements (provided,
                           such assignee, transferee, participant,
                           counterparties and advisors are advised of and agree
                           to be bound by the provisions of this Section 13.17);

                  (iii)    disclosure to any rating agency when required by it,
                           provided that, prior to any disclosure, such rating
                           agency shall undertake in writing to preserve the
                           confidentiality of any confidential

                                      126



                           information relating to the Obligors received by it
                           from any of the Agents or any Lender, and

                  (iv)     disclosures required or requested by any governmental
                           agency or representative thereof or by the NAIC or
                           pursuant to legal or judicial process; provided,
                           unless specifically prohibited by applicable law or
                           court order, each Lender shall make reasonable
                           efforts to notify the Company of any request by any
                           governmental agency or representative thereof (other
                           than any such request in connection with any
                           examination of the financial condition or other
                           routine examination of such Lender by such
                           governmental agency) for disclosure of any such
                           non-public information prior to disclosure of such
                           information.

Notwithstanding anything to the contrary set forth herein or in any other
written or oral understanding or agreement to which the parties hereto are
parties or by which they are bound, the parties acknowledge and agree that (i)
any obligations of confidentiality contained herein and therein do not apply and
have not applied from the commencement of discussions between the parties to the
tax treatment and tax structure of this Agreement, the Indentures, the Credit
Agreement and the transactions contemplated hereby or thereby (and any related
transactions or arrangements), and (ii) each party (and each of its employees,
representatives, or other agents) may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of this Agreement,
the Indentures, the Credit Agreement and the transactions contemplated hereby or
thereby and all materials of any kind (including opinions or other tax analyses)
that are provided to such party relating to such tax treatment and tax
structure, all within the meaning of Treasury Regulations Section 1.6011-4;
provided, however, that each party recognizes that the privilege each has to
maintain, in its sole discretion, the confidentiality of a communication
relating to this Agreement, the Indentures, the Credit Agreement and the
transactions contemplated hereby or thereby, including a confidential
communication with its attorney or a confidential communication with a federally
authorized tax practitioner under Section 7525 of the Code, is not intended to
be affected by the foregoing.

SECTION 13.18.             Usury Savings Clause. Notwithstanding any other
provision herein, the aggregate interest rate charged with respect to any of the
Term Loan Obligations, including all charges or fees in connection therewith
deemed in the nature of interest under applicable law shall not exceed the
Highest Lawful Rate. If the rate of interest (determined without regard to the
preceding sentence) under this Agreement at any time exceeds the Highest Lawful
Rate, the outstanding amount of the Term Loans made hereunder shall bear
interest at the Highest Lawful Rate until the total amount of interest due
hereunder equals the amount of interest which would have been due hereunder if
the stated rates of interest set forth in this Agreement had at all times been
in effect. In addition, if when the Term Loans made hereunder are repaid in full
the total interest due hereunder (taking into account the increase provided for
above) is less than the total amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect, then to the extent permitted by law, the Company shall pay
to the Administrative Agent an amount equal to the difference between the amount
of interest paid and the amount of interest which would have been paid if the
Highest Lawful Rate

                                      127



had at all times been in effect. Notwithstanding the foregoing, it is the
intention of Lenders and the Company to conform strictly to any applicable usury
laws. Accordingly, if any Lender contracts for, charges, or receives any
consideration which constitutes interest in excess of the Highest Lawful Rate,
then any such excess shall be cancelled automatically and, if previously paid,
shall at such Lender's option be applied to the outstanding amount of the Term
Loans made hereunder or be refunded to the Company.

SECTION 13.19.             Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument. The delivery of an executed signature page of this
Agreement, or any Joinder Agreement in connection herewith, by facsimile
transmission shall be effective as delivery of a manually executed counterpart
hereof.

SECTION 13.20.             Effectiveness. This Agreement shall become effective
upon the execution of a counterpart hereof by each of the parties hereto and
receipt by the Company and the Administrative Agent of written or telephonic
notification of such execution and authorization of delivery thereof.

SECTION 13.21.             Statements Required in Certificate or Opinion.

Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Agreement must include:

                           (i)      a statement that the Person making such
                                    certificate or opinion has read such
                                    covenant or condition;

                           (ii)     a brief statement as to the nature and scope
                                    of the examination or investigation upon
                                    which the statements or opinions contained
                                    in such certificate or opinion are based;

                           (iii)    a statement that, in the opinion of such
                                    Person, he or she has made such examination
                                    or investigation as is necessary to enable
                                    him or her to express an informed opinion as
                                    to whether or not such covenant or condition
                                    has been satisfied; and

                           (iv)     a statement as to whether or not, in the
                                    opinion of such Person, such condition or
                                    covenant has been satisfied.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      128



IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.

                                  CALPINE CORPORATION

                                  By:  /s/ Michael Thomas
                                       -------------------------
                                       Name:  Michael Thomas
                                       Title:  SVP and Treasurer

                                      S-1



                                  GOLDMAN SACHS CREDIT PARTNERS L.P.,
                                  as Administrative Agent, Sole Lead Arranger
                                  and a Lender

                                  By: /s/ RT Wagner
                                      ---------------------------------------
                                             Authorized Signatory

                                             ROBERT WAGNER
                                             Authorized Signatory

                                      S-2



                                                                      APPENDIX A
                                                          TO TERM LOAN AGREEMENT

                          INITIAL TERM LOAN COMMITMENTS



===========================================================================================
                                                                                    Pro
            Lender                            Term Loan Commitment               Rata Share
===========================================================================================
                                                                           
Goldman Sachs Credit Partners L.P.                $750,000,000.00                  100%
- -------------------------------------------------------------------------------------------
Total                                             $750,000,000.00                  100%
===========================================================================================




                                                                      APPENDIX B
                                                          to Term Loan Agreement

                                NOTICE ADDRESSES

Administrative Agent's
Principal Office:                           Goldman Sachs Credit Partners L.P.
                                            85 Broad Street
                                            New York, NY 10004
                                            Attention: Pedro Ramirez

Sole Lead Arranger:                         Goldman Sachs Credit Partners L.P.
                                            85 Broad Street
                                            New York, NY 10004
                                            Attention: Pedro Ramirez

Obligors:                                   Calpine Corporation
                                            50 West San Fernando Street
                                            San Jose, CA 95113
                                            Attention: General Counsel

Collateral Trustee:                         The Bank of New York
                                            101 Barclay Street
                                            Floor 8 West
                                            New York, NY 10286
                                            Attention: Corporate Trust
                                            Administration

                                       4



                                                                SCHEDULE 1.01(a)

                              MORTGAGED PROPERTIES

                                       5



                                                                SCHEDULE 1.01(b)

                              PLEDGED SUBSIDIARIES

                                       6



                                                                SCHEDULE 4.01(c)

                              CAPITAL STOCK MATTERS

                                       7



                                                               SCHEDULE 4.01(aa)

                    SUBSIDIARY COMPANIES OF HOLDING COMPANIES

                                       8



                                                               SCHEDULE 4.01(cc)

                     FIRST-TIER PUBLIC UTILITY SUBSIDIARIES

                                       9



                                                               SCHEDULE 4.01(dd)

                           EXEMPT WHOLESALE GENERATORS

                                       10



                                                               SCHEDULE 4.01(ee)

                        TEXAS RETAIL SERVICE SUBSIDIARIES

                                       11



                                                               SCHEDULE 4.01(hh)

                           RETAIL SERVICE SUBSIDIARIES

                                       12



                                                               SCHEDULE 4.01(ii)

                                 FERC COMPLAINTS

                                       13



                                                                       EXHIBIT A
                                                      TO THE TERM LOAN AGREEMENT

                                     FORM OF
                              ASSIGNMENT AGREEMENT

                                                          Date: _______ __, ____

Goldman Sachs Credit Partners L.P.,
as the Administrative Agent
85 Broad Street
New York, New York 10004
Attention: Pedro Ramirez

Calpine Corporation
50 West San Fernando Avenue
San Jose, CA 95113
Attention: Senior Vice President-Finance

Re: Assignment Agreement

Ladies and Gentlemen:

Reference is made to the Credit Agreement, dated as of July 16, 2003 (as
amended, supplemented, replaced or otherwise modified from time to time, the
"Term Loan Agreement"), among Calpine Corporation, a Delaware corporation (the
"Company"), the lenders from time to time parties thereto, Goldman Sachs Credit
Partners L.P., as sole lead arranger and solebook runner, and Goldman Sachs
Credit Partners L.P., as administrative agent. Unless otherwise defined herein,
terms defined in the Term Loan Agreement and used herein shall have the meanings
given to them in the Term Loan Agreement.

As of [INSERT EFFECTIVE DATE OF ASSIGNMENT] (the "Effective Date"), [INSERT NAME
OF ASSIGNOR] (the "Assignor") irrevocably sells, transfers, conveys and assigns,
without recourse, representation or warranty (except as expressly set forth
herein), to [INSERT NAME OF ASSIGNEE] (the "Assignee"), and the Assignee
irrevocably purchases from the Assignor and assumes (as more particularly
described in Schedule I hereto), [INSERT PERCENTAGE OF TERM LOANS TO BE
ASSIGNED]% of (a) the Term Loans under the Term Loan Agreement and (b) all
related rights,

                                       14



benefits, obligations, liabilities, and indemnities under and in connection with
the Term Loan Agreement and the other Term Loan Documents (the "Assigned
Portion") (which represents $[INSERT AMOUNT TO BE ASSIGNED WHICH AGGREGATE
AMOUNT MUST BE NOT LESS THAN $1,000,000] (OR SUCH LESSER AMOUNT AS SHALL BE
AGREED BY THE COMPANY AND THE ADMINISTRATIVE AGENT OR AS SHALL CONSTITUTE THE
AGGREGATE AMOUNT OF THE ASSIGNOR'S TERM LOANS AND OTHER OBLIGATIONS OWED TO THE
ASSIGNOR)]). After giving effect to the foregoing assignment and delegation, the
Assignor's and the Assignee's outstanding Term Loans for the purposes of the
Term Loan Agreement and each other Term Loan Document will be as set forth in
Schedule I hereto.

In addition, this Agreement constitutes notice to the Administrative Agent,
pursuant to Section 13.06 of the Term Loan Agreement, of the assignment and
delegation to the Assignee of the Assigned Portion of the Term Loans of the
Assignor outstanding under the Term Loan Agreement as of the Effective Date,
subject to its written consents (as evidenced by your execution of this
Agreement).

All accrued and unpaid interest, fees and other amounts payable with respect to
the Assigned Portion for any period of time prior to the Effective Date shall be
payable to the Assignor, and all accrued and unpaid interest, fees and other
amounts payable with respect to the Assigned Portion for any period from and
after the Effective Date shall be payable to the Assignee. The Assignor and
Assignee each agree to hold in trust for the other any such amounts that it
receives pursuant to any Term Loan Document and to which the other party is
entitled.

The Assignee confirms and agrees that in becoming a Lender and in making its
Term Loans under the Term Loan Agreement, such actions have and will be made
without recourse to, or representation or warranty by, the Administrative Agent,
except for the representations expressly set forth below.

The Assignor represents and warrants that it is legally authorized to enter into
and deliver this Agreement, that its existing aggregate Term Loans is as set
forth on Schedule I hereto, that it is the legal and beneficial owner of the
Assigned Portion and that it has not created any adverse claim on its interest
in the Assigned Portion. Except as set forth in the previous sentence, the
Assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made pursuant to or in
connection with this Agreement, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, the Term
Loan Agreement, any other Term Loan Document or any other instrument or document
furnished pursuant hereto or thereto, including the financial condition of the
Company or any of their Subsidiaries or the performance or observance by any
Lender or any of the Agents of any of its obligations under the Term Loan
Agreement, any other Term Loan Document or any other instrument or document
furnished pursuant hereto or thereto.

The Assignee (a) represents and warrants that (i) it is an Eligible Assignee and
that it is legally authorized to enter into and deliver this Agreement, (ii) it
has experience and expertise in the making of or investing in commitments or
loans such as the applicable Term Loan Commitments

                                       15



or Term Loans, as the case may be and (iii) it will make or invest in, as the
case may be, its Term Loan Commitments or Term Loans for its own account in the
ordinary course of business and without a view to the distribution of such Term
Loan Commitments or Term Loans within the meaning of the Securities Act or the
Exchange Act or other federal securities laws, (b) confirms that it has received
a copy of the Term Loan Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 5.03 of the Term Loan
Agreement and copies of the documents which were required to be delivered under
the Term Loan Agreement as a condition to the making of Term Loans thereunder
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Agreement, (c) agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of the Term Loan Agreement and the other Term Loan Documents are
required to be performed by it as a Lender, and (d) attaches the forms
prescribed by applicable Governmental Authorities as to the Assignee's status
for purposes of determining exemption from withholding taxes with respect to all
payments to be made to the Assignee under any of the Term Loan Documents or such
other documents as are necessary to indicate that all such payments are subject
to such rates at a rate reduced by an applicable tax treaty. In addition, the
Assignee, independently and without reliance upon the Assignor, the
Administrative Agent, any other Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, shall
continue to make its own credit decisions in taking or not taking action under
the Term Loan Agreement, the other Term Loan Documents and the other instruments
and documents delivered in connection therewith.

Following the execution of this Agreement, it will be delivered to the
Administrative Agent for recording by the Administrative Agent pursuant to
Section 13.06 of the Term Loan Agreement, effective as of the Effective Date.
The Assignor attaches hereto the Term Note held by it, if any, evidencing the
Assigned Portion and (i) upon request by the Assignee, will request that the
Administrative Agent exchange the attached Note for a new Note payable to the
Assignee and (ii) if the Assignor has retained any interest, may request that
the Administrative Agent exchange the attached Note for a new Note payable to
the Assignor, in each case in amounts which reflect the assignment being made
hereby and after giving effect to any other assignments which have become
effective on the Effective Date.

Except as otherwise provided in the Term Loan Agreement, effective as of the
Effective Date:

         (a)      the Assignee:

                  (i)      shall be deemed automatically to have become a party
to the Term Loan Agreement, have all the rights and obligations of a "Lender"
under the Term Loan Agreement and the other Term Loan Documents as if it were an
original signatory thereto to the extent specified in the second paragraph of
this Agreement, and hereby expressly confirms its undertakings regarding its
appointments and indemnity obligations provided for in Article XIII of the Term
Loan Agreement; and

                  (ii)     agrees to be bound by the terms and conditions set
forth in the Term Loan Agreement and the other Term Loan Documents as if it were
an original signatory thereto; and

                                       16



         (b)      the Assignor shall be released from its obligations and shall
     relinquish its rights under the Term Loan Agreement and the other Term Loan
     Documents to the extent specified in the second paragraph of this
     Agreement, except with regard to those provisions that expressly survive
     the termination of the Term Loan Agreement to the extent such provisions
     relate to the time prior to the Effective Date.

The Assignee hereby advises each of you of the following administrative details
with respect to the assigned Term Loan Commitments and Term Loans:

         (A)      Address                       for              Notices:
                  -------------------------------------------------------

         Institution                                               Name:
         Attention:
         Domestic                                                  Office:
         Telephone:
         Facsimile:

(B)      Payment Instructions:

The Assignee has attached hereto the forms, certificates or other evidence
required by Section 2.17(c) of the Term Loan Agreement no later than the date of
acceptance hereof by the Administrative Agent. The Assignee has also attached
hereto any powers of attorney or other public or private documents requested by
the Collateral Agent which are necessary to enable the Collateral Agent to
enforce any of the Security Documents on behalf of the Secured Parties.

The Administrative Agent shall notify the Company of any such assignments.

This Agreement may be executed by the Assignor and Assignee in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same agreement. The delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. The parties hereto hereby agree to execute and deliver such
other documents or instruments as shall be necessary to effect the purposes of
this Agreement.

This agreement shall be governed by the laws of the state of New York without
regard to the conflicts of law provisions thereof, other than sections 5-1401
and 5-1402 of the General Obligations Law of the State of New York.

                            (Signature Page Follows)

                                       17



IN WITNESS WHEREOF, each of the undersigned has executed and delivered this
Assignment and Acceptance Agreement as of the date first written above.

                            [INSERT NAME OF ASSIGNOR]

                            By:____________________________
                               Name:
                               Title:

                            [INSERT NAME OF ASSIGNEE]

                             By:___________________
                                Name:
                                Title:

Accepted and acknowledged
for recording in the Register
this ____ day of ________, ___

                                      S-1



[INCLUDE THE FOLLOWING ACKNOWLEDGEMENTS AND AGREEMENTS IN RESPECT OF ASSIGNMENTS
FOR LESS THAN $1,000,000 IF SUCH ASSIGNMENT IS FOR AN AMOUNT DOES NOT CONSTITUTE
THE AGGREGATE AMOUNT OF THE TERM LOAN COMMITMENTS AND TERM LOANS OUTSTANDING TO
THE ASSIGNING LENDER]

Acknowledged and Agreed

GOLDMAN SACHS CREDIT PARTNERS L.P.

By: __________________________________
         Name:
         Title:

CALPINE CORPORATION

By: __________________________________

         Name:
         Title:



                                                                      SCHEDULE I
                                                         to Assignment Agreement

                                                                                           
A.  Assigned Portion:

    Term Loans and Applicable Percentage with respect thereto                                 $________
                                                                                               ________%
B.  Assignor's Adjusted Total Term Loans (after giving effect to the assignment
    contemplated hereby):

    Term Loans and Applicable Percentage with respect thereto                                 $________
                                                                                               ________%

C.  Assignee's Adjusted Total Term Loans (after giving effect to the assignment
    contemplated hereby):

    Term Loans and Applicable Percentage with respect thereto                                 $________
                                                                                               ________%



                                       3



                                                                       EXHIBIT B
                                                      to the Term Loan Agreement

                          [LETTERHEAD OF NON-US LENDER]

                     FORM OF CERTIFICATE RE: NON-BANK STATUS

                                              Certificate Date: _______ __, ____

Goldman Sachs Credit Partners L.P.
as the Administrative Agent
85 Broad Street
New York, New York 10004
Attention: Pedro Ramirez

Re: Non-Bank Status

Ladies and Gentlemen:

Reference is made to the Credit Agreement, dated as of July 16, 2003 (as
amended, supplemented, replaced or otherwise modified from time to time, the
"Term Loan Agreement"), by and among Calpine Corporation, a Delaware corporation
(the "Company"), the Lenders party hereto from time to time, Goldman Sachs
Credit Partners L.P., as sole lead arranger and sole bookrunner, and Goldman
Sachs Credit Partners L.P., as Administrative Agent (together with its
successors in such capacity, the "Administrative Agent). Unless otherwise
defined herein, terms defined in the Term Loan Agreement and used herein shall
have the meanings given to them in the Term Loan Agreement.

[INSERT NAME OF NON-U.S. LENDER] (the "Non-U.S. Lender") is providing this
certificate pursuant to Section 2.17(c) of the Term Loan Agreement. The Non-U.S.
Lender hereby represents and warrants as follows:

                  (c)      The Non-U.S. Lender is the sole record and beneficial
         owner of the Term Loans or the obligations evidenced by Term Loan Note
         in respect of which it is providing this certificate.

                  (d)      The Non-U.S. Lender is not a "bank" for purposes of
         Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended
         (the "Code"). In this regard, the Non-U.S. Lender further represents
         and warrants that:

         (1) the Non-U.S. Lender is not subject to regulatory or other legal
requirements as a bank in any jurisdiction; and

                                       4



         (2) the Non-U.S. Lender has not been treated as a bank for purposes of
any tax, securities law or other filing or submission made to any Governmental
Authority, any application made to a rating agency or qualification for any
exemption from tax, securities law or other legal requirements.

                  (e)      The Non-U.S. Lender is not a 10 percent shareholder
         of the Company within the meaning of Section 881(c)(3)(B) of the Code.

                  (f)      The Non-U.S. Lender is not a controlled foreign
         corporation receiving interest from a related person within the meaning
         of Section 881(c) (3)(C) of the Code.

                            (Signature Page Follows)

                                       5



IN WITNESS WHEREOF, the undersigned has duly executed this certificate by its
respective authorized representative as of the day and year first above written.

                           [INSERT NAME OF NON-U.S. LENDER]

                           By: ________________________________________________
                               Name:
                               Title:



                                                                       EXHIBIT C
                                                      to the Term Loan Agreement

                             [LETTERHEAD OF COMPANY]

                                     FORM OF
                         CONVERSION/CONTINUATION NOTICE

                                                            Date: _____ __, ____

Goldman Sachs Credit Partners L.P.
as the Administrative Agent
85 Broad Street
New York, New York 10004
Attention: Pedro Ramirez

Re: Conversion/Continuation Notice

Ladies and Gentlemen:

Reference is made to the Credit Agreement, dated as of July 16, 2003 (as
amended, supplemented, replaced or otherwise modified from time to time, the
"Term Loan Agreement"), by and among Calpine Corporation, a Delaware corporation
(the "Company"), the Lenders party hereto from time to time, Goldman Sachs
Credit Partners L.P., as sole lead arranger and sole bookrunner, and Goldman
Sachs Credit Partners L.P., as administrative agent (together with its
successors in such capacity, the "Administrative Agent"). Unless otherwise
defined herein, terms defined in the Term Loan Agreement and used herein shall
have the meanings given to them in the Term Loan Agreement.

 The Company hereby gives you notice, irrevocably, pursuant to Section 2.06 of
the Term Loan Agreement, that the Borrower hereby requests a [CONVERSION]
[CONTINUATION] of Term Loans under the Term Loan Agreement and, in connection
therewith, sets forth below the information relating to such [CONVERSION]
[CONTINUATION] (the "Proposed [Conversion][Continuation]") as required by
Section 2.06 of the Term Loan Agreement. The Borrower hereby requests that Term
Loans be [CONVERTED] [CONTINUED] as follows:

                  (i)      The effective date of the proposed
[CONVERSION][CONTINUATION] is ______, _______ (which is a Business Day). (ii)
$___________ of the currently outstanding principal amount of Term Loans
currently being maintained as Eurodollar Rate Loans with an Interest Period of
__________ month(s), the last day of which is the date of the Proposed
Conversion/Continuation referred to in clause (i) above, should be:

                                       2



                           (A)      continued as $__________ of Eurodollar Rate
                  Loans with an Interest Period of ________ month(s); and

                           (B)      converted into $__________ of Base Rate
                  Loans.

         (iii)    $__________ of the currently outstanding principal amount of
         Term Loans currently being maintained as Base Rate Loans should be:

                           (A)      continued as $__________ of Base Rate Loans;

                           (B)      converted into $_________ of Eurodollar Rate
                  Loans with an Interest Period of ________ month(s); and

                           (C)      converted into $__________ of Eurodollar
                  Rate Loans with an Interest Period of _______ month(s).

[(b) [INCLUDE THE FOLLOWING IF THE PROPOSED CONVERSION OR CONTINUATION IS A
CONVERSION TO, OR A CONTINUATION OF, A EURODOLLAR RATE LOAN] The Company hereby
certifies that, as of the date hereof, no Default or Event of Default has
occurred or is continuing.]

                            (Signature Page Follows)

                                       3



IN WITNESS WHEREOF, the Company has caused this Continuation/Conversion Notice
to be executed and delivered by an Officer of the Company on the date first
written above.

CALPINE CORPORATION

By:
Name:
Title:

                                       1



                                                                       EXHIBIT D
                                                      to the Term Loan Agreement

                           [LETTERHEAD OF THE COMPANY]

                                     FORM OF
                                 FUNDING NOTICE

                                              Certificate Date: _______ __, ____

Goldman Sachs Credit Partners L.P.
as the Administrative Agent
85 Broad Street
New York, New York 10004
Attention: Pedro Ramirez

Re: Funding Notice

Ladies and Gentlemen:

Reference is made to the Credit Agreement, dated as of July 16, 2003 (as
amended, supplemented, replaced or otherwise modified from time to time, the
"Term Loan Agreement"), by and among Calpine Corporation, a Delaware corporation
(the "Company"), the Lenders party hereto from time to time, Goldman Sachs
Credit Partners L.P., as Administrative Agent (together with its successors in
such capacity, the "Administrative Agent") and as Sole Lead Arranger and Sole
Bookrunner, The Bank of Nova Scotia, as Arranger and Syndication Agent, TD
Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank Hessen-Thuringen,
as Co-Arrangers, and Credit Lyonnaise New York Branch and Union Bank of
California, N.A., as Managing Agents. Unless otherwise defined herein, terms
defined in the Term Loan Agreement and used herein shall have the meanings given
to them in the Term Loan Agreement.

         The Company hereby gives you notice in accordance with Section 2.01 of
the Credit Agreement that the Company irrevocably requests that the following
Term Loans be made on July __, 2003 (which date satisfies the requirements set
forth in Section 2.01 of the Credit Agreement), in each case, as described
below:

         (a)      The Company hereby requests that a Term Loan be made in an
         aggregate principal amount of [$_________] with an initial Interest
         Period of [____] months.

         [(b)     The Company hereby requests that a Term Loan be made in an
         aggregate principal amount of [$_________] with an initial Interest
         Period of [____] months.]

                            (Signature Page Follows)

                                       2



         IN WITNESS WHEREOF, on behalf of the Company, this certificate is
delivered as of the date first above written.

                                  CALPINE CORPORATION

                                  By: __________________________________________
                                      Name:
                                      Title:

                                       3



                                                                       EXHIBIT E
                                                      to the Term Loan Agreement

                              [INSERT LENDER NAME]

                                 LENDER ADDENDUM

Reference is made to the Credit Agreement, dated as of July 16, 2003 (as
amended, supplemented, replaced or otherwise modified from time to time, the
"Term Loan Agreement"), among Calpine Corporation, a Delaware corporation, the
Lenders party hereto from time to time, Goldman Sachs Credit Partners L.P., as
sole lead arranger and sole bookrunner, and Goldman Sachs Credit Partners L.P.,
as administrative agent. Unless otherwise defined herein, terms defined in the
Term Loan Agreement and used herein shall have the meanings given to them in the
Term Loan Agreement.

Upon execution and delivery of this Lender Addendum by the parties hereto as
provided in Section 13.06(j) of the Term Loan Agreement, the undersigned hereby
becomes a Lender thereunder having the Commitments set forth in Schedule 1
hereto, effective as of the Closing Date.

This Lender Addendum shall be governed by, and construed and interpreted in
accordance with, the laws of the state of New York.

This Lender Addendum may be executed by one or more of the parties hereto on any
number of separate counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument. Delivery of an
executed signature page hereof by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.

(Signature Pages Follow)

                                       4



IN WITNESS WHEREOF, the parties hereto have caused this Lender Addendum to be
duly executed and delivered by their proper and duly authorized officers as of
this ____ day of July, 2003.

                                  ______________________________________________
                                  Name of Lender

                                  By: _________________________________________
                                      Name:
                                      Title:

Accepted                             and                       agreed:

CALPINE                                                       CORPORATION

By: ____________________________________________
Name:
Title:
GOLDMAN                      SACHS             CREDIT         PARTNERS     L.P.,
as                                         Administrative                 Agent

By: _________________________________
Name:
Title:

                                       5



                         COMMITMENTS AND NOTICE ADDRESS

1.                                      Name of Lender:
Notice Address:

Attention:
Telephone:
Facsimile:
2.                                      Term Loan Commitment:



                                                                       EXHIBIT F
                                                      to the Term Loan Agreement

Goldman Sachs Credit Partners L.P.,
85 Broad Street
New York, New York 10004
Attention: Pedro Ramirez

                            LENDER JOINDER AGREEMENT

                  The undersigned, [INSERT LENDER'S NAME] (the "New Term Loan
Lender"), hereby agrees to become party to the Credit Agreement, dated as of
July 16, 2003 (as amended, supplemented, replaced or otherwise modified from
time to time, the "Term Loan Agreement"), among Calpine Corporation, a Delaware
corporation (the "Company"), the Lenders party hereto from time to time, Goldman
Sachs Credit Partners L.P., as sole lead arranger and sole bookrunner, and
Goldman Sachs Credit Partners L.P., as administrative agent (together with its
successors in such capacity, the "Administrative Agent"). Upon the funding of
the Additional Term Loans, the New Term Loan Lender agrees to be bound by, and
to perform in respect of the Additional Term Loans, all of the Obligations of a
Lender under the Term Loan Agreement.

                  The amount of Additional Term Loan Commitment of the New Term
Loan Lender shall be $[__________]. Except as otherwise set forth herein, the
Additional Term Loans shall bear interest on the unpaid principal amount thereof
from the date made through repayment (whether by acceleration or otherwise)
thereof as follows:

                  (a)      if a Base Rate Loan, at the Base Rate plus [___]% per
annum; or

                  (b)      if a Eurodollar Rate Loan, at the Adjusted Eurodollar
Rate plus [___]% per annum.

                  The New Term Loan Lender hereby advises you of the following
administrative details with respect to the Additional Term Loan Commitments and
Additional Term Loans:

                  (a)      Address for Notices:

                           Institution Name:
                           Attention:
                           Domestic Office:
                           Telephone:
                           Facsimile:

                  (b)      Payment Instructions



                  The provisions of Article XIII of said Term Loan Agreement
shall apply with like effect to this Lender Joinder Agreement.

                  IN WITNESS WHEREOF, the undersigned has executed and delivered
this Joinder as of ___________________, 20____.

                                  [__________________________________]

                                  By: ______________________________
                                      Name:
                                      Title:



                                                                       EXHIBIT G
                                                      to the Term Loan Agreement

                             FORM OF TERM LOAN NOTE

$____________                           ______________________,

FOR VALUE RECEIVED, the undersigned, Calpine Corporation (the "Company"), hereby
unconditionally promises to pay to the order of [         ] (the "Lender") the
principal sum in immediately available funds, of [         ] or, if less, the
aggregate unpaid principal amount of all Term Loans made by the Lender to the
Company pursuant to Section 2.01 of the Term Loan Agreement. The Company further
agrees to pay interest in like money at the Principal Office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in Section 2.05 of the Term Loan Agreement.

The holder of this Term Loan Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date and amount of each Term Loan
made pursuant to the Term Loan Agreement and the date and amount of each payment
or prepayment of principal thereof, each continuation thereof, each conversion
of all or a portion thereof and, in the case of Eurodollar Rate Loans, the
length of each Interest Period with respect thereto. Each such endorsement shall
constitute prima facie evidence of the accuracy of the information endorsed. The
failure to make any such endorsement or any error in any such endorsement shall
not affect the obligations of the Company in respect of any Term Loan.

This Term Loan Note (a) is one of the Term Loan Notes referred to in the Credit
Agreement, dated as of July 16, 2003 (as amended, supplemented, replaced or
otherwise modified from time to time, the "Term Loan Agreement"), by and among
the Company, the Lenders party hereto from time to time, Goldman Sachs Credit
Partners L.P., as sole lead arranger and sole bookrunner, and Goldman Sachs
Credit Partners L.P., as administrative agent; (b) is subject to the provisions
of the Term Loan Agreement and (c) is subject to optional and mandatory
prepayment in whole or in part as provided in the Term Loan Agreement. This Term
Loan Note is secured and guaranteed as provided in the Term Loan Documents.
Reference is hereby made to the Term Loan Documents for a description of the
properties and assets in which a security interest has been granted, the nature
and extent of the security and the guarantees, the terms and conditions upon
which the security interests and each guarantee were granted and the rights of
the holder of this Term Loan Note in respect thereof.

Upon the occurrence of any Event of Default, all principal and all accrued
interest then remaining unpaid on this Term Loan Note shall become, or may be
declared to be, immediately due and payable, all as provided in, and subject to,
the Term Loan Agreement.



All parties now and hereafter liable with respect to this Term Loan Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.

Unless otherwise defined herein, terms defined in the Term Loan Agreement and
used herein shall have the meanings given to them in the Term Loan Agreement.

This Term Loan Note has been delivered in New York, New York and shall be deemed
to be a contract made under, governed by and construed in accordance with the
laws of the State of New York without regard to the conflict of law provisions
thereof (other than sections 5-1401 and 5-1402 of the general obligations law of
the state of New York).

                                  CALPINE CORPORATION

                                  By:______________________________
                                     Name:
                                     Title:



Schedule A
to Term Loan Note

                 LOANS, CONVERSIONS AND REPAYMENTS OF TERM LOANS



- ----------------------------------------------------------------------------------------------------------
                                               Interest Period
    Date        Amount of Term Loans          (if applicable)   Amount of Principal Repaid
             -----------------------------                      ---------------------------
                                                                             Euro Dollar     Notation Made
             Base Rate     Euro Dollar Rate                      Base Rate       Rate             By
- ----------------------------------------------------------------------------------------------------------
                                                                           

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

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

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

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

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

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

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

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

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

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

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

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

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


                                      A-1

EX-10.18

                                                                   Exhibit 10.18

                                                                  EXECUTION COPY

                           LETTER OF CREDIT AGREEMENT

                           dated as of July 16, 2003,

                                      among

                              CALPINE CORPORATION,
                                as the Borrower,

                    CERTAIN COMMERCIAL LENDING INSTITUTIONS,
                                 as the Lenders,

                                       and

                            THE BANK OF NOVA SCOTIA,
                             as Administrative Agent



                                TABLE OF CONTENTS



                                                                                                                     PAGE
                                                                                                                  
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.......................................................................      1

         SECTION 1.1.   Defined Terms............................................................................      1
         SECTION 1.2.   Use of Defined Terms.....................................................................     14
         SECTION 1.3.   Cross-References.........................................................................     14
         SECTION 1.4.   Accounting and Financial Determinations..................................................     15

ARTICLE II COMMITMENTS AND LETTERS OF CREDIT PROCEDURES..........................................................     15

         SECTION 2.1.   Commitment to Issue Letters of Credit....................................................     15
         SECTION 2.2.   Reduction of Commitment Amount...........................................................     15

ARTICLE III REPAYMENTS, INTEREST AND FEES........................................................................     16

         SECTION 3.1.   Interest Provisions......................................................................     16
         SECTION 3.2.   Fees.....................................................................................     16

ARTICLE IV LETTERS OF CREDIT.....................................................................................     17

         SECTION 4.1.   Issuance Requests........................................................................     17
         SECTION 4.2.   Issuances and Extensions.................................................................     18
         SECTION 4.3.   Expenses.................................................................................     18
         SECTION 4.4.   Other Lenders' Participation.............................................................     18
         SECTION 4.5.   Disbursements............................................................................     19
         SECTION 4.6.   Reimbursement............................................................................     19
         SECTION 4.7.   Cash Collateral..........................................................................     20
         SECTION 4.8.   Nature of Reimbursement Obligations......................................................     20
         SECTION 4.9.   Increased Costs; Indemnity...............................................................     21
         SECTION 4.10.  Existing Letters of Credit...............................................................     22

ARTICLE V CERTAIN ADDITIONAL PROVISIONS..........................................................................     22

         SECTION 5.1.   Increased Capital Costs..................................................................     22
         SECTION 5.2.   Taxes....................................................................................     23
         SECTION 5.3.   Payments, Computations, etc..............................................................     24
         SECTION 5.4.   Sharing of Payments......................................................................     24
         SECTION 5.5.   Use of Proceeds..........................................................................     25

ARTICLE VI CONDITIONS PRECEDENT..................................................................................     25

         SECTION 6.1.   Effectiveness; Initial Credit Extension..................................................     25
         SECTION 6.2.   All Credit Extensions....................................................................     26


                                       i


                                                                                                                   
ARTICLE VII REPRESENTATIONS AND WARRANTIES.......................................................................     28

         SECTION 7.1.   Organization, etc........................................................................     28
         SECTION 7.2.   Due Authorization, Non-Contravention, etc................................................     28
         SECTION 7.3.   Government Approval, Regulation, etc.....................................................     28
         SECTION 7.4.   Validity, etc............................................................................     28
         SECTION 7.5.   Financial Information....................................................................     29
         SECTION 7.6.   No Material Adverse Effect...............................................................     29
         SECTION 7.7.   Litigation, Labor Controversies, etc.....................................................     29
         SECTION 7.8.   Subsidiaries.............................................................................     29
         SECTION 7.9.   Regulations U and X......................................................................     29
         SECTION 7.10.  Accuracy of Information..................................................................     29

ARTICLE VIII COVENANTS...........................................................................................     30

         SECTION 8.1.   Covenants................................................................................     30

ARTICLE IX EVENTS OF DEFAULT.....................................................................................     32

         SECTION 9.1.   Listing of Events of Default.............................................................     32
         SECTION 9.2.   Action if Event of Default...............................................................     34

ARTICLE X THE AGENT..............................................................................................     35

         SECTION 10.1.   Actions.................................................................................     35
         SECTION 10.2.   Exculpation.............................................................................     35
         SECTION 10.3.   Successor...............................................................................     35
         SECTION 10.4.   Letters of Credit Issued by Agent or any Issuer.........................................     36
         SECTION 10.5.   Credit Decisions........................................................................     36
         SECTION 10.6.   Copies, etc.............................................................................     36
         SECTION 10.7.   Collateral Matters......................................................................     37

ARTICLE XI MISCELLANEOUS PROVISIONS..............................................................................     37

         SECTION 11.1.   Waivers, Amendments, etc................................................................     37
         SECTION 11.2.   Notices.................................................................................     38
         SECTION 11.3.   Payment of Costs and Expenses...........................................................     38
         SECTION 11.4.   Indemnification.........................................................................     39
         SECTION 11.5.   Survival................................................................................     40
         SECTION 11.6.   Severability............................................................................     40
         SECTION 11.7.   Headings................................................................................     41
         SECTION 11.8.   Execution in Counterparts, Effectiveness, etc...........................................     41
         SECTION 11.9.   Governing Law; Entire Agreement.........................................................     41
         SECTION 11.10.  Successors and Assigns..................................................................     41
         SECTION 11.11.  Sale and Transfer of Commitments; Participations in Commitments.........................     41
         SECTION 11.12.  Other Transactions......................................................................     43
         SECTION 11.13.  Forum Selection and Consent to Jurisdiction.............................................     43
         SECTION 11.14.  Waiver of Jury Trial....................................................................     44
         SECTION 11.15.  Confidentiality.........................................................................     44



                                       ii


SCHEDULE I       -   Disclosure Schedule

SCHEDULE II      -   Percentages

SCHEDULE 1.1     -   Organizational Chart

SCHEDULE 4.10    -   Existing Letters of Credit

EXHIBIT A        -   Form of Issuance Request

EXHIBIT B        -   Form of Lender Assignment Agreement

EXHIBIT C        -   Form of Cash Collateral Agreement

EXHIBIT D-1      -   Form of Opinion of general counsel of the Borrower

EXHIBIT D-2      -   Form of Opinion of special counsel to the Borrower

                                      iii



                           LETTER OF CREDIT AGREEMENT

         THIS LETTER OF CREDIT AGREEMENT, dated as of July 16, 2003, among
CALPINE CORPORATION, a Delaware corporation (together with its successors, the
"Borrower"), the various financial institutions as are or may become parties
hereto (collectively, the "Lenders"), and THE BANK OF NOVA SCOTIA ("Scotia
Capital"), as administrative agent (in such capacity, the "Agent").

                              W I T N E S S E T H:

         WHEREAS, the Borrower has requested that the Lenders and the Agent
enter into this Agreement pursuant to which Letters of Credit will be issued at
the request of the Borrower;

         NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

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

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

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

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

         "Agent" is defined in the preamble and includes each other Person as
shall have subsequently been appointed as the successor Agent pursuant to
Section 10.3.

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

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

                  (a)      the rate of interest most recently established by
         Scotia Capital at its Domestic Office as its base rate; and



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

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

         "Amended and Restated Credit Agreement" means that certain Amended and
Restated Credit Agreement dated as of July 16, 2003, among the Borrower, the
various financial institutions as are or may become parties thereto, as lenders,
various lead arrangers, and The Bank of Nova Scotia, as administrative agent and
funding agent, as amended, supplemented or otherwise modified from time to time.

         "Applicable Margin" means for any L/C Advance maintained under the
Commitment, 4.00% per annum.

         "Assignee Lender" is defined in Section 11.11.1.

         "Authorized Officer" means, relative to any Obligor, the president, any
executive vice president, any senior vice president, the vice president -
finance, the chief financial officer and the treasurer, in each case for whom a
signature and incumbency certificate has been delivered to the Agent.

         "Borrower" is defined in the preamble.

         "Business Day" means any day which is neither a Saturday nor Sunday nor
a legal holiday on which banks are authorized or required to be closed in San
Francisco or New York.

         "Capitalized Lease Liabilities" means all rental obligations of the
Borrower or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized leases, and,
for purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.

         "Cash Collateral Account" means the cash collateral account maintained
by the Agent pursuant to the Cash Collateral Agreement.

         "Cash Collateral Agreement" means the Cash Collateral Agreement to be
entered into between the Borrower and the Agent in substantially the form
attached hereto as Exhibit C, as amended, supplemented, restated or otherwise
modified from time to time, pursuant to which the Letters of Credit are cash
collateralized.

         "CCEF" means Calpine Canada Energy Finance ULC, a Nova Scotia unlimited
liability company and a direct, Wholly Owned Subsidiary of QCH.

                                       2


         "CCEF Indenture" means that certain Indenture dated as of April 25,
2001, between CCEF and Wilmington Trust Company, as Trustee, as amended by the
Amended and Restated Indenture, dated as of October 16, 2001, between CCEF and
such Trustee.

         "CCEF Notes" means the $2,030,000,000 of 8 1/2% Senior Notes due 2008
and the Cdn$200,000,000 of 8 3/4% Senior Notes due 2007, in each case issued by
CCEF pursuant to the CCEF Indenture.

         "CCEFII" means Calpine Canada Energy Finance II ULC, a Nova Scotia
unlimited liability company and a direct, Wholly Owned Subsidiary of CCRC.

         "CCEFII Indenture" means that certain Indenture dated as of October 18,
2001, as supplemented by the First Supplemental Indenture, dated as of October
18, 2002, between CCEFII and Wilmington Trust Company, as Trustee.

         "CCEFII Notes" means the L200,000,000 of 8?% Senior Notes due 2011 and
the E75,000,000 of 8?% Senior Notes due 2008, in each case issued by CCEFII
pursuant to the CCEFII Indenture.

         "CCFCI" means Calpine Construction Finance Company, L.P., a Delaware
limited partnership and an indirect, Wholly Owned Subsidiary of the Borrower.

         "CCFCI Credit Agreement" means the Amended and Restated Credit
Agreement, dated as of February 15, 2001, among CCFCI, the lenders party
thereto, Credit Suisse First Boston, as Lead Arranger, Syndication Agent and
Bookrunner, The Bank of Nova Scotia, as Lead Arranger, LC Bank and
Administrative Agent, TD Securities (USA) Inc., as Co-Arranger and
Co-Documentation Agent, and CIBC World Markets Corp., as Co-Arranger and
Co-Documentation Agent, as amended, supplemented, restated or otherwise modified
from time to time.

         "CCFCII" means Calpine Construction Finance Company II, LLC, a Delaware
limited liability company and an indirect, Wholly Owned Subsidiary of the
Borrower.

         "CCFCII Credit Agreement" means the Credit Agreement, dated as of
October 16, 2000, among CCFCII, the lenders party thereto, Credit Suisse First
Boston, as Lead Arranger and Administrative Agent, The Bank of Nova Scotia, as
Lead Arranger, Co-Syndication Agent and Bookrunner, Banc of America Securities
LLC, as Arranger and Co-Syndication Agent, ING (U.S.) Capital LLC, as Arranger
and Co-Syndication Agent, Bayerische Landesbank Girozentrale, as Arranger,
Co-Documentation Agent, and LC Bank, CIBC World Markets Corp., as Arranger and
Co-Documentation Agent, Dresdner Kleinwort Benson North America Services LLC, as
Arranger and Co-Documentation Agent, TD Securities (USA) Inc., as Arranger and
Co-Documentation Agent, as amended, supplemented, restated or otherwise modified
from time to time.

         "CCRC" means Calpine Canada Resources Company, an Alberta corporation
and an indirect, Wholly Owned Subsidiary of the Borrower.

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

                                       3


         "CES" means Calpine Energy Services, L.P., a Delaware limited
partnership and an indirect, Wholly Owned Subsidiary of the Borrower.

         "Closing Date" means the date specified in a written notice from the
Agent on which this Agreement becomes effective pursuant to Section 11.8 and
which is intended to be July 16, 2003.

         "CNGH" means Calpine Natural Gas Holdings, LLC, a Delaware limited
liability company, and a direct, Wholly Owned Subsidiary of the Borrower.

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

         "Collateral" means any property of or other items belonging to the
Borrower or certain of its Subsidiaries subject or purported to be subject from
time to time to a Lien under any Loan Document to secure any or all of the
Obligations.

         "Commitment" is defined in Section 2.1.

         "Commitment Amount" means, on any date, $200,000,000, as such amount
may be reduced from time to time pursuant to Section 2.2.

         "Commitment Availability" means, on any date, the excess of (a) the
then Commitment Amount, over (b) the Letter of Credit Outstandings on such date.

         "Commitment Fee" is defined in Section 3.2.1.

         "Commitment Termination Date" means the earliest of

                  (a)      July 15, 2005;

                  (b)      the date on which the Commitments of the Lenders are
         terminated in full or reduced to zero pursuant to Section 2.2; and

                  (c)      the date on which any Commitment Termination Event
         occurs.

Upon the occurrence of any event described in clause (b) or (c), the Commitments
shall terminate automatically and without any further action.

         "Commitment Termination Event" means

                  (a)      the occurrence of any Default described in clauses
         (a) through (d) of Section 9.1.7 with respect to the Borrower or any
         Significant Subsidiary; or

                  (b)      the occurrence and continuance of any other Event of
         Default and the giving of notice by the Agent, acting at the direction
         of the Required Lenders, to the Borrower that the Commitments have been
         terminated.

                                       4


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

         "Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.

         "Convertible Senior Notes" means the $1,200,000,000 of 4% Convertible
Senior Notes Due 2006 issued by the Borrower pursuant to the Shelf Indenture.

         "Convertible Subordinated Debentures" means the up to $284,536,100 of
Convertible Subordinated Debentures due 2029 issued by the Borrower pursuant to
the Indenture dated November 2, 1999, the up to $371,134,100 of Convertible
Subordinated Debentures due 2030 issued by the Borrower pursuant to the
Indenture dated January 31, 2000 and the up to $535,000,000 of Convertible
Subordinated Debentures due 2030 issued by the Borrower pursuant to the
Indenture dated August 9, 2000.

         "Credit Extension" means any issuance or extension by an Issuer of a
Letter of Credit.

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

         "Disbursement" is defined in Section 4.5. "Disbursement Date" is
defined in Section 4.5.

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

                                       5


         "Dollar" and the sign "$" shall each mean freely transferable lawful
money of the United States.

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

         "8 1/4% Senior Notes" means the $250,000,000 of 8 1/4% Senior Notes due
2005 issued by the Borrower pursuant to the Shelf Indenture.

          "8 1/2% Senior Notes" means the $2,000,000,000 of 8 1/2% Senior Notes
due 2011 issued by the Borrower pursuant to the Shelf Indenture.

         "8 3/4% Senior Note Indenture" means that certain Indenture dated as of
July 8, 1997, as supplemented by the First Supplemental Indenture dated as of
September 10, 1997 and the Second Supplemental Indenture dated as of July 31,
2000, between the Borrower and The Bank of New York, as Trustee.

         "8 3/4% Senior Notes" means the $275,000,000 of 8 3/4% Senior Notes due
2007 issued by the Borrower pursuant to the 8 3/4% Senior Note Indenture.

         "8 5/8% Senior Notes" means the $750,000,000 of 8?% Senior Notes due
2010 issued by the Borrower pursuant to the Shelf Indenture.

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

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

         "Event of Default" is defined in Section 9.1.

         "Existing Letters of Credit" means the letters of credit and bank
guarantee described in Schedule 4.10.

         "Fair Market Value" means the value that would be paid by a willing
buyer to a willing seller in a transaction not involving duress or necessity of
either party.

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

                  (a)      the weighted average of the rates on overnight
         federal funds transactions with members of the Federal Reserve System
         arranged by federal funds brokers, as

                                       6


         published for such day (or, if such day is not a Business Day, for the
         next preceding Business Day) by the Federal Reserve Bank of New York;
         or

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

         "Fiscal Quarter" means any period of three consecutive months ending on
March 31, June 30, September 30 or December 31 of any year.

         "Fiscal Year" means any period of twelve consecutive calendar months
ending on December 31; references to a Fiscal Year with a number corresponding
to any calendar year (e.g. the "2003 Fiscal Year") refer to the Fiscal Year
ending on the December 31 occurring during such calendar year.

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

         "GAAP" is defined in Section 1.4.

         "Guaranteed Preferred Securities" means the preferred securities issued
by one of the Trusts, from time to time, including, without limitation the
$276,000,000 of principal amount of such securities issued in November, 1999,
the $300,000,000 of principal amount of such securities issued in January, 2000,
the $60,000,000 of principal amount of such securities issued in February, 2000,
and the $517,500,000 of principal amount of such securities issued in August,
2000.

         "Hazardous Material" means

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

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

                  (c)      any petroleum product; or

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

         "Hedging Obligations" means, with respect to any Person, the net
liabilities of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, foreign exchange
contracts, currency swap agreements and all other agreements or arrangements
designed to protect such Person against fluctuations in interest rates or
currency exchange rates and (b) commodity or power swap or exchange agreements.

                                       7


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

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

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

                  (b)      which relates to the limited scope of examination of
         matters relevant to such financial statement.

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

         "Indebtedness" of any Person means, without duplication:

                  (a)      all obligations of such Person for borrowed money and
         all obligations of such Person evidenced by bonds, debentures, notes or
         other similar instruments (excluding the Convertible Subordinated
         Debentures and any other subordinated debt securities issued by the
         Borrower to a Trust and the Guaranteed Preferred Securities or any
         similar securities);

                  (b)      all obligations, contingent or otherwise, relative to
         the stated amount of all letters of credit, whether or not drawn, and
         banker's acceptances issued for the account of such Person; provided,
         however, that if a letter of credit or banker's acceptance has been
         issued to support or secure any other form of Indebtedness, only the
         greater of the stated amount of such letter of credit or banker's
         acceptance or the outstanding principal amount of Indebtedness
         supported or secured, but not both, will be considered Indebtedness
         hereunder;

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

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

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

                  (f)      whether or not so included as liabilities in
         accordance with GAAP, all net obligations of such Person to pay the
         deferred purchase price of property or services

                                       8


         (excluding accounts payable incurred in the ordinary course of
         business), and indebtedness (excluding prepaid interest thereon)
         secured by a Lien on property owned or being purchased by such Person
         (including indebtedness arising under conditional sales or other title
         retention agreements), whether or not such indebtedness shall have been
         assumed by such Person or is limited in recourse, but excluding any
         royalties or similar payments to be made by such Person which are based
         on production or performance; and

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

For all purposes of this Agreement, the Indebtedness of any Person (i) shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer, unless the indebtedness of such
partnership or joint venture is expressly nonrecourse to such Person and (ii)
shall exclude any preferred stock if, at the time of the incurrence or issuance
thereof, it would not be recorded as debt of such Person, in accordance with
GAAP.

         "Indemnified Liabilities" is defined in Section 11.4.

         "Indemnified Parties" is defined in Section 11.4.

         "Investment" means, relative to any Person, without duplication,

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

                  (b)      any Contingent Liability of such Person; and

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

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

         "Issuance Request" means a request and certificate duly executed by the
chief executive, accounting or financial Authorized Officer of the Borrower, in
substantially the form of Exhibit A (with such changes thereto as may be agreed
upon from time to time by the Agent and the Borrower), together with a properly
completed application for a Letter of Credit on an Issuer's standard form,
executed by an Authorized Officer of the Borrower. In the event of a conflict
between the terms of an application for a Letter of Credit and the terms of this
Agreement, the terms of this Agreement shall prevail.

         "Issuer" means Scotia Capital or any Affiliate or unit of agency of
Scotia Capital, and any successor to any of the foregoing Persons.

                                       9


         "knowledge" or "to the Borrower's knowledge" means the knowledge of or
to the knowledge of the president, any vice president, the general counsel, the
secretary, the chief financial officer, the controller or the vice
president-finance of the Borrower.

         "L/C Advances" is defined in Section 4.5.

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

         "Lenders" is defined in the preamble and includes the Issuer.

         "Letter of Credit" is defined in Section 4.1.

         "Letter of Credit Outstandings" means, at any time, an amount equal to
the sum of (a) the aggregate Stated Amount at such time of all Letters of Credit
then outstanding and undrawn (as such aggregate Stated Amount shall be adjusted,
from time to time, as a result of drawings, the issuance of Letters of Credit,
or otherwise), plus (b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.

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

         "Loan Document" means this Agreement, the Cash Collateral Agreement and
each other relevant agreement, document or instrument delivered in connection
therewith.

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

         "Nonmaterial Subsidiary Default" means any Default (excluding any Event
of Default) arising or resulting from the default or potential default by a
Subsidiary (other than a Significant Subsidiary) under any agreement, contract
or undertaking binding on such Subsidiary other than (i) the failure by such
Subsidiary to make a required payment under any Indebtedness of such Subsidiary
having a principal amount in excess of $10,000,000 and (ii) a default in the
performance or observance of any obligation or condition with respect to any
Indebtedness of such Subsidiary having a principal amount in excess of
$10,000,000 and, as a result thereof, the holder or holders of such
Indebtedness, or any trustee or agent for such holders, causes such Indebtedness
to be repaid more quickly than theretofore scheduled, whether through the
introduction of a "cash sweep," the increase of an existing "cash sweep" or
otherwise.

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

                                       10


         "Obligor" means the Borrower or any other Person (other than the Agent
or any Lender) obligated under, or otherwise a party to, any Loan Document.

         "Organic Document" means, relative to any Obligor, its certificate of
incorporation, partnership agreement, or similar organizational document, its
by-laws and all shareholder agreements, voting trusts and similar arrangements
applicable to any of its authorized shares of capital stock or other ownership
interests.

         "Parity Lien Debt" means any Indebtedness incurred in compliance with
the 2003 Senior Note Indenture that is secured by the Collateral (as defined in
the Amended and Restated Credit Agreement) on a parity basis with the 2003
Senior Notes and the Second Priority B Loans.

         "Participant" is defined in Section 11.11.2.

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

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

         "Percentage" means, relative to any Lender, the percentage set forth
opposite its name on Schedule II under the caption "Percentage" or as set forth
in its Lender Assignment Agreement, as such percentage may be adjusted from time
to time pursuant to Lender Assignment Agreement(s) executed by such Lender and
its Assignee Lender(s) and delivered pursuant to Section 11.11. After the
Commitment Termination Date, relative to any Lender, at any time, such Lender's
"Percentage" shall be as in effect immediately prior to the Commitment
Termination Date and after giving effect to any Lender Assignment Agreement(s)
of such Lender executed by such Lender and its Assignee Lender(s) and delivered
pursuant to Section 11.11 at or prior to such time.

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

         "Plan" means any Pension Plan or Welfare Plan.

         "Pre-2000 Indentures" means the Senior Note Indentures (other than the
Shelf Indenture, the 2003 Senior Note Indenture, the Second Priority Term Loan
Agreement, any other documentation under which the Parity Lien Debt is incurred,
the CCEF Indenture and the CCEFII Indenture).

         "QCH" means Quintana Canada Holdings, LLC, a Delaware limited liability
company and indirect, Wholly Owned Subsidiary of CNGH.

                                       11


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

         "Reimbursement Obligation" is defined in Section 4.6.

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

         "Required Lenders" means, at any time, Lenders owed or holding (a) if
the Commitments shall not have been terminated, at least 51% of the aggregate of
all Letter of Credit Outstandings and unfunded Commitments on such date or (b)
if the Commitments shall have been terminated, at least 51% of the aggregate
amount of all L/C Advances then outstanding.

         "Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect
from time to time.

         "Scotia Capital" is defined in the preamble.

         "Second Priority B Loans" means the $750,000,000 of Second Priority
Secured Term B Loans incurred by the Borrower pursuant to the Second Priority
Term Loan Agreement.

         "Second Priority Term Loan Agreement" means the Credit Agreement, dated
as of July 16, 2003, among the Borrower, Goldman Sachs Credit Partners L.P., as
sole lead arranger, sole bookrunner and administrative agent, Scotia Capital, as
arranger and syndication agent, TD Securities (USA) Inc., ING (U.S.) Capital LLC
and Landesbank Hessen-Thuringen, as co-arrangers, and Credit Lyonnais New York
Branch and Union Bank of California, N.A., as managing agents.

         "Senior Note Indentures" means, collectively, the 7 3/4% Senior Note
Indenture, the 7 5/8% Senior Note Indenture, the 7 7/8% Senior Note Indenture,
the 8 3/4% Senior Note Indenture, the Shelf Indenture (to the extent relating
solely to the Senior Notes), the 10 1/2% Senior Note Indenture, the 2003 Senior
Note Indenture, the Second Priority Term Loan Agreement, any other documentation
under which the Parity Lien Debt is incurred, the CCEF Indenture and the CCEFII
Indenture.

         "Senior Notes" means, collectively, the 7 3/4% Senior Notes, the 7 5/8%
Senior Notes, the 7 1/8% Senior Notes, the 8 1/4% Senior Notes, the 8 1/2%
Senior Notes, the 8 3/4% Senior Notes, the 8?% Senior Notes, the 10 1/2% Senior
Notes, the Convertible Senior Notes, the 2003 Senior Notes, the Second Priority
B Loans, the Parity Lien Debt, the CCEF Notes and the CCEFII Notes.

         "7 5/8% Senior Note Indenture" means that certain Indenture dated as of
March 29, 1999, as supplemented by the First Supplemental Indenture dated as of
July 31, 2000, between the Borrower and The Bank of New York, as Trustee.

         "7 5/8% Senior Notes" means the $250,000,000 of 7 5/8% Senior Notes due
2006 issued by the Borrower pursuant to the 7?% Senior Note Indenture.

                                       12


         "7 7/8% Senior Note Indenture" means that certain Indenture dated as of
March 31, 1998, as supplemented by the First Supplemental Indenture dated as of
July 24, 1998 and the Second Supplemental Indenture dated as of July 31, 2000,
between the Borrower and The Bank of New York, as Trustee.

         "7 7/8% Senior Notes" means the $400,000,000 of 7 7/8% Senior Notes due
2008 issued by the Borrower pursuant to the 7 7/8% Senior Note Indenture.

         "7 3/4% Senior Note Indenture" means that certain Indenture dated as of
March 29, 1999, as supplemented by the First Supplemental Indenture dated as of
July 31, 2000, between the Borrower and The Bank of New York, as Trustee.

         "7 3/4% Senior Notes" means the $350,000,000 of 7 3/4% Senior Notes due
2009 issued by the Borrower pursuant to the 7 3/4% Senior Note Indenture.

         "Shelf Indenture" means that certain Indenture dated as of August 10,
2000, as supplemented from time to time, between the Borrower and Wilmington
Trust Company, as Trustee.

         "Significant Subsidiary" means each Subsidiary of the Borrower that

                  (a)      accounted for at least 10% of consolidated revenues
         of the Borrower and its Subsidiaries or 10% of consolidated earnings of
         the Borrower and its Subsidiaries before interest and taxes, in each
         case for the last four full Fiscal Quarters immediately preceding the
         date as of which any such determination is made; or

                  (b)      has assets which represent at least 10% of the
         consolidated assets of the Borrower and its Subsidiaries as of the last
         day of the last Fiscal Quarter of the Borrower immediately preceding
         the date as of which any such determination is made,

all of which shall be as reflected on the financial statements of the Borrower
for the period, or as of the date, in question. Notwithstanding the foregoing,
(i) CCFCI shall be deemed to be a Significant Subsidiary for all purposes of
this Agreement until such date as all Indebtedness under the CCFCI Credit
Agreement shall have been repaid in full and all commitments to lend thereunder
have been terminated and, thereafter, at any time when CCFCI meets the criteria
set forth in the first sentence of this definition and (ii) CCFCII shall be
deemed to be a Significant Subsidiary for all purposes of this Agreement until
such date as all Indebtedness under the CCFCII Credit Agreement shall have been
repaid in full and all commitments to lend thereunder have been terminated and,
thereafter, at any time when CCFCII meets the criteria set forth in the first
sentence of this definition.

         "Stated Amount" of each Letter of Credit means the "Stated Amount" as
defined therein.

         "Stated Expiry Date" is defined in Section 4.1(b).

         "Subordinated Debt" means all unsecured Indebtedness of the Borrower
for money borrowed which is subordinated, upon terms satisfactory to the Agent
and the Required Lenders, in right of payment to the payment in full in cash of
all Obligations.

                                       13


         "Subsidiary" means, with respect to any Person, any corporation,
partnership or other Person of which at least 50% of the outstanding capital
stock or other comparable ownership interest having ordinary voting power to
elect a majority of the board of directors of such corporation, partnership or
other Person (irrespective of whether at the time capital stock of any other
class or classes of such corporation, partnership or other Person shall or might
have voting power upon the occurrence of any contingency) is at the time
directly or indirectly owned by such Person, by such Person and one or more
other Subsidiaries of such Person, or by one or more other Subsidiaries of such
Person.

         "Taxes" is defined in Section 5.2.

         "10 1/2% Senior Note Indenture" means that certain Indenture dated as
of May 16, 1996, as supplemented by the First Supplemental Indenture dated as of
August 1, 2000, between Borrower and State Street Bank and Trust Company (as
successor trustee to Fleet National Bank), as Trustee.

         "10 1/2% Senior Notes" means the $180,000,000 of 10 1/2% Senior Notes
due 2006 issued by the Borrower pursuant to the 10 1/2% Senior Note Indenture.

         "Trust" means Calpine Capital Trust, Calpine Capital Trust II and
Calpine Capital Trust III, each a Delaware business trust.

         "2003 Senior Notes" means the $2,550,000,000 of Second Priority Senior
Secured Floating Rate Notes due 2007, 8 1/2% Second Priority Senior Secured
Notes due 2010 and 8 3/4% Second Priority Senior Secured Notes due 2013, in each
case issued by the Borrower pursuant to the 2003 Senior Note Indenture.

         "2003 Senior Note Indenture" means that certain Indenture dated as of
July 16, 2003 between the Borrower and Wilmington Trust Company, as Trustee.

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

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

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

         SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each Issuance Request, Loan Document, notice and other communication delivered
from time to time in connection with this Agreement or any other Loan Document.

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

                                       14


unless otherwise specified, references in any Article, Section or definition to
any clause are references to such clause of such Article, Section or definition.

         SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder shall be made, and all financial statements required to be delivered
hereunder or thereunder shall be prepared in accordance with, generally accepted
accounting principles ("GAAP") in effect in the United States from time to time.

                                   ARTICLE II

                  COMMITMENTS AND LETTERS OF CREDIT PROCEDURES

         SECTION 2.1. Commitment to Issue Letters of Credit. From time to time
on any Business Day occurring prior to the Commitment Termination Date, an
Issuer will issue, and each Lender will participate in, the Letters of Credit,
in accordance with Article IV. The Commitment of each Lender described in this
Section 2.1 to issue or participate in Letters of Credit is herein referred to
as its "Commitment".

         SECTION 2.1.1. Lenders Not Permitted or Required To Issue or
Participate in Letters of Credit Under Certain Circumstances. No Lender or
Issuer, as the case may be, shall be permitted or required to issue (in the case
of an Issuer) or participate in (in the case of each Lender) any Letter of
Credit prior to the Commitment Termination Date, if, after giving effect thereto

                           (i)      all Letter of Credit Outstandings would
                  exceed the Commitment Amount or the amount then on deposit in
                  the Cash Collateral Account (which shall have been funded with
                  the proceeds of borrowings under the Amended and Restated
                  Credit Agreement); or

                           (ii)     such Lender's Percentage of all Letter of
                  Credit Outstandings would exceed such Lender's Percentage of
                  the then Commitment Amount.

         SECTION 2.2. Reduction of Commitment Amount. The Commitment Amount is
subject to reduction from time to time pursuant to this Section 2.2.

         SECTION 2.2.1. Optional Reduction. The Borrower may, from time to time
on any Business Day voluntarily reduce the Commitment Amount; provided, however,
that all such reductions shall require at least three Business Days' prior
notice to the Agent and be permanent reductions of the Commitment Amount, and
any partial reduction of the Commitment Amount shall be in a minimum amount of
$2,000,000 and in an integral multiple of $500,000.

         SECTION 2.2.2. Additional Cash Collateral. To the extent that at any
time the aggregate amount of the Letter of Credit Outstandings exceeds the
Commitment Amount in effect at such time or the amount then on deposit in the
Cash Collateral Account, then the Borrower must immediately deposit with the
Agent in the Cash Collateral Account additional cash collateral in an amount
equal to such excess (or, as applicable, the greater of such excesses).

                                       15


                                  ARTICLE III

                          REPAYMENTS, INTEREST AND FEES

         SECTION 3.1. Interest Provisions. Interest shall be payable in
accordance with this Section 3.1.

         SECTION 3.1.1. Post-Maturity Rate. After the date any monetary
Obligation of the Borrower shall have become due and payable, the Borrower shall
pay, but only to the extent permitted by law, interest (after as well as before
judgment) on such amounts at a rate per annum equal to the Alternate Base Rate
plus the Applicable Margin plus a margin of 2%.

         SECTION 3.1.2. Payment Dates. Interest accrued on monetary Obligations
arising under this Agreement or any other Loan Document after the date such
amount is due and payable shall be payable upon demand.

         SECTION 3.2. Fees. The Borrower agrees to pay the fees set forth in
this Section 3.2. All such fees shall be non-refundable.

         SECTION 3.2.1. Commitment Fees. The Borrower agrees to pay to the Agent
for the account of each Lender, for the period (including any portion thereof
when any of its Commitments are suspended by reason of the Borrower's inability
to satisfy any condition of Article VI) commencing on the Closing Date and
continuing through the Commitment Termination Date, a commitment fee (the
"Commitment Fee") at the rate of 0.10% per annum, calculated on such Lender's
Percentage of the average daily unused portion of the Commitment Amount.
Commitment Fees shall be payable by the Borrower in arrears on each Quarterly
Payment Date, commencing with the first such day following the Closing Date, and
on the Commitment Termination Date.

         SECTION 3.2.2. Letter of Credit Fee. The Borrower agrees to pay to the
Agent, for the account of the Lenders, for each Letter of Credit for the period
from and including the date of the issuance of such Letter of Credit to (and
including) the date upon which (or on the next succeeding Business Day upon
which) such Letter of Credit expires or is returned to the Issuer, a fee, in
Dollars, on the average daily stated amount of such Letter of Credit calculated
at a per annum rate equal to 0.05%. Such fee shall be payable by the Borrower in
arrears on each Quarterly Payment Date, and on the date of termination or expiry
of the last Letter of Credit outstanding hereunder (for any period then ending
for which such fee shall not theretofore have been paid), commencing on the
first such date after the issuance of such Letter of Credit.

         SECTION 3.2.3. Letter of Credit Issuing Fee. The Borrower agrees to pay
to the Agent, for the account of each Issuer, an issuing fee, in Dollars, for
each Letter of Credit issued by such Issuer for the period from and including
the date of issuance of such Letter of Credit to (and including) the date upon
which such Letter of Credit expires or is returned to the Issuer at such rates
as may be agreed in writing by the Borrower and the Issuers from time to time.
Such fee shall be payable by the Borrower in arrears on each Quarterly Payment
Date and on the date of termination or expiry of the last Letter of Credit
outstanding hereunder for any period then

                                       16


ending for which such fee shall not theretofore have been paid, commencing on
the first such date after the issuance of such Letter of Credit.

                                   ARTICLE IV

                                LETTERS OF CREDIT

         SECTION 4.1. Issuance Requests. By delivering to the Agent and an
Issuer an Issuance Request on or before 12:00 noon, New York time, the Borrower
may request, from time to time prior to the Commitment Termination Date and on
not less than three nor more than ten Business Days' notice, that such Issuer
issue an irrevocable standby letter of credit in Dollars and in such form as may
be requested by the Borrower and approved by such Issuer (each, together with
the Existing Letters of Credit, a "Letter of Credit"), in support of the general
corporate purposes of the Borrower and its Subsidiaries (including credit
support by the Borrower for gas and power contracts for CES, Calpine Energy
Services Canada Partnership and Calpine Energy Services UK Limited) and which
are described in such Issuance Request, provided that no Letter of Credit may be
used (i) to finance acquisitions (other than acquisitions of equipment, sites
and property in the ordinary course of the Borrower and its Subsidiaries'
business, but in no event may Letters of Credit be used to finance acquisitions
of power projects, reserves of geothermal steam and fluids and material gas
reserves) or make any Investments in any third parties (other than
Subsidiaries), directly or indirectly, through the Borrower or any of its
Subsidiaries or Affiliates or (ii) to defease, repurchase or prepay any
Subordinated Debt or any Senior Notes; and provided, further, that Letters of
Credit shall only be used to secure or support obligations (other than for the
deferred purchase price of property) entered into in the ordinary course of
business of the Borrower and its Subsidiaries. Upon receipt of an Issuance
Request, the Agent shall promptly notify the Lenders thereof. Each Letter of
Credit shall by its terms:

                  (a) be issued in a Stated Amount which does not exceed (or
         would not exceed) the then Commitment Availability;

                  (b) be stated to expire on a date (its "Stated Expiry Date")
         no later than one year from its date of issuance; provided, however,
         that a Letter of Credit may provide that if it is not renewed prior to
         its Stated Expiry Date, it may be drawn by the beneficiary thereof; and

                  (c) on or prior to its Stated Expiry Date

                           (i)      terminate immediately upon notice to the
                  Issuer thereof from the beneficiary thereunder that all
                  obligations covered thereby have been terminated, paid, or
                  otherwise satisfied in full and surrender by the beneficiary
                  of the Letter of Credit to such Issuer, and

                           (ii)     reduce in part immediately and to the extent
                  the beneficiary thereunder has notified the Issuer thereof
                  that the obligations covered thereby have been paid or
                  otherwise satisfied in part and that the Letter of Credit may
                  be reduced.

                                       17


         SECTION 4.2. Issuances and Extensions. On the terms and subject to the
conditions of this Agreement (including Article VI), the Issuer to whom notice
was given under Section 4.1 shall issue Letters of Credit, in accordance with
the Issuance Requests made therefor. Such Issuer will make available the
original of each Letter of Credit which it issues in accordance with the
Issuance Request therefor to the beneficiary thereof (and will notify the Agent
of any issuance or amendment and such notice will be accompanied by a copy of
each Letter of Credit issued and any amendment thereto) and will notify the
beneficiary under any Letter of Credit of any extension of the Stated Expiry
Date thereof. The Agent will promptly notify the Lenders of issuances and
amendments and, if requested in writing by a Lender, will provide copies of
issuances and amendments to such requesting Lender.

         SECTION 4.3. Expenses. The Borrower agrees to pay to the Agent for the
account of each Issuer the standard charges of such Issuer in connection with
the issuance, maintenance, modification (if any) and administration by such
Issuer upon demand from time to time.

         SECTION 4.4. Other Lenders' Participation. Each Letter of Credit issued
pursuant to Section 4.2 shall, effective upon its issuance and without further
action, be issued on behalf of all Lenders (including the Issuer thereof) pro
rata according to their respective Percentages. Each Lender shall, to the extent
of its Percentage, be deemed irrevocably to have participated in the issuance of
such Letter of Credit and shall be responsible to pay promptly to the Issuer
thereof such Lender's Percentage of any unreimbursed drawings under a Letter of
Credit which have not been reimbursed by the Borrower in accordance with Section
4.5, or which have been reimbursed by the Borrower but must be returned,
restored or disgorged by the Issuer thereof for any reason, and each Lender
shall, to the extent of its Percentage, be entitled to receive from the Agent a
ratable portion of the letter of credit fees received by the Agent pursuant to
Section 3.2.3, with respect to each Letter of Credit. Each Lender acknowledges
and agrees that its obligation to acquire participations pursuant to this
Section 4.4 in respect of Letters of Credit issued or amended while such Lender
remains a party to this Agreement is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including any amendment of any Letter
of Credit or the occurrence and continuation of a Default or Event of Default or
reduction or termination of the Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever. In the
event that the Borrower shall fail to reimburse the Issuer thereof as provided
in Section 4.5 and Section 4.6 and in an amount equal to the amount of any
drawing honored by such Issuer under a Letter of Credit issued by it, or in the
event such Issuer must for any reason return or disgorge such reimbursement,
such Issuer shall promptly notify each Lender of the unreimbursed amount of such
drawing and of such Lender's respective participation therein. Each Lender shall
make available to such Issuer, whether or not any Default shall have occurred
and be continuing, an amount equal to its respective participation in same day
or immediately available funds at the office of such Issuer specified in such
notice not later than 2:00 p.m., New York time, on the Business Day (under the
laws of the jurisdiction of such Issuer) after the date notified by the Issuer.
In the event that any Lender fails to make available to an Issuer the amount of
such Lender's participation in such Letter of Credit as provided herein, such
Issuer shall be entitled to recover such amount on demand from such Lender
together with interest at the daily average Federal Funds Rate for three
Business Days and thereafter at the Alternate Base Rate plus 2%. Nothing in this
Section shall be deemed to prejudice the right of any Lender to recover from any

                                       18


Issuer any amounts made available by such Lender to an Issuer pursuant to this
Section in the event that it is determined by a court of competent jurisdiction
that the payment with respect to a Letter of Credit by the Issuer thereof in
respect of which payment was made by such Lender constituted gross negligence or
willful misconduct on the part of such Issuer. Each Issuer shall distribute to
each Lender which has paid all amounts payable by it under this Section with
respect to any Letter of Credit issued by such Issuer such Lender's Percentage
of all payments received by such Issuer from the Borrower in reimbursement of
drawings honored by such Issuer under such Letter of Credit when such payments
are received.

         SECTION 4.5. Disbursements. Each Issuer will notify the Borrower and
the Agent promptly of the presentment for payment of any Letter of Credit issued
by it, together with notice of the date (a "Disbursement Date") such payment
shall be made (each such payment, a "Disbursement"). Unless otherwise agreed by
the applicable Issuer and the Borrower, drawings under any Letter of Credit
issued under Section 4.1 shall be made on sight. Subject to the terms and
provisions of such Letter of Credit, each Issuer shall make such payment to the
beneficiary (or its designee) of such Letter of Credit. Prior to 2:00 p.m., New
York time, on the Disbursement Date, the Borrower will reimburse each Issuer in
Dollars for all amounts which it has disbursed under the Letter of Credit. To
the extent an Issuer is not reimbursed in full on the date payment is made under
a Letter of Credit, the Borrower's Reimbursement Obligation shall accrue
interest at the Alternate Base Rate plus the Applicable Margin for two Business
Days and thereafter at the Post-Maturity Rate described in Section 3.1.1,
payable on demand, until reimbursed in full. In the event an Issuer is not
reimbursed by the Borrower on any Disbursement Date, or if an Issuer must for
any reason return or disgorge such reimbursement, the Lenders (including such
Issuer) shall fund the Reimbursement Obligation therefor by making, on the next
Business Day, advances ("L/C Advances") that are payable on demand and shall be
Obligations hereunder, bearing interest by reference to the Base Rate (except
that such L/C Advances shall be made upon demand by the Agent rather than upon
notice by the Borrower and shall be made, notwithstanding anything in this
Agreement to the contrary, without regard to the satisfaction of the conditions
precedent to the extension of credit set forth in Article VI of this Agreement
and notwithstanding any termination of the Commitments). Each Lender's
obligation to make L/C Advances in the amount of its Percentage of any
unreimbursed amounts outstanding under a Letter of Credit pursuant hereto is
several, and not joint or joint and several.

         SECTION 4.6. Reimbursement. The Borrower's obligation (a "Reimbursement
Obligation") under Section 4.5 to reimburse an Issuer with respect to each
disbursement (including interest thereon), and each Lender's obligation to make
participation payments in each drawing which has not been reimbursed by the
Borrower, shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim, or defense to payment which the
Borrower may have or have had against any Lender or any beneficiary of a Letter
of Credit, including any defense based upon the occurrence of any Default, any
draft, demand or certificate or other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient, the failure of
any disbursement to conform to the terms of the applicable Letter of Credit (if,
in such Issuer's good faith opinion, such disbursement is determined to be
appropriate) or any non-application or misapplication by the beneficiary of the
proceeds of such disbursement, or the legality, validity, form, regularity, or
enforceability of such Letter of Credit; provided, however, that nothing herein
shall adversely affect the right of the Borrower to commence any proceeding
against an Issuer for any wrongful disbursement

                                       19


made by such Issuer under a Letter of Credit as a result of acts or omissions
constituting gross negligence or willful misconduct on the part of such Issuer.

         SECTION 4.7. Cash Collateral. At any time when a Reimbursement
Obligation becomes due and payable, the Agent will be entitled to draw amounts
from the Cash Collateral Account to satisfy such Reimbursement Obligation.

         SECTION 4.8. Nature of Reimbursement Obligations. The Borrower shall
assume all risks of the acts, omissions, or misuse of any Letter of Credit by
the beneficiary thereof. Neither any Issuer (except to the extent of its own
gross negligence or willful misconduct) nor any Lender shall be responsible for:

                  (a) the form, validity, sufficiency, accuracy, genuineness, or
         legal effect of any document submitted by any party in connection with
         the application for and issuance of a Letter of Credit, even if it
         should in fact prove to be in any or all respects invalid,
         insufficient, inaccurate, fraudulent, or forged;

                  (b) the form, validity, sufficiency, accuracy, genuineness, or
         legal effect of any instrument transferring or assigning or purporting
         to transfer or assign a Letter of Credit or the rights or benefits
         thereunder or proceeds thereof in whole or in part, which may prove to
         be invalid or ineffective for any reason;

                  (c) failure of the beneficiary to comply fully with conditions
         required in order to demand payment under a Letter of Credit;

                  (d) errors, omissions, interruptions, or delays in
         transmission or delivery of any messages, by mail, cable, telegraph,
         telex, or otherwise;

                  (e) any error, omission, interruption, loss or delay in the
         transmission or delivery of any draft, notice or other communication
         under or relating to any Letter of Credit (including any document
         required in order to make a Disbursement thereunder) or of the proceeds
         thereof;

                  (f) any error in interpretation of technical terms;

                  (g) the performance of any transaction which underlies any
         Letter of Credit;

                  (h) any act or omission of any Person other than the Issuer
         and the Lenders;

                  (i) loss or destruction of any draft, demand, or document in
         transit or in the possession of others;

                  (j) lack of knowledge of any particular trade usage (other
         than standard United States and Western European banking usage as used
         in the normal course of business); or

                  (k) any consequence arising from causes beyond the control of
         the Issuer and the Lenders.

                                       20


None of the foregoing shall affect, impair, or prevent the vesting of any of the
rights or powers granted any Issuer or any Lender hereunder. In furtherance and
extension, and not in limitation or derogation, of any of the foregoing, any
action taken or omitted to be taken by an Issuer in good faith and which is not
grossly negligent shall be binding upon the Borrower and shall not put such
Issuer under any resulting liability to the Borrower; provided, however, that
nothing herein shall relieve any Issuer, the Agent or any Lender for any
liability for its gross negligence or willful misconduct.

         SECTION 4.9. Increased Costs; Indemnity. If by reason of

                  (a) any change after the Closing Date in applicable law,
         regulation, rule, decree or regulatory requirement or any change after
         the Closing Date in the interpretation or application by any judicial
         or regulatory authority of any law, regulation, rule, decree or
         regulatory requirement, or

                  (b) compliance by any Issuer or any Lender with any new or
         modified (after the Closing Date) direction, request or requirement
         (whether or not having the force of law) of any governmental or
         monetary authority, including Regulation D of the F.R.S. Board:

                           (i)      any Issuer or any Lender shall be subject to
                  any tax (other than franchise taxes or taxes measured by net
                  income or receipts), levy, charge or withholding of any nature
                  or to any variation thereof or to any penalty with respect to
                  the maintenance or fulfillment of its obligations under this
                  Article IV, whether directly or by such being imposed on or
                  suffered by any Issuer or any Lender;

                           (ii)     any reserve, deposit or similar requirement
                  is or shall be applicable, imposed or modified in respect of
                  any Letters of Credit issued by any Issuer or participations
                  therein purchased by any Lender; or

                           (iii)    there shall be imposed on any Issuer or any
                  Lender any other condition regarding this Article IV, any
                  Letter of Credit or any participation therein;

and the result of the foregoing is directly or indirectly to increase the cost
to an Issuer or such Lender of issuing, making or maintaining any Letter of
Credit or of purchasing or maintaining any participation therein, or to reduce
any amount receivable in respect thereof by such Issuer or such Lender, then and
in any such case such Issuer or such Lender may, at any time after the
additional cost is incurred or the amount received is reduced, notify the
Borrower thereof and provide Borrower with data and calculations supporting such
costs, and the Borrower shall pay such amounts as such Issuer or Lender may
specify to be necessary to compensate such Issuer or Lender for such additional
cost or reduced receipt within ten (10) Business Days after receiving such
notice, together with interest on such amount from the date of receipt of such
notice until payment in full thereof at a rate equal at all times to the
Alternate Base Rate plus the Applicable Margin; provided, however, that Section
5.2, rather than this Section 4.9 shall govern Borrower's obligations with
respect to Taxes relating to payments by the Borrower described in the first
sentence of Section 5.2(a). The good faith determination by an Issuer or Lender,
as the case may

                                       21


be, of any amount due pursuant to this Section 4.9, as set forth in a statement
setting forth the calculation thereof in reasonable detail, shall, in the
absence of manifest error, be final and conclusive and binding on all of the
parties hereto. In addition to amounts payable as elsewhere provided in this
Article IV, the Borrower hereby agrees to protect, indemnify, pay and save the
Issuers and the Lenders harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys' fees) which any Issuer or any Lender may incur or be subject to as a
consequence, direct or indirect, of

                  (x)      the issuance of the Letters of Credit, other than as
         a result of the gross negligence or willful misconduct of an Issuer as
         determined by a court of competent jurisdiction, or

                  (y)      the failure of an Issuer to honor a drawing under any
         Letter of Credit as a result of any act or omission, whether rightful
         or wrongful, of any present or future de jure or de facto government or
         governmental authority.

         SECTION 4.10. Existing Letters of Credit. On the Closing Date, the
Existing Letters of Credit shall continue to be deemed for all purposes to be
Letters of Credit outstanding under this Agreement and entitled to the benefits
of this Agreement and the other Loan Documents, and shall be governed by the
applications and agreements pertaining thereto and by this Agreement. Each
Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from the Issuers on the Closing Date a participation in each such
Letter of Credit and each drawing thereunder in an amount equal to the product
of (i) such Lender's Percentage times (ii) the maximum amount available to be
drawn under such Letter of Credit and the amount of such drawing, respectively.
For purposes of Section 2.1, the Existing Letters of Credit shall be deemed to
utilize pro rata the Commitment of each Lender.

                                   ARTICLE V

                          CERTAIN ADDITIONAL PROVISIONS

         SECTION 5.1. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority causes the amount of capital required or
expected to be maintained by any Lender or any Person controlling such Lender
attributable to or based upon the Letters of Credit or Commitments hereunder to
be increased, and such Lender determines (in its reasonable discretion) that the
rate of return on its or such controlling Person's capital as a consequence of
its Commitments, issuance of or participation in Letters of Credit is reduced to
a level below that which such Lender or such controlling Person could have
achieved but for the occurrence of any such circumstance, then, in any such case
upon notice from time to time by such Lender to the Borrower, the Borrower shall
immediately pay directly to such Lender additional amounts sufficient to
compensate such Lender or such controlling Person for such reduction in rate of
return. A statement of such Lender as to any such additional amount or amounts
(including calculations thereof in reasonable detail) shall, in the absence of
manifest error and if made in good faith, be conclusive and binding on the
Borrower. In determining such

                                       22


amount, such Lender may use any method of averaging and attribution that it (in
its good faith discretion) shall deem applicable.

         SECTION 5.2. Taxes. (a) Subject to each Lender's compliance with this
Section 5.2, all payments by the Borrower of all amounts payable hereunder
(including interest) shall be made free and clear of and without deduction for
any present or future income, excise, stamp or franchise taxes and other taxes,
fees, duties, withholdings or other charges of any nature whatsoever imposed by
any taxing authority, but excluding franchise taxes and taxes imposed on or
measured by any Lender's net income or receipts (such non-excluded items being
called "Taxes"). In the event that any withholding or deduction from any payment
to be made by the Borrower hereunder is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then the Borrower will

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

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

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

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

                  If the Borrower fails to pay any Taxes when due to the
         appropriate taxing authority or fails to remit to the Agent, for the
         account of the respective Lenders, the required receipts or other
         required documentary evidence, the Borrower shall indemnify the Lenders
         for any incremental Taxes, interest or penalties that may become
         payable by any Lender as a result of any such failure. For purposes of
         this Section 5.2, a distribution hereunder by the Agent or any Lender
         to or for the account of any Lender shall be deemed a payment by the
         Borrower.

                  (b) Upon the request of the Borrower or the Agent, each Lender
         (including, any participant or Assignee Lender) that is (a) organized
         under the laws of the United States or a state thereof shall execute
         and deliver to the Borrower and the Agent one or more (as the Borrower
         or the Agent may reasonably request) appropriately completed United
         States Internal Revenue Service Forms W-9 (or any successor forms or
         documents) and (b) organized under the laws of a jurisdiction other
         than the United States shall, prior to

                                       23


         the due date of and as a condition to any payments hereunder, execute
         and deliver to the Borrower and the Agent one or more (as the Borrower
         or the Agent may reasonably request) United States Internal Revenue
         Service Forms W-8ECI or Forms W-8BEN or such other forms or documents
         (or successor forms or documents), appropriately completed, as may be
         applicable to establish that such Lender (or participant or Assignee
         Lender) is entitled to receive payments under this Agreement without
         deduction or withholding of any United States federal income taxes.

                  The Borrower shall not be required to pay any additional
         amounts to any Lender (or participant or Assignee Lender) in respect of
         Taxes pursuant to this Section 5.2 if the obligation to pay such
         additional amounts would not have arisen but for a failure by such
         Lender (or participant or Assignee Lender) to comply with the
         provisions of this Section 5.2 unless such failure results from (a) a
         change in applicable treaty, law or regulation or interpretation
         thereof or (b) an amendment, modification or revocation of any
         applicable tax treaty or a change in official position regarding the
         application or interpretation thereof, in each case after the date such
         Lender (or participant or Assignee Lender) becomes a party to this
         Agreement.

         SECTION 5.3. Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement or any other
Loan Document shall be made by the Borrower to the Issuer or, as applicable, to
the Agent for the pro rata account of the Lenders entitled to receive such
payment. All such payments required to be made to the Agent shall be made,
without setoff, deduction or counterclaim, not later than 11:00 a.m., San
Francisco time, on the date due, in same day or immediately available funds, to
such account as the Agent shall specify from time to time by notice to the
Borrower. Funds received after that time shall be deemed to have been received
by the Agent on the next succeeding Business Day. The Agent shall promptly remit
in same day funds to each Lender its share, if any, of such payments received by
the Agent for the account of such Lender. All interest and fees shall be
computed on the basis of the actual number of days (including the first day but
excluding the last day) occurring during the period for which such interest or
fee is payable over a year comprised of 365 days or, if appropriate, 366 days.
Whenever any payment to be made shall otherwise be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in computing interest and fees, if any,
in connection with such payment.

         SECTION 5.4. Sharing of Payments. If any Lender shall obtain any
payment or other recovery as a result of its receipt of any collateral or
otherwise (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Letter of Credit in excess of its pro rata share of
payments then or therewith obtained by all Lenders, such Lender shall purchase
from the other Lenders such participations in Letters of Credit as shall be
necessary to cause such purchasing Lender to share the excess payment or other
recovery ratably with each of them; provided, however, that if all or any
portion of the excess payment or other recovery is thereafter recovered from
such purchasing Lender, the purchase shall be rescinded and each Lender which
has sold a participation to the purchasing Lender shall repay to the purchasing
Lender the purchase price to the ratable extent of such recovery together with
an amount equal to such selling Lender's ratable share (according to the
proportion of (a) the amount of such selling Lender's required repayment to the
purchasing Lender to (b) the total amount so recovered from

                                       24


the purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section may, to the fullest extent permitted by law, exercise
all its rights of payment (including pursuant to Section 5.5) with respect to
such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured claim
in lieu of a setoff to which this Section applies, such Lender shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this Section to
share in the benefits of any recovery on such secured claim.

         SECTION 5.5. Use of Proceeds. Letters of Credit shall be used for
general corporate purposes of the Borrower and its Subsidiaries (including
credit support by the Borrower for gas and power contracts for CES, Calpine
Energy Services Canada Partnership and Calpine Energy Services UK Limited). No
Letter of Credit will be used to (i) acquire any equity security of a class
which is registered pursuant to Section 12 of the Securities Exchange Act of
1934 or any "margin stock", as defined in F.R.S. Board Regulation U, (ii)
finance acquisitions (other than the acquisition of equipment, sites and
property in the ordinary course of the Borrower and its Subsidiaries' business,
but in no event may Letters of Credit be used to finance acquisitions of power
projects, reserves of geothermal steam and fluids and natural gas reserves),
(iii) make Investments in any third parties (other than Investments in
Subsidiaries), directly or indirectly, through the Borrower or any of its
Subsidiaries or Affiliates, or (iv) defease, repurchase or prepay any
Subordinated Debt or any Senior Notes.

                                   ARTICLE VI

                              CONDITIONS PRECEDENT

         SECTION 6.1. Effectiveness; Initial Credit Extension. The effectiveness
of this Agreement and the obligation of each Lender to make its initial Credit
Extension shall be subject to the prior or concurrent satisfaction of each of
the conditions precedent set forth in this Section 6.1.

         SECTION 6.1.1. Letter of Credit Agreement; Amended and Restated Credit
Agreement. The Agent shall have received, on or before the Closing Date

                  (a) this Agreement, executed and delivered by the Agent, the
         Borrower and each of the Lenders; and

                  (b) evidence satisfactory to it that the Amended and Restated
         Credit Agreement has been executed and delivered by the parties
         thereto, and that any other conditions precedent to the effectiveness
         thereof have been satisfied.

         SECTION 6.1.2. Resolutions, etc. The Agent shall have received from
each Obligor a certificate, dated the Closing Date, of its Secretary or
Assistant Secretary, as to

                                       25


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

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

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

         SECTION 6.1.3. Cash Collateral Agreement. The Agent shall have received
the Cash Collateral Agreement, duly executed and delivered by the Borrower, in
substantially the form of Exhibit C hereto.

         SECTION 6.1.4. Cash Collateral. The Borrower shall have deposited in
the Cash Collateral Account an amount in immediately available funds equal to
$132,747,066 on the Closing Date.

         SECTION 6.1.5. Opinions of Counsel. The Agent shall have received
opinions, dated the date of the Closing Date and addressed to the Agent and all
Lenders, from

                  (a) Lisa Bodensteiner, Esq., general counsel of the Borrower,
         and Covington & Burling, special counsel to the Borrower, substantially
         in the forms of Exhibits D-1 and D-2, respectively; and

                  (b) Such other special and local counsel as may be required by
         the Agent, in each case in form and substance satisfactory to the
         Agent.

         SECTION 6.1.6. Closing Fees, Expenses, etc. The Agent shall have
received for its own account, or for the account of each Lender, as the case may
be, all fees, costs and expenses due and payable pursuant to Sections 3.2 and
11.3, if then invoiced.

         SECTION 6.1.7. No Material Adverse Effect. No Material Adverse Effect
shall have occurred since December 31, 2002.

         SECTION 6.2. All Credit Extensions. The obligation of each Lender to
make any Credit Extension (including the initial Credit Extension) shall be
subject to the satisfaction of each of the conditions precedent set forth in
this Section 6.2.

         SECTION 6.2.1. Commitment Under Amended and Restated Credit Agreement.
The Revolving Loan Commitment (as defined in the Amended and Restated Credit
Agreement) shall remain in full force and effect.

         SECTION 6.2.2. Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Credit Extension the following statements shall
be true and correct

                  (a) the representations and warranties set forth in Article
         VII (excluding, however, those contained in Section 7.7) and in each
         other Loan Document shall be true

                                       26


         and correct in all material respects with the same effect as if then
         made (unless stated to relate solely to an earlier date, in which case
         such representations and warranties shall be true and correct as of
         such earlier date);

                  (b) except as disclosed by the Borrower to the Agent and the
         Lenders pursuant to Section 7.7

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

                           (ii)     no development shall have occurred in any
                  labor controversy, litigation, arbitration or governmental
                  investigation or proceeding disclosed pursuant to Section 7.7
                  which might have a Material Adverse Effect; and

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

         SECTION 6.2.3. Credit Request. The Agent shall have received an
Issuance Request for such Credit Extension. The delivery of an Issuance Request
and the issuance of the Letter of Credit shall constitute a representation and
warranty by the Borrower that on the date of the issuance of the Letter of
Credit the statements made in Section 6.2.2 are true and correct.

         SECTION 6.2.4. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries or any other Obligors shall be satisfactory in form and substance
to the Agent and its counsel; the Agent and its counsel shall have received all
information, approvals, opinions, documents or instruments as the Agent or its
counsel may reasonably request.

         SECTION 6.2.5. Indentures.

                  (a) The Borrower shall have certified to the Agent that its
         incurrence of the Indebtedness under the Letters of Credit hereunder is
         permitted under the terms of Section 3.4 of the Pre-2000 Indentures. To
         the extent that the Borrower is relying on clause (a) of Section 3.4 of
         the Pre-2000 Indentures, the Borrower shall have delivered to the Agent
         a certificate of an Authorized Officer of the Borrower demonstrating
         its compliance with the incurrence test set forth therein.

                  (b) The Borrower shall have certified to the Agent that the
         incurrence of Liens in respect of such Borrowing is permitted under the
         terms of Section 3.7 of the Pre-2000 Indentures and Section 3.4 of the
         Shelf Indenture.

                                       27


                                  ARTICLE VII

                         REPRESENTATIONS AND WARRANTIES

         In order to induce the Lenders and the Agent to enter into this
Agreement and to make L/C Advances and issue Letters of Credit hereunder, the
Borrower represents and warrants unto the Agent and each Lender as set forth in
this Article VII.

         SECTION 7.1. Organization, etc. The Borrower and each of its
Significant Subsidiaries is a corporation, partnership, limited liability
company or similar entity validly organized and existing and in good standing
under the laws of the State of its organization, is duly qualified to do
business and is in good standing as a foreign organization in each jurisdiction
where the nature of its business requires such qualification and where the
failure to so qualify would have a material adverse effect on the Borrower's or
any Obligor's ability to perform its obligations under the Loan Documents to
which it is a party, and has full power and authority and holds all requisite
governmental licenses, permits and other approvals to enter into and perform its
Obligations under this Agreement and each other Loan Document to which it is a
party and to own or hold under lease its property and to conduct its business
substantially as currently conducted by it.

         SECTION 7.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower of this Agreement and each other Loan
Document executed or to be executed by it, and the execution, delivery and
performance by each other Obligor of each Loan Document executed or to be
executed by it are within the Borrower's and each such Obligor's corporate
powers, have been duly authorized by all necessary corporate action, and do not

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

                  (b) contravene any contractual restriction (including, without
         limitation, the Senior Note Indentures), law or governmental regulation
         or court decree or order binding on or affecting the Borrower or any
         such Obligor; or

                  (c) result in, or require the creation or imposition of, any
         Lien on any of the Borrower's or any other Obligor's properties.

         SECTION 7.3. Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Borrower or any other Obligor of this Agreement
or any other Loan Document to which it is a party. Neither the Borrower nor any
of its Significant Subsidiaries is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.

         SECTION 7.4. Validity, etc. This Agreement constitutes, and each other
Loan Document executed by the Borrower will, on the due execution and delivery
thereof, constitute,

                                       28


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

         SECTION 7.5. Financial Information. The balance sheets of the Borrower
and each of its Subsidiaries as at December 31, 2002 and the related statements
of earnings and cash flow of the Borrower and each of its Subsidiaries, copies
of which have been furnished to the Agent and each Lender, have been prepared in
accordance with GAAP consistently applied, and present fairly the consolidated
financial condition of the corporations covered thereby as at the date thereof
and the results of their operations for the period then ended.

         SECTION 7.6. No Material Adverse Effect. Since December 31, 2002, there
has been no Material Adverse Effect.

         SECTION 7.7. Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrower, threatened litigation, action, proceeding,
investigation, or labor controversy affecting the Borrower or any of its
Significant Subsidiaries, or any of their respective properties, businesses,
assets or revenues, which would reasonably be expected to have a Material
Adverse Effect or which purports to materially and adversely affect the
legality, validity or enforceability of this Agreement or any other Loan
Document.

         SECTION 7.8. Subsidiaries. The Borrower has no Significant
Subsidiaries, except those Significant Subsidiaries which are identified in Item
7.8 ("Existing Significant Subsidiaries") of the Disclosure Schedule. The
organizational chart attached hereto as Schedule 1.1 accurately reflects the
ownership structures of the Borrower's equity interests in its Foreign
Subsidiaries as of the Closing Date.

         SECTION 7.9. Regulations U and X. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock, and no Letter of Credit will be used for a purpose which violates F.R.S.
Board Regulation U or X. Terms for which meanings are provided in F.R.S. Board
Regulation U or X or any regulations substituted therefor, as from time to time
in effect, are used in this Section with such meanings.

         SECTION 7.10. Accuracy of Information. All factual information (which
shall not include projections) heretofore or contemporaneously furnished by or
on behalf of the Borrower in writing to the Agent, any Issuer or any Lender for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all other such factual information hereafter furnished by or on
behalf of the Borrower to the Agent or any Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified

                                       29


(except with respect to the financial statements of Borrower and its
Subsidiaries, which will fairly present the financial condition of the entities
covered thereby as of the date thereof) and, with respect to information
provided prior to the execution of this Agreement, as of the date of execution
and delivery of this Agreement by the Agent and such Lender, and such
information is not, or shall not be, as the case may be, incomplete by omitting
to state any material fact necessary to make such information not misleading.

                                  ARTICLE VIII

                                    COVENANTS

         SECTION 8.1. Covenants. The Borrower agrees with the Agent and each
Lender that, from and after the Closing Date, until all Commitments have
terminated and all Obligations have been paid and performed in full, the
Borrower will perform the obligations set forth in this Section 8.1.

         SECTION 8.1.1. Financial Information, Reports, Notices, etc. The
Borrower will furnish, or will cause to be furnished, to each Lender and the
Agent copies of the following financial statements, reports, notices and
information:

                  (a) as soon as available and in any event within 60 days after
         the end of each of the first three Fiscal Quarters of each Fiscal Year
         of the Borrower, (i) the consolidated balance sheet, statement of
         earnings and cash flow statement of the Borrower and its Subsidiaries
         for such Fiscal Quarter and for the period commencing at the end of the
         previous Fiscal Year and ending with the end of such Fiscal Quarter,
         certified by an Authorized Officer of the Borrower and (ii) a
         consolidating balance sheet and a consolidating statement of earnings
         of the Borrower and its Subsidiaries for such Fiscal Quarter and for
         the period commencing at the end of the previous Fiscal Year and ending
         with the end of such Fiscal Quarter, certified by an Authorized Officer
         of the Borrower;

                  (b) as soon as available and in any event within 120 days
         after the end of each Fiscal Year of the Borrower, (i) a copy of the
         annual audit report for such Fiscal Year for the Borrower and its
         Subsidiaries, including therein the consolidated balance sheet,
         statement of earnings and cash flow statement of the Borrower and its
         Subsidiaries as of the end of such Fiscal Year, in each case certified
         (without any Impermissible Qualification) in a manner acceptable to the
         Agent and the Required Lenders by PricewaterhouseCoopers LLC or other
         independent public accountants acceptable to the Agent and the Required
         Lenders and (ii) a consolidating balance sheet and a consolidating
         statements of earnings of the Borrower and its Subsidiaries as of the
         end of such Fiscal Year, certified by an Authorized Officer of the
         Borrower;

                  (c) as soon as available and in any event within 90 days after
         the end of each Fiscal Year of the Borrower, a consolidated budget for
         the Borrower and its Subsidiaries for the following Fiscal Year, in
         form and substance satisfactory to the Lenders;

                  (d) as soon as possible and in any event within three days
         after the Borrower obtains knowledge of each Default, a statement of an
         Authorized Officer of the Borrower

                                       30


         setting forth details of such Default and the action which the Borrower
         has taken and proposes to take with respect thereto;

                  (e) as soon as possible and in any event within five days
         after the Borrower obtains knowledge of (x) any adverse development
         with respect to any litigation, action, proceeding, or labor
         controversy described in Section 7.7, (y) the commencement of any labor
         controversy, litigation, action, proceeding of the type described in
         Section 7.7, or (z) any other Material Adverse Effect, notice thereof
         and copies of all documentation relating thereto;

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

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

                  (h) such other information respecting the condition or
         operations, financial or otherwise, of the Borrower or any of its
         Significant Subsidiaries as any Lender through the Agent may from time
         to time reasonably request and which the Borrower is legally permitted
         to provide to such Lender.

The Borrower may provide some or all of the information required in clauses (a)
and (b) above by providing copies of its Forms 10-Q and/or 10-K filed with the
Securities and Exchange Commission.

         SECTION 8.1.2. Compliance with Laws, etc. The Borrower will, and will
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include
(without limitation):

                  (a) the maintenance and preservation of its existence and, if
         applicable, qualification as a foreign corporation or comparable
         entity; and

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

                                       31


         SECTION 8.1.3. Books and Records. The Borrower will, and will cause
each of its Subsidiaries to, keep books and records which accurately reflect all
of its business affairs and transactions and permit the Agent or any of its
representatives or any Lender, at reasonable times and intervals, to visit all
of its offices, to discuss its financial matters with its officers and
independent public accountant (and the Borrower hereby authorizes such
independent public accountant to discuss the Borrower's financial matters with
the Agent or its representatives whether or not any representative of the
Borrower is present) and to examine (and, at the expense of the Borrower,
photocopy extracts from) any of its books or other corporate records. The
Borrower shall pay any fees of such independent public accountant incurred in
connection with the exercise by the Agent of its rights pursuant to this
Section; provided, however, after the occurrence and during the continuance of
any Default, the Borrower shall pay for all fees of such independent accountants
incurred with each exercise by the Agent or any Lender of its rights pursuant to
this Section.

                                   ARTICLE IX

                                EVENTS OF DEFAULT

         SECTION 9.1. Listing of Events of Default. Each of the following events
or occurrences described in this Section 9.1 shall constitute an "Event of
Default".

         SECTION 9.1.1. Non-Payment of Obligations. The Borrower shall default
in the payment when due of any Reimbursement Obligation, or the Borrower shall
default (and such default shall continue unremedied for a period of five days)
in the payment when due of interest on any such Reimbursement Obligation, any
fee or of any other Obligation.

         SECTION 9.1.2. Breach of Warranty. Any representation or warranty of
the Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the Borrower or any other Obligor to the Agent or any Lender
for the purposes of or in connection with this Agreement or any such other Loan
Document (including any certificates delivered pursuant to Article VI) is or
shall be incorrect when made in any material respect.

         SECTION 9.1.3. Non-Performance of Covenants and Obligations. Any
Obligor shall default in the due performance and observance of any agreement
contained herein or in any other Loan Document executed by it, and such default
shall continue unremedied for a period of 30 days after notice thereof shall
have been given to the Borrower by the Agent or any Lender (or such longer
period as the Required Lenders in their discretion, may agree, provided that
such Obligor has commenced such cure within such 30 day period and thereafter
diligently pursues such cure to completion).

         SECTION 9.1.4. Default on Other Indebtedness. (a) A default shall occur
in the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 9.1.1) of the Borrower or any of its Significant
Subsidiaries or any other Obligor having a principal amount, individually or in
the aggregate, in excess of $10,000,000, (b) a default shall occur in the
performance or observance of any obligation or condition with respect to such
Indebtedness if

                                       32


the effect of such default is to accelerate the maturity of any such
Indebtedness or, in the case of the Borrower only, such default shall continue
unremedied for any applicable period of time sufficient to permit the holder or
holders of such Indebtedness, or any trustee or agent for such holders, to cause
such Indebtedness to become due and payable prior to its expressed maturity (and
notice of such default has been given to the relevant borrower), (c) a default
shall occur in the performance or observance of any obligation or condition with
respect to the Borrower's debt securities issued to a Trust or to any
Indebtedness of any Significant Subsidiary (other than CCFCI and CCFCII) or
Obligor, in either case having a principal amount in excess of $10,000,000, and,
as a result thereof, the holder or holders of such debt securities or such
Indebtedness, or any trustee or agent for such holders, causes such securities
or Indebtedness to be repaid more quickly than theretofore scheduled, whether
through the introduction of a "cash sweep," the increase of an existing "cash
sweep" or otherwise, or (d) a default of a type described in clause (b) above
shall occur with respect to any Indebtedness of CCFCI or CCFCII having an unpaid
principal amount in excess of $10,000,000 (whether or not such default actually
results in the acceleration of the applicable Indebtedness) and, as a result
thereof, the holder or holders of such debt securities or such Indebtedness, or
any trustee or agent for such holders, causes such securities or Indebtedness to
be repaid more quickly than theretofore scheduled, whether through the
introduction of a "cash sweep," the increase of an existing "cash sweep" or
otherwise.

         SECTION 9.1.5. Judgments. Any final judgment or order (not covered by
insurance) for the payment of money shall be rendered against the Borrower or
any Significant Subsidiary or any other Obligor in an amount in excess of
$25,000,000 (or its foreign currency equivalent) (treating any deductibles,
self-insurance or retention as not so covered) which is not stayed or discharged
within 30 days after entry of such final judgment or order, and there shall be
any period of more than 30 consecutive days following entry of the final
judgment or order in excess of $25,000,000 (or its foreign currency equivalent)
during which a stay of enforcement of such final judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect.

         SECTION 9.1.6. Pension Plans. Any of the following events shall occur
with respect to any Pension Plan

                  (a) the institution of any steps by the Borrower, any member
         of its Controlled Group or any other Person to terminate a Pension Plan
         if, as a result of such termination, the Borrower or any such member
         could be required to make a contribution to such Pension Plan, or could
         reasonably expect to incur a liability or obligation to such Pension
         Plan, in excess of $10,000,000; or

                  (b) a contribution failure occurs with respect to any Pension
         Plan sufficient to give rise to a Lien under Section 302(f) of ERISA.

         SECTION 9.1.7. Bankruptcy, Insolvency, etc. The Borrower or any of its
Significant Subsidiaries or any other Obligor shall

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

                                       33


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

                  (c) in the absence of such application, consent or
         acquiescence, permit or suffer to exist the appointment of a trustee,
         receiver, sequestrator or other custodian for the Borrower or any of
         its Significant Subsidiaries or any other Obligor or for a substantial
         part of the property of any thereof, and such trustee, receiver,
         sequestrator or other custodian shall not be discharged within 60 days,
         provided that the Borrower, each Significant Subsidiary and each other
         Obligor hereby expressly authorizes the Agent and each Lender to appear
         in any court conducting any relevant proceeding during such 60-day
         period to preserve, protect and defend their rights under the Loan
         Documents;

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

                  (e) take any action authorizing any of the foregoing.

         SECTION 9.1.8. Impairment of Security, etc. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto; or the
Borrower, any other Obligor or any Subsidiary shall, directly or indirectly,
contest in any manner such effectiveness, validity, binding nature or
enforceability; or any Lien securing any Obligation shall, in whole or in part,
cease to be a perfected first priority Lien, subject only to those exceptions
expressly permitted by such Loan Document.

         SECTION 9.2. Action if Event of Default. If any Event of Default shall
occur for any reason, whether voluntary or involuntary, and be continuing, the
Agent, upon the direction of the Required Lenders, shall by notice to the
Borrower declare that all Commitments (if not theretofore terminated) be
terminated, whereupon without further notice, the Commitments shall terminate
and the Agent may exercise any and all remedies available under the Loan
Documents and applicable law, including withdrawing amounts from the Cash
Collateral Account pursuant to Section 4.7.

                                       34


                                   ARTICLE X

                                    THE AGENT

         SECTION 10.1. Actions. Each Lender hereby appoints Scotia Capital as
its Agent under and for purposes of this Agreement and each other Loan Document.
Each Lender authorizes the Agent to act on behalf of such Lender under this
Agreement and each other Loan Document and, in the absence of other written
instructions from the Required Lenders received from time to time by such Person
(with respect to which such Person agrees that it will comply, except as
otherwise provided in this Section or as otherwise advised by counsel), to
exercise such powers hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof, together with such
powers as may be reasonably incidental thereto. Each Lender hereby indemnifies
(which indemnity shall survive any termination of this Agreement) the Agent, pro
rata according to such Lender's Percentage, from and against any and all
liabilities, obligations, losses, damages, claims, costs or expenses of any kind
or nature whatsoever which may at any time be imposed on, incurred by, or
asserted against, the Agent in any way relating to or arising out of this
Agreement and any other Loan Document, including reasonable attorneys' fees, and
as to which the Agent is not reimbursed by the Borrower; provided, however, that
no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, claims, costs or expenses which are determined by
a court of competent jurisdiction in a final proceeding to have resulted from
the Agent's gross negligence or willful misconduct. The Agent shall not be
required to take any action hereunder or under any other Loan Document, or to
prosecute or defend any suit in respect of this Agreement or any other Loan
Document, unless it is indemnified hereunder to its satisfaction. If any
indemnity in favor of the Agent shall be or become, in the Agent's
determination, inadequate, the Agent may call for additional indemnification
from the Lenders and cease to do the acts indemnified against hereunder until
such additional indemnity is given.

         SECTION 10.2. Exculpation. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable to any Lender for any action taken
or omitted to be taken by it under this Agreement or any other Loan Document, or
in connection herewith or therewith, except for its own willful misconduct or
gross negligence, nor responsible for any recitals or warranties herein or
therein, nor for the effectiveness, enforceability, validity or due execution of
this Agreement or any other Loan Document, nor for the creation, perfection or
priority of any Liens purported to be created by any of the Loan Documents, or
the validity, genuineness, enforceability, existence, value or sufficiency of
any collateral security, nor to make any inquiry respecting the performance by
the Borrower of its obligations hereunder or under any other Loan Document. Any
such inquiry which may be made by the Agent shall not obligate it to make any
further inquiry or to take any action. The Agent shall be entitled to rely upon
advice of counsel concerning legal matters and upon any notice, consent,
certificate, statement or writing which it believes to be genuine and to have
been presented by a proper Person.

         SECTION 10.3. Successor. The Agent may resign as such at any time upon
at least 30 days' prior notice to the Borrower and all Lenders. If the Agent at
any time shall resign, the Required Lenders may appoint another Lender as a
successor thereto which shall thereupon become the Agent, as applicable,
hereunder. If no successor shall have been so appointed by the Required Lenders,
and shall have accepted such appointment, within 30 days after the retiring

                                       35


Agent's giving notice of resignation, then the retiring Person may, on behalf of
the Lenders, appoint a successor, which shall be one of the Lenders or a
commercial banking institution organized under the laws of the U.S. (or any
State thereof) or a U.S. branch or agency of a commercial banking institution,
and having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor shall be entitled to receive from the retiring Agent such documents of
transfer and assignment as such successor may reasonably request, and shall
thereupon succeed to and become vested with all rights, powers, privileges and
duties of the retiring Agent, as applicable, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent's resignation hereunder as the Agent, the provisions of

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

                  (b) Section 11.3 (with respect to expenses incurred prior to
         resignation) and Section 11.4 shall continue to inure to its benefit.

         SECTION 10.4. Letters of Credit Issued by Agent or any Issuer.

                  (a) The Agent shall have the same rights and powers with
         respect to its participating interests in the Letters of Credit as any
         other Lender and may exercise the same as if it were not the Agent. The
         Agent and its Affiliates may accept deposits from, lend money to, and
         generally engage in any kind of business with the Borrower or any
         Subsidiary or Affiliate of the Borrower as if such Person were not the
         Agent hereunder.

                  (b) Each Issuer shall have the same rights and powers with
         respect to its participating interests in the Letters of Credit as any
         other Lender and may exercise the same as if it were not an Issuer.
         Each Issuer and its Affiliates may accept deposits from, lend money to,
         and generally engage in any kind of business with the Borrower or any
         Subsidiary or Affiliate of the Borrower as if it were not an Issuer
         hereunder.

         SECTION 10.5. Credit Decisions. Each Lender acknowledges that it has,
independently of the Agent and each other Lender, and based on such Lender's
review of the financial information of the Borrower, this Agreement, the other
Loan Documents (the terms and provisions of which being satisfactory to such
Lender) and such other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend its Commitments.
Each Lender also acknowledges that it will, independently of the Agent and each
other Lender, and based on such other documents, information and investigations
as it shall deem appropriate at any time, continue to make its own credit
decisions as to exercising or not exercising from time to time any rights and
privileges available to it under this Agreement or any other Loan Document.

         SECTION 10.6. Copies, etc. The Agent shall give prompt notice to each
Lender of each notice or request required or permitted to be given to the Agent
by the Borrower pursuant to the terms of this Agreement (unless concurrently
delivered to the Lenders by the Borrower). The Agent will distribute to each
Lender each document or instrument received for its account and

                                       36


copies of all other communications received by the Agent from the Borrower for
distribution to the Lenders by the Agent in accordance with the terms of this
Agreement.

         SECTION 10.7. Collateral Matters.

                  (a) Each of the Lenders hereby acknowledges and agrees that
         Liens upon the Collateral granted to or held by the Agent under any
         Loan Document will be released:

                           (i)      in whole, upon termination of the
                  Commitments and payment in full of all Obligations (other than
                  contingent indemnification obligations) and the expiration or
                  termination of all Letters of Credit;

                           (ii)     to the extent permitted by Section 11.1(e);
                  and

                           (iii)    if requested by the Borrower, to the extent
                  the amount then on deposit in the Cash Collateral Account
                  exceeds an amount equal to the sum of the Letter of Credit
                  Outstandings and all other Obligations then outstanding.

                  (b) Each Lender hereby authorizes the Agent to act under the
         Cash Collateral Agreement to release the Agent's Lien on applicable
         Collateral only to the extent set forth in clause (a) above.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

         SECTION 11.1. Waivers, Amendments, etc. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and the Required Lenders; provided, however, that
no such amendment, modification or waiver which would:

                  (a) modify this Section 11.1 or modify any requirement
         hereunder that any particular action be taken by all the Lenders or by
         the Required Lenders shall be effective unless consented to by each
         Lender;

                  (b) modify any requirement hereunder that any particular
         action be taken by the Required Lenders or change the definition of
         "Required Lenders" shall be effective unless consented to by each
         Lender;

                  (c) increase the Commitment Amount of any Lender or the
         Percentage of any Lender shall be made without the consent of such
         Lender or extend the Commitment Termination Date or change any
         provision expressly requiring the consent of all Lenders shall be made
         without the consent of each Lender;

                                       37


                  (d) reduce any fees described in Article III shall be made
         without the consent of each Lender affected thereby;

                  (e) authorize the release of any Lien created by a Loan
         Document shall be effective without the consent of Lenders having 100%
         of the aggregate of all Letter of Credit Outstandings and unfunded
         Commitments on such date;

                  (f) extend the due date for, or reduce the amount of, any
         Reimbursement Obligation for a Letter of Credit which has been drawn
         shall be made without the consent of the Issuer thereof and each
         Lender;

                  (g) affect adversely the interests, rights or obligations of
         an Issuer qua an Issuer shall be made without the consent of such
         Issuer; or

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

In addition, Section 10.2 shall not be amended without the consent of the Agent.
No failure or delay on the part of the Agent or any Lender in exercising any
power or right under this Agreement or any other Loan Document shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power or
right preclude any other or further exercise thereof or the exercise of any
other power or right. No notice to or demand on the Borrower in any case shall
entitle it to any notice or demand in similar or other circumstances. No waiver
or approval by the Agent or any Lender under this Agreement or any other Loan
Document shall, except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.

         SECTION 11.2. Notices. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party at
its address or facsimile number set forth below its signature hereto or set
forth in the Lender Assignment Agreement or at such other address or facsimile
number as may be designated by such party in a notice to the other parties. Any
notice, if mailed and properly addressed with postage prepaid or if properly
addressed and sent by pre-paid courier service, shall be deemed given when
received; any notice, if transmitted by facsimile, shall be deemed given when
transmitted.

         SECTION 11.3. Payment of Costs and Expenses. The Borrower agrees to pay
on demand all reasonable expenses of the Agent (including the reasonable fees
and out-of-pocket expenses of a single counsel to the Agent, and of local
counsel, if any, who may be retained by counsel to the Agent) in connection with

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

                                       38


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

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

         SECTION 11.4. Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds the Agent, the Issuers and
each Lender and each of their respective Affiliates, officers, directors,
employees and agents, and each other person controlling any of the foregoing
within the meaning of either Section 15 of the Securities Act of 1933, as
amended, or Section 20 of the Securities Exchange Act of 1934, as amended
(collectively, the "Indemnified Parties"), free and harmless from and against
any and all actions, causes of action, suits, losses, costs, claims, liabilities
and damages, and expenses incurred by any Indemnified Party in connection
therewith (irrespective of whether any such Indemnified Party is a party to the
action for which indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"),
incurred by the Indemnified Parties or any of them as a result of, or arising
out of, or relating to

                  (a) any transaction financed or to be financed in whole or in
         part, directly or indirectly, with the use of any Letter of Credit;

                  (b) the entering into and performance of this Agreement and
         any other Loan Document by any of the Indemnified Parties (including
         any action brought by or on behalf of the Borrower as the result of the
         Required Lenders' refusal to make any Credit Extension as a result of
         the Borrower's failure to satisfy the conditions in Article VI hereof
         but not including any breach of this Agreement or any other Loan
         Document by the Agent or any of the Lenders);

                  (c) any investigation, litigation or proceeding related to any
         acquisition or proposed acquisition by the Borrower or any of its
         Subsidiaries of all or any portion of the stock or assets of any
         Person, whether or not the Agent or such Lender is party thereto;

                  (d) any investigation, litigation or proceeding related to any
         environmental cleanup, audit, compliance or other matter relating to
         the protection of the environment or the Release by the Borrower or any
         of its Subsidiaries of any Hazardous Material; or

                  (e) the presence on or under, or the escape, seepage, leakage,
         spillage, discharge, emission, discharging or releases from, any real
         property owned or operated by the

                                       39


         Borrower or any Subsidiary thereof of any Hazardous Material (including
         any losses, liabilities, damages, injuries, costs, expenses or claims
         asserted or arising under any Environmental Law), regardless of whether
         caused by, or within the control of, the Borrower or such Subsidiary,

except for any such Indemnified Liabilities resulting from, arising out of or
relating to the relevant Indemnified Party's gross negligence or willful
misconduct. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. In addition to the
foregoing, the Borrower hereby waives any and all rights to seek or obtain
consequential damages from any Indemnified Party.

         The Lenders agree to indemnify each Issuer with respect to any acts
taken or omissions suffered by the Issuer in connection with each Letter of
Credit issued by it or proposed to be issued by it and the related Issuance
Request (to the extent not reimbursed by the Borrower), ratably according to
their respective Percentages, from and against any and all claims, damages,
losses, liabilities and expenses (including without limitation, reasonable fees
and disbursements of counsel) of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against any Issuer in any way relating to
or arising out of any of the Loan Documents or the Letters of Credit or any
action taken or omitted by such Issuer under the Loan Documents or the Letters
of Credit (EXPRESSLY INCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR
EXPENSE ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF THE
ISSUER, BUT EXCLUDING ANY SUCH CLAIM, DAMAGE, LOSS, LIABILITY OR EXPENSE
ATTRIBUTABLE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ISSUER). IT IS
THE INTENT OF THE PARTIES HERETO THAT THE ISSUER SHALL, TO THE EXTENT PROVIDED
IN THIS SECTION 11.4, BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY
NEGLIGENCE. Without limitation of the foregoing, each Lender agrees to reimburse
each Issuer promptly upon demand for such Lender's ratable share of any
reasonable out-of-pocket expenses (including reasonable counsel fees) incurred
by such Issuer in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, the Loan Documents or the Letters of Credit,
or any of them, to the extent that the Issuer is not reimbursed for such
expenses by the Borrower.

         SECTION 11.5. Survival. The obligations of the Borrower under Sections
5.1, 5.2, 11.3 and 11.4, and the obligations of the Lenders under Section 10.1,
shall in each case survive any termination of this Agreement, the payment in
full of all Obligations and the termination of all Commitments. The
representations and warranties made by each Obligor in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.

         SECTION 11.6. Severability. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.

                                       40


         SECTION 11.7. Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.

         SECTION 11.8. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be executed by the Borrower and the Agent and be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when counterparts hereof
executed on behalf of the Borrower and each Lender (or notice thereof
satisfactory to the Agent) shall have been received by the Agent, and the
conditions precedent set forth in Section 6.1 shall have been satisfied.

         SECTION 11.9. Governing Law; Entire Agreement. THIS AGREEMENT AND EACH
OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK. This Agreement and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersede any prior agreements, written or oral, with respect thereto.

         SECTION 11.10. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:

                  (a) the Borrower may not assign or transfer its rights or
         obligations hereunder without the prior written consent of the Agent
         and all Lenders; and

                  (b) the rights of sale, assignment and transfer of the Lenders
         are subject to Section 11.11.

         SECTION 11.11. Sale and Transfer of Commitments; Participations in
Commitments. Each Lender may assign, or sell participations in its Commitments
to one or more other Persons in accordance with this Section 11.11.

         SECTION 11.11.1. Assignments. Any Lender, with the written consent of
the Borrower and the Agent (which consents shall not be unreasonably withheld
and which consent, in the case of the Borrower, shall be deemed to have been
given in the absence of a written notice delivered by the Borrower to the Agent,
on or before the fifth Business Day after receipt by the Borrower of such
Lender's request for consent, stating, in reasonable detail, the reasons why the
Borrower proposes to withhold such consent and which consent shall not be
required from the Borrower after the occurrence and during the continuance of an
Event of Default) and each Issuer (which consent may be granted or withheld in
its sole unfettered discretion) may at any time assign and delegate its
Commitments to one or more commercial banks or other financial institutions;
provided that, in addition to the consents of the Agent and each Issuer as set
forth above, only notice to and not the consent of the Borrower shall be
required for the assignment and delegation of Commitments to any Affiliate of
such Lender or to any other Lender or an Affiliate of any

                                       41


other Lender, and (each Person described in the foregoing clause as being the
Person to whom such assignment and delegation is to be made, being hereinafter
referred to as an "Assignee Lender"), which assignment and delegation shall be
of a constant, and not a varying, percentage of all the assigning Lender's
Commitments and other interests, in a minimum aggregate amount of $5,000,000;
provided, however, that any such Assignee Lender will comply, if applicable,
with the provisions contained in Section 5.2 and further, provided, however,
that, the Borrower, each other Obligor and the Agent shall be entitled to
continue to deal solely and directly with such Lender in connection with the
interests so assigned and delegated to an Assignee Lender until

                  (i)      written notice of such assignment and delegation,
         together with payment instructions, addresses and related information
         with respect to such Assignee Lender, shall have been given to the
         Borrower and the Agent by such Lender and such Assignee Lender,

                  (ii)     such Assignee Lender shall have executed and
         delivered to the Borrower and the Agent a Lender Assignment Agreement,
         and to the extent and on the terms required herein, such agreement
         shall have been accepted by the Agent and the Borrower, and

                  (iii)    the processing fees described below shall have been
         paid.

From and after the date that the Agent accepts such Lender Assignment Agreement,
(x) the Assignee Lender thereunder shall be deemed automatically to have become
a party hereto and to the extent that rights and obligations hereunder have been
assigned and delegated to such Assignee Lender in connection with such Lender
Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and under the other Loan Documents, and (y) the assignor Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan Documents with
respect to obligations arising after the date of assignment. Such assignor
Lender or such Assignee Lender must pay a processing fee to the Agent upon
delivery of any Lender Assignment Agreement in the amount of $3,000. Any
attempted assignment and delegation not made in accordance with this Section
11.11.1 shall be null and void. In addition to the foregoing, and
notwithstanding any other provision hereof, (i) any Lender may at any time
without notice to or consent by any other Person assign its rights under this
Agreement to any Federal Reserve Bank and (ii) the Agent shall provide notice to
the Lenders of any assignments by it under this Section 11.11.1.

         SECTION 11.11.2. Participations. Any Lender may at any time sell to one
or more commercial banks or other Persons (each of such commercial banks and
other Persons being herein called a "Participant") a sub-participating interest
in the Commitments, or other interests of such Lender hereunder; provided,
however, that

                  (a) no sub-participation contemplated in this Section 11.11
         shall relieve such Lender from its Commitments or its other obligations
         hereunder or under any other Loan Document,

                                       42


                  (b) such Lender shall remain solely responsible for the
         performance of its Commitments and such other obligations,

                  (c) the Borrower and each other Obligor and the Agent shall
         continue to deal solely and directly with such Lender in connection
         with such Lender's rights and obligations under this Agreement and each
         of the other Loan Documents,

                  (d) no Participant, unless such Participant is an Affiliate of
         such Lender, or is itself a Lender, shall be entitled to require such
         Lender to take or refrain from taking any action hereunder or under any
         other Loan Document, and

                  (e) the Borrower shall not be required to pay any amount under
         Section 5.2 that is greater than the amount which it would have been
         required to pay had no participating interest been sold.

The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 5.1, 5.2, 5.4, 5.5, 11.3 and 11.4, shall be considered a Lender.

         SECTION 11.12. Other Transactions. Nothing contained herein shall
preclude the Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.

         SECTION 11.13. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE
LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK OR IN ANY MANNER PROVIDED BY LAW. THE BORROWER
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF
ANY SUCH LITIGATION BROUGHT

                                       43


IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

         SECTION 11.14. Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION AMONG ANY OF THE AGENT,
THE LENDERS AND THE BORROWER BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND
EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS
ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.

         SECTION 11.15. Confidentiality. The Lenders shall hold all non-public
information (which has been identified as such by the Borrower) obtained
pursuant to the requirements of this Agreement in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to any of their examiners, their Affiliates, outside auditors,
counsel and other professional advisors in connection with this Agreement or as
reasonably required by any bona fide transferee, participant or assignee or as
required or requested by any governmental agency or representative thereof or
pursuant to legal process; provided, however, that

                  (a) unless specifically prohibited by applicable law or court
         order, each Lender shall notify the Borrower of any request by any
         governmental agency or representative thereof (other than any such
         request in connection with an examination of the financial condition of
         such Lender by such governmental agency) for disclosure of any such
         non-public information prior to disclosure of such information;

                  (b) prior to any such disclosure pursuant to this Section
         11.15, each Lender shall require any such bona fide transferee,
         participant and assignee receiving a disclosure of non-public
         information to agree in writing

                           (i)      to be bound by this Section 11.15;

                                       44


                           (ii)     to require such Person to require any other
                  Person to whom such Person discloses such non-public
                  information to be similarly bound by this Section 11.15;

                  (c) except as may be required by an order of a court of
         competent jurisdiction and to the extent set forth therein, no Lender
         shall be obligated or required to return any materials furnished by the
         Borrower or any Subsidiary; and

                  (d) to any direct or indirect contractual counterparty in swap
         agreements or to such contractual counterparty's advisor (so long as
         such contractual counterparty or advisor agrees to be bound by the
         provisions of this Section 11.15).

Notwithstanding anything herein to the contrary, the parties to this Agreement
(and their employees, representatives or other agents) may disclose to any and
all persons, without limitation of any kind, the federal income tax treatment
and tax structure of the transactions contemplated by this Agreement and all
materials of any kind (including opinions or other tax analyses) relating to
such tax treatment and tax structure. However, no such party shall disclose any
information relating to such tax treatment or tax structure to the extent
nondisclosure is reasonably necessary in order to comply with applicable
securities laws. For this purpose, "tax structure" is limited to facts relevant
to the U.S. federal income tax treatment of the transactions contemplated by
this Agreement and does not include information relating to the identity of the
Borrower, its affiliates, agents or advisors.

                                       45


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.

                                   CALPINE CORPORATION

                                   By: /s/ Michael Thomas
                                       -----------------------------------------
                                       Name: Michael Thomas
                                       Title: Senior Vice President - Treasurer

                                   Address: 50 West San Fernando Avenue
                                            San Jose, CA 95113

                                   Facsimile No.: (408) 995-0505

                                   Attention: Senior Vice President - Treasurer

                                       46


                                  THE BANK OF NOVA SCOTIA,
                                  as Agent

                                  By: /s/ Denis P. O'Meara
                                      ------------------------------------------
                                       Name: Denis P. O'Meara
                                       Title: Managing Director

                                  Address: Scotia Capital
                                           One Liberty Plaza
                                           New York, NY 10006

                                  Facsimile No.: (212) 225-5480

                                  Attention: Denis P. O'Meara

                                  with a copy to: The Bank of Nova Scotia
                                                  600 Peachtree Street N.E.
                                                  Suite 2700
                                                  Atlanta, GA 30308

                                  Facsimile No.: (404) 888-8998

                                  Attention: Hilma Gabbidon
                                             Administrative Agent
                                             Loan Administration

                                       47


                                  LENDERS

                                  THE BANK OF NOVA SCOTIA

                                  By: /s/ Denis P. O'Meara
                                      ------------------------------------------
                                      Name: Denis P. O'Meara
                                      Title: Managing Director

                                  Address: Scotia Capital
                                           One Liberty Plaza
                                           New York, NY 10006

                                  Facsimile No.: (212) 225-5480

                                  Attention: Denis P. O'Meara

                                  with a copy to: The Bank of Nova Scotia
                                                  600 Peachtree Street N.E.
                                                  Suite 2700
                                                  Atlanta, GA 30308

                                  Facsimile No.: (404) 888-8998

                                  Attention: Hilma Gabbidon
                                             Administrative Agent
                                             Loan Administration

                                       48


                                                                      SCHEDULE I

                               DISCLOSURE SCHEDULE

ITEM 7.8  EXISTING SIGNIFICANT SUBSIDIARIES:

Calpine Construction Finance Company, L.P.
Calpine Construction Finance Company II, LLC
Calpine Canada Resources Company
Calpine Canada Natural Gas Company
Calpine Canada Energy Limited
Calpine Calgary, Inc.
Calpine Natural Gas Holdings, LLC
Calpine Central Inc.
Calpine Energy Services, LP
CPN Energy Services, LP, Inc.
Geysers Power Company, LLC
Thermal Power Company
Geysers Power I Company
Calpine Construction Finance Company I, LLC Calpine CCFC II Holdings, Inc.

                                       49


                                                                     SCHEDULE II

                                   PERCENTAGES

THE BANK OF NOVA SCOTIA                       100%

                                       50


                                                                    SCHEDULE 1.1

                              ORGANIZATIONAL CHART

SEE ATTACHED.

                                       51


                                                                   SCHEDULE 4.10

EXISTING LETTERS OF CREDIT



BNS L/S                    BENEFICIARY                                      AMOUNT
- --------------------------------------------------------------------------------------
                                                                 
026               Port Authority of New York                           $  1,500,000.00
08L0348           Ford Motor Credit Company                            $     52,000.00
08L0349           Ford Motor Credit Company                            $  1,500,000.00
S001              Tampa Electric                                       $    592,200.00
S016              Chase Manhattan Bank                                 $    491,652.00
S017              Chase Manhattan Bank                                 $  2,214,661.00
S024              BNY Western Trust Co.                                $  2,700,000.00
S046              Public Utility District No.1 Klickitat               $  8,305,517.00
S047              Public Service of Colorado                           $ 28,100,000.00
S048              Public Service of Colorado                           $ 14,000,000.00
S049              Equistar Chemicals L.P.                              $  2,400,000.00
S060              ISO New England                                      $  2,600,000.00
SO62              Southern Company Services, Inc.                      $    100,000.00
SO63              American Transmission Systems, Inc.                  $  1,143,000.00
SO64              Duke Energy Trading and Marketing, L.L.C             $  7,095,000.00
SO65              Carolina Power & Light Company                       $  5,200,000.00
S066              Wisconsin Power & Light Company                      $  4,629,170.00
S067              PG&E Gas Transmission, Northwest                     $  3,922,266.00
S002/02           Southern Companies Services, Inc.                    $    150,000.00
S003/02           Southern Companies Services, Inc.                    $  1,100,000.00
S008/02           Connecticut Municipal Electric Energy Cooperative    $  1,000,000.00
S011/02           Mobile Gas Service Corp.                             $  2,300,000.00
S017/02           Liberty Mutual Insurance Co.                         $  3,100,000.00
S018/02           Kemper Surplus Lines Insurance Company               $  1,000,000.00
S026/02           Montreal Trust Company of Canada                     $  3,750,000.00
S027/02           The Bank of Nova Scotia Trust Company of New York    $  3,374,000.00
S029/02           TransCanada PipeLines Limited                        $  1,450,000.00
S031/02           Florida Power & Light                                $  3,444,518.00
S032/02           Kemper, et al                                        $  3,287,500.00
S034/02           TransCanada PipeLines Ltd.                           $  3,900,000.00
S053/02           Alabama Power Company                                $     70,000.00
90503/80085       Pengrowth Corporation                                $  7,200,000.00
90505/80085       Kinder Morgan Texas Pipeline                         $  3,000,000.00
90506/80085       Southern Company Services                            $    175,000.00
90507/80085       Bureau of Land Management                            $    100,000.00


                                       52





                                                                        Pound
                                                                       Streling
                                                                      L/C Amount
                                                         
BPG 0801-001      BP Gas Marketing Limited                    $ 57,932,000.00 (35,000,000.00)
NGC Gtee          National Grid Company                       $ 10,386,127.50 ( 6,274,847.45)
BPG 0801-003      Elexon Clear Limited                        $  4,634,560.00 ( 2,800,000.00)
NGC LC            National Grid Company                       $  1,254,858.43 (  758,131.00)
0054/02           CSFB                                        $ 38,354,030.00
0055/02           El Paso Merchant Energy                     $ 15,000,000.00
0058/02           Tennessee Valley Authority                  $  1,000,000.00
0059/02           Tampa Electric Company                      $    551,211.00
0060/02           Tampa Electric Company                      $ 13,156,290.00
0062/02           San Diego Gas and Electric                  $  2,312,000.00
0071/02           Wild Goose Storage                          $    405,000.00
0072/02           Tennessee Valley Authority                  $ 10,000,000.00
0092/02           American Transmission Company LLC           $  1,802,500.00
099/02            Gulf South Pipeline Company, L.P.           $  3,420,000.00
0100/02           Algonquin Gas Transmission Company          $  2,500,000.00
0101/02           Wisconsin Electric Power Company            $ 10,000,000.00
0117/02           Progress Energy                             $    600,000.00
0014/03           Tennessee Valley Authority                  $  3,000,000.00
0015/03           Acadia Power Partners                       $ 13,000,000.00
0016/03           Acadia Power Partners                       $ 15,000,000.00
0018/03                                                       $    626,960.00
0019/03                                                       $    750,000.00
0034/03                                                       $  3,000,000.00
0035/03                                                       $ 13,651,000.00
                                                              ---------------
                  Total LCs Outstanding                       $355,083,602.93


                                       53

EX-10.19

                                                                   Exhibit 10.19

                                                                  EXECUTION COPY

================================================================================

                       GUARANTEE AND COLLATERAL AGREEMENT

                                     made by

                              CALPINE CORPORATION,

                         QUINTANA MINERALS (USA), INC.,

                                JOQ CANADA, INC.

                                       and

                          QUINTANA CANADA HOLDINGS LLC

                                   in favor of

                              THE BANK OF NEW YORK,
                              as Collateral Trustee

                            Dated as of July 16, 2003

================================================================================



                                TABLE OF CONTENTS



                                                                                                                   Page
                                                                                                                   ----
                                                                                                                
SECTION 1.        DEFINED TERMS...................................................................................   2
         1.1      Definitions.....................................................................................   2
         1.2      Other Definitional Provisions...................................................................   4

SECTION 2.        GUARANTEE.......................................................................................   4
         2.1      Guarantee.......................................................................................   4
         2.2      Right of Contribution...........................................................................   5
         2.3      No Subrogation..................................................................................   5
         2.4      Amendments, etc. with respect to the Secured Obligations........................................   5
         2.5      Guarantee Absolute and Unconditional............................................................   6
         2.6      Reinstatement...................................................................................   6
         2.7      Payments........................................................................................   7

SECTION 3.        GRANT OF SECURITY INTEREST......................................................................   7

SECTION 4.        REPRESENTATIONS AND WARRANTIES..................................................................   8
         4.1      Title; No Other Liens...........................................................................   8
         4.2      Perfected First Priority Liens..................................................................   8
         4.3      Jurisdiction of Organization; Chief Executive Office............................................   9
         4.4      Inventory and Equipment.........................................................................   9
         4.5      Farm Products...................................................................................   9
         4.6      [Intentionally Omitted].........................................................................   9
         4.7      Receivables.....................................................................................   9
         4.8      Intellectual Property...........................................................................   9

SECTION 5.        COVENANTS.......................................................................................   9
         5.1      Delivery of Instruments, Certificated Securities and Chattel Paper..............................   9
         5.2      Maintenance of Insurance........................................................................   9
         5.3      Maintenance of Perfected Security Interest; Further Documentation..............................   10
         5.4      Changes in Locations, Name, etc................................................................   10
         5.5      [Intentionally Omitted]........................................................................   10

SECTION 6.        REMEDIAL PROVISIONS............................................................................   10
         6.1      Proceeds to be Turned Over To Collateral Trustee...............................................   10
         6.2      Application of Proceeds........................................................................   11
         6.3      Code and Other Remedies........................................................................   11
         6.4      Deficiency.....................................................................................   11

SECTION 7.        THE COLLATERAL TRUSTEE.........................................................................   11
         7.1      Duty of Collateral Trustee.....................................................................   11
         7.2      Execution of Financing Statements..............................................................   12
         7.3      Authority of Collateral Trustee................................................................   12

SECTION 8.        MISCELLANEOUS..................................................................................   12
         8.1      Amendments in Writing..........................................................................   12
         8.2      Notices........................................................................................   12
         8.3      No Waiver by Course of Conduct; Cumulative Remedies............................................   12


                                       i


                                                                                                                 
         8.4      Enforcement Expenses; Indemnification..........................................................   13
         8.5      Successors and Assigns.........................................................................   13
         8.6      Set-Off........................................................................................   13
         8.7      Counterparts...................................................................................   14
         8.8      Severability...................................................................................   14
         8.9      Section Headings...............................................................................   14
         8.10     Integration....................................................................................   14
         8.11     GOVERNING LAW..................................................................................   14
         8.12     Submission To Jurisdiction; Waivers............................................................   14
         8.13     Acknowledgements...............................................................................   15
         8.14     Additional Grantors............................................................................   15
         8.15     Releases; Termination..........................................................................   15
         8.16     WAIVER OF JURY TRIAL...........................................................................   15



SCHEDULES

Schedule 1        Notice Addresses

Schedule 2        Perfection Matters

Schedule 3        Jurisdictions of Organization and Chief Executive Offices

Schedule 4A       Oil and Gas Inventory and Equipment Locations

Schedule 4B       Other Inventory and Equipment Locations

Schedule 5        Intellectual Property

                                       ii


                       GUARANTEE AND COLLATERAL AGREEMENT

                  GUARANTEE AND COLLATERAL AGREEMENT, dated as of July 16, 2003,
made by Calpine Corporation (the "Company") and each of the signatories hereto
(together with the Company and any other entity that may become a party hereto
as provided herein, the "Grantors"), in favor of The Bank of New York, as
Collateral Trustee (in such capacity, the "Collateral Trustee") for the benefit
of the Secured Parties (as defined below).

                              W I T N E S S E T H:

                  WHEREAS, the Company intends to enter into an Amended and
Restated Credit Agreement dated as of July 16, 2003 (as amended, modified,
renewed, restated or replaced from time to time, the "Credit Agreement") among,
inter alia, the Company, the Lenders referred to therein and The Bank of Nova
Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a
$500,000,000 senior secured credit facility to be made available in the form of
revolving loans and term loans, including letters of credit to be issued
thereunder;

                  WHEREAS, the Company intends to (a) issue $500,000,000 in
aggregate principal amount of Second Priority Senior Secured Floating Rate Notes
due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003
(the "2007 Indenture") between the Company and Wilmington Trust Company, as
Trustee (together with its successors in such capacity, the "2007 Trustee"), (b)
issue $1,150,000,000 in aggregate principal amount of 8.50%% Second Priority
Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated
as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the
Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company
and Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the
"Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the
"Term Loan Agreement") between the Company and Goldman Sachs Credit Partners
L.P., as Administrative Agent (together with its successors in such capacity,
the "Term Loan Administrative Agent");

                  WHEREAS, the Company intends to secure its Secured
Obligations, including its obligations under the Credit Agreement and any future
Priority Lien Debt, on a priority basis, and, subject to such priority, its
obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any
future Parity Lien Debt equally and ratably, with security interests in, among
other things, all present and future Collateral (as defined below);

                  WHEREAS, the Company has entered into a Collateral Trust
Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among,
inter alia, the Company, the other Grantors and the Collateral Trustee which
sets forth the terms on which the Company has appointed the Collateral Trustee
as trustee for the present and future holders of the Secured Obligations to
receive, hold, maintain, administer, enforce and distribute the Existing
Security Documents and all other Security Documents, including this Agreement
and the guarantees granted hereunder, at any time delivered to the Collateral
Trustee and all interests, rights, powers and remedies of the Collateral Trustee
thereunder and the proceeds thereof;

                  WHEREAS, the Company is a member of an affiliated group of
companies that includes each other Grantor;



                                                                               2

                  WHEREAS, the proceeds of the extensions of credit under each
of the Credit Agreement and the Term Loan Agreement, and the proceeds of the
offering of each of the 2007 Notes, the 2010 Notes and the 2013 Notes, will be
used in part to enable the Company to make valuable transfers to one or more of
the other Grantors in connection with the operation of their respective
businesses;

                  WHEREAS, the Company and the other Grantors are engaged in
related businesses, and each Grantor will derive substantial direct and indirect
benefit from the making of the extensions of credit under each of the Credit
Agreement and the Term Loan Agreement and the offering of each of the 2007
Notes, 2010 Notes and 2013 Notes; and

                  WHEREAS, it is a condition precedent to the obligation of the
lenders to make their respective extensions of credit to the Company under each
of the Credit Agreement and the Term Loan Agreement, and condition precedent to
the obligation of the purchasers to purchase each of the 2007 Notes, the 2010
Notes and the 2013 Notes, that the Grantors shall have executed and delivered
this Agreement to the Collateral Trustee for the benefit of the Secured Parties;

                  NOW, THEREFORE, in consideration of the premises contained
herein and for good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

                            SECTION 1 DEFINED TERMS

         1.1      Definitions. (a)  Unless otherwise defined herein, terms
defined in the Collateral Trust Agreement and used herein shall have the
meanings given to them in the Collateral Trust Agreement, and the following
terms are used herein as defined in the New York UCC: Accounts, Certificated
Security, Chattel Paper, Commercial Tort Claims, Documents, Equipment, Farm
Products, General Intangibles, Instruments, Inventory, Letter-of-Credit Rights
and Supporting Obligations.

         (b) The following terms shall have the following meanings:

                  "Agreement": this Guarantee and Collateral Agreement, as the
same may be amended, supplemented or otherwise modified from time to time.

                  "Collateral": as defined in Section 3.

                  "Collateral Account": any collateral account established by
the Collateral Trustee as provided in Section 6.1.

                  "Copyrights": (i) all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished (including,
without limitation, those listed in Schedule 5), all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United
States Copyright Office, and (ii) the right to obtain all renewals thereof.

                  "Copyright Licenses": any written agreement naming the Company
as licensor or licensee (including, without limitation, those listed in Schedule
5), granting any right under any Copyright, including, without limitation, the
grant of rights to manufacture, distribute, exploit and sell materials derived
from any Copyright.



                                                                               3

                  "Deposit Account": as defined in the Uniform Commercial Code
of any applicable jurisdiction and, in any event, including, without limitation,
any demand, time, savings, passbook or like account maintained with a depositary
institution.

                  "Guarantor Pledge Agreement": the First Amendment Pledge
Agreement dated as of July 16, 2003 among each of the Guarantors and the
Collateral Trustee.

                  "Guarantors": the collective reference to each Grantor other
than the Company.

                  "Intellectual Property": the collective reference to all
rights, priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, the Copyrights, the Copyright Licenses, the
Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.

                  "Investment Property": the collective reference to all
"investment property" as such term is defined in Section 9-102(a)(49) of the New
York UCC.

                  "New York UCC": the Uniform Commercial Code as from time to
time in effect in the State of New York.

                  "Panda Note" means the note of Panda Energy International,
Inc. due December 2003 held by the Company.

                  "Patents": (i) all letters patent of the United States, any
other country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without limitation,
any of the foregoing referred to in Schedule 5, (ii) all applications for
letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, including, without limitation,
any of the foregoing referred to in Schedule 5, and (iii) all rights to obtain
any reissues or extensions of the foregoing.

                  "Patent License": all agreements, whether written or oral,
providing for the grant by or to the Company of any right to manufacture, use or
sell any invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to in Schedule 5.

                  "Proceeds": all "proceeds" as such term is defined in Section
9-102(a)(64) of the New York UCC and, in any event, shall include, without
limitation, all dividends or other income from the Investment Property,
collections thereon or distributions or payments with respect thereto.

                  "Receivable": any right to payment for goods sold or leased or
for services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).

                  "Secured Parity Lien Parties": any Person who is holding a
Parity Lien Obligation (including any Parity Debt Representative), at any time.

                  "Secured Parties": any Person who is holding a Secured
Obligation (including any Secured Debt Representative), at any time.



                                                                               4

                  "Secured Priority Lien Parties": any Person who is holding a
Priority Lien Obligation (including any Priority Lien Agent), at any time.

                  "Trademarks": (i) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common-law
rights related thereto, including, without limitation, any of the foregoing
referred to in Schedule 5, and (ii) the right to obtain all renewals thereof.

                  "Trademark License": any agreement, whether written or oral,
providing for the grant by or to the Company of any right to use any Trademark,
including, without limitation, any of the foregoing referred to in Schedule 5.

         1.2      Other Definitional Provisions. (a) The words "hereof,"
"herein", "hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section and Schedule references are to this
Agreement unless otherwise specified.

         (b)      The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

         (c)      Where the context requires, terms relating to the Collateral
or any part thereof, when used in relation to the Company, shall refer to the
Company's Collateral or the relevant part thereof.

                              SECTION 2 GUARANTEE

         2.1      Guarantee. (a) The Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees to the Collateral Trustee, for the
benefit of the Secured Parties and their respective successors, indorsees,
transferees and assigns, the prompt and complete payment and performance by the
Company when due (whether at the stated maturity, by acceleration or otherwise)
of the Secured Obligations.

         (b)      Anything herein or in any other Secured Debt Document to the
contrary notwithstanding, (i) the recourse of the Collateral Trustee or the
Secured Parties against each Guarantor hereunder and under the other Secured
Debt Documents shall be limited solely to such Guarantor's ownership interests
in CCEC pledged to the Collateral Trustee, for the benefit of the Secured
Parties, pursuant to the Guarantor Pledge Agreement and (ii) the maximum
liability of each Guarantor hereunder and under the other Secured Debt Documents
shall in no event exceed the amount which can be guaranteed by such Guarantor
under applicable federal and state laws relating to the insolvency of debtors
(after giving effect to the right of contribution established in Section 2.2).

         (c)      Each Guarantor agrees that the Secured Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section 2 or
affecting the rights and remedies of the Collateral Trustee or any Secured Party
hereunder.

         (d)      The guarantee contained in this Section 2 shall remain in full
force and effect until all the Secured Obligations and the obligations of each
Guarantor under the guarantee contained in this Section 2



                                                                               5

shall have been satisfied by payment in full and all commitments to extend
credit under all Credit Facilities the Indebtedness under which constitutes
Priority Lien Debt shall have been terminated or expired.

         (e)      No payment made by the Company, any of the Guarantors, any
other guarantor or any other Person or received or collected by the Collateral
Trustee or any Secured Party from the Company, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Secured Obligations shall be deemed to modify,
reduce, release or otherwise affect the liability of any Guarantor hereunder
which shall, notwithstanding any such payment (other than any payment made by
such Guarantor in respect of the Secured Obligations or any payment received or
collected from such Guarantor in respect of the Secured Obligations), remain
liable for the Secured Obligations up to the maximum liability of such Guarantor
hereunder until the Secured Obligations are paid in full and all commitments to
extend credit under all Credit Facilities the Indebtedness under which
constitutes Priority Lien Debt shall have been terminated or expired.

         2.2      Right of Contribution. Each Guarantor hereby agrees that to
the extent that a Guarantor shall have paid more than its proportionate share of
any payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 2.3. The provisions of
this Section 2.2 shall in no respect limit the obligations and liabilities of
any Guarantor to the Collateral Trustee and the Secured Parties, and each
Guarantor shall remain liable to the Collateral Trustee and the Secured Parties
for the full amount guaranteed by such Guarantor hereunder.

         2.3      No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Collateral Trustee or any Secured Party, no Guarantor shall be entitled to
be subrogated to any of the rights of the Collateral Trustee or any Secured
Party against the Company or any other Guarantor or any collateral security or
guarantee or right of offset held by the Collateral Trustee or any Secured Party
for the payment of the Secured Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Company or any other
Guarantor in respect of payments made by such Guarantor hereunder, until all
amounts owing to the Collateral Trustee and the Secured Parties by the Company
on account of the Secured Obligations are paid in full and all commitments to
extend credit under all Credit Facilities the Indebtedness under which
constitutes Priority Lien Debt shall have been terminated or expired. If any
amount shall be paid to any Guarantor on account of such subrogation rights at
any time when all of the Secured Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for the Collateral Trustee
and the Secured Parties, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the
Collateral Trustee in the exact form received by such Guarantor (duly indorsed
by such Guarantor to the Collateral Trustee, if required), to be applied against
the Secured Obligations, whether matured or unmatured, in such order as the
Collateral Trustee may determine, subject to the terms and provisions of the
Collateral Trust Agreement.

         2.4      Amendments, etc. with respect to the Secured Obligations. Each
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Secured
Obligations made by the Collateral Trustee or any Secured Party may be rescinded
by the Collateral Trustee or such Secured Party and any of the Secured
Obligations continued, and the Secured Obligations, or the liability of any
other Person upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by



                                                                               6

the Collateral Trustee or any Secured Party, and any of the Secured Debt
Documents may be amended, modified, supplemented or terminated, in whole or in
part, as the requisite parties thereto deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Collateral Trustee or any Secured Party for the payment of the Secured
Obligations may be sold, exchanged, waived, surrendered or released. Neither the
Collateral Trustee nor any Secured Party shall have any obligation to protect,
secure, perfect or insure any Lien at any time held by it as security for the
Secured Obligations or for the guarantee contained in this Section 2 or any
property subject thereto.

         2.5      Guarantee Absolute and Unconditional. Each Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Secured Obligations and notice of or proof of reliance by the Collateral Trustee
or any Secured Party upon the guarantee contained in this Section 2 or
acceptance of the guarantee contained in this Section 2; the Secured
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in this Section 2; and all dealings between the
Company and any of the Guarantors, on the one hand, and the Collateral Trustee
and the Secured Parties, on the other hand, likewise shall be conclusively
presumed to have been had or consummated in reliance upon the guarantee
contained in this Section 2. Each Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Company or any of the Guarantors with respect to the Secured Obligations. Each
Guarantor understands and agrees that the guarantee contained in this Section 2
shall be construed as a continuing, absolute and unconditional guarantee of
payment without regard to (a) the validity or enforceability of any of the
Secured Debt Documents, any of the Secured Obligations or any other collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by the Collateral Trustee or any Secured Party,
(b) any defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the Company
or any other Person against the Collateral Trustee or any Secured Party, or (c)
any other circumstance whatsoever (with or without notice to or knowledge of the
Company or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Company for the Secured
Obligations, or of such Guarantor under the guarantee contained in this Section
2, in bankruptcy or in any other instance. When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Collateral Trustee or any Secured Party may, but shall be under no obligation
to, make a similar demand on or otherwise pursue such rights and remedies as it
may have against the Company, any other Guarantor or any other Person or against
any collateral security or guarantee for the Secured Obligations or any right of
offset with respect thereto, and any failure by the Collateral Trustee or any
Secured Party to make any such demand, to pursue such other rights or remedies
or to collect any payments from the Company, any other Guarantor or any other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Company, any other
Guarantor or any other Person or any such collateral security, guarantee or
right of offset, shall not relieve any Guarantor of any obligation or liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Collateral Trustee or
any Secured Party against any Guarantor. For the purposes hereof "demand" shall
include the commencement and continuance of any legal proceedings.

         2.6      Reinstatement. The guarantee contained in this Section 2 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Secured Obligations is rescinded or
must otherwise be restored or returned by the Collateral Trustee or any Secured
Party upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Company or any Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.



                                                                               7

         2.7      Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Collateral Trustee without set-off or counterclaim
in Dollars at an office of the Collateral Trustee in the City of New York.

                           SECTION 3 GRANT OF SECURITY INTEREST

                  The Company hereby (i) assigns and transfers to the Collateral
Trustee, and hereby grants to the Collateral Trustee, for the benefit of the
Secured Priority Lien Parties, a first priority security interest in, all of the
following property now owned or at any time hereafter acquired by the Company or
in which the Company now has or at any time in the future may acquire any right,
title or interest, except the Excluded Assets (collectively, the "Collateral"),
as collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Priority Lien Obligations and (ii) assigns and transfers to the Collateral
Trustee, and hereby grants to the Collateral Trustee, for the benefit of the
Secured Parity Lien Parties, a second priority security interest in, all of the
Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Parity Lien Obligations:

         (a)      all Accounts;

         (b)      all Chattel Paper;

         (c)      all Contracts;

         (d)      all Deposit Accounts;

         (e)      all Documents;

         (f)      all Equipment;

         (g)      all General Intangibles;

         (h)      all Instruments;

         (i)      all Intellectual Property;

         (j)      all Inventory;

         (k)      all Investment Property;

         (l)      all Letter-of-Credit Rights;

         (m)      all other property not otherwise described above;

         (n)      all books and records pertaining to the Collateral; and

         (o)      to the extent not otherwise included, all Proceeds, Supporting
Obligations and products of any and all of the foregoing and all collateral
security and guarantees given by any Person with respect to any of the
foregoing;



                                                                               8

                  provided, however, that notwithstanding any of the other
provisions set forth in this Section 3, this Agreement shall not, at any time,
constitute a grant of a security interest in any property that is, at such time,
an Excluded Asset.

                  In addition, notwithstanding any other provision set forth in
this Agreement, to the extent that any other Security Document to which the
Collateral Trustee is a party grants a security interest in any of the
Collateral and a security interest in such Collateral is also granted in this
Agreement and the provisions of such other Security Document are inconsistent
with the provisions of this Agreement with respect to such Collateral, the
provisions of such other Security Document shall control.

                  This Agreement and the security interests and Liens granted
and created herein secures the payment an performance of all Secured Obligations
of the Company now or hereafter, whether direct or indirect, absolute or
contingent, and whether for principal, reimbursement obligations, interest
(including any interest accruing at the then applicable rate provided in any
applicable Secured Debt Document after the maturity of the Indebtedness
thereunder and reimbursement obligations therein and interest accruing at the
then applicable rate provided in any applicable Secured Debt Document after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Company, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
fees, premiums, penalties, indemnifications, expenses or otherwise, and
including all amounts that constitute part of the Secured Obligations and would
be owed by the Company but for the fact that they are unenforceable or not
allowed due to a pending Bankruptcy Case or Insolvency Proceeding. Without
limiting the generality of the foregoing, it is the intent of the parties that
(i) the Liens securing the Parity Lien Obligations are subject and subordinate
to the Liens securing the Priority Lien Obligations up to the Priority Lien Cap
and (ii) this Agreement creates two separate and distinct Liens: the first Lien
securing the payment and performance of the Priority Lien Obligations and the
second Lien securing the payment and performance of the Parity Lien Obligations.

                    SECTION 4 REPRESENTATIONS AND WARRANTIES

                  The Company hereby represents and warrants to the Collateral
Trustee and each Secured Party that:

         4.1      Title; No Other Liens. Except for the security interest
granted to the Collateral Trustee for the benefit of the Secured Parties
pursuant to this Agreement and the other Liens permitted to exist on the
Collateral by the Secured Debt Documents, the Company owns each item of the
Collateral free and clear of any and all Liens or claims of others. No financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as have
been filed in favor of the Collateral Trustee, for the benefit of the Secured
Parties, pursuant to this Agreement or as are permitted by each of the Secured
Debt Documents. For the avoidance of doubt, it is understood and agreed that the
Company may, as part of its business, grant licenses to third parties to use
Intellectual Property owned or developed by the Company. For purposes of this
Agreement and the other Secured Debt Documents, such licensing activity shall
not constitute a "Lien" on such Intellectual Property. Each of the Collateral
Trustee and each Secured Party understands that any such licenses may be
exclusive to the applicable licensees, and such exclusivity provisions may limit
the ability of the Collateral Trustee to utilize, sell, lease or transfer the
related Intellectual Property or otherwise realize value from such Intellectual
Property pursuant hereto.

         4.2      Perfected First Priority Liens. The security interests granted
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 2 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Collateral Trustee in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral



                                                                               9

in favor of the Collateral Trustee, for the benefit of the Secured Parties, as
collateral security for the Secured Obligations, enforceable in accordance with
the terms hereof against all creditors of the Company and any Persons purporting
to purchase any Collateral from the Company and (b) are prior to all other Liens
on the Collateral in existence on the date hereof except for unrecorded Liens
permitted by the Secured Debt Documents which have priority over the Liens on
the Collateral by operation of law.

         4.3      Jurisdiction of Organization; Chief Executive Office. On the
date hereof, the Company's jurisdiction of organization, identification number
from the jurisdiction of organization (if any), and the location of the
Company's chief executive office or sole place of business or principal
residence, as the case may be, are specified on Schedule 3. The Company has
furnished to the Collateral Agent a certified charter, certificate of
incorporation or other organization document and long-form good standing
certificate as of a date which is recent to the date hereof.

         4.4      Inventory and Equipment. On the date hereof, (a) the Inventory
and the Equipment (other than mobile goods) representing natural gas and oil
assets (including any related extraction, processing or similar equipment, but
excluding natural gas power plants), in each case with a fair market value of
$1,000,000 or more, are kept at the locations listed on Schedule 4A and (b) the
Inventory and the Equipment (other than mobile goods and that Inventory and
Equipment described in clause (a) above), in each case with a fair market value
of $1,000,000 or more, are kept at the locations listed on Schedule 4B.

         4.5      Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.

         4.6      [Intentionally Omitted]

         4.7      Receivables. (a) No amount payable to the Company under or in
connection with any Receivable is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Collateral Trustee (other than the Panda
Note).

         (b)      None of the obligors on any Receivables is a Governmental
Authority.

         4.8      Intellectual Property. Schedule 5 lists all material
Intellectual Property owned by the Company in its own name on the date hereof.

                              SECTION 5 COVENANTS

                  The Company covenants and agrees with the Collateral Trustee
and the Secured Parties that, from and after the date of this Agreement until
the Secured Obligations shall have been paid in full and all commitments to
extend credit under all Credit Facilities the Indebtedness under which
constitutes Priority Lien Debt shall have been terminated or expired:

         5.1      Delivery of Instruments, Certificated Securities and Chattel
Paper. If any amount payable under or in connection with any of the Collateral
shall be or become evidenced by any Instrument, Certificated Security or Chattel
Paper, such Instrument, Certificated Security or Chattel Paper shall be
immediately delivered to the Collateral Trustee, duly indorsed in a manner
satisfactory to the Collateral Trustee, to be held as Collateral pursuant to
this Agreement. The Company agrees to promptly (and in any event within 15 days
from the date hereof) deliver the Panda Note to the Collateral Trustee, duly
indorsed in a manner satisfactory to the Collateral Trustee, to be held as
Collateral pursuant to this Agreement.

         5.2      Maintenance of Insurance. (a) The Company will, and will cause
each of its Subsidiaries to, maintain or cause to be maintained, with
financially sound and reputable companies, insurance



                                                                              10

policies insuring the Inventory and Equipment and other properties and business
(including business interruption insurance) of the Company and its Subsidiaries
against loss by fire, explosion, theft and such other casualties and
contingencies and of such types and in such amounts as is customary in the case
of similar businesses.

         (b)      As promptly as practicable after each year following the date
of this Agreement and beginning with 2004, and in any event prior to February 1
in each such year, the Company will furnish to the Collateral Trustee and each
Secured Debt Representative an Officers' Certificate setting forth the nature
and extent of all insurance maintained by the Company and its Subsidiaries.

         5.3      Maintenance of Perfected Security Interest; Further
Documentation. (a) The Company shall maintain the security interest created by
this Agreement as a perfected security interest having at least the priority
described in Section 4.2 and shall defend such security interest against the
claims and demands of all Persons whomsoever, subject to the rights of the
Company under the Secured Debt Documents to dispose of the Collateral and the
Lien release provisions in the Secured Debt Documents.

         (b)      The Company will promptly and duly execute and deliver, and
have recorded, such further instruments and documents and take such further
actions as necessary for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, (i) filing any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby and
(ii) in the case of Investment Property, Deposit Accounts, Letter-of-Credit
Rights and any other relevant Collateral, taking any actions necessary to enable
the Collateral Trustee to obtain "control" (within the meaning of the applicable
Uniform Commercial Code) with respect thereto.

         5.4      Changes in Locations, Name, etc. The Company will not, except
upon 15 days' prior written notice to the Collateral Trustee and each Secured
Debt Representative and delivery to the Collateral Trustee of (a) all additional
executed financing statements and other documents as necessary to maintain the
validity, perfection and priority of the security interests provided for herein
and (b) if applicable, a written supplement to Schedule 4 showing any additional
location at which Inventory or Equipment shall be kept:

         (i)      change its jurisdiction of organization or the location of its
chief executive office or sole place of business or principal residence from
that referred to in Section 4.3; or

         (ii)     change its name.

         5.5      [Intentionally Omitted]

                         SECTION 6. REMEDIAL PROVISIONS

         6.1      Proceeds to be Turned Over To Collateral Trustee. If an
Actionable Default shall occur and be continuing, all Proceeds received by the
Company consisting of cash, checks and other near-cash items shall be held by
the Company in trust for the Collateral Trustee and the Secured Parties,
segregated from other funds of the Company, and shall, forthwith upon receipt by
the Company, be turned over to the Collateral Trustee in the exact form received
by the Company (duly indorsed in blank by the Company or to the Collateral
Trustee, if required). All Proceeds of Collateral received by the Collateral
Trustee hereunder shall be held by the Collateral Trustee in a Collateral
Account maintained under its sole dominion and control or under the sole
dominion and control of the Credit Agreement Agent, acting as agent for the
Collateral Trustee. All Proceeds while held by the Collateral Trustee in a
Collateral Account (or by the Company in trust for the Collateral Trustee and
the Secured Parties) shall continue to be held as



                                                                              11

collateral security for all the Secured Obligations and shall not constitute
payment thereof until applied as provided in Section 6.2.

         6.2      Application of Proceeds. If an Actionable Default shall have
occurred and be continuing, the Collateral Trustee may apply all or any part of
Proceeds constituting Collateral, whether or not held in any Collateral Account,
in payment of the Secured Obligations, in each case subject to the terms and
provisions of the Collateral Trust Agreement.

         6.3      Code and Other Remedies. If an Actionable Default shall occur
and be continuing, the Collateral Trustee, on behalf of the Secured Parties, may
exercise, in addition to all other rights and remedies granted to them in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Secured Obligations, all rights and remedies of a secured party
under the New York UCC or any other applicable law, in each case subject to the
terms and provisions of the Collateral Trust Agreement. Without limiting the
generality of the foregoing, and in each case subject to the terms and
provisions of the Collateral Trust Agreement, the Collateral Trustee, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Company or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Collateral Trustee or any Secured Party or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Collateral Trustee or any Secured Party shall have the right, but shall not
be obligated to, upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
the Company, which right or equity is hereby waived and released. The Company
further agrees, at the Collateral Trustee's request, to assemble the Collateral
and make it available to the Collateral Trustee at places which the Collateral
Trustee shall reasonably select, whether at the Company's premises or elsewhere.
The Collateral Trustee shall apply the net proceeds of any action taken by it
pursuant to this Section 6.3 in accordance with the provisions of the Collateral
Trust Agreement. To the extent permitted by applicable law, the Company waives
all claims, damages and demands it may acquire against the Collateral Trustee or
any Secured Party arising out of the exercise by them of any rights hereunder.
If any notice of a proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least 10 days before such sale or other disposition.

         6.4      Deficiency. The Company shall remain liable for any deficiency
if the proceeds of any sale or other disposition of the Collateral are
insufficient to pay its Secured Obligations and the fees and disbursements of
any attorneys employed by the Collateral Trustee to collect such deficiency.

                       SECTION 7. THE COLLATERAL TRUSTEE

         7.1      Duty of Collateral Trustee. The Collateral Trustee's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Collateral Trustee
deals with similar property for its own account. Neither the Collateral Trustee,
any Secured Party nor any of their respective officers, directors, employees or
agents shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Company or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof. The powers conferred on the



                                                                              12

Collateral Trustee and the Secured Parties hereunder are solely to protect the
Collateral Trustee's and the Secured Parties' interests in the Collateral and
shall not impose any duties or obligations upon the Collateral Trustee or any
Secured Party to exercise any such powers. The Collateral Trustee and the
Secured Parties shall be accountable only for amounts that they actually receive
as a result of the exercise of such powers, and neither they nor any of their
officers, directors, employees or agents shall be responsible to the Company for
any act or failure to act hereunder, except for their own gross negligence or
willful misconduct.

                  Notwithstanding anything to the contrary contained in this
Agreement, the rights, privileges, powers, benefits and immunities of the
Collateral Trustee hereunder are subject to the terms, conditions and
limitations set forth in the Collateral Trust Agreement, reference to which is
made for all purposes; provided, however, that any forbearance by the Collateral
Trustee in exercising any right or remedy available to it under the Collateral
Trust Agreement shall not give rise to a defense on the part of the Grantors
with respect to the Collateral Trustee's exercise of any right or remedy
pursuant to this Agreement or as otherwise afforded by applicable law.

         7.2      Execution of Financing Statements. Pursuant to any applicable
law, the Company authorizes the Collateral Trustee to file or record financing
statements and other filing or recording documents or instruments with respect
to the Collateral without the signature of the Company in such form and in such
offices as are necessary to perfect the security interests of the Collateral
Trustee under this Agreement. The Company authorizes the Collateral Trustee to
use the collateral description "all personal property except for Excluded
Assets" in any such financing statements. The Company hereby ratifies and
authorizes the filing by the Collateral Trustee of any financing statement with
respect to the Collateral made prior to the date hereof. The Collateral Trustee
shall be under no obligation to file or record such financings statements or to
make any other filing under the UCC in connection with this Agreement.

         7.3      Authority of Collateral Trustee. The Company acknowledges that
the rights and responsibilities of the Collateral Trustee under this Agreement
with respect to any action taken by the Collateral Trustee or the exercise or
non-exercise by the Collateral Trustee of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Collateral Trustee and the Secured
Parties, be governed by the Collateral Trust Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Collateral Trustee and the Company, the Collateral Trustee shall
be conclusively presumed to be acting on behalf of the Secured Parties with full
and valid authority so to act or refrain from acting, and the Company shall not
be under any obligation, or entitlement, to make any inquiry respecting such
authority.

                            SECTION 8. MISCELLANEOUS

         8.1      Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 7.1 of the Collateral Trust Agreement.

         8.2      Notices. All notices, requests and demands to or upon the
Collateral Trustee, any Secured Debt Representative or the Company hereunder
shall be effected in the manner provided for in Section 7.5 of the Collateral
Trust Agreement; provided that any such notice, request or demand to or upon any
Guarantor shall be addressed to such Guarantor at its notice address set forth
on Schedule 1.

         8.3      No Waiver by Course of Conduct; Cumulative Remedies. Neither
the Collateral Trustee nor any Secured Party shall by any act (except by a
written instrument pursuant to Section 8.1), delay,



                                                                              13

indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Actionable Default. No failure to
exercise, nor any delay in exercising, on the part of the Collateral Trustee or
any Secured Party, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Trustee or
any Secured Party of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which the Collateral Trustee or
such Secured Party would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any other rights or remedies provided by law.

         8.4      Enforcement Expenses; Indemnification. (a) The Guarantors
jointly and severally agree to pay or reimburse the Collateral Trustee for all
its costs and expenses incurred in collecting against such Guarantor under the
guarantee contained in Section 2 or otherwise enforcing or preserving any rights
under this Agreement and the other Secured Debt Documents to which such
Guarantor is a party, including, without limitation, the fees and disbursements
of counsel (including the allocated fees and expenses of in-house counsel) to
the Collateral Trustee.

         (b)      Each Guarantor agrees to pay, and to save the Collateral
Trustee harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable in connection with any of the
transactions contemplated by this Agreement.

         (c)      Each Guarantor agrees to pay, and to save the Collateral
Trustee harmless from, any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement to the extent the Company would
be required to do so pursuant to Section 7.7 of the Collateral Trust Agreement.

         (d)      The maximum liability of each Guarantor under this Section 8.4
shall be limited to such Guarantor's ownership interests in CCEC pledged to the
Collateral Trustee, for the benefit of the Secured Parties, pursuant to the
Guarantor Pledge Agreement. The agreements in this Section 8.4 shall survive
repayment of the Secured Obligations and all other amounts payable under the
Secured Debt Documents.

         8.5      Successors and Assigns. This Agreement shall be binding upon
the successors and assigns of each Grantor and shall inure to the benefit of the
Collateral Trustee and the Secured Parties and their successors and assigns;
provided that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Collateral Trustee.

         8.6      Set-Off. Each Grantor hereby irrevocably authorizes the
Collateral Trustee at any time and from time to time while an Actionable Default
shall have occurred and be continuing, without notice to such Grantor or any
other Grantor, any such notice being expressly waived by each Grantor, to
set-off and appropriate and apply any and all deposits (general or special, time
or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Collateral Trustee to or for the credit or the account of such
Grantor, or any part thereof in such amounts as the Collateral Trustee may
elect, against and on account of the obligations and liabilities of such Grantor
to the Collateral Trustee hereunder and claims of every nature and description
of the Collateral Trustee against such Grantor, in any currency, whether arising
hereunder or under any other Secured Debt Document or otherwise, as the
Collateral Trustee may elect, whether or not the Collateral Trustee has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Collateral Trustee shall notify such Grantor
promptly of any such set-off and the



                                                                              14

application made by the Collateral Trustee of the proceeds thereof, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Collateral Trustee under this Section
8.6 are in addition to other rights and remedies (including, without limitation,
other rights of set-off) which the Collateral Trustee may have.

         8.7      Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.

         8.8      Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

         8.9      Section Headings. The Section headings used in this Agreement
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.

         8.10     Integration. This Agreement, the Collateral Trust Agreement
and the other Secured Debt Documents represent the agreement of the Grantors,
the Collateral Trustee and the Secured Parties with respect to the subject
matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Collateral Trustee or any Secured Party
relative to subject matter hereof and thereof not expressly set forth or
referred to herein, the Collateral Trust Agreement or in the other Secured Debt
Documents.

         8.11     GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

         8.12     Submission To Jurisdiction; Waivers. Each Grantor hereby
irrevocably and unconditionally:

         (a)      submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Secured Debt Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;

         (b)      consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;

         (c)      agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to such
Grantor at its address referred to in Section 8.2 or at such other address of
which the Collateral Trustee shall have been notified pursuant thereto;

         (d)      agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and



                                                                              15

         (e)      waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred to in
this Section any special, exemplary, punitive or consequential damages.

         8.13     Acknowledgements. Each Grantor hereby acknowledges that:

         (a)      it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Secured Debt Documents to which it
is a party;

         (b)      neither the Collateral Trustee nor any Secured Party has any
fiduciary relationship with or duty to any Grantor arising out of or in
connection with this Agreement or any of the other Secured Debt Documents, and
the relationship between the Grantors, on the one hand, and the Collateral
Trustee and Secured Parties, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and

         (c)      no joint venture is created hereby or by the other Secured
Debt Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Secured Parties or among the Grantors and the Secured Parties.

         8.14     Additional Grantors. Each Subsidiary of the Company that is
required by any Secured Debt Document to become a party to this Agreement shall
become a Grantor for all purposes of this Agreement upon execution and delivery
by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto.

         8.15     Releases; Termination(a) . All or any portion of the
Collateral shall be released from the Liens created hereby, the Guarantee of any
Guarantor under this Agreement shall terminate and this Agreement shall
terminate, in each case as provided in Section 4.1 of the Collateral Trust
Agreement.

         8.16     WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER SECURED DEBT DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.



                                                                              16

                  IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee and Collateral Agreement to be duly executed and delivered as of the
date first above written.

                                            CALPINE CORPORATION,

                                            By: /s/ Michael Thomas
                                                --------------------------------
                                                Title:

                                            QUINTANA MINERALS (USA), INC.,

                                            By: /s/ Michael Thomas
                                                --------------------------------
                                                Title:

                                            JOQ CANADA, INC.,

                                            By: /s/ Michael Thomas
                                                --------------------------------
                                                Title:

                                            QUINTANA CANADA HOLDINGS, LLC,

                                            By: /s/ Michael Thomas
                                                --------------------------------
                                                Title:



                                                                              17

                                    THE BANK OF NEW YORK, as Collateral Trustee,

                                    By: /s/ Michael Pitfick
                                        ----------------------------------------
                                        Name: Michael Pitfick
                                        Title: Assistant Vice President



                                                                      SCHEDULE 1

                         NOTICE ADDRESSES FOR GUARANTORS

QUINTANA MINERALS (USA), INC.
50 West San Fernando Street
San Jose, CA 95113

QUINTANA CANADA HOLDINGS, LLC
50 West San Fernando Street
San Jose, CA 95113

JOQ CANADA, INC.
50 West San Fernando Street
San Jose, CA 95113



                                                                      SCHEDULE 2

                               PERFECTION MATTERS

A.       UCC-1 FINANCING STATEMENTS

UCC-1 FINANCING STATEMENTS AS TRANSMITTING UTILITY

            1) Delaware SOS

            2) California SOS

            3) Arkansas SOS

            4) Colorado SOS

            5) Mississippi SOS

            6) Montana SOS

            7) New Mexico SOS

            8) Oklahoma County Clerk, OK

            9) Texas SOS

            10) Wyoming SOS

UCC-1 FINANCING STATEMENT
      Delaware SOS

UCC- FIXTURE FILING AGAINST PROJECT FACILITY
     Richmond County, GA

UCC-3 ASSIGNMENTS FROM BANK OF NOVA SCOTIA, AS AGENT TO THE BANK OF NEW YORK, AS
COLLATERAL TRUSTEE


- -------------------------------------------------------------------------------------------------------
                                                                                        
Delaware Secretary of State                            20678940                               3/15/2002
- -------------------------------------------------------------------------------------------------------
Delaware Secretary of State                            21165863                               5/9/2002
- -------------------------------------------------------------------------------------------------------
New Mexico Secretary of State                        2002050903023                            5/9/2002
- -------------------------------------------------------------------------------------------------------
Garfield County, Colorado                          Reception #603031                          5/8/2002
                                                  Book 1353, Page 410
- -------------------------------------------------------------------------------------------------------
Delaware Secretary of State                            21165871                               5/9/2002
- -------------------------------------------------------------------------------------------------------
Jefferson Parish, LA                                   26262652                               5/7/2002
- -------------------------------------------------------------------------------------------------------
Delaware Secretary of State                            21165913                               5/9/2002
- -------------------------------------------------------------------------------------------------------
Colusa County, CA                                       02-2146                               5/17/2002
- -------------------------------------------------------------------------------------------------------
Contra Costa County, CA                             2002-0170009-00                           5/13/2002
- -------------------------------------------------------------------------------------------------------
Fresno County, CA                                    2002-0085594                             5/23/2002
- -------------------------------------------------------------------------------------------------------
Kern County, CA                                       0202084537                              5/24/2002
- -------------------------------------------------------------------------------------------------------
Kings County, CA                                        0210875                               5/20/2002
- -------------------------------------------------------------------------------------------------------
Sacramento County, CA                          Book 20020507, Page 0614                       5/7/2002
- -------------------------------------------------------------------------------------------------------
Solano County, CA                                    2002-00058870                            5/9/2002
- -------------------------------------------------------------------------------------------------------
Sutter County, CA                                    2002-0009818                             5/17/2002
- -------------------------------------------------------------------------------------------------------
Tulare County, CA                                    2002-0045392                             6/14/2002
- -------------------------------------------------------------------------------------------------------
Yolo County, CA                                     2002-0019211-00                           5/7/2002
- -------------------------------------------------------------------------------------------------------




                                                                      SCHEDULE 3

                    LOCATION OF JURISDICTION OF ORGANIZATION

                   AND CHIEF EXECUTIVE OFFICE OF THE GRANTORS



          Grantor                  Jurisdiction of Organization          Location of Chief Executive Office
          -------                  ----------------------------          ----------------------------------
                                                                   
CALPINE CORPORATION                       DELAWARE                              SAN JOSE, CALIFORNIA

QUINTANA MINERALS (USA), INC.             DELAWARE                              SAN JOSE, CALIFORNIA

QUINTANA CANADA HOLDINGS, LLC             DELAWARE                              SAN JOSE, CALIFORNIA

JOQ CANADA, INC.                          DELAWARE                              SAN JOSE, CALIFORNIA




                                                                     SCHEDULE 4A

                        INVENTORY AND EQUIPMENT LOCATIONS

LOCATIONS OF OIL AND GAS INVENTORY AND EQUIPMENT:

[List of counties from Exhibit A to the Oil and Gas Mortgages]



                                                                     SCHEDULE 4B

LOCATIONS OF OTHER INVENTORY AND EQUIPMENT:

1.  Goldendale Energy Center - Goldendale, Washington.

2.  Otay Mesa Energy Center - near San Diego, California.

3.  Metcalf Energy Center - near San Jose, California.

4.  Santa Rosa Energy Center - Santa Rosa County, Florida.

5.  Washington Parish Energy Center - near Bogalusa, Louisiana.

6.  Deer Park Energy Center - Deer Park, Texas.

7.  Augusta Energy Center - Augusta, Georgia.



                                                                      SCHEDULE 5

                         MATERIAL INTELLECTUAL PROPERTY

                                      None.



                                                                      Annex 1 to
                                              Guarantee and Collateral Agreement

                  ASSUMPTION AGREEMENT, dated as of ________________, 200_, made
by ______________________________ (the "Additional Grantor"), in favor of The
Bank of New York, as collateral trustee (in such capacity, the "Collateral
Trustee") for the Secured Parties. All capitalized terms not defined herein
shall have the meaning ascribed to them in the Collateral Trust Agreement.

                              W I T N E S S E T H :

                  WHEREAS, Calpine Corporation (the "Company"), certain of its
Subsidiaries and the Collateral Trustee have entered into a Collateral Trust
Agreement, dated as of July 16, 2003 (as amended, supplemented or otherwise
modified from time to time, the "Collateral Trust Agreement");

                  WHEREAS, in connection with the Collateral Trust Agreement,
the Company and certain of its Subsidiaries have entered into the Guarantee and
Collateral Agreement, dated as of July 16, 2003 (as amended, supplemented or
otherwise modified from time to time, the "Guarantee and Collateral Agreement")
in favor of the Collateral Trustee for the benefit of the Secured Parties;

                  WHEREAS, an applicable Secured Debt Document requires the
Additional Grantor to become a party to the Guarantee and Collateral Agreement;
and

                  WHEREAS, the Additional Grantor has agreed to execute and
deliver this Assumption Agreement in order to become a party to the Guarantee
and Collateral Agreement;

                  NOW, THEREFORE, IT IS AGREED:

                  1. Guarantee and Collateral Agreement. By executing and
delivering this Assumption Agreement, the Additional Grantor, as provided in
Section 8.14 of the Guarantee and Collateral Agreement, hereby becomes a party
to the Guarantee and Collateral Agreement as a Grantor thereunder with the same
force and effect as if originally named therein as a Grantor and, without
limiting the generality of the foregoing, hereby expressly assumes all
obligations and liabilities of a Grantor thereunder. The information set forth
in Annex 1-A hereto is hereby added to the information set forth in the
Schedules to the Guarantee and Collateral Agreement. The Additional Grantor
hereby represents and warrants that each of the representations and warranties
contained in Section 4 of the Guarantee and Collateral Agreement is true and
correct on and as the date hereof (after giving effect to this Assumption
Agreement) as if made on and as of such date.

                  2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.



                                                                               2

                  IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.

                                                     [ADDITIONAL GRANTOR]

                                                     By: _______________________
                                                         Name:
                                                         Title:



                                                                    Annex 1-A to
                                                            Assumption Agreement

                            Supplement to Schedule 1

                            Supplement to Schedule 2

                            Supplement to Schedule 3

                            Supplement to Schedule 4

                            Supplement to Schedule 5

EX-10.20

                                                                   Exhibit 10.20

                                                EXECUTION COPY
                                                Canadian Guarantors Stock Pledge

                        FIRST AMENDMENT PLEDGE AGREEMENT

         THIS FIRST AMENDMENT PLEDGE AGREEMENT (this "Pledge Agreement"), dated
as of July 16, 2003, made by Quintana Minerals (USA), Inc., a Delaware
corporation, JOQ Canada, Inc., a Delaware corporation, and Quintana Canada
Holdings, LLC, a Delaware limited liability company (each a "Pledgor" and
collectively, the "Pledgors") in favor of The Bank of New York, as Collateral
Trustee (together with any successor(s) thereto in such capacity, the
"Collateral Trustee") for the benefit of the Secured Parties.

                               W I T N E S S E T H

                  WHEREAS, Calpine Corporation (the "Company") intends to enter
into an Amended and Restated Credit Agreement dated as of July 16, 2003 (as
amended, modified, renewed, restated or replaced from time to time, the "Credit
Agreement") among, inter alia, the Company, the Lenders referred to therein and
The Bank of Nova Scotia, as Administrative Agent (the "Credit Agreement Agent"),
relating to a $500,000,000 senior secured credit facility to be made available
in the form of revolving loans and term loans, including letters of credit to be
issued thereunder;

                  WHEREAS, the Company intends to (a) issue $500,000,000 in
aggregate principal amount of Second Priority Senior Secured Floating Rate Notes
due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003
(the "2007 Indenture") between the Company and Wilmington Trust Company, as
Trustee (together with its successors in such capacity, the "2007 Trustee"), (b)
issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority
Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated
as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the
Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company
and Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the
"Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the
"Term Loan Agreement") between the Company and Goldman Sachs Credit Partners
L.P., as Administrative Agent (together with its successors in such capacity,
the "Term Loan Administrative Agent");

                  WHEREAS, the Pledgors intend to guarantee the Secured
Obligations of the Company on a limited basis and to secure their respective
Secured Obligations under such limited guarantees, including their respective
obligations under the Credit Agreement and any future Priority Lien Debt, on a
priority basis, and, subject to such priority, their respective obligations
under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any future
Parity Lien Debt equally and ratably, with security interests in, and pledge of,
among other things, all present and future Pledged Collateral (as defined
below);



                  WHEREAS, the Company and the Pledgors have entered into a
Collateral Trust Agreement dated as of July 16, 2003 (the "Collateral Trust
Agreement") among, inter alia, the Company, the Pledgors and the Collateral
Trustee which sets forth the terms on which the Company and the Pledgors have
appointed the Collateral Trustee as trustee for the present and future holders
of the Secured Obligations to receive, hold, maintain, administer, enforce and
distribute the Existing Security Documents and all other Security Documents,
including this Pledge Agreement, at any time delivered to the Collateral Trustee
and all interests, rights, powers and remedies of the Collateral Trustee
thereunder and the proceeds thereof;

                  WHEREAS, the Company and the Pledgors will derive substantial
direct and indirect benefit from the making of the extensions of credit under
each of the Credit Agreement and the Term Loan Agreement and the offering of
each of the 2007 Notes, 2010 Notes and 2013 Notes;

                  WHEREAS, it is a condition precedent to the obligation of the
lenders to make their respective extensions of credit to the Company under each
of the Credit Agreement and the Term Loan Agreement, and condition precedent to
the obligation of the purchasers to purchase each of the 2007 Notes, the 2010
Notes and the 2013 Notes, that the Pledgors shall have executed and delivered
this Pledge Agreement to the Collateral Trustee for the benefit of the Secured
Parties; and

                  WHEREAS, this Pledge Agreement amends and restates in its
entirety the Pledge Agreement dated as of March 8, 2002 made by the Pledgors in
favor of The Bank of Nova Scotia, as agent;

         NOW, THEREFORE, in consideration of the premises contained herein and
for good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

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

         "Collateral Trustee" is defined in the preamble.

         "Collateral Trust Agreement" is defined in the recitals.

         "Company" is defined in the preamble.

         "Distributions" means all stock dividends, liquidating dividends,
shares of stock resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Shares or other shares of
capital stock constituting Pledged Collateral, but shall not include Dividends.

                                       2


         "Dividends" means cash dividends and cash distributions with respect to
any Pledged Shares or other Pledged Property made in the ordinary course of
business and not a liquidating dividend.

         "Pledge Agreement" is defined in the preamble.

         "Pledged Collateral" is defined in Section 2.1.

         "Pledged Property" means all Pledged Shares and all other pledged
shares of capital stock, all other securities, all assignments of any amounts
due or to become due, all other instruments which are now being delivered by the
Pledgors to the Collateral Trustee or may from time to time hereafter be
delivered by the Pledgors to the Collateral Trustee for the purpose of pledge
under this Pledge Agreement or any other Secured Debt Document, and all proceeds
of any of the foregoing.

         "Pledged Share Issuer" means each Person identified in Attachment 1
hereto as the issuer of the Pledged Shares identified opposite the name of such
Person.

         "Pledged Shares" means all shares of capital stock of any Pledged Share
Issuer which are delivered by a Pledgor to the Collateral Trustee as Pledged
Property hereunder.

         "Secured Parity Lien Parties" means any Person who is holding a Parity
Lien Obligation (including any Parity Debt Representative), at any time.

         "Secured Parties" means any Person who is holding a Secured Obligation
(including any Secured Debt Representative), at any time.

         "Secured Priority Lien Parties" means any Person who is holding a
Priority Lien Obligation (including any Priority Lien Agent), at any time.

         "Securities Act" is defined in Section 6.2.

         "U.C.C." means the Uniform Commercial Code as in effect in the State of
New York.

         SECTION 1.2.      Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Pledge Agreement, including its
preamble and recitals, have the meanings provided in the Collateral Trust
Agreement.

         SECTION 1.3.      U.C.C. Definitions. Unless otherwise defined herein
or the context otherwise requires, terms for which meanings are provided in the
U.C.C. are used in this Pledge Agreement, including its preamble and recitals,
with such meanings.

                                   ARTICLE II
                                     PLEDGE

         SECTION 2.1.      Grant of Security Interest. Each Pledgor hereby (i)
pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to
the Collateral Trustee, for its benefit and the benefit of the Secured Priority
Lien Parties, and hereby grants to the Collateral

                                       3


Trustee, for its benefit and the benefit of the Secured Priority Lien Parties, a
continuing first priority security interest in, all of the following property
(the "Pledged Collateral") and (ii) pledges, hypothecates, assigns, charges,
mortgages, delivers, and transfers to the Collateral Trustee, for its benefit
and the benefit of the Secured Parity Lien Parties, and hereby grants to the
Collateral Trustee, for its benefit and the benefit of the Secured Parity Lien
Parties, a continuing second priority security interest in, all of the Pledged
Collateral:

                  (a)      all issued and outstanding shares of capital stock
         identified on Attachment 1 hereto of each Pledged Share Issuer
         identified on Attachment 1 hereto;

                  (b)      and the certificates representing the Pledged Shares
         and all dividends, cash, instruments and other property from time to
         time received, receivable or otherwise distributed in respect of or in
         exchange for any or all of the Pledged Shares;

                  (c)      all additional shares of stock of any issuer of the
         Pledged Shares from time to time acquired by any Pledgor in any manner,
         and the certificates representing such additional shares, and all
         dividends, cash, instruments and other property from time to time
         received, receivable or otherwise distributed in respect of or in
         exchange for any or all of such shares;

                  (d)      all proceeds of any of the foregoing;

provided, however, that in no event shall the Pledged Collateral constitute or
give rise to any rights or interests in excess of a 65% ownership interest in
the Pledged Share Issuer.

         SECTION 2.2.      Security for Obligations; Separate Liens. This Pledge
Agreement and the security interests and Liens granted and created herein
secures the payment and performance of all Secured Obligations of the Pledgors
now or hereafter, whether direct or indirect, absolute or contingent, and
whether for principal, reimbursement obligations, interest (including any
interest accruing at the then applicable rate provided in any applicable Secured
Debt Document after the maturity of the loans and reimbursement obligations
therein and interest accruing at the then applicable rate provided in any
applicable Secured Debt Document after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Company, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), fees, premiums, penalties,
indemnifications, expenses or otherwise, and including all amounts that
constitute part of the Secured Obligations and would be owed by the Pledgors but
for the fact that they are unenforceable or not allowed due to a pending
Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the
foregoing, it is the intent of the parties that (i) the Liens securing the
Parity Lien Obligations are subject and subordinate to the Liens securing the
Priority Lien Obligations up to the Priority Lien Cap and (ii) this Pledge
Agreement creates two separate and distinct Liens: the first Lien securing the
payment and performance of the Priority Lien Obligations and the second Lien
securing the payment and performance of the Parity Lien Obligations.

         SECTION 2.3.      Delivery of Pledged Property. All certificates or
instruments representing or evidencing any Pledged Collateral, including all
Pledged Shares, shall be delivered to and held by or on behalf of the Collateral
Trustee pursuant hereto, shall be in

                                       4


suitable form for transfer by delivery, and shall be accompanied by all
necessary instruments of transfer or assignment, duly executed in blank.

         SECTION 2.4.      Intentionally Omitted.

         SECTION 2.5.      Continuing Security Interest; Transfer of Note. This
Pledge Agreement shall create a continuing security interest in the Pledged
Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the
other Secured Debt Documents, shall

                  (a)      remain in full force and effect until payment in full
         of all Secured Obligations and the termination or expiration of all
         commitments to extend credit under all Credit Facilities, the
         Indebtedness under which constitutes Priority Lien Debt,

                  (b)      be binding upon each Pledgor and its successors,
         transferees and assigns, and

                  (c)      inure, together with the rights and remedies of the
         Collateral Trustee hereunder, to the benefit of the Collateral Trustee
         and each other Secured Party.

Without limiting the foregoing clause (c), any Secured Party may assign or
otherwise transfer (in whole or in part) any right or obligation under the
Secured Debt Documents to any other Person or entity, and such other Person or
entity shall thereupon become vested with all the rights and benefits in respect
thereof granted to such Secured Party under any Secured Debt Document (including
this Pledge Agreement) or otherwise, subject, however, to any contrary
provisions in such assignment or transfer, and to the applicable provisions of
each of the Secured Debt Documents. Upon the payment in full and discharge of
all Secured Obligations that are then outstanding, due and payable and the
termination or expiration of all commitments to extend credit under all Credit
Facilities, the Indebtedness under which constitutes Priority Lien Debt, the
security interest granted herein shall terminate and all rights to the Pledged
Collateral shall revert to the Pledgors. Upon any such termination or any
release of the Lien provided for hereunder in accordance with the Secured Debt
Documents, the Collateral Trustee will, at the Pledgors' sole expense, deliver
to the Pledgors, without any representations, warranties or recourse of any kind
whatsoever, all certificates and instruments representing or evidencing all
Pledged Shares, together with all other Pledged Collateral held by the
Collateral Trustee hereunder, and execute and deliver to each Pledgor such
documents as the Pledgors shall reasonably request to evidence such termination
or release.

         SECTION 2.6.      Security Interest Absolute. All rights of the
Collateral Trustee and the security interests granted to the Collateral Trustee
hereunder, and all obligations of the Pledgors hereunder, shall be absolute and
unconditional, irrespective of

                  (a)      any lack of validity or enforceability of any of the
         Secured Debt Documents,

                  (b)      the failure of any Secured Party or any holder of any
         Secured Obligation

                                       5


                           (i)      to assert any claim or demand or to enforce
                  any right or remedy against the Company, any other Obligor or
                  any other Person under the provisions of any of the Secured
                  Debt Documents or otherwise, or

                           (ii)     to exercise any right or remedy against any
                  other guarantor of, or collateral securing, any Secured
                  Obligations of the Company or any other Obligor,

                  (c)      any change in the time, manner or place of payment
         of, or in any other term of, all or any of the Secured Obligations or
         any other extension, compromise or renewal of any Secured Obligation of
         the Company or any other Obligor,

                  (d)      any reduction, limitation, impairment or termination
         of any Secured Obligations of the Company or any other Obligor for any
         reason, including any claim of waiver, release, surrender, alteration
         or compromise, and shall not be subject to (and the Pledgors hereby
         waive any right to or claim of) any defense or setoff, counterclaim,
         recoupment or termination whatsoever by reason of the invalidity,
         illegality, nongenuineness, irregularity, compromise, unenforceability
         of, or any other event or occurrence affecting, any Secured Obligations
         of the Company, any other Obligor or otherwise,

                  (e)      any amendment to, rescission, waiver, or other
         modification of, or any consent to departure from, any of the terms of
         any of the Secured Debt Documents,

                  (f)      any addition, exchange, release, surrender or
         non-perfection of any collateral (including the Pledged Collateral), or
         any amendment to or waiver or release of or addition to or consent to
         departure from any guaranty, for any of the Secured Obligations, or

                  (g)      any other circumstances which might otherwise
         constitute a defense available to, or a legal or equitable discharge
         of, the Company, any other Obligor, any surety or any guarantor.

         SECTION 2.7.      [Intentionally Omitted.]

         SECTION 2.8.      Waiver of Subrogation. Until such time as the Secured
Obligations have been paid in full and discharged, and all commitments to extend
credit under all Credit Facilities, the Indebtedness under which constitutes
Priority Lien Debt shall have been permanently terminated or expired, each
Pledgor hereby irrevocably waives any claim or other rights which it may now or
hereafter acquire against the Company or any other Obligor that arise from the
existence, payment, performance or enforcement of the Pledgors' obligations
under this Pledge Agreement or any other Secured Debt Document, including any
right of subrogation, reimbursement, exoneration, or indemnification, any right
to participate in any claim or remedy of the Collateral Trustee against the
Company or any other Obligor or any collateral which the Collateral Trustee now
has or hereafter acquires, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including the right to take or
receive from the Company or any other Obligor, directly or indirectly, in cash
or other property or by set-off or in any manner, payment or security on account
of such claim or other rights. If any

                                       6


amount shall be paid to any Pledgor in violation of the preceding sentence and
the Secured Obligations shall not have been indefeasibly paid in full, in cash,
and all commitments to extend credit under all Credit Facilities the
Indebtedness under which constitutes Priority Lien Debt shall have not been
permanently terminated or expired, such amount shall be deemed to have been paid
to such Pledgor for the benefit of, and held in trust for, the Collateral
Trustee, and shall forthwith be paid to the Collateral Trustee to be credited
and applied upon the Secured Obligations, whether matured or unmatured, in
accordance with the terms of the Collateral Trust Agreement. Each Pledgor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by the Secured Debt Documents and that the
waiver set forth in this Section is knowingly made in contemplation of such
benefits.

                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         SECTION 3.1.      Warranties, etc. Each Pledgor represents and warrants
unto the Collateral Trustee and each Secured Party, as at the date of each
pledge and delivery hereunder (including each pledge and delivery of Pledged
Shares) by such Pledgor to the Collateral Trustee of any Pledged Collateral, as
set forth in this Article.

         SECTION 3.1.1     Organization, etc. Each Pledgor is a corporation
validly organized and existing and in good standing under the laws of the State
of its organization, is duly qualified to do business and is in good standing as
a foreign organization in each jurisdiction where the nature of its business
requires such qualification and where the failure to so qualify would have a
material adverse effect on such Pledgor's ability to perform its obligations
under this Pledge Agreement or the other Secured Debt Documents to which it is a
party, and has full power and authority and holds all requisite governmental
licenses, permits and other approvals to enter into and perform its Secured
Obligations under this Pledge Agreement and each other Secured Debt Document to
which it is a party and to own or hold under lease its property and to conduct
its business substantially as currently conducted by it.

         SECTION 3.1.2     Due Authorization, Non-Contravention, etc. The
execution, delivery and performance by any Pledgor of this Pledge Agreement and
each other Secured Debt Document executed or to be executed by it are within
such Pledgor's corporate powers, have been duly authorized by all necessary
corporate action, and do not

                  (a)      contravene such Pledgor's organizational documents;

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

                  (c)      result in, or require the creation or imposition of,
         any Lien (other than the lien created hereunder) on any of such
         Pledgor's properties.

         SECTION 3.1.3     Regulation, etc. Each Pledgor is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or a "holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

                                       7


         SECTION 3.1.4     Validity, etc. This Pledge Agreement constitutes, and
each other Secured Debt Document executed by each Pledgor will, on the due
execution and delivery thereof, constitute, the legal, valid and binding
obligations of each Pledgor enforceable in accordance with their respective
terms except as enforceability may be subject to or limited by (i) bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting the rights of creditors or (ii) general principles of equity,
including the possible unavailability of specific performance or injunctive
relief.

         SECTION 3.1.5     Ownership, No Liens, etc. Each Pledgor is the legal
and beneficial owner of, and has good and marketable title to (and has full
right and authority to pledge and assign) the Pledged Collateral, free and clear
of all liens, security interests, options, or other charges or encumbrances,
except any lien or security interest granted pursuant hereto in favor of the
Collateral Trustee.

         SECTION 3.1.6     Valid Security Interest. The delivery of such Pledged
Collateral to the Collateral Trustee is effective to create a valid, perfected,
first priority or second priority, as the case may be, security interest in such
Pledged Collateral and all proceeds thereof, securing the Secured Obligations.
No filing or other action will be necessary to perfect or protect such security
interest.

         SECTION 3.1.7     As to Pledged Shares. All of the Pledged Shares are
duly authorized and validly issued, fully paid, and non-assessable, and
constitute sixty-five percent (65%) of all of the issued and outstanding shares
of capital stock entitled to vote in the election of the Board of Directors of
the Pledged Share Issuer.

         SECTION 3.1.8     Authorization, Approval, etc. No authorization,
approval, or other action by, and no notice to or filing with, any governmental
authority, regulatory body or any other Person is required either

                  (a)      for the pledge by any Pledgor of any Pledged
         Collateral pursuant to this Pledge Agreement or for the execution,
         delivery, and performance of this Pledge Agreement by any Pledgor, or

                  (b)      for the exercise by the Collateral Trustee of the
         voting or other rights provided for in this Pledge Agreement, or,
         except with respect to any Pledged Shares, as may be required in
         connection with a disposition of such Pledged Shares by laws affecting
         the offering and sale of securities generally, the remedies in respect
         of the Pledged Collateral pursuant to this Pledge Agreement.

         SECTION 3.1.9     Compliance with Laws. Each Pledgor is in compliance
with the requirements of all applicable laws (including, without limitation, the
provisions of the Fair Labor Standards Act), rules, regulations and orders of
every governmental authority, the non-compliance with which might materially
adversely affect the business, properties, assets, operations, condition
(financial or otherwise) or prospects of any Pledgor or the value of the Pledged
Collateral or the worth of the Pledged Collateral as collateral security.

                                       8


                                   ARTICLE IV
                                    COVENANTS

         SECTION 4.1.      Protect Collateral; Further Assurances, etc. Except
as otherwise permitted under the Secured Debt Documents, no Pledgor will sell,
assign, transfer, pledge or encumber in any other manner the Pledged Collateral
(except in favor of the Collateral Trustee hereunder) and each Pledgor will
warrant and defend the right and title herein granted unto the Collateral
Trustee in and to the Pledged Collateral (and all right, title, and interest
represented by the Pledged Collateral) against the claims and demands of all
Persons whomsoever. Each Pledgor agrees that at any time, and from time to time,
at the expense of the Pledgors, the Pledgors will promptly execute and deliver
all further instruments, and take all further action, that may be necessary or
desirable, or that the Collateral Trustee or any Secured Debt Representative may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral Trustee to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral.

         SECTION 4.2.      Stock Powers, etc. The Pledgors agree that all
Pledged Shares (and all other shares of capital stock constituting Pledged
Collateral) delivered by the Pledgors pursuant to this Pledge Agreement will be
accompanied by duly executed undated blank stock powers, or other equivalent
instruments of transfer acceptable to the Collateral Trustee. The Pledgors will,
from time to time upon the request of the Collateral Trustee or any Secured Debt
Representative, promptly deliver to the Collateral Trustee such stock powers,
instruments, and similar documents, satisfactory in form and substance to the
Collateral Trustee, with respect to the Pledged Collateral as the Collateral
Trustee may reasonably request and will, from time to time upon the request of
the Collateral Trustee or any Secured Debt Representative after the occurrence
of any Actionable Default, promptly transfer any Pledged Shares or other shares
of common stock constituting Pledged Collateral into the name of any nominee
designated by the Collateral Trustee.

         SECTION 4.3.      Continuous Pledge. Subject to Section 2.5, the
Pledgors will, at all times, keep pledged to the Collateral Trustee pursuant
hereto all shares of capital stock constituting Pledged Collateral, all
Dividends and Distributions with respect thereto, and all other Pledged
Collateral and other securities, instruments, proceeds, and rights from time to
time received by or distributable to any Pledgor in respect of any Pledged
Collateral.

         SECTION 4.4.      Voting Rights. The Pledgors agree after any
Actionable Default shall have occurred and be continuing and the Collateral
Trustee has notified the Pledgors of the Collateral Trustee's intention to
exercise its voting power under this Section 4.4

                           (i)      the Collateral Trustee may exercise (to the
                  exclusion of the Pledgors) the voting power and all other
                  incidental rights of ownership with respect to any Pledged
                  Shares or other shares of capital stock constituting Pledged
                  Collateral and each Pledgor hereby grants the Collateral
                  Trustee an irrevocable proxy, exercisable under such
                  circumstances, to vote the Pledged Shares and such other
                  Pledged Collateral; and

                                       9


                           (ii)     promptly to deliver to the Collateral
                  Trustee such additional proxies and other documents as may be
                  necessary to allow the Collateral Trustee to exercise such
                  voting power.

The Collateral Trustee agrees that unless an Actionable Default shall have
occurred and be continuing and the Collateral Trustee shall have given the
notice referred to in Section 4.4(b), the Pledgors shall have the exclusive
voting power with respect to any shares of capital stock (including any of the
Pledged Shares) constituting Pledged Collateral and the Collateral Trustee
shall, upon the written request of the Pledgors, promptly deliver such proxies
and other documents, if any, as shall be reasonably requested by the Pledgors
which are necessary to allow the Pledgors to exercise voting power with respect
to any such share of capital stock (including any of the Pledged Shares)
constituting Pledged Collateral; provided, however, that no vote shall be cast,
or consent, waiver, or ratification given, or action taken by the Pledgors that
would materially impair any Pledged Collateral or be inconsistent with or
violate any material provision of any of the Secured Debt Document (including
this Pledge Agreement).

         SECTION 4.5.      Additional Undertakings. The Pledgors will not take
or omit to take any action the taking or the omission of which would result in
any impairment or alteration of any material obligation of the maker of any
instrument constituting Pledged Collateral.

                                    ARTICLE V
                             THE COLLATERAL TRUSTEE

         SECTION 5.1.      Collateral Trustee Appointed Attorney-in-Fact. The
Pledgors hereby irrevocably appoint the Collateral Trustee the Pledgors'
attorney-in-fact, with full authority in the place and stead of each Pledgor and
in the name of each Pledgor or otherwise, from time to time in the Collateral
Trustee's discretion, to take any action and to execute any instrument which the
Collateral Trustee may deem necessary or advisable to accomplish the purposes of
this Pledge Agreement, including without limitation:

                  (a)      after the occurrence and continuance of an Actionable
         Default, to ask, demand, collect, sue for, recover, compromise, receive
         and give acquittance and receipts for moneys due and to become due
         under or in respect of any of the Pledged Collateral;

                  (b)      to receive, endorse, and collect any drafts or other
         instruments, documents and chattel paper, in connection with clause (a)
         above; and

                  (c)      after the occurrence and continuance of an Actionable
         Default, to file any claims or take any action or institute any
         proceedings which the Collateral Trustee may deem necessary or
         desirable for the collection of any of the Pledged Collateral or
         otherwise to enforce the rights of the Collateral Trustee with respect
         to any of the Pledged Collateral.

Each Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

         SECTION 5.2.      Collateral Trustee May Perform. If any Pledgor fails
to perform any agreement contained herein, the Collateral Trustee may itself
perform, or cause performance of,

                                       10


such agreement, and the expenses of the Collateral Trustee incurred in
connection therewith shall be payable by the Pledgors pursuant to Section 6.4.

         SECTION 5.3       Collateral Trustee's Rights and Duties Subject to
Collateral Trust Agreement. Notwithstanding anything to the contrary contained
in this Pledge Agreement, in acting under and by virtue of this Pledge
Agreement, the Collateral Trustee shall be entitled to all of the rights,
privileges and immunities provided to it in the Collateral Trust Agreement, and
the rights and duties of the Collateral Trustee hereunder are subject in all
respects to the terms, conditions and limitations set forth in the Collateral
Trust Agreement (including, without limitation the provisions of Article 5
thereof), reference to which is made for all purposes; provided, however, that
any forbearance by the Collateral Trustee in exercising any right or remedy
available to it under the Collateral Trust Agreement shall not give rise to a
defense on the part of the Pledgors with respect to the Collateral Trustee's
exercise of any right or remedy pursuant to this Pledge Agreement or as
otherwise afforded by applicable law.

                                   ARTICLE VI
                                    REMEDIES

         SECTION 6.1.      Certain Remedies. If an Actionable Default shall have
occurred and be continuing:

                  (a)      The Collateral Trustee may exercise in respect of the
         Pledged Collateral, in addition to other rights and remedies provided
         for herein or otherwise available to it, all the rights and remedies of
         a secured party on default under the U.C.C. (whether or not the U.C.C.
         applies to the affected Pledged Collateral) and also may, without
         notice except as specified below, sell the Pledged Collateral or any
         part thereof in one or more parcels at public or private sale, at any
         of the Collateral Trustee's offices or elsewhere, for cash, on credit
         or for future delivery, and upon such other terms as the Collateral
         Trustee may deem commercially reasonable in each case subject to the
         terms and provisions of the Collateral Trust Agreement. The Pledgors
         agree that, to the extent notice of sale shall be required by law, at
         least ten days' prior notice to the Pledgors of the time and place of
         any public sale or the time after which any private sale is to be made
         shall constitute reasonable notification. The Collateral Trustee shall
         not be obligated to make any sale of Pledged Collateral regardless of
         notice of sale having been given. The Collateral Trustee may adjourn
         any public or private sale from time to time by announcement at the
         time and place fixed therefor, and such sale may, without further
         notice, be made at the time and place to which it was so adjourned.

                  (b)      The Collateral Trustee may, in each case subject to
         the terms and provisions of the Collateral Trust Agreement,

                           (i)      transfer all or any part of the Pledged
                  Collateral into the name of the Collateral Trustee or its
                  nominee, with or without disclosing that such Pledged
                  Collateral is subject to the lien and security interest
                  hereunder,

                           (ii)     notify the parties obligated on any of the
                  Pledged Collateral to make payment to the Collateral Trustee
                  of any amount due or to become due thereunder,

                                       11


                           (iii)    enforce collection of any of the Pledged
                  Collateral by suit or otherwise, and surrender, release or
                  exchange all or any part thereof, or compromise or extend or
                  renew for any period (whether or not longer than the original
                  period) any obligations of any nature of any party with
                  respect thereto,

                           (iv)     endorse any checks, drafts, or other
                  writings in any Pledgor's name to allow collection of the
                  Pledged Collateral,

                           (v)      take control of any proceeds of the Pledged
                  Collateral, and

                           (vi)     execute (in the name, place and stead of the
                  Pledgors) endorsements, assignments, stock powers and other
                  instruments of conveyance or transfer with respect to all or
                  any of the Pledged Collateral.

         SECTION 6.2.      Securities Laws. If the Collateral Trustee shall
determine to exercise its right to sell all or any of the Pledged Collateral
pursuant to Section 6.1, the Pledgors agree that, upon request of the Collateral
Trustee, the Pledgors will, at their own expense:

                  (a)      execute and deliver, and cause each issuer of the
         Pledged Collateral contemplated to be sold and the directors and
         officers thereof to execute and deliver, all such instruments and
         documents, and do or cause to be done all such other acts and things,
         as may be necessary or advisable to register such Pledged Collateral
         under the provisions of the Securities Act of 1933, as from time to
         time amended (the "Securities Act"), and to cause the registration
         statement relating thereto to become effective and to remain effective
         for such period as prospectuses are required by law to be furnished,
         and to make all amendments and supplements thereto and to the related
         prospectus which are necessary or advisable, all in conformity with the
         requirements of the Securities Act and the rules and regulations of the
         Securities and Exchange Commission applicable thereto;

                  (b)      use its best efforts to qualify the Pledged
         Collateral under the state securities or "Blue Sky" laws and to obtain
         all necessary governmental approvals for the sale of the Pledged
         Collateral;

                  (c)      cause each such issuer to make available to its
         security holders, as soon as practicable, an earnings statement that
         will satisfy the provisions of Section 11(a) of the Securities Act; and

                  (d)      do or cause to be done all such other acts and things
         as may be necessary to make such sale of the Pledged Collateral or any
         part thereof valid and binding and in compliance with applicable law.

         SECTION 6.3.      Compliance with Restrictions. The Pledgors agree that
in any sale of any of the Pledged Collateral whenever an Actionable Default
shall have occurred and be continuing, the Collateral Trustee is hereby
authorized to comply with any limitation or restriction in connection with such
sale as it may be advised by counsel is necessary in order to avoid any
violation of applicable law (including compliance with such procedures as may
restrict the number of prospective bidders and purchasers, require that such
prospective bidders and purchasers have certain qualifications, and restrict
such prospective bidders and purchasers to

                                       12


persons who will represent and agree that they are purchasing for their own
account for investment and not with a view to the distribution or resale of such
Pledged Collateral), or in order to obtain any required approval of the sale or
of the purchaser by any governmental regulatory authority or official, and the
Pledgors further agree that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Collateral Trustee be liable nor accountable to the Pledgors for
any discount allowed by the reason of the fact that such Pledged Collateral is
sold in compliance with any such limitation or restriction.

         SECTION 6.4.      Application of Proceeds. All cash proceeds received
by the Collateral Trustee in respect of any sale of, collection from, or other
realization upon, all or any part of the Pledged Collateral shall thereafter be
applied in accordance with Section 3.4 of the Collateral Trust Agreement.

         SECTION 6.5.      Indemnity and Expenses. The Pledgors hereby indemnify
and holds harmless the Collateral Trustee from and against any and all claims,
losses, and liabilities arising out of or resulting from this Pledge Agreement
(including enforcement of this Pledge Agreement), except claims, losses, or
liabilities resulting from the Collateral Trustee's gross negligence or willful
misconduct. Upon demand, the Pledgors will pay to the Collateral Trustee the
amount of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Collateral
Trustee may incur in connection with:

                  (a)      the administration of this Pledge Agreement and each
         other Secured Debt Document;

                  (b)      the custody, preservation, use, or operation of, or
         the sale of, collection from, or other realization upon, any of the
         Pledged Collateral;

                  (c)      the exercise or enforcement of any of the rights of
         the Collateral Trustee hereunder; or

                  (d)      the failure by the Pledgors to perform or observe any
         of the provisions hereof.

                                   ARTICLE VII
                            MISCELLANEOUS PROVISIONS

         SECTION 7.1.      Security Document. This Pledge Agreement is a
Security Document executed pursuant to the Collateral Trust Agreement and shall
(unless otherwise expressly indicated herein) be construed, administered and
applied in accordance with the terms and provisions thereof.

         SECTION 7.2.      Amendments, etc. No amendment to or waiver of any
provision of this Pledge Agreement nor consent to any departure by the Pledgors
herefrom shall in any event be effective unless the same shall be in writing and
signed by the Collateral Trustee in accordance with Section 7.1 of the
Collateral Trust Agreement, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it is
given.

                                       13


         SECTION 7.3.      Protection of Collateral. The Collateral Trustee may
from time to time, at its option, perform any act which the Pledgors agree
hereunder to perform and which the Pledgors shall fail to perform after being
requested in writing so to perform (it being understood that no such request
need be given after the occurrence and during the continuance of an Actionable
Default) and the Collateral Trustee may from time to time take any other action
which the Collateral Trustee or any Secured Debt Representative reasonably deems
necessary for the maintenance, preservation or protection of any of the Pledged
Collateral or of its security interest therein.

         SECTION 7.4.      Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and shall be effected in the manner provided for in Section 7.5
of the Collateral Trust Agreement.

         SECTION 7.5.      Section Captions. Section captions used in this
Pledge Agreement are for convenience of reference only, and shall not affect the
construction of this Pledge Agreement.

         SECTION 7.6.      Severability. Wherever possible each provision of
this Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.

         SECTION 7.7.      Governing Law, Entire Agreement, etc. THIS PLEDGE
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER SECURITY
DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN
OR ORAL, WITH RESPECT THERETO.

         SECTION 7.8.      Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE PLEDGORS
SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW
YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL TRUSTEE'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. EACH PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE

                                       14


STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. EACH PLEDGOR FURTHER IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH PLEDGOR HEREBY EXPRESSLY
AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
ANY PLEDGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, SUCH PLEDGOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT.

         SECTION 7.9.      Waiver of Jury Trial. THE COLLATERAL TRUSTEE AND THE
PLEDGORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF THE COLLATERAL TRUSTEE OR THE PLEDGORS. THE PLEDGORS ACKNOWLEDGE AND
AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF EACH OTHER SECURED DEBT DOCUMENT TO WHICH
IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED
PARTIES ENTERING INTO EACH SUCH SECURED DEBT DOCUMENT.

                                       15


         IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.

                                    QUINTANA CANADA HOLDINGS, LLC

                                    By: /s/ Michael Thomas
                                       -----------------------------------------
                                    Name: Michael Thomas
                                    Title:

                                    Address: 50 West San Fernando Street
                                             San Jose, CA 95113

                                    Facsimile No.:

                                    Attention:

                                    QUINTANA MINERALS (USA), INC.

                                    By: /s/ Michael Thomas
                                       -----------------------------------------
                                    Name: Michael Thomas
                                    Title:

                                    Address: 50 West San Fernando Street
                                             San Jose, CA 95113

                                    Facsimile No.:

                                    Attention:

                                    JOQ CANADA, INC.

                                    By: /s/ Michael Thomas
                                       -----------------------------------------
                                    Name: Michael Thomas
                                    Title:

                                    Address: 50 West San Fernando Street
                                             San Jose, CA 95113

                                    Facsimile No.:

                                    Attention:

                                       16


                                    THE BANK OF NEW YORK, not in its individual
                                    capacity, but solely as Collateral Trustee

                                    By: /s/ Michael Pitfick
                                       -----------------------------------------
                                    Name: Michael Pitfick

                                    Title: Assistant Vice President

                                       17


                                                EXECUTION COPY
                                                Canadian Guarantors Stock Pledge

                                                                    ATTACHMENT 1
                                                                              to
                                                                Pledge Agreement

Pledged Shares

Pledged Share Issuer            Class A Common Stock



                                 Authorized       Outstanding      % of Shares
                                   Shares            Shares          Pledged
                                 ----------       -----------      -----------
                                                          
Calpine Canada Energy Ltd.      1,000,000,000       35,100             65%


(3,391 Class A shares pledged by Quintana Minerals (USA), Inc.)
(16,034 Class A shares pledged by Quintana Canada Holdings, LLC)
(3,390 Class A shares pledged by JOQ Canada, Inc.)

EX-10.21

                                                                   Exhibit 10.21

                                                           EXECUTION COPY

                FIRST AMENDMENT ASSIGNMENT AND SECURITY AGREEMENT

         THIS FIRST AMENDMENT ASSIGNMENT AND SECURITY AGREEMENT (this
"Assignment Agreement"), dated as of July 16, 2003, made by CALPINE CORPORATION,
a Delaware corporation (the "Company"), in favor of THE BANK OF NEW YORK, as
Collateral Trustee (together with any successors thereto in such capacity, the
"Collateral Trustee") for each of the Secured Parties.

                              W I T N E S S E T H:

                  WHEREAS, the Company intends to enter into an Amended and
Restated Credit Agreement dated as of July 16, 2003 (as amended, modified,
renewed, restated or replaced from time to time, the "Credit Agreement") among,
inter alia, the Company, the Lenders referred to therein and The Bank of Nova
Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a
$500,000,000 senior secured credit facility to be made available in the form of
revolving loans and term loans, including letters of credit to be issued
thereunder;

                  WHEREAS, the Company intends to (a) issue $500,000,000 in
aggregate principal amount of Second Priority Senior Secured Floating Rate Notes
due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003
(the "2007 Indenture") between the Company and Wilmington Trust Company, as
Trustee (together with its successors in such capacity, the "2007 Trustee"), (b)
issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority
Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated
as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the
Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company
and Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the
"Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the
"Term Loan Agreement") between the Company and Goldman Sachs Credit Partners
L.P., as Administrative Agent (together with its successors in such capacity,
the "Term Loan Administrative Agent");

                  WHEREAS, the Company intends to secure its Secured
Obligations, including its obligations under the Credit Agreement and any future
Priority Lien Debt, on a priority basis, and, subject to such priority, its
obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any
future Parity Lien Debt equally and ratably, with security interests in, among
other things, all present and future Assigned Collateral (as defined below);

                  WHEREAS, the Company has entered into a Collateral Trust
Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among,
inter alia, the Company, the Subsidiaries of the Company named therein and the
Collateral Trustee which sets forth the terms on which the Company has appointed
the Collateral Trustee as trustee for the present and future holders of the
Secured Obligations to receive, hold, maintain, administer, enforce and
distribute



the Existing Security Documents and all other Security Documents, including this
Assignment Agreement, at any time delivered to the Collateral Trustee and all
interests, rights, powers and remedies of the Collateral Trustee thereunder and
the proceeds thereof;

                  WHEREAS, the Company will derive substantial direct and
indirect benefit from the making of the extensions of credit under each of the
Credit Agreement and the Term Loan Agreement and the offering of each of the
2007 Notes, 2010 Notes and 2013 Notes;

                  WHEREAS, it is a condition precedent to the obligations of the
lenders to make their respective extensions of credit to the Company under each
of the Credit Agreement and the Term Loan Agreement, and condition precedent to
the obligations of the purchasers to purchase each of the 2007 Notes, the 2010
Notes and the 2013 Notes, that the Company shall have executed and delivered
this Assignment Agreement to the Collateral Trustee for the benefit of the
Secured Parties; and

                  WHEREAS, this Assignment Agreement amends and restates in its
entirety the Assignment and Security Agreement dated as of March 8, 2002 made by
the Company in favor of The Bank of Nova Scotia, as agent;

         NOW, THEREFORE, in consideration of the premises contained herein and
for good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

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

         "Assigned Agreement" is defined in Section 2.1.

         "Assigned Collateral" is defined in Section 2.1.

         "Assignment Agreement" is defined in the preamble.

         "Calpine Gilroy" means Calpine Gilroy Cogen L.P., a Delaware limited
partnership.

         "Collateral Trust Agreement" is defined in the recitals.

         "Collateral Trustee" is defined in the preamble.

         "Company" is defined in the preamble.

         "Secured Parity Lien Parties" means any Person who is holding a Parity
Lien Obligation (including any Parity Debt Representative), at any time.

                                       2


         "Secured Priority Lien Parties" means any Person who is holding a
Priority Lien Obligation (including any Priority Lien Agent), at any time.

         "Secured Parties" means any Person who is holding a Secured Obligation
(including any Secured Debt Representative), at any time.

         "U.C.C." means the Uniform Commercial Code, as in effect in the State
of Delaware.

         SECTION 1.2.      Collateral Trust Agreement Definitions. Unless
otherwise defined herein or the context otherwise requires, terms used in this
Assignment Agreement, including its preamble and recitals, have the meanings
provided in the Collateral Trust Agreement.

         SECTION  1.3.     U.C.C. Definitions. Unless otherwise defined herein
or the context otherwise requires, terms for which meanings are provided in the
U.C.C. are used in this Assignment Agreement, including its preamble and
recitals, with such meanings.

                                   ARTICLE II

                                ASSIGNMENT, ETC.

         SECTION 2.1.      Assignment. The Company hereby (i) collaterally
assigns to the Collateral Trustee for its benefit and the benefit of the Secured
Priority Lien Parties, and hereby grants to the Collateral Trustee for its
benefit and the benefit of the Secured Priority Lien Parties a first priority
security interest in, all of the Company's right, title and interest, whether
now existing or hereafter arising or acquired, in and to the following (the
"Assigned Collateral") and (ii) collaterally assigns to the Collateral Trustee
for its benefit and the benefit of the Secured Parity Lien Parties, and hereby
grants to the Collateral Trustee for its benefit and the benefit of the Secured
Parity Lien Parties a second priority security interest in, all of the Assigned
Collateral: Purchase Agreement, between Calpine Corporation and Calpine Gilroy
Cogen L.P., a Delaware limited partnership, dated as of March 8, 2002, as it may
be amended or otherwise modified from time to time (as so amended or modified,
the "Assigned Agreement"), including, without limitation,

                  (a)      all rights of the Company to receive moneys due and
         to become due under or pursuant to the Assigned Agreement,

                  (b)      all rights of the Company to receive proceeds of any
         insurance, indemnity, warranty, guaranty or collateral security with
         respect to the Assigned Agreement,

                  (c)      all claims of the Company for damages arising out of
         or for breach of or default under the Assigned Agreement,

                  (d)      the right of the Company to terminate the Assigned
         Agreement, to perform thereunder and to compel performance and
         otherwise exercise all remedies thereunder, and

                  (e)      to the extent not included in the foregoing, all
         proceeds of any and all of the foregoing collateral.

                                       3


         SECTION 2.2.      Security for Obligations; Separate Liens. This
Assignment Agreement and the security interests and Liens granted and created
herein secures the payment and performance of all Secured Obligations of the
Company now or hereafter, whether direct or indirect, absolute or contingent,
and whether for principal, reimbursement obligations, interest (including any
interest accruing at the then applicable rate provided in any applicable Secured
Debt Document after the maturity of the loans and reimbursement obligations
therein and interest accruing at the then applicable rate provided in any
applicable Secured Debt Document after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Company, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), fees, premiums, penalties,
indemnifications, expenses or otherwise, and including all amounts that
constitute part of the Secured Obligations and would be owed by the Company but
for the fact that they are unenforceable or not allowed due to a pending
Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the
foregoing, it is the intent of the parties that (i) the Liens securing the
Parity Lien Obligations are subject and subordinate to the Liens securing the
Priority Lien Obligations up to the Priority Lien Cap and (ii) this Assignment
Agreement creates two separate and distinct Liens: the first Lien securing the
payment and performance of the Priority Lien Obligations and the second Lien
securing the payment and performance of the Parity Lien Obligations.

         SECTION  2.3.     Continuing Assignment and Security Interest;
Transfer of Notes. This Assignment Agreement shall create a continuing security
interest in the Assigned Collateral and, subject to Section 4.1 of the
Collateral Trust Agreement and the other Secured Debt Documents, shall

                  (a)      remain in full force and effect until payment in full
         of all Secured Obligations and the termination or expiration of all
         commitments to extend credit under all Credit Facilities, the
         Indebtedness under which constitutes Priority Lien Debt,

                  (b)      be binding upon the Company, its successors,
         transferees and assigns, and

                  (c)      inure, together with the rights and remedies of the
         Collateral Trustee hereunder, to the benefit of the Collateral Trustee
         and each other Secured Party.

Without limiting the foregoing clause (c), any Secured Party may assign or
otherwise transfer (in whole or in part) any right or obligation under the
Secured Debt Documents to any other Person or entity, and such other Person or
entity shall thereupon become vested with all the rights and benefits in respect
thereof granted to such Secured Party under any Secured Debt Document (including
this Assignment Agreement) or otherwise, subject, however, to any contrary
provisions in such assignment or transfer, and to the applicable provisions of
each of the Secured Debt Documents. Upon the payment in full and discharge of
all Secured Obligations that are then outstanding, due and payable and the
termination or expiration of all commitments to extend credit under all Credit
Facilities, the Indebtedness under which constitutes Priority Lien Debt, the
security interest granted herein shall terminate and all rights to the Assigned
Collateral shall revert to the Company. Upon any such termination or any release
of the Lien provided for hereunder in accordance with the Secured Debt
Documents, the Collateral Trustee will, at the

                                       4


Company's sole expense, execute and deliver to the Company such documents as the
Company shall reasonably request to evidence such termination or release.

         SECTION  2.4.     Company Remains Liable. Anything herein to the
contrary notwithstanding

                  (a)      the Company shall remain liable under the contracts
         and agreements included in the Assigned Collateral to the extent set
         forth therein, and shall perform all of its duties and obligations
         under such contracts and agreements to the same extent as if this
         Assignment Agreement had not been executed,

                  (b)      the exercise by the Collateral Trustee of any of its
         rights hereunder shall not release the Company from any of its duties
         or obligations under any such contracts or agreements included in the
         Assigned Collateral, and

                  (c)      neither the Collateral Trustee nor any other Secured
         Party shall have any obligation or liability under any such contracts
         or agreements included in the Assigned Collateral by reason of this
         Assignment Agreement or by the exercise by the Collateral Trustee of
         its rights hereunder or under any other Secured Debt Document, nor
         shall the Collateral Trustee or any other Secured Party be obligated to
         perform any of the obligations or duties of the Company thereunder or
         to take any action to collect or enforce any claim for payment assigned
         hereunder.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

         SECTION  3.1.     Representations and Warranties. The Company
represents and warrants unto the Collateral Trustee and each Secured Party as
set forth in this Article.

         SECTION 3.1.1.    Due Authorization, Non-Contravention, etc. The
execution, delivery and performance by the Company of this Assignment Agreement,
is within the Company's powers, has been duly authorized by all necessary
corporate action, and does not

                  (a)      contravene the Company's certificate of incorporation
         or bylaws;

                  (b)      contravene any contractual restriction (including,
         without limitation, the Assigned Agreement), law or governmental
         regulation or court decree or order binding on or affecting the
         Company; or

                  (c)      except for the Lien created hereunder, result in, or
         require the creation or imposition of, any Lien on any of the Company's
         properties.

         SECTION 3.1.2.    Validity of Assigned Agreement. The Assigned
Agreement, a true and complete copy of which has been furnished to the
Collateral Trustee, has been duly authorized, executed and delivered by the
parties thereto, has not been amended or otherwise modified and is in full force
and effect and is binding upon and enforceable against the parties thereto in
accordance with its terms. The Company has fully performed all of its
obligations under the

                                       5


Assigned Agreement and, to the best of the Company's knowledge, Calpine Gilroy
has no defense, setoff or counterclaim arising under the Assigned Agreement.
There exists no default under the Assigned Agreement by the Company and, to the
best of the Company's knowledge, by Calpine Gilroy.

         SECTION 3.1.3.    Location of Assigned Collateral, etc. The place of
business and chief executive office of the Company and the office where the
Company keeps its records concerning the Assigned Collateral is the address
specified for the Company on the signature page hereto. The Company has no trade
name. The Company has not been known by any legal name different from the one
set forth on the signature page hereto, nor has the Company been the subject of
any merger or other corporate reorganization. None of the Assigned Collateral is
evidenced by a promissory note or other instrument.

         SECTION 3.1.4.   Ownership, No Liens, etc. The Company owns the
Assigned Collateral free and clear of any Lien, security interest, charge or
encumbrance except for the security interest created by this Assignment
Agreement. No effective financing statement or other instrument similar in
effect covering all or any part of the Assigned Collateral is on file in any
recording office, except such as may have been filed in favor of the Collateral
Trustee relating to this Assignment Agreement.

         SECTION 3.1.5.    Validity, etc. This Assignment Agreement creates a
valid and, upon filing of a proper financing statement with the Delaware
Secretary of State, first priority or second priority, as the case may be,
security interest in the Assigned Collateral, securing the payment of the
Secured Obligations, subject in each case to the provisions of Section 3.4 of
the Collateral Trust Agreement, and, upon the filing of such financing
statement, all filings and other actions necessary or desirable to perfect and
protect such security interest will have been duly taken.

         SECTION 3.1.6.    Authorization, Approval, etc. No authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required either

                  (a)      for the grant by the Company of the security interest
         granted hereby or for the execution, delivery and performance of this
         Assignment Agreement by the Company, or

                  (b)      for the perfection of or the exercise by the
         Collateral Trustee of its rights and remedies hereunder.

         SECTION 3.1.7.    Compliance with Laws. The Company is in compliance
with the requirements of all applicable laws, rules, regulations and orders of
every governmental authority, the non-compliance with which might materially
adversely affect the business, properties, assets, operations, condition
(financial or otherwise) or prospects of the Company or the value of the
Assigned Collateral or the worth of the Assigned Collateral as collateral
security.

                                       6


                                   ARTICLE IV

                                    COVENANTS

         SECTION 4.1.      Certain Covenants. The Company covenants and agrees
that, so long as any portion of the Secured Obligations shall remain unpaid or
any commitment to extend credit under any Credit Facilities, the Indebtedness
under which constitutes Priority Lien Debt shall have not been permanently
terminated or expired, the Company will, perform the obligations set forth in
this Section.

         SECTION 4.1.1.    As to Assigned Agreement. The Company, at its
expense, shall or shall cause Calpine Gilroy, as applicable, to:

                  (a)      perform and observe all the terms and provisions of
         the Assigned Agreement to be performed or observed by Company or
         Calpine Gilroy, maintain the Assigned Agreement in full force and
         effect, enforce the Assigned Agreement in accordance with its terms,
         and take all such necessary action to such end; and

                  (b)      furnish to the Collateral Trustee promptly upon
         receipt thereof copies of all material notices, requests and other
         documents received by the Company or Calpine Gilroy under or pursuant
         to the Assigned Agreement, and from time to time (i) furnish to the
         Collateral Trustee such information and reports regarding the Assigned
         Collateral as the Collateral Trustee or any Secured Debt Representative
         may reasonably request and (ii) upon request of the Collateral Trustee
         or any Secured Debt Representative make to Calpine Gilroy such demands
         and requests for information and reports or for action as the Company
         is entitled to make under the Assigned Agreement.

         SECTION 4.1.2.    [Intentionally Omitted.].

         SECTION 4.1.3.    Further Assurances, etc. The Company agrees that,
from time to time, at the expense of the Company, the Company will and will
cause Calpine Gilroy to promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Collateral Trustee or any Secured Debt Representative may reasonably
request, in order to perfect, preserve and protect any security interest granted
or purported to be granted hereby or to enable the Collateral Trustee to
exercise and enforce its rights and remedies hereunder with respect to any
Assigned Collateral. Without limiting the generality of the foregoing, the
Company will and will cause Calpine Gilroy to

                  (a)      if any Assigned Collateral shall become evidenced by
         a promissory note or other instrument, negotiable document or chattel
         paper, deliver and pledge to the Collateral Trustee hereunder such
         promissory note or instrument, negotiable document or chattel paper
         duly indorsed and accompanied by duly executed instruments of transfer
         or assignment, all in form and substance reasonably satisfactory to the
         Collateral Trustee; and

                  (b)      execute and file such financing or continuation
         statements, or amendments thereto, and such other instruments or
         notices, as may be necessary or desirable, or as the Collateral Trustee
         or any Secured Debt Representative may reasonably request, in order

                                       7


         to perfect and preserve the security interests and other rights granted
         or purported to be granted to the Collateral Trustee hereby.

With respect to the foregoing and the grant of the security interest hereunder,
the Company hereby authorizes the Collateral Trustee to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Assigned Collateral without the signature of the Company where
permitted by law. A carbon, photographic or other reproduction of this
Assignment Agreement or any financing statement covering the Assigned Collateral
or any part thereof shall be sufficient as a financing statement where permitted
by law.

         SECTION 4.1.4.    State of Incorporation. The Company agrees to give
the Collateral Trustee and each Secured Debt Representative prior written notice
of any change in its state of incorporation in the state of Delaware. The
Company agrees promptly to provide the Collateral Trustee and each Secured Debt
Representative with certified organizational documents reflecting any change to
such state of incorporation.

                                    ARTICLE V

                             THE COLLATERAL TRUSTEE

         SECTION 5.1.      Collateral Trustee Appointed Attorney-in-Fact.
Company hereby irrevocably appoints the Collateral Trustee the Company's
attorney-in-fact, with full authority in the place and stead of the Company and
in the name of the Company or otherwise, from time to time in the Collateral
Trustee's discretion, but only after the occurrence and during the continuance
of an Actionable Default, to take any action (including any action under the
Assigned Agreement that the Company is entitled to take) and to execute any
instrument which the Collateral Trustee may deem necessary or advisable to
accomplish the purposes of this Assignment Agreement, including, without
limitation:

                  (a)      to ask, demand, collect, sue for, recover,
         compromise, receive and give acquittance and receipts for moneys due
         and to become due under or in respect of any of the Assigned
         Collateral;

                  (b)      to receive, endorse, and collect any drafts or other
         instruments, documents and chattel paper, in connection with clause (a)
         above;

                  (c)      to file any claims or take any action or institute
         any proceedings which the Collateral Trustee may deem necessary or
         desirable for the collection thereof or to enforce compliance with the
         terms and conditions of the Assigned Agreement; and

                  (d)      to perform the affirmative obligations of the Company
         hereunder (including all obligations of the Company pursuant to Section
         4.1.1 and Section 4.1.3).

The Company hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

         SECTION 5.2.      Collateral Trustee May Perform. If the Company fails
to perform any agreement contained herein, the Collateral Trustee may itself
perform, or cause performance of,

                                       8


such agreement, and the expenses of the Collateral Trustee incurred in
connection therewith shall be payable by the Company pursuant to Section 6.2.

         SECTION 5.3       Collateral Trustee's Rights and Duties Subject to
Collateral Trust Agreement. Notwithstanding anything to the contrary contained
in this Assignment Agreement, in acting under and by virtue of this Assignment
Agreement, the Collateral Trustee shall be entitled to all of the rights,
privileges and immunities provided to it in the Collateral Trust Agreement, and
the rights and duties of the Collateral Trustee hereunder are subject in all
respects to the terms, conditions and limitations set forth in the Collateral
Trust Agreement (including, without limitation, the provisions of Article 5
thereof), reference to which is made for all purposes; provided, however, that
any forbearance by the Collateral Trustee in exercising any right or remedy
available to it under the Collateral Trust Agreement shall not give rise to a
defense on the part of the Company with respect to the Collateral Trustee's
exercise of any right or remedy pursuant to this Assignment Agreement or as
otherwise afforded by applicable law.

                                   ARTICLE VI

                                    REMEDIES

         SECTION  6.1.     Certain Remedies. If an Actionable Default shall have
occurred and be continuing:

                  (a)      The Collateral Trustee may exercise in respect of the
         Assigned Collateral, in addition to other rights and remedies provided
         for herein or otherwise available to it, all the rights and remedies of
         a secured party on default under the U.C.C. (whether or not the U.C.C.
         applies to the affected Assigned Collateral) and also may exercise any
         and all rights and remedies of the Company under or in connection with
         the Assigned Agreement or otherwise in respect of the Assigned
         Collateral, including, without limitation, any and all rights of the
         Company to demand or otherwise require payment of any amount under, or
         performance of any provision of, the Assigned Agreement, in each case
         subject to the terms and provisions of the Collateral Trust Agreement;

                  (b)      all payments received by the Company under or in
         connection with the Assigned Agreement or otherwise in respect of the
         Assigned Collateral shall be received in trust for the benefit of the
         Collateral Trustee, shall be segregated from other funds of the Company
         and shall be forthwith paid over to the Collateral Trustee in the same
         form as so received (with any necessary indorsement); and

                  (c)      all payments made under or in connection with the
         Assigned Agreement or otherwise in respect of the Assigned Collateral
         and received by the Collateral Trustee may, in the discretion of the
         Collateral Trustee, be held by the Collateral Trustee as collateral
         for, and/or then or at any time thereafter applied in whole or in part
         by the Collateral Trustee in accordance with Section 3.4 of the
         Collateral Trust Agreement.

         SECTION  6.2.     Indemnity and Expenses.

                  (a)      The Company agrees to indemnify the Collateral
         Trustee from and against any and all Indemnified Liabilities with
         respect to the execution, delivery, performance,

                                       9


         administration or enforcement of this Assignment Agreement to the
         extent provided in Section 7.8 of the Collateral Trust Agreement.

                  (b)      The Company agrees to reimburse the Collateral
         Trustee for all costs, fees and expenses relating to this Assignment
         Agreement to the extent provided in Section 7.7 of the Collateral Trust
         Agreement.

                                   ARTICLE VII

                            MISCELLANEOUS PROVISIONS

         SECTION 7.1.      Security Document. This Assignment Agreement is a
Security Document executed pursuant to the Collateral Trust Agreement and shall
(unless otherwise expressly indicated herein) be construed, administered and
applied in accordance with the terms and provisions thereof.

         SECTION 7.2.      Amendments; etc. No amendment to or waiver of any
provision of this Assignment Agreement nor consent to any departure by the
Company herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Collateral Trustee in accordance with Section 7.1 of
the Collateral Trust Agreement, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

         SECTION 7.3.      Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and shall be effected in the manner provided for in Section 7.5
of the Collateral Trust Agreement.

         SECTION  7.4.     Section Captions. Section captions used in this
Assignment Agreement are for convenience of reference only, and shall not affect
the construction of this Assignment Agreement.

         SECTION 7.5.      Severability. Wherever possible each provision of
this Assignment Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Assignment
Agreement shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Assignment Agreement.

         SECTION 7.6.      Governing Law, Entire Agreement, etc. THIS ASSIGNMENT
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. This
Assignment Agreement constitutes the entire understanding among the parties
hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto.

                                       10


         IN WITNESS WHEREOF, the Company has caused this Assignment Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.

                                        CALPINE CORPORATION,
                                         a Delaware corporation

                                        By: /s/ Michael Thomas
                                           -------------------------------------
                                        Name: Michael Thomas
                                        Title:

                                        Address: 50 West San Fernando Street
                                                 San Jose, CA 95113

                                        Attention: Treasurer

                                        Telecopier: (408) 995-0505

                                       11


                                        THE BANK OF NEW YORK, NOT IN ITS
                                        INDIVIDUAL CAPACITY, BUT SOLELY AS
                                        COLLATERAL TRUSTEE

                                        By: /s/ Michael Pitfick
                                           -------------------------------------
                                        Name: Michael Pitfick
                                        Title: Assistant Vice President

                                       12

EX-10.22

                                                                   Exhibit 10.22

                                                EXECUTION COPY
                                                Calpine Corporation Stock Pledge

                        SECOND AMENDMENT PLEDGE AGREEMENT

         THIS SECOND AMENDMENT PLEDGE AGREEMENT (this "Pledge Agreement"), dated
as of July 16, 2003, made by Calpine Corporation, a Delaware corporation (the
"Company"), in favor of The Bank of New York, as Collateral Trustee (together
with any successor(s) thereto in such capacity, the "Collateral Trustee") for
the benefit of the Secured Parties.

                               W I T N E S S E T H

                  WHEREAS, the Company intends to enter into an Amended and
Restated Credit Agreement dated as of July 16, 2003 (as amended, modified,
renewed, restated or replaced from time to time, the "Credit Agreement") among,
inter alia, the Company, the Lenders referred to therein and The Bank of Nova
Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a
$500,000,000 senior secured credit facility to be made available in the form of
revolving loans and term loans, including letters of credit to be issued
thereunder;

                  WHEREAS, the Company intends to (a) issue $500,000,000 in
aggregate principal amount of Second Priority Senior Secured Floating Rate Notes
due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003
(the "2007 Indenture") between the Company and Wilmington Trust Company, as
Trustee (together with its successors in such capacity, the "2007 Trustee"), (b)
issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority
Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated
as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the
Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company
and Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the
"Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the
"Term Loan Agreement") between the Company and Goldman Sachs Credit Partners
L.P., as Administrative Agent (together with its successors in such capacity,
the "Term Loan Administrative Agent");

                  WHEREAS, the Company intends to secure its Secured
Obligations, including its obligations under the Credit Agreement and any future
Priority Lien Debt, on a priority basis, and, subject to such priority, its
obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any
future Parity Lien Debt equally and ratably, with security interests in, and
pledge of, among other things, all present and future Pledged Collateral (as
defined below);

                  WHEREAS, the Company has entered into a Collateral Trust
Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among,
inter alia, the Company, the Subsidiaries of the Company named therein and the
Collateral Trustee which sets forth the terms on which the Company has appointed
the Collateral Trustee as trustee for the present and future



holders of the Secured Obligations to receive, hold, maintain, administer,
enforce and distribute the Existing Security Documents and all other Security
Documents, including this Pledge Agreement, at any time delivered to the
Collateral Trustee and all interests, rights, powers and remedies of the
Collateral Trustee thereunder and the proceeds thereof;

                  WHEREAS, the Company will derive substantial direct and
indirect benefit from the making of the extensions of credit under each of the
Credit Agreement and the Term Loan Agreement and the offering of each of the
2007 Notes, 2010 Notes and 2013 Notes;

                  WHEREAS, it is a condition precedent to the obligation of the
lenders to make their respective extensions of credit to the Company under each
of the Credit Agreement and the Term Loan Agreement, and condition precedent to
the obligation of the purchasers to purchase each of the 2007 Notes, the 2010
Notes and the 2013 Notes, that the Company shall have executed and delivered
this Pledge Agreement to the Collateral Trustee for the benefit of the Secured
Parties; and

                  WHEREAS, this Pledge Agreement amends and restates in its
entirety the First Amendment Pledge Agreement dated as of May 9, 2002 made by
the Company in favor of The Bank of Nova Scotia, as agent;

         NOW, THEREFORE, in consideration of the premises contained herein and
for good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

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

         "Collateral Trustee" is defined in the preamble.

         "Collateral Trust Agreement" is defined in the recitals.

         "Company" is defined in the preamble.

         "Distributions" means all stock dividends, liquidating dividends,
shares of stock resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Shares or other shares of
capital stock constituting Pledged Collateral, but shall not include Dividends.

         "Dividends" means cash dividends and cash distributions with respect to
any Pledged Shares or other Pledged Property made in the ordinary course of
business and not a liquidating dividend.

         "Pledge Agreement" is defined in the preamble.

                                       2


         "Pledged Collateral" is defined in Section 2.1.

         "Pledged Property" means all Pledged Shares and all other pledged
shares of capital stock, all other securities, all assignments of any amounts
due or to become due, all other instruments which are now being delivered by the
Company to the Collateral Trustee or may from time to time hereafter be
delivered by the Company to the Collateral Trustee for the purpose of pledge
under this Pledge Agreement or any other Secured Debt Document, and all proceeds
of any of the foregoing.

         "Pledged Share Issuer" means each Person identified in Attachment 1
hereto as the issuer of the Pledged Shares identified opposite the name of such
Person, and each Person that is the issuer of any shares of capital stock that
are obtained by the Company in the future and pledged hereunder.

         "Pledged Shares" means all shares of capital stock of any Pledged Share
Issuer which are owned by the Company on the date hereof or obtained by the
Company in the future and in each case delivered by the Company to the
Collateral Trustee as Pledged Property hereunder.

         "Secured Parity Lien Parties" means any Person who is holding a Parity
Lien Obligation (including any Parity Debt Representative), at any time.

         "Secured Parties" means any Person who is holding a Secured Obligation
(including any Secured Debt Representative), at any time.

         "Secured Priority Lien Parties" means any Person who is holding a
Priority Lien Obligation (including any Priority Lien Agent), at any time.

         "Securities Act" is defined in Section 6.2.

         "U.C.C." means the Uniform Commercial Code as in effect in the State of
New York.

         SECTION 1.2.      Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Pledge Agreement, including its
preamble and recitals, have the meanings provided in the Collateral Trust
Agreement.

         SECTION 1.3.      U.C.C. Definitions. Unless otherwise defined herein
or the context otherwise requires, terms for which meanings are provided in the
U.C.C. are used in this Pledge Agreement, including its preamble and recitals,
with such meanings.

                                   ARTICLE II
                                     PLEDGE

         SECTION 2.1.      Grant of Security Interest. The Company hereby (i)
pledges, hypothecates, assigns, charges, mortgages, delivers and transfers to
the Collateral Trustee, for its benefit and the benefit of the Secured Priority
Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and
the benefit of the Secured Priority Lien Parties, a continuing first priority
security interest in, all of the following property (the "Pledged Collateral")
and (ii) pledges, hypothecates, assigns, charges, mortgages, delivers and
transfers to the Collateral

                                       3


Trustee, for its benefit and the benefit of the Secured Parity Lien Parties, and
hereby grants to the Collateral Trustee, for its benefit and the benefit of the
Secured Parity Lien Parties, a continuing second priority security interest in,
all of the Pledged Collateral:

                  (a)      all issued and outstanding shares of capital stock of
         each Pledged Share Issuer identified in Attachment 1 hereto;

                  (b)      and the certificates representing the Pledged Shares
         and all dividends, cash, instruments and other property from time to
         time received, receivable or otherwise distributed in respect of or in
         exchange for any or all of the Pledged Shares;

                  (c)      all additional shares of stock of any issuer of the
         Pledged Shares from time to time acquired by the Company in any manner,
         and the certificates representing such additional shares, and all
         dividends, cash, instruments and other property from time to time
         received, receivable or otherwise distributed in respect of or in
         exchange for any or all of such shares;

                  (d)      all other Pledged Shares issued from time to time;

                  (e)      all other Pledged Property, whether now or hereafter
         delivered to the Collateral Trustee in connection with this Pledge
         Agreement;

                  (f)      all Dividends, Distributions, interest, and other
         payments and rights with respect to any Pledged Property; and

                  (g)      all proceeds of any of the foregoing.

         SECTION 2.2.      Security for Obligations; Separate Liens. This Pledge
Agreement and the security interests and Liens granted and created herein
secures the payment an performance of all Secured Obligations of the Company now
or hereafter, whether direct or indirect, absolute or contingent, and whether
for principal, reimbursement obligations, interest (including any interest
accruing at the then applicable rate provided in any applicable Secured Debt
Document after the maturity of the loans and reimbursement obligations therein
and interest accruing at the then applicable rate provided in any applicable
Secured Debt Document after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Company, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), fees, premiums, penalties, indemnifications,
expenses or otherwise, and including all amounts that constitute part of the
Secured Obligations and would be owed by the Company but for the fact that they
are unenforceable or not allowed due to a pending Bankruptcy Case or Insolvency
Proceeding. Without limiting the generality of the foregoing, it is the intent
of the parties that (i) the Liens securing the Parity Lien Obligations are
subject and subordinate to the Liens securing the Priority Lien Obligations up
to the Priority Lien Cap and (ii) this Pledge Agreement creates two separate and
distinct Liens: the first Lien securing the payment and performance of the
Priority Lien Obligations and the second Lien securing the payment and
performance of the Parity Lien Obligations.

         SECTION 2.3.      Delivery of Pledged Property. All certificates or
instruments representing or evidencing any Pledged Collateral, including all
Pledged Shares, shall be

                                       4


delivered to and held by or on behalf of the Collateral Trustee pursuant hereto,
shall be in suitable form for transfer by delivery, and shall be accompanied by
all necessary instruments of transfer or assignment, duly executed in blank.

         SECTION 2.4.      Intentionally Omitted.

         SECTION 2.5.      Continuing Security Interest; Transfer of Note. This
Pledge Agreement shall create a continuing security interest in the Pledged
Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the
other Secured Debt Documents, shall

                  (a)      remain in full force and effect until payment in full
         of all Secured Obligations and the termination or expiration of all
         commitments to extend credit under all Credit Facilities the
         Indebtedness under which constitutes Priority Lien Debt,

                  (b)      be binding upon the Company and its successors,
         transferees and assigns, and

                  (c)      inure, together with the rights and remedies of the
         Collateral Trustee hereunder, to the benefit of the Collateral Trustee
         and each other Secured Party.

Without limiting the foregoing clause (c), any Secured Party may assign or
otherwise transfer (in whole or in part) any right or obligation under the
Secured Debt Documents to any other Person or entity, and such other Person or
entity shall thereupon become vested with all the rights and benefits in respect
thereof granted to such Secured Party under any Secured Debt Document (including
this Pledge Agreement) or otherwise, subject, however, to any contrary
provisions in such assignment or transfer, and to the applicable provisions of
each of the Secured Debt Documents. Upon the payment in full and discharge of
all Secured Obligations that are then outstanding, due and payable and the
termination or expiration of all commitments to extend credit under all Credit
Facilities the Indebtedness under which constitutes Priority Lien Debt, the
security interest granted herein shall terminate and all rights to the Pledged
Collateral shall revert to the Company. Upon any such termination or release of
the Lien provided for hereunder in accordance with the Secured Debt Documents,
the Collateral Trustee will, at the Company's sole expense, deliver to the
Company, without any representations, warranties or recourse of any kind
whatsoever, all certificates and instruments representing or evidencing all
Pledged Shares, together with all other Pledged Collateral held by the
Collateral Trustee hereunder, and execute and deliver to the Company such
documents as the Company shall reasonably request to evidence such termination
or release.

         SECTION 2.6.      Security Interest Absolute. All rights of the
Collateral Trustee and the security interests granted to the Collateral Trustee
hereunder, and all obligations of the Company hereunder, shall be absolute and
unconditional, irrespective of

                  (a)      any lack of validity or enforceability of any of the
         Secured Debt Documents,

                  (b)      the failure of any Secured Party or any holder of any
         Secured Obligation

                                       5


                           (i)      to assert any claim or demand or to enforce
                  any right or remedy against the Company, any other Obligor or
                  any other Person under the provisions of any of the Secured
                  Debt Documents or otherwise, or

                           (ii)     to exercise any right or remedy against any
                  other guarantor of, or collateral securing, any Secured
                  Obligations of the Company or any other Obligor,

                  (c)      any change in the time, manner or place of payment
         of, or in any other term of, all or any of the Secured Obligations or
         any other extension, compromise or renewal of any Secured Obligation of
         the Company or any other Obligor,

                  (d)      any reduction, limitation, impairment or termination
         of any Secured Obligations of the Company or any other Obligor for any
         reason, including any claim of waiver, release, surrender, alteration
         or compromise, and shall not be subject to (and the Company hereby
         waives any right to or claim of) any defense or setoff, counterclaim,
         recoupment or termination whatsoever by reason of the invalidity,
         illegality, nongenuineness, irregularity, compromise, unenforceability
         of, or any other event or occurrence affecting, any Secured Obligations
         of the Company, any other Obligor or otherwise,

                  (e)      any amendment to, rescission, waiver, or other
         modification of, or any consent to departure from, any of the terms of
         any of the Secured Debt Documents,

                  (f)      any addition, exchange, release, surrender or
         non-perfection of any collateral (including the Pledged Collateral), or
         any amendment to or waiver or release of or addition to or consent to
         departure from any guaranty, for any of the Secured Obligations, or

                  (g)      any other circumstances which might otherwise
         constitute a defense available to, or a legal or equitable discharge
         of, the Company, any other Obligor, any surety or any guarantor.

         SECTION 2.7.      [Intentionally Omitted.]

         SECTION 2.8.      Waiver of Subrogation. Until such time as the Secured
Obligations have been paid in full and discharged and all commitments to extend
credit under all Credit Facilities the Indebtedness under which constitutes
Priority Lien Debt shall have been permanently terminated or expired, the
Company hereby irrevocably waives any claim or other rights which it may now or
hereafter acquire against the Company or any other Obligor that arise from the
existence, payment, performance or enforcement of the Company's obligations
under this Pledge Agreement or any other Secured Debt Document, including any
right of subrogation, reimbursement, exoneration, or indemnification, any right
to participate in any claim or remedy of the Collateral Trustee against the
Company or any other Obligor or any collateral which the Collateral Trustee now
has or hereafter acquires, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including the right to take or
receive from the Company or any other Obligor, directly or indirectly, in cash
or other property or by set-off or in any manner, payment or security on account
of such claim or other rights. If any

                                       6


amount shall be paid to the Company in violation of the preceding sentence and
the Secured Obligations shall not have been indefeasibly paid in full, in cash,
and all commitments to extend credit under all Credit Facilities the
Indebtedness under which constitutes Priority Lien Debt shall have not been
permanently terminated or expired, such amount shall be deemed to have been paid
to the Company for the benefit of, and held in trust for, the Collateral
Trustee, and shall forthwith be paid to the Collateral Trustee to be credited
and applied upon the Secured Obligations, whether matured or unmatured, in
accordance with the terms of the Collateral Trust Agreement. The Company
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by the Secured Debt Documents and that the
waiver set forth in this Section is knowingly made in contemplation of such
benefits.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         SECTION 3.1.      Warranties, etc. The Company represents and warrants
unto the Collateral Trustee and each Secured Party, as at the date of each
pledge and delivery hereunder (including each pledge and delivery of Pledged
Shares) by the Company to the Collateral Trustee of any Pledged Collateral, as
set forth in this Article.

         SECTION 3.1.1     Ownership, No Liens, etc. The Company is the legal
and beneficial owner of, and has good and marketable title to (and has full
right and authority to pledge and assign) such Pledged Collateral, free and
clear of all liens, security interests, options, or other charges or
encumbrances, except any lien or security interest granted pursuant hereto in
favor of the Collateral Trustee.

         SECTION 3.1.2     Valid Security Interest. The delivery of such Pledged
Collateral to the Collateral Trustee is effective to create a valid, perfected,
first priority or second priority, as the case may be, security interest in such
Pledged Collateral and all proceeds thereof, securing the Secured Obligations,
subject in each case to the provisions of Section 3.4 of the Collateral Trust
Agreement. No filing or other action will be necessary to perfect or protect
such security interest.

         SECTION 3.1.3     As to Pledged Shares. In the case of any Pledged
Shares constituting such Pledged Collateral, all of such Pledged Shares are duly
authorized and validly issued, fully paid, and non-assessable, and constitute
all of the issued and outstanding shares of capital stock entitled to vote in
the election of the Board of Directors of each Pledged Share Issuer.

                                   ARTICLE IV
                                    COVENANTS

         SECTION 4.1.      Protect Collateral; Further Assurances, etc. The
Company will not sell, assign, transfer, pledge, or encumber in any other manner
the Pledged Collateral (except in favor of the Collateral Trustee hereunder and
as otherwise expressly permitted by the Secured Debt Documents). The Company
will warrant and defend the right and title herein granted unto the Collateral
Trustee in and to the Pledged Collateral (and all right, title, and interest
represented by the Pledged Collateral) against the claims and demands of all
Persons whomsoever. The Company agrees that at any time, and from time to time,
at the expense of the Company, the

                                       7


Company will promptly execute and deliver all further instruments, and take all
further action, that may be necessary or desirable, or that the Collateral
Trustee or any Secured Debt Representative may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Collateral Trustee to exercise and enforce its rights
and remedies hereunder with respect to any Pledged Collateral.

         SECTION 4.2.      Stock Powers, etc. The Company agrees that all
Pledged Shares (and all other shares of capital stock constituting Pledged
Collateral) delivered by the Company pursuant to this Pledge Agreement will be
accompanied by duly executed undated blank stock powers, or other equivalent
instruments of transfer acceptable to the Collateral Trustee. The Company will,
from time to time upon the request of the Collateral Trustee or any Secured Debt
Representative, promptly deliver to the Collateral Trustee such stock powers,
instruments, and similar documents, satisfactory in form and substance to the
Collateral Trustee, with respect to the Pledged Collateral as the Collateral
Trustee or any Secured Debt Representative may reasonably request and will, from
time to time upon the request of the Collateral Trustee after the occurrence of
any Actionable Default, promptly transfer any Pledged Shares or other shares of
common stock constituting Pledged Collateral into the name of any nominee
designated by the Collateral Trustee.

         SECTION 4.3.      Continuous Pledge. Subject to Section 2.5, the
Company will, at all times, keep pledged to the Collateral Trustee pursuant
hereto all Pledged Shares and all other shares of capital stock constituting
Pledged Collateral, all Dividends and Distributions with respect thereto, and
all other Pledged Collateral and other securities, instruments, proceeds, and
rights from time to time received by or distributable to the Company in respect
of any Pledged Collateral.

         SECTION 4.4.      Voting Rights; Dividends, etc. The Company agrees
after any Actionable Default shall have occurred and be continuing and the
Collateral Trustee has notified the Company of the Collateral Trustee's
intention to exercise its voting power under this Section 4.4

                           (i)      the Collateral Trustee may exercise (to the
                  exclusion of the Company) the voting power and all other
                  incidental rights of ownership with respect to any Pledged
                  Shares or other shares of capital stock constituting Pledged
                  Collateral and the Company hereby grants the Collateral
                  Trustee an irrevocable proxy, exercisable under such
                  circumstances, to vote the Pledged Shares and such other
                  Pledged Collateral; and

                           (ii)     promptly to deliver to the Collateral
                  Trustee such additional proxies and other documents as may be
                  necessary to allow the Collateral Trustee to exercise such
                  voting power.

The Collateral Trustee agrees that unless an Actionable Default shall have
occurred and be continuing and the Collateral Trustee shall have given the
notice referred to in Section 4.4(b), the Company shall have the exclusive
voting power with respect to any shares of capital stock (including any of the
Pledged Shares) constituting Pledged Collateral and the Collateral Trustee
shall, upon the written request of the Company, promptly deliver such proxies
and other

                                       8


documents, if any, as shall be reasonably requested by the Company which are
necessary to allow the Company to exercise voting power with respect to any such
share of capital stock (including any of the Pledged Shares) constituting
Pledged Collateral; provided, however, that no vote shall be cast, or consent,
waiver, or ratification given, or action taken by the Company that would
materially impair any Pledged Collateral or be inconsistent with or violate any
material provision of any of the Secured Debt Documents (including this Pledge
Agreement).

         SECTION 4.5.      Additional Undertakings. The Company will not take or
omit to take any action the taking or the omission of which would result in any
material impairment or material adverse alteration of any obligation of the
maker of any instrument constituting Pledged Collateral.

                                    ARTICLE V
                             THE COLLATERAL TRUSTEE

         SECTION 5.1.      Collateral Trustee Appointed Attorney-in-Fact. The
Company hereby irrevocably appoints the Collateral Trustee the Company's
attorney-in-fact, with full authority in the place and stead of the Company and
in the name of the Company or otherwise, from time to time in the Collateral
Trustee's discretion, to take any action and to execute any instrument which the
Collateral Trustee may deem necessary or advisable to accomplish the purposes of
this Pledge Agreement, including without limitation:

                  (a)      after the occurrence and continuance of an Actionable
         Default, to ask, demand, collect, sue for, recover, compromise, receive
         and give acquittance and receipts for moneys due and to become due
         under or in respect of any of the Pledged Collateral;

                  (b)      to receive, endorse, and collect any drafts or other
         instruments, documents and chattel paper, in connection with clause (a)
         above; and

                  (c)      after the occurrence and continuance of an Actionable
         Default to file any claims or take any action or institute any
         proceedings which the Collateral Trustee may deem necessary or
         desirable for the collection of any of the Pledged Collateral or
         otherwise to enforce the rights of the Collateral Trustee with respect
         to any of the Pledged Collateral.

The Company hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

         SECTION 5.2.      Collateral Trustee May Perform. If the Company fails
to perform any agreement contained herein, the Collateral Trustee may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Collateral Trustee incurred in connection therewith shall be payable by the
Company pursuant to Section 6.4.

         SECTION 5.3       Collateral Trustee's Rights and Duties Subject to
Collateral Trust Agreement. Notwithstanding anything to the contrary contained
in this Pledge Agreement, in acting under and by virtue of this Pledge
Agreement, the Collateral Trustee shall be entitled to all of the rights,
privileges and immunities provided to it in the Collateral Trust Agreement, and
the rights of the Collateral Trustee hereunder are subject in all respects to
the terms, conditions and

                                       9


limitations set forth in the Collateral Trust Agreement (including, without
limitation, the provisions of Article 5 thereof), reference to which is made for
all purposes; provided, however, that any forbearance by the Collateral Trustee
in exercising any right or remedy available to it under the Collateral Trust
Agreement shall not give rise to a defense on the part of the Company with
respect to the Collateral Trustee's exercise of any right or remedy pursuant to
this Pledge Agreement or as otherwise afforded by applicable law.

                                   ARTICLE VI
                                    REMEDIES

         SECTION 6.1.      Certain Remedies. If an Actionable Default shall have
occurred and be continuing:

                  (a)      The Collateral Trustee may exercise in respect of the
         Pledged Collateral, in addition to other rights and remedies provided
         for herein or otherwise available to it, all the rights and remedies of
         a secured party on default under the U.C.C. (whether or not the U.C.C.
         applies to the affected Pledged Collateral) and also may, without
         notice except as specified below, sell the Pledged Collateral or any
         part thereof in one or more parcels at public or private sale, at any
         of the Collateral Trustee's offices or elsewhere, for cash, on credit
         or for future delivery, and upon such other terms as the Collateral
         Trustee may deem commercially reasonable in each case subject to the
         terms and provisions of the Collateral Trust Agreement. The Company
         agrees that, to the extent notice of sale shall be required by law, at
         least ten days' prior notice to the Company of the time and place of
         any public sale or the time after which any private sale is to be made
         shall constitute reasonable notification. The Collateral Trustee shall
         not be obligated to make any sale of Pledged Collateral regardless of
         notice of sale having been given. The Collateral Trustee may adjourn
         any public or private sale from time to time by announcement at the
         time and place fixed therefor, and such sale may, without further
         notice, be made at the time and place to which it was so adjourned.

                  (b)      The Collateral Trustee may, in each case subject to
         the terms and provisions of the Collateral Trust Agreement,

                           (i)      transfer all or any part of the Pledged
                  Collateral into the name of the Collateral Trustee or its
                  nominee, with or without disclosing that such Pledged
                  Collateral is subject to the lien and security interest
                  hereunder,

                           (ii)     notify the parties obligated on any of the
                  Pledged Collateral to make payment to the Collateral Trustee
                  of any amount due or to become due thereunder,

                           (iii)    enforce collection of any of the Pledged
                  Collateral by suit or otherwise, and surrender, release or
                  exchange all or any part thereof, or compromise or extend or
                  renew for any period (whether or not longer than the original
                  period) any obligations of any nature of any party with
                  respect thereto,

                           (iv)     endorse any checks, drafts, or other
                  writings in the Company's name to allow collection of the
                  Pledged Collateral,

                                       10


                           (v)      take control of any proceeds of the Pledged
                  Collateral, and

                           (vi)     execute (in the name, place and stead of the
                  Company) endorsements, assignments, stock powers and other
                  instruments of conveyance or transfer with respect to all or
                  any of the Pledged Collateral.

         SECTION 6.2.      Securities Laws. If the Collateral Trustee shall
determine to exercise its right to sell all or any of the Pledged Collateral
pursuant to Section 6.1, the Company agrees that, upon request of the Collateral
Trustee, the Company will, at its own expense:

                  (a)      execute and deliver, and cause each issuer of the
         Pledged Collateral contemplated to be sold and the directors and
         officers thereof to execute and deliver, all such instruments and
         documents, and do or cause to be done all such other acts and things,
         as may be necessary or advisable to register such Pledged Collateral
         under the provisions of the Securities Act of 1933, as from time to
         time amended (the "Securities Act"), and to cause the registration
         statement relating thereto to become effective and to remain effective
         for such period as prospectuses are required by law to be furnished,
         and to make all amendments and supplements thereto and to the related
         prospectus which are necessary or advisable, all in conformity with the
         requirements of the Securities Act and the rules and regulations of the
         Securities and Exchange Commission applicable thereto;

                  (b)      use its best efforts to qualify the Pledged
         Collateral under the state securities or "Blue Sky" laws and to obtain
         all necessary governmental approvals for the sale of the Pledged
         Collateral;

                  (c)      cause each such issuer to make available to its
         security holders, as soon as practicable, an earnings statement that
         will satisfy the provisions of Section 11(a) of the Securities Act; and

                  (d)      do or cause to be done all such other acts and things
         as may be necessary to make such sale of the Pledged Collateral or any
         part thereof valid and binding and in compliance with applicable law.

         SECTION 6.3.      Compliance with Restrictions. The Company agrees that
in any sale of any of the Pledged Collateral whenever an Actionable Default
shall have occurred and be continuing, the Collateral Trustee is hereby
authorized to comply with any limitation or restriction in connection with such
sale as it may be advised by counsel is necessary in order to avoid any
violation of applicable law (including compliance with such procedures as may
restrict the number of prospective bidders and purchasers, require that such
prospective bidders and purchasers have certain qualifications, and restrict
such prospective bidders and purchasers to persons who will represent and agree
that they are purchasing for their own account for investment and not with a
view to the distribution or resale of such Pledged Collateral), or in order to
obtain any required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and the Company further agrees that such
compliance shall not result in such sale being considered or deemed not to have
been made in a commercially reasonable manner, nor shall the Collateral Trustee
be liable nor accountable to the Company for

                                       11


any discount allowed by the reason of the fact that such Pledged Collateral is
sold in compliance with any such limitation or restriction.

         SECTION 6.4.      Application of Proceeds. All cash proceeds received
by the Collateral Trustee in respect of any sale of, collection from, or other
realization upon, all or any part of the Pledged Collateral shall thereafter be
applied in accordance with Section 3.4 of the Collateral Trust Agreement.

         SECTION 6.5.      Indemnity and Expenses.

                  (a)      The Company agrees to indemnify the Collateral
         Trustee from and against any and all Indemnified Liabilities with
         respect to the execution, delivery, performance, administration or
         enforcement of this Pledge Agreement to the extent provided in Section
         7.8 of the Collateral Trust Agreement.

                  (a)      The Company agrees to reimburse the Collateral
         Trustee for all costs, fees and expenses relating to this Pledge
         Agreement to the extent provided in Section 7.7 of the Collateral Trust
         Agreement.

                                  ARTICLE VII
                            MISCELLANEOUS PROVISIONS

         SECTION 7.1.      Security Document. This Pledge Agreement is a
Security Document executed pursuant to the Collateral Trust Agreement and shall
(unless otherwise expressly indicated herein) be construed, administered and
applied in accordance with the terms and provisions thereof.

         SECTION 7.2.      Amendments, etc. No amendment to or waiver of any
provision of this Pledge Agreement nor consent to any departure by the Company
herefrom shall in any event be effective unless the same shall be in writing and
signed by the Collateral Trustee in accordance with Section 7.1 of the
Collateral Trust Agreement, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it is
given.

         SECTION 7.3.      Protection of Collateral. The Collateral Trustee may
from time to time, at its option, perform any act which the Company agrees
hereunder to perform and which the Company shall fail to perform after being
requested in writing so to perform (it being understood that no such request
need be given after the occurrence and during the continuance of an Actionable
Default) and the Collateral Trustee may from time to time take any other action
which the Collateral Trustee or any Secured Debt Representative reasonably deems
necessary for the maintenance, preservation or protection of any of the Pledged
Collateral or of its security interest therein.

         SECTION 7.4.      Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and shall be effected in the manner provided for in Section 7.5
of the Collateral Trust Agreement.

         SECTION 7.5.      Section Captions. Section captions used in this
Pledge Agreement are for convenience of reference only, and shall not affect the
construction of this Pledge Agreement.

                                       12


         SECTION 7.6.      Severability. Wherever possible each provision of
this Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.

         SECTION 7.7.      Governing Law, Entire Agreement, etc. THIS PLEDGE
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER SECURITY
DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN
OR ORAL, WITH RESPECT THERETO.

         SECTION 7.8.      Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY
SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW
YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL TRUSTEE'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF

                                       13


EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
PLEDGE AGREEMENT.

         SECTION 7.9.      Waiver of Jury Trial. THE COLLATERAL TRUSTEE AND THE
COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY. THE COMPANY ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER SECURED DEBT DOCUMENT TO WHICH IT IS A
PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES
ENTERING INTO EACH SUCH SECURED DEBT DOCUMENT.

                                       14


         IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.

                                    CALPINE CORPORATION


                                    By: /s/ Michael Thomas
                                       -----------------------------------------
                                    Name: Michael Thomas
                                    Title:

                                    Address: 50 West San Fernando Street
                                             San Jose, CA 95113

                                    Facsimile No.: (408) 995-0505

                                    Attention: Treasurer

                                       15


                                    THE BANK OF NEW YORK, not in its individual
                                    capacity, but solely as Collateral Trustee

                                    By: /s/ Michael Pitfick
                                       -----------------------------------------
                                    Name: Michael Pitfick
                                    Title: Assistant Vice President

                                       16


                                                                    ATTACHMENT 1
                                                                              to
                                               Second Amendment Pledge Agreement

                                 PLEDGED SHARES



Pledged Share Issuer:                               Common Stock
- --------------------                                ------------
                                                    Outstanding     % of Pledged
                                                      Shares           Shares
                                                      ------           ------
                                                              
CPN Energy Services, GP, Inc.                          1000             100%
CPN Energy Services, LP, Inc.                          1000             100%
Calpine CCFC II Holdings, Inc.                         1000             100%
Calpine Central, Inc.                                  1000             100%
Calpine Eastern Corporation                            1000             100%
Calpine Dighton, Inc.                                  1000             100%
CPN Auburndale, Inc.                                   1000             100%
Calpine Auburndale, Inc.                               1000             100%
Calpine Gordonsville, Inc.                             1000             100%
Calpine Rumford, Inc.                                   100             100%
Calpine Rumford I, Inc.                                1000             100%
Calpine Tiverton, Inc.                                  100             100%
Calpine Tiverton I, Inc.                                100             100%
Calpine Northeast Marketing, Inc.                       100             100%
Venture Acquisition Company                            1000             100%
Calpine Northbrook Corporation of Maine, Inc.          1000             100%
Androscoggin Energy, Inc.                              1000             100%
Calpine Project Holdings, Inc.                         1000             100%
Calpine Sumas, Inc.                                    1000             100%
Northwest Cogeneration, Inc.                           1000             100%
Calpine King City, Inc.                                1000             100%
Calpine Gilroy 1, Inc.                                 1000             100%
Calpine Gilroy 2, Inc.                                 1000             100%
Sutter Dryers, Inc.                                    1000             100%
Calpine Metcalf EPC, Inc.                              1000             100%
Bellingham Cogen, Inc.                                 1000             100%
GATX/Calpine-Agnews, Inc.                              3000             100%
Calpine Agnews, Inc.                                   1000             100%
Calpine Power Company                                  1000             100%
Calpine Vapor, Inc.                                    1000             100%
Modoc Power, Inc.                                      1000             100%




                                                                  
Santa Rosa Energy Company                              1000             100%
Geysers Finance Company                             100,000             100%
Calpine Thermal Power, Inc.                            1000             100%
Calpine Operations Management Company, Inc.            1000             100%
Calpine Fuels Corporation                              1000             100%
CPN Pipeline Company                                   1000             100%
Calpine Eastern Holdings, Inc.                         1000             100%
Calpine c*Power, Inc.                                  1000             100%
WRMS Engineering, Inc.                              100,000             100%
CPN Cascade, Inc.                                      1000             100%
CPN Telephone Flat, Inc.                               1000             100%
Anderson Springs Energy Company                        1000             100%
Calpine Sonoma, Inc.                                   1000             100%
Calpine California Holdings, Inc.                      1000             100%

EX-10.23

                                                                   Exhibit 10.23

                                                  EXECUTION COPY
                                                  Calpine Corporation LLC Pledge

            SECOND AMENDMENT PLEDGE AGREEMENT (Membership Interests)

         THIS SECOND AMENDMENT PLEDGE AGREEMENT (this "Pledge Agreement"), dated
as of July 16, 2003, made by Calpine Corporation, a Delaware corporation (the
"Company"), in favor of The Bank of New York, as Collateral Trustee (together
with any successor(s) thereto in such capacity, the "Collateral Trustee") for
the benefit of the Secured Parties.

                               W I T N E S S E T H

                  WHEREAS, the Company intends to enter into an Amended and
Restated Credit Agreement dated as of July 16, 2003 (as amended, modified,
renewed, restated or replaced from time to time, the "Credit Agreement") among,
inter alia, the Company, the Lenders referred to therein and The Bank of Nova
Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a
$500,000,000 senior secured credit facility to be made available in the form of
revolving loans and term loans, including letters of credit to be issued
thereunder;

                  WHEREAS, the Company intends to (a) issue $500,000,000 in
aggregate principal amount of Second Priority Senior Secured Floating Rate Notes
due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003
(the "2007 Indenture") between the Company and Wilmington Trust Company, as
Trustee (together with its successors in such capacity, the "2007 Trustee"), (b)
issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority
Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated
as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the
Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company
and Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the
"Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the
"Term Loan Agreement") between the Company and Goldman Sachs Credit Partners
L.P., as Administrative Agent (together with its successors in such capacity,
the "Term Loan Administrative Agent");

                  WHEREAS, the Company intends to secure its Secured
Obligations, including its obligations under the Credit Agreement and any future
Priority Lien Debt, on a priority basis, and, subject to such priority, its
obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any
future Parity Lien Debt equally and ratably, with security interests in, and
pledge of, among other things, all present and future Pledged Collateral (as
defined below);

                  WHEREAS, the Company has entered into a Collateral Trust
Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among,
inter alia, the Company, the Subsidiaries of the Company named therein and the
Collateral Trustee which sets forth the terms on which the Company has appointed
the Collateral Trustee as trustee for the present and future



holders of the Secured Obligations to receive, hold, maintain, administer,
enforce and distribute the Existing Security Documents and all other Security
Documents, including this Pledge Agreement, at any time delivered to the
Collateral Trustee and all interests, rights, powers and remedies of the
Collateral Trustee thereunder and the proceeds thereof;

                  WHEREAS, the Company will derive substantial direct and
indirect benefit from the making of the extensions of credit under each of the
Credit Agreement and the Term Loan Agreement and the offering of each of the
2007 Notes, 2010 Notes and 2013 Notes;

                  WHEREAS, it is a condition precedent to the obligation of the
lenders to make their respective extensions of credit to the Company under each
of the Credit Agreement and the Term Loan Agreement, and condition precedent to
the obligation of the purchasers to purchase each of the 2007 Notes, the 2010
Notes and the 2013 Notes, that the Company shall have executed and delivered
this Pledge Agreement to the Collateral Trustee for the benefit of the Secured
Parties; and

                  WHEREAS, this Pledge Agreement amends and restates in its
entirety the First Amendment Pledge Agreement (Membership Interests) dated as of
May 9, 2002 made by the Company in favor of The Bank of Nova Scotia, as agent;

         NOW, THEREFORE, in consideration of the premises contained herein and
for good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

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

         "Collateral Trustee" is defined in the preamble.

         "Collateral Trust Agreement" is defined in the recitals.

         "Company" is defined in the preamble.

         "Distributions" means all cash distributions made in respect of the
Pledged Interests, whether of net income, return of capital or otherwise, and
all other distributions (whether similar or dissimilar to the foregoing) on or
with respect to any Pledged Interests or other rights or interests constituting
Pledged Collateral.

          "Pledge Agreement" is defined in the preamble.

         "Pledged Collateral" is defined in Section 2.1.

         "Pledged Interests Issuer" means each Person identified in Attachment 1
hereto as the issuer of the Pledged Interests identified opposite the name of
such Person, and each Person that

                                       2


is the issuer of any membership interests that are obtained by the Company in
the future and pledged hereunder.

         "Pledged Interests" means all membership interests in the Pledged
Interests Issuer, as such interests are amended, modified or supplemented from
time to time and together with any interest in the Pledged Interests Issuer
taken in extension or renewal thereof or substitution therefor.

         "Pledged Property" means all Pledged Interests, all securities, all
assignments of any amounts due or to become due, all other instruments which are
now being delivered by the Company to the Collateral Trustee or may from time to
time hereafter be delivered by the Company to the Collateral Trustee for the
purpose of pledge under this Pledge Agreement or any other Secured Debt
Document, and all proceeds of any of the foregoing.

         "Secured Parity Lien Parties" means any Person who is holding a Parity
Lien Obligation (including any Parity Debt Representative), at any time.

         "Secured Parties" means any Person who is holding a Secured Obligation
(including any Secured Debt Representative), at any time.

         "Secured Priority Lien Parties" means any Person who is holding a
Priority Lien Obligation (including any Priority Lien Agent), at any time.

         "Securities Act" is defined in Section 6.2.

         "U.C.C." means the Uniform Commercial Code as in effect in the State of
New York.

         SECTION 1.2.      Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Pledge Agreement, including its
preamble and recitals, have the meanings provided in the Collateral Trust
Agreement.

         SECTION 1.3.      U.C.C. Definitions. Unless otherwise defined herein
or the context otherwise requires, terms for which meanings are provided in the
U.C.C. are used in this Pledge Agreement, including its preamble and recitals,
with such meanings.

                                   ARTICLE II
                                     PLEDGE

         SECTION 2.1.      Grant of Security Interest. The Company hereby (i)
pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to
the Collateral Trustee, for its benefit and the benefit of the Secured Priority
Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and
the benefit of the Secured Priority Lien Parties, a continuing first priority
security interest in, all of the following property (the "Pledged Collateral")
and (ii) pledges, hypothecates, assigns, charges, mortgages, delivers, and
transfers to the Collateral Trustee, for its benefit and the benefit of the
Secured Parity Lien Parties, and hereby grants to the Collateral Trustee, for
its benefit and the benefit of the Secured Parity Lien Parties, a continuing
second priority security interest in, all of the Pledged Collateral:

                                       3


                  (a)      all Pledged Interests identified in Attachment 1
         hereto;

                  (b)      and the certificates representing the Pledged
         Interests and all dividends, distributions, cash, instruments and other
         property from time to time received, receivable or otherwise
         distributed in respect of or in exchange for any or all of the Pledged
         Interests;

                  (c)      all additional membership interests of any issuer of
         the Pledged Interests from time to time acquired by the Company in any
         manner, and the certificates representing such additional membership
         interests, and all dividends, distributions, cash, instruments and
         other property from time to time received, receivable or otherwise
         distributed in respect of or in exchange for any or all of such
         membership interests;

                  (d)      all other Pledged Interests issued from time to time;

                  (e)      all other Pledged Property, whether now or hereafter
         delivered to the Collateral Trustee in connection with this Pledge
         Agreement;

                  (f)      all Distributions, interest, and other payments and
         rights with respect to any Pledged Property; and

                  (g)      all proceeds of any of the foregoing.

         SECTION 2.2.      Security for Obligations; Separate Liens. This Pledge
Agreement and the security interests and Liens granted and created herein
secures the payment and performance of all Secured Obligations of the Company
now or hereafter, whether direct or indirect, absolute or contingent, and
whether for principal, reimbursement obligations, interest (including any
interest accruing at the then applicable rate provided in any applicable Secured
Debt Document after the maturity of the loans and reimbursement obligations
therein and interest accruing at the then applicable rate provided in any
applicable Secured Debt Document after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Company, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), fees, premiums, penalties,
indemnifications, expenses or otherwise, and including all amounts that
constitute part of the Secured Obligations and would be owed by the Company but
for the fact that they are unenforceable or not allowed due to a pending
Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the
foregoing, it is the intent of the parties that (i) the Liens securing the
Parity Lien Obligations are subject and subordinate to the Liens securing the
Priority Lien Obligations up to the Priority Lien Cap and (ii) this Pledge
Agreement creates two separate and distinct Liens: the first Lien securing the
payment and performance of the Priority Lien Obligations and the second Lien
securing the payment and performance of the Parity Lien Obligations.

         SECTION 2.3.      Delivery of Pledged Property. All certificates or
instruments representing or evidencing any Pledged Collateral, including all
Pledged Interests, shall be delivered to and held by or on behalf of the
Collateral Trustee pursuant hereto, shall be in suitable form for transfer by
delivery, and shall be accompanied by all necessary instruments of transfer or
assignment, duly executed in blank.

                                       4


         SECTION 2.4.      Intentionally Omitted.

         SECTION 2.5.      Continuing Security Interest; Transfer of Note. This
Pledge Agreement shall create a continuing security interest in the Pledged
Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the
other Secured Debt Documents, shall

                  (a)      remain in full force and effect until payment in full
         of all Secured Obligations and the termination or expiration of all
         commitments to extend credit under all Credit Facilities the
         Indebtedness under which constitutes Priority Lien Debt,

                  (b)      be binding upon the Company and its successors,
         transferees and assigns, and

                  (c)      inure, together with the rights and remedies of the
         Collateral Trustee hereunder, to the benefit of the Collateral Trustee
         and each other Secured Party.

Without limiting the foregoing clause (c), any Secured Party may assign or
otherwise transfer (in whole or in part) any right or obligation under the
Secured Debt Documents to any other Person or entity, and such other Person or
entity shall thereupon become vested with all the rights and benefits in respect
thereof granted to such Secured Party under any Secured Debt Document (including
this Pledge Agreement) or otherwise, subject, however, to any contrary
provisions in such assignment or transfer, and to the applicable provisions of
each of the Secured Debt Documents. Upon the payment in full and discharge of
all Secured Obligations that are then outstanding, due and payable and the
termination or expiration of all commitments to extend credit under all Credit
Facilities, the Indebtedness under which constitutes Priority Lien Debt, the
security interest granted herein shall terminate and all rights to the Pledged
Collateral shall revert to the Company. Upon any such termination or release of
the Lien provided for hereunder in accordance with the Secured Debt Documents,
the Collateral Trustee will, at the Company's sole expense, deliver to the
Company, without any representations, warranties or recourse of any kind
whatsoever, all certificates and instruments representing or evidencing all
Pledged Interests, together with all other Pledged Collateral held by the
Collateral Trustee hereunder, and execute and deliver to the Company such
documents as the Company shall reasonably request to evidence such termination
or release.

         SECTION 2.6.      Security Interest Absolute. All rights of the
Collateral Trustee and the security interests granted to the Collateral Trustee
hereunder, and all obligations of the Company hereunder, shall be absolute and
unconditional, irrespective of

                  (a)      any lack of validity or enforceability of any of the
         Secured Debt Documents,

                  (b)      the failure of any Secured Party or any holder of any
         Secured Obligation

                           (i)      to assert any claim or demand or to enforce
                  any right or remedy against the Company, any other Obligor or
                  any other Person under the provisions of any of the Secured
                  Debt Documents or otherwise, or

                                       5


                           (ii)     to exercise any right or remedy against any
                  other guarantor of, or collateral securing, any Secured
                  Obligations of the Company or any other Obligor,

                  (c)      any change in the time, manner or place of payment
         of, or in any other term of, all or any of the Secured Obligations or
         any other extension, compromise or renewal of any Secured Obligation of
         the Company or any other Obligor,

                  (d)      any reduction, limitation, impairment or termination
         of any Secured Obligations of the Company or any other Obligor for any
         reason, including any claim of waiver, release, surrender, alteration
         or compromise, and shall not be subject to (and the Company hereby
         waives any right to or claim of) any defense or setoff, counterclaim,
         recoupment or termination whatsoever by reason of the invalidity,
         illegality, nongenuineness, irregularity, compromise, unenforceability
         of, or any other event or occurrence affecting, any Secured Obligations
         of the Company, any other Obligor or otherwise,

                  (e)      any amendment to, rescission, waiver, or other
         modification of, or any consent to departure from, any of the terms of
         any of the Secured Debt Documents,

                  (f)      any addition, exchange, release, surrender or
         non-perfection of any collateral (including the Pledged Collateral), or
         any amendment to or waiver or release of or addition to or consent to
         departure from any guaranty, for any of the Secured Obligations, or

                  (g)      any other circumstances which might otherwise
         constitute a defense available to, or a legal or equitable discharge
         of, the Company, any other Obligor, any surety or any guarantor.

         SECTION 2.7.      [Intentionally Omitted.]

         SECTION 2.8.      Waiver of Subrogation. Until such time as the Secured
Obligations have been indefeasibly paid in full and discharged and all
commitments to extend credit under all Credit Facilities the Indebtedness under
which constitutes Priority Lien Debt shall have been permanently terminated or
expired, the Company hereby irrevocably waives any claim or other rights which
it may now or hereafter acquire against the Company or any other Obligor that
arise from the existence, payment, performance or enforcement of the Company's
obligations under this Pledge Agreement or any other Secured Debt Document,
including any right of subrogation, reimbursement, exoneration, or
indemnification, any right to participate in any claim or remedy of the
Collateral Trustee against the Company or any other Obligor or any collateral
which the Collateral Trustee now has or hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including the right to take or receive from the Company or any other
Obligor, directly or indirectly, in cash or other property or by set-off or in
any manner, payment or security on account of such claim or other rights. If any
amount shall be paid to the Company in violation of the preceding sentence and
the Secured Obligations shall not have been indefeasibly paid in full, in cash,
and all commitments to extend credit under all Credit Facilities the
Indebtedness under which constitutes Priority Lien Debt

                                       6


shall have not been permanently terminated or expired, such amount shall be
deemed to have been paid to the Company for the benefit of, and held in trust
for, the Collateral Trustee, and shall forthwith be paid to the Collateral
Trustee to be credited and applied upon the Secured Obligations, whether matured
or unmatured, in accordance with the terms of the Collateral Trust Agreement.
The Company acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by the Secured Debt Documents and that
the waiver set forth in this Section is knowingly made in contemplation of such
benefits.

                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         SECTION 3.1.      Warranties, etc. The Company represents and warrants
unto the Collateral Trustee and each Secured Party, as at the date of each
pledge and delivery hereunder (including each pledge and delivery of Pledged
Interests) by the Company to the Collateral Trustee of any Pledged Collateral,
as set forth in this Article.

         SECTION 3.1.1     Ownership, No Liens, etc. The Company is the legal
and beneficial owner of, and has good and marketable title to (and has full
right and authority to pledge and assign) such Pledged Collateral, free and
clear of all liens, security interests, options, or other charges or
encumbrances, except any lien or security interest granted pursuant hereto in
favor of the Collateral Trustee.

         SECTION 3.1.2     Valid Security Interest. The delivery of such Pledged
Collateral to the Collateral Trustee is effective to create a valid, perfected,
first priority or second priority, as the case may be, security interest in such
Pledged Collateral and all proceeds thereof, securing the Secured Obligations,
subject in each case to the provisions of Section 3.4 of the Collateral Trust
Agreement. No filing or other action will be necessary to perfect or protect
such security interest.

         SECTION 3.1.3     As to Pledged Interests. In the case of any Pledged
Interests constituting such Pledged Collateral, all of such Pledged Interests
are duly authorized and validly issued, fully paid, and non-assessable, and
constitute all of the issued and outstanding shares of capital stock entitled to
vote in the election of the Board of Directors of each Pledged Share Issuer.

         SECTION 3.1.4     Nature of Membership Interests. No right, title and
interest of the Company in the Pledged Interests Issuers are represented by a
certificate of interest or instrument, except such certificates or instruments,
if any, as have been delivered to the Collateral Trustee and are held in its
possession, together with transfer documents as required in this Pledge
Agreement (and the Company covenants and agrees that any such certificates or
instruments hereafter received by the Company with respect to any of the Pledged
Collateral will be held in trust for the Collateral Trustee and promptly
delivered to the Collateral Trustee).

                                       7


                                   ARTICLE IV
                                    COVENANTS

         SECTION 4.1.      Protect Collateral; Further Assurances, etc. The
Company will not sell, assign, transfer, pledge, or encumber in any other manner
the Pledged Collateral (except in favor of the Collateral Trustee hereunder and
as otherwise expressly permitted by the Secured Debt Documents). The Company
will warrant and defend the right and title herein granted unto the Collateral
Trustee in and to the Pledged Collateral (and all right, title, and interest
represented by the Pledged Collateral) against the claims and demands of all
Persons whomsoever. The Company agrees that at any time, and from time to time,
at the expense of the Company, the Company will promptly execute and deliver all
further instruments, and take all further action, that may be necessary or
desirable, or that the Collateral Trustee or any Secured Debt Representative may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral Trustee to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral. The Company hereby authorizes the Collateral Trustee to
cause the filing of any financing statement that (i) indicates the Pledged
Collateral and (ii) contains any other information required by Section 5 of
Article 9 of the Uniform Commercial Code of the jurisdiction wherein such
financing statement or amendment is filed regarding the sufficiency or filing
office acceptance of any financing statement or amendment, including whether the
Company is an organization, the type of organization and any organization
identification number issued to the Company; provided that this sentence shall
not be interpreted as requiring the Collateral Trustee to file any such
financing statements, continuation statements or other instruments.

         SECTION 4.2.      Certificates, etc. The Company agrees that all
certificates evidencing Pledged Interests, if any, delivered by the Company
pursuant to this Pledge Agreement will be accompanied by duly executed undated
blank stock powers, or other equivalent instruments of transfer reasonably
acceptable to the Collateral Trustee. The Company will, from time to time upon
the reasonable request of the Collateral Trustee or any Secured Debt
Representative, promptly deliver to the Collateral Trustee such stock powers,
instruments, and similar documents, reasonably satisfactory in form and
substance to the Collateral Trustee, with respect to the Pledged Collateral as
the Collateral Trustee or any Secured Debt Representative may reasonably request
and will, from time to time upon the reasonable request of the Collateral
Trustee after the occurrence of any Actionable Default, promptly transfer any
Pledged Interests into the name of any nominee designated by the Collateral
Trustee.

         SECTION 4.3.      Continuous Pledge. Subject to Section 2.5, the
Company will, at all times, keep pledged to the Collateral Trustee pursuant
hereto all Pledged Interests and all other shares of capital stock constituting
Pledged Collateral, all Distributions with respect thereto, and all other
Pledged Collateral and other securities, instruments, proceeds, and rights from
time to time received by or distributable to the Company in respect of any
Pledged Collateral.

         SECTION 4.4.      Voting Rights. The Company agrees after any
Actionable Default shall have occurred and be continuing and the Collateral
Trustee has notified the Company of the Collateral Trustee's intention to
exercise its voting power under this Section 4.4

                                       8


                           (i)      the Collateral Trustee may exercise (to the
                  exclusion of the Company) the voting power and all other
                  incidental rights of ownership with respect to any Pledged
                  Interests or other shares of capital stock constituting
                  Pledged Collateral and the Company hereby grants the
                  Collateral Trustee an irrevocable proxy, exercisable under
                  such circumstances, to vote the Pledged Interests and such
                  other Pledged Collateral; and

                           (ii)     promptly to deliver to the Collateral
                  Trustee such additional proxies and other documents as may be
                  necessary to allow the Collateral Trustee to exercise such
                  voting power.

The Collateral Trustee agrees that unless an Actionable Default shall have
occurred and be continuing and the Collateral Trustee shall have given the
notice referred to in this Section 4.4, the Company shall have the exclusive
voting power with respect to any membership interests (including any of the
Pledged Interests) constituting Pledged Collateral and the Collateral Trustee
shall, upon the written request of the Company, promptly deliver such proxies
and other documents, if any, as shall be reasonably requested by the Company
which are necessary to allow the Company to exercise voting power with respect
to any such membership interests (including any of the Pledged Interests)
constituting Pledged Collateral; provided, however, that no vote shall be cast,
or consent, waiver, or ratification given, or action taken by the Company that
would materially impair any Pledged Collateral or be inconsistent with or
violate any material provision of any of the Secured Debt Documents (including
this Pledge Agreement).

         SECTION 4.5.      Additional Undertakings. The Company will not take or
omit to take any action the taking or the omission of which would result in any
material impairment or alteration of any obligation of the maker of any
instrument constituting Pledged Collateral.

                                    ARTICLE V
                             THE COLLATERAL TRUSTEE

         SECTION 5.1.      Collateral Trustee Appointed Attorney-in-Fact. The
Company hereby irrevocably appoints the Collateral Trustee the Company's
attorney-in-fact, with full authority in the place and stead of the Company and
in the name of the Company or otherwise, from time to time in the Collateral
Trustee's discretion, to take any action and to execute any instrument which the
Collateral Trustee may deem necessary or advisable to accomplish the purposes of
this Pledge Agreement, including without limitation:

                  (a)      after the occurrence and continuance of an Actionable
         Default, to ask, demand, collect, sue for, recover, compromise, receive
         and give acquittance and receipts for moneys due and to become due
         under or in respect of any of the Pledged Collateral;

                  (b)      to receive, endorse, and collect any drafts or other
         instruments, documents and chattel paper, in connection with clause (a)
         above; and

                  (c)      after the occurrence and continuance of an Actionable
         Default, to file any claims or take any action or institute any
         proceedings which the Collateral Trustee may deem necessary or
         desirable for the collection of any of the Pledged Collateral or

                                       9


         otherwise to enforce the rights of the Collateral Trustee with respect
         to any of the Pledged Collateral or

The Company hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

         SECTION 5.2.      Collateral Trustee May Perform. If the Company fails
to perform any agreement contained herein, the Collateral Trustee may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Collateral Trustee incurred in connection therewith shall be payable by the
Company pursuant to Section 6.4.

         SECTION 5.3.      Collateral Trustee's Rights and Duties Subject to
Collateral Trust Agreement. Notwithstanding anything to the contrary contained
in this Pledge Agreement, in acting under and by virtue of this Pledge
Agreement, the Collateral Trustee shall be entitled to all of the rights,
privileges and immunities provided to it in the Collateral Trust Agreement, and
the rights and duties of the Collateral Trustee hereunder are subject in all
respects to the terms, conditions and limitations set forth in the Collateral
Trust Agreement (including, without limitation, the provisions of Article 5
thereof), reference to which is made for all purposes; provided, however, that
any forbearance by the Collateral Trustee in exercising any right or remedy
available to it under the Collateral Trust Agreement shall not give rise to a
defense on the part of the Company with respect to the Collateral Trustee's
exercise of any right or remedy pursuant to this Pledge Agreement or as
otherwise afforded by applicable law.

                                   ARTICLE VI
                                    REMEDIES

         SECTION 6.1.      Certain Remedies. If an Actionable Default shall have
occurred and be continuing:

                  (a)      The Collateral Trustee may exercise in respect of the
         Pledged Collateral, in addition to other rights and remedies provided
         for herein or otherwise available to it, all the rights and remedies of
         a secured party on default under the U.C.C. (whether or not the U.C.C.
         applies to the affected Pledged Collateral) and also may, without
         notice except as specified below, sell the Pledged Collateral or any
         part thereof in one or more parcels at public or private sale, at any
         of the Collateral Trustee's offices or elsewhere, for cash, on credit
         or for future delivery, and upon such other terms as the Collateral
         Trustee may deem commercially reasonable in each case subject to the
         terms and provisions of the Collateral Trust Agreement. The Company
         agrees that, to the extent notice of sale shall be required by law, at
         least ten days' prior notice to the Company of the time and place of
         any public sale or the time after which any private sale is to be made
         shall constitute reasonable notification. The Collateral Trustee shall
         not be obligated to make any sale of Pledged Collateral regardless of
         notice of sale having been given. The Collateral Trustee may adjourn
         any public or private sale from time to time by announcement at the
         time and place fixed therefor, and such sale may, without further
         notice, be made at the time and place to which it was so adjourned.

                  (b)      The Collateral Trustee may, in each case subject to
         the terms and provisions of the Collateral Trust Agreement,

                                       10


                           (i)      transfer all or any part of the Pledged
                  Collateral into the name of the Collateral Trustee or its
                  nominee, with or without disclosing that such Pledged
                  Collateral is subject to the lien and security interest
                  hereunder,

                           (ii)     notify the parties obligated on any of the
                  Pledged Collateral to make payment to the Collateral Trustee
                  of any amount due or to become due thereunder,

                           (iii)    enforce collection of any of the Pledged
                  Collateral by suit or otherwise, and surrender, release or
                  exchange all or any part thereof, or compromise or extend or
                  renew for any period (whether or not longer than the original
                  period) any obligations of any nature of any party with
                  respect thereto,

                           (iv)     endorse any checks, drafts, or other
                  writings in the Company's name to allow collection of the
                  Pledged Collateral,

                           (v)      take control of any proceeds of the Pledged
                  Collateral, and

                           (vi)     execute (in the name, place and stead of the
                  Company) endorsements, assignments, stock powers and other
                  instruments of conveyance or transfer with respect to all or
                  any of the Pledged Collateral.

         SECTION 6.2.      Securities Laws. If the Collateral Trustee shall
determine to exercise its right to sell all or any of the Pledged Collateral
pursuant to Section 6.1, the Company agrees that, upon request of the Collateral
Trustee, the Company will, at its own expense:

                  (a)      execute and deliver, and cause each Pledged Interests
         Issuer of the Pledged Collateral contemplated to be sold and the
         members thereof to execute and deliver, all such instruments and
         documents, and do or cause to be done all such other acts and things,
         as may be necessary or advisable to register such Pledged Collateral
         under the provisions of the Securities Act of 1933, as from time to
         time amended (the "Securities Act"), and to cause the registration
         statement relating thereto to become effective and to remain effective
         for such period as prospectuses are required by law to be furnished,
         and to make all amendments and supplements thereto and to the related
         prospectus which are necessary or advisable, all in conformity with the
         requirements of the Securities Act and the rules and regulations of the
         Securities and Exchange Commission applicable thereto;

                  (b)      use its best efforts to qualify the Pledged
         Collateral under the state securities or "Blue Sky" laws and to obtain
         all necessary governmental approvals for the sale of the Pledged
         Collateral;

                  (c)      cause each such issuer to make available to its
         security holders, as soon as practicable, an earnings statement that
         will satisfy the provisions of Section 11(a) of the Securities Act; and

                                       11


                  (d)      do or cause to be done all such other acts and things
         as may be necessary to make such sale of the Pledged Collateral or any
         part thereof valid and binding and in compliance with applicable law.

         SECTION 6.3.      Compliance with Restrictions. The Company agrees that
in any sale of any of the Pledged Collateral whenever an Actionable Default
shall have occurred and be continuing, the Collateral Trustee is hereby
authorized to comply with any limitation or restriction in connection with such
sale as it may be advised by counsel is necessary in order to avoid any
violation of applicable law (including compliance with such procedures as may
restrict the number of prospective bidders and purchasers, require that such
prospective bidders and purchasers have certain qualifications, and restrict
such prospective bidders and purchasers to persons who will represent and agree
that they are purchasing for their own account for investment and not with a
view to the distribution or resale of such Pledged Collateral), or in order to
obtain any required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and the Company further agrees that such
compliance shall not result in such sale being considered or deemed not to have
been made in a commercially reasonable manner, nor shall the Collateral Trustee
be liable nor accountable to the Company for any discount allowed by the reason
of the fact that such Pledged Collateral is sold in compliance with any such
limitation or restriction.

         SECTION 6.4.      Application of Proceeds. All cash proceeds received
by the Collateral Trustee in respect of any sale of, collection from, or other
realization upon, all or any part of the Pledged Collateral shall thereafter be
applied in accordance with Section 3.4 of the Collateral Trust Agreement.

         SECTION 6.5.      Indemnity and Expenses.

                  (a)      The Company agrees to indemnify the Collateral
         Trustee from and against any and all Indemnified Liabilities with
         respect to the execution, delivery, performance, administration or
         enforcement of this Pledge Agreement to the extent provided in Section
         7.8 of the Collateral Trust Agreement.

                  The Company agrees to reimburse the Collateral Trustee for all
         costs, fees and expenses relating to this Pledge Agreement to the
         extent provided in Section 7.7 of the Collateral Trust Agreement.

                                   ARTICLE VII
                            MISCELLANEOUS PROVISIONS

         SECTION 7.1.      Security Document. This Pledge Agreement is a
Security Document executed pursuant to the Collateral Trust Agreement and shall
(unless otherwise expressly indicated herein) be construed, administered and
applied in accordance with the terms and provisions thereof.

         SECTION 7.2.      Amendments, etc. No amendment to or waiver of any
provision of this Pledge Agreement nor consent to any departure by the Company
herefrom shall in any event be effective unless the same shall be in writing and
signed by the Collateral Trustee in accordance

                                       12


with Section 7.1 of the Collateral Trust Agreement, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it is given.

         SECTION 7.3.      Protection of Collateral. The Collateral Trustee may
from time to time, at its option, perform any act which the Company agrees
hereunder to perform and which the Company shall fail to perform after being
requested in writing so to perform (it being understood that no such request
need be given after the occurrence and during the continuance of an Actionable
Default) and the Collateral Trustee may from time to time take any other action
which the Collateral Trustee or any Secured Debt Representative reasonably deems
necessary for the maintenance, preservation or protection of any of the Pledged
Collateral or of its security interest therein.

         SECTION 7.4.      Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and shall be effected in the manner provided for in Section 7.5
of the Collateral Trust Agreement.

         SECTION 7.5.      Section Captions. Section captions used in this
Pledge Agreement are for convenience of reference only, and shall not affect the
construction of this Pledge Agreement.

         SECTION 7.6.      Severability. Wherever possible each provision of
this Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.

         SECTION 7.7.      Governing Law, Entire Agreement, etc. THIS PLEDGE
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER SECURITY
DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN
OR ORAL, WITH RESPECT THERETO.

         SECTION 7.8.      Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY
SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW
YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL TRUSTEE'S OPTION,
IN THE

                                       13


COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED COLLATERAL OR OTHER PROPERTY MAY
BE FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE
AGREEMENT.

         SECTION 7.9.      Waiver of Jury Trial. THE COLLATERAL TRUSTEE AND THE
COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY. THE COMPANY ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER SECURED DEBT DOCUMENT TO WHICH IT IS A
PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE SECURED PARTIES
ENTERING INTO EACH SUCH SECURED DEBT DOCUMENT.

                                       14


         IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.

                                    CALPINE CORPORATION

                                    By: /s/ Michael Thomas
                                       -----------------------------------------
                                    Name: Michael Thomas
                                    Title:

                                    Address: 50 West San Fernando Street
                                             San Jose, CA 95113

                                    Facsimile No.: (408) 995-0505

                                    Attention: Treasurer

                                       15


                                    THE BANK OF NEW YORK, not in its individual
                                    capacity, but solely as Collateral Trustee

                                    By: /s/ Michael Pitfick
                                       -----------------------------------------
                                    Name: Michael Pitfick
                                    Title: Assistant Vice President

                                       16


                                                  EXECUTION COPY
                                                  Calpine Corporation LLC Pledge

                                                                    ATTACHMENT 1
                                                                              to
                         Second Amendment Pledge Agreement (Membership Interest)

                          PLEDGED MEMBERSHIP INTERESTS



                                             % of
                                           Membership
                                            Interest
Pledged Interest Issuer:                    Pledged
- -----------------------                     -------
                                        
Calpine Natural Gas Holdings, LLC            100%

Calpine Marketing, LLC                       100%

Anacapa Land Company LLC                     100%

Calpine Pittsburgh, LLC                      100%

CPN Blue Spruce Holdings, LLC                100%

Calpine Calistoga Holdings, LLC              100%

Chippokes Energy Center, LLC                 100%

Palmetto Energy Center, LLC                  100%

Blue Heron Energy Center, LLC                100%

South Point Energy Center, LLC               100%

Calpine Sonoran Pipeline, LLC                100%

Los Esteros Critical Energy Center, LLC      100%

Calpine Natural Gas GP, LLC                  100%

EX-10.24

                                                                   Exhibit 10.24

                                                 EXECUTION COPY
                                                 Calpine Corporation Note Pledge

                      FIRST AMENDMENT NOTE PLEDGE AGREEMENT

         THIS FIRST AMENDMENT NOTE PLEDGE AGREEMENT (this "Pledge Agreement"),
dated as of July 16, 2003, made by Calpine Corporation, a Delaware corporation
(the "Company"), in favor of The Bank of New York, as Collateral Trustee
(together with any successor(s) thereto in such capacity, the "Collateral
Trustee") for the benefit of the Secured Parties.

                               W I T N E S S E T H

                  WHEREAS, the Company intends to enter into an Amended and
Restated Credit Agreement dated as of July 16, 2003 (as amended, modified,
renewed, restated or replaced from time to time, the "Credit Agreement") among,
inter alia, the Company, the Lenders referred to therein and The Bank of Nova
Scotia, as Administrative Agent (the "Credit Agreement Agent"), relating to a
$500,000,000 senior secured credit facility to be made available in the form of
revolving loans and term loans, including letters of credit to be issued
thereunder;

                  WHEREAS, the Company intends to (a) issue $500,000,000 in
aggregate principal amount of Second Priority Senior Secured Floating Rate Notes
due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003
(the "2007 Indenture") between the Company and Wilmington Trust Company, as
Trustee (together with its successors in such capacity, the "2007 Trustee"), (b)
issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority
Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated
as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the
Indenture dated as of July 16, 2003 (the "2013 Indenture") between the Company
and Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the
"Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the
"Term Loan Agreement") between the Company and Goldman Sachs Credit Partners
L.P., as Administrative Agent (together with its successors in such capacity,
the "Term Loan Administrative Agent");

                  WHEREAS, the Company intends to secure its Secured
Obligations, including its obligations under the Credit Agreement and any future
Priority Lien Debt, on a priority basis, and, subject to such priority, its
obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any
future Parity Lien Debt equally and ratably, with security interests in, and
pledge of, among other things, all present and future Pledged Collateral (as
defined below);

                  WHEREAS, the Company has entered into a Collateral Trust
Agreement dated as of July 16, 2003 (the "Collateral Trust Agreement") among,
inter alia, the Company, the Subsidiaries of the Company named therein and the
Collateral Trustee which sets forth the terms on which the Company has appointed
the Collateral Trustee as trustee for the present and future



holders of the Secured Obligations to receive, hold, maintain, administer,
enforce and distribute the Existing Security Documents and all other Security
Documents, including this Pledge Agreement, at any time delivered to the
Collateral Trustee and all interests, rights, powers and remedies of the
Collateral Trustee thereunder and the proceeds thereof;

                  WHEREAS, the Company will derive substantial direct and
indirect benefit from the making of the extensions of credit under each of the
Credit Agreement and the Term Loan Agreement and the offering of each of the
2007 Notes, 2010 Notes and 2013 Notes;

                  WHEREAS, it is a condition precedent to the obligation of the
lenders to make their respective extensions of credit to the Company under each
of the Credit Agreement and the Term Loan Agreement, and condition precedent to
the obligation of the purchasers to purchase each of the 2007 Notes, the 2010
Notes and the 2013 Notes, that the Company shall have executed and delivered
this Pledge Agreement to the Collateral Trustee for the benefit of the Secured
Parties; and

                  WHEREAS, this Pledge Agreement amends and restates in its
entirety the Note Pledge Agreement dated as of May 9, 2002 made by the Company
in favor of The Bank of Nova Scotia, as agent;

         NOW, THEREFORE, in consideration of the premises contained herein and
for good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

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

         "Collateral Trustee" is defined in the preamble.

         "Collateral Trust Agreement" is defined in the recitals.

         "Company" is defined in the preamble.

         "Pledge Agreement" is defined in the preamble.

         "Pledged Collateral" is defined in Section 2.1.

         "Pledged Note Issuer" means each Person identified in Attachment 1
hereto as the issuer of the Pledged Notes identified opposite the name of such
Person, and each Person that is the issuer of any Pledged Notes that are
obtained by the Company in the future.

         "Pledged Notes" means all promissory notes of any Pledged Note Issuer
which are delivered by the Company to the Collateral Trustee as Pledged Property
hereunder, as such promissory notes, in accordance with Section 4.5, are
amended, modified or supplemented from

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time to time and together with any promissory notes of any Pledged Note Issuer
taken in extension or renewal.

         "Pledged Property" means all Pledged Notes and all other assignments of
any amounts due or to become due, all other instruments which are now being
delivered by the Company to the Collateral Trustee or may from time to time
hereafter be delivered by the Company to the Collateral Trustee for the purpose
of pledge under this Pledge Agreement or any other Secured Debt Document, and
all instruments, proceeds and rights from time to time received by or
distributable to the Company in respect of any of the foregoing.

         "Secured Parity Lien Parties" means any Person who is holding a Parity
Lien Obligation (including any Parity Debt Representative), at any time.

         "Secured Parties" means any Person who is holding a Secured Obligation
(including any Secured Debt Representative), at any time.

         "Secured Priority Lien Parties" means any Person who is holding a
Priority Lien Obligation (including any Priority Lien Agent), at any time.

         "U.C.C." means the Uniform Commercial Code as in effect in the State of
New York.

         SECTION 1.2. Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Pledge Agreement, including its
preamble and recitals, have the meanings provided in the Collateral Trust
Agreement.

         SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the
context otherwise requires, terms for which meanings are provided in the U.C.C.
are used in this Pledge Agreement, including its preamble and recitals, with
such meanings.

                                   ARTICLE II
                                     PLEDGE

         SECTION 2.1. Grant of Security Interest. The Company hereby (i)
pledges, hypothecates, assigns, charges, mortgages, delivers and transfers to
the Collateral Trustee, for its benefit and the benefit of the Secured Priority
Lien Parties, and hereby grants to the Collateral Trustee, for its benefit and
the benefit of the Secured Priority Lien Parties, a continuing first priority
security interest in, all of the following property (the "Pledged Collateral")
and (ii) pledges, hypothecates, assigns, charges, mortgages, delivers and
transfers to the Collateral Trustee, for its benefit and the benefit of the
Secured Parity Lien Parties, and hereby grants to the Collateral Trustee, for
its benefit and the benefit of the Secured Parity Lien Parties, a continuing
second priority security interest in, all of the Pledged Collateral

                  (a)      all promissory notes of each Pledged Note Issuer
         identified in Attachment 1 hereto;

                  (b)      all other Pledged Notes issued from time to time;

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                  (c)      all other Pledged Property, whether now or hereafter
         delivered to the Collateral Trustee in connection with this Pledge
         Agreement;

                  (d)      all interest and other payments and rights with
         respect to any Pledged Property; and

                  (e)      all proceeds of any of the foregoing.

         SECTION 2.2. Security for Obligations; Separate Liens. This Pledge
Agreement and the security interests and Liens granted and created herein
secures the payment and performance of all Secured Obligations of the Company
now or hereafter, whether direct or indirect, absolute or contingent, and
whether for principal, reimbursement obligations, interest (including any
interest accruing at the then applicable rate provided in any applicable Secured
Debt Document after the maturity of the loans and reimbursement obligations
therein and interest accruing at the then applicable rate provided in any
applicable Secured Debt Document after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Company, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), fees, premiums, penalties,
indemnifications, expenses or otherwise, and including all amounts that
constitute part of the Secured Obligations and would be owed by the Company but
for the fact that they are unenforceable or not allowed due to a pending
Bankruptcy Case or Insolvency Proceeding. Without limiting the generality of the
foregoing, it is the intent of the parties that (i) the Liens securing the
Parity Lien Obligations are subject and subordinate to the Liens securing the
Priority Lien Obligations up to the Priority Lien Cap and (ii) this Pledge
Agreement creates two separate and distinct Liens: the first Lien securing the
payment and performance of the Priority Lien Obligations and the second Lien
securing the payment and performance of the Parity Lien Obligations.

         SECTION 2.3. Delivery of Pledged Property. All instruments representing
or evidencing any Pledged Collateral, including all Pledged Notes, shall be
delivered to and held by or on behalf of (and, in the case of Pledged Notes,
endorsed to the order of) the Collateral Trustee pursuant hereto, shall be in
suitable form for transfer by delivery, and shall be accompanied by all
necessary instruments of transfer or assignment, duly executed in blank.

         SECTION 2.4. Payment on Pledged Notes. In the event that any payment of
principal or interest is to be made on any Pledged Note at a time when no
Actionable Default has occurred and is continuing, such payment may be paid
directly to the Company. If an Actionable Default has occurred and is
continuing, then any such payment shall be paid directly to the Collateral
Trustee.

         SECTION 2.5. Continuing Security Interest; Transfer of Note. This
Pledge Agreement shall create a continuing security interest in the Pledged
Collateral and, subject to Section 4.1 of the Collateral Trust Agreement and the
other Secured Debt Documents, shall

                  (a)      remain in full force and effect until payment in full
         of all Secured Obligations and the termination or expiration of all
         commitments to extend credit under all Credit Facilities, the
         Indebtedness under which constitutes Priority Lien Debt,

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                  (b)      be binding upon the Company and its successors,
         transferees and assigns, and

                  (c)      inure, together with the rights and remedies of the
         Collateral Trustee hereunder, to the benefit of the Collateral Trustee
         and each other Secured Party.

Without limiting the foregoing clause (c), any Secured Party may assign or
otherwise transfer (in whole or in part) any right or obligation under the
Secured Debt Documents to any other Person or entity, and such other Person or
entity shall thereupon become vested with all the rights and benefits in respect
thereof granted to such Secured Party under any Secured Debt Document (including
this Pledge Agreement) or otherwise, subject, however, to any contrary
provisions in such assignment or transfer, and to the applicable provisions of
each of the Secured Debt Documents. Upon the payment in full and discharge of
all Secured Obligations that are then outstanding, due and payable and the
termination or expiration of all commitments to extend credit under all Credit
Facilities, the Indebtedness under which constitutes Priority Lien Debt, the
security interest granted herein shall terminate and all rights to the Pledged
Collateral shall revert to the Company. Upon any such termination or any release
of the Lien provided for hereunder in accordance with the Secured Debt
Documents, the Collateral Trustee will, at the Company's sole expense, deliver
to the Company, without any representations, warranties or recourse of any kind
whatsoever, all certificates and instruments representing or evidencing all
Pledged Notes, together with all other Pledged Collateral held by the Collateral
Trustee hereunder, and execute and deliver to the Company such documents as the
Company shall reasonably request to evidence such termination or release.

         It is understood and agreed that (i) the Company may convert the
Indebtedness underlying the Pledged Notes to equity and, upon the conversion to
equity of all Indebtedness from a Pledged Note Issuer to the Company, the
promissory note of such Pledged Note Issuer shall be released from the Security
Documents and cancelled and (ii) the Company may substitute new non-recourse
secured promissory notes for promissory notes previously pledged to the
Collateral Trustee.

         SECTION 2.6. Security Interest Absolute. All rights of the Collateral
Trustee and the security interests granted to the Collateral Trustee hereunder,
and all obligations of the Company hereunder, shall be absolute and
unconditional, irrespective of

                  (a)      any lack of validity or enforceability of any of the
         Secured Debt Documents,

                  (b)      the failure of any Secured Party or any holder of any
         Secured Obligation

                           (i)      to assert any claim or demand or to enforce
                  any right or remedy against the Company, any other Obligor or
                  any other Person under the provisions of any of the Secured
                  Debt Documents or otherwise, or

                           (ii)     to exercise any right or remedy against any
                  other guarantor of, or collateral securing, any Secured
                  Obligations of the Company or any other Obligor,

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                  (c)      any change in the time, manner or place of payment
         of, or in any other term of, all or any of the Secured Obligations or
         any other extension, compromise or renewal of any Secured Obligation of
         the Company or any other Obligor,

                  (d)      any reduction, limitation, impairment or termination
         of any Secured Obligations of the Company or any other Obligor for any
         reason, including any claim of waiver, release, surrender, alteration
         or compromise, and shall not be subject to (and the Company hereby
         waives any right to or claim of) any defense or setoff, counterclaim,
         recoupment or termination whatsoever by reason of the invalidity,
         illegality, nongenuineness, irregularity, compromise, unenforceability
         of, or any other event or occurrence affecting, any Secured Obligations
         of the Company, any other Obligor or otherwise,

                  (e)      any amendment to, rescission, waiver, or other
         modification of, or any consent to departure from, any of the terms of
         any of the Secured Debt Documents,

                  (f)      any addition, exchange, release, surrender or
         non-perfection of any collateral (including the Pledged Collateral), or
         any amendment to or waiver or release of or addition to or consent to
         departure from any guaranty, for any of the Secured Obligations, or

                  (g)      any other circumstances which might otherwise
         constitute a defense available to, or a legal or equitable discharge
         of, the Company, any other Obligor, any surety or any guarantor.

         SECTION 2.7. [Intentionally Omitted].

         SECTION 2.8. Waiver of Subrogation. Until such time as the Secured
Obligations have been indefeasibly paid in full and discharged, and all
commitments to extend credit under all Credit Facilities the Indebtedness under
which constitutes Priority Lien Debt shall have been permanently terminated or
expired, the Company hereby irrevocably waives any claim or other rights which
it may now or hereafter acquire against the Company or any other Obligor that
arise from the existence, payment, performance or enforcement of the Company's
obligations under this Pledge Agreement or any other Secured Debt Document,
including any right of subrogation, reimbursement, exoneration, or
indemnification, any right to participate in any claim or remedy of the
Collateral Trustee against the Company or any other Obligor or any collateral
which the Collateral Trustee now has or hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including the right to take or receive from the Company or any other
Obligor, directly or indirectly, in cash or other property or by set-off or in
any manner, payment or security on account of such claim or other rights. If any
amount shall be paid to the Company in violation of the preceding sentence and
the Secured Obligations shall not have been indefeasibly paid in full, in cash,
and all commitments to extend credit under all Credit Facilities the
Indebtedness under which constitutes Priority Lien Debt shall have not been
permanently terminated or expired, such amount shall be deemed to have been paid
to the Company for the benefit of, and held in trust for, the Collateral
Trustee, and shall forthwith be paid to the Collateral Trustee to be credited
and applied upon the Secured Obligations, whether matured or unmatured, in
accordance with the terms of the Collateral Trust

                                        6



Agreement. The Company acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by the Secured Debt
Documents and that the waiver set forth in this Section is knowingly made in
contemplation of such benefits.

                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         SECTION 3.1. Warranties, etc. The Company represents and warrants unto
the Collateral Trustee and each Secured Party, as at the date of each pledge and
delivery hereunder (including each pledge and delivery of a Pledged Note) by the
Company to the Collateral Trustee of any Pledged Collateral, as set forth in
this Article.

         SECTION 3.1.1 Ownership, No Liens, etc. The Company is the legal and
beneficial owner of, and has good and marketable title to (and has full right
and authority to pledge and assign) such Pledged Collateral, free and clear of
all liens, security interests, options, or other charges or encumbrances, except
any lien or security interest granted pursuant hereto in favor of the Collateral
Trustee.

         SECTION 3.1.2 Valid Security Interest. The delivery of such Pledged
Collateral to the Collateral Trustee is effective to create a valid, perfected,
first priority or second priority, as the case may be, security interest in such
Pledged Collateral and the proceeds thereof, securing the Secured Obligations,
subject in each case to the provisions of Section 3.4 of the Collateral Trust
Agreement. No other filing or other action will be necessary to perfect or
protect such security interest.

         SECTION 3.1.3 As to Pledged Notes. In the case of each Pledged Note
constituting such Pledged Collateral, all of such Pledged Notes are duly
authorized, executed, endorsed, issued and delivered, and are the legal, valid
and binding obligations of the issuers thereof, and are not in default.

                                   ARTICLE IV
                                    COVENANTS

         SECTION 4.1. Protect Collateral; Further Assurances, etc. The Company
will not sell, assign, transfer, pledge, or encumber in any other manner the
Pledged Collateral (except in favor of the Collateral Trustee hereunder and as
otherwise expressly permitted by the Secured Debt Documents) and the Company
will warrant and defend the right and title herein granted unto the Collateral
Trustee in and to the Pledged Collateral (and all right, title, and interest
represented by the Pledged Collateral) against the claims and demands of all
Persons whomsoever. The Company agrees that at any time, and from time to time,
at the expense of the Company, the Company will promptly execute and deliver all
further instruments, and take all further action, that may be necessary or
desirable, or that the Collateral Trustee or any Secured Debt Representative may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Collateral Trustee to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral. The Company hereby authorizes the Collateral Trustee to
cause the filing of any financing statement that (i) indicates the Pledged
Collateral and (ii) contains any other information required by Section 5 of

                                        7



Article 9 of the Uniform Commercial Code of the jurisdiction wherein such
financing statement or amendment is filed regarding the sufficiency or filing
office acceptance of any financing statement or amendment, including whether the
Company is an organization, the type of organization and any organization
identification number issued to the Company; provided that this sentence shall
not be interpreted as requiring the Collateral Trustee to file any such
financing statements, continuation statements or other instruments.

         SECTION 4.2. [Intentionally Omitted].

         SECTION 4.3. Continuous Pledge. Subject to Section 2.5, the Company
will, at all times, keep pledged to the Collateral Trustee pursuant hereto all
Pledged Notes, all interest, principal and other proceeds received by the
Collateral Trustee with respect to the Pledged Notes and all other Pledged
Collateral.

         SECTION 4.4. [Intentionally Omitted].

         SECTION 4.5. Additional Undertakings. Except as otherwise contemplated
by the terms of each applicable Secured Debt Document and the provisions hereof
(including the last paragraph of Section 2.5), the Company will not:

                  (a)      enter into any agreement amending, supplementing, or
         waiving any material provision of any Pledged Note (including any
         underlying instrument pursuant to which such Pledged Note is issued) or
         materially compromising or releasing or extending the time for payment
         or any obligation of the maker thereof, in either case which would
         result in any material impairment or material adverse alteration of any
         obligation of the maker of any Pledged Note or other instrument
         constituting Pledged Collateral; or

                  (b)      take or omit to take any action the taking of the
         omission of which would result in any material impairment or material
         adverse alteration of any obligation of the maker of any Pledged Note
         or other instrument constituting Pledged Collateral.

                                   ARTICLE V
                             THE COLLATERAL TRUSTEE

         SECTION 5.1. Collateral Trustee Appointed Attorney-in-Fact. The Company
hereby irrevocably appoints the Collateral Trustee the Company's
attorney-in-fact, with full authority in the place and stead of the Company and
in the name of the Company or otherwise, from time to time in the Collateral
Trustee's discretion, to take any action and to execute any instrument which the
Collateral Trustee may deem necessary or advisable to accomplish the purposes of
this Pledge Agreement, including without limitation:

                  (a)      after the occurrence and continuance of an Actionable
         Default, to ask, demand, collect, sue for, recover, compromise, receive
         and give acquittance and receipts for moneys due and to become due
         under or in respect of any of the Pledged Collateral;

                  (b)      to receive, endorse, and collect any drafts or other
         instruments, documents and chattel paper, in connection with clause (a)
         above; and

                                        8



                  (c)      to file any claims or take any action or institute
         any proceedings which the Collateral Trustee may deem necessary or
         desirable for the collection of any of the Pledged Collateral or
         otherwise to enforce the rights of the Collateral Trustee with respect
         to any of the Pledged Collateral.

The Company hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

         SECTION 5.2. Collateral Trustee May Perform. If the Company fails to
perform any agreement contained herein, the Collateral Trustee may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Collateral Trustee incurred in connection therewith shall be payable by the
Company pursuant to Section 6.4.

         SECTION 5.3. Trustee's Rights and Duties Subject to Collateral Trust
Agreement. Notwithstanding anything to the contrary contained in this Pledge
Agreement, in acting under and by virtue of this Pledge Agreement, the
Collateral Trustee shall be entitled to all of the rights, privileges and
immunities provided to it in the Collateral Trust Agreement, and the rights and
duties of the Collateral Trustee hereunder are subject in all respects to the
terms, conditions and limitations set forth in the Collateral Trust Agreement
(including, without limitation, the provisions of Article 5 thereof), reference
to which is made for all purposes; provided, however, that any forbearance by
the Collateral Trustee in exercising any right or remedy available to it under
the Collateral Trust Agreement shall not give rise to a defense on the part of
the Company with respect to the Collateral Trustee's exercise of any right or
remedy pursuant to this Pledge Agreement or as otherwise afforded by applicable
law.

                                   ARTICLE VI
                                    REMEDIES

         SECTION 6.1. Certain Remedies. If an Actionable Default shall have
occurred and be continuing:

                  (a)      The Collateral Trustee may exercise in respect of the
         Pledged Collateral, in addition to other rights and remedies provided
         for herein or otherwise available to it, all the rights and remedies of
         a secured party on default under the U.C.C. (whether or not the U.C.C.
         applies to the affected Pledged Collateral) and also may, without
         notice except as specified below, sell the Pledged Collateral or any
         part thereof in one or more parcels at public or private sale, at any
         of the Collateral Trustee's offices or elsewhere, for cash, on credit
         or for future delivery, and upon such other terms as the Collateral
         Trustee may deem commercially reasonable in each case subject to the
         terms and provisions of the Collateral Trust Agreement. The Company
         agrees that, to the extent notice of sale shall be required by law, at
         least ten days' prior notice to the Company of the time and place of
         any public sale or the time after which any private sale is to be made
         shall constitute reasonable notification. The Collateral Trustee shall
         not be obligated to make any sale of Pledged Collateral regardless of
         notice of sale having been given. The Collateral Trustee may adjourn
         any public or private sale from time to time by announcement at the
         time and place fixed therefor, and such sale may, without further
         notice, be made at the time and place to which it was so adjourned.

                                        9



                  (b)      The Collateral Trustee may, in each case subject to
         the terms and provisions of the Collateral Trust Agreement,

                           (i)      transfer all or any part of the Pledged
                  Collateral into the name of the Collateral Trustee or its
                  nominee, with or without disclosing that such Pledged
                  Collateral is subject to the lien and security interest
                  hereunder,

                           (ii)     notify the parties obligated on any of the
                  Pledged Collateral to make payment to the Collateral Trustee
                  of any amount due or to become due thereunder,

                           (iii)    enforce collection of any of the Pledged
                  Collateral by suit or otherwise, and surrender, release or
                  exchange all or any part thereof, or compromise or extend or
                  renew for any period (whether or not longer than the original
                  period) any obligations of any nature of any party with
                  respect thereto,

                           (iv)     endorse any checks, drafts, or other
                  writings in the Company's name to allow collection of the
                  Pledged Collateral,

                           (v)      take control of any proceeds of the Pledged
                  Collateral, and

                           (vi)     execute (in the name, place and stead of the
                  Company) endorsements, assignments, stock powers and other
                  instruments of conveyance or transfer with respect to all or
                  any of the Pledged Collateral.

         SECTION 6.2 [Intentionally Omitted].

         SECTION 6.2. Compliance with Restrictions. The Company agrees that in
any sale of any of the Pledged Collateral whenever an Actionable Default shall
have occurred and be continuing, the Collateral Trustee is hereby authorized to
comply with any limitation or restriction in connection with such sale as it may
be advised by counsel is necessary in order to avoid any violation of applicable
law (including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchasers to persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to the distribution or
resale of such Pledged Collateral), or in order to obtain any required approval
of the sale or of the purchaser by any governmental regulatory authority or
official, and the Company further agrees that such compliance shall not result
in such sale being considered or deemed not to have been made in a commercially
reasonable manner, nor shall the Collateral Trustee be liable nor accountable to
the Company for any discount allowed by the reason of the fact that such Pledged
Collateral is sold in compliance with any such limitation or restriction.

         SECTION 6.3. Application of Proceeds. All cash proceeds received by the
Collateral Trustee in respect of any sale of, collection from, or other
realization upon, all or any part of the Pledged Collateral shall thereafter be
applied in accordance with Section 3.4 of the Collateral Trust Agreement.

                                       10



         SECTION 6.4. Indemnity and Expenses.

                  (a)      The Company agrees to indemnify the Collateral
         Trustee from and against any and all Indemnified Liabilities with
         respect to the execution, delivery, performance, administration or
         enforcement of this Pledge Agreement to the extent provided in Section
         7.8 of the Collateral Trust Agreement.

                  (b)      The Company agrees to reimburse the Collateral
         Trustee for all costs, fees and expenses relating to this Pledge
         Agreement to the extent provided in Section 7.7 of the Collateral Trust
         Agreement.

                                  ARTICLE VII
                            MISCELLANEOUS PROVISIONS

         SECTION 7.1. Security Document. This Pledge Agreement is a Security
Document executed pursuant to the Collateral Trust Agreement and shall (unless
otherwise expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof.

         SECTION 7.2. Amendments, etc. No amendment to or waiver of any
provision of this Pledge Agreement nor consent to any departure by the Company
herefrom shall in any event be effective unless the same shall be in writing and
signed by the Collateral Trustee in accordance with Section 7.1 of the
Collateral Trust Agreement, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it is
given.

         SECTION 7.3. Protection of Collateral. The Collateral Trustee may from
time to time, at its option, perform any act which the Company agrees hereunder
to perform and which the Company shall fail to perform after being requested in
writing so to perform (it being understood that no such request need be given
after the occurrence and during the continuance of an Actionable Default) and
the Collateral Trustee may from time to time take any other action which the
Collateral Trustee or any Secured Debt Representative reasonably deems necessary
for the maintenance, preservation or protection of any of the Pledged Collateral
or of its security interest therein.

         SECTION 7.4. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and shall be effected in the manner provided for in Section 7.5
of the Collateral Trust Agreement.

         SECTION 7.5. Section Captions. Section captions used in this Pledge
Agreement are for convenience of reference only, and shall not affect the
construction of this Pledge Agreement.

         SECTION 7.6. Severability. Wherever possible each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.

                                       11



         SECTION 7.7. Governing Law, Entire Agreement, etc. THIS PLEDGE
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER SECURITY
DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN
OR ORAL, WITH RESPECT THERETO.

         SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY
SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW
YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL TRUSTEE'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE
AGREEMENT.

         SECTION 7.9. Waiver of Jury Trial. THE COLLATERAL TRUSTEE AND THE
COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY

                                       12



LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
PLEDGE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL TRUSTEE OR THE COMPANY.
THE COMPANY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER SECURED
DEBT DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE SECURED PARTIES ENTERING INTO EACH SUCH SECURED DEBT
DOCUMENT.

                                       13



         IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.

                                      CALPINE CORPORATION

                                      By:  /s/ Michael Thomas
                                         ---------------------------------------
                                      Name:  Michael Thomas
                                      Title:

                                      Address:       50 West San Fernando Street
                                                     San Jose, CA 95113

                                      Facsimile No.: (408) 995-0505

                                      Attention:     Treasurer

                                       14



                                     THE BANK OF NEW YORK, not in its individual
                                     capacity, but solely as Collateral Trustee

                                     By:  /s/ Michael Pitfick
                                        ---------------------------------------
                                     Name:  Michael Pitfick
                                     Title: Assistant Vice President

                                       15



                                                                    ATTACHMENT 1
                                                                              to
                                           First Amendment Note Pledge Agreement

                            PLEDGED PROMISSORY NOTES

Pledged Note Issuers:

1.   $99,750,000 Promissory Note from Calpine Eastern Corporation, dated June
     1998.

2.   $85,6000,000 Term Note from Calpine Morris, LLC, dated May 31, 2001.

3.   $27,541,145 Subordinated Note from Calpine Morris, LLC, dated May 31, 2001.

4.   $24,892,976 Promissory Note from Calpine Newark, LLC & Calpine Parlin, Inc.
     dated December 20, 2002.

5.   Note from all of Calpine Corporation's wholly owned domestic subsidiaries
     listed on the schedule attached thereto, dated May 17, 2002.

EX-10.25

                                                                   Exhibit 10.25

                                                                  EXECUTION COPY

                           COLLATERAL TRUST AGREEMENT

                            DATED AS OF JULY 16, 2003

                                      AMONG

                              CALPINE CORPORATION,

                         QUINTANA MINERALS (USA), INC.,

                                JOQ CANADA, INC.,

                          QUINTANA CANADA HOLDINGS LLC,

                            THE BANK OF NOVA SCOTIA,
                      AS AGENT UNDER THE CREDIT AGREEMENT,

                            WILMINGTON TRUST COMPANY,
                      AS TRUSTEE UNDER THE 2007 INDENTURE,

                            WILMINGTON TRUST COMPANY,
                      AS TRUSTEE UNDER THE 2010 INDENTURE,

                            WILMINGTON TRUST COMPANY,
                      AS TRUSTEE UNDER THE 2013 INDENTURE,

                       GOLDMAN SACHS CREDIT PARTNERS L.P.,
             AS ADMINISTRATIVE AGENT UNDER THE TERM LOAN AGREEMENT,

                                       AND

                              THE BANK OF NEW YORK,
                              AS COLLATERAL TRUSTEE



                                TABLE OF CONTENTS



                                                                                                                    PAGE
                                                                                                                 
ARTICLE 1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION...............................................................     2
           1.1. Defined Terms....................................................................................     2
           1.2. Rules of Interpretation..........................................................................    22

ARTICLE 2. THE TRUST ESTATE......................................................................................    23
           2.1. Declaration of Trust.............................................................................    23

ARTICLE 3. OBLIGATIONS AND POWERS OF COLLATERAL TRUSTEE..........................................................    24
           3.1. Undertaking of the Collateral Trustee............................................................    24
           3.2. Release or Subordination of Liens................................................................    25
           3.3. Remedies Upon Actionable Default.................................................................    25
           3.4. Application of Proceeds..........................................................................    26
           3.5. Powers of the Collateral Trustee.................................................................    27
           3.6. Documents and Communications.....................................................................    27
           3.7. For Sole and Exclusive Benefit of Holders of Secured Obligations.................................    27
           3.8. Additional Secured Debt..........................................................................    27

ARTICLE 4. OBLIGATIONS ENFORCEABLE BY THE COMPANY AND THE CANADIAN GUARANTORS....................................    29
           4.1. Release of Liens.................................................................................    29
           4.2. Delivery of Copies to Secured Debt Representatives...............................................    31
           4.3. Collateral Trustee not Required to Serve, File or Record.........................................    31

ARTICLE 5. IMMUNITIES OF THE COLLATERAL TRUSTEE..................................................................    31
           5.1. No Implied Duty..................................................................................    31
           5.2. Appointment of Agents and Advisors...............................................................    31
           5.3. Other Agreements.................................................................................    32
           5.4. Solicitation of Instructions.....................................................................    32
           5.5. Limitation of Liability..........................................................................    32
           5.6. Documents in Satisfactory Form...................................................................    32
           5.7. Entitled to Rely.................................................................................    32
           5.8. Secured Debt Default.............................................................................    33
           5.9. Actions by Collateral Trustee....................................................................    33
           5.10. Security or Indemnity in favor of the Collateral Trustee........................................    33
           5.11. Rights of the Collateral Trustee................................................................    33
           5.12. Limitations on Duty of Collateral Trustee in Respect of Collateral..............................    33
           5.13. Assumption of Rights, Not Assumption of Duties..................................................    34
           5.14. No Liability for Clean Up of Hazardous Materials................................................    34

ARTICLE 6. RESIGNATION AND REMOVAL OF THE COLLATERAL TRUSTEE.....................................................    34
           6.1. Resignation or Removal of Collateral Trustee.....................................................    34
           6.2. Appointment of Successor Collateral Trustee......................................................    35
           6.3. Succession.......................................................................................    35
           6.4. Limitation.......................................................................................    35

ARTICLE 7. MISCELLANEOUS PROVISIONS..............................................................................    35


                                       i



                                                                                                                  
           7.1. Amendment........................................................................................    35
           7.2. Further Assurances...............................................................................    36
           7.3. Successors and Assigns...........................................................................    37
           7.4. Delay and Waiver.................................................................................    37
           7.5. Notices..........................................................................................    37
           7.6. Entire Agreement.................................................................................    39
           7.7. Compensation; Expenses...........................................................................    39
           7.8. Indemnity........................................................................................    40
           7.9. Severability.....................................................................................    41
           7.10. Headings........................................................................................    41
           7.11. Obligations Secured.............................................................................    41
           7.12. Governing Law...................................................................................    41
           7.13. Consent to Jurisdiction.........................................................................    41
           7.14. Waiver of Jury Trial............................................................................    41
           7.15. Counterparts....................................................................................    42
           7.16. Effectiveness...................................................................................    42
           7.17. Additional Obligors.............................................................................    42
           7.18. Appointment of Sub-Agent for Control Agreements.................................................    42
           7.19. Transfer of the Existing Security Documents.....................................................    43



                         List of Exhibits and Schedules

         Exhibit A       Collateral Trust Joinder

         Exhibit B       Notice of Advance

         Schedule 1      Existing Security Documents

         Schedule 2      Instruments of Transfer for Existing Security Documents

                                       ii



                           COLLATERAL TRUST AGREEMENT

                  This Collateral Trust Agreement, dated as of July 16, 2003
(this "Agreement"), is entered into by and among Calpine Corporation, a Delaware
corporation (the "Company"), Quintana Minerals (USA), Inc., a Delaware
corporation, JOQ Canada, Inc., a Delaware corporation, Quintana Canada Holdings
LLC, a Delaware limited liability company, The Bank of Nova Scotia, as Credit
Agreement Agent, Wilmington Trust Company, as Trustee under the 2007 Indenture,
Wilmington Trust Company, as Trustee under the 2010 Indenture, Wilmington Trust
Company, as Trustee under the 2013 Indenture, Goldman Sachs Credit Partners
L.P., as Term Loan Administrative Agent, and The Bank of New York, as Collateral
Trustee (together with its successors in such capacity, the "Collateral
Trustee").

                                    RECITALS

                  1.       The Company is party to a Credit Agreement dated as
of March 8, 2002 (as amended, the "Existing Credit Agreement") among, inter
alia, the Company, the Lenders referred to therein and The Bank of Nova Scotia,
as Administrative Agent, relating to (i) an approximately $570 million revolving
credit facility and (ii) a $1.0 billion term loan facility. The payment of the
principal of and interest on the loans and the payment of all other obligations
under the Existing Credit Agreement are secured by Liens held by The Bank of
Nova Scotia, as Agent under the Existing Credit Agreement (the "Existing
Collateral Agent") pursuant to the security documents listed on Schedule 1 (the
"Existing Security Documents"). All Obligations under the Existing Credit
Agreement (as defined therein) are guaranteed by each of the Canadian
Guarantors. The obligations of each of the Canadian Guarantors under their
respective Guarantees are limited to such Canadian Guarantor's ownership
interest in Calpine Canada Energy Ltd., a Nova Scotia limited liability company
("CCEC"), that has been pledged to the Existing Collateral Agent.

                  2.       The Company intends to enter into an Amended and
Restated Credit Agreement dated as of July 16, 2003 among, inter alia, the
Company, the Lenders referred to therein and The Bank of Nova Scotia, as
Administrative Agent, relating to a $500,000,000 senior secured credit facility
to be made available in the form of revolving loans and term loans, including
letters of credit to be issued thereunder.

                  3.       The Company intends to (a) issue $500,000,000 in
aggregate principal amount of Second Priority Senior Secured Floating Rate Notes
due 2007 (the "2007 Notes") pursuant to the Indenture dated as of July 16, 2003
(the "2007 Indenture") between the Company and Wilmington Trust Company, as
Trustee (together with its successors in such capacity, the "2007 Trustee"), (b)
issue $1,150,000,000 in aggregate principal amount of 8.50% Second Priority
Senior Secured Notes due 2010 (the "2010 Notes") pursuant to the Indenture dated
as of July 16, 2003 (the "2010 Indenture") between the Company and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Notes due 2013 (the "2013 Notes") pursuant to the
Indenture dated as of July 16, 2003 (the "2013



Indenture") between the Company and Wilmington Trust Company, as Trustee
(together with its successors in such capacity, the "2013 Trustee"), and (d)
borrow $750,000,000 in Term Loans pursuant to a Credit Agreement dated as of
July 16, 2003 between the Company and Goldman Sachs Credit Partners L.P., as
Administrative Agent. The proceeds from the offering of the 2007 Notes, the 2010
Notes and the 2013 Notes and the borrowing of the Term Loans will be used, among
other things, to refinance the loans outstanding under the Existing Credit
Agreement.

                  4.       The Company intends to secure its Secured
Obligations, including its obligations under the Credit Agreement and any future
Priority Lien Debt, on a priority basis, and, subject to such priority, its
obligations under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any
future Parity Lien Debt equally and ratably, with security interests in all
present and future property of the Company, except Excluded Assets. The Canadian
Guarantors intend to Guarantee all Secured Obligations and to secure such
Guarantees by pledging 65% of the aggregate outstanding voting stock of CCEC.
The obligations of each of the Canadian Guarantors under their respective
Guarantees are limited to such Canadian Guarantor's ownership interest in CCEC
that has been pledged to the Collateral Trustee.

                  5.       This Agreement sets forth the terms on which the
Company has appointed the Collateral Trustee as trustee for the present and
future holders of the Secured Obligations to accept transfer of the Existing
Security Documents and to receive, hold, maintain, administer, enforce and
distribute the Security Documents, including all Guarantees granted thereunder,
at any time delivered to the Collateral Trustee and all interests, rights,
powers and remedies of the Collateral Trustee thereunder and the proceeds
thereof.

                  NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

ARTICLE 1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION

         1.1.     DEFINED TERMS.

                  (a)      The following terms shall have the following
meanings:

                  "Act of Instructing Debtholders" means, as to any matter at
any time, a direction in writing delivered to the Collateral Trustee by or with
the written consent of the holders of Priority Lien Debt or Parity Lien Debt
holding more than 50% of the aggregate outstanding principal amount of all
Priority Lien Debt and Parity Lien Debt that is then due and payable, voting
together as a single class. For this purpose, Parity Lien Debt or Priority Lien
Debt registered in the name of, or beneficially owned by, the Company or any
Affiliate of the Company will be deemed not to be outstanding.

                  "Act of Secured Debtholders" means, as to any matter, a
direction in writing delivered to the Collateral Trustee by or with the written
consent of:

                                        2



    (1) the Required Parity Debtholders accompanied by written confirmation
from each Parity Debt Representative in respect of each Series of Parity Lien
Debt then outstanding (in form reasonably satisfactory to such Parity Debt
Representative and the Collateral Trustee) as to the principal amount of Parity
Lien Debt registered by that Parity Debt Representative as outstanding in the
name of any consenting holder of Parity Lien Debt who is a holder of such Series
of Parity Lien Debt; and

    (2) the Required Priority Debtholders.

                  "Actionable Default" means (1) the failure to pay any
principal of or interest on any Series of Secured Debt outstanding in the amount
of $50.0 million or more resulting in an event of default under the applicable
Series of Secured Debt after payment is due, including payments that are due (or
if any required offer had been timely made would be due) in respect of any
mandatory offer to purchase Secured Debt resulting in an event of default under
the applicable Series of Secured Debt, (2) the failure to pay in full, when due
and payable in full (whether at maturity, upon acceleration or otherwise), any
Series of Secured Debt outstanding in the amount of $50.0 million or more, (3)
the exercise by the Collateral Trustee or any of its co-trustees or agents
(including the Priority Lien Agent) of any right or power that is exercisable by
it only upon default to take sole and exclusive dominion and control over any
Collateral consisting of a deposit in a deposit account, commodity contract in a
commodity account or financial asset in a securities account constituting
Collateral or the delivery of any instructions to the Collateral Trustee
directing it to foreclose or otherwise enforce, or to distribute the proceeds of
enforcement of, any Lien upon any Collateral or (4) the occurrence of any event
of default under any indenture or agreement governing any Series of Secured Debt
arising from the commencement of any Bankruptcy Case or Insolvency Proceeding.

                  "Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.

                  "Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction including any period
for which such lease has been extended or may, at the option of the lessor, be
extended. Such present value shall be calculated using a discount rate equal to
the rate of interest implicit in such transaction, determined in accordance with
GAAP; provided, that if such sale and leaseback transaction results in a Capital
Lease Obligation, the amount of Indebtedness represented thereby will be
determined in accordance with the definition of "Capital Lease Obligation."

                                        3



                  "Bankruptcy Case" means any case under Title 11 of the United
States Code or any successor bankruptcy law commenced voluntarily or
involuntarily against the Company or any other Obligor.

                  "Board of Directors" means:

    (1) with respect to a corporation, the Board of Directors of the corporation
or any committee thereof duly authorized to act on behalf of such board;

    (2) with respect to a partnership, the Board of Directors of the general
partner of the partnership;

    (3) with respect to a limited liability company, the managing member or
members or any controlling committee of managing members thereof; and

    (4) with respect to any other Person, the board or committee of such Person
serving a similar function.

                  "Canadian Guarantors" means Quintana Minerals (USA), Inc., a
Delaware corporation, JOQ Canada, Inc., a Delaware limited liability company and
Quintana Canada Holdings LLC, a Delaware limited liability company, and any
successor to any of the foregoing.

                  "Capital Lease Obligation" means, at the time any
determination is to be made, the amount of the liability in respect of a capital
lease that would at that time be required to be capitalized on a balance sheet
in accordance with GAAP, and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be prepaid by the lessee without payment of
a penalty.

                  "Capital Stock" means:

                  (1)      in the case of a corporation, corporate stock;

                  (2)      in the case of an association or business entity, any
    and all shares, interests, participations, rights or other equivalents
    (however designated) of corporate stock;

                  (3)      in the case of a partnership or limited liability
    company, partnership interests (whether general or limited) or membership
    interests; and

                  (4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person, but excluding from all of the
foregoing any debt securities convertible into Capital Stock, whether or not
such debt securities include any right of participation with Capital Stock.

                                       4



                  "Cash Equivalents" means:

         (1) the lawful currency of any country where the Company owns or
    operates a Facility;

         (2) securities issued or directly and fully guaranteed or insured by
    the United States government or any state thereof (or any agency or
    instrumentality thereof), by the Canadian government (or any agency or
    instrumentality thereof), or by the government of a member state of the
    European Union (or any agency or instrumentality thereof), in each case the
    payment of which is backed by the full faith and credit of the United
    States, Canada or the relevant member state of the European Union, as the
    case may be, and having maturities of not more than six months from the date
    of acquisition;

         (3) certificates of deposit and eurodollar time deposits with
    maturities of six months or less from the date of acquisition, bankers'
    acceptances with maturities not exceeding six months and overnight bank
    deposits, in each case, with any lender party to the Credit Agreement or
    with any domestic commercial bank having capital and surplus in excess of
    $500.0 million and a Thomson Bank Watch or successor rating agency rating of
    "B" or better;

         (4) repurchase obligations with a term of not more than seven days for
    underlying securities of the types described in clauses (2) and (3) above
    entered into with any financial institution meeting the qualifications
    specified in clause (3) above;

         (5) commercial paper having one of the two highest ratings obtainable
    from Moody's or S&P and maturing within six months after the date of
    acquisition; and

                  (6) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1) through (5) of
this definition.

                  "Collateral" means all properties and assets at any time owned
or acquired by the Company, except the Excluded Assets, and the Canadian
Guarantors' ownership interest in 65% of the aggregate outstanding voting stock
of CCEC.

                  "Collateral Trust Joinder" means an agreement substantially in
the form of Exhibit A hereto.

                  "Consolidated Cash Flow" means, with respect to any specified
Person for any period, the Consolidated Net Income of such Person for such
period plus, without duplication:

         (1) an amount equal to any extraordinary loss plus any net loss
    realized by such Person or any of its Restricted Subsidiaries in connection
    with an Asset Sale, to the extent such losses were deducted in computing
    such Consolidated Net Income; plus

         (2) provision for taxes based on income or profits of such Person and
    its Restricted Subsidiaries for such period, to the extent that such
    provision for taxes was deducted in computing such Consolidated Net Income;
    plus

         (3) the Fixed Charges of such Person and its Restricted Subsidiaries
    for such period, to the extent that such Fixed Charges were deducted in
    computing such Consolidated Net Income; plus

                                        5



         (4) depreciation, amortization (including amortization of intangibles
    but excluding amortization of prepaid cash expenses that were paid in a
    prior period) and other non-cash expenses (excluding any such non-cash
    expense to the extent that it represents an accrual of or reserve for cash
    expenses in any future period or amortization of a prepaid cash expense that
    was paid in a prior period) of such Person and its Restricted Subsidiaries
    for such period to the extent that such depreciation, amortization and other
    non-cash expenses were deducted in computing such Consolidated Net Income;

minus non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business;

                  in each case, on a consolidated basis and determined in
accordance with GAAP.

                  "Consolidated Net Income" means, with respect to any specified
Person for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; provided that:

                  (1) the Net Income (but not loss) of any Person that is not a
    Restricted Subsidiary or that is accounted for by the equity method of
    accounting will be included only to the extent of the amount of dividends or
    similar distributions paid in cash to the specified Person or a Restricted
    Subsidiary of the Person;

                  (2) the Net Income of any Restricted Subsidiary will be
    excluded to the extent that the declaration or payment of dividends or
    similar distributions by that Restricted Subsidiary of that Net Income is
    not at the date of determination permitted without any prior governmental
    approval (that has not been obtained) or, directly or indirectly, by
    operation of the terms of its charter or any agreement, instrument,
    judgment, decree, order, statute, rule or governmental regulation applicable
    to that Restricted Subsidiary or its stockholders; and

                  (3) the cumulative effect of a change in accounting principles
    will be excluded.

                  "Control Agreement" means an agreement granting control over a
deposit account or deposits therein, a commodity account or commodity contracts
carried therein or a securities account or financial assets credited thereto, as
security for any Secured Obligations.

                  "Credit Agreement" means that certain Amended and Restated
Credit Agreement, dated as of July 16, 2003, by and among the Company and the
Credit Agreement Agent, providing for up to $500.0 million of revolving credit
and term loan borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, restated, modified, renewed, refunded, replaced or
refinanced (including by means of sales of debt securities to institutional
investors) in whole or in part from time to time.

                  "Credit Agreement Agent" means, at any time, the Person
serving at such time as the "Agent" or "Administrative Agent" under the Credit
Agreement or any other representative of the Lenders then most recently
designated by a majority of the Lenders, in a written notice

                                        6



delivered to each Parity Debt Representative and the Collateral Trustee, as the
Credit Agreement Agent for the purposes of each of the Parity Lien Debt
Documents.

                  "Credit Facilities" means one or more debt facilities
(including the Credit Agreement) with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced (including by means of sales of debt securities to
institutional investors) in whole or in part from time to time.

                  "Designated Assets" means all geothermal energy assets
(including any related extraction, processing or similar equipment and
geothermal power plants) and all natural gas assets (including any related
extraction, processing or similar equipment, other than natural gas power
plants) owned by the Company or any of its Restricted Subsidiaries from time to
time, including the equity interests of any Restricted Subsidiary owning any
Designated Assets, but excluding (i) any geothermal energy assets that are both
unproven and undeveloped and (ii) contracts for the purchase or sale of natural
gas and natural gas supplied under such contracts.

                  "Disqualified Stock" means, with respect to any indenture, any
Capital Stock that, by its terms (or by the terms of any security into which it
is convertible, or for which it is exchangeable, in each case at the option of
the holder of the Capital Stock), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or redeemable at the option of the holder of the Capital Stock, in whole or in
part, on or prior to the date that is 91 days after the date on which the notes
issued pursuant to such indenture mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders of the Capital Stock have the right to require the Company
to repurchase such Capital Stock upon the occurrence of a change of control or
an asset sale will not constitute Disqualified Stock. The amount of Disqualified
Stock deemed to be outstanding at any time for purposes of the applicable
indenture will be the maximum amount that the Company and its Restricted
Subsidiaries may become obligated to pay upon the maturity of, or pursuant to
any mandatory redemption provisions of, such Disqualified Stock, exclusive of
accrued dividends.

                  "Environmental Laws" means all applicable federal, state,
local and foreign laws, statutes, ordinances, codes, rules, standards and
regulations, now or hereafter in effect, and any applicable judicial or
administrative interpretation thereof, including any applicable judicial or
administrative order, consent decree, order or judgment, imposing liability or
standards of conduct for or relating to the regulation and protection of human
health, safety, the environment and natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
the Hazardous Materials Transportation Authorization Act of 1994, the Federal
Insecticide, Fungicide, and Rodenticide Act, the Solid Waste Disposal Act, the
Toxic Substance Control Act, the Clean Air Act, the Federal Water Pollution
Control Act, the Occupational Safety and Health Act and the Safe Drinking Water
Act, and any and all regulations promulgated thereunder, and all analogous
state, local and foreign counterparts or equivalents.

                                        7



                  "Environmental Liabilities" means, with respect to any Person,
all liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts
and consultants), fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law arising under or related to
any Environmental Laws (including any permits or other authorizations required
under any Environmental Laws) or in connection with any Release or threatened
Release or presence of a Hazardous Material whether on, at, in, under, from or
about or in the vicinity of any real or personal property of the Company and its
Subsidiaries.

                  "equally and ratably" means, in reference to sharing of Liens
or proceeds thereof as between the holders of Parity Lien Obligations with
respect to each outstanding Series of Parity Lien Debt, that such Liens or
proceeds:

                  (1) shall be allocated and distributed first to each Parity
    Debt Representative for each outstanding series of Parity Lien Debt, for
    account of the holders of such Series of Parity Lien Debt, ratably in
    proportion to the principal of and interest and premium (if any) outstanding
    on each outstanding Series of Parity Lien Debt when the allocation or
    distribution is made, and thereafter

                  (2) shall be allocated and distributed (if any remain after
payment in full of all of the principal of and interest and premium (if any) on
all outstanding Parity Lien Debt) to each Parity Debt Representative for each
outstanding series of Parity Lien Debt, for account of the holders of any
remaining Parity Lien Obligations with respect to such outstanding Series of
Parity Lien Debt, ratably in proportion to the aggregate unpaid amount of such
remaining Parity Lien Obligations due and demanded (with written notice to the
applicable Parity Debt Representative and the Collateral Trustee) prior to the
date such distribution is made.

                  "Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).

                  "Excluded Assets" means (1) any lease of property other than
(i) a lease of a geothermal energy or natural gas interest or property, (ii) a
lease of real estate underlying a power generation property or (iii) a capital
lease;

        (2) all deposit accounts (as defined in Article 9 of the Uniform
    Commercial Code of any relevant jurisdiction) and deposits therein to the
    extent not exceeding $50.0 million in the aggregate, except for the
    Designated Assets Sale Proceeds Account (as defined in each of the 2007
    Indenture, the 2010 Indenture and the 2013 Indenture) and any deposit
    account and deposits therein holding amounts referred to in clause (7) of
    this definition;

                                        8



        (3) the fixtures and equipment relating to any pipeline if, to the
    extent that and for so long as (i) the ownership or operation of such
    pipeline is regulated by any federal or state regulatory authority and (ii)
    under the law applicable to such regulatory authority the grant of a
    security interest in such fixtures and equipment is prohibited or a security
    interest in such fixtures and equipment may be granted only after completion
    of a filing with, or receipt of consent from, such regulatory authority
    which has not been effectively completed or received; provided, that (a)
    such fixtures and equipment will be an Excluded Asset only to the extent and
    for so long as the conditions set forth in clauses (i) and (ii) in this
    clause (3) are and remain satisfied and to the extent such assets otherwise
    constitute Collateral, will cease to be an Excluded Asset, and will become
    subject to the security interests granted to the Collateral Trustee under
    the Security Documents immediately and automatically at such time as such
    conditions cease to exist, including by reason of the effective completion
    of any required filing or effective receipt of any required regulatory
    approval, and (b) unless prohibited by law, the proceeds of any sale, lease
    or other disposition of any such fixtures or equipment that are Excluded
    Assets shall not be an Excluded Asset and shall at all times be and remain
    subject to the security interests granted to the Collateral Trustee under
    the Security Documents, except as such proceeds are applied and used by the
    Company in the ordinary course of business and applied in accordance with
    the applicable terms and provisions of each of the Secured Debt Documents;

        (4) all easements, rights-of-way, licenses and other real property
    interests for or pertaining to the construction, operation, use or
    maintenance of any pipeline over, upon or under land owned by another
    Person;

        (5) with respect to personal property, any lease, license, permit,
    franchise, power, authority or right if, to the extent that and for so long
    as (i) the grant of a security interest therein constitutes or would result
    in the abandonment, invalidation or unenforceability of such lease, license,
    permit, franchise, power, authority or right or the termination of or a
    default under the instrument or agreement by which such lease, license,
    permit, franchise, power, authority or right is governed and (ii) such
    abandonment, invalidation, unenforceability, termination or default is not
    rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of
    the Uniform Commercial Code (or any successor provisions) of any relevant
    jurisdiction or any other applicable law (including the United States
    bankruptcy code); provided, that (a) such lease, license, permit, franchise,
    power, authority or right will be an Excluded Asset only to the extent and
    for so long as the conditions set forth in clauses (i) and (ii) of this
    clause (5) are and remain satisfied and to the extent that such assets
    otherwise constitute Collateral, will cease to be an Excluded Asset, and
    will become subject to the security interests granted to the Collateral
    Trustee under the Security Documents immediately and automatically at such
    time as such conditions cease to exist, including by reason of any waiver or
    consent under the applicable instrument or agreement, and (b) the proceeds
    of any sale, lease or other disposition of any such lease, license, permit,
    franchise, power, authority or right that is or becomes an Excluded Asset
    shall not be an Excluded Asset and shall at all times be and remain subject
    to the security interests granted to the Collateral Trustee under the
    Security Documents, except as such proceeds are applied and used by the
    Company in the ordinary course of business and applied in accordance with
    the applicable terms and provisions of each of the Secured Debt Documents;

                                        9



        (6) with respect to any real property, any lease, license, permit,
    franchise, power, authority or right if, to the extent that and for so long
    as the grant of a security interest therein (i) requires a third party
    consent which has not been obtained or (ii) constitutes or would result in
    the abandonment, invalidation or unenforceability of such lease, license,
    permit, franchise, power, authority or right or the termination of or a
    default under the instrument or agreement by which such lease, license,
    permit, franchise, power, authority or right is governed; provided, that
    such lease, license, permit, franchise, power, authority or right will be an
    Excluded Asset only to the extent and for as long as the conditions set
    forth in clause (i) or (ii) of this clause (6) are and remain satisfied and
    to the extent such assets otherwise constitute Collateral, will cease to be
    an Excluded Asset, and will become subject to the security interests granted
    to the Collateral Trustee under the Security Documents immediately and
    automatically at such time as such conditions cease to exist, except as such
    proceeds are applied and used by the Company in the ordinary course of
    business and applied in accordance with the applicable terms and provisions
    of each of the Secured Debt Documents;

        (7) any cash proceeds (including any earnings thereon) of Priority Lien
    Debt that are pledged to cash collateralize letters of credit;

        (8) any turbines which serve as collateral pursuant to that certain
    General Agreement dated as of January 31, 2002 among the Company, various
    Subsidiaries of the Company and Siemens Westinghouse Power Corporation
    relating to various purchase contracts and letters of intent for gas turbine
    generators, steam turbine generators and related accessories;

        (9) proved oil and gas reserves located in Oklahoma and undeveloped
    reserves and unproven acreage located in California, Texas, Wyoming,
    Montana, Colorado, New Mexico and offshore Louisiana; provided that such
    reserves and acreage has a Fair Market Value not exceeding $20.0 million in
    the aggregate;

        (10) Capital Stock of Subsidiaries designated by the Company, but only
    for so long as (i) the Capital Stock of such Subsidiaries is not pledged to
    any Person (other than the Collateral Trustee on behalf of all holders of
    all Secured Debt) and (ii) such Subsidiaries collectively own less than 5.0%
    of the Company's total consolidated assets and collectively account for less
    than 5.0% of the Company's Consolidated Cash Flow; and

        (11) any other property in which a security interest cannot be perfected
    by the filing of a financing statement under the Uniform Commercial Code of
    the relevant jurisdiction; provided that such property has a Fair Market
    Value not exceeding $25.0 million in the aggregate.

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

                  "Fair Market Value" means the value that would be paid by a
    willing buyer to a willing seller in a transaction not involving distress or
    necessity of either party, determined

                                       10



    in good faith by the Board of Directors of the Company (unless otherwise
    provided in the 2007 Indenture, the 2010 Indenture or the 2013 Indenture).

                  "Fixed Charges" means, with respect to any specified Person
for any period, the sum, without duplication, of:

        (1) the consolidated interest expense of such Person and its Restricted
    Subsidiaries for such period, whether paid or accrued, including
    amortization of debt issuance costs and original issue discount, non-cash
    interest payments, the interest component of any deferred payment
    obligations, the interest component of all payments associated with Capital
    Lease Obligations, commissions, discounts and other fees and charges
    incurred in respect of letter of credit or bankers' acceptance financings,
    and net of the effect of all payments made or received pursuant to Hedging
    Obligations in respect of interest rates, plus one-third of all payments
    with respect to operating leases; plus

        (2) the consolidated interest of such Person and its Restricted
    Subsidiaries that was capitalized during such period, except interest on
    Indebtedness incurred to finance the development or construction of a
    Facility; plus

        (3) any interest accruing on Indebtedness of another Person that is
    Guaranteed by such Person or one of its Restricted Subsidiaries or secured
    by a Lien on assets of such Person or one of its Restricted Subsidiaries,
    whether or not such Guarantee or Lien is called upon, but excluding any such
    Guarantee or Lien in effect on the date of the indentures unless the same is
    called upon; plus

        (4) the product of (a) all dividends, whether paid or accrued and
    whether or not in cash, on any series of preferred stock of such Person or
    any of its Restricted Subsidiaries, other than dividends on Equity Interests
    payable solely in Equity Interests of the Company (other than Disqualified
    Stock) or to the Company or a Restricted Subsidiary of the Company, times
    (b) a fraction, the numerator of which is one and the denominator of which
    is one minus the effective combined federal, state and local statutory tax
    rate of such Person for the immediately preceding fiscal year, expressed as
    a decimal, in each case, on a consolidated basis and in accordance with
    GAAP.

                  "GAAP" means generally accepted accounting principles set
    forth in the statements and pronouncements of the Financial Accounting
    Standards Board or in such other statements by such other entity as have
    been approved by a significant segment of the accounting profession, which
    are in effect and, to the extent optional, adopted by the Company, on the
    applicable date of determination.

                  "Guarantee" means a guarantee other than by endorsement of
    negotiable instruments for collection in the ordinary course of business,
    direct or indirect, in any manner including by way of a pledge of assets or
    through letters of credit or reimbursement agreements in respect thereof, of
    all or any part of any Indebtedness (whether arising by virtue of
    partnership arrangements, or by agreements to keep-well, to purchase assets,
    goods,

                                       11



    securities or services, to take or pay or to maintain financial statement
    conditions or otherwise).

                   "Hazardous Material" means any substance, material or waste
that is regulated by, or forms the basis of liability now or hereafter under,
any Environmental Laws, including any material or substance that is (i) defined
as a "solid waste," "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"pollutant," "contaminant," "hazardous constituent," "special waste," "toxic
substance" or other similar term or phrase under any Environmental Laws, or (ii)
petroleum or any fraction or by-product thereof, asbestos, polychlorinated
biphenyls (PCB's), or any radioactive substance.

                  "Hedging Obligations" means, with respect to any specified
Person, the obligations of such Person under:

        (1) interest rate swap agreements (whether from fixed to floating or
    from floating to fixed), interest rate cap agreements and interest rate
    collar agreements;

        (2) other agreements or arrangements designed to manage interest rate
    risk; and

        (3) other agreements or arrangements designed to protect such Person
    against fluctuations in currency exchange rates or commodity prices.

                  "Indebtedness" means, with respect to any specified Person,
any indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:

        (1) in respect of borrowed money;

        (2) evidenced by bonds, notes,  debentures or similar instruments or
    letters of credit (or reimbursement  agreements in respect thereof);

        (3) in respect of banker's acceptances;

        (4) representing Capital Lease Obligations or Attributable Debt in
    respect of sale and leaseback transactions;

        (5) representing the balance deferred and unpaid of the purchase price
    of any property or services due more than six months after such property is
    acquired or such services are completed; or

    (6) representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit,
Attributable Debt and Hedging Obligations) would appear as a liability upon a
balance sheet of the specified Person prepared in accordance with GAAP. In
addition, the term "Indebtedness" includes all Indebtedness of others secured by
a Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any Indebtedness of any other Person.

                                       12



    The amount of any Indebtedness outstanding as of any date will be:

        (1) the accreted value of the Indebtedness, in the case of any
    Indebtedness issued with original issue discount;

        (2) the principal amount of the Indebtedness, in the case of any other
    Indebtedness; and

        (3) in respect of Indebtedness of another Person secured by a Lien on
    the assets of the specified Person, the lesser of:

        (A) the Fair Market Value of such asset at such date of determination,
    and

    (B) the amount of the Indebtedness of such other Person.

    Notwithstanding anything to the contrary in this definition of Indebtedness,
with respect to any contingent obligations (other than with respect to
contractual obligations to repurchase goods sold or distributed, which shall be
included to the extent reflected on the balance sheet of such Person in
accordance with GAAP) of a Person, the maximum liability of such Indebtedness
shall be as determined by such Person's Board of Directors, in good faith, as,
in light of the facts and circumstances existing at the time, reasonably likely
to be incurred upon the occurrence of the contingency giving rise to such
obligation.

                  "Indemnified Liabilities" means any and all liabilities
(including all Environmental Liabilities), obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, performance,
administration or enforcement of this Agreement or any of the other Security
Documents, including any of the foregoing relating to the use of proceeds of any
Secured Debt or the violation of, noncompliance with or liability under, any law
(including Environmental Laws) applicable to or enforceable against the Company
or any of its Subsidiaries or any of the Collateral and all reasonable costs and
expenses (including reasonable fees and expenses of legal counsel selected by
the Indemnitee) incurred by any Indemnitee in connection with claim, action,
investigation or proceeding in any respect relating to any of the foregoing,
whether or not suit is brought.

                  "Indemnitee" has the meaning given in Section 7.8(a).

                  "Insolvency Proceeding" means:

        (1) any proceeding for the reorganization, recapitalization or
    adjustment or marshalling of the assets or liabilities of the Company or any
    other Obligor, any receivership or assignment for the benefit of creditors
    relating to the Company or any other Obligor or any similar case or
    proceeding relative to the Company or any other Obligor or its creditors, as
    such, in each case whether or not voluntary;

                                       13



        (2) any liquidation, dissolution, marshalling of assets or liabilities
    or other winding up of or relating to the Company or any other Obligor, in
    each case whether or not voluntary and whether or not involving bankruptcy
    or insolvency; or

        (3) any other proceeding of any type or nature in which substantially
    all claims of creditors of the Company or any other Obligor are determined
    and any payment or distribution is or may be made on account of such claims.

                  "Lenders" means, at any time, the parties to the Credit
Agreement then holding (or committed to provide) loans, letters of credit or
other extensions of credit that constitute (or when provided will constitute)
Priority Lien Debt outstanding under the Credit Agreement.

                  "Lien" means, with respect to any asset, any mortgage, lien,
    pledge, charge, security interest or encumbrance of any kind in respect of
    such asset, whether or not filed, recorded or otherwise perfected under
    applicable law, including any conditional sale or other title retention
    agreement, any lease in the nature thereof, any option or other agreement to
    sell or give a security interest in and any filing of or agreement to give
    any financing statement under the Uniform Commercial Code (or equivalent
    statutes) of any jurisdiction.

                  "Moody's" means Moody's Investors Service, Inc. (or, if such
entity ceases to rate the applicable notes for reasons outside of the control of
the Company, the equivalent investment grade credit rating from any other
"nationally recognized statistical rating organization" (or successor concept)
within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or
successor provision) selected by the Company as a replacement agency).

                  "Net Income" means, with respect to any specified Person, the
net income (loss) of such Person, determined in accordance with GAAP and before
any reduction in respect of preferred stock dividends, excluding, however,
without duplication:

        (1) any gain (but not loss), together with any related provision for
    taxes on such gain (but not loss), realized in connection with: (a) any
    Asset Sale; or (b) the disposition of any securities by such Person or any
    of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
    such Person or any of its Restricted Subsidiaries; and

        (2) any extraordinary gain (but not loss), together with any related
    provision for taxes on such extraordinary gain (but not loss).

                  "Net Proceeds" mean  the aggregate cash proceeds received by
    the Company or any of its Restricted Subsidiaries in respect of any Asset
    Sale (including any cash received upon the sale or other disposition of any
    non-cash consideration received in any Asset Sale), net of the direct costs
    relating to such Asset Sale, including legal, accounting and investment
    banking fees, and sales commissions, and any relocation expenses incurred as
    a result of the Asset Sale, taxes paid or payable as a result of the Asset
    Sale, in each case, after taking into account any available tax credits or
    deductions and any tax sharing arrangements, and amounts required to be
    applied to the repayment of Indebtedness, other than Priority Debt, secured
    by a Lien on the asset or assets that were the subject of such Asset Sale
    and any

                                       14



    reserve for adjustment in respect of the sale price of such asset or assets
    established in accordance with GAAP.

                  "Non-Recourse Debt" means Indebtedness of any Restricted
    Subsidiary that is incurred to finance the exploration, drilling,
    development, construction or purchase of or by, or repairs, improvements or
    additions to, property or assets of the Company or any Restricted
    Subsidiary; provided that such Indebtedness is without recourse to the
    Company (except as permitted by clause (8) of the definition of Permitted
    Debt) or any Restricted Subsidiary or to any property or assets of the
    Company or any Restricted Subsidiary other than property or assets
    (including Capital Stock) of a Restricted Subsidiary subject to a Lien
    permitted pursuant to clause (8) of the definition of Permitted Liens or
    property or assets (including Capital Stock) of a Restricted Subsidiary
    subject to a Lien permitted pursuant to clause (19) of the definition of
    Permitted Liens.

                  "Note Documents" means each of the 2007 Indenture, the 2010
Indenture and the 2013 Indenture, each of the 2007 Notes, the 2010 Notes and the
2013 Notes, each Sharing Confirmation and the Security Documents.

                  "Notice of Actionable Default" means a written notice given to
the Collateral Trustee by the Required Parity Debtholders or any Parity Debt
Representative, or the Required Priority Debtholders, stating that an Actionable
Default has occurred and is continuing.

                  "Notice of Advance" means a written notice substantially in
the form of Exhibit B hereto.

                  "Obligations" means any principal, interest (including any
interest accruing at the then applicable rate provided in any applicable Secured
Debt Document after the maturity of the loans and reimbursement obligations
therein and interest accruing at the then applicable rate provided in any
applicable Secured Debt Document after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Company, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.

                  "Obligor" means the Company, the Canadian Guarantors and each
other Restricted Subsidiary of the Company (if any) that at any time guarantees
or provides collateral security or credit support for any Secured Obligations.

                   "Officer's Certificate" means a written certificate signed by
the Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant
Treasurer, the Controller, the Secretary or any Vice-President of the Company.

                  "Opinion of Company Counsel" means a written opinion from
independent legal counsel who is reasonably acceptable to the Collateral Trustee
or the Company's chief legal officer or deputy chief legal officer. The opinion
may include exceptions and qualifications

                                       15



consistent with customary practice for written third party legal opinions
relating to the subject matter of the opinion.

                  "Parity Debt Representative" means:

        (1) in the case of the 2007 Notes, the 2007 Trustee; in the case of the
        2010 Notes, the 2010 Trustee; in the case of the 2013 Notes, the 2013
        Trustee;

        (2) in the case of the Term Loans, the Term Loan Administrative Agent;
    or

        (3) in the case of any other Series of Parity Debt, the trustee, agent
    or representative of the holders of such Series of Parity Lien Debt who
    maintains the transfer register for such Series of Parity Lien Debt and is
    appointed as a Parity Debt Representative (for purposes related to the
    administration of the security documents) pursuant to the indenture or other
    agreement governing such Series of Parity Lien Debt.

                  "Parity Lien" means a Lien granted by a Security Document to
the Collateral Trustee upon any property of the Company or any other Obligor to
secure Parity Lien Obligations.

                  "Parity Lien Debt" means:

    (1) the 2007 Notes, the 2010 Notes and the 2013 Notes;

    (2) the Term Loans; and

    (3) any other Indebtedness (including additional notes and Term Loans) that:

        (A) is permitted to be incurred by the covenant described in Section
    4.12 of each of the 2007 Indenture, the 2010 Indenture and the 2013
    Indenture; and

        (B) is permitted to be secured by Parity Liens by clause (2) of the
    definition of Permitted Liens set forth in each of the 2007 Indenture, the
    2010 Indenture and the 2013 Indenture;

provided, in the case of each issue or series of Indebtedness referred to in
this clause (3), that:

        (i) on or before the date on which such Indebtedness was incurred by the
    Company such Indebtedness is designated by the Company, in an officer's
    certificate delivered to each Parity Debt Representative and the Collateral
    Trustee on or before such date, as Parity Lien Debt for the purposes of each
    of the 2007 Indenture, the 2010 Indenture and the 2013 Indenture and this
    Agreement,

        (ii) such Indebtedness is governed by an indenture or other agreement
    that includes a Sharing Confirmation and

                                       16



        (iii) all requirements set forth in this Agreement as to the
    confirmation, grant or perfection of the Collateral Trustee's Liens to
    secure such Indebtedness or Obligations in respect thereof are satisfied

(and the satisfaction of such requirements and the other provisions of this
clause (3) shall be conclusively established, for purposes of entitling the
holders of such Indebtedness to share equally and ratably with the other holders
of Parity Lien Debt in the benefits and proceeds of the Collateral Trustee's
Liens on the Collateral, if the Company complies with all of the provisions set
forth in Section 3.8 of this Agreement, and the holders of such Indebtedness and
Obligations in respect thereof will be entitled to rely conclusively thereon).

                  "Parity Lien Debt Documents" means, collectively, the Term
Loan Documents, the Note Documents, and the indenture or agreement governing
each other Series of Parity Lien Debt and all agreements binding on any Obligor
related thereto.

                  "Parity Lien Obligations" means Parity Lien Debt and all other
Obligations in respect thereof.

                  "Permitted Prior Liens" means (a) Liens securing Priority Lien
Obligations not exceeding the Priority Lien Cap, (b) Liens described in clauses
(5), (6), (10) or (11) of the definition of "Permitted Liens" (as defined in the
Parity Lien Debt Documents) and (c) Liens that arise by operation of law and are
not voluntarily granted, to the extent entitled by law to priority over the
security interests created by the Security Documents.

                  "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
limited liability company or government or other entity.

                  "Pledged Power Project" means the power generation property
and related equipment at each of the following locations:

    (1) the Goldendale Energy Center in Goldendale, Washington;

    (2) the Otay Mesa Energy Center near San Diego, California;

    (3) the Metcalf Energy Center near San Jose, California;

    (4) the Santa Rosa Energy Center in Santa Rosa County, Florida;

    (5) the Washington Parish Energy Center near Bogalusa, Louisiana;

    (6) the Deer Park Energy Center in Deer Park, Texas; and

    (7) the Augusta Energy Center in Augusta, Georgia.

                                       17



                  "Priority Foreclosure Event" means the failure to pay at
maturity or upon acceleration of maturity all outstanding Priority Lien Debt at
any time when no Bankruptcy Case or Insolvency Proceeding is pending.

                  "Priority Lien" means a Lien granted by a Security Document to
the Collateral Trustee upon any property of the Company or any other Obligor to
secure Priority Lien Obligations not exceeding the Priority Lien Cap.

                  "Priority Lien Agent" means the Credit Agreement Agent or any
other agent for holders of Priority Lien Debt.

                  "Priority Lien Cap" means an amount equal to (a) the
Indebtedness outstanding under the Credit Agreement or any other Credit Facility
in an aggregate principal amount not exceeding the greater of (1) $500.0
million, less the amount of any Net Proceeds of a Sale of Designated Assets
applied to repay Priority Lien Debt and/or cash collateralize letters of credit
that constitute Priority Lien Debt and (2) the dollar amount that, on the date
of incurrence of such Indebtedness, is equal to 50% of the Company's
Consolidated Cash Flow for the then most recent four-quarter period for which
financial information is available, plus (b) any interest (including any
interest accruing at the then applicable rate provided in any applicable
Priority Lien Document after the maturity of the loans and reimbursement
obligations therein and interest accruing at the then applicable rate provided
in any applicable Priority Lien Document after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Company, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), penalties, premiums,
fees, costs, expenses or other Obligations in respect of such Indebtedness. For
purposes of this definition of Priority Lien Cap, all letters of credit shall be
valued at face amount, whether or not drawn, and all letters of credit
denominated in a currency other than U.S. dollars shall be valued at all times
at the Equivalent Amount (as defined in the Credit Agreement) thereof on the
date of issue thereof.

                  "Priority Lien Debt" means Indebtedness under (a) the Credit
Agreement or (b) any other Credit Facility that is secured by a Priority Lien
that was permitted to be incurred under clause (1) of the definition of
"Permitted Liens" but only if on or before the day on which such Indebtedness
under a Credit Facility described in clause (b) above is incurred by the Company
such Indebtedness is designated by the Company, in an officer's certificate
delivered to each Parity Debt Representative and the Collateral Trustee on or
before such date, as Priority Lien Debt for the purposes of each of the Parity
Lien Debt Documents and this Agreement.

                  "Priority Lien Documents" means the Credit Agreement or any
other Credit Facility pursuant to which any Priority Lien Debt is incurred and
all other agreements governing, securing or relating to any Priority Lien
Obligations.

                  "Priority Lien Obligations" means the Priority Lien Debt and
all other Obligations in respect of Priority Lien Debt.

                  "Release" means any release, threatened release, spill,
emission, leaking, pumping, pouring, emitting, emptying, escape, injection,
deposit, disposal, discharge, dispersal, dumping, leaching or migration of
Hazardous Material in the indoor or outdoor environment,

                                       18



including the movement of Hazardous Material through or in the air, soil,
surface water, ground water or property.

                  "Required Parity Debtholders" means, at any time in respect of
any action or matter, holders of a majority in aggregate outstanding principal
amount of all Parity Lien Debt then outstanding, voting together as a single
class. For this purpose, Parity Lien Debt registered in the name of, or
beneficially owned by, the Company or any Affiliate of the Company will be
deemed not to be outstanding.

                  "Required Priority Debtholders" means, at any time in respect
of any action or matter, (1) holders of the outstanding principal amount of, or
commitments with respect to, the applicable Priority Lien Debt then outstanding
required pursuant to the terms of the applicable Credit Facility, voting as a
single class, to approve such action or matter or (2) the Priority Lien Agent
acting upon the authorization or consent of the holders referred to in the
immediately preceding clause (1). For this purpose, Priority Lien Debt
registered in the name of, or beneficially owned by, the Company or any
Affiliate of the Company will be deemed not to be outstanding.

                  "Responsible Officer," means, with respect to the Collateral
Trustee, any officer within the corporate trust department of the Collateral
Trustee including any vice president, assistant vice president, assistant
treasurer, trust officer or any other officer of the Collateral Trustee who
customarily performs functions similar to those performed by the Persons who at
the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such Person's knowledge of and familiarity with
the particular subject and who shall have direct responsibility for the
administration of this Agreement.

                  "Restricted Subsidiary" means any Subsidiary of the Company
that is not an Unrestricted Subsidiary.

                  "S&P" means Standard & Poor's Ratings Group (or, if such
entity ceases to rate the applicable notes for reasons outside of the control of
the Company, the equivalent investment grade credit rating from any other
"nationally recognized statistical rating organization" (or successor concept)
within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act (or
successor provision) selected by the Company as a replacement agency).

                  "Sale of Designated Assets" means any Asset Sale involving a
sale or other disposition of Designated Assets.

                  "Secured Debt" means Parity Lien Debt and Priority Lien Debt.

                  "Secured Debt Default" means (i) the failure to pay any
Secured Debt at maturity or (ii) any event or condition which, under the terms
of any indenture or agreement governing any Series of Secured Debt causes, or
permits holders of Secured Debt outstanding thereunder (with or without the
giving of notice or lapse of time, or both, and whether or not notice has been
given or time has lapsed) to cause, the Secured Debt outstanding thereunder to
become immediately due and payable.

                                       19



                  "Secured Debt Documents" means the Parity Lien Debt Documents
and the Priority Lien Documents.

                  "Secured Debtholder" means, at any time, a Person which then
is the holder of, or has any commitment with respect to, any Secured Debt.

                  "Secured Debt Representative" means each Parity Debt
Representative and the Priority Lien Agent.

                  "Secured Obligations" means the Parity Lien Obligations and
the Priority Lien Obligations.

                  "Security Documents" means this Agreement and one or more
security agreements, pledge agreements, collateral assignments, mortgages,
collateral agency agreements, deeds of trust or other grants or transfers for
security executed and delivered by the Company or any other Obligor creating (or
purporting to create) a Lien upon Collateral in favor of the Collateral Trustee
(including the Existing Security Documents, as assigned to the Collateral
Trustee), in each case, as amended, modified, renewed, restated or replaced, in
whole or in part, from time to time, in accordance with its terms.

                  "Series of Parity Lien Debt" means, severally, each of the
2007 Notes, the 2010 Notes, the 2013 Notes, the Term Loans and each other issue
or series of Parity Lien Debt for which a single transfer register is
maintained.

                  "Series of Secured Debt" means, severally, each of the 2007
Notes, the 2010 Notes, the 2013 Notes, the Term Loans, each other issue or
series of Parity Lien Debt for which a single transfer register is maintained
and each issue or series of Priority Lien Debt for which a single register is
maintained.

                  "Sharing Confirmation" means, as to any Series of Parity Lien
Debt, the written agreement of the holders of such Series of Parity Lien Debt,
as set forth in the indenture or agreement governing such Series of Parity Lien
Debt, for the enforceable benefit of all holders of each other existing and
future Series of Parity Lien Debt and each existing and future Parity Debt
Representative, that all Parity Lien Obligations shall be and are secured
equally and ratably by all Liens at any time granted by the Company or any other
Obligor to secure any Obligations in respect of such Series of Parity Lien Debt,
whether or not upon property otherwise constituting Collateral, that all such
Liens shall be enforceable by the Collateral Trustee for the benefit of all
holders of Parity Lien Obligations equally and ratably, and that the holders of
Obligations in respect of such Series of Parity Lien Debt are bound by the
provisions in this Agreement relating to the order of application of proceeds
from enforcement of the Collateral Trustee's Liens upon the Collateral, and
consent to and direct the Collateral Trustee to perform its obligations under
this Agreement.

                  "Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which the
payment of interest or principal was scheduled to be paid in the documentation
governing such Indebtedness as of the date of the

                                       20



indenture, and will not include any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date originally scheduled
for the payment thereof.

                  "Subsidiary" means, as applied to any Person, any corporation,
limited or general partnership, trust, association or other business entity of
which an aggregate of at least 50% of the outstanding Voting Shares, or an
equivalent controlling interest therein, of such Person is, at the time,
directly or indirectly, owned by such Person and/or one or more Subsidiaries of
such Person.

                  "Term Loan Administrative Agent" means Goldman Sachs Credit
Partners L.P., as administrative agent under the Term Loan Agreement, together
with its successors in such capacity.

                  "Term Loan Agreement" means that certain Term Loan Agreement
dated the date hereof between the Company and the Term Loan Administrative
Agent, relating to $750.0 million in aggregate principal amount of Term Loans,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as amended, modified, increased,
renewed, restated or replaced, in whole or in part, from time to time.

                  "Term Loan Documents" means the Term Loan Agreement, each
Sharing Confirmation and the Security Documents.

                  "Term Loans" means the principal of and interest and premium
(if any) on Indebtedness of the Company incurred under the Term Loan Agreement.

                  "Unrestricted Subsidiary" means any Subsidiary of the Company
that is designated by the Board of Directors as an Unrestricted Subsidiary (and
any subsidiary of an Unrestricted Subsidiary) pursuant to a Board Resolution
passed after the date of each of the 2007 Indenture, the 2010 Indenture and the
2013 Indenture, but only to the extent that such Subsidiary:

    (1) has no Indebtedness other than Non-Recourse Debt;

    (2) is not party to any agreement, contract, arrangement or understanding
        with the Company or any Restricted Subsidiary of the Company unless the
        terms of any such agreement, contract, arrangement or understanding are
        no less favorable to the Company or such Restricted Subsidiary than
        those that might be obtained at the time from Persons who are not
        Affiliates of the Company;

    (3) is a Person with respect to which neither the Company nor any of its
        Restricted Subsidiaries has any direct or indirect obligation (a) to
        subscribe for additional Equity Interests or (b) to maintain or preserve
        such Person's financial condition or to cause such Person to achieve any
        specified levels of operating results; and

    (4) has not guaranteed or otherwise directly or indirectly provided credit
        support for any Indebtedness of the Company or any of its Restricted
        Subsidiaries.

                                       21



    Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
will be evidenced to the 2007 Trustee, the 2010 Trustee and the 2013 Trustee, as
applicable, by filing with the applicable trustee(s) a certified copy of the
Board Resolution giving effect to such designation and an officer's certificate
certifying that such designation complied with the preceding conditions and was
permitted by the covenant described under Section 4.07 of each of the 2007
Indenture, the 2010 Indenture and the 2013 Indenture. If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the 2007 Indenture, the 2010 Indenture and the 2013
Indenture, as the case may be, and any Indebtedness of such Subsidiary will be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under Section 4.09 of each of the 2007 Indenture, the
2010 Indenture and the 2013 Indenture, the Company will be in default of such
covenant. The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (1) such Indebtedness
is permitted under the covenant described under Section 4.09 of each of the 2007
Indenture, the 2010 Indenture and the 2013 Indenture calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period; and (2) no Default or Event of Default would be in existence
following such designation.

                           "Voting Stock" of any Person as of any date means the
Capital Stock of such Person that is at the time entitled to vote in the
election of the Board of Directors of such Person.

                  (b)      All capitalized terms used in this Agreement that are
defined in Article 9 of the UCC, as in effect on the date of this Agreement in
the State of New York, and not otherwise defined herein shall have the meanings
therein set forth.

         1.2. RULES OF INTERPRETATION.

                  (a)      Any of the terms defined herein may, unless the
context otherwise requires, be used in the singular or the plural, depending on
the reference.

                  (b)      Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms.

                  (c)      Unless otherwise indicated, any reference to any
agreement or instrument shall be deemed to include a reference to such agreement
or instrument as assigned, amended, amended and restated, supplemented,
otherwise modified from time to time or replaced in accordance with the terms of
this Agreement.

                  (d)      The use in this Agreement or any of the other
Security Documents of the word "include" or "including," when following any
general statement, term or matter, shall not be construed to limit such
statement, term or matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or not nonlimiting

                                       22



language (such as "without limitation" or "but not limited to" or words of
similar import) is used with reference thereto, but rather shall be deemed to
refer to all other items or matters that fall within the broadest possible scope
of such general statement, term or matter. The word "will" shall be construed to
have the same meaning and effect as the word "shall."

                  (e)      References to "Sections" and "clauses" shall be to
Sections and clauses, respectively, of this Agreement unless otherwise
specifically provided.

                  (f)      References to "Articles" shall be to Articles of this
Agreement unless otherwise specifically provided.

                  (g)      References to "Exhibits" and "Schedules" shall be to
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided.

                  (h)      The use in this Agreement of the words "herein,"
"hereof," and "hereunder," and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof.

                  (i)      This Agreement, the other Security Documents and any
documents or instruments delivered pursuant hereto shall be construed without
regard to the identity of the party who drafted the various provisions of the
same. Each and every provision of this Agreement, the other Security Documents
and instruments and documents entered into and delivered in connection therewith
shall be construed as though the parties participated equally in the drafting of
the same. Consequently, each of the parties acknowledges and agrees that any
rule of construction that a document is to be construed against the drafting
party shall not be applicable either to this Agreement or the other Security
Documents and instruments and documents entered into and delivered in connection
therewith.

ARTICLE 2. THE TRUST ESTATE

         2.1.     DECLARATION OF TRUST.

                  To Secure the payment of the Secured Obligations and in
consideration of the premises and the mutual agreements set forth herein, each
of the Company and the Canadian Guarantors hereby grants to the Collateral
Trustee, and the Collateral Trustee hereby accepts and agrees to hold, in trust
under this Agreement for the benefit of all present and future holders of
Secured Obligations, all of the Collateral Trustee's right, title and interest
in, to and under the Existing Security Documents, as assigned to the Collateral
Trustee pursuant to Section 7.19, and all other Security Documents, including
all Guarantees thereunder, at any time delivered to the Collateral Trustee and
all interests, rights, powers and remedies of the Collateral Trustee thereunder
or in respect thereof and all cash and non-cash proceeds thereof (collectively,
the "Trust Estate"),

                  To Have and to Hold the Trust Estate unto the Collateral
Trustee and its successors and assigns in trust under this Agreement,

                                       23



                  In Trust, Nevertheless, for the benefit solely and exclusively
of all present and future holders of Secured Obligations as security for the
payment of all present and future Secured Obligations,

                  Provided, that if at any time (i) all Liens granted by, and
all Guarantees made under, any of the Security Documents have been released as
provided in Section 4.1, (ii) the Collateral Trustee holds no other property in
trust as part of the Trust Estate, (iii) no monetary obligation is outstanding
and payable under this Agreement to the Collateral Trustee or any of its
co-trustees, agents or sub-agents (whether in an individual or representative
capacity) and (iv) the Company delivers to the Collateral Trustee an Officer's
Certificate stating that all Liens of, and all Guarantees made in favor of, the
Collateral Trustee have been released in compliance with all applicable
provisions of the Secured Debt Documents and that the Company and the Canadian
Guarantors are not required by any Secured Debt Document to grant any Lien upon
any property to secure, or make any Guarantee to support, the Secured
Obligations, then the trust arising hereunder shall terminate, except that,
notwithstanding such termination, all provisions set forth in Sections 7.7 and
7.8 hereof enforceable by the Collateral Trustee or any of its co-trustees,
agents or sub-agents (whether in an individual or representative capacity) shall
remain enforceable in accordance with their terms,

                  And the Parties Further Declare and Covenant that the Trust
Estate shall be held and distributed by the Collateral Trustee subject to the
further agreements herein.

ARTICLE 3. OBLIGATIONS AND POWERS OF COLLATERAL TRUSTEE

         3.1.     UNDERTAKING OF THE COLLATERAL TRUSTEE.

                  (a)      Subject to, and in accordance with, this Agreement,
the Collateral Trustee will, as trustee for the benefit solely and exclusively
of the present and future holders of Secured Obligations:

                           (i)      accept transfer of the Existing Security
         Documents and receive, accept, enter into, hold, maintain, administer
         and enforce all other Security Documents, including all Guarantees
         thereunder, at any time delivered to it and all security interests
         created thereunder, perform its obligations under the Security
         Documents and protect, exercise and enforce the interests, rights,
         powers and remedies granted or available to it under, pursuant to or in
         connection with the Security Documents;

                           (ii)     take all lawful and commercially reasonable
         actions permitted under the Security Documents that it may deem
         necessary or advisable to protect or preserve its interest in the
         Collateral and any such Guarantees and such interests, rights, powers
         and remedies;

                           (iii)    deliver and receive notices pursuant to the
         Security Documents;

                           (iv)     sell, assign, collect, assemble, foreclose
         on, institute legal proceedings with respect to, or otherwise exercise
         or enforce the rights and remedies of a secured party (including a
         mortgagee, trust deed beneficiary and insurance beneficiary or

                                       24



         loss payee) with respect to the Collateral and any such Guarantees and
         its other interests, rights, powers and remedies;

                           (v)      remit as provided in Section 3.4 all cash
         proceeds received by the Collateral Trustee from the collection,
         foreclosure or enforcement of its interest in the Collateral or any
         such Guarantees or any of its other interests, rights, powers or
         remedies;

                           (vi)     execute and deliver amendments to the
         Security Documents as from time to time authorized by an Act of Secured
         Debtholders; and

                           (vii)    release any Lien granted to it by any
         Security Document upon any Collateral or release and terminate any
         Guarantee granted to it by any Security Document, in each case if and
         as required by Section 4.1(b).

                  (b) Each party to this Agreement acknowledges and consents to
the undertaking of the Collateral Trustee set forth in Section 3.1(a) and agrees
to each of the other provisions of this Agreement applicable to it.

                  (c) Notwithstanding anything to the contrary contained in this
Agreement, the Collateral Trustee shall not commence any exercise of remedies,
any foreclosure actions or otherwise take any action or proceeding against any
of the Collateral unless and until it shall have received a Notice of Actionable
Default or a Responsible Officer of the Collateral Trustee has actual knowledge
that an Actionable Default has occurred and is continuing and then only in
accordance with the provisions of this Agreement.

         3.2. RELEASE OR SUBORDINATION OF LIENS. The Collateral Trustee will not
release or subordinate any Lien of the Collateral Trustee or consent to the
release or subordination of any Lien of the Collateral Trustee, except (a) as
directed by an Act of Secured Debtholders, (b) as required by Article 4 or (c)
as ordered pursuant to applicable law by a court of competent jurisdiction.

         3.3. REMEDIES UPON ACTIONABLE DEFAULT. If the Collateral Trustee at any
time receives a Notice of Actionable Default or has actual knowledge that an
Actionable Default has occurred and is continuing, it will promptly deliver
written notice thereof to each Secured Debt Representative. Thereafter, the
Collateral Trustee may await direction by an Act of Instructing Debtholders and
will act, or decline to act, as directed by an Act of Instructing Debtholders,
in the exercise and enforcement of the Collateral Trustee's interests, rights,
powers and remedies in respect of the Collateral or under the Security Documents
or the Guarantees of the Canadian Guarantors or applicable law. Notwithstanding
the foregoing, at any time when a Priority Foreclosure Event is continuing, the
Collateral Trustee will act as directed in writing by the Required Priority
Debtholders to initiate the exercise of remedies in respect of the Collateral
and the Guarantees of the Canadian Guarantors and, following the initiation of
such exercise of remedies, the Collateral Trustee will act, or decline to act,
with respect to the manner of such exercise of remedies as directed by an Act of
Instructing Debtholders (provided that no Act of Instructing Debtholders shall
countermand the initiation of such exercise of remedies by the Required Priority
Debtholders). Unless it has been directed to the contrary by an Act of
Instructing Debtholders, the Collateral Trustee in any event may (but shall not
be obligated to)

                                       25



take or refrain from taking such action with respect to any Actionable Default
as it may deem advisable and in the best interest of the holders of Secured
Obligations.

         3.4. APPLICATION OF PROCEEDS. (a) The Collateral Trustee shall apply
the proceeds of any collection, sale, foreclosure or other realization upon any
Collateral, or any realization upon any Guarantee of the Canadian Guarantors, in
the following order of application (the "Order of Application"):

    FIRST, to the payment of all amounts payable under this Agreement on account
of the Collateral Trustee's fees or any reasonable legal fees, costs and
expenses or other liabilities of any kind incurred by the collateral trustee or
any co-trustee or agent in connection with any Security Document;

    SECOND, to the Priority Lien Agent for application to the payment of
Priority Lien Obligations in an amount not to exceed the Priority Lien Cap, or
to be held by the Priority Lien Agent pending such application, until all
Priority Lien Obligations have been paid in full in cash or the cash amount held
by the Priority Lien Agent in respect of all Priority Lien Obligations is
sufficient to pay all Priority Lien Obligations in full in cash;

    THIRD, to the respective Parity Debt Representatives for application to the
Parity Lien Obligations equally and ratably until all Parity Lien Obligations
have been paid in full in cash; and

    FOURTH, any surplus remaining after the payment in full in cash of all of
the Secured Obligations shall be paid to the Company or the applicable Canadian
Guarantor, as the case may be, its successors or assigns, or to whomsoever may
be lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct.

                  For this purpose, "proceeds" of Collateral or any Guarantee of
the Canadian Guarantors includes any and all cash, securities and other property
realized from collection, foreclosure or enforcement of the Collateral Trustee's
Liens upon the Collateral (including distributions of Collateral in satisfaction
of any Secured Obligations) or any Guarantee of the Canadian Guarantors made in
favor of the Collateral Trustee.

                  (b) If any Parity Debt Representative or any holder of a
Parity Lien Obligation collects or receives any proceeds in respect of the
Parity Lien Obligations that should have been applied to the payment of the
Priority Lien Obligations in accordance with clause (a) above, whether after the
commencement of a Bankruptcy Case or otherwise, such Parity Debt Representative
or such holder of a Parity Lien Obligation, as the case may be, will forthwith
deliver the same to the Priority Lien Agent, for the account of the holders of
the Priority Lien Obligations, in the form received, duly indorsed to the
Priority Lien Agent, for the account of the holders of the Priority Lien
Obligations, if required, to be applied in accordance with clause (a) above.
Until so delivered, such proceeds will be held by such Parity Debt
Representative or such holder of a Parity Lien Obligation, as the case may be,
for the benefit of the holders of the Priority Lien Obligations and shall be
deemed to be held segregated from other funds and property held by such Parity
Debt Representative or such holder of a Parity Lien Obligation.

                                       26



         3.5. POWERS OF THE COLLATERAL TRUSTEE.

                  (a) The Collateral Trustee is irrevocably authorized and
empowered to enter into and perform its obligations and protect, perfect,
exercise and enforce its interest, rights, powers and remedies under the
Security Documents, including any Guarantees thereunder, and applicable law and
to act as set forth in this Article 3 or as requested in any lawful directions
given to it from time to time in respect of any matter by an Act of Secured
Debtholders.

                  (b) Subject to Article 4 and Section 3.3, the Collateral
Trustee shall take direction only pursuant to an Act of Secured Debtholders.

                  (c) Each Secured Debt Representative has, and each future
Secured Debt Representative will, become party to this Agreement, solely to
confirm consent to the undertaking of the Collateral Trustee set forth in
Sections 2.1 and 3.1(a) and its acceptance of the rights granted to it by this
Agreement. No Secured Debt Representative, Secured Debtholder or other holder of
Secured Obligations shall have (i) any obligation or liability under or in
respect of this Agreement or any Act of Secured Debtholders to which it is not a
signatory party; (ii) any responsibility or duty whatsoever in respect of the
Collateral or Security Documents, including any Guarantee thereunder, or any
other interest, right, power or remedy granted to or enforceable by the
Collateral Trustee, it being understood and agreed by the Collateral Trustee and
by the Company and the Canadian Guarantors that only the Collateral Trustee
shall be bound by the obligations of the Collateral Trustee expressly set forth
in the Security Documents to which the Collateral Trustee is a party or (iii)
any liability whatsoever for any act or omission of the Collateral Trustee.

         3.6. DOCUMENTS AND COMMUNICATIONS. The Collateral Trustee will permit
each Secured Debt Representative and each Secured Debtholder upon reasonable
written notice or from time to time to inspect and copy any and all Security
Documents and other documents, notices, certificates, instructions or
communications received by the Collateral Trustee in its capacity as such.

         3.7. FOR SOLE AND EXCLUSIVE BENEFIT OF HOLDERS OF SECURED OBLIGATIONS.

                  The Collateral Trustee shall accept, hold, administer and
enforce all Liens at any time transferred or delivered to it and all other
interests, rights, powers and remedies at any time granted to or enforceable by
the Collateral Trustee and all other property of the Trust Estate solely and
exclusively for the benefit of the present and future holders of present and
future Secured Obligations, and shall distribute all cash proceeds received by
it in realization thereon or from enforcement thereof solely and exclusively to
the Secured Debt Representatives for the benefit of the Secured Debtholders and
to the Company pursuant to the provisions of Section 3.4.

         3.8. ADDITIONAL SECURED DEBT.

                  (a) The Collateral Trustee will, as trustee hereunder, perform
its undertakings set forth in Section 3.1(a) with respect to each future holder
of Secured Obligations that (i) is identified as a holder of Parity Lien Debt or
Priority Lien Debt in accordance with the procedures set forth in Section 3.8(b)
and (ii) signs, through its designated Secured Debt Representative identified
pursuant to Section 3.8(b), a Collateral Trust Joinder.

                                       27



                  (b) The Company shall be permitted to designate as additional
Secured Debtholders hereunder each person who is, or who becomes, the registered
holder of Parity Lien Debt or the holder of Priority Lien Debt incurred by the
Company after the date of this Agreement. The Company may effect such
designation by delivering to the Collateral Trustee, with copies to each
previously identified Secured Debt Representative, each of the following:

                           (i) An Officer's Certificate stating that:

                                    (A) The Company intends to incur additional
Secured Debt ("New Secured Debt") which shall either

be (x) Priority Lien Debt permitted by each indenture or agreement governing
Secured Debt to be secured with a Priority Lien on a pari passu basis with all
previously existing Priority Lien Debt and which, when the principal amount
thereof is added to the principal amount of all previously existing Priority
Lien Debt, shall be in an aggregate principal amount that is permitted by the
terms of the Secured Debt Documents or (y) Parity Lien Debt permitted by each
indenture or agreement governing Secured Debt to be secured with a Parity Lien
on a pari passu basis with all previously existing Parity Lien Debt and which,
when incurred and after giving pro forma effect to the incurrence of such Parity
Lien Debt and the application of the proceeds therefrom, shall be in an amount
that is permitted by the terms of each Secured Debt Document;

                                    (B) After giving pro forma effect to the
incurrence of such New Secured Debt and the application of the proceeds
therefrom no Secured Debt Default shall have occurred and be continuing and, to
the best of the signatory's knowledge after due inquiry, no event or condition
shall have occurred which could reasonably be expected to result in a Secured
Debt Default;

                                    (C) If the incurrence of such New Secured
Debt provides, pursuant to the indenture or agreement governing such New Secured
Debt, that additional Collateral shall be required as security therefor, the
Company has duly authorized, executed and filed or recorded, as applicable, in
each appropriate governmental office financing statements and/or mortgages, as
applicable, creating in favor of the Collateral Trustee, in its capacity as
trustee hereunder, a valid and perfected first priority Lien on such additional
Collateral, subject to the provisions of Section 3.4 and any Permitted Prior
Liens; and

                                    (D) The Company has duly authorized,
executed and recorded in each appropriate governmental office a Notice of
Advance declaring that the New Secured Debt is secured by the Collateral;

                           (ii) an Opinion of Company Counsel stating that the
Officer's Certificate delivered pursuant to clause (i) above has been duly
authorized by the Board of Directors of the Company and has been duly executed
and delivered; and

                           (iii) a written notice specifying the name and
address of the Secured Debt Representative for such series of New Secured Debt
for purposes of Section 7.5.

                                       28



ARTICLE 4. OBLIGATIONS ENFORCEABLE BY THE COMPANY AND THE CANADIAN GUARANTORS

         4.1. RELEASE OF LIENS.

                  (a) The Collateral Trustee's Liens upon the Collateral will be
released pursuant to Section 4.1(b) below:

        (1) in whole, upon (A) payment in full and discharge of all outstanding
    Secured Debt and all other Secured Obligations that are outstanding, due and
    payable at the time all of the Secured Debt is paid in full and discharged
    and (B) termination or expiration of all commitments to extend credit under
    all Credit Facilities the Indebtedness under which constitutes or would
    constitute Priority Lien Debt;

        (2) as to any Collateral, if consent to the release of such Collateral
    has been given by an Act of Secured Debtholders or, if such Collateral
    represents all or substantially all of the Collateral, consent to release of
    such Collateral has been given by the requisite percentage or number of
    holders of each Series of Secured Debt under the applicable Secured Debt
    Document and, in each case such release has become effective in accordance
    with such consent;

        (3) as to (i) any Collateral that is sold, transferred or otherwise
    disposed of or (ii) in the case where the release is to be granted in
    advance of any sales, transfers or other dispositions, any Collateral to be
    sold, transferred or otherwise disposed of, by the Company or any Canadian
    Guarantor in a transaction or other circumstance not prohibited by any of
    the Secured Debt Documents, at the time of such sale, transfer or other
    disposition or, in the case of any Collateral to be sold, transferred or
    otherwise disposed of, at the time specified for such release, to the extent
    of the interest sold, transferred or otherwise disposed of, or to be sold,
    transferred or otherwise disposed of; provided that, in the case where the
    release is to be granted in advance of any sales, transfers or other
    disposition, (x) such release will only become effective if such Collateral
    has a Fair Market Value of $5 million or less and the Fair Market Value of
    such Collateral, together with all other Collateral that has been subject to
    a release described in this proviso, does not exceed $25 million during any
    period of 12 consecutive months, (y) no Lien has or will be granted to any
    Person other than the Collateral Trustee in respect of such Collateral
    during the period between such release and the consummation of the sale,
    transfer or other disposition of such Collateral and (z) in the event that
    the consummation of the sale, transfer or other disposition of such
    Collateral does not take place (or a definitive binding agreement with
    respect to such sale, transfer or other disposition is not entered into)
    within 60 days of such release, the Lien of the Collateral Trustee will
    immediately and automatically be reinstated on such Collateral;

        (4) as to any Collateral consisting of a Pledged Power Project, if the
    Company's interest in such Pledged Power Project is transferred to a
    Restricted Subsidiary of the Company in a transaction not prohibited by any
    of the Secured Debt Documents;

        (5) as to any Collateral in connection with any abandonment, forfeiture,
    surrender or release of oil and gas assets, or a lease termination, not
    prohibited by any of the Secured Debt

                                       29



    Documents; and

        (6) as to any Excluded Assets upon request of the Company.

                  In addition, in the case of a release of all Collateral owned
by any Canadian Guarantor pursuant to the foregoing provisions, the Guarantee of
such Canadian Guarantor will also be automatically released pursuant to the
Security Documents.

                  (b) The Collateral Trustee agrees for the benefit of the
Company and the Canadian Guarantors that if the Collateral Trustee at any time
receives:

                           (i)      An Officer's Certificate stating that:

                                    (A) (x) such officer has read Article 4 of
                  this Agreement and understands the provisions and the
                  definitions relating hereto, (y) such officer has made such
                  examination or investigation as is necessary to enable him or
                  her to express an informed opinion as to whether or not the
                  conditions precedent in this Agreement, if any, relating to
                  the release of the Collateral have been complied with and (z)
                  in the opinion of such officer, such conditions precedent, if
                  any, have been complied with;

                                    (B) no Secured Debt Default shall have
                  occurred or is continuing and, to the best of the signatory's
                  knowledge after due inquiry, no event or condition shall have
                  occurred which could reasonably be expected to result in a
                  Secured Debt Default or will result from the release of such
                  Lien and/or Guarantee, as applicable; and

                                    (C) for releases effected after the date of
                  this Agreement, as to any release of oil and gas assets
                  permitted pursuant to clause (3) or (5) of Section 4.1(a),
                  that such release shall not adversely affect or impair the
                  Lien of a Security Document with respect to any other portion
                  of the Collateral;

                           (ii) The proposed instrument or instruments releasing
such Lien as to such property and/or Guarantee, as applicable, in recordable
form, if applicable;

                           (iii) an Opinion of Company Counsel to the effect
that:

                                    (A) the conditions precedent, if any, in
                  Section 4.1 of this Agreement to be satisfied with respect to
                  the release of such Collateral have been complied with; and

                                    (B) with respect to all releases, that the
                  instrument or instruments proposed to be executed will be
                  effective solely to release the Lien of the Security Document
                  as to the property described in such Officer's Certificate
                  and/or the Guaranty described in such Officer's Certificate,
                  as applicable (without requiring the Collateral Trustee to
                  make any representation or warranty in respect thereof),
                  without releasing or satisfying any obligation secured by such
                  Lien

                                       30



                  and/or guaranteed by such Guarantee, as applicable, and
                  without imposing any obligation or liability upon the
                  Collateral Trustee or any other Person;

                           (iv) for releases effected after the date of this
                  Agreement, the written confirmation of the Credit Agreement
                  Agent and, for so long as the Term Loans shall be outstanding,
                  the Term Loan Administrative Agent that, in its view, such
                  release is permitted by Section 4.1(a); provided that each of
                  the Credit Agreement Agent and the Term Loan Administrative
                  Agent agree that as soon as practicable after receipt of any
                  Officer's Certificate from the Company pursuant to Section 4.2
                  it will either provide (x) such written confirmation, (y) a
                  written statement that such release is not permitted by
                  Section 4.1(a) or (z) a request for further information
                  regarding the proposed release from the Company;

then the Collateral Trustee will execute (with such acknowledgements and/or
notarizations as are required) and deliver such release to the Company on or
before the later of (x) the date specified in such request for such release and
(y) the fifth Business Day after the date of receipt of the items required by
Section 4.1(b) by the Collateral Trustee.

         In the case of any release pursuant to clause (2) or (3) of Section
4.1(a), if the terms of any such sale, transfer or other disposition require the
payment of the purchase price to be contemporaneous with the delivery of the
applicable release, then, at the request of the Company, the Collateral Trustee
shall either be present at the closing of such transaction or shall deliver the
release under customary escrow arrangements that permit such contemporaneous
payment and delivery of the release.

         4.2. DELIVERY OF COPIES TO SECURED DEBT REPRESENTATIVES. The Company
will deliver to each Secured Debt Representative a copy of each Officer's
Certificate delivered to the Collateral Trustee pursuant to Section 4.1,
together with copies of all documents delivered to the Collateral Trustee with
such Officer's Certificate. The Secured Debt Representatives will not be
obligated to take notice thereof or to act thereon, subject to Section
4.1(b)(iv).

         4.3. COLLATERAL TRUSTEE NOT REQUIRED TO SERVE, FILE OR RECORD. The
Collateral Trustee is not required to serve, file, register or record any
instrument releasing or subordinating its security interest in any Collateral.

ARTICLE 5. IMMUNITIES OF THE COLLATERAL TRUSTEE.

         5.1. NO IMPLIED DUTY. The Collateral Trustee will not have any duties
or responsibilities except those expressly assumed by it in this Agreement and
the other Security Documents and shall not be required to take any action which
is contrary to applicable law or any provision of this Agreement or the other
Security Documents.

         5.2. APPOINTMENT OF AGENTS AND ADVISORS. The Collateral Trustee may
execute any of the trusts or powers hereunder or perform any duties hereunder
either directly or by or thorough agents, attorneys, accountants, appraisers or
other experts or advisors as it may reasonably require and shall not be
responsible for any misconduct or negligence on the part of any of them.

                                       31



         5.3. OTHER AGREEMENTS. The Collateral Trustee has accepted and is bound
by the Security Documents executed by the Collateral Trustee as of the date of
this Agreement and, subject to Article 4 and, as directed by an Act of Secured
Debtholders, the Collateral Trustee may execute additional Security Documents
delivered to it after the date of this Agreement, provided, however, that such
additional Security Documents do not adversely affect the rights, privileges,
benefits and immunities of the Collateral Trustee. The Collateral Trustee shall
not otherwise be bound by, or be held obligated by, the provisions of any
indenture or agreement governing Secured Debt.

         5.4. SOLICITATION OF INSTRUCTIONS.

                  (a) The Collateral Trustee may at any time solicit
confirmatory instructions, in the form of an Act of Secured Debtholders or an
order of a court of competent jurisdiction, as to any action which it may be
requested or required to take, or which it may propose to take, in the
performance of any of its obligations under this Agreement.

                  (b) No direction given to the Collateral Trustee by an Act of
Secured Debtholders which imposes, purports to impose or might reasonably be
expected to impose upon the Collateral Trustee any obligation or liability not
set forth in or arising under this Agreement and the other Security Documents
accepted by the Collateral Trustee shall be binding upon the Collateral Trustee
unless the Collateral Trustee elects, at its sole option, to accept such
direction.

         5.5. LIMITATION OF LIABILITY. The Collateral Trustee shall not be
responsible or liable for any action taken or omitted to be taken by it
hereunder or under any other Security Document, except for its own gross
negligence or willful misconduct.

         5.6. DOCUMENTS IN SATISFACTORY FORM. The Collateral Trustee shall be
entitled to require that all agreements, certificates, opinions, instruments and
other documents at any time submitted to it, including those expressly provided
for in this Agreement, be delivered to it in a form and upon substantive
provisions reasonably satisfactory to it.

         5.7. ENTITLED TO RELY. The Collateral Trustee may conclusively rely
upon any certificate, notice or other document (including any teletransmission)
reasonably believed by it to be genuine and correct and to have been signed or
sent by or on behalf of the proper Person or Persons and need not investigate
any fact or matter stated in any such document. The Collateral Trustee may seek
and rely upon any judicial order or judgment, upon any advice, opinion or
statement of legal counsel, independent consultants and other experts selected
by it in good faith and upon any certification, instruction, notice or other
writing delivered to it by the Company in compliance with the provisions of this
Agreement or delivered to it by any Secured Debt Representative as to the
Secured Debtholders for whom it acts, without being required to determine the
authenticity thereof or the correctness of any fact stated therein or the
propriety or validity of service thereof. The Collateral Trustee may act in
reliance upon any instrument comporting with the provisions of this Agreement or
any signature reasonably believed by it to be genuine and may assume that any
Person purporting to give notice or receipt or advice or make any statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so. To the extent an Officer's Certificate or an Opinion of
Company Counsel is required or permitted under this Agreement to be delivered to
the Collateral Trustee

                                       32



in respect of any matter, the Collateral Trustee may rely conclusively on such
Officer's Certificate or Opinion of Company Counsel as to such matter.

         5.8. SECURED DEBT DEFAULT. The Collateral Trustee shall not be required
to inquire as to the occurrence or absence of any Secured Debt Default and shall
not be affected by or required to act upon any notice or knowledge as to the
occurrence of any Secured Debt Default unless and until it receives a Notice of
an Actionable Default or a Responsible Officer of the Collateral Trustee has
actual knowledge that an Actionable Default has occurred and is continuing.

         5.9. ACTIONS BY COLLATERAL TRUSTEE. As to any matter not expressly
provided for by this Agreement, the Collateral Trustee shall act or refrain from
acting as directed by Act of Secured Debtholders and shall be fully protected if
it does so.

         5.10. SECURITY OR INDEMNITY IN FAVOR OF THE COLLATERAL TRUSTEE. The
Collateral Trustee shall not be required to advance or expend any funds or
otherwise incur any financial liability in the performance of its duties or the
exercise of its powers or rights hereunder unless it has been provided with
security or indemnity reasonably satisfactory to it against any and all
liability or expense which may be incurred by it by reason of taking or
continuing to take such action.

         5.11. RIGHTS OF THE COLLATERAL TRUSTEE.(a) Notwithstanding anything to
the contrary contained herein or in any of the other Security Documents, the
Collateral Trustee shall be under no obligation to take any action which in its
sole discretion, would subject the Collateral Trustee to personal or financial
liability.

                  (b) In the event there is any disagreement between the other
parties to this Agreement or any of the other Security Documents resulting in
adverse claims being made in connection with Collateral held by the Collateral
Trustee and the terms of this Agreement or any of the other Security Documents
do not unambiguously mandate the action the Collateral Trustee is to take or not
to take in connection therewith under the circumstances then existing, or the
Collateral Trustee is in doubt as to what action it is required to take or not
to take, it shall be entitled to refrain from taking any action until directed
otherwise in writing by a request signed jointly by the parties hereto entitled
to give such direction or by order of a court of competent jurisdiction.

         5.12. LIMITATIONS ON DUTY OF COLLATERAL TRUSTEE IN RESPECT OF
COLLATERAL.

                  (a) Beyond the exercise of reasonable care in the custody
thereof, the Collateral Trustee shall have no duty as to any Collateral in its
possession or control or in the possession or control of any agent or bailee or
any income thereon or as to preservation of rights against prior parties or any
other rights pertaining thereto and the Collateral Trustee shall not be
responsible for filing any financing or continuation statements or recording any
documents or instruments in any public office at any time or times or otherwise
perfecting or maintaining the perfection of any security interest in the
Collateral. The Collateral Trustee shall be deemed to have exercised reasonable
care in the custody of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own property
and shall not be liable or responsible for any loss or diminution in the value
of any of the Collateral, by reason of the act

                                       33



or omission of any carrier, forwarding agency or other agent or bailee selected
by the Collateral Trustee in good faith.

                                    (b) The Collateral Trustee shall not be
responsible for the existence, genuineness or value of any of the Collateral or
for the validity, perfection, priority or enforceability of the Liens in any of
the Collateral, whether impaired by operation of law or by reason of any action
or omission to act on its part hereunder, except to the extent such action or
omission constitutes gross negligence, bad faith or willful misconduct on the
part of the Collateral Trustee, for the validity or sufficiency of the
Collateral or any agreement or assignment contained therein, for the validity of
the title of the Company to the Collateral, for insuring the Collateral or for
the payment of taxes, charges, assessments or Liens upon the Collateral or
otherwise as to the maintenance of the Collateral. The Collateral Trustee hereby
disclaims any representation or warranty to the present and future holders of
the Secured Obligations concerning the perfection of the Liens and security
interests granted hereunder or in the value of any of the Collateral.

         5.13. ASSUMPTION OF RIGHTS, NOT ASSUMPTION OF DUTIES. Anything herein
contained to the contrary notwithstanding, (a) each of the parties thereto shall
remain liable under each of the Security Documents to the extent set forth
therein to perform all of their respective duties and obligations thereunder to
the same extent as if this Agreement had not be executed, (b) the exercise by
the Collateral Trustee of any of its rights, remedies or powers hereunder shall
not release such parties from any of their respective duties or obligations
under the Security Documents and (c) the Collateral Trustee shall not be
obligated to perform any of the obligations or duties of any of the parties
thereunder.

         5.14. NO LIABILITY FOR CLEAN UP OF HAZARDOUS MATERIALS. In the event
that the Collateral Trustee is required to acquire title to an asset for any
reason, or take any managerial action of any kind in regard thereto, in order to
carry out any fiduciary or trust obligation for the benefit of another, which in
the Collateral Trustee's sole discretion may cause the Collateral Trustee to be
considered an "owner or operator" under the provisions of the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C.
ss.9601, et seq., or otherwise cause the Collateral Trustee to incur liability
under CERCLA or any other federal, state or local law, the Collateral Trustee
reserves the right to, instead of taking such action, either resign as
Collateral Trustee or arrange for the transfer of the title or control of the
asset to a court appointed receiver. The Collateral Trustee shall not be liable
to any person for any environmental claims or contribution actions under any
federal, state or local law, rule or regulation by reason of the Collateral
Trustee's actions and conduct as authorized, empowered and directed hereunder or
relating to the discharge, release or threatened release of hazardous materials
into the environment.

ARTICLE 6. RESIGNATION AND REMOVAL OF THE COLLATERAL TRUSTEE.

         6.1. RESIGNATION OR REMOVAL OF COLLATERAL TRUSTEE. Subject to the
appointment of a successor Collateral Trustee as provided in Section 6.2 and the
acceptance of such appointment by the successor Collateral Trustee, (a) the
Collateral Trustee may resign at any time by giving not less than 30 days'
notice of resignation to each Secured Debt Representative and the

                                       34



Company and (b) the Collateral Trustee may be removed at any time, with or
without cause, by an Act of Secured Debtholders.

         6.2. APPOINTMENT OF SUCCESSOR COLLATERAL TRUSTEE. Upon any such
resignation or removal, a successor Collateral Trustee may be appointed by the
Secured Debt Representatives, acting jointly, or by an Act of Secured
Debtholders. If no successor Collateral Trustee shall have been so appointed and
shall have accepted such appointment within 30 days after the predecessor
Collateral Trustee gave notice of resignation or was removed, the retiring
Collateral Trustee may (at the expense of the Company), at its option, appoint a
successor Collateral Trustee, or petition a court of competent jurisdiction for
appointment of a successor Collateral Trustee, which shall be a bank or trust
company (a) authorized to exercise corporate trust powers, (b) having a combined
capital and surplus of at least $50,000,000 and (c) maintaining an office in New
York, New York. The Collateral Trustee shall fulfill its obligations hereunder
until a successor Collateral Trustee meeting the requirements of this Section
6.2 has accepted its appointment as Collateral Trustee and the provisions of
Section 6.3 have been satisfied.

         6.3. SUCCESSION. When the Person so appointed as successor Collateral
Trustee accepts such appointment:

                  (i) such Person shall succeed to and become vested with all
the rights, powers, privileges and duties of the predecessor Collateral Trustee,
and the predecessor Collateral Trustee shall be discharged from its duties and
obligations hereunder, and

                  (ii) the predecessor Collateral Trustee shall promptly
transfer all Liens and collateral security and other property of the Trust
Estate within its possession or control to the possession or control of the
successor Collateral Trustee and shall execute instruments and assignments as
may be necessary or desirable or reasonably requested by the successor
Collateral Trustee to transfer to the successor Collateral Trustee all Liens,
interests, rights, powers and remedies of the predecessor Collateral Trustee in
respect of the Security Documents or the Trust Estate.

Thereafter the predecessor Collateral Trustee shall remain entitled to enforce
the immunities granted to it in Article 5 and the provisions of Sections 7.7 and
7.8.

         6.4. LIMITATION. The Collateral Trustee shall not be the same Person
as, or an Affiliate of, any Secured Debt Representative. If the Collateral
Trustee at any time becomes an Affiliate of any Secured Debt Representative, it
shall promptly resign subject to appointment of a successor Collateral Trustee
and acceptance of such appointment as provided in this Article 6.

ARTICLE 7. MISCELLANEOUS PROVISIONS.

         7.1. AMENDMENT.

         No amendment or supplement to the provisions of this Agreement or any
other Security Document (to which the Collateral Trustee is a party) will be
effective without the approval of the Collateral Trustee acting as directed by
an Act of Secured Debtholders and, in the case of this Agreement, the signature
of each other party to this Agreement, except that:

                                       35



        (1) any amendment or supplement that has the effect solely of adding or
    maintaining Collateral, securing additional Secured Debt that was otherwise
    permitted by the terms of the Secured Debt Documents to be secured by the
    Collateral or preserving or perfecting the Liens thereon or the rights of
    the Collateral Trustee therein, or adding or maintaining any Guarantee, will
    become effective when executed and delivered by the Company or any other
    Obligor party thereto and the Collateral Trustee as directed by the Company
    or such other Obligor;

        (2) no amendment or supplement that reduces, impairs or adversely
    affects the right of any Secured Debtholder (A) to vote its outstanding
    Secured Debt as to any matter described as subject to an Act of Secured
    Debtholders, an Act of Instructing Debtholders, an act of the Required
    Priority Debtholders or an act of the Required Parity Debtholders (or amends
    the provisions of this clause (2) or the definition of "Act of Secured
    Debtholders," "Act of Instructing Debtholders," "Required Priority
    Debtholders," "Required Parity Debtholders," "Priority Foreclosure Event" or
    "Actionable Default"), (B) to share in the order of application described in
    Section 3.4 in the proceeds of enforcement of or realization on any
    Collateral or any Guarantee of the Canadian Guarantors, in each case that
    has not been released in accordance with the provisions described in Section
    4.1 or (C) to require that Liens securing Secured Obligations be released
    only as set forth in the provisions described in Section 4.1 will become
    effective without the additional consent of such holder; and

        (3) no amendment or supplement that imposes any obligation upon the
    Collateral Trustee or any Secured Debt Representative or adversely affects
    the rights of the Collateral Trustee or any Secured Debt Representative,
    respectively, in its individual capacity will become effective without the
    consent of the Collateral Trustee or such Secured Debt Representative,
    respectively.

         The Collateral Trustee shall not enter into any such amendment or
    supplement unless it shall have received an Officer's Certificate to the
    effect that such amendment or supplement will not result in a breach of any
    provision or covenant contained in any of the Secured Debt Documents. Prior
    to executing any amendment or supplement pursuant to this Section 7.1, the
    Collateral Trustee shall be entitled to receive an Opinion of Company
    Counsel to the effect that the execution of such document is authorized or
    permitted hereunder, and with respect to amendments adding Collateral, an
    Opinion of Company Counsel addressing customary perfection matters with
    respect to such additional Collateral.

                  Any amendment or supplement to the provisions of the Security
Documents that releases Collateral or any Guarantee of the Canadian Guarantors
will be effective only in accordance with the requirements set forth in Section
4.1.

         7.2. FURTHER ASSURANCES.

         The Company and each of the Canadian Guarantors will do or cause to be
done all acts and things which may be required, or which the Collateral Trustee
from time to time may reasonably request, to assure and confirm that the
Collateral Trustee holds, for the benefit of the holders of Secured Obligations,
duly created, enforceable and perfected Liens upon the Collateral, including
after-acquired Collateral, subject, in the case of Parity Lien Obligations,

                                       36



only to Priority Liens securing Priority Lien Obligations up to the Priority
Lien Cap and other Permitted Prior Liens, and duly created and enforceable
Guarantees of the Canadian Guarantors, in each case as contemplated by the
Secured Debt Documents.

                  The Company and each of the Canadian Guarantors will promptly
execute, acknowledge and deliver such security documents, instruments,
certificates, notices and other documents, and take such other actions as shall
be reasonably required, or which the Collateral Trustee may reasonably request,
to create, perfect, protect, assure or enforce the Liens and benefits intended
to be conferred, and to create, protect, assure or enforce the Guarantees of the
Canadian Guarantors, in each case as contemplated by the Secured Debt Documents
for the benefit of the holders of Secured Obligations. Upon the filing of
continuation statements (which is expected to be five years from the date hereof
and in five year intervals thereafter), the Company shall promptly deliver to
the Collateral Trustee an Opinion of Company Counsel reasonably satisfactory to
the Collateral Trustee as to the continued perfection of the Liens and security
interests created by the Security documents under the Uniform Commercial Code of
the State of New York.

         7.3. SUCCESSORS AND ASSIGNS.

                  (a) Except as provided in Section 5.2, the Person acting as
Collateral Trustee may not, in its individual capacity, delegate any of its
duties or assign any of its rights hereunder, and any attempted delegation or
assignment of any such duties or rights shall be void. All obligations of the
Collateral Trustee hereunder shall inure to the sole and exclusive benefit of,
and be enforceable by, each Secured Debt Representative and each present and
future holder of Secured Obligations, each of whom shall be entitled to enforce
this Agreement as a third party beneficiary hereof, and all of their respective
successors and assigns.

                  (b) Neither the Company nor any of the Canadian Guarantors may
delegate any of its duties or assign any of its rights hereunder, and any
attempted delegation or assignment of any such duties or rights shall be void.
All obligations of the Company and the Canadian Guarantors hereunder shall inure
to the sole and exclusive benefit of, and be enforceable by, the Collateral
Trustee, each Secured Debt Representative and each present and future holder of
Secured Obligations, each of whom shall be entitled to enforce this Agreement as
a third party beneficiary hereof, and all of their respective successors and
assigns.

         7.4. DELAY AND WAIVER. No failure to exercise, no course of dealing
with respect to the exercise of, and no delay in exercising, any right, power or
remedy arising under this Agreement or any of the other Security Documents shall
impair any such right, power or remedy or operate as a waiver thereof. No single
or partial exercise of any such right, power or remedy shall preclude any other
or future exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.

         7.5. NOTICES. Any communications, including notices and instructions,
between the parties hereto or notices provided herein to be given may be given
to the following addresses:

                                       37



If to the Collateral Trustee:              The Bank of New York
                                           101 Barclay Street
                                           Floor 8 West
                                           New York, NY 10286
                                           Attention: Corporate Trust
                                           Administration

If to the Company or any Canadian
Guarantor:                                 Calpine Corporation
                                           50 West San Fernando Street
                                           San Jose, CA 95113
                                           Attention:  General Counsel

If to the Credit Agreement Agent:          Scotia Capital
                                           One Liberty Plaza
                                           New York, NY 10006
                                           Attention: Denis P. O'Meara

                                           With a copy to:

                                           The Bank of Nova Scotia
                                           600 Peachtree Street N.E.
                                           Suite 2700
                                           Atlanta, GA  30308
                                           Attention: Hilma Gabbidon

If to the 2007 Trustee:                    Wilmington Trust Company
                                           520 Madison Avenue, 33rd Floor
                                           New York, NY  10022
                                           Attention: James McGinley

If to the 2010 Trustee:                    Wilmington Trust Company
                                           520 Madison Avenue, 33rd Floor
                                           New York, NY  10022
                                           Attention: James McGinley

If to the 2013 Trustee:                    Wilmington Trust Company
                                           520 Madison Avenue, 33rd Floor
                                           New York, NY  10022
                                           Attention: James McGinley

                                       38



If to the Term Loan Administrative Agent:  Goldman Sachs Credit Partners L.P.
                                           85 Broad Street
                                           New York, NY  10004
                                           Attention: Pedro Ramirez

                  and if to any other Secured Debt Representative, to such
address as it may specify by written notice to the parties named above.

                  Each notice hereunder shall be in writing and may be
personally served, telexed or sent by telefacsimile or United States mail or
courier service and shall be deemed to have been given when delivered in person
or by courier service and signed for against receipt thereof, upon receipt of
telefacsimile or telex, or three Business Days after depositing it in the United
States mail with postage prepaid and properly addressed. Each party may change
its address for notice hereunder to any other location within the continental
United States by giving written notice thereof to the other parties as set forth
in this Section 7.5.

         7.6. ENTIRE AGREEMENT. This Agreement states the complete agreement of
the parties relating to the undertaking of the Collateral Trustee set forth
herein and supersedes all oral negotiations and prior writings in respect of
such undertaking.

         7.7. COMPENSATION; EXPENSES. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to pay, promptly
upon demand:

                  (i)      such compensation to the Collateral Trustee and its
         agents, co-agents and sub-agents as the Company and the Collateral
         Trustee shall agree in writing from time to time;

                  (ii)     all reasonable costs and expenses incurred in the
         preparation, execution, delivery, filing, recordation, administration
         or enforcement of this Agreement or any other Security Document or any
         consent, amendment, waiver or other modification relating thereto;

                  (iii)    all reasonable fees, expenses and disbursements of
         legal counsel and any auditors, accountants, consultants or appraisers
         or other professional advisors and agents engaged by the Collateral
         Trustee or any Secured Debt Representative incurred in connection with
         the negotiation, preparation, closing, administration, performance or
         enforcement of this Agreement and the other Security Documents or any
         consent, amendment, waiver or other modification relating thereto and
         any other document or matter requested by the Company;

                  (iv)     all reasonable costs and expenses of creating,
         perfecting, releasing or enforcing the Collateral Trustee's security
         interests in the Collateral, including filing and recording fees,
         expenses and taxes, stamp or documentary taxes, search fees, title
         insurance premiums;

                  (v)      all other reasonable costs and expenses incurred by
         the Collateral Trustee or any Secured Debt Representative in connection
         with the negotiation,

                                       39



         preparation and execution of the Security Documents and any consents,
         amendments, waivers or other modifications thereto and the transactions
         contemplated thereby or the exercise of rights or performance of
         obligations by the Collateral Trustee thereunder; and

                  (vi)     after the occurrence of any Secured Debt Default, all
         reasonable costs and expenses incurred by the Collateral Trustee or any
         Secured Debt Representative in connection with the preservation,
         collection, foreclosure or enforcement of the Security Documents or any
         interest, right, power or remedy of the Collateral Trustee or in
         connection with the collection or enforcement of any of the Secured
         Obligations or the proof, protection, administration or resolution of
         any claim based upon the Secured Obligations in any Bankruptcy Case or
         Insolvency Proceeding, including all reasonable fees and disbursements
         of attorneys, accountants, auditors, consultants, appraisers and other
         professionals engaged by the Collateral Trustee or the Secured Debt
         Representatives.

The agreements in this Section 7.7 shall survive repayment of all other Secured
Obligations and the removal or resignation of the Collateral Trustee.

         7.8. INDEMNITY.

                  (a) Each of the Company and the Canadian Guarantors jointly
and severally agrees to defend (subject to Indemnitees' selection of counsel; it
being understood that the holders of Priority Lien Debt and the holders of all
Parity Lien Debt shall each be entitled to select a single transaction counsel
and local counsel), indemnify, pay and hold harmless, the Collateral Trustee,
each Secured Debt Representative, each Secured Debtholder and each of their
respective Affiliates and each and all of the directors, officers, partners,
trustees, employees, attorneys and agents, and (in each case) their respective
heirs, representatives, successors and assigns (each of the foregoing, an
"Indemnitee") from and against any and all Indemnified Liabilities; provided, no
Indemnitee shall be entitled to indemnification hereunder with respect to any
Indemnified Liability to the extent such Indemnified Liability is found by a
final and nonappealable decision of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of such Indemnitee.

                  (b) All amounts due under Section 7.8(a) shall be payable upon
demand.

                  (c) To the extent that the undertakings to defend, indemnify,
pay and hold harmless set forth in Section 7.8(a) may be unenforceable in whole
or in part because they are violative of any law or public policy, the Company
and the Canadian Guarantors shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of
them.

                  (d) Neither the Company nor any Canadian Guarantor shall ever
assert any claim against any Indemnitee, on any theory of liability, for any
lost profits or special, indirect or consequential damages or (to the fullest
extent a claim for punitive damages may lawfully be waived) any punitive damages
arising out of, in connection with, or as a result of, this Agreement or any
other Secured Debt Document or any agreement or instrument or transaction
contemplated hereby or relating in any respect to any Indemnified Liability, and
each of the

                                       40



Company and the Canadian Guarantors hereby forever waives, releases and agrees
not to sue upon any claim for any such lost profits or special, indirect,
consequential or (to the fullest extent lawful) punitive damages, whether or not
accrued and whether or not known or suspected to exist in its favor.

                  (e) The agreements in this Section 7.8 shall survive repayment
of all other Secured Obligations and the removal or resignation of the
Collateral Trustee.

         7.9. SEVERABILITY. If any provision of this Agreement is invalid,
illegal or unenforceable in any respect or in any jurisdiction, the validity,
legality and enforceability of such provision in all other respects and of all
remaining provisions, and of such provision in all other jurisdictions, shall
not in any way be affected or impaired thereby.

         7.10. HEADINGS. Section headings herein are included herein for
convenience of reference only and shall not constitute a part hereof for any
other purpose or be given any substantive effect.

         7.11. OBLIGATIONS SECURED. All obligations of the Company and the
Canadian Guarantors set forth in or arising under this Agreement shall be
Secured Obligations and are secured by all Liens granted by the Security
Documents.

         7.12. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES.

         7.13. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST
ANY PARTY HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
OTHER SECURITY DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS AGREEMENT, EACH PARTY HERETO, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY (a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE
NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (b) WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS; (c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO SUCH PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SECTION 7.5; (d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH PARTY IN ANY SUCH
PROCEEDING IN ANY SUCH COURT AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT; AND (e) AGREES EACH PARTY HERETO RETAIN THE RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS
AGAINST ANY PARTY IN THE COURTS OF ANY OTHER JURISDICTION.

         7.14. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY AGREES TO WAIVE
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER SECURITY DOCUMENTS OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR THE
INTENTS AND PURPOSES OF THE OTHER SECURITY DOCUMENTS. THE SCOPE OF THIS WAIVER
IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN
ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE OTHER
SECURITY DOCUMENTS, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,

                                       41



BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH PARTY HERETO HAS ALREADY RELIED ON THIS WAIVER
IN ENTERING INTO THIS AGREEMENT, AND THAT EACH PARTY HERETO WILL CONTINUE TO
RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL
AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SECTION 7.14 AND EXECUTED BY EACH OF THE
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF OR TO THIS AGREEMENT OR ANY OF THE
OTHER SECURITY DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
THERETO. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

         7.15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.

         7.16. EFFECTIVENESS. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto and receipt by
each party of written or telephonic notification of such execution and
authorization of delivery thereof.

         7.17. ADDITIONAL OBLIGORS. The Company will cause each Subsidiary of
the Company that becomes an Obligor or is required by any Secured Debt Document
to become a party to this Agreement to become party to this Agreement, for all
purposes of this Agreement, by causing such Subsidiary to execute and deliver to
the parties hereto a Collateral Trust Joinder, whereupon such Subsidiary shall
be bound by the terms hereof to the same extent as if it had executed and
delivered this Agreement as of the date hereof.

         7.18. APPOINTMENT OF SUB-AGENT FOR CONTROL AGREEMENTS.

                  (a) The Collateral Trustee hereby appoints the Credit
Agreement Agent as the agent of the Collateral Trustee with power and authority
to accept, hold, administer and enforce, for the benefit and subject to the
direction of the Collateral Trustee, all interests, rights and remedies under
any and all existing and future Control Agreements maintained in the name of the
Credit Agreement Agent.

                  (b) The Credit Agreement Agent accepts its appointment as
agent for the Collateral Trustee in respect of all Control Agreements which the
Credit Agreement Agent may elect to maintain in its name, but without any
obligation whatsoever to accept or maintain any Control Agreement. The Credit
Agreement Agent may at any time resign as agent for the Collateral Trustee,
subject to delivery to the Collateral Trustee of an instrument sufficient, in
the reasonable judgment of the Collateral Trustee, to permit the Collateral
Trustee to enforce directly, in its own name, all Control Agreements then
maintained in the name of the Credit Agreement Agent.

                                       42



                  (c) If the Company or any other Obligor at any time maintains
deposits in a deposit account that are not subject to a Control Agreement
maintained in the name of the Credit Agreement Agent while acting as agent for
the Collateral Trustee, the Company or such Obligor will cause the depositary
bank promptly to execute and deliver to the Collateral Trustee a Control
Agreement over such deposit account and deposits therein in customary form. No
such Control Agreement will in any event be required, however, as to deposits in
deposit accounts consisting of Excluded Assets.

                  (d) Neither the Company nor any other Obligor will be required
to deliver to the Collateral Trustee a Control Agreement for any commodity
account or commodity contracts carried therein or for any securities account or
financial assets credited thereto, so long as the Collateral Trustee's Liens in
such securities account and financial assets are and remain otherwise duly
perfected.

         7.19. TRANSFER OF THE EXISTING SECURITY DOCUMENTS. (a) The Existing
Collateral Agent hereby assigns and transfers to the Collateral Trustee,
unconditionally, irrevocably and forever, any and all of its Liens, claims,
interests, rights, powers and remedies under the Existing Security Documents,
effective without further act or condition immediately upon the execution and
delivery of this Agreement. Each transfer of Existing Security Documents is made
by the Existing Collateral Agent without any representation or warranty
whatsoever, except the warranty that it has not assigned or transferred whatever
interest or rights (if any) it may have been granted thereby.

                  (b)      Promptly upon execution of this Agreement, the
Existing Collateral Agent will execute and deliver (and if necessary acknowledge
in recordable form) each of the instruments of transfer for the Existing
Security Documents set forth on Schedule 2.

                           [Remainder of page intentionally left blank]

                  IN WITNESS WHEREOF, the parties hereto have caused this
Collateral Trust Agreement to be executed by their respective officers or
representatives hereunto duly authorized as of the day and year first above
written.

                                    THE COMPANY:

                                    CALPINE CORPORATION

                                    By:  /s/ Michael Thomas
                                      -----------------------------------------
                                      Name:  Michael Thomas
                                      Title:

                                       43


                                    THE CANADIAN GUARANTORS:

                                    QUINTANA MINERALS (USA), INC.



                                    By:  /s/ Michael Thomas
                                      -----------------------------------------
                                      Name:  Michael Thomas
                                      Title:

                                    JOQ CANADA, INC.

                                    By:  /s/ Michael Thomas
                                      -----------------------------------------
                                      Name:  Michael Thomas
                                      Title:

                                    QUINTANA CANADA HOLDINGS LLC

                                    By:  /s/ Michael Thomas
                                      -----------------------------------------
                                      Name:  Michael Thomas
                                      Title:

                                       44



                                    THE CREDIT AGREEMENT AGENT:

                                    THE BANK OF NOVA SCOTIA,
                                    as Agent under the Credit Agreement

                                    By:  /s/ Denis P. O'Meara
                                      -----------------------------------------
                                      Name: Denis P. O'Meara
                                      Title:  Managing Director

                                       45



                                    THE 2007 TRUSTEE:

                                    WILMINGTON TRUST COMPANY,
                                    as Trustee

                                    By:  /s/ Michael W. Diaz
                                      -----------------------------------------
                                      Name: Michael W. Diaz
                                      Title:  Authorized Signer

                                    THE 2010 TRUSTEE:

                                    WILMINGTON TRUST COMPANY,
                                    as Trustee

                                    By:  /s/ Michael W. Diaz
                                      -----------------------------------------
                                      Name: Michael W. Diaz
                                      Title:  Authorized Signer

                                    THE 2013 TRUSTEE:

                                    WILMINGTON TRUST COMPANY,
                                    as Trustee

                                    By:  /s/ Michael W. Diaz
                                      -----------------------------------------
                                      Name: Michael W. Diaz
                                      Title:  Authorized Signer

                                       46



                                    THE TERM LOAN ADMINISTRATIVE AGENT:

                                    GOLDMAN SACHS CREDIT PARTNERS L.P.,
                                    as Term Loan Administrative Agent

                                    By:  /s/ R. T. Wagner
                                      ------------------------------------------
                                      Name: Robert Wagner
                                      Title:  Authorized Signatory

                                       47



                                    THE COLLATERAL TRUSTEE:

                                    THE BANK OF NEW YORK,
                                    as Collateral Trustee

                                    By:  /s/ Michael Pitfick
                                      -----------------------------------------
                                      Name: Michael Pitfick
                                      Title:  Assistant Vice President

                                       48


                                                                       EXHIBIT A

                            COLLATERAL TRUST JOINDER

                  The undersigned, _____________________, a _______________,
hereby agrees to become party to the Collateral Trust Agreement dated as of
[______], 2003, by and among Calpine Corporation, a Delaware corporation,
[________________], as Collateral Agent under the Credit Agreement (as defined
therein), Wilmington Trust Company, as Trustee under the 2007 Indenture (as
defined therein), Wilmington Trust Company, as Trustee under the 2010 Indenture
(as defined therein), Wilmington Trust Company, as Trustee under the 2013
Indenture (as defined therein), Goldman Sachs Credit Partners L.P., as Term Loan
Administrative Agent under the Term Loan Agreement (as defined therein), and The
Bank of New York, as Collateral Trustee, for all purposes thereof on the terms
set forth therein, and to be bound by the terms of said Collateral Trust
Agreement as fully as if the undersigned had executed and delivered said
Collateral Trust Agreement as of the date thereof.

                  The provisions of Article 7 of said Collateral Trust Agreement
shall apply with like effect to this Joinder.

                  IN WITNESS WHEREOF, the undersigned has executed and delivered
this Joinder as of ___________________, 20____.

                                                 [_____________________________]

                                                 By:____________________________
                                                    Name:
                                                    Title:



                                    EXHIBIT B

Recording requested by and
when recorded mail to:

The Bank of New York
101 Barclay Street, Floor 8 West
New York, New York 10286
Attn: Corporate Trust Administration

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

                          NOTICE OF ADDITIONAL ADVANCE

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

                               CALPINE CORPORATION
                             a Delaware corporation
                         (Taxpayer I.D. No. 77-0212977),
                                  as Mortgagor

                                      [and

                            [Trustees, if applicable,
                                   as Trustee]

                                   in favor of

                              THE BANK OF NEW YORK,
                         (Taxpayer I.D. No. 13-5160382),
              in its capacity as Collateral Trustee, as Beneficiary

                           Dated as of [_______], 20__

                                       50


         This NOTICE OF ADDITIONAL ADVANCE, dated as of [_______], 20__ (this
"Notice"), is made by CALPINE CORPORATION (the "Company"), a Delaware
corporation, whose address is 1000 Louisiana Street, Suite 800 Houston, TX
77002, as trustor or mortgagor, in favor of [Trustees, if applicable, as the
"Trustee", and] THE BANK OF NEW YORK, a national banking association whose
address is 101 Barclay Street, New York, New York 10286, as Collateral Trustee
under the Collateral Trust Agreement and as Beneficiary under the Mortgages, as
"Beneficiary" hereunder.

         This Notice relates to that certain [describe existing mortgages - will
need a Notice of Additional Advance to be recorded in each county in which the
prior mortgages were recorded] (as the same may have been, from time to time,
supplemented and/or amended, collectively the "Mortgages") by the Company in
favor of [the Trustee and] Beneficiary which (along with any supplements and/or
amendments and/or prior Notices of Additional Advance) has been recorded and
filed in the public records as set forth on Schedule I hereto. Capitalized terms
used, but not otherwise defined herein, shall have the meanings assigned to such
terms in the Collateral Trust Agreement dated as of July 16, 2003, among the
Company, Beneficiary and others (the "Collateral Trust Agreement"). The
Mortgages secure, among other things, (a) Priority Lien Debt pursuant to the
Amended and Restated Credit Agreement in an aggregate amount of up to
$700,000,000; (b) Parity Lien Debt pursuant to the 2007 Indenture, 2010
Indenture, 2013 Indenture and Term Loan Agreement in an aggregate amount of up
to $3,500,000,000, and (iii) any future debt constituting Priority Lien Debt or
Parity Lien Debt up to an aggregate amount of Secured Debt of $4,200,000,000.

         This Notice provides notice that the Company has agreed to issue or
incur New Secured Debt as either Priority Lien Debt or Parity Lien Debt. The
Company represents and warrants to each of the Secured Debtholders and the
Beneficiary that the additional debt, when issued, shall constitute New Secured
Debt and that the New Secured Debt, together will all of the obligations of the
Company under the Secured Debt Documents executed by the Company in connection
therewith, shall be secured in accordance with the terms of the Mortgages,
together with all other Secured Debt and obligations secured thereby, without
any preference, distinction or priority as to lien or otherwise of any New
Secured Debt over any other Secured Debt by reason of any priority in time of
the issuance, sale or negotiation thereof, or by reason of the purpose of the
issuance, sale or negotiation thereof, or otherwise, except as otherwise
expressly provided in the Mortgages.

         This Notice shall not constitute an amendment or modification of the
Mortgages or any other Secured Debt Document or the giving by the Beneficiary of
any consent, waiver or approval under the Mortgages or any other Secured Debt
Document, and no right of the holders of any Secured Debt shall be affected
hereby.

         The Company hereby affirms and agrees that the Mortgages secure the
full payment and performance of each and every obligation stated therein to be
secured thereby, and continues to be effective as, and to constitute, a first
and prior lien and charge on the Mortgaged Property to the full extent of all
obligations secured thereby in accordance with and subject to the terms thereof.
Solely for the purpose of such affirmation of the effect of the Mortgages, the
Company does hereby re-grant, re-bargain, re-sell, re-warrant, re-alienate,
re-remise, re-release, re-convey, re-assign, re-transfer, re-mortgage,
re-hypothecate, re-pledge, re-set over and re-confirm, WITH



POWER OF SALE, [if applicable, to the Trustee] for the benefit and security of
the Beneficiary, the Mortgaged Property, in accordance with and subject to the
terms of the Mortgages.

         The Company agrees that this Notice shall not prejudice any present or
future rights, remedies, benefits or powers belonging or accruing to the
Beneficiary under the terms of the Mortgages.

         In the event of any conflict between the terms of the Mortgages and the
provisions of this Notice, the terms of the Mortgages shall control.

         All certifications, representations, warranties and covenants of the
Company herein shall apply to and bind the heirs, administrators, executors,
legal representatives, successors and assigns of the Company and inure to the
benefit of the successors in interest of the Beneficiary.

                                                                               2


         IN WITNESS WHEREOF, the Company has executed this Notice effective as
of the date first set forth above.

                                    CALPINE CORPORATION, a Delaware corporation

                                    By: ________________________________________

                                    Title: _____________________________________

                                    Printed Name: ______________________________

ATTEST:

_________________________

Printed Name:

The name and mailing address of Mortgagor is:

Calpine Corporation
1000 Louisiana Street, Suite 800
 Houston, TX 77002

                                                                               3


                                   SCHEDULE I

                                                                               4

EX-10.26

                                                                   Exhibit 10.26

                                                                 MULTISTATE FORM

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

                              AMENDED AND RESTATED
                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

                                      FROM

                              CALPINE CORPORATION,
                             a Delaware corporation
                         (Taxpayer I.D. No. 77-0212977),
                              Trustor and Mortgagor

                                       TO

                             DENIS O'MEARA, Trustee

                                       AND

                             JAMES TRIMBLE, Trustee

                                       AND

                              THE BANK OF NEW YORK,
        not in its individual capacity but solely as Collateral Trustee,
                         (Taxpayer I.D. No. 13-5160382)
                                 as Beneficiary

                            Dated as of July 16, 2003

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

"THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS."

"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."

"THOSE PORTIONS OF THE MORTGAGED PROPERTY WHICH ARE AS-EXTRACTED COLLATERAL
(INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO,
WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES
DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR
RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS."



"MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS
DESCRIBED IN EXHIBIT A HERETO."

"SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS
FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL
ESTATE RECORDS."

"A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE."

THIS INSTRUMENT WAS PREPARED BY AND
WHEN RECORDED AND/OR FILED
RETURN TO:

MAYER, BROWN, ROWE & MAW LLP
700 Louisiana Street
Suite 3600
Houston, Texas 77002
Attn: Kevin L. Shaw, Esq.



                              AMENDED AND RESTATED
                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

      THIS AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE"), dated as of
July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation
("MORTGAGOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113,
to DENIS O'MEARA and JAMES TRIMBLE (whether one or more, collectively called
"TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its
individual capacity but solely as Collateral Trustee under the Collateral Trust
Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among
Mortgagor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee,
Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose
address is 101 Barclay Street, New York, New York 10286. References to this
"Mortgage" shall mean this instrument and any and all renewals, modifications,
amendments, supplements, extensions, consolidations, substitutions, spreaders,
restatements and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                   ARTICLE I.

                            RECITALS AND DEFINITIONS

      1.1 Mortgagor has heretofore executed and delivered to The Bank of Nova
Scotia, for itself and as agent for the Lender Parties (together with its
successors in such capacity, the "CREDIT AGREEMENT AGENT") and John Quick (as
predecessor-in-interest to Denis O'Meara) and Kemp Leonard (as
predecessor-in-interest to James Trimble), as Trustees, that certain mortgage or
deed of trust, dated as of May 1, 2002, as supplemented and amended prior to the
date hereof (as so supplemented and amended, herein called the "EXISTING
MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain
institutional lenders (the "EXISTING 2002 LENDERS") pursuant to the terms of
that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same
may be amended, modified or supplemented from time to time, called the "EXISTING
2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans
to Mortgagor and issued letters of credit for the benefit of Mortgagor (the
"EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time
outstanding $1,600,000,000, and Mortgagor, to evidence its indebtedness to the
Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and
delivered to the Existing 2002 Lenders its secured promissory notes to mature
not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002
Loan Notes being payable to the order of the Existing 2002 Lenders, bearing
interest as provided for therein, and containing provisions for payment of
attorneys' fees and acceleration of maturity in the event of default, as therein
set forth; and (ii) payment of indebtedness owed or to be owing to certain
institutional lenders (the "EXISTING 2000 LENDERS", and together with the
Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms


                                      -1-


of that certain Second Amended and Restated Credit Agreement dated as of May 23,
2000 (herein, as the same may be amended, modified, or supplemented from time to
time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing
2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant
to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of
credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in
amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor,
to evidence its indebtedness to the Existing 2000 Lenders under the Existing
2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders
its secured promissory notes to mature not later than May 24, 2003 (the
"EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the
Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing
2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing
interest as provided for therein, and containing provisions for payment of
attorney's fees and acceleration of maturity in the event of default, as therein
set forth.

      1.2 The Existing Mortgage, together with other mortgages and deeds of
trust (a) have been filed and recorded, among other places, as set forth in
Schedule I hereto; (b) have been supplemented and amended by various instruments
that have been filed and recorded, among other places, as set forth in Schedule
II hereto; and (c) have been amended and certain items of property mortgaged
thereby have been released by various instruments that have been filed and
recorded, among other places, as set forth in Schedule III hereto.

      1.3 Mortgagor, the Existing Lenders and the Credit Agreement Agent are,
(i) terminating the commitments under the Existing 2000 Credit Agreement, and
(ii) amending and restating the Existing 2002 Credit Agreement (as so amended
and restated, and as the same may, from time to time hereafter, be amended,
supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT
AGREEMENT".

      1.4 Mortgagor is also (a) issuing $500,000,000 in aggregate principal
amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007
INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing
$1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal
amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the
"2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013
INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing
$750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement
dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and


                                      -2-


Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its
successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds
from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the
borrowing of the Term Loans will be used to refinance a portion of the loans and
other indebtedness outstanding under the Existing Credit Agreements.

      1.5 As permitted pursuant to the Secured Debt Documents, Mortgagor may
incur future debt which could, together with the obligations under the Amended
and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may
incur future debt which could, together with the 2007 Notes, the 2010 Notes, the
2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the
aggregate amount of the Secured Debt to be secured hereby shall not exceed
$4,200,000,000. Mortgagor intends to secure the Indebtedness, including its
obligations (a) under the Amended and Restated Credit Agreement and any future
Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject
to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans
and any future Parity Lien Debt, equally and ratably, with liens and security
interests in, among other collateral, the Mortgaged Property under the Existing
Mortgage, as contemplated in the Collateral Trust Agreement.

      1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment
of Liens of even date herewith, the Credit Agreement Agent has assigned to
Beneficiary, all of the Credit Agreement Agent's right, title and interest in
and to, and its interest as beneficiary under, the Existing Mortgage. This
Mortgage amends and restates the Existing Mortgage. The Collateral Trust
Agreement sets forth the terms on which the Collateral Trustee, as trustee for
the present and future holders of the Indebtedness, will receive, hold,
maintain, administer, maintain, enforce and distribute this Mortgage and all
interests, rights, powers and remedies of the Collateral Trustee thereunder and
the proceeds thereof.

      1.7 For all purposes of this Mortgage, unless the context otherwise
requires:

                  A. "Actionable Default" is defined in the Collateral Trust
      Agreement.

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

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

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


                                      -3-


                  C. "Applicable Law" means with respect to any Person or
      matter, any federal, state, regional, tribal or local statute, law, code,
      rule, treaty, convention, application, order, decree, consent decree,
      injunction, directive, determination or other requirement (whether or not
      having the force of law) relating to such Person or matter and, where
      applicable, any interpretation thereof by a Governmental Authority having
      jurisdiction with respect thereto or charged with the administration or
      interpretation thereof.

                  D. "Default Interest Rate" means the lesser of (a) ten percent
      (10%), and (b) the Maximum Lawful Rate.

                  E. "Event of Default" means an Actionable Default.

                  F. "Environmental Laws" means any and all present and future
      Applicable Laws issued, promulgated or entered thereunder relating to
      pollution or protection of the environment, including laws relating to
      reclamation of land and waterways and laws relating to emissions,
      discharges, releases or threatened releases of pollutants, contaminants,
      chemicals, or industrial, toxic or hazardous substances or wastes into the
      environment (including, without limitation, ambient air, surface water,
      ground water, land surface or subsurface strata) or otherwise relating to
      the manufacture, processing, distribution, use, treatment, storage,
      disposal, transport or handling of pollutants, contaminants, chemicals, or
      industrial, toxic or hazardous substances or wastes.

                  G. "Governmental Authority" means any and all courts, boards,
      agencies, commissions, offices or authorities of any nature whatsoever for
      any governmental unit (federal, state, county, district, municipal, city,
      tribe or otherwise) whether now or hereafter in existence charged with the
      administration, interpretation or enforcement of any Applicable Law.

                  H. "Hedging Agreements" means: (a) interest rate swap
      agreements, basis swap agreements, interest rate cap agreements, forward
      rate agreements, interest rate floor agreements and interest rate collar
      agreements, and all other agreements or arrangements designed to protect
      such Person against fluctuations in interest rates or currency exchange
      rates, and (b) forward contracts, options, futures contracts, futures
      options, commodity swaps, commodity options, commodity collars, commodity
      caps, commodity floors and all other agreements or arrangements designed
      to protect such Person against fluctuations in the price of commodities.

                  I. "Hedging Obligations" means with respect to any Person, all
      liabilities (including without limitation obligations and liabilities
      arising in connection with or as a result of early or premature
      termination of a Hedging Agreement, whether or not occurring as a result
      of a default thereunder) of such Person under a Hedging Agreement.


                                      -4-


                  J. "Hydrocarbons" means collectively, oil, gas, casinghead
      gas, drip gasoline, natural gasoline, condensate, distillate and all other
      liquid or gaseous hydrocarbons and related minerals and all products
      therefrom, in each case whether in a natural or a processed state.

                  K. "Indebtedness" shall have the meaning set forth in Section
      2.2 of this Mortgage.

                  L. "Indemnification Claim" is defined in Section 4.6(a) of
      this Mortgage.

                  M. "Indemnified Person" is defined in Section 3.10(c) of this
      Mortgage.

                  N. "Joint Operating Agreements" shall mean, with respect to
      the lands described in Exhibit A, the respective operating agreement
      burdening the lands described in Exhibit A.

                  O. "lands described in Exhibit A" shall include the real
      property or other interest in any lands which are either described in
      Exhibit A attached hereto or the description of which is incorporated in
      Exhibit A by reference to an instrument or document containing in, or
      referring to, such a description, and shall also include any lands now or
      hereafter unitized or pooled with lands which are either described in
      Exhibit A or the description of which is incorporated in Exhibit A by
      reference and Fixtures and all rights, titles and interests appurtenant
      thereto. References to Exhibit A shall include, where applicable, Exhibit
      A-1 as well.

                  P. "Leases" means any and all leases (including without
      limitation oil and gas leases and oil, gas and other minerals leases),
      surface leases or easements, subleases, licenses, concessions, operating
      rights or other agreements (written or verbal, now or hereafter in effect)
      which grant a possessory interest in and to, or the right to explore, use,
      lease, license, possess, produce, process, store and transport
      Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged
      Property, together with all amendments, modifications, extensions and
      renewals thereof.

                  Q. "Legal Requirements" means (i) any and all present and
      future judicial decisions, statutes, rulings, rules, regulations,
      licenses, decisions, orders, injunctions, decrees, permits, certificates
      or ordinances of any Governmental Authority in any way applicable to
      Mortgagor, or the Mortgaged Property, including the ownership, use,
      occupancy, operation, maintenance, repair or reconstruction thereof, and
      any other Applicable Law enacted by any Governmental Authority relating to
      health or the environment, (ii) Mortgagor's presently or subsequently
      effective Organic Documents, (iii) any and all Leases, (iv) any and all
      leases and other contracts (written or oral) of any nature to which
      Mortgagor, or the Mortgaged Property may be bound and (v) any and all


                                      -5-


      restrictions, restrictive covenants or zoning, present and future, as the
      same may apply to the Mortgaged Property.

                  R. "Losses" is defined in Section 3.10(c) of this Mortgage.

                  S. "Maximum Lawful Rate" means the maximum nonusurious rate of
      interest that may be received, charged or contracted for under Applicable
      Law from time to time in effect.

                  T. "Mortgaged Property" means the properties, rights and
      interests hereinafter described in Section 1.8 and defined as the
      Mortgaged Property.

                  U. "Obligations" means any and all of the covenants,
      warranties, representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Mortgagor or others under any of the
      Secured Debt Documents.

                  V. "oil and gas leases" shall include oil, gas and mineral
      leases, subleases and assignments thereof, operating rights, and shall
      also include subleases and assignments of operating rights.

                  W. "Operating Equipment" means all surface or subsurface
      machinery, goods, equipment, fixtures, inventory, facilities, supplies or
      other property of whatsoever kind or nature (excluding drilling rigs,
      trucks, automotive equipment or other property taken to the premises to
      drill a well or for other similar temporary uses) now or hereafter located
      on or under any of the lands described in Exhibit A which are useful for
      the production, gathering, treatment, processing, storage or
      transportation of Hydrocarbons (together with all accessions, additions
      and attachments to any thereof), including, but not by way of limitation,
      all oil wells, gas wells, water wells, injection wells, casing, tubing,
      tubular goods, rods, pumping units and engines, christmas trees,
      platforms, derricks, separators, compressors, gun barrels, flow lines,
      tanks, gas systems (for gathering, treating and compression), pipelines
      (including gathering lines, laterals and trunklines), chemicals,
      solutions, water systems (for treating, disposal and injection), steam
      generation and injection equipment and systems, power plants, poles,
      lines, transformers, starters and controllers, supervisory control and
      data acquisition systems, machine shops, tools, storage yards and
      equipment stored therein, buildings and camps, telegraph, telephone and
      other communication systems, roads, loading docks, loading racks and
      shipping facilities.

                  X. "Organic Documents" means the Articles of Incorporation,
      Certificate of Incorporation, limited liability company certificate of
      formation and regulations or operating agreement, partnership agreement,
      limited partnership agreement, joint venture agreement, trust agreement or
      other similar documents governing the organization and operation of a
      business association.


                                      -6-


                  Y. "Parity Lien Debt" is defined in the Collateral Trust
      Agreement.

                  Z. "Parity Lien Documents" is defined in the Collateral Trust
      Agreement.

                  AA. "Parity Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Parity Lien Documents.

                  BB. "Permits" means all authorizations, approvals, permits,
      variances, land use entitlements, consents, licenses, franchises and
      agreements issued by or entered into with any Governmental Authority now
      or hereafter required for all stages of exploration, developing,
      operating, and plugging and abandoning oil and gas wells (including,
      without limitation, those shown on Exhibit A) on all or any part of the
      lands described in Exhibit A (or any other lands any production from
      which, or profits or proceeds from such production, is attributed to any
      interest in the lands described in Exhibit A).

                  CC. "Permitted Encumbrances" means the outstanding liens,
      easements, restrictions, exceptions, reservations, conditions,
      limitations, security interests and other matters as permitted by and
      defined in the Secured Debt Documents.

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

                  EE. "Personalty" means all of the right, title and interest of
      Mortgagor now owned or hereafter acquired in and to all furniture,
      furnishings, Equipment, machinery, Goods, General Intangibles, money,
      Accounts, receivables, Contract Rights, Inventory, all refundable,
      returnable or reimbursable fees, deposits or other funds or evidences of
      credit or indebtedness deposited by or on behalf of Mortgagor with any
      Governmental Authority, agencies, boards, corporations, providers of
      utility services, public or private, including specifically, but without
      limitation, all refundable, returnable or reimbursable tap fees, utility
      deposits, commitment fees and development costs, and all other personal
      property (other than the Fixtures) of any kind or character as defined in
      and subject to the provisions of Article 9 of the Uniform Commercial Code,
      now or hereafter located upon, within or about, or used in connection
      with, the lands described in Exhibit A together with all accessories,
      replacements and substitutions thereto or therefor and the Proceeds
      thereof.

                  FF. "Priority Lien Debt" is defined in the Collateral Trust
      Agreement.


                                      -7-


                  GG. "Priority Lien Documents" is defined in the Collateral
      Trust Agreement.

                  HH. "Priority Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Priority Lien Documents.

                  II. "Production Sale Contracts" means contracts now in effect,
      or hereafter entered into by Mortgagor, or entered into by Mortgagor's
      predecessors in interest, for the sale, purchase, exchange, gathering,
      transportation, treating or processing of Hydrocarbons produced from the
      lands described in Exhibit A.

                  JJ. "Rents and Revenues" means all of the rents, revenues,
      income, proceeds, profits and other benefits paid or payable by parties to
      the Leases other than Mortgagor for using, leasing, licensing, possessing,
      operating, selling or otherwise enjoying the Mortgaged Property, including
      the proceeds from the sale of Hydrocarbons.

                  KK. "Secured Debt" is defined in the Collateral Trust
      Agreement.

                  LL. "Secured Debtholder" is defined in the Collateral Trust
      Agreement.

                  MM. "Secured Debt Documents" is defined in the Collateral
      Trust Agreement.

                  NN. "Secured Debt Representative" is defined in the Collateral
      Trust Agreement.

                  OO. "Taxes" means all real property and personal property
      taxes, production taxes, assessments, permit fees, water, gas, sewer,
      electricity and other utility rates and charges, charges for any easement,
      license or agreement maintained for the benefit of the Mortgaged Property,
      and all other taxes, charges and assessments and any interest, costs or
      penalties with respect thereto, of any kind and nature whatsoever which at
      any time prior to or after the execution hereof may be charged, assessed,
      levied or imposed upon the Mortgaged Property or the Rents and Revenues or
      the ownership, use, occupancy or enjoyment thereof.

                  PP. "Transportation Agreements" shall mean any contracts or
      agreements entered into from time to time by Mortgagor, or entered into by
      Mortgagor's predecessors in interest, relating to the transportation of
      Hydrocarbons, as any such agreement or contract may be amended,
      supplemented, restated or otherwise modified from time to time.


                                      -8-


                  QQ. "Water Rights" means (including without limitation those
      described in Exhibit A hereto) all now or hereafter existing or acquired
      water and water rights, reservoirs and reservoir rights, ditches and ditch
      rights, wells and well rights, whether evidenced or initiated by permit,
      decree, well registration, appropriation not decreed, water court
      application, shares of stock or other interests in mutual ditch or
      reservoir companies or carrier ditch or reservoir companies or otherwise,
      appertaining or appurtenant to or beneficially used or useful in
      connection with the lands described in Exhibit A, together with all pumps,
      well casings, wellheads, electrical installations, pumphouses, meters,
      monitoring wells and systems, measuring devices, pipes, pipelines, and
      other structures or personal property which are or may be used to produce,
      regulate, measure, distribute, store, or use water from the said water and
      water rights, reservoirs and reservoir rights, ditches and ditch rights,
      wells and well rights.

                  RR. "Uniform Commercial Code" means the Uniform Commercial
      Code as in effect from time to time in the State of New York or any other
      applicable state, and the terms "Accounts," "Account Debtor, "As Extracted
      Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
      "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
      "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall
      have the respective meanings assigned to such terms in the Uniform
      Commercial Code.

      1.8 Grant.

      Grant of Priority Lien

      NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the
Priority Lien Indebtedness and the full and timely performance and discharge of
the Priority Lien Obligations, has granted, bargained, sold, warranted,
mortgaged, assigned, transferred and conveyed, and by these presents does grant,
bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and
convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of
Beneficiary, all Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to all of the hereinafter described properties,
rights and interests; and, insofar as such properties, rights and interests
consist of Equipment, General Intangibles, Accounts, As Extracted Collateral,
Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other
personal property of a kind or character defined in, or subject to the
applicable provisions of, the Uniform Commercial Code (as in effect from time to
time in the appropriate jurisdiction with respect to each of said properties,
rights and interests), Mortgagor hereby grants to said Beneficiary, a security
interest therein to the full extent of Mortgagor's legal and beneficial interest
therein, now owned or hereafter acquired, namely:

            (a) the lands described in Exhibit A, and Leases, the fee, mineral,
      overriding royalty, royalty and other interests which are described in
      Exhibit A,


                                      -9-


            (b) the presently existing and (subject to the terms of Section 6.1
      hereof) hereafter arising unitization, unit operating, communitization and
      pooling agreements and the properties covered and the units created
      thereby (including, without limitation, all units formed under orders,
      regulations, rules, approvals, decisions or other official acts of any
      Governmental Authority) which are specifically described in Exhibit A or
      which relate to any of the properties and interests specifically described
      in Exhibit A,

            (c) the Hydrocarbons which are in, under, upon, produced or to be
      produced from or which are attributed or allocated to the lands described
      in Exhibit A,

            (d) the Production Sale Contracts,

            (e) the Joint Operating Agreements,

            (f) the Transportation Agreements,

            (g) the Operating Equipment,

            (h) the Permits,

            (i) the Water Rights,

            (j) the Hedging Agreements,

            (k) the Leases,

            (l) the Personalty,

            (m) the Rents and Revenues,

            (n) without duplication of any other provision of this granting
      clause, Equipment, Fixtures and other Goods necessary or used in
      connection with, and Inventory, Accounts, As Extracted Collateral, General
      Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents,
      Electronic Chattel Paper, Instruments and Proceeds arising from, or
      relating to, the properties and other interests described in Exhibit A
      (including Exhibit A-1),

            (o) any and all liens and security interests in Hydrocarbons
      securing the payment of proceeds from the sale of Hydrocarbons, including
      but not limited to those liens and security interests provided for in
      Section 9.343 of the Texas Business and Commerce Code or similar statutes
      of other jurisdictions or any successor statutes,

together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, or replacements or substitutions for, any of the same, or
any instrument relating thereto, and all accounts, contracts, contract rights,
options, nominee


                                      -10-


agreements, unitization or pooling agreements, operating agreements and unit
operating agreements, processing agreements, farmin agreements, farmout
agreements, joint venture agreements, partnership agreements (including mining
partnerships), exploration agreements, bottom hole agreements, dry hole
agreements, support agreements, acreage contribution agreements, surface use and
surface damage agreements, net profits agreements, production payment
agreements, Hedging Agreements, insurance policies, title opinions, title
abstracts, title materials and information, files, records, writings, data
bases, information, systems, logs, well cores, fluid samples, production data
and reports, well testing data and reports, maps, seismic and geophysical,
geological and chemical data and information, interpretative and analytical
reports of any kind or nature (including, without limitation, reserve studies
and reserve evaluations), computer hardware and software and all documentation
therefor or relating thereto (including, without limitation, all licenses
relating to or covering such computer hardware, software and/or documentation),
trade secrets, trademarks, service marks and business names and the goodwill of
the business relating thereto, copyrights, copyright registrations, unpatented
inventions, patent applications and patents, rights-of-way, franchises, bonds,
easements, servitudes, surface leases, permits, licenses, tenements,
hereditaments, appurtenances, concessions, occupancy agreements, privileges,
development rights, condemnation awards, claims against third parties, general
intangibles, rents, royalties, issues, profits, products and proceeds, whether
now or hereafter existing or arising, used or useful in connection with,
covering, relating to, or arising from or in connection with, any of the
aforesaid items (a) through o), inclusive, in this granting clause mentioned,
and all other things of value and incident thereto (including, without
limitation, any and all liens, lien rights, security interests and other
properties, rights and interests) which Mortgagor might at any time have or be
entitled to, but excluding any data or contracts with respect to which
mortgaging or granting of a lien or a security interest is prohibited by
existing third party agreements,

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien and security interest of this
Mortgage by means of supplements hereto, being hereinafter, collectively, called
the "Mortgaged Property."

      Grant of Parity Lien

      NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the
Parity Lien Indebtedness and the full and timely performance and discharge of
the Parity Lien Obligations, has granted, bargained, sold, warranted, mortgaged,
assigned, transferred and conveyed, and by these presents does grant, bargain,
sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey
unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of
Beneficiary, all Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to all of the Mortgaged Property.

      Subject, however, in each case to (i) Permitted Encumbrances (including
without limitation all presently existing royalties, overriding royalties,
payments out of production and other burdens which are referred to in Exhibit A
and which are taken into consideration in computing any percentage, decimal or
fractional interest as set forth in


                                      -11-


Exhibit A), (ii) the assignment of production contained in Article IV hereof,
but only insofar and so long as said assignment of production is not inoperative
under the provisions of Section 4.5 hereof, and (iii) the condition that none of
Trustee, Beneficiary nor any Secured Debtholder shall be liable in any respect
for the performance of any covenant or obligation (including, without
limitation, measures required to comply with Environmental Laws) of Mortgagor in
respect of the Mortgaged Property.

      TO HAVE AND TO HOLD the Mortgaged Property for the benefit of Beneficiary,
and forever to secure the payment of the Indebtedness and to secure the
performance and discharge of the Obligations of Mortgagor herein and therein
contained.

      As set forth in the separate granting clauses above, it is the intent of
Mortgagor that such grants shall create two separate and distinct security
interests in all right, title and interest of Mortgagor in the Mortgaged
Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the
benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the
benefit of the Beneficiary, for the benefit of the holders of the Parity Lien
Debt.

      Notwithstanding (i) anything to the contrary contained in this Mortgage or
any other document, filing or agreement related to the creation, attachment,
perfection or existence of the liens and security interests granted herein, (ii)
the time, place, order or method of attachment or perfection of such liens or
security interests, (iii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect such security
interests, and (iv) the rules for determining priority under any law governing
the relative priorities of secured creditors, the lien securing the Parity Lien
Indebtedness is subordinated and junior in priority to the lien securing the
Priority Lien Indebtedness.

      Mortgagor, in consideration of the Secured Debt as set forth above, hereby
covenants and agrees with each of Trustee and Beneficiary:

                                  ARTICLE II.

                              INDEBTEDNESS SECURED

      2.1 Items of Indebtedness Secured. The following items of indebtedness are
secured hereby:

            (a) The Priority Lien Debt (including future advances to be made
      with respect thereto), and all other Obligations of Mortgagor under the
      Priority Lien Documents;

            (b) The Parity Lien Debt (including future advances to be made with
      respect thereto), and all other Obligations of Mortgagor under the Parity
      Lien Documents;

            (c) All Obligations under any other Priority Lien Debt or Parity
      Lien Debt;


                                      -12-


            (d) Any sums advanced or expenses or costs incurred by Trustee,
      Beneficiary or any Secured Debtholder, or by any receiver appointed
      hereunder, which are made or incurred pursuant to, or permitted by, the
      terms hereof, plus interest thereon at the rate herein specified or
      otherwise agreed upon, from the date of the advances or the incurring of
      such expenses or costs until reimbursed;

            (e) Any and all other indebtedness of Mortgagor or any Affiliate of
      Mortgagor to Beneficiary now or hereafter owing, whether direct or
      indirect, primary or secondary, fixed or contingent, joint or several,
      regardless of how evidenced or arising, where the indebtedness provides
      that it is secured hereby; and

            (f) Any extensions, refinancings, modifications or renewals of all
      such indebtedness described in subparagraphs (a) through (e) above,
      whether or not Mortgagor executes any extension agreement or renewal
      instrument.

      2.2 Indebtedness Defined. All the above items of indebtedness described in
subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section
2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively
referred to as the "Priority Lien Indebtedness." And all the above items of
indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c)
through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are
hereinafter collectively referred to as the "Parity Lien Indebtedness"; the
Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively
referred to as the "Indebtedness".

      2.3 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and
agrees that, except as otherwise provided by the Secured Debt Documents, the
Existing Mortgage constitutes a valid and subsisting first lien on the portion
of the Mortgaged Property encumbered thereby, and that none of the rights and
liens existing thereunder shall be impaired or released hereby, and that the
same as amended and restated hereby shall remain in full force and effect, and
all rights and liens existing and to exist thereunder are renewed, extended,
carried forward, and conveyed to secure all of the Indebtedness hereinabove
mentioned.

      2.4 Amended and Restated Mortgage. The Existing Mortgage is amended and
restated in full hereby in order to, among other things, secure all of the
Indebtedness herein described or referred to as if reference to such
Indebtedness were fully described in the Existing Mortgage. None of the rights,
titles, and interests, existing or to exist under the Existing Mortgage are
hereby released, diminished or impaired.

      2.5 No Impairment or Discharge of Liens. It is the express intention of
all parties hereto that the Secured Debtholders are subrogated to all of the
rights, powers, and equities of the original lenders and beneficiary under the
Existing Mortgage, that the liens created hereby shall relate back to and be
effective as of the effective date of the Existing Mortgage and that nothing
contained herein shall be construed to impair or discharge the liens and
security interests created thereby.


                                      -13-


                                  ARTICLE III.

                      PARTICULAR COVENANTS, REPRESENTATIONS
                           AND WARRANTIES OF MORTGAGOR

      3.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor
will duly and punctually pay the Indebtedness, as and when called for in the
Secured Debt Documents and on or before the due dates thereof, and will timely
perform and discharge all of the Obligations in full and on or before the dates
same are to be performed and discharged.

      3.2 Certain Representations and Warranties. Mortgagor represents and
warrants (and with respect to those matters set forth in the following
subsections (b) and (f), as to those portions of the Mortgaged Property that are
operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor
makes such representation and warranty to the best of its knowledge) that

            (a) the oil and gas leases described in Exhibit A hereto are valid,
      subsisting leases, superior and paramount to all other oil and gas leases
      respecting the properties to which they pertain,

            (b) all producing wells located on the lands described in Exhibit A
      (including Exhibit A-1) have been drilled, operated and produced in
      conformity with all Applicable Laws of all Governmental Authorities having
      jurisdiction, and are subject to no penalties on account of past
      production, and such wells are in fact bottomed under and are producing
      from, and the well bores are wholly within, the lands described in Exhibit
      A or lands pooled or unitized therewith,

            (c) Mortgagor, to the extent of the interest specified in Exhibit A
      (including Exhibit A-1), has valid and indefeasible title to each property
      right or interest constituting the Mortgaged Property described in Exhibit
      A (including Exhibit A-1) and has a good and legal right to grant and
      convey the same to Trustee; such interest entitles Mortgagor to receive
      not less than the share of Hydrocarbons from such property indicated as
      its net revenue interest or "NRI" share of such Hydrocarbons, and
      obligates Mortgagor to pay for not more than the share of operating and
      other costs, liabilities and expenses associated with such property
      indicated as its working interest or "Wl" share of such costs, liabilities
      and expenses,

            (d) Excepting the Permitted Encumbrances, the Mortgaged Property is
      free from all encumbrances or liens whatsoever,

            (e) Mortgagor is not obligated, by virtue of any prepayment under
      any contract providing for the sale by Mortgagor of Hydrocarbons which
      contains a "take or pay" clause or under any similar arrangement, to
      deliver Hydrocarbons at some future time without then or thereafter
      receiving full payment therefor,


                                      -14-


            (f) the Mortgaged Property is currently being operated, maintained
      and developed, in all material respects, in accordance with all applicable
      currently existing Permits, Legal Requirements and all Applicable Laws
      (including, without limitation, Environmental Laws),

            (g) the cover page to this Mortgage lists the correct legal name of
      Mortgagor and Mortgagor has not been known by any legal name different
      from the one set forth on the cover page of this Mortgage,

            (h) the execution, delivery, and performance by Mortgagor of this
      Mortgage (i) are within Mortgagor's corporate powers and have been duly
      authorized by Mortgagor's Board of Directors, shareholders and all other
      requisite corporate action, (ii) have received all (if any) requisite
      prior governmental approval and consent in order to be legally binding and
      enforceable in accordance with the terms thereof, and (iii) will not
      violate, be in conflict with, result in a breach or constitute (with due
      notice or lapse of time, or both) a default under, any Legal Requirement
      or result in the creation or imposition of any lien, charge or encumbrance
      of any nature whatsoever upon any of Mortgagor's property or assets,
      except as contemplated by the provisions of the Secured Debt Documents,
      and

            (i) except as permitted by the Secured Debt Documents, there are no
      actions, suits or proceedings pending, or to the knowledge of Mortgagor
      threatened, against or affecting Mortgagor or the Mortgaged Property that
      could materially adversely affect Mortgagor or the Mortgaged Property, or
      involving the validity or enforceability of this Mortgage or the priority
      of the liens and security interests created by the Secured Debt Documents,
      and no event has occurred (including specifically Mortgagor's execution of
      this Mortgage which will violate, be in conflict with, result in the
      breach of, or constitute (with due notice or lapse of time, or both) a
      material default under, any Legal Requirement or result in the creation or
      imposition of any lien, charge or encumbrance of any nature whatsoever
      upon any of Mortgagor's property other than the liens and security
      interests created by the Secured Debt Documents.

      3.3 Further Assurances. Mortgagor will warrant and forever defend the
Mortgaged Property unto Trustee and Beneficiary, as the case may be, against
every person whomsoever lawfully claiming the same or any part thereof, subject
to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and
security interest hereby created so long as any of the Indebtedness remains
unpaid. Mortgagor will execute and deliver such other and further instruments
and will do such other and further acts as may be required pursuant to the
Collateral Trust Agreement and/or any Secured Debt Documents to carry out more
effectually the purposes of this Mortgage, including, without limiting the
generality of the foregoing, (i) prompt correction of any defect which may
hereafter be discovered in the title to the Mortgaged Property or in the
execution and acknowledgment of this Mortgage, the Secured Debt Documents, or
any other document executed in connection herewith, and (ii) at any time a
Secured Debt Representative may request and upon such request, promptly execute
all notices to


                                      -15-


parties operating, purchasing or receiving proceeds of production of
Hydrocarbons from the Mortgaged Property, and all division orders or transfer
orders needed in order to transfer effectually or to assist in transferring
effectually to the Beneficiary the assigned proceeds of production from the
Mortgaged Property, which notices, division orders and transfer orders shall be
held by such Secured Debt Representative and delivered upon an Event of Default.

      3.4 Operation of the Mortgaged Property. So long as the Indebtedness or
any part thereof remains unpaid, and whether or not Mortgagor is the operator of
any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's
own expense:

            (a) Do all things necessary to keep unimpaired Mortgagor's rights in
      the Mortgaged Property and not abandon any well or forfeit, surrender or
      release any Lease, except that Mortgagor may, in the ordinary course of
      business, (i) plug and abandon any well no longer capable of producing
      Hydrocarbons in paying quantities, (ii) surrender or release any Lease or
      a portion thereof so long as no well capable of producing Hydrocarbons in
      paying quantities is located on such Lease or a portion thereof or
      production from any such well is attributed to such Lease or a portion
      thereof, (iii) surrender or release any Lease or a portion thereof on
      which no producing well has ever been drilled or which has never been held
      by production from another well unless Proven Reserves (as defined in any
      Secured Debt Document) are attributed to such Lease or a portion thereof
      and (iv) abandon, forfeit, surrender or release any other portion of the
      Mortgaged Property to the extent permitted under the then existing Secured
      Debt Documents;

            (b) Obtain and maintain all required Permits and cause the lands
      described in Exhibit A to be maintained, developed, protected against
      drainage, and operated for the production of Hydrocarbons in a good and
      workmanlike manner as would a prudent operator, and consistent with
      industry practices, Joint Operating Agreements, and all Applicable Laws,
      excepting those being contested in good faith; and plug and abandon wells
      no longer capable of producing Hydrocarbons in paying quantities in
      accordance with all Applicable Laws, Legal Requirements and the terms and
      conditions of applicable Leases; and remediate the lands described in
      Exhibit A and facilities located thereon in accordance with all Applicable
      Laws, Legal Requirements and the terms and conditions of applicable
      Leases;

            (c) Duly pay and discharge, or cause to be paid and discharged,
      promptly as and when due and payable, all rentals and royalties (including
      shut-in royalties) payable in respect of the Mortgaged Property (other
      than rentals under Leases that are surrendered pursuant to the foregoing
      Section 3.4(a)), and all expenses incurred in or arising from the
      operation or development of the Mortgaged Property not later than the due
      date thereof, or the day any fine, penalty, interest or cost may be added
      thereto or imposed, or the day any lien may be filed, for the non-payment
      thereof (if such day is used to determine the


                                      -16-


      due date of the respective item) except as to such matters which are being
      contested by Mortgagor in good faith;

            (d) Cause the Operating Equipment to be kept in good and effective
      operating condition, ordinary wear and tear excepted, and all repairs,
      renewals, replacements, additions and improvements thereof or thereto,
      needful to the production of Hydrocarbons from the lands described in
      Exhibit A, to be promptly made;

            (e) Not, except as permitted under the Secured Debt Documents,
      create, place or permit to be created or placed, or through any act or
      failure to act, acquiesce in the placing of, or allow to remain, any
      mortgage, pledge, lien (statutory, constitutional or contractual),
      security interest, encumbrance or charge, or conditional sale or other
      title retention agreement, regardless of whether same are expressly
      subordinate to the liens of the Secured Debt Documents, with, respect to
      all or any portion of the Mortgaged Property, the Leases or the Rents and
      Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting
      a lien but not due and payable, (3) defects or irregularities in title,
      and liens, charges or encumbrances, which are customarily viewed in the
      industry as not interfering materially with the development, operation or
      value of the Mortgaged Property and not such as to affect materially title
      thereto, and (4) those being contested by Mortgagor in good faith in such
      manner as not to jeopardize Beneficiary's rights in and to the Mortgaged
      Property;

            (f) Carry with financially sound and reputable insurance companies
      and in amounts as is customary in the industry or as otherwise required
      pursuant to the Secured Debt Documents, the following insurance: (1)
      workmen's compensation insurance and public liability and property damage
      insurance in respect of all activities in which Mortgagor might incur
      personal liability for the death of or injury to an employee or third
      person, or damage to or destruction of another's property; and (2) to the
      extent such insurance is carried by similar companies engaged in similar
      undertakings in, the same general areas in which the Mortgaged Property,
      is located, insurance in respect of the Operating Equipment, against loss
      or damage by fire, lightning, hail, tornado, explosion and other similar
      risks, hazards, casualties and contingencies (including business
      interruption insurance covering loss of Rents and Revenues); provided,
      that any such insurance may be provided by way of self insurance to the
      extent that similar companies engaged in similar undertakings in the same
      general areas also self-insure. Each insurance policy issued in connection
      therewith shall provide by way of endorsements, riders or otherwise that
      (i) name Beneficiary as a loss payee on all property insurance policies
      and an additional insured on all liability insurance policies, and provide
      that proceeds from property insurance policies will be payable to
      Beneficiary as its interest may appear, which proceeds are hereby assigned
      to Beneficiary, it being agreed by Mortgagor that such payments shall be
      applied A) if there be no Event of Default existing or which would exist
      but for due notice or lapse of time, or both, to the restoration, repair


                                      -17-


      or replacement of the Mortgaged Property, or B) if there be an Event of
      Default existing, or which would exist but for due notice or lapse of
      time, or both, in accordance with the provisions of the Collateral Trust
      Agreement, either for the above stated purpose or toward the payment of
      the Indebtedness; (ii) the coverage of Beneficiary shall not be
      terminated, reduced or affected in any manner regardless of any breach or
      violation by Mortgagor of any warranties, declarations or conditions in
      such policy; (iii) no such insurance policy shall be canceled, endorsed,
      altered or reissued to effect a change in coverage for any reason and to
      any extent whatsoever unless such insurer shall have first given
      Beneficiary and each Secured Debt Representative thirty (30) days prior
      written notice thereof; and (iv) Beneficiary may, but shall not be
      obligated to, make premium payments to prevent any cancellation,
      endorsement, alteration or re-issuance and such payments shall be accepted
      by the insurer to prevent the same. Beneficiary shall be furnished with a
      certificate evidencing such coverage in form and content comparable to
      coverage typically provided in the industry. All policies to be maintained
      under this Mortgage are to be issued on forms and by companies and with
      endorsements as are customary in the industry. Mortgagor shall maintain
      insurance in an amount sufficient to prevent Mortgagor from becoming a
      co-insurer under any policy required hereunder. If Mortgagor fails to
      maintain the level of insurance required under this Mortgage, then
      Mortgagor shall and hereby agrees to indemnify Beneficiary to the extent
      that a casualty occurs and insurance proceeds would have been available
      had such insurance been maintained;

            (g) Furnish to Beneficiary and each Secured Debt Representative, as
      soon as possible and in any event within five (5) days after the
      occurrence from time to time of any change in the address of Mortgagor's
      location (as described on the signature page hereto) or in the name of
      Mortgagor, notice in writing of such change;

            (h) Not initiate or acquiesce in any change in any material zoning
      or other land use or Water Rights classification now or hereafter in
      effect and affecting the Mortgaged Property or any part thereof;

            (i) Notify Beneficiary and each Secured Debt Representative in
      writing, as soon as possible and in any event within five (5) days after
      it shall become aware of the occurrence of any Event of Default or any
      event which, with notice, the passage of time or both would be such an
      Event of Default;

            (j) Appear and defend, and hold Beneficiary and any Secured
      Debtholder harmless from, any action, proceeding or claim affecting the
      Mortgaged Property or the rights and powers of Beneficiary or Secured
      Debtholders under the Secured Debt Documents, and all costs and expenses
      incurred by Beneficiary or any Secured Debtholder in protecting its
      interests hereunder in such an event (including all court costs and
      attorneys' fees) shall be borne by Mortgagor;


                                      -18-


            (k) Subject to Mortgagor's right to contest the same, promptly pay
      all Taxes legally imposed upon this instrument or upon the Mortgaged
      Property or upon the income and profits thereof, or upon the interest of
      Beneficiary therein; provided that Mortgagor shall not be liable for taxes
      accruing after a transfer of the Mortgaged Property following a
      foreclosure;

            (l) Comply with, conform to and obey, in all material respects, all
      present and future Legal Requirements and not use, maintain, operate,
      occupy, or allow the use, maintenance, operation or occupancy of, the
      Mortgaged Property in any manner which (a) violates any present and future
      Legal Requirement, (b) may be dangerous unless safeguarded as required by
      Applicable Law, (c) constitutes a public or private nuisance or (d) makes
      void, voidable or cancelable, or increases the premium of, any insurance
      then in force with respect thereto; and

            (m) Not, except as authorized under the Secured Debt Documents,
      permit any of the Fixtures or Personalty to be removed at any time from
      the lands described in Exhibit A unless (i) the removed item is removed
      temporarily for maintenance and repair, (ii) if removed permanently, is
      replaced by an article of equal suitability and value, owned by Mortgagor,
      free and clear of any lien or security interest or (iii) such Fixtures or
      Personalty are removed in connection with the plugging and abandoning of
      wells, or abandonment of other facilities, in each case as permitted by
      this Mortgage.

      3.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform
and comply with any and all representations, warranties, covenants and
agreements expressed as binding upon it under each of the Leases; (b) subject to
the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel
or waive its rights or the obligations of any other party under any of the
Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all
reasonable efforts to maintain each of the Leases in force and effect during the
full term thereof, and (d) appear in and defend (or cause its operator to appear
in and defend) any action or proceeding arising under or in any manner connected
with any of the Leases or the representations, warranties, covenants and
agreements of it or the other party or parties thereto.

      3.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense,
record, register, deposit and file this and every other instrument in addition
or supplemental hereto in such offices and places and at such times and as often
as may be necessary to preserve, protect and renew the lien and security
interest hereof as a first lien on and prior perfected security interest in real
or personal property, as the case may be, and the rights and remedies of
Beneficiary and Secured Debtholders, and otherwise will do and observe all
things or matters necessary or expedient to be done or observed by reason of any
Applicable Law, for the purpose of effectively creating, maintaining and
preserving the lien and security interest hereof on and in the Mortgaged
Property.


                                      -19-


      3.7 Sale or Mortgage of the Mortgaged Property. Except (a) as set forth in
Section 6.1 of this Mortgage; (b) for sales of severed Hydrocarbons in the
ordinary course of Mortgagor's business; (c) for sales of or dispositions of
surplus, obsolete or worn inventory or equipment; (d) for the lien and security
interest created by this Mortgage, (e) for Permitted Encumbrances, and (f) for
sales, exchanges or other dispositions of Mortgaged Property permitted under the
Secured Debt Documents governing Priority Lien Debt and permitted under the
Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell,
convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or
encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's
right, title or interest therein, and Mortgagor will not enter into any
arrangement with any gas pipeline company or other consumer of Hydrocarbons
regarding the Mortgaged Property whereby said gas pipeline company or consumer
may set off any claim against Mortgagor by withholding payment for any
Hydrocarbons actually delivered.

      3.8 Records, Statements and Reports. Mortgagor will keep proper books of
record and account in which complete and correct entries will be made of
Mortgagor's transactions in accordance with generally accepted accounting
principles and will furnish or cause to be furnished to each Secured Debt
Representative such information concerning the business, affairs and financial
condition of Mortgagor as required under the Secured Debt Documents. Without
limiting the generality of the foregoing, Mortgagor shall furnish to Beneficiary
and each Secured Debt Representative, but not more than every six (6) months:
(a) reports prepared by a reputable national independent petroleum engineer
regularly engaged by Mortgagor for such purposes or other engineering firm
acceptable to the Credit Agreement Agent concerning (1) the quantity of
Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income
and expense attributable to the Mortgaged Property, and (3) the expediency of
any change in methods of treatment or operation of all or any wells productive
of Hydrocarbons, any new drilling or development, any method of secondary
recovery by repressuring or otherwise, or any other action with respect to the
Mortgaged Property, the decision as to which may increase or reduce the quantity
of Hydrocarbons ultimately recoverable or the rate of production thereof, and
(b) reports for the prior period showing the gross proceeds from the sale of
Hydrocarbons produced from the lands described in Exhibit A (including any
thereof taken by Mortgagor for Mortgagor's own use), the quantity of such
Hydrocarbons sold, the severance, gross production, occupation, or gathering
taxes deducted from or paid out of such proceeds and the number of wells
operated, drilled or abandoned.

      3.9 Right of Entry.

            (a) Upon at least twenty-four (24) hours notice to Mortgagor,
      Mortgagor will permit Beneficiary, each Secured Debt Representative and/or
      the agents of either of them, at the cost and expense of Mortgagor, to
      enter upon the Mortgaged Property and all parts thereof, for the purpose
      of investigating and inspecting the condition and operation thereof, and
      shall permit reasonable access to the field offices and other offices (to
      the fullest extent that Mortgagor


                                      -20-


      may do so under the terms of the applicable Joint Operating Agreements and
      other applicable agreements affecting the Mortgaged Property), including
      the principal place of business, of Mortgagor to inspect and examine the
      Mortgaged Property and to inspect, review and reproduce as necessary any
      books, records, accounts, contracts or other documents of Mortgagor, it
      being understood that any non-public information obtained in connection
      therewith shall be subject to the relevant confidentiality provisions of
      the Secured Debt Documents then in effect.

            (b) Without limiting the generality of the foregoing, Beneficiary
      shall have the right (but shall not be obligated to), and each Secured
      Debt Representative and its agents shall have the right (to the fullest
      extent that Mortgagor may do so under the terms of the applicable Joint
      Operating Agreements and other applicable agreements affecting the
      Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor
      to enter the Mortgaged Property to conduct (at the cost and expense of
      Mortgagor), or to cause Mortgagor to conduct (at the cost and expense of
      Mortgagor), such tests and investigations as may be necessary to determine
      whether any hazardous materials or solid waste is being generated,
      transported, stored, or disposed of in accordance with applicable
      Environmental Laws. Such tests and investigations may include, without
      limitation, underground borings, ground water analyses and borings from
      the floors, ceilings and walls of any improvements located on the
      Mortgaged Property. This Section 3.9 shall not be construed to affect or
      limit the obligations of Mortgagor pursuant to Section 3.4 hereof.

            (c) Neither Beneficiary nor any Secured Debt Representative shall
      have any duty to visit or observe the Mortgaged Property, or to conduct
      tests, and no site visit, observation or testing by any such person (or
      its agents and independent contractors) shall impose any liability on any
      such person nor shall Mortgagor or any other obligor be entitled to rely
      on any such visit, observation or testing in any respect. Beneficiary or a
      Secured Debt Representative may, but shall not be obligated to, disclose
      to Mortgagor or, subject to the relevant confidentiality provisions of the
      Secured Debt Documents then in effect, any other Person, including any
      Governmental Authority, any report or finding made as a result of, or in
      connection with, any site visit, observation or testing. Mortgagor agrees
      that neither Beneficiary nor any Secured Debt Representative makes any
      warranty or representation to Mortgagor or any other obligor regarding the
      truth, accuracy or completeness of any such report or findings that may be
      so disclosed. Mortgagor also acknowledges that, depending upon the results
      of any site visit, observation or testing disclosed to Mortgagor,
      Mortgagor may have a legal obligation to notify one or more Governmental
      Authorities of such results, that such reporting requirements are
      site-specific, and are to be evaluated by Mortgagor without advice or
      assistance from Beneficiary or any Secured Debt Representative.


                                      -21-


      3.10 Environmental Laws.

            (a) Mortgagor represents and warrants, to the best of its knowledge
      after due inquiry that:

                  (i) except as permitted by the Secured Debt Documents, the
            Mortgaged Property is in compliance in all material respects with
            all applicable Environmental Laws and there are no conditions
            existing currently which would be likely to subject Mortgagor to
            damages, penalties, injunctive relief or cleanup costs under any
            Environmental Laws or assertions thereof, or which require or are
            likely to require cleanup, removal, remedial action or other
            response pursuant to Environmental Laws by Mortgagor; and all use,
            generation, manufacturing, release, discharge, storage, deposit,
            treatment, recycling or disposal of any materials on, under or at
            the Mortgaged Property or transported to or from the Mortgaged
            Property (or tanks or other facilities thereon containing such
            materials) are being and will be conducted in accordance, in all
            material respects, with applicable Environmental Laws including
            without limitation those requiring cleanup, removal or any other
            remedial action,

                  (ii) Mortgagor is not a party to any litigation or
            administrative proceedings, nor so far as is known by Mortgagor is
            any litigation or administrative proceeding threatened against it,
            which asserts or alleges that Mortgagor has violated or is violating
            Environmental Laws or that Mortgagor is required to clean up, remove
            or take remedial or other responsive action due to the disposal,
            depositing, discharge, leaking or other release of any hazardous
            substances or materials; neither the Mortgaged Property nor
            Mortgagor is subject to any judgment, decree, order or citation
            related to or arising out of Environmental Laws and neither has been
            named or listed as a potentially responsible party by any
            Governmental Authority in a matter arising under any Environmental
            Laws; and

                  (iii) Mortgagor has also obtained all Permits required under
            applicable Environmental Laws which are necessary for its current
            exploration, production, transportation, storage, use, and
            development activities at the Mortgaged Property.

            (b) Mortgagor shall not use or permit the Mortgaged Property or any
      part thereof to be used to generate, manufacture, refine, transport,
      treat, store, handle, dispose, transfer, produce or process any hazardous
      materials, except in material compliance with all applicable Environmental
      Laws, nor shall Mortgagor cause or permit, as a result of any intentional
      or unintentional act or omission on the part of Mortgagor or any tenant or
      subtenant, any material release of any hazardous materials onto the
      Mortgaged Property or onto any other property in material violation of any
      applicable Environmental Laws. Mortgagor shall comply, in all material
      respects, with all applicable Environmental Laws and shall


                                      -22-


      obtain and comply, in all material respects. with any and all
      registrations or Permits required thereunder. To the extent any hazardous
      materials are released or discharged onto the Mortgaged Property on or
      after the date of this Mortgage, Mortgagor shall conduct and complete all
      investigations, studies, sampling, and testing, and all remedial, removal,
      and other actions necessary to clean up and remove all such hazardous
      materials on, from, or affecting the Mortgaged Property or any part
      thereof (i) in accordance, in all material respects, with all applicable
      Environmental Laws; and (ii) in accordance, in all material respects, with
      the orders and directives of all Governmental Authorities having
      jurisdiction over the Mortgaged Property. Mortgagor shall promptly notify
      Beneficiary and each Secured Debt Representative of its receipt of any
      notice of a violation of any Environmental Laws.

            (c) Regardless of whether any site assessments are conducted
      pursuant to this Mortgage, and without limiting the liability of Mortgagor
      for the breach of any warranty, representation or covenant contained
      herein or in any Secured Debt Document, and notwithstanding any limitation
      of liability contained in the Secured Debt Documents, Mortgagor hereby
      agrees to unconditionally and absolutely defend, indemnify and hold
      harmless Beneficiary, Secured Debtholders, Trustee and their respective
      employees, affiliates, agents and attorneys, under the Mortgage and any
      successors or substitute trustee under the Mortgage (any person to be
      indemnified being herein called the "Indemnified Person"), from and
      against, and be responsible for, any and all liabilities (including strict
      liability), actions, demands, penalties, fines, taxes, assessments, losses
      (including, without limitation, diminution in the value of the Mortgaged
      Property), costs and expenses (including, without limitation, attorneys',
      paralegals', accountants' and other experts' and consultants' fees and
      expenses, and remedial costs, including, without limitation, costs of
      monitoring), suits, damages, including, without limitation, punitive
      damages and foreseeable and unforeseeable consequential damages, costs of
      any settlement or judgment and claims (including, without limitation,
      third-party claims for personal injury or real or personal property
      damage) of any and every kind whatsoever (hereinafter, collectively,
      called the "Losses"), which may now or in the future (whether before or
      after the release, or other termination of the Mortgage and the other
      Secured Debt Documents) be paid, imposed upon, incurred or suffered by or
      asserted or awarded against any of the Indemnified Persons or the
      Mortgaged Property by any person or entity or Governmental Authority for,
      with respect to, arising out of, or as a direct or indirect result of, any
      one or more of the following: (i) the presence or suspected presence,
      release or suspected release of any hazardous materials at, upon, under,
      within, above, from, by or in connection with the Mortgaged Property or
      any portion thereof, or elsewhere in connection with the transportation of
      hazardous materials to or from the Mortgaged Property (including, without
      limitation, in the air, soil, groundwater or surface water), or the
      escape, seepage, leakage, spillage, discharge, emission or release from
      the Mortgaged Property of any hazardous materials; (ii) any violations of
      any Environmental Laws at, upon, under, within, from, by or in connection
      with the


                                      -23-


      Mortgaged Property; (iii) the environmental condition of the Mortgaged
      Property; (iv) the imposition by any Governmental Authority of any lien or
      so-called "super priority lien" upon the Mortgaged Property as a result of
      the presence or release of hazardous materials, or any violation of any
      Environmental Laws, at, upon, under, within, from, by or connection with
      the Mortgaged Property; (v) obligations to remediate hazardous materials
      contamination, or to remediate any condition which constitutes a violation
      of any Environmental Laws; (vi) any site assessments of the Mortgaged
      Property; (vii) liability for personal injury or property damage or damage
      to the environment or fines, penalties and punitive damages, resulting
      from the presence or release of hazardous materials or any violations of
      any Environmental Laws, at, upon, under, within, from, by or in connection
      with the Mortgaged Property; and (viii) any environmental matter described
      in this Mortgage, including, without limitation, matters arising out of
      any breach of the covenants, representations and warranties set forth
      herein in each instance described in (i) through (viii) hereof regardless
      of whether any such Losses arise out of or result from any breach of the
      covenants, representations and warranties pertaining to environmental
      matters set forth in this Mortgage or the other Secured Debt Documents,
      and regardless of whether or not caused by or within the control of
      Mortgagor or any Indemnified Person; or whether any such matters arise
      before, during or after any foreclosure of the Mortgage or other taking of
      title to all or any portion of the Mortgaged Property or the enforcement
      of any other remedies under the Secured Debt Documents (if any such event
      occurs). WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH
      INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE
      CAUSED BY OR ARISE OUT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE
      OR THE STRICT LIABILITY OF ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS
      NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON.

            (d) Notwithstanding the foregoing or any contrary provision hereof,
      Mortgagor's indemnification obligations set forth in this Section 3.10
      shall not extend to any such Losses which are attributable solely to
      contamination by hazardous materials first introduced to the Mortgaged
      Property after a foreclosure of this Mortgage or other taking of title to
      the Mortgaged Property by any of Indemnified Persons.

            (e) The indemnification provided in this Section 3.10 shall
      specifically apply to and include claims or actions brought by or on
      behalf of tenants or employees of Mortgagor. Mortgagor hereby expressly
      waives (with respect to any claims of any Indemnified Person arising under
      this Section 3.10) any immunity to which Mortgagor may otherwise be
      entitled under any industrial or worker's compensation laws.


                                      -24-


            (f) In the event any of the Indemnified Persons shall suffer or
      incur any such Losses, Mortgagor shall pay to such Indemnified Persons the
      total of all such Losses suffered or incurred within ten (10) days after
      demand therefore.

            (g) Mortgagor agrees that the representations, covenants, warranties
      and indemnifications contained in this Mortgage shall survive the release
      of the Mortgage, the foreclosure or the taking of a deed in lieu of
      foreclosure, other termination of the lien of the Mortgage, or the
      exercise by Beneficiary of any other remedies under the Secured Debt
      Documents, the discharge of Mortgagor's Obligations under any of the other
      Secured Debt Documents, or any transfer of the Mortgaged Property, even if
      as a part of such foreclosure, deed in lieu of foreclosure or other
      enforcement action, the Indebtedness is satisfied in full.

      3.11 Corporate Mortgagor. Mortgagor will continue to be duly qualified to
transact business in each state where the conduct of its business requires it to
be qualified, and will not, unless permitted pursuant to the Secured Debt
Documents, consolidate or merge with any other partnership, company, corporation
or other Person.

      3.12 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor
is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382.

                                  ARTICLE IV.

                            ASSIGNMENT OF PRODUCTION

      4.1 Assignment.

            (a) Mortgagor hereby absolutely and irrevocably (a) transfers,
      assigns, warrants and conveys, to Beneficiary, effective as of July 1,
      2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter
      produced from and which accrue to the Mortgaged Property, and all proceeds
      therefrom, and (b) gives to and confers upon Beneficiary the right, power
      and authority to collect such Hydrocarbons and proceeds. Subject to the
      terms of Section 4.1 (b), all parties producing, purchasing or receiving
      any such Hydrocarbons, or having such, or proceeds therefrom, in their
      possession for which they or others are accountable to Beneficiary by
      virtue of the provisions of this Article IV, are authorized and directed
      to treat and regard Beneficiary as the assignee and transferee of
      Mortgagor and entitled in Mortgagor's place and stead to receive such
      Hydrocarbons and all proceeds therefrom; and said parties and each of them
      shall be fully protected in so treating and regarding Beneficiary and
      shall be under no obligation to see to the application by Beneficiary of
      any such proceeds or payments received by it; provided, however, that,
      until Beneficiary or any Secured Debt Representative shall have instructed
      such parties that an Event of Default has occurred and to deliver such
      Hydrocarbons and all proceeds therefrom directly to Beneficiary, such
      parties shall be entitled to deliver such Hydrocarbons and all proceeds
      therefrom directly to Mortgagor. So long as no


                                      -25-


      Event of Default shall have occurred, Mortgagor shall be entitled to
      receive directly from such parties, and keep and retain, all such proceeds
      from the sale of such Hydrocarbons.

            (b) Upon the occurrence of an Event of Default (provided that the
      Secured Debt Representative shall not give such instruction and notice
      under this Article IV unless such Event of Default shall then be
      continuing), any Secured Debt Representative may at any time (and from
      time to time) thereafter give notice thereof to any party producing,
      purchasing or receiving any such Hydrocarbons, or having such, or proceeds
      therefrom, in their possession for which they or others are accountable to
      Beneficiary, directing that said Hydrocarbons and products are to be
      delivered into pipelines connected with the oil and gas leases, or to the
      purchaser thereof, free and clear of all Taxes, and the proceeds from the
      sale of such Hydrocarbons paid directly to Beneficiary in accordance with
      Section 4.5 of this Mortgage. Said parties producing, purchasing or
      receiving any such Hydrocarbons, or having such, or proceeds therefrom, in
      their possession for which they or others are accountable to Beneficiary
      by virtue of the provisions of this Article IV, shall be fully protected
      in relying on any such Secured Debt Representative's determination and
      notice of the occurrence of an Event of Default. Mortgagor agrees to
      perform all such acts, and to execute all such further assignments,
      transfers and division orders, and other instruments as may be required
      pursuant to the Collateral Trust Agreement or any of the Secured Debt
      Documents in order to have said revenues and proceeds so paid to
      Beneficiary, as and when provided in this Article IV. With respect to any
      funds received by Beneficiary, Beneficiary is fully authorized to (but
      shall not be obligated to) receive and give receipt for any such revenues
      and proceeds that are received by Beneficiary; to endorse and cash any and
      all checks and drafts payable to the order of Mortgagor or Beneficiary for
      the account of Mortgagor received from or in connection with said revenues
      or proceeds and apply the proceeds thereof in accordance with Section 4.2
      hereof, and to execute transfer and division orders in the name of
      Mortgagor, or otherwise, with warranties binding Mortgagor. The assignment
      of the Hydrocarbons and proceeds in this Section 4.1 is intended to be an
      absolute assignment from Mortgagor to Beneficiary and not merely the
      passing of a security interest. Such Hydrocarbons and proceeds are hereby
      assigned absolutely by Mortgagor to Beneficiary.

      4.2 Application of Proceeds. All payments received by Beneficiary pursuant
to Section 4.1 hereof shall be placed in a cash collateral account to be applied
in accordance with the provisions of the Collateral Trust Agreement.

      4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby
absolved from all liability for failure to enforce collection of any proceeds so
assigned (and no such failure shall be deemed to be a waiver of any right of
Beneficiary under this Article IV) and from all other responsibility in
connection therewith, except the responsibility to account to Mortgagor for
funds actually received.


                                      -26-


      4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein
contained shall detract from or limit the absolute obligation of Mortgagor to
make payment of the Indebtedness regardless of whether the proceeds assigned by
this Article IV are sufficient to pay the same, and the rights under this
Article IV shall be in addition to all other security now or hereafter existing
to secure the payment of the Indebtedness.

      4.5 Status of Assignment. Notwithstanding the other provisions of this
Article IV and in addition to the other rights hereunder, Beneficiary or any
receiver appointed in judicial proceedings for the enforcement of this Mortgage
shall have the right to receive all of the Hydrocarbons herein assigned and the
proceeds therefrom after the occurrence and during the continuance of any Event
of Default and to apply all of said proceeds as provided in Section 4.2 hereof.
Upon any sale of the Mortgaged Property or any part thereof pursuant to Article
V, the Hydrocarbons thereafter produced from the property so sold, and the
proceeds therefrom, shall be included in such sale and shall pass to the
purchaser free and clear of the assignment contained in this Article IV.

      4.6 Indemnification Obligation. The following provisions shall apply to,
and be deemed in each case to modify, each of the provisions of this Mortgage
(except those set forth in Section 3.10 hereof) and the other Secured Debt
Documents (except to the extent otherwise expressly provided therein) wherein
Mortgagor is obligated to indemnify each of the Indemnified Persons:

            (a) Mortgagor agrees to indemnify Beneficiary, the Secured
      Debtholders, Trustee and their respective employees, affiliates, agents
      and attorneys, under the Mortgage and any successors or substitute trustee
      under the Mortgage, against all legal and administrative proceedings for
      which a claim for indemnification may be made by the Indemnified Person
      (herein, collectively, called "Indemnification Claims") made against or
      incurred by them or any of them as a consequence of the assertion, either
      before or after the payment in full of the Indebtedness, that they or any
      of them received Hydrocarbons herein assigned or the proceeds thereof
      claimed by third persons and Beneficiary, Secured Debtholders, and Trustee
      shall have the right to defend against any such Indemnification Claims,
      employing attorneys therefor, and unless furnished with reasonable
      indemnity, they or any of them shall have the right to pay or compromise
      and adjust all such Indemnification Claims. Mortgagor will indemnify and
      pay to Beneficiary, Secured Debtholders and Trustee any and all such
      amounts as may be paid in respect thereof or as may be successfully
      adjudged against such persons. The obligations of Mortgagor as hereinabove
      set forth in this Section 4.6 shall survive the release termination,
      foreclosure or assignment of this Mortgage or any sale hereunder.

            (b) Mortgagor shall pay when due any judgments with respect to an
      Indemnification Claim against any of the Indemnified Persons and which are
      rendered by a final order or decree of a court of competent jurisdiction
      from which no further appeal may be taken or has been taken within the
      applicable appeal period. In the event that such payment is not made, any
      of the


                                      -27-


      Indemnified Persons at its sole discretion may pay any such judgments, in
      whole or in part, and look to Mortgagor for reimbursement pursuant to this
      Mortgage, or may proceed to file suit against Mortgagor to compel such
      payment.

            (c) Any amount which Mortgagor is obligated to pay to or for the
      benefit of an Indemnified Person with respect to an Indemnification Claim,
      but which is not paid when due, shall bear interest at the applicable rate
      set forth under the Secured Debt Documents from the date such amount is
      due until such amount is paid.

                                   ARTICLE V.

                           ENFORCEMENT OF THE SECURITY

      5.1 Title Examination. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Beneficiary shall have the right and
power to (but shall not be obligated to) cause to be brought down to date a
title examination and tax histories of the Mortgaged Property, procure title
opinions or title reports or, if necessary, procure new abstracts and tax
histories.

      5.2 Environmental Audit. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Beneficiary shall have the right and
power to (but shall not be obligated to) procure an updated or entirely new
environmental audit of the Mortgaged Property including the lands described in
Exhibit A, buildings, soil, ground water and subsurface investigations; have the
buildings inspected by an engineer or other qualified inspector; enter upon the
Mortgaged Property at any time and from time to time to show the Mortgaged
Property to potential purchasers and potential bidders at foreclosure sale; make
available to potential purchasers and potential bidders all information obtained
pursuant to the foregoing and any other information in the possession of
Beneficiary regarding the Mortgaged Property.

      5.3 Power of Sale of Real Property Constituting a Part of the Mortgaged
Property. Upon the occurrence of an Event of Default and if such Event of
Default shall be continuing, Trustee shall have the right and power to sell, to
the extent permitted by Applicable Law, at one or more sales, as an entirety or
in parcels, as they may elect, the real property constituting a part of the
Mortgaged Property, at such place or places and otherwise in such manner and
upon such notice as may be required by Applicable Law, or, in the absence of any
such requirement, as Trustee may deem appropriate, and to make conveyance to the
purchaser or purchasers; and Mortgagor shall warrant title to such real property
to such purchaser or purchasers. Trustee may postpone the sale of all or any
portion of such real property by public announcement at the time and place of
such sale, and from time to time thereafter may further postpone such sale by
public announcement made at the time of sale fixed by the preceding
postponement. The right of sale hereunder shall not be exhausted by one or any
sale, and Trustee may make other and successive sales until all of the trust
estate be legally sold. With respect to that portion, if any, of the Mortgaged
Property situated in the State of Wyoming, this Mortgage may be foreclosed by
advertisement and sale as provided by


                                      -28-


applicable Wyoming statutes. With respect to that portion, if any, of the
Mortgaged Property situated in the State of Oklahoma, the Beneficiary shall have
the right and power to (but shall not be obligated to) declare the Indebtedness
secured hereby due and payable and to sell, or direct Trustee to sell, the "real
estate," as such term is defined under the provisions of 46 O.S. Supp. 1986,
Section 42, constituting a part of the Mortgaged Property, all under the terms
of 46 O.S. Supp. 1986, Section 40 et seq., and shall, to the extent permitted by
Applicable Law, have the other rights conferred on Trustee under the provisions
of this Mortgage.

      5.4 Rights of Beneficiary with Respect to Personal Property Constituting a
Part of the Mortgaged Property. Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing, Beneficiary will have all rights
and remedies granted by Applicable Law, and particularly by the Uniform
Commercial Code, including, but not limited to, the right to take possession of
all personal property constituting a part of the Mortgaged Property, and for
this purpose Beneficiary may enter upon any premises on which any or all of such
personal property is situated and take possession of and operate such personal
property (or any portion thereof) or remove it therefrom. Beneficiary may
require Mortgagor to assemble such personal property and make it available to
Beneficiary at a place to be designated by Beneficiary which is reasonably
convenient to all parties. Unless such personal property is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Beneficiary will give Mortgagor reasonable notice of the time
and place of any public sale or of the time after which any private sale or
other disposition of such personal property is to be made. This requirement of
sending reasonable notice will be met if the notice is mailed by first-class
mail, postage prepaid, to Mortgagor at the address shown below the signatures at
the end of this Mortgage at least five (5) days before the time of the sale or
disposition.

      5.5 Rights with Respect to Fixtures Constituting a Part of the Mortgaged
Property. Upon the occurrence of an Event of Default and if such Event of
Default shall be continuing, Beneficiary may elect to treat the fixtures
constituting a part of the Mortgaged Property as either real property collateral
or personal property collateral and then proceed to exercise such rights as
apply to such type of collateral.

      5.6 Judicial Proceedings. Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing, Trustee, in lieu of or in addition
to exercising any power of sale hereinabove given, may proceed by a suit or
suits in equity or at law, whether for a foreclosure hereunder for each or upon
credit in one or more parcels or portions under executory or ordinary process,
at Beneficiary's sole option, without appraisement (appraisement being expressly
waived), or for the sale of the Mortgaged Property, or for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Mortgaged Property, or for
the enforcement of any other appropriate legal or equitable remedy. Mortgagor
hereby acknowledges the Indebtedness secured hereby, whether now existing or to
arise hereafter, and confesses judgment thereon in the full amount of the
Indebtedness


                                      -29-


in favor of Beneficiary and any future holder or holders of Secured Debt if such
obligations are not paid at maturity.

      5.7 Possession of the Mortgaged Property. It shall not be necessary for
Trustee or Beneficiary to have physically present or constructively in their
possession at any sale held by Trustee or Beneficiary or by any court, receiver
or public officer any or all of the Mortgaged Property; and Mortgagor shall
deliver to the purchasers at such sale on the date of sale the Mortgaged
Property purchased by such purchasers at such sale, and if it should be
impossible or impracticable for any of such purchasers to take actual delivery
of the Mortgaged Property, then the title and right of possession to the
Mortgaged Property shall pass to such purchaser at such sale as completely as if
the same had been actually present and delivered.

      5.8 Certain Aspects of a Sale. Beneficiary shall have the right to (but
shall not be obligated to) become the purchaser at any sale held by Trustee,
Beneficiary or by any court, receiver or public officer, and Beneficiary shall
have the right to (but shall not be obligated to) credit upon the amount of the
bid made therefor the amount payable out of the net proceeds of such sale to it
Recitals contained in any conveyance made to any purchaser at any sale made
hereunder shall conclusively establish the truth and accuracy of the matters
therein stated, including, without limiting the generality of the foregoing,
nonpayment of the unpaid principal sum of, and the interest accrued on, Secured
Debt after the same have become due and payable, advertisement and conduct of
such sale in the manner provided herein or appointment of any successor Trustee
hereunder.

      5.9 Receipt to Purchaser. Upon any sale, whether made under the power of
sale herein granted and conferred or by virtue of judicial proceedings, the
receipt of Trustee, Beneficiary or of the officer making sale under judicial
proceedings, shall be sufficient discharge to the purchaser or purchasers at any
sale for his or their purchase money, and such purchaser or purchasers, or his
or their assigns or personal representatives, shall not, after paying such
purchase money and receiving such receipt of Trustee, Beneficiary, or of such
officer therefor, be obliged to see to the application of such purchase money,
or be in anywise answerable for any loss, misapplication or nonapplication
thereof.

      5.10 Effect of Sale. Any sale or sales of the Mortgaged Property, whether
under the power of sale herein granted and conferred or by virtue of judicial
proceedings, shall operate to divest all right, title, interest, claim and
demand whatsoever either at law or in equity, of Mortgagor of, in and to the
premises and the property sold, and shall be a perpetual bar, both at law and in
equity, against Mortgagor, and Mortgagor's successors or assigns, and against
any and all persons claiming or who shall thereafter claim all or any of the
property sold from, through or under Mortgagor or Mortgagor's successors or
assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of
all proper conveyances, assignments and transfers of the properties so sold.


                                      -30-


      5.11 Application of Proceeds. The proceeds of any sale of, and the Rents
and Revenues and other amounts generated by the holding, leasing, operation or
other use of, the Mortgaged Property shall be applied in accordance with the
provisions of the Collateral Trust Agreement.

      5.12 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights.
Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that
Mortgagor will not at any time insist upon or plead or in any manner whatever
claim the benefit of any appraisement, valuation, stay, extension or redemption
law now or hereafter in force, in order to prevent or hinder the enforcement or
foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or
the possession thereof by any purchaser at any sale made pursuant to any
provision hereof, or pursuant to the decree of any court of competent
jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or
under Mortgagor, so far as Mortgagor or those claiming through or under
Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such
laws; provided, however, that appraisement of any of the Mortgaged Property
located in the State of Oklahoma is hereby expressly waived or not, at the
option of Beneficiary, such option to be exercised prior to or at the time the
judgment is rendered in any foreclosure hereof. Mortgagor, for Mortgagor and all
who may claim through or under Mortgagor, waives, to the extent that Mortgagor
may lawfully do so, any and all right to have the Mortgaged Property marshalled
upon any foreclosure of the lien hereof, or sold in inverse order of alienation,
and agrees that Trustee, Beneficiary or any court having jurisdiction to
foreclose such lien may sell the Mortgaged Property as an entirety. Mortgagor,
for Mortgagor and all who may claim through or under Mortgagor, further waives,
to the full extent that Mortgagor may lawfully do so, any requirement for
posting a receiver's bond or replevin bond or other similar type of bond if
Trustee or Beneficiary commence an action for appointment of a receiver or an
action for replevin to recover possession of any of the Mortgaged Property. If
any law in this paragraph referred to and now in force, of which Mortgagor or
Mortgagor's successor or successors might take advantage despite the provisions
hereof, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to, constitute any part of the contract herein contained or
to preclude the operation or application of the provisions of this paragraph.
Pursuant to Section 39-5-19, New Mexico Statutes, Annotated, 1978 Comp., as
amended, Mortgagor agrees that as to the Mortgaged Property situated in the
State of New Mexico, the redemption period shall be shortened to one (1) month.
Mortgagor hereby waives all rights of appraisement, sale, homestead or
redemption allowed under any law or laws of the State of Arkansas, and
especially redemption under the Act of the General Assembly of the State of
Arkansas approved May 8, 1899, and acts amendatory thereto. If Mortgagor is an
individual, Mortgagor waives and releases all rights of dower, courtesy and
homestead in the Mortgaged Property insofar as such rights may in any way affect
the purposes of this Mortgage.

      5.13 Costs and Expenses. All costs and expenses (including attorneys'
fees) incurred by Trustee or Beneficiary in protecting and enforcing their
rights hereunder shall constitute a demand obligation owing by Mortgagor to the
party incurring such


                                      -31-


costs and expenses and shall draw interest at Default Interest Rate, all of
which shall constitute a portion of the Indebtedness.

      5.14 Sale of the Mortgaged Property in Texas. If Secured Debt is not paid
when due, whether by acceleration or otherwise, Trustee is hereby authorized and
empowered to (but shall not be obligated to) sell any part of the Mortgaged
Property located in the State of Texas at public sale to the highest bidder for
cash in the area at the county courthouse of the county in Texas in which the
Texas portion of the Mortgaged Property or any part thereof is situated, as
herein described, designated by such county's commissioner's court for such
proceedings, or if no area is so designated, at the door of the county
courthouse of said county, at a time between the hours of 10:00 A.M. and 4:00
P.M. which is no later than three (3) hours after the time stated in the notice
described immediately below as the earliest time at which such sale would occur
on the first Tuesday of any month, after advertising the earliest time at which
said sale would occur, the place, and terms of said sale, and the portion of the
Mortgaged Property to be sold, by (a) posting (or by having some person or
persons acting for Trustee post) for at least twenty-one (21) days preceding the
date of the sale, written or printed notice of the proposed sale at the
courthouse door of said county in which the sale is to be made; and if such
portion of the Mortgaged Property lies in more than one county, one such notice
of sale shall be posted at the courthouse door of each county in which such part
of the Mortgaged Property is situated and such part of the Mortgaged Property
may be sold in the area at the county courthouse of any one of such counties
designated by such county's commissioner's court for such proceedings, or if no
area is so designated, at the courthouse door of such county, and the notice so
posted shall designate in which county such property shall be sold, and (b)
filing in the office of the county clerk of each county in which any part of the
Texas portion of the Mortgaged Property which is to be sold at such sale is
situated a copy of the notice posted in accordance with the preceding clause
(a). In addition to such posting and filing of notice, Beneficiary may or other
holder of the Indebtedness shall, at least twenty-one (21) days preceding the
date of sale, serve or cause to be served written notice of the proposed sale by
certified mail on Mortgagor and on each other debtor, if any, obligated to pay
the Indebtedness according to the records of Beneficiary or other holder of the
Indebtedness. Service of such notice shall be completed upon deposit of the
notice, enclosed in a postpaid wrapper properly addressed to Mortgagor and such
other debtors at their most recent address or addresses as shown by the records
of Beneficiary or other holder of the Indebtedness in a post office or official
depository under the care and custody of the United States Postal Service. The
affidavit of any person having knowledge of the facts to the effect that such a
service was completed shall be prima facie evidence of the fact of service.
Mortgagor agrees that no notice of any sale, other than as set out in this
Section, need be given by Trustee, Beneficiary or any other person, except as
may otherwise be required by Applicable Law. Mortgagor hereby designates as its
address for the purpose of such notice the address set out on the signature page
hereof; and agrees that such address shall be changed only by depositing notice
of such change enclosed in a postpaid wrapper in a post office or official
depository under the care and custody of the United States Postal Service,
certified mail, postage prepaid, return receipt requested, addressed to
Beneficiary or other holder of the Indebtedness at the address for Beneficiary
set out herein (or to such other address as Beneficiary or


                                      -32-


other holder of the Indebtedness may have designated by notice given as above
provided to Mortgagor and such other debtors). Any such notice of change of
address of Mortgagor or other debtors or of Beneficiary or of other holder of
the Indebtedness shall be effective three (3) business days after such deposit
if such post office or official depository is located in the State of Texas,
otherwise to be effective upon receipt. Mortgagor authorizes and empowers
Trustee to sell the Texas portion of the Mortgaged Property in lots or parcels
or in its entirety as is customary in the industry or Trustee may elect; and to
execute and deliver to the purchaser or purchasers thereof good and sufficient
deeds of conveyance thereto by fee simple title, with evidence of general
warranty by Mortgagor, and the title of such purchaser or purchasers when so
made by Trustee, Mortgagor binds itself to warrant and forever defend. Where
portions of the Mortgaged Property lie in different counties, sales in such
counties may be conducted in any order that Trustee may deem expedient; and one
or more such sales may be conducted in the same month, or in successive or
different months. Notwithstanding anything to the contrary contained herein,
Trustee may postpone the sale provided for in this Section 5.14 at any time
without the necessity of a public announcement. The provisions hereof with
respect to the posting and giving of notices of sale are intended to comply with
the provisions of Section 51.002 of the Property Code of the State of Texas,
effective January 1, 1984, and in the event the requirements, or any notice,
under such Section 51.002 of the Property Code of the State of Texas shall be
eliminated or the prescribed manner of giving such notices modified by future
amendment to, or adoption of any statute superseding, Section 51.002 of the
Property Code of the State of Texas, the requirement for such particular notices
shall be deemed stricken from or modified in this Mortgage in conformity with
such amendment or superseding statute, effective as of the effective date
thereof.

      5.15 Fair Market Value. It is expressly agreed by Mortgagor that to the
extent Section 51.003 of the Texas Property Code, or any amendment thereto,
requires that the "fair market value" of the Mortgaged Property shall be
determined as of the foreclosure date in order to enforce a deficiency against
Mortgagor or any other party liable for repayment of the Indebtedness, the term
"fair market value" shall include those matters required by Applicable Law and
shall also include the additional factors set forth below:

            (a) The Mortgaged Property is to be valued "AS IS" and "WITH ALL
      FAULTS" and there shall be no assumption of restoration of or
      refurbishment of improvements, if any, after the date of the foreclosure;

            (b) An offset to the fair market value of the Mortgaged Property, as
      determined hereunder, shall be made by deducting from such value the
      reasonable estimated closing costs relating to the sale of the Mortgaged
      Property, including but not limited to brokerage commissions, title
      examination and curative expenses, tax prorations, escrow fees, and other
      common charges which are incurred by a seller of property; and


                                      -33-


            (c) After consideration of the factors required by Applicable Law
      and those required above, an additional discount factor shall be
      calculated based upon the estimated time it will take to effectuate a sale
      of the Mortgaged Property so that the "fair market value" as so determined
      is discounted to be as of the date of the foreclosure sale of the
      Mortgaged Property.

            5.16 Operation of the Mortgaged Property by Beneficiary. Upon the
occurrence of an Event of Default and during the continuance of such Event of
Default and in addition to all other rights herein conferred on Beneficiary,
Beneficiary (or any person, firm or corporation designated by Beneficiary) shall
have the right and power, but shall not be obligated, to enter upon and take
possession of any of the Mortgaged Property, and to exclude Mortgagor, and
Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer,
manage and operate the same to the extent that Mortgagor shall be at the time
entitled and in its place and stead. Beneficiary, or any person, firm or
corporation designated by Beneficiary, may operate the same without any
liability to Mortgagor in connection with such operations, except to use
ordinary care in the operation of such properties, and Beneficiary or any
person, firm or corporation designated by Beneficiary, shall have the right to
(but shall not be obligated to) collect, receive and receipt for all
Hydrocarbons produced and sold from said properties, to make repairs, purchase
machinery and equipment, conduct work-over operations, drill additional wells
and to exercise every power, right and privilege of Mortgagor with respect to
the Mortgaged Property. When and if the expenses of such operation and
development (including costs of unsuccessful work-over operations or additional
wells) paid by Beneficiary or attributable to Mortgagor's undivided interest
therein and withheld, or offset against, by an operator or other party have been
paid or reimbursed in full by Mortgagor and the Indebtedness paid, said
properties shall, if there has been no sale or foreclosure, be returned to
Mortgagor.

            5.17 Separate Sales. The Mortgaged Property may be sold in one or
more parcels and it being expressly understood and agreed that the right of sale
arising out of any Event of Default shall not be exhausted by any one or more
sales but other and successive sales may be made until all of the Mortgaged
Property has been sold or until the Indebtedness has been fully satisfied.

            5.18 Remedies Cumulative, Concurrent and Non-Exclusive. Beneficiary
shall have all rights, remedies and recourses granted in the Secured Debt
Documents and available at law or equity (including specifically those granted
by the Uniform Commercial Code in effect and applicable to the Mortgaged
Property, or any portion thereof), and the same (a) shall be cumulative and
concurrent, (b) may be pursued separately, successively or concurrently against
any one or more of Mortgagor, any Guarantor, or others obligated under the
Secured Debt Documents, or against the Mortgaged Property, pursuant to the
Collateral Trust Agreement and any Secured Debt Documents, (c) may be exercised
as often as occasion therefor shall arise, it being agreed by Mortgagor that the
exercise or failure to exercise any of same shall in no event be construed as a
waiver or release thereof or of any other right, remedy or recourse, and (d) are
intended to be, and shall be, non-exclusive.


                                      -34-


      5.19 Release of and Resort to Collateral. Beneficiary may release,
regardless of consideration, any part of the Mortgaged Property without, as to
the remainder, in any way impairing, affecting, subordinating or releasing the
lien or security interests created in or evidenced by the Secured Debt Documents
or their stature as a first and prior lien and security interest in and to the
Mortgaged Property. For payment of the Indebtedness, Beneficiary may resort to
any other security therefor held in such order and manner as Beneficiary may
elect.

      5.20 Discontinuance of Proceedings. In case Beneficiary shall have
proceeded to invoke any right, remedy or recourse permitted under the Secured
Debt Documents and shall thereafter elect to discontinue or abandon same for any
reason, Beneficiary shall have the unqualified right so to do and, in such an
event, Mortgagor and Beneficiary shall be restored to their former positions
with respect to the Indebtedness, the Obligations, the Secured Debt Documents,
the Mortgaged Property and otherwise, and the rights, remedies, recourses and
powers of Beneficiary shall continue as if same had never been invoked.

      5.21 Uniform Commercial Code Remedies. Beneficiary shall have all the
rights, remedies and recourses with respect to the Personalty, Fixtures, Leases
and Rents and Revenues afforded a Secured Party by the aforesaid Uniform
Commercial Code (being Chapter 9 of the Texas Business and Commerce Code, as to
property within the scope thereof and situated in the State of Texas) in
addition to, and not in limitation of, the other rights, remedies and recourses
afforded Beneficiary by the Secured Debt Documents.

      5.22 No Obligation of Trustee or Beneficiary. The assignment and security
interest herein granted shall not be deemed or construed (a) to constitute
Trustee or Beneficiary as a trustee in possession of the Mortgaged Property or,
(b) to obligate Trustee or Beneficiary to (i) lease the Mortgaged Property or
attempt to do same, (ii) take any action, (iii) incur any expenses or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise.

                                  ARTICLE VI.

                            MISCELLANEOUS PROVISIONS

      6.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby
authorized, to pool or unitize all or any part of the lands described in Exhibit
A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds
and other interests, when, in the reasonable judgment of Mortgagor, it is
necessary or advisable to do so in order to form a drilling and/or production
unit to facilitate the orderly development of that part of the Mortgaged
Property affected thereby, or to comply with the requirements of any Applicable
Law or governmental order or regulation relating to the spacing of wells or
proration of the production therefrom; provided, however, that any unit so
formed for the production of oil shall not substantially exceed 160 acres, and
any unit so formed for the production of gas shall not substantially exceed 640
acres, unless a larger area is required to conform to an Applicable Law or
governmental order


                                      -35-


or regulation relating to the spacing of wells or to obtain the maximum
allowable production under any Applicable Law or governmental order or
regulation relating to the proration of production therefrom; and further
provided that the Hydrocarbons produced from any unit so formed shall be
allocated among the separately owned tracts or interests comprising the unit in
a uniform manner consistently applied. Any unit so formed may relate to one or
more zones or horizons, and a unit formed for a particular zone or horizon need
not conform in area to any other unit relating to a different zone or horizon,
and a unit formed for the production of oil need not conform in area with any
unit formed for the production of gas. Promptly after formation of any such
unit, Mortgagor shall furnish to Beneficiary and each Secured Debt
Representative a true copy of the pooling agreement, declaration of pooling or
other instrument creating such unit. The interest in any such unit attributable
to the Mortgaged Property (or any part thereof) included therein shall become a
part of the Mortgaged Property and shall be subject to the lien hereof in the
same manner and with the same effect as though such unit and the interest of
Mortgagor therein were specifically described in Exhibit A. Mortgagor is further
authorized to amend, modify or terminate any pooling or unitization agreement or
order to which Mortgagor is a party or the Mortgaged Property is subject,
provided that such action does not conflict with the provisions of this
Mortgage, including this Section 6.1. Mortgagor may enter into, or amend, modify
or terminate, pooling or unitization agreements not hereinabove authorized only
as permitted under the Secured Debt Documents.

      6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt
Representative or any of their agents shall be liable for any error of judgment
or act done in good faith, or be otherwise responsible or accountable under any
circumstances whatsoever, except for their gross negligence or willful
misconduct. None of Beneficiary, Trustee, any Secured Debt Representative or any
of their agents shall be personally liable in case of entry by them, or anyone
entering by virtue of the powers herein granted them, upon the Mortgaged
Property for debts contracted or liability or damages incurred in the management
or operation of the Mortgaged Property. Such persons shall have the right to
rely on any instrument, document or signature authorizing or supporting any
action taken or proposed to be taken by them hereunder, believed by them in good
faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or
any of their agents shall be entitled to reimbursement for expenses incurred by
them in the performance of their duties hereunder and to reasonable compensation
for such of their services hereunder as shall be rendered. Mortgagor will, from
time to time, pay the compensation due hereunder and reimburse such parties for,
and save them harmless against, any and all liability and expenses which may be
incurred by them in the performance of their duties.

      6.3 Successor Trustee. Any Trustee may resign in writing addressed to
Beneficiary or may be removed at any time with or without cause by an instrument
in writing duly executed by Beneficiary. In case of the death, resignation or
removal of a Trustee, one or more successor Trustee may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of Applicable Law, and in the absence of any such requirement
without formality other than appointment and


                                      -36-


designation in writing. Such appointment and designation shall be full evidence
of the right and authority to make the same and of all facts therein recited,
and upon the making of any such appointment and designation this conveyance
shall vest in the named successor Trustee or Trustee, all the estate and title
of the prior Trustee in all of the Mortgaged Property, and he or they shall
thereupon succeed to all the rights, powers, privileges, immunities and duties
hereby conferred upon the prior Trustee. All references herein to Trustee shall
be deemed to refer to Trustee from time to time acting hereunder.

      6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant
herein contained shall be performed and kept by Mortgagor solely at Mortgagor's
expense. If Mortgagor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this Mortgage, Beneficiary, or Trustee or
any receiver appointed hereunder or under Applicable Law, may, but shall not be
obligated to, take action and/or make advances to perform the same in
Mortgagor's behalf; provided, however, that concurrently with the taking of such
action or making such advances, Beneficiary, Trustee or any Secured Debt
Representative, shall deliver notice to Trustor. Mortgagor hereby agrees to
repay the expense of such action and such advances upon demand plus interest as
set forth in the Collateral Trust Agreement. No such advance or action by
Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to
relieve Mortgagor from any default hereunder.

      6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any
election by Trustee or Beneficiary not to insist, upon strict performance by
Mortgagor of any of the terms, provisions or conditions of the Collateral Trust
Agreement or any Secured Debt Documents shall not be deemed to be a waiver of
same or of any other term, provision or condition thereof, and Trustee and
Beneficiary shall have the right at any time or times thereafter to insist upon
strict performance by Mortgagor of any and all of such terms, provisions and
conditions.

      6.6 Defense of Claims. Mortgagor will notify Beneficiary and each Secured
Debt Representative, in writing, promptly of the commencement of any legal
proceedings affecting the lien or security interest hereof or the Mortgaged
Property, or any part thereof, and will take such action, employing attorneys as
set forth in Section 3.4(j), as may be necessary or appropriate to preserve
Mortgagor's or Beneficiary's rights affected thereby and/or to hold harmless
Beneficiary in respect of such proceedings; and should Mortgagor fail or refuse
to take any such action, Beneficiary may, upon giving prior written notice
thereof to Mortgagor, take such action in behalf and in the name of Mortgagor
and at Mortgagor's expense. Moreover, Beneficiary may take such independent
action in connection therewith as it may in its discretion deem proper,
Mortgagor hereby agreeing that all sums advanced or all expenses incurred in
such actions plus interest thereon at the Default Interest Rate, will, on
demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed
hereunder or under Applicable Law. The obligations of Mortgagor as hereinabove
set forth in this Section 6.6 shall survive the release, termination,
foreclosure or assignment of this Mortgage or any sale hereunder.


                                      -37-


      6.7 The Mortgaged Property to Revert; Release. If the Indebtedness shall
be fully paid and the covenants herein contained shall be well and truly
performed, then all of the Mortgaged Property shall revert to Mortgagor and the
entire estate, right, title and interest of Trustee and Beneficiary shall
thereupon cease; and Trustee and Beneficiary in such case shall, upon the
request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor
proper instruments acknowledging satisfaction of this Mortgage and the release
or reconveyance of the lien hereof in accordance with Applicable Law.
Notwithstanding anything contained herein to the contrary, the Mortgaged
Property, or any part thereof, shall, upon the written request of Mortgagor, be
released from the lien of this Mortgage, in accordance with the provisions of
the Collateral Trust Agreement, when such a release is permitted by the
Collateral Trust Agreement and the other Secured Debt Documents.

      6.8 Covenants Running with the Land. All Obligations contained in this
Mortgage are intended by the parties to be, and shall be construed as, covenants
running with the Mortgaged Property.

      6.9 Renewals, Amendments and Other Security. Renewals and extensions of
the Indebtedness and modifications of any kind of the Obligations may be given
at any time and amendments may be made to agreements with third parties relating
to any part of such Indebtedness or the Mortgaged Property and Trustee and
Beneficiary may take or may now hold other security from others for the
Indebtedness, all without notice to or consent of Mortgagor. Beneficiary may
resort first to such other security or any part thereof or first to the security
herein given or any part thereof, or from time to time to either or both, even
to the partial or complete abandonment of either security, and such action shall
not be a waiver of any rights conferred by this Mortgage, which shall continue
as a first lien upon and prior perfected security interest in the Mortgaged
Property not expressly released until the Secured Debt and all other
Indebtedness secured hereby are fully paid.

      6.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and
may be enforced from time to time as an assignment, chattel mortgage, contract,
deed of trust, financing statement, real estate mortgage, or security agreement,
and from time to time as any one or more thereof.

      6.11 Limitation on Interest. No provision of this Mortgage or the Secured
Debt Documents shall require the payment or permit the collection of interest in
excess of the Maximum Lawful Rate or which is otherwise contrary to Applicable
Law. If any excess of interest in such respect is in the Secured Debt Documents
or otherwise herein provided for, or shall be adjudicated to be so provided for
herein or in the Secured Debt Documents, Mortgagor shall not be obligated to pay
such excess.

      6.12 Severability. The Secured Debt Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable Legal
Requirements. If any provision of any of the Secured Debt Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the remainder of the instrument
in which


                                      -38-


such provision is contained nor the application of such provision to other
persons or circumstances nor the other instruments referred to hereinabove shall
be affected thereby, but rather shall be enforced to the greatest extent
permitted by Applicable Law. It is hereby expressly stipulated and agreed to be
the intent of Mortgagor and Beneficiary at all times to comply with the usury,
and all other, laws relating to the Secured Debt Documents. If, at any time, the
applicable Legal Requirements render usurious any amount called for in any
Security Document, then it is Mortgagor's, Trustee's and Secured Debtholders'
express intent that such document be immediately deemed reformed and the amounts
collectible reduced, without the necessity of the execution of any new document,
so as to comply with the then Applicable Law but so as to permit the recovery of
the fullest amount otherwise called for in such Secured Debt Documents.

      6.13 Waiver by Trustee and Beneficiary. Any and all covenants in this
Mortgage may from time to time by instrument in writing signed by Trustee and
Beneficiary be waived to such extent and in such manner as Trustee and
Beneficiary may desire, but no such waiver shall ever affect or impair either
Trustee's or Beneficiary's rights or liens or security interests hereunder,
except to the extent specifically stated in such written instrument.

      6.14 No Partnership. Nothing contained in this Mortgage is intended to, or
shall be construed as, creating to any extent and in any manner whatsoever, any
partnership, joint venture, or association among Mortgagor, Trustee, Beneficiary
and their respective Affiliates, or in any way as to make Beneficiary or
Trustee's co-principals with Mortgagor with reference to the Mortgaged Property,
and any inferences to the contrary are hereby expressly negated.

      6.15 Successors and Assigns. This Mortgage is binding upon Mortgagor,
Mortgagor's successors and assigns, and shall inure to the benefit of
Beneficiary, its successors and assigns, and the provisions hereof shall
likewise be covenants running with the land.

      6.16 Article and Section Headings. The article and section headings in
this Mortgage are inserted for convenience of reference and shall not be
considered a part of this Mortgage or used in its interpretation.

      6.17 Execution in Counterparts. This Mortgage may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be an
original and all of which are identical, except that, to facilitate recordation
or filing, in any particular counterpart portions of Exhibit A hereto which
describe properties situated in parishes or counties other than the parish or
county in which such counterpart is to be recorded or filed may have been
omitted.

      6.18 Special Filing as Financing Statement. This Mortgage shall likewise
be a Security Agreement and a Financing Statement. This Mortgage shall be filed
for record, among other places, in the real estate records of each county or
parish in which any portion of the real property covered by the oil and gas
leases described in Exhibit A


                                      -39-


hereto is situated, and, when filed in such counties or parishes shall be
effective as a financing statement covering Fixtures located on oil and gas
properties, which oil and gas properties (and accounts arising therefrom) are to
be financed at the wellheads of the wells located on the lands described in
Exhibit A. A carbon, photographic or other reproduction of this Mortgage or of
any financing statement covering the Mortgaged Property or any portion thereof
shall be sufficient as a financing statement and may be filed as such. Mortgagor
agrees that any Secured Debt Representative may, in such manner, on such terms
and at such times as may be elected by such Secured Debt Representative, and
without demand or notice to, or the consent or signature of, Mortgagor, file
and/or record such UCC financing statements, fixture filings, and/or amendments
to or continuations of any financing statements or fixture filings to evidence,
perfect and/or continue the perfection of, any security interests created or to
be created pursuant to this Mortgage or any of the other Secured Debt Documents.

      6.19 Notices. Except as otherwise required by Sections 5.4 and 5.14
hereof, any notice, request or demand which may be required or permitted to be
given or served upon Mortgagor shall be sufficiently given when given or made
pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other
means and manner of giving of notice as may be required by Applicable Law.

      6.20 Reliance. Notwithstanding any reference herein to the Secured Debt
Documents, no party shall have any obligation to inquire into the terms or
conditions of any such documents and all parties shall be fully authorized to
rely upon any statement, certificate, or affidavit of Beneficiary or any future
holder of any portion of the Indebtedness as to the occurrence of any event such
as the occurrence of any event of default.

      6.21 Beneficiary as Agent for the Secured Debtholders. As described above,
certain Affiliates of Beneficiary and the Secured Debt Representatives are or
may become parties to certain Hedging Agreements with Mortgagor and/or
Affiliates of Mortgagor. This Mortgage secures the obligations of Mortgagor and
such Affiliates, as the case may be, under such Hedging Agreements, and the
parties acknowledge for all purposes that Beneficiary acts for itself and as
agent on behalf of such Affiliates of Beneficiary and the Secured Debtholders
which are so entitled to share in the rights and benefits accruing to
Beneficiary under this Mortgage in respect of the Mortgaged Property.

      6.22 Applicable Law. As to any tract or parcel of land comprising a
portion of the Mortgaged Property, this Mortgage shall be governed by and
construed according to the Applicable Laws of the State where such tract or
parcel of land is situated.

      6.23 Subrogation. If any or all of the proceeds of Secured Debt have been
used to extinguish, extend or renew any indebtedness heretofore existing against
the Mortgaged Property, then, to the extent of such funds so used, the
Indebtedness and this Mortgage shall be subrogated to all of the rights, claims,
liens, titles and interests heretofore existing against the Mortgaged Property
to secure the indebtedness so extinguished, extended or renewed and the former
rights, claims, liens, titles and


                                      -40-


interests, if any, are not waived but rather are continued in full force and
effect in favor of Beneficiary and are merged with the lien and security
interest created herein as cumulative security for the repayment of the
Indebtedness and the satisfaction of the Obligations.

      6.24 Fixture Filing. Portions of the Mortgaged Property are or are to
become fixtures relating to the above described real estate, and Mortgagor
herein expressly covenants and agrees that the filing of this Mortgage in the
Real Estate Records in the county where the Mortgaged Property is located shall
also operate from the time of filing therein as a financing statement filed as a
fixture filing in accordance with Section 9.502(c) of the Uniform Commercial
Code - Secured Transactions of the State of Texas.


                                      -41-


      IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed this
Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing in the presence of the undersigned Notary
Public on this 14th day of July, 2003.


                              MORTGAGOR AND DEBTOR

                                          CALPINE CORPORATION, a Delaware
                                          corporation

                                          By:___________________________________
                                          Title:  Executive Vice President
                                          Printed Name:  B.A. Berilgen

ATTEST:

_________________________________
Printed Name:

The name and mailing address of Mortgagor is:

Calpine Corporation
1000 Louisiana Street, Suite 800
Houston, TX 77002

                                                           [Multistate Mortgage]


                                      S-1


STATE OF TEXAS     )
                   )  SECTION
COUNTY OF HARRIS   )

      BE IT REMEMBERED that I, Suzanne B. Snow, a Notary Public duly qualified,
commissioned, sworn and acting in and for the County and State aforesaid, hereby
certify that, on this 14th day of July, 2003, there appeared before me severally
each of the following persons, each being either a Trustee or else the
designated officer of the corporation or association set opposite his name, and
each such Trustee, corporation and association being a party to the foregoing
instrument:

      B.A. Berilgen, the Executive Vice President, and Michael H. Hickey, the
Vice President-Managing Counsel, of Calpine Corporation, a Delaware corporation,
which has no corporate seal whose address is 1000 Louisiana Street, Suite 800,
Houston, TX 77002.

ARKANSAS          Before me on this day appeared in person the aforementioned
                  persons, to me personally well known, who stated that they
                  held the offices in the corporation or association set forth
                  opposite their names above (or, in the case of the Trustees,
                  were validly appointed Trustees) and were duly authorized in
                  their respective capacities to execute the foregoing
                  instrument for and in the name and on behalf of said
                  corporation or association (or as Trustees, as the case may
                  be), and further stated and acknowledged that they had so
                  signed, executed and delivered said foregoing instrument for
                  the consideration, uses and purposes therein mentioned and set
                  forth.

COLORADO          The foregoing instrument was acknowledged before me this day
                  by each such person on behalf of said corporation or
                  association, or himself, as a Trustee, as the case may be.

KANSAS            On this day before me personally appeared the aforementioned
                  persons, who acknowledged themselves to hold the offices in
                  the corporation set forth opposite their names above (or, in
                  the case of the Trustees, were validly appointed Trustees) and
                  as such officers or Trustees, hereby authorized to do so,
                  executed the foregoing instrument for the purposes therein
                  contained.

MISSISSIPPI       Personally appeared before me, the undersigned authority in
                  and for the said county and state, on this 14th day of July,
                  2003, within my jurisdiction the within named B.A. Berilgen
                  who acknowledged that he is the Executive Vice President of
                  CALPINE CORPORATION, a Delaware corporation, and that for and
                  on behalf of said corporation and as its act and deed
                  (he)(she) executed the above and foregoing instrument after
                  first having been duly authorized by said

                                                           [Multistate Mortgage]


                                      S-2


                  corporation so to do.

MONTANA           On this day before me personally appeared each such person,
                  each of whom is known to me to be the officer of the
                  corporation that executed the within instrument (or a Trustee,
                  as the case may be), and acknowledged to me that such
                  corporation (or Trustee, as the case may be) executed the
                  same.

NEBRASKA          The foregoing instrument was acknowledged before me this day
  and             by each such person as the designated officers of the
NEW MEXICO        corporation or association set opposite their names (or as
                  Trustees, as the case may be) on behalf of said corporation or
                  association, or himself as a Trustee, as the case may be.

OKLAHOMA          Before me on this day personally appeared the aforementioned
                  persons, to me known to be the identical persons who
                  subscribed the names of the respective makers thereof to the
                  foregoing instrument in the capacities set forth opposite the
                  names of such persons above, and each such person acknowledged
                  to me that he executed the same as his free and voluntary act
                  and deed and as the free and voluntary act and deed of the
                  corporation or association set opposite his name (or of
                  himself as Trustee, as the case may be) for the uses and
                  purposes therein set forth.

TEXAS             This instrument was acknowledged before me on this day by each
                  such person as the designated officer of the corporation or
                  association set opposite his name (or a Trustee, as the case
                  may be), on behalf of said corporation or association set
                  opposite his name (or of himself as Trustee, as the case may
                  be).

WYOMING           The foregoing instrument was acknowledged before me by the
                  above individuals on this day.

                       Witness my hand and official seal.


                                       _________________________________________
                                       Notary Public
                                       Residing at Houston, Harris County, Texas

My commission expires: 12/21/2006

                                                           [Multistate Mortgage]



     EXHIBIT A To Amended and Restated Mortgage, Deed of Trust, Assignment,
        Security Agreement, Financing Statement and Fixture Filing, dated
                     July 16, 2003, from CALPINE CORPORATION
                       to Denis O'Meara and James Trimble
                            and THE BANK OF NEW YORK

                               List of Properties

1. Depth limitations, unit designations, unit tract descriptions and
descriptions (including percentages, decimals or fractions) of undivided
leasehold interests, well names, "Operating Interests," "Working Interests" and
"Net Revenue Interests" contained in this Exhibit A and the listing of any
percentage, decimal or fractional interest in this Exhibit A shall not be deemed
to limit or otherwise diminish the interests being subjected to the lien,
security interest and encumbrance of this Mortgage.

2. Some of the land descriptions in this Exhibit A may refer only to a portion
of the land covered by a particular lease. This Mortgage is not limited to the
land described in Exhibit A but is intended to cover the entire interest of
Mortgagor in any lease described in Exhibit A even if such interest relates to
land not described in Exhibit A. Reference is made to the land descriptions
contained in the documents of title recorded as described in this Exhibit A. To
the extent that the land descriptions in this Exhibit A are incomplete,
incorrect or not legally sufficient, the land descriptions contained in the
documents so recorded are incorporated herein by this reference.

3. References in Exhibit A to instruments on file in the public records are made
for all purposes. Unless provided otherwise, all recording references in Exhibit
A are to the official real property records of the county or counties (or parish
or parishes) in which the mortgaged property is located and in which records
such documents are or in the past have been customarily recorded, whether Deed
Records, Oil and Gas Records, Oil and Gas Lease Records or other records.

4. A statement herein that a certain interest described herein is subject to the
terms of certain described or referred to agreements, instruments or other
matters shall not operate to subject such interest to any such agreement,
instrument or other matter except to the extent that such agreement, instrument
or matter is otherwise valid and presently subsisting nor shall such statement
be deemed to constitute a recognition by the parties hereto that any such
agreement, instrument or other matter is valid and presently subsisting.

[Do not detach this page]


                                     Ex.A-1


                                   Schedule I

Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and
Fixture Filing (Multi-State) from Calpine Corporation, a Delaware corporation,
Trustor and Mortgagor to Kemp Leonard, Trustee, John Quick, Trustee and The Bank
of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:



         JURISDICTION                           FILE NO.                     FILE DATE
         ------------                           --------                     ---------
                                                                       
Columbia County, AK                       Book 334, Page 327                 5/14/2002

Miller County, AK                         Book M-763, Page 58                5/15/2002

Jefferson Davis County, MS                      0201602                      5/16/2002
                                           Book 475, Page 39

Lawrence County, MS                        Book 386, Page 46                 5/14/2002

Marion County, MS                         Book 1375, Page 101                5/14/2002

Warren County, MS                               184385                       5/14/2002
                                          Book 1319, Page 727

Lewis & Clark County, MT                        3019331                      5/14/2002
                                          Book M26, Page 4622

Sheridan County, MT                       Book 602, Page 725                 5/14/2002

Beckham County, OK                               03252                       5/14/2002
                                         Book 1738, Page 0237

Caddo County, OK                               20023691                      5/15/2002
                                          Book 2387, Page 486

Canadian County, OK                       Book 2573, Page 378                5/28/2002

Custer County, OK                         Book 1166, Page 418                5/14/2002

Garvin County, OK                         Book 1632, Page 107                6/19/2002

Grady County, OK                                 6604                        5/15/2002
                                          Book 3378, Page 303

Harper County, OK                         Book 0575, Page 706                8/12/2002

Love County, OK                                  1116                        5/14/2002
                                          Book 562, Page 472



                                      I-1




        JURISDICTION                                  FILE NO.                             FILE DATE
        ------------                                  --------                             ---------
                                                                                     
Marshall County, OK                                 I2002-1427                             5/14/2002
                                                Book 735, Page 239

McClain County, OK                              Book 1613, Page 25                         5/14/2002

Oklahoma County, OK                                 2002085739                             6/06/2002
                                               Book 8459, Page 3-99

Roger Mills County, OK                               2002-2002                             5/14/2002
                                               Volume 1678, Page 20

Texas County, OK                                    2002-662297                            5/14/2002

Washita County, OK                           Book 941, Pages 961-1057                      5/14/2002

Woodward County, OK                                    6162                                5/14/2002
                                                Book 1824, Page 001

Woods County, OK                                Book 935, Page 557                         5/14/2002

Cameron County, TX                                    0026299                              5/15/2002
                                                Volume 8004, Page 1

Chambers County, TX                                 02-557-473                             5/15/2002

Duval County, TX                                      078197                               5/16/2002
                                               Volume 326, Page 787

Goliad County, TX                                    00100688                              5/15/2002
                                               Volume 00163, Page 1

Hansford County, TX                                    62490                               5/15/2002
                                               Volume 291, Page 748

Hardin County, TX                                    02-03596                              5/15/2002
                                               Volume 1319, Page 54

Harris County, TX                                     V803613                              5/15/2002

Hemphill County, TX                                   034626                               5/15/2002
                                              Volume 547, Page 000272

Houston County, TX                                 0200000002180                           5/15/2002

Jackson County, TX                             Volume 199, Page 623                        5/31/2002

Jefferson County, TX                                2002016585                             5/6/2002

Jim Hogg County, TX                                    67248                               5/14/2002
                                              Book 32, Pages 725-821



                                      I-2




        JURISDICTION                                  FILE NO.                            FILE DATE
        ------------                                  --------                            ---------
                                                                                    
Live Oak County, TX                              00155319, Vol. 413,                       5/7/2002
                                               Page 282 D/T Records

Matagorda County, TX                                  023187                               5/14/2002
                                               Volume 659, Page 658

Nueces County, TX                                   2002022435                             5/14/2002

Ochiltree County, TX                                   65164                               5/14/2002
                                               Volume 603, Page 772

Panola County, TX                                      77340                               5/14/2002
                                               Volume 1150, Page 490

Polk County, TX                                    2002-1266-186                           5/14/2002

San Jacinto County, TX                                02-3385                              5/14/2002

Webb County, TX                                       760758                               5/7/2002
                                               Volume 1210, Page 237

Wharton County, TX                                    223997                               5/14/2002
                                               Volume 458, Page 137

Zapata County, TX                                     125697                               5/7/2002
                                             Volume 668, Pages 001-126

Minerals Management Service                             n/a                                5/08/2002
Gulf of Mexico OCS Region
(Jefferson County, TX)

Sweetwater County, WY                                 1360525                              5/14/2002
                                               Book 0954, Page 1218

Washakie County, WY                                   493612                               5/16/2002
                                              Book 89, Page 1800-1902


UCC-1 Financing Statement regarding Multi-State Mortgage, naming Calpine
Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party,
filed as follows:



        JURISDICTION                                  FILE NO.                              FILE DATE
        ------------                                  --------                              ---------
                                                                                      

Minerals Management Service                             n/a                                 5/13/2002
Gulf of Mexico OCS Region
(Jefferson County, TX)



                                      I-3


                                   Schedule II

First Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing (Multi-State) from Calpine Corporation, a
Delaware corporation, Trustor and Mortgagor to Dennis O'Meara, Trustee, James
Trimble, Trustee and The Bank of Nova Scotia, for itself and as Agent,
Beneficiary, filed as follows:



         JURISDICTION                           FILE NO.                      FILE DATE
         ------------                           --------                      ---------
                                                                        
Lewis & Clark County, MT                        3029268                       11/12/2002
                                          Book M27, Page 3822

Sheridan County, MT                       Book 603, Page 1464                 11/08/2002

Chambers County, TX                       8626-B; 02-585-663                   10/29/02

Webb County, TX                       778732; Vol. 1297, Pg. 544               10/30/02



Second Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement, and Fixture Filing (Multi-State) from Calpine Corporation
to Trustees and The Bank of Nova Scotia, filed as follows:



                                  ORIGINAL              ORIGINAL              SUPPLEMENT            SUPPLEMENT
       JURISDICTION               FILE NO.             FILE DATE               FILE NO.              FILE DATE
       ------------               --------             ---------              ----------             ---------
                                                                                        
Live Oak County, Texas           00155319;               5/7/02                 159329;                4/1/03
                             Vol. 413, Pg. 282                                 Vol. 430,
                                D/T Records                                     Pg. 55

Panola County, Texas         77340; Vol. 1150,          5/14/02                 84148;                 4/1/03
                                  Pg. 490                                     Vol. 1179,
                                                                                Pg. 691

Beckham County, Oklahoma     03252; Book 1738,          5/14/02             1-2003-003102;             4/2/03
                                  Pg. 0237                                    Book 1769,
                                                                                Pg. 646

Garvin County, Oklahoma      Book 1632, Pg. 107         6/19/02                 02267;                 4/1/03
                                                                              Book 1658,
                                                                                Pg. 100

Roger Mills County,              2002-2002;             5/14/02             1-2003-001454;             4/1/03
Oklahoma                     Vol. 1678, Pg. 20                                Book 1705,
                                                                                Pg. 466



                                      II-1


                                  Schedule III

Partial Release of Lien and Security Interest by The Bank of Nova Scotia in
favor of Calpine Corporation (Multi-State Mortgage-partial release) filed as
follows:



                                                                                PARTIAL                PARTIAL
                                  ORIGINAL              ORIGINAL             RELEASE FILE           RELEASE FILE
       JURISDICTION               FILE NO.             FILE DATE                  NO.                   DATE
       ------------               --------             ---------             ------------           ------------
                                                                                        
Duval County, TX             078197; Vol. 326,          5/16/02            079243; Vol. 334,           9/26/02
(Guerra Prospect)                 Pg. 787                                       Pg. 800

Duval County, TX             078197; Vol. 326,          5/16/02            Vol. 335, Pg. 393           10/8/02
(IMPAC)                           Pg. 787

Webb County, TX                   760758;                5/7/02           776680; Vol. 1287,          10/10/02
(Guerra Prospect)            Vol. 1210, Pg. 237                                 Pg. 558

Webb County, TX                   760758;                5/7/02           Vol. 1285, Pg. 053           10/7/02
(IMPAC)                      Vol. 1210, Pg. 237



                                     III-1

EX-10.27

                                                                   Exhibit 10.27

                                                                 MULTISTATE FORM
- --------------------------------------------------------------------------------

                              AMENDED AND RESTATED
                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

                                      FROM

                              CALPINE CORPORATION,
                             a Delaware corporation
                         (Taxpayer I.D. No. 77-0212977),
                              Trustor and Mortgagor

                                       TO

                               JOHN QUICK, Trustee

                                       AND

                              KEMP LEONARD, Trustee

                                       AND

                              THE BANK OF NEW YORK,
        not in its individual capacity but solely as Collateral Trustee,
                         (Taxpayer I.D. No. 13-5160382)
                                 as Beneficiary

                            Dated as of July 16, 2003

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

"THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS."

"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."

"THOSE PORTIONS OF THE MORTGAGED PROPERTY WHICH ARE AS-EXTRACTED COLLATERAL
(INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO,
WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES
DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR
RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS."



"MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS
DESCRIBED IN EXHIBIT A HERETO."

"SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS
FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL
ESTATE RECORDS."

"A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE."

THIS INSTRUMENT WAS PREPARED BY AND
WHEN RECORDED AND/OR FILED
RETURN TO:

MAYER, BROWN, ROWE & MAW LLP
700 Louisiana Street
Suite 3600
Houston, Texas 77002
Attn: Kevin L. Shaw, Esq.



                              AMENDED AND RESTATED
                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

      THIS AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE"), dated as of
July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation
("MORTGAGOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113,
to JOHN QUICK and KEMP LEONARD (whether one or more, collectively called
"TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its
individual capacity but solely as Collateral Trustee under the Collateral Trust
Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among
Mortgagor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee,
Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose
address is 101 Barclay Street, New York, New York 10286. References to this
"Mortgage" shall mean this instrument and any and all renewals, modifications,
amendments, supplements, extensions, consolidations, substitutions, spreaders,
restatements and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                   ARTICLE I.

                            RECITALS AND DEFINITIONS

      1.1 Mortgagor has heretofore executed and delivered to The Bank of Nova
Scotia, for itself and as agent for the Lender Parties (together with its
successors in such capacity, the "CREDIT AGREEMENT AGENT") and John Quick and
Kemp Leonard, as Trustees, that certain mortgage or deed of trust, dated as of
May 1, 2002, as supplemented and amended prior to the date hereof (as so
supplemented and amended, herein called the "EXISTING MORTGAGE"), to secure (i)
payment of indebtedness owed or to be owing to certain institutional lenders
(the "EXISTING 2002 LENDERS") pursuant to the terms of that certain Credit
Agreement, dated as of March 8, 2002 (herein, as the same may be amended,
modified or supplemented from time to time, called the "EXISTING 2002 CREDIT
AGREEMENT") pursuant to which the Existing 2002 Lenders made loans to Mortgagor
and issued letters of credit for the benefit of Mortgagor (the "EXISTING 2002
LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding
$1,600,000,000, and Mortgagor, to evidence its indebtedness to the Existing 2002
Lenders under the Existing 2002 Credit Agreement, has executed and delivered to
the Existing 2002 Lenders its secured promissory notes to mature not later than
May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002 Loan Notes
being payable to the order of the Existing 2002 Lenders, bearing interest as
provided for therein, and containing provisions for payment of attorneys' fees
and acceleration of maturity in the event of default, as therein set forth; and
(ii) payment of indebtedness owed or to be owing to certain institutional
lenders (the "EXISTING 2000 LENDERS", and together with the Existing 2002
Lenders, the "EXISTING LENDERS") pursuant to the terms of that certain Second
Amended and Restated Credit Agreement dated as of May 23,


                                      -1-


2000 (herein, as the same may be amended, modified, or supplemented from time to
time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing
2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant
to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of
credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in
amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor,
to evidence its indebtedness to the Existing 2000 Lenders under the Existing
2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders
its secured promissory notes to mature not later than May 24, 2003 (the
"EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the
Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing
2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing
interest as provided for therein, and containing provisions for payment of
attorney's fees and acceleration of maturity in the event of default, as therein
set forth.

      1.2 The Existing Mortgage, together with other mortgages and deeds of
trust (a) have been filed and recorded, among other places, as set forth in
Schedule I hereto; (b) have been supplemented and amended by various instruments
that have been filed and recorded, among other places, as set forth in Schedule
II hereto; and (c) have been amended and certain items of property mortgaged
thereby have been released by various instruments that have been filed and
recorded, among other places, as set forth in Schedule III hereto.

      1.3 Mortgagor, the Existing Lenders and the Credit Agreement Agent are,
(i) terminating the commitments under the Existing 2000 Credit Agreement, and
(ii) amending and restating the Existing 2002 Credit Agreement (as so amended
and restated, and as the same may, from time to time hereafter, be amended,
supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT
AGREEMENT".

      1.4 Mortgagor is also (a) issuing $500,000,000 in aggregate principal
amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007
INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing
$1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal
amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the
"2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013
INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing
$750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement
dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and
Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its
successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds


                                      -2-


from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the
borrowing of the Term Loans will be used to refinance a portion of the loans and
other indebtedness outstanding under the Existing Credit Agreements.

      1.5 As permitted pursuant to the Secured Debt Documents, Mortgagor may
incur future debt which could, together with the obligations under the Amended
and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may
incur future debt which could, together with the 2007 Notes, the 2010 Notes, the
2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the
aggregate amount of the Secured Debt to be secured hereby shall not exceed
$4,200,000,000. Mortgagor intends to secure the Indebtedness, including its
obligations (a) under the Amended and Restated Credit Agreement and any future
Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject
to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans
and any future Parity Lien Debt, equally and ratably, with liens and security
interests in, among other collateral, the Mortgaged Property under the Existing
Mortgage, as contemplated in the Collateral Trust Agreement.

      1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment
of Liens of even date herewith, the Credit Agreement Agent has assigned to
Beneficiary, all of the Credit Agreement Agent's right, title and interest in
and to, and its interest as beneficiary under, the Existing Mortgage. This
Mortgage amends and restates the Existing Mortgage. The Collateral Trust
Agreement sets forth the terms on which the Collateral Trustee, as trustee for
the present and future holders of the Indebtedness, will receive, hold,
maintain, administer, maintain, enforce and distribute this Mortgage and all
interests, rights, powers and remedies of the Collateral Trustee thereunder and
the proceeds thereof.

      1.7 For all purposes of this Mortgage, unless the context otherwise
requires:

                  A. "Actionable Default" is defined in the Collateral Trust
      Agreement.

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

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

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

                  C. "Applicable Law" means with respect to any Person or
      matter, any federal, state, regional, tribal or local statute, law, code,
      rule, treaty,


                                      -3-


      convention, application, order, decree, consent decree, injunction,
      directive, determination or other requirement (whether or not having the
      force of law) relating to such Person or matter and, where applicable, any
      interpretation thereof by a Governmental Authority having jurisdiction
      with respect thereto or charged with the administration or interpretation
      thereof.

                  D. "Default Interest Rate" means the lesser of (a) ten percent
      (10%), and (b) the Maximum Lawful Rate.

                  E. "Event of Default" means an Actionable Default.

                  F. "Environmental Laws" means any and all present and future
      Applicable Laws issued, promulgated or entered thereunder relating to
      pollution or protection of the environment, including laws relating to
      reclamation of land and waterways and laws relating to emissions,
      discharges, releases or threatened releases of pollutants, contaminants,
      chemicals, or industrial, toxic or hazardous substances or wastes into the
      environment (including, without limitation, ambient air, surface water,
      ground water, land surface or subsurface strata) or otherwise relating to
      the manufacture, processing, distribution, use, treatment, storage,
      disposal, transport or handling of pollutants, contaminants, chemicals, or
      industrial, toxic or hazardous substances or wastes.

                  G. "Governmental Authority" means any and all courts, boards,
      agencies, commissions, offices or authorities of any nature whatsoever for
      any governmental unit (federal, state, county, district, municipal, city,
      tribe or otherwise) whether now or hereafter in existence charged with the
      administration, interpretation or enforcement of any Applicable Law.

                  H. "Hedging Agreements" means: (a) interest rate swap
      agreements, basis swap agreements, interest rate cap agreements, forward
      rate agreements, interest rate floor agreements and interest rate collar
      agreements, and all other agreements or arrangements designed to protect
      such Person against fluctuations in interest rates or currency exchange
      rates, and (b) forward contracts, options, futures contracts, futures
      options, commodity swaps, commodity options, commodity collars, commodity
      caps, commodity floors and all other agreements or arrangements designed
      to protect such Person against fluctuations in the price of commodities.

                  I. "Hedging Obligations" means with respect to any Person, all
      liabilities (including without limitation obligations and liabilities
      arising in connection with or as a result of early or premature
      termination of a Hedging Agreement, whether or not occurring as a result
      of a default thereunder) of such Person under a Hedging Agreement.

                  J. "Hydrocarbons" means collectively, oil, gas, casinghead
      gas, drip gasoline, natural gasoline, condensate, distillate and all other
      liquid or


                                      -4-


      gaseous hydrocarbons and related minerals and all products therefrom, in
      each case whether in a natural or a processed state.

                  K. "Indebtedness" shall have the meaning set forth in Section
      2.2 of this Mortgage.

                  L. "Indemnification Claim" is defined in Section 4.6(a) of
      this Mortgage.

                  M. "Indemnified Person" is defined in Section 3.10(c) of this
      Mortgage.

                  N. "Joint Operating Agreements" shall mean, with respect to
      the lands described in Exhibit A, the respective operating agreement
      burdening the lands described in Exhibit A.

                  O. "lands described in Exhibit A" shall include the real
      property or other interest in any lands which are either described in
      Exhibit A attached hereto or the description of which is incorporated in
      Exhibit A by reference to an instrument or document containing in, or
      referring to, such a description, and shall also include any lands now or
      hereafter unitized or pooled with lands which are either described in
      Exhibit A or the description of which is incorporated in Exhibit A by
      reference and Fixtures and all rights, titles and interests appurtenant
      thereto. References to Exhibit A shall include, where applicable, Exhibit
      A-1 as well.

                  P. "Leases" means any and all leases (including without
      limitation oil and gas leases and oil, gas and other minerals leases),
      surface leases or easements, subleases, licenses, concessions, operating
      rights or other agreements (written or verbal, now or hereafter in effect)
      which grant a possessory interest in and to, or the right to explore, use,
      lease, license, possess, produce, process, store and transport
      Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged
      Property, together with all amendments, modifications, extensions and
      renewals thereof.

                  Q. "Legal Requirements" means (i) any and all present and
      future judicial decisions, statutes, rulings, rules, regulations,
      licenses, decisions, orders, injunctions, decrees, permits, certificates
      or ordinances of any Governmental Authority in any way applicable to
      Mortgagor, or the Mortgaged Property, including the ownership, use,
      occupancy, operation, maintenance, repair or reconstruction thereof, and
      any other Applicable Law enacted by any Governmental Authority relating to
      health or the environment, (ii) Mortgagor's presently or subsequently
      effective Organic Documents, (iii) any and all Leases, (iv) any and all
      leases and other contracts (written or oral) of any nature to which
      Mortgagor, or the Mortgaged Property may be bound and (v) any and all
      restrictions, restrictive covenants or zoning, present and future, as the
      same may apply to the Mortgaged Property.


                                      -5-


                  R. "Losses" is defined in Section 3.10(c) of this Mortgage.

                  S. "Maximum Lawful Rate" means the maximum nonusurious rate of
      interest that may be received, charged or contracted for under Applicable
      Law from time to time in effect.

                  T. "Mortgaged Property" means the properties, rights and
      interests hereinafter described in Section 1.8 and defined as the
      Mortgaged Property. U. "Obligations" means any and all of the covenants,
      warranties, representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Mortgagor or others under any of the
      Secured Debt Documents.

                  U. "Obligations" means any and all of the covenants,
      warranties, representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Mortgagor or others under any of the
      Secured Debt Documents.

                  V. "oil and gas leases" shall include oil, gas and mineral
      leases, subleases and assignments thereof, operating rights, and shall
      also include subleases and assignments of operating rights.

                  W. "Operating Equipment" means all surface or subsurface
      machinery, goods, equipment, fixtures, inventory, facilities, supplies or
      other property of whatsoever kind or nature (excluding drilling rigs,
      trucks, automotive equipment or other property taken to the premises to
      drill a well or for other similar temporary uses) now or hereafter located
      on or under any of the lands described in Exhibit A which are useful for
      the production, gathering, treatment, processing, storage or
      transportation of Hydrocarbons (together with all accessions, additions
      and attachments to any thereof), including, but not by way of limitation,
      all oil wells, gas wells, water wells, injection wells, casing, tubing,
      tubular goods, rods, pumping units and engines, christmas trees,
      platforms, derricks, separators, compressors, gun barrels, flow lines,
      tanks, gas systems (for gathering, treating and compression), pipelines
      (including gathering lines, laterals and trunklines), chemicals,
      solutions, water systems (for treating, disposal and injection), steam
      generation and injection equipment and systems, power plants, poles,
      lines, transformers, starters and controllers, supervisory control and
      data acquisition systems, machine shops, tools, storage yards and
      equipment stored therein, buildings and camps, telegraph, telephone and
      other communication systems, roads, loading docks, loading racks and
      shipping facilities.

                  X. "Organic Documents" means the Articles of Incorporation,
      Certificate of Incorporation, limited liability company certificate of
      formation and regulations or operating agreement, partnership agreement,
      limited partnership agreement, joint venture agreement, trust agreement or
      other similar documents governing the organization and operation of a
      business association.

                  Y. "Parity Lien Debt" is defined in the Collateral Trust
      Agreement.

                  Z. "Parity Lien Documents" is defined in the Collateral Trust
      Agreement.


                                      -6-


                  AA. "Parity Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Parity Lien Documents.

                  BB. "Permits" means all authorizations, approvals, permits,
      variances, land use entitlements, consents, licenses, franchises and
      agreements issued by or entered into with any Governmental Authority now
      or hereafter required for all stages of exploration, developing,
      operating, and plugging and abandoning oil and gas wells (including,
      without limitation, those shown on Exhibit A) on all or any part of the
      lands described in Exhibit A (or any other lands any production from
      which, or profits or proceeds from such production, is attributed to any
      interest in the lands described in Exhibit A).

                  CC. "Permitted Encumbrances" means the outstanding liens,
      easements, restrictions, exceptions, reservations, conditions,
      limitations, security interests and other matters as permitted by and
      defined in the Secured Debt Documents.

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

                  EE. "Personalty" means all of the right, title and interest of
      Mortgagor now owned or hereafter acquired in and to all furniture,
      furnishings, Equipment, machinery, Goods, General Intangibles, money,
      Accounts, receivables, Contract Rights, Inventory, all refundable,
      returnable or reimbursable fees, deposits or other funds or evidences of
      credit or indebtedness deposited by or on behalf of Mortgagor with any
      Governmental Authority, agencies, boards, corporations, providers of
      utility services, public or private, including specifically, but without
      limitation, all refundable, returnable or reimbursable tap fees, utility
      deposits, commitment fees and development costs, and all other personal
      property (other than the Fixtures) of any kind or character as defined in
      and subject to the provisions of Article 9 of the Uniform Commercial Code,
      now or hereafter located upon, within or about, or used in connection
      with, the lands described in Exhibit A together with all accessories,
      replacements and substitutions thereto or therefor and the Proceeds
      thereof.

                  FF. "Priority Lien Debt" is defined in the Collateral Trust
      Agreement.

                  GG. "Priority Lien Documents" is defined in the Collateral
      Trust Agreement.

                  HH. "Priority Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay


                                      -7-


      the Indebtedness) made or undertaken by Mortgagor or others under any of
      the Priority Lien Documents.

                  II. "Production Sale Contracts" means contracts now in effect,
      or hereafter entered into by Mortgagor, or entered into by Mortgagor's
      predecessors in interest, for the sale, purchase, exchange, gathering,
      transportation, treating or processing of Hydrocarbons produced from the
      lands described in Exhibit A.

                  JJ. "Rents and Revenues" means all of the rents, revenues,
      income, proceeds, profits and other benefits paid or payable by parties to
      the Leases other than Mortgagor for using, leasing, licensing, possessing,
      operating, selling or otherwise enjoying the Mortgaged Property, including
      the proceeds from the sale of Hydrocarbons.

                  KK. "Secured Debt" is defined in the Collateral Trust
      Agreement.

                  LL. "Secured Debtholder" is defined in the Collateral Trust
      Agreement.

                  MM. "Secured Debt Documents" is defined in the Collateral
      Trust Agreement.

                  NN. "Secured Debt Representative" is defined in the Collateral
      Trust Agreement.

                  OO. "Taxes" means all real property and personal property
      taxes, production taxes, assessments, permit fees, water, gas, sewer,
      electricity and other utility rates and charges, charges for any easement,
      license or agreement maintained for the benefit of the Mortgaged Property,
      and all other taxes, charges and assessments and any interest, costs or
      penalties with respect thereto, of any kind and nature whatsoever which at
      any time prior to or after the execution hereof may be charged, assessed,
      levied or imposed upon the Mortgaged Property or the Rents and Revenues or
      the ownership, use, occupancy or enjoyment thereof.

                  PP. "Transportation Agreements" shall mean any contracts or
      agreements entered into from time to time by Mortgagor, or entered into by
      Mortgagor's predecessors in interest, relating to the transportation of
      Hydrocarbons, as any such agreement or contract may be amended,
      supplemented, restated or otherwise modified from time to time.

                  QQ. "Water Rights" means (including without limitation those
      described in Exhibit A hereto) all now or hereafter existing or acquired
      water and water rights, reservoirs and reservoir rights, ditches and ditch
      rights, wells and well rights, whether evidenced or initiated by permit,
      decree, well registration, appropriation not decreed, water court
      application, shares of stock or other interests in mutual ditch or
      reservoir companies or carrier ditch or reservoir companies or otherwise,
      appertaining or appurtenant to or beneficially used or


                                      -8-


      useful in connection with the lands described in Exhibit A, together with
      all pumps, well casings, wellheads, electrical installations, pumphouses,
      meters, monitoring wells and systems, measuring devices, pipes, pipelines,
      and other structures or personal property which are or may be used to
      produce, regulate, measure, distribute, store, or use water from the said
      water and water rights, reservoirs and reservoir rights, ditches and ditch
      rights, wells and well rights.

                  RR. "Uniform Commercial Code" means the Uniform Commercial
      Code as in effect from time to time in the State of New York or any other
      applicable state, and the terms "Accounts," "Account Debtor, "As Extracted
      Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
      "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
      "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall
      have the respective meanings assigned to such terms in the Uniform
      Commercial Code.

      1.8 Grant.

      Grant of Priority Lien

      NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the
Priority Lien Indebtedness and the full and timely performance and discharge of
the Priority Lien Obligations, has granted, bargained, sold, warranted,
mortgaged, assigned, transferred and conveyed, and by these presents does grant,
bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and
convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of
Beneficiary, all Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to all of the hereinafter described properties,
rights and interests; and, insofar as such properties, rights and interests
consist of Equipment, General Intangibles, Accounts, As Extracted Collateral,
Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other
personal property of a kind or character defined in, or subject to the
applicable provisions of, the Uniform Commercial Code (as in effect from time to
time in the appropriate jurisdiction with respect to each of said properties,
rights and interests), Mortgagor hereby grants to said Beneficiary, a security
interest therein to the full extent of Mortgagor's legal and beneficial interest
therein, now owned or hereafter acquired, namely:

            (a) the lands described in Exhibit A, and Leases, the fee, mineral,
      overriding royalty, royalty and other interests which are described in
      Exhibit A,

            (b) the presently existing and (subject to the terms of Section 6.1
      hereof) hereafter arising unitization, unit operating, communitization and
      pooling agreements and the properties covered and the units created
      thereby (including, without limitation, all units formed under orders,
      regulations, rules, approvals, decisions or other official acts of any
      Governmental Authority) which are specifically described in Exhibit A or
      which relate to any of the properties and interests specifically described
      in Exhibit A,


                                      -9-


            (c) the Hydrocarbons which are in, under, upon, produced or to be
      produced from or which are attributed or allocated to the lands described
      in Exhibit A,

            (d) the Production Sale Contracts,

            (e) the Joint Operating Agreements,

            (f) the Transportation Agreements,

            (g) the Operating Equipment,

            (h) the Permits,

            (i) the Water Rights,

            (j) the Hedging Agreements,

            (k) the Leases,

            (l) the Personalty,

            (m) the Rents and Revenues,

            (n) without duplication of any other provision of this granting
      clause, Equipment, Fixtures and other Goods necessary or used in
      connection with, and Inventory, Accounts, As Extracted Collateral, General
      Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents,
      Electronic Chattel Paper, Instruments and Proceeds arising from, or
      relating to, the properties and other interests described in Exhibit A
      (including Exhibit A-1),

            (o) any and all liens and security interests in Hydrocarbons
      securing the payment of proceeds from the sale of Hydrocarbons, including
      but not limited to those liens and security interests provided for in
      Section 9.343 of the Texas Business and Commerce Code or similar statutes
      of other jurisdictions or any successor statutes,

together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, or replacements or substitutions for, any of the same, or
any instrument relating thereto, and all accounts, contracts, contract rights,
options, nominee agreements, unitization or pooling agreements, operating
agreements and unit operating agreements, processing agreements, farmin
agreements, farmout agreements, joint venture agreements, partnership agreements
(including mining partnerships), exploration agreements, bottom hole agreements,
dry hole agreements, support agreements, acreage contribution agreements,
surface use and surface damage agreements, net profits agreements, production
payment agreements, Hedging Agreements, insurance policies, title opinions,
title abstracts, title materials and information, files, records, writings, data
bases, information, systems, logs, well cores,


                                      -10-


fluid samples, production data and reports, well testing data and reports, maps,
seismic and geophysical, geological and chemical data and information,
interpretative and analytical reports of any kind or nature (including, without
limitation, reserve studies and reserve evaluations), computer hardware and
software and all documentation therefor or relating thereto (including, without
limitation, all licenses relating to or covering such computer hardware,
software and/or documentation), trade secrets, trademarks, service marks and
business names and the goodwill of the business relating thereto, copyrights,
copyright registrations, unpatented inventions, patent applications and patents,
rights-of-way, franchises, bonds, easements, servitudes, surface leases,
permits, licenses, tenements, hereditaments, appurtenances, concessions,
occupancy agreements, privileges, development rights, condemnation awards,
claims against third parties, general intangibles, rents, royalties, issues,
profits, products and proceeds, whether now or hereafter existing or arising,
used or useful in connection with, covering, relating to, or arising from or in
connection with, any of the aforesaid items (a) through o), inclusive, in this
granting clause mentioned, and all other things of value and incident thereto
(including, without limitation, any and all liens, lien rights, security
interests and other properties, rights and interests) which Mortgagor might at
any time have or be entitled to, but excluding any data or contracts with
respect to which mortgaging or granting of a lien or a security interest is
prohibited by existing third party agreements,

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien and security interest of this
Mortgage by means of supplements hereto, being hereinafter, collectively, called
the "Mortgaged Property."

      Grant of Parity Lien

      NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the
Parity Lien Indebtedness and the full and timely performance and discharge of
the Parity Lien Obligations, has granted, bargained, sold, warranted, mortgaged,
assigned, transferred and conveyed, and by these presents does grant, bargain,
sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey
unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of
Beneficiary, all Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to all of the Mortgaged Property.

      Subject, however, in each case to (i) Permitted Encumbrances (including
without limitation all presently existing royalties, overriding royalties,
payments out of production and other burdens which are referred to in Exhibit A
and which are taken into consideration in computing any percentage, decimal or
fractional interest as set forth in Exhibit A), (ii) the assignment of
production contained in Article IV hereof, but only insofar and so long as said
assignment of production is not inoperative under the provisions of Section 4.5
hereof, and (iii) the condition that none of Trustee, Beneficiary nor any
Secured Debtholder shall be liable in any respect for the performance of any
covenant or obligation (including, without limitation, measures required to
comply with Environmental Laws) of Mortgagor in respect of the Mortgaged
Property.


                                      -11-


      TO HAVE AND TO HOLD the Mortgaged Property for the benefit of Beneficiary,
and forever to secure the payment of the Indebtedness and to secure the
performance and discharge of the Obligations of Mortgagor herein and therein
contained.

      As set forth in the separate granting clauses above, it is the intent of
Mortgagor that such grants shall create two separate and distinct security
interests in all right, title and interest of Mortgagor in the Mortgaged
Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the
benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the
benefit of the Beneficiary, for the benefit of the holders of the Parity Lien
Debt.

      Notwithstanding (i) anything to the contrary contained in this Mortgage or
any other document, filing or agreement related to the creation, attachment,
perfection or existence of the liens and security interests granted herein, (ii)
the time, place, order or method of attachment or perfection of such liens or
security interests, (iii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect such security
interests, and (iv) the rules for determining priority under any law governing
the relative priorities of secured creditors, the lien securing the Parity Lien
Indebtedness is subordinated and junior in priority to the lien securing the
Priority Lien Indebtedness.

      Mortgagor, in consideration of the Secured Debt as set forth above, hereby
covenants and agrees with each of Trustee and Beneficiary:

                                  ARTICLE II.
                              INDEBTEDNESS SECURED

      2.1 Items of Indebtedness Secured. The following items of indebtedness are
secured hereby:

            (a) The Priority Lien Debt (including future advances to be made
      with respect thereto), and all other Obligations of Mortgagor under the
      Priority Lien Documents;

            (b) The Parity Lien Debt (including future advances to be made with
      respect thereto), and all other Obligations of Mortgagor under the Parity
      Lien Documents;

            (c) All Obligations under any other Priority Lien Debt or Parity
      Lien Debt;

            (d) Any sums advanced or expenses or costs incurred by Trustee,
      Beneficiary or any Secured Debtholder, or by any receiver appointed
      hereunder, which are made or incurred pursuant to, or permitted by, the
      terms hereof, plus interest thereon at the rate herein specified or
      otherwise agreed upon, from the date of the advances or the incurring of
      such expenses or costs until reimbursed;


                                      -12-


            (e) Any and all other indebtedness of Mortgagor or any Affiliate of
      Mortgagor to Beneficiary now or hereafter owing, whether direct or
      indirect, primary or secondary, fixed or contingent, joint or several,
      regardless of how evidenced or arising, where the indebtedness provides
      that it is secured hereby; and

            (f) Any extensions, refinancings, modifications or renewals of all
      such indebtedness described in subparagraphs (a) through (e) above,
      whether or not Mortgagor executes any extension agreement or renewal
      instrument.

      2.2 Indebtedness Defined. All the above items of indebtedness described in
subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section
2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively
referred to as the "Priority Lien Indebtedness." And all the above items of
indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c)
through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are
hereinafter collectively referred to as the "Parity Lien Indebtedness"; the
Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively
referred to as the "Indebtedness".

      2.3 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and
agrees that, except as otherwise provided by the Secured Debt Documents, the
Existing Mortgage constitutes a valid and subsisting first lien on the portion
of the Mortgaged Property encumbered thereby, and that none of the rights and
liens existing thereunder shall be impaired or released hereby, and that the
same as amended and restated hereby shall remain in full force and effect, and
all rights and liens existing and to exist thereunder are renewed, extended,
carried forward, and conveyed to secure all of the Indebtedness hereinabove
mentioned.

      2.4 Amended and Restated Mortgage. The Existing Mortgage is amended and
restated in full hereby in order to, among other things, secure all of the
Indebtedness herein described or referred to as if reference to such
Indebtedness were fully described in the Existing Mortgage. None of the rights,
titles, and interests, existing or to exist under the Existing Mortgage are
hereby released, diminished or impaired.

      2.5 No Impairment or Discharge of Liens. It is the express intention of
all parties hereto that the Secured Debtholders are subrogated to all of the
rights, powers, and equities of the original lenders and beneficiary under the
Existing Mortgage, that the liens created hereby shall relate back to and be
effective as of the effective date of the Existing Mortgage and that nothing
contained herein shall be construed to impair or discharge the liens and
security interests created thereby.


                                      -13-


                                  ARTICLE III.

                      PARTICULAR COVENANTS, REPRESENTATIONS
                           AND WARRANTIES OF MORTGAGOR

      3.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor
will duly and punctually pay the Indebtedness, as and when called for in the
Secured Debt Documents and on or before the due dates thereof, and will timely
perform and discharge all of the Obligations in full and on or before the dates
same are to be performed and discharged.

      3.2 Certain Representations and Warranties. Mortgagor represents and
warrants (and with respect to those matters set forth in the following
subsections (b) and (f), as to those portions of the Mortgaged Property that are
operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor
makes such representation and warranty to the best of its knowledge) that

            (a) the oil and gas leases described in Exhibit A hereto are valid,
      subsisting leases, superior and paramount to all other oil and gas leases
      respecting the properties to which they pertain,

            (b) all producing wells located on the lands described in Exhibit A
      (including Exhibit A-1) have been drilled, operated and produced in
      conformity with all Applicable Laws of all Governmental Authorities having
      jurisdiction, and are subject to no penalties on account of past
      production, and such wells are in fact bottomed under and are producing
      from, and the well bores are wholly within, the lands described in Exhibit
      A or lands pooled or unitized therewith,

            (c) Mortgagor, to the extent of the interest specified in Exhibit A
      (including Exhibit A-1), has valid and indefeasible title to each property
      right or interest constituting the Mortgaged Property described in Exhibit
      A (including Exhibit A-1) and has a good and legal right to grant and
      convey the same to Trustee; such interest entitles Mortgagor to receive
      not less than the share of Hydrocarbons from such property indicated as
      its net revenue interest or "NRI" share of such Hydrocarbons, and
      obligates Mortgagor to pay for not more than the share of operating and
      other costs, liabilities and expenses associated with such property
      indicated as its working interest or "WI" share of such costs, liabilities
      and expenses,

            (d) Excepting the Permitted Encumbrances, the Mortgaged Property is
      free from all encumbrances or liens whatsoever,

            (e) Mortgagor is not obligated, by virtue of any prepayment under
      any contract providing for the sale by Mortgagor of Hydrocarbons which
      contains a "take or pay" clause or under any similar arrangement, to
      deliver Hydrocarbons at some future time without then or thereafter
      receiving full payment therefor,


                                      -14-


            (f) the Mortgaged Property is currently being operated, maintained
      and developed, in all material respects, in accordance with all applicable
      currently existing Permits, Legal Requirements and all Applicable Laws
      (including, without limitation, Environmental Laws),

            (g) the cover page to this Mortgage lists the correct legal name of
      Mortgagor and Mortgagor has not been known by any legal name different
      from the one set forth on the cover page of this Mortgage,

            (h) the execution, delivery, and performance by Mortgagor of this
      Mortgage (i) are within Mortgagor's corporate powers and have been duly
      authorized by Mortgagor's Board of Directors, shareholders and all other
      requisite corporate action, (ii) have received all (if any) requisite
      prior governmental approval and consent in order to be legally binding and
      enforceable in accordance with the terms thereof, and (iii) will not
      violate, be in conflict with, result in a breach or constitute (with due
      notice or lapse of time, or both) a default under, any Legal Requirement
      or result in the creation or imposition of any lien, charge or encumbrance
      of any nature whatsoever upon any of Mortgagor's property or assets,
      except as contemplated by the provisions of the Secured Debt Documents,
      and

            (i) except as permitted by the Secured Debt Documents, there are no
      actions, suits or proceedings pending, or to the knowledge of Mortgagor
      threatened, against or affecting Mortgagor or the Mortgaged Property that
      could materially adversely affect Mortgagor or the Mortgaged Property, or
      involving the validity or enforceability of this Mortgage or the priority
      of the liens and security interests created by the Secured Debt Documents,
      and no event has occurred (including specifically Mortgagor's execution of
      this Mortgage which will violate, be in conflict with, result in the
      breach of, or constitute (with due notice or lapse of time, or both) a
      material default under, any Legal Requirement or result in the creation or
      imposition of any lien, charge or encumbrance of any nature whatsoever
      upon any of Mortgagor's property other than the liens and security
      interests created by the Secured Debt Documents.

      3.3 Further Assurances. Mortgagor will warrant and forever defend the
Mortgaged Property unto Trustee and Beneficiary, as the case may be, against
every person whomsoever lawfully claiming the same or any part thereof, subject
to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and
security interest hereby created so long as any of the Indebtedness remains
unpaid. Mortgagor will execute and deliver such other and further instruments
and will do such other and further acts as may be required pursuant to the
Collateral Trust Agreement and/or any Secured Debt Documents to carry out more
effectually the purposes of this Mortgage, including, without limiting the
generality of the foregoing, (i) prompt correction of any defect which may
hereafter be discovered in the title to the Mortgaged Property or in the
execution and acknowledgment of this Mortgage, the Secured Debt Documents, or
any other document executed in connection herewith, and (ii) at any time a
Secured Debt Representative may request and upon such request, promptly execute
all notices to


                                      -15-


parties operating, purchasing or receiving proceeds of production of
Hydrocarbons from the Mortgaged Property, and all division orders or transfer
orders needed in order to transfer effectually or to assist in transferring
effectually to the Beneficiary the assigned proceeds of production from the
Mortgaged Property, which notices, division orders and transfer orders shall be
held by such Secured Debt Representative and delivered upon an Event of Default.

      3.4 Operation of the Mortgaged Property. So long as the Indebtedness or
any part thereof remains unpaid, and whether or not Mortgagor is the operator of
any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's
own expense:

            (a) Do all things necessary to keep unimpaired Mortgagor's rights in
      the Mortgaged Property and not abandon any well or forfeit, surrender or
      release any Lease, except that Mortgagor may, in the ordinary course of
      business, (i) plug and abandon any well no longer capable of producing
      Hydrocarbons in paying quantities, (ii) surrender or release any Lease or
      a portion thereof so long as no well capable of producing Hydrocarbons in
      paying quantities is located on such Lease or a portion thereof or
      production from any such well is attributed to such Lease or a portion
      thereof, (iii) surrender or release any Lease or a portion thereof on
      which no producing well has ever been drilled or which has never been held
      by production from another well unless Proven Reserves (as defined in any
      Secured Debt Document) are attributed to such Lease or a portion thereof
      and (iv) abandon, forfeit, surrender or release any other portion of the
      Mortgaged Property to the extent permitted under the then existing Secured
      Debt Documents;

            (b) Obtain and maintain all required Permits and cause the lands
      described in Exhibit A to be maintained, developed, protected against
      drainage, and operated for the production of Hydrocarbons in a good and
      workmanlike manner as would a prudent operator, and consistent with
      industry practices, Joint Operating Agreements, and all Applicable Laws,
      excepting those being contested in good faith; and plug and abandon wells
      no longer capable of producing Hydrocarbons in paying quantities in
      accordance with all Applicable Laws, Legal Requirements and the terms and
      conditions of applicable Leases; and remediate the lands described in
      Exhibit A and facilities located thereon in accordance with all Applicable
      Laws, Legal Requirements and the terms and conditions of applicable
      Leases;

            (c) Duly pay and discharge, or cause to be paid and discharged,
      promptly as and when due and payable, all rentals and royalties (including
      shut-in royalties) payable in respect of the Mortgaged Property (other
      than rentals under Leases that are surrendered pursuant to the foregoing
      Section 3.4(a)), and all expenses incurred in or arising from the
      operation or development of the Mortgaged Property not later than the due
      date thereof, or the day any fine, penalty, interest or cost may be added
      thereto or imposed, or the day any lien may be filed, for the non-payment
      thereof (if such day is used to determine the


                                      -16-


      due date of the respective item) except as to such matters which are being
      contested by Mortgagor in good faith;

            (d) Cause the Operating Equipment to be kept in good and effective
      operating condition, ordinary wear and tear excepted, and all repairs,
      renewals, replacements, additions and improvements thereof or thereto,
      needful to the production of Hydrocarbons from the lands described in
      Exhibit A, to be promptly made;

            (e) Not, except as permitted under the Secured Debt Documents,
      create, place or permit to be created or placed, or through any act or
      failure to act, acquiesce in the placing of, or allow to remain, any
      mortgage, pledge, lien (statutory, constitutional or contractual),
      security interest, encumbrance or charge, or conditional sale or other
      title retention agreement, regardless of whether same are expressly
      subordinate to the liens of the Secured Debt Documents, with, respect to
      all or any portion of the Mortgaged Property, the Leases or the Rents and
      Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting
      a lien but not due and payable, (3) defects or irregularities in title,
      and liens, charges or encumbrances, which are customarily viewed in the
      industry as not interfering materially with the development, operation or
      value of the Mortgaged Property and not such as to affect materially title
      thereto, and (4) those being contested by Mortgagor in good faith in such
      manner as not to jeopardize Beneficiary's rights in and to the Mortgaged
      Property;

            (f) Carry with financially sound and reputable insurance companies
      and in amounts as is customary in the industry or as otherwise required
      pursuant to the Secured Debt Documents, the following insurance: (1)
      workmen's compensation insurance and public liability and property damage
      insurance in respect of all activities in which Mortgagor might incur
      personal liability for the death of or injury to an employee or third
      person, or damage to or destruction of another's property; and (2) to the
      extent such insurance is carried by similar companies engaged in similar
      undertakings in, the same general areas in which the Mortgaged Property,
      is located, insurance in respect of the Operating Equipment, against loss
      or damage by fire, lightning, hail, tornado, explosion and other similar
      risks, hazards, casualties and contingencies (including business
      interruption insurance covering loss of Rents and Revenues); provided,
      that any such insurance may be provided by way of self insurance to the
      extent that similar companies engaged in similar undertakings in the same
      general areas also self-insure. Each insurance policy issued in connection
      therewith shall provide by way of endorsements, riders or otherwise that
      (i) name Beneficiary as a loss payee on all property insurance policies
      and an additional insured on all liability insurance policies, and provide
      that proceeds from property insurance policies will be payable to
      Beneficiary as its interest may appear, which proceeds are hereby assigned
      to Beneficiary, it being agreed by Mortgagor that such payments shall be
      applied A) if there be no Event of Default


                                      -17-


      existing or which would exist but for due notice or lapse of time, or
      both, to the restoration, repair or replacement of the Mortgaged Property,
      or B) if there be an Event of Default existing, or which would exist but
      for due notice or lapse of time, or both, in accordance with the
      provisions of the Collateral Trust Agreement, either for the above stated
      purpose or toward the payment of the Indebtedness; (ii) the coverage of
      Beneficiary shall not be terminated, reduced or affected in any manner
      regardless of any breach or violation by Mortgagor of any warranties,
      declarations or conditions in such policy; (iii) no such insurance policy
      shall be canceled, endorsed, altered or reissued to effect a change in
      coverage for any reason and to any extent whatsoever unless such insurer
      shall have first given Beneficiary and each Secured Debt Representative
      thirty (30) days prior written notice thereof; and (iv) Beneficiary may,
      but shall not be obligated to, make premium payments to prevent any
      cancellation, endorsement, alteration or re-issuance and such payments
      shall be accepted by the insurer to prevent the same. Beneficiary shall be
      furnished with a certificate evidencing such coverage in form and content
      comparable to coverage typically provided in the industry. All policies to
      be maintained under this Mortgage are to be issued on forms and by
      companies and with endorsements as are customary in the industry.
      Mortgagor shall maintain insurance in an amount sufficient to prevent
      Mortgagor from becoming a co-insurer under any policy required hereunder.
      If Mortgagor fails to maintain the level of insurance required under this
      Mortgage, then Mortgagor shall and hereby agrees to indemnify Beneficiary
      to the extent that a casualty occurs and insurance proceeds would have
      been available had such insurance been maintained;

            (g) Furnish to Beneficiary and each Secured Debt Representative, as
      soon as possible and in any event within five (5) days after the
      occurrence from time to time of any change in the address of Mortgagor's
      location (as described on the signature page hereto) or in the name of
      Mortgagor, notice in writing of such change;

            (h) Not initiate or acquiesce in any change in any material zoning
      or other land use or Water Rights classification now or hereafter in
      effect and affecting the Mortgaged Property or any part thereof;

            (i) Notify Beneficiary and each Secured Debt Representative in
      writing, as soon as possible and in any event within five (5) days after
      it shall become aware of the occurrence of any Event of Default or any
      event which, with notice, the passage of time or both would be such an
      Event of Default;

            (j) Appear and defend, and hold Beneficiary and any Secured
      Debtholder harmless from, any action, proceeding or claim affecting the
      Mortgaged Property or the rights and powers of Beneficiary or Secured
      Debtholders under the Secured Debt Documents, and all costs and expenses
      incurred by Beneficiary or any Secured Debtholder in protecting its
      interests hereunder in such an event (including all court costs and
      attorneys' fees) shall be borne by Mortgagor;


                                      -18-


            (k) Subject to Mortgagor's right to contest the same, promptly pay
      all Taxes legally imposed upon this instrument or upon the Mortgaged
      Property or upon the income and profits thereof, or upon the interest of
      Beneficiary therein; provided that Mortgagor shall not be liable for taxes
      accruing after a transfer of the Mortgaged Property following a
      foreclosure;

            (l) Comply with, conform to and obey, in all material respects, all
      present and future Legal Requirements and not use, maintain, operate,
      occupy, or allow the use, maintenance, operation or occupancy of, the
      Mortgaged Property in any manner which (a) violates any present and future
      Legal Requirement, (b) may be dangerous unless safeguarded as required by
      Applicable Law, (c) constitutes a public or private nuisance or (d) makes
      void, voidable or cancelable, or increases the premium of, any insurance
      then in force with respect thereto; and

            (m) Not, except as authorized under the Secured Debt Documents,
      permit any of the Fixtures or Personalty to be removed at any time from
      the lands described in Exhibit A unless (i) the removed item is removed
      temporarily for maintenance and repair, (ii) if removed permanently, is
      replaced by an article of equal suitability and value, owned by Mortgagor,
      free and clear of any lien or security interest or (iii) such Fixtures or
      Personalty are removed in connection with the plugging and abandoning of
      wells, or abandonment of other facilities, in each case as permitted by
      this Mortgage.

      3.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform
and comply with any and all representations, warranties, covenants and
agreements expressed as binding upon it under each of the Leases; (b) subject to
the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel
or waive its rights or the obligations of any other party under any of the
Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all
reasonable efforts to maintain each of the Leases in force and effect during the
full term thereof, and (d) appear in and defend (or cause its operator to appear
in and defend) any action or proceeding arising under or in any manner connected
with any of the Leases or the representations, warranties, covenants and
agreements of it or the other party or parties thereto.

      3.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense,
record, register, deposit and file this and every other instrument in addition
or supplemental hereto in such offices and places and at such times and as often
as may be necessary to preserve, protect and renew the lien and security
interest hereof as a first lien on and prior perfected security interest in real
or personal property, as the case may be, and the rights and remedies of
Beneficiary and Secured Debtholders, and otherwise will do and observe all
things or matters necessary or expedient to be done or observed by reason of any
Applicable Law, for the purpose of effectively creating, maintaining and
preserving the lien and security interest hereof on and in the Mortgaged
Property.


                                      -19-


      3.7 Sale or Mortgage of the Mortgaged Property. Except (a) as set forth in
Section 6.1 of this Mortgage; (b) for sales of severed Hydrocarbons in the
ordinary course of Mortgagor's business; (c) for sales of or dispositions of
surplus, obsolete or worn inventory or equipment; (d) for the lien and security
interest created by this Mortgage, (e) for Permitted Encumbrances, and (f) for
sales, exchanges or other dispositions of Mortgaged Property permitted under the
Secured Debt Documents governing Priority Lien Debt and permitted under the
Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell,
convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or
encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's
right, title or interest therein, and Mortgagor will not enter into any
arrangement with any gas pipeline company or other consumer of Hydrocarbons
regarding the Mortgaged Property whereby said gas pipeline company or consumer
may set off any claim against Mortgagor by withholding payment for any
Hydrocarbons actually delivered.

      3.8 Records, Statements and Reports. Mortgagor will keep proper books of
record and account in which complete and correct entries will be made of
Mortgagor's transactions in accordance with generally accepted accounting
principles and will furnish or cause to be furnished to each Secured Debt
Representative such information concerning the business, affairs and financial
condition of Mortgagor as required under the Secured Debt Documents. Without
limiting the generality of the foregoing, Mortgagor shall furnish to Beneficiary
and each Secured Debt Representative, but not more than every six (6) months:
(a) reports prepared by a reputable national independent petroleum engineer
regularly engaged by Mortgagor for such purposes or other engineering firm
acceptable to the Credit Agreement Agent concerning (1) the quantity of
Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income
and expense attributable to the Mortgaged Property, and (3) the expediency of
any change in methods of treatment or operation of all or any wells productive
of Hydrocarbons, any new drilling or development, any method of secondary
recovery by repressuring or otherwise, or any other action with respect to the
Mortgaged Property, the decision as to which may increase or reduce the quantity
of Hydrocarbons ultimately recoverable or the rate of production thereof, and
(b) reports for the prior period showing the gross proceeds from the sale of
Hydrocarbons produced from the lands described in Exhibit A (including any
thereof taken by Mortgagor for Mortgagor's own use), the quantity of such
Hydrocarbons sold, the severance, gross production, occupation, or gathering
taxes deducted from or paid out of such proceeds and the number of wells
operated, drilled or abandoned.

      3.9 Right of Entry.

            (a) Upon at least twenty-four (24) hours notice to Mortgagor,
      Mortgagor will permit Beneficiary, each Secured Debt Representative and/or
      the agents of either of them, at the cost and expense of Mortgagor, to
      enter upon the Mortgaged Property and all parts thereof, for the purpose
      of investigating and inspecting the condition and operation thereof, and
      shall permit reasonable access to the field offices and other offices (to
      the fullest extent that Mortgagor may do so under the terms of the
      applicable Joint Operating Agreements and


                                      -20-


      other applicable agreements affecting the Mortgaged Property), including
      the principal place of business, of Mortgagor to inspect and examine the
      Mortgaged Property and to inspect, review and reproduce as necessary any
      books, records, accounts, contracts or other documents of Mortgagor, it
      being understood that any non-public information obtained in connection
      therewith shall be subject to the relevant confidentiality provisions of
      the Secured Debt Documents then in effect.

            (b) Without limiting the generality of the foregoing, Beneficiary
      shall have the right (but shall not be obligated to), and each Secured
      Debt Representative and its agents shall have the right (to the fullest
      extent that Mortgagor may do so under the terms of the applicable Joint
      Operating Agreements and other applicable agreements affecting the
      Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor
      to enter the Mortgaged Property to conduct (at the cost and expense of
      Mortgagor), or to cause Mortgagor to conduct (at the cost and expense of
      Mortgagor), such tests and investigations as may be necessary to determine
      whether any hazardous materials or solid waste is being generated,
      transported, stored, or disposed of in accordance with applicable
      Environmental Laws. Such tests and investigations may include, without
      limitation, underground borings, ground water analyses and borings from
      the floors, ceilings and walls of any improvements located on the
      Mortgaged Property. This Section 3.9 shall not be construed to affect or
      limit the obligations of Mortgagor pursuant to Section 3.4 hereof.

            (c) Neither Beneficiary nor any Secured Debt Representative shall
      have any duty to visit or observe the Mortgaged Property, or to conduct
      tests, and no site visit, observation or testing by any such person (or
      its agents and independent contractors) shall impose any liability on any
      such person nor shall Mortgagor or any other obligor be entitled to rely
      on any such visit, observation or testing in any respect. Beneficiary or a
      Secured Debt Representative may, but shall not be obligated to, disclose
      to Mortgagor or, subject to the relevant confidentiality provisions of the
      Secured Debt Documents then in effect, any other Person, including any
      Governmental Authority, any report or finding made as a result of, or in
      connection with, any site visit, observation or testing. Mortgagor agrees
      that neither Beneficiary nor any Secured Debt Representative makes any
      warranty or representation to Mortgagor or any other obligor regarding the
      truth, accuracy or completeness of any such report or findings that may be
      so disclosed. Mortgagor also acknowledges that, depending upon the results
      of any site visit, observation or testing disclosed to Mortgagor,
      Mortgagor may have a legal obligation to notify one or more Governmental
      Authorities of such results, that such reporting requirements are
      site-specific, and are to be evaluated by Mortgagor without advice or
      assistance from Beneficiary or any Secured Debt Representative.


                                      -21-


      3.10 Environmental Laws.

            (a) Mortgagor represents and warrants, to the best of its knowledge
      after due inquiry that:

                  (i) except as permitted by the Secured Debt Documents, the
            Mortgaged Property is in compliance in all material respects with
            all applicable Environmental Laws and there are no conditions
            existing currently which would be likely to subject Mortgagor to
            damages, penalties, injunctive relief or cleanup costs under any
            Environmental Laws or assertions thereof, or which require or are
            likely to require cleanup, removal, remedial action or other
            response pursuant to Environmental Laws by Mortgagor; and all use,
            generation, manufacturing, release, discharge, storage, deposit,
            treatment, recycling or disposal of any materials on, under or at
            the Mortgaged Property or transported to or from the Mortgaged
            Property (or tanks or other facilities thereon containing such
            materials) are being and will be conducted in accordance, in all
            material respects, with applicable Environmental Laws including
            without limitation those requiring cleanup, removal or any other
            remedial action,

                  (ii) Mortgagor is not a party to any litigation or
            administrative proceedings, nor so far as is known by Mortgagor is
            any litigation or administrative proceeding threatened against it,
            which asserts or alleges that Mortgagor has violated or is violating
            Environmental Laws or that Mortgagor is required to clean up, remove
            or take remedial or other responsive action due to the disposal,
            depositing, discharge, leaking or other release of any hazardous
            substances or materials; neither the Mortgaged Property nor
            Mortgagor is subject to any judgment, decree, order or citation
            related to or arising out of Environmental Laws and neither has been
            named or listed as a potentially responsible party by any
            Governmental Authority in a matter arising under any Environmental
            Laws; and

                  (iii) Mortgagor has also obtained all Permits required under
            applicable Environmental Laws which are necessary for its current
            exploration, production, transportation, storage, use, and
            development activities at the Mortgaged Property.

            (b) Mortgagor shall not use or permit the Mortgaged Property or any
      part thereof to be used to generate, manufacture, refine, transport,
      treat, store, handle, dispose, transfer, produce or process any hazardous
      materials, except in material compliance with all applicable Environmental
      Laws, nor shall Mortgagor cause or permit, as a result of any intentional
      or unintentional act or omission on the part of Mortgagor or any tenant or
      subtenant, any material release of any hazardous materials onto the
      Mortgaged Property or onto any other property in material violation of any
      applicable Environmental Laws. Mortgagor shall comply, in all material
      respects, with all applicable Environmental Laws and shall


                                      -22-


      obtain and comply, in all material respects. with any and all
      registrations or Permits required thereunder. To the extent any hazardous
      materials are released or discharged onto the Mortgaged Property on or
      after the date of this Mortgage, Mortgagor shall conduct and complete all
      investigations, studies, sampling, and testing, and all remedial, removal,
      and other actions necessary to clean up and remove all such hazardous
      materials on, from, or affecting the Mortgaged Property or any part
      thereof (i) in accordance, in all material respects, with all applicable
      Environmental Laws; and (ii) in accordance, in all material respects, with
      the orders and directives of all Governmental Authorities having
      jurisdiction over the Mortgaged Property. Mortgagor shall promptly notify
      Beneficiary and each Secured Debt Representative of its receipt of any
      notice of a violation of any Environmental Laws.

            (c) Regardless of whether any site assessments are conducted
      pursuant to this Mortgage, and without limiting the liability of Mortgagor
      for the breach of any warranty, representation or covenant contained
      herein or in any Secured Debt Document, and notwithstanding any limitation
      of liability contained in the Secured Debt Documents, Mortgagor hereby
      agrees to unconditionally and absolutely defend, indemnify and hold
      harmless Beneficiary, Secured Debtholders, Trustee and their respective
      employees, affiliates, agents and attorneys, under the Mortgage and any
      successors or substitute trustee under the Mortgage (any person to be
      indemnified being herein called the "Indemnified Person"), from and
      against, and be responsible for, any and all liabilities (including strict
      liability), actions, demands, penalties, fines, taxes, assessments, losses
      (including, without limitation, diminution in the value of the Mortgaged
      Property), costs and expenses (including, without limitation, attorneys',
      paralegals', accountants' and other experts' and consultants' fees and
      expenses, and remedial costs, including, without limitation, costs of
      monitoring), suits, damages, including, without limitation, punitive
      damages and foreseeable and unforeseeable consequential damages, costs of
      any settlement or judgment and claims (including, without limitation,
      third-party claims for personal injury or real or personal property
      damage) of any and every kind whatsoever (hereinafter, collectively,
      called the "Losses"), which may now or in the future (whether before or
      after the release, or other termination of the Mortgage and the other
      Secured Debt Documents) be paid, imposed upon, incurred or suffered by or
      asserted or awarded against any of the Indemnified Persons or the
      Mortgaged Property by any person or entity or Governmental Authority for,
      with respect to, arising out of, or as a direct or indirect result of, any
      one or more of the following: (i) the presence or suspected presence,
      release or suspected release of any hazardous materials at, upon, under,
      within, above, from, by or in connection with the Mortgaged Property or
      any portion thereof, or elsewhere in connection with the transportation of
      hazardous materials to or from the Mortgaged Property (including, without
      limitation, in the air, soil, groundwater or surface water), or the
      escape, seepage, leakage, spillage, discharge, emission or release from
      the Mortgaged Property of any hazardous materials; (ii) any violations of
      any Environmental Laws at, upon, under, within, from, by or in connection
      with the Mortgaged Property; (iii) the environmental condition of the
      Mortgaged Property;


                                      -23-


      (iv) the imposition by any Governmental Authority of any lien or so-called
      "super priority lien" upon the Mortgaged Property as a result of the
      presence or release of hazardous materials, or any violation of any
      Environmental Laws, at, upon, under, within, from, by or connection with
      the Mortgaged Property; (v) obligations to remediate hazardous materials
      contamination, or to remediate any condition which constitutes a violation
      of any Environmental Laws; (vi) any site assessments of the Mortgaged
      Property; (vii) liability for personal injury or property damage or damage
      to the environment or fines, penalties and punitive damages, resulting
      from the presence or release of hazardous materials or any violations of
      any Environmental Laws, at, upon, under, within, from, by or in connection
      with the Mortgaged Property; and (viii) any environmental matter described
      in this Mortgage, including, without limitation, matters arising out of
      any breach of the covenants, representations and warranties set forth
      herein in each instance described in (i) through (viii) hereof regardless
      of whether any such Losses arise out of or result from any breach of the
      covenants, representations and warranties pertaining to environmental
      matters set forth in this Mortgage or the other Secured Debt Documents,
      and regardless of whether or not caused by or within the control of
      Mortgagor or any Indemnified Person; or whether any such matters arise
      before, during or after any foreclosure of the Mortgage or other taking of
      title to all or any portion of the Mortgaged Property or the enforcement
      of any other remedies under the Secured Debt Documents (if any such event
      occurs). WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH
      INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE
      CAUSED BY OR ARISE OUT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE
      OR THE STRICT LIABILITY OF ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS
      NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON.

            (d) Notwithstanding the foregoing or any contrary provision hereof,
      Mortgagor's indemnification obligations set forth in this Section 3.10
      shall not extend to any such Losses which are attributable solely to
      contamination by hazardous materials first introduced to the Mortgaged
      Property after a foreclosure of this Mortgage or other taking of title to
      the Mortgaged Property by any of Indemnified Persons.

            (e) The indemnification provided in this Section 3.10 shall
      specifically apply to and include claims or actions brought by or on
      behalf of tenants or employees of Mortgagor. Mortgagor hereby expressly
      waives (with respect to any claims of any Indemnified Person arising under
      this Section 3.10) any immunity to which Mortgagor may otherwise be
      entitled under any industrial or worker's compensation laws.

            (f) In the event any of the Indemnified Persons shall suffer or
      incur any such Losses, Mortgagor shall pay to such Indemnified Persons the
      total of all such Losses suffered or incurred within ten (10) days after
      demand therefore.


                                      -24-


            (g) Mortgagor agrees that the representations, covenants, warranties
      and indemnifications contained in this Mortgage shall survive the release
      of the Mortgage, the foreclosure or the taking of a deed in lieu of
      foreclosure, other termination of the lien of the Mortgage, or the
      exercise by Beneficiary of any other remedies under the Secured Debt
      Documents, the discharge of Mortgagor's Obligations under any of the other
      Secured Debt Documents, or any transfer of the Mortgaged Property, even if
      as a part of such foreclosure, deed in lieu of foreclosure or other
      enforcement action, the Indebtedness is satisfied in full.

      3.11 Corporate Mortgagor. Mortgagor will continue to be duly qualified to
transact business in each state where the conduct of its business requires it to
be qualified, and will not, unless permitted pursuant to the Secured Debt
Documents, consolidate or merge with any other partnership, company, corporation
or other Person.

      3.12 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor
is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382.

                                  ARTICLE IV.

                            ASSIGNMENT OF PRODUCTION

      4.1 Assignment.

            (a) Mortgagor hereby absolutely and irrevocably (a) transfers,
      assigns, warrants and conveys, to Beneficiary, effective as of July 1,
      2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter
      produced from and which accrue to the Mortgaged Property, and all proceeds
      therefrom, and (b) gives to and confers upon Beneficiary the right, power
      and authority to collect such Hydrocarbons and proceeds. Subject to the
      terms of Section 4.1 (b), all parties producing, purchasing or receiving
      any such Hydrocarbons, or having such, or proceeds therefrom, in their
      possession for which they or others are accountable to Beneficiary by
      virtue of the provisions of this Article IV, are authorized and directed
      to treat and regard Beneficiary as the assignee and transferee of
      Mortgagor and entitled in Mortgagor's place and stead to receive such
      Hydrocarbons and all proceeds therefrom; and said parties and each of them
      shall be fully protected in so treating and regarding Beneficiary and
      shall be under no obligation to see to the application by Beneficiary of
      any such proceeds or payments received by it; provided, however, that,
      until Beneficiary or any Secured Debt Representative shall have instructed
      such parties that an Event of Default has occurred and to deliver such
      Hydrocarbons and all proceeds therefrom directly to Beneficiary, such
      parties shall be entitled to deliver such Hydrocarbons and all proceeds
      therefrom directly to Mortgagor. So long as no Event of Default shall have
      occurred, Mortgagor shall be entitled to receive directly from such
      parties, and keep and retain, all such proceeds from the sale of such
      Hydrocarbons.


                                      -25-


            (b) Upon the occurrence of an Event of Default (provided that the
      Secured Debt Representative shall not give such instruction and notice
      under this Article IV unless such Event of Default shall then be
      continuing), any Secured Debt Representative may at any time (and from
      time to time) thereafter give notice thereof to any party producing,
      purchasing or receiving any such Hydrocarbons, or having such, or proceeds
      therefrom, in their possession for which they or others are accountable to
      Beneficiary, directing that said Hydrocarbons and products are to be
      delivered into pipelines connected with the oil and gas leases, or to the
      purchaser thereof, free and clear of all Taxes, and the proceeds from the
      sale of such Hydrocarbons paid directly to Beneficiary in accordance with
      Section 4.5 of this Mortgage. Said parties producing, purchasing or
      receiving any such Hydrocarbons, or having such, or proceeds therefrom, in
      their possession for which they or others are accountable to Beneficiary
      by virtue of the provisions of this Article IV, shall be fully protected
      in relying on any such Secured Debt Representative's determination and
      notice of the occurrence of an Event of Default. Mortgagor agrees to
      perform all such acts, and to execute all such further assignments,
      transfers and division orders, and other instruments as may be required
      pursuant to the Collateral Trust Agreement or any of the Secured Debt
      Documents in order to have said revenues and proceeds so paid to
      Beneficiary, as and when provided in this Article IV. With respect to any
      funds received by Beneficiary, Beneficiary is fully authorized to (but
      shall not be obligated to) receive and give receipt for any such revenues
      and proceeds that are received by Beneficiary; to endorse and cash any and
      all checks and drafts payable to the order of Mortgagor or Beneficiary for
      the account of Mortgagor received from or in connection with said revenues
      or proceeds and apply the proceeds thereof in accordance with Section 4.2
      hereof, and to execute transfer and division orders in the name of
      Mortgagor, or otherwise, with warranties binding Mortgagor. The assignment
      of the Hydrocarbons and proceeds in this Section 4.1 is intended to be an
      absolute assignment from Mortgagor to Beneficiary and not merely the
      passing of a security interest. Such Hydrocarbons and proceeds are hereby
      assigned absolutely by Mortgagor to Beneficiary.

      4.2 Application of Proceeds. All payments received by Beneficiary pursuant
to Section 4.1 hereof shall be placed in a cash collateral account to be applied
in accordance with the provisions of the Collateral Trust Agreement.

      4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby
absolved from all liability for failure to enforce collection of any proceeds so
assigned (and no such failure shall be deemed to be a waiver of any right of
Beneficiary under this Article IV) and from all other responsibility in
connection therewith, except the responsibility to account to Mortgagor for
funds actually received.

      4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein
contained shall detract from or limit the absolute obligation of Mortgagor to
make payment of the Indebtedness regardless of whether the proceeds assigned by
this Article IV are sufficient to pay the same, and the rights under this
Article IV shall be in


                                      -26-


addition to all other security now or hereafter existing to secure the payment
of the Indebtedness.

      4.5 Status of Assignment. Notwithstanding the other provisions of this
Article IV and in addition to the other rights hereunder, Beneficiary or any
receiver appointed in judicial proceedings for the enforcement of this Mortgage
shall have the right to receive all of the Hydrocarbons herein assigned and the
proceeds therefrom after the occurrence and during the continuance of any Event
of Default and to apply all of said proceeds as provided in Section 4.2 hereof.
Upon any sale of the Mortgaged Property or any part thereof pursuant to Article
V, the Hydrocarbons thereafter produced from the property so sold, and the
proceeds therefrom, shall be included in such sale and shall pass to the
purchaser free and clear of the assignment contained in this Article IV.

      4.6 Indemnification Obligation. The following provisions shall apply to,
and be deemed in each case to modify, each of the provisions of this Mortgage
(except those set forth in Section 3.10 hereof) and the other Secured Debt
Documents (except to the extent otherwise expressly provided therein) wherein
Mortgagor is obligated to indemnify each of the Indemnified Persons:

            (a) Mortgagor agrees to indemnify Beneficiary, the Secured
      Debtholders, Trustee and their respective employees, affiliates, agents
      and attorneys, under the Mortgage and any successors or substitute trustee
      under the Mortgage, against all legal and administrative proceedings for
      which a claim for indemnification may be made by the Indemnified Person
      (herein, collectively, called "Indemnification Claims") made against or
      incurred by them or any of them as a consequence of the assertion, either
      before or after the payment in full of the Indebtedness, that they or any
      of them received Hydrocarbons herein assigned or the proceeds thereof
      claimed by third persons and Beneficiary, Secured Debtholders, and Trustee
      shall have the right to defend against any such Indemnification Claims,
      employing attorneys therefor, and unless furnished with reasonable
      indemnity, they or any of them shall have the right to pay or compromise
      and adjust all such Indemnification Claims. Mortgagor will indemnify and
      pay to Beneficiary, Secured Debtholders and Trustee any and all such
      amounts as may be paid in respect thereof or as may be successfully
      adjudged against such persons. The obligations of Mortgagor as hereinabove
      set forth in this Section 4.6 shall survive the release termination,
      foreclosure or assignment of this Mortgage or any sale hereunder.

            (b) Mortgagor shall pay when due any judgments with respect to an
      Indemnification Claim against any of the Indemnified Persons and which are
      rendered by a final order or decree of a court of competent jurisdiction
      from which no further appeal may be taken or has been taken within the
      applicable appeal period. In the event that such payment is not made, any
      of the Indemnified Persons at its sole discretion may pay any such
      judgments, in whole or in part, and look to Mortgagor for reimbursement
      pursuant to this Mortgage, or may proceed to file suit against Mortgagor
      to compel such payment.


                                      -27-


            (c) Any amount which Mortgagor is obligated to pay to or for the
      benefit of an Indemnified Person with respect to an Indemnification Claim,
      but which is not paid when due, shall bear interest at the applicable rate
      set forth under the Secured Debt Documents from the date such amount is
      due until such amount is paid.

                                   ARTICLE V.

                           ENFORCEMENT OF THE SECURITY

      5.1 Title Examination. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Beneficiary shall have the right and
power to (but shall not be obligated to) cause to be brought down to date a
title examination and tax histories of the Mortgaged Property, procure title
opinions or title reports or, if necessary, procure new abstracts and tax
histories.

      5.2 Environmental Audit. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Beneficiary shall have the right and
power to (but shall not be obligated to) procure an updated or entirely new
environmental audit of the Mortgaged Property including the lands described in
Exhibit A, buildings, soil, ground water and subsurface investigations; have the
buildings inspected by an engineer or other qualified inspector; enter upon the
Mortgaged Property at any time and from time to time to show the Mortgaged
Property to potential purchasers and potential bidders at foreclosure sale; make
available to potential purchasers and potential bidders all information obtained
pursuant to the foregoing and any other information in the possession of
Beneficiary regarding the Mortgaged Property.

      5.3 Power of Sale of Real Property Constituting a Part of the Mortgaged
Property. Upon the occurrence of an Event of Default and if such Event of
Default shall be continuing, Trustee shall have the right and power to sell, to
the extent permitted by Applicable Law, at one or more sales, as an entirety or
in parcels, as they may elect, the real property constituting a part of the
Mortgaged Property, at such place or places and otherwise in such manner and
upon such notice as may be required by Applicable Law, or, in the absence of any
such requirement, as Trustee may deem appropriate, and to make conveyance to the
purchaser or purchasers; and Mortgagor shall warrant title to such real property
to such purchaser or purchasers. Trustee may postpone the sale of all or any
portion of such real property by public announcement at the time and place of
such sale, and from time to time thereafter may further postpone such sale by
public announcement made at the time of sale fixed by the preceding
postponement. The right of sale hereunder shall not be exhausted by one or any
sale, and Trustee may make other and successive sales until all of the trust
estate be legally sold. With respect to that portion, if any, of the Mortgaged
Property situated in the State of Wyoming, this Mortgage may be foreclosed by
advertisement and sale as provided by applicable Wyoming statutes. With respect
to that portion, if any, of the Mortgaged Property situated in the State of
Oklahoma, the Beneficiary shall have the right and power to (but shall not be
obligated to) declare the Indebtedness secured hereby due and payable and to
sell, or direct Trustee to sell, the "real estate," as such term is


                                      -28-


defined under the provisions of 46 O.S. Supp. 1986, Section 42, constituting a
part of the Mortgaged Property, all under the terms of 46 O.S. Supp. 1986,
Section 40 et seq., and shall, to the extent permitted by Applicable Law, have
the other rights conferred on Trustee under the provisions of this Mortgage.

      5.4 Rights of Beneficiary with Respect to Personal Property Constituting a
Part of the Mortgaged Property. Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing, Beneficiary will have all rights
and remedies granted by Applicable Law, and particularly by the Uniform
Commercial Code, including, but not limited to, the right to take possession of
all personal property constituting a part of the Mortgaged Property, and for
this purpose Beneficiary may enter upon any premises on which any or all of such
personal property is situated and take possession of and operate such personal
property (or any portion thereof) or remove it therefrom. Beneficiary may
require Mortgagor to assemble such personal property and make it available to
Beneficiary at a place to be designated by Beneficiary which is reasonably
convenient to all parties. Unless such personal property is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Beneficiary will give Mortgagor reasonable notice of the time
and place of any public sale or of the time after which any private sale or
other disposition of such personal property is to be made. This requirement of
sending reasonable notice will be met if the notice is mailed by first-class
mail, postage prepaid, to Mortgagor at the address shown below the signatures at
the end of this Mortgage at least five (5) days before the time of the sale or
disposition.

      5.5 Rights with Respect to Fixtures Constituting a Part of the Mortgaged
Property. Upon the occurrence of an Event of Default and if such Event of
Default shall be continuing, Beneficiary may elect to treat the fixtures
constituting a part of the Mortgaged Property as either real property collateral
or personal property collateral and then proceed to exercise such rights as
apply to such type of collateral.

      5.6 Judicial Proceedings. Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing, Trustee, in lieu of or in addition
to exercising any power of sale hereinabove given, may proceed by a suit or
suits in equity or at law, whether for a foreclosure hereunder for each or upon
credit in one or more parcels or portions under executory or ordinary process,
at Beneficiary's sole option, without appraisement (appraisement being expressly
waived), or for the sale of the Mortgaged Property, or for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Mortgaged Property, or for
the enforcement of any other appropriate legal or equitable remedy. Mortgagor
hereby acknowledges the Indebtedness secured hereby, whether now existing or to
arise hereafter, and confesses judgment thereon in the full amount of the
Indebtedness in favor of Beneficiary and any future holder or holders of Secured
Debt if such obligations are not paid at maturity.

      5.7 Possession of the Mortgaged Property. It shall not be necessary for
Trustee or Beneficiary to have physically present or constructively in their
possession at


                                      -29-


any sale held by Trustee or Beneficiary or by any court, receiver or public
officer any or all of the Mortgaged Property; and Mortgagor shall deliver to the
purchasers at such sale on the date of sale the Mortgaged Property purchased by
such purchasers at such sale, and if it should be impossible or impracticable
for any of such purchasers to take actual delivery of the Mortgaged Property,
then the title and right of possession to the Mortgaged Property shall pass to
such purchaser at such sale as completely as if the same had been actually
present and delivered.

      5.8 Certain Aspects of a Sale. Beneficiary shall have the right to (but
shall not be obligated to) become the purchaser at any sale held by Trustee,
Beneficiary or by any court, receiver or public officer, and Beneficiary shall
have the right to (but shall not be obligated to) credit upon the amount of the
bid made therefor the amount payable out of the net proceeds of such sale to it
Recitals contained in any conveyance made to any purchaser at any sale made
hereunder shall conclusively establish the truth and accuracy of the matters
therein stated, including, without limiting the generality of the foregoing,
nonpayment of the unpaid principal sum of, and the interest accrued on, Secured
Debt after the same have become due and payable, advertisement and conduct of
such sale in the manner provided herein or appointment of any successor Trustee
hereunder.

      5.9 Receipt to Purchaser. Upon any sale, whether made under the power of
sale herein granted and conferred or by virtue of judicial proceedings, the
receipt of Trustee, Beneficiary or of the officer making sale under judicial
proceedings, shall be sufficient discharge to the purchaser or purchasers at any
sale for his or their purchase money, and such purchaser or purchasers, or his
or their assigns or personal representatives, shall not, after paying such
purchase money and receiving such receipt of Trustee, Beneficiary, or of such
officer therefor, be obliged to see to the application of such purchase money,
or be in anywise answerable for any loss, misapplication or nonapplication
thereof.

      5.10 Effect of Sale. Any sale or sales of the Mortgaged Property, whether
under the power of sale herein granted and conferred or by virtue of judicial
proceedings, shall operate to divest all right, title, interest, claim and
demand whatsoever either at law or in equity, of Mortgagor of, in and to the
premises and the property sold, and shall be a perpetual bar, both at law and in
equity, against Mortgagor, and Mortgagor's successors or assigns, and against
any and all persons claiming or who shall thereafter claim all or any of the
property sold from, through or under Mortgagor or Mortgagor's successors or
assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of
all proper conveyances, assignments and transfers of the properties so sold.

      5.11 Application of Proceeds. The proceeds of any sale of, and the Rents
and Revenues and other amounts generated by the holding, leasing, operation or
other use of, the Mortgaged Property shall be applied in accordance with the
provisions of the Collateral Trust Agreement.


                                      -30-


      5.12 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights.
Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that
Mortgagor will not at any time insist upon or plead or in any manner whatever
claim the benefit of any appraisement, valuation, stay, extension or redemption
law now or hereafter in force, in order to prevent or hinder the enforcement or
foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or
the possession thereof by any purchaser at any sale made pursuant to any
provision hereof, or pursuant to the decree of any court of competent
jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or
under Mortgagor, so far as Mortgagor or those claiming through or under
Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such
laws; provided, however, that appraisement of any of the Mortgaged Property
located in the State of Oklahoma is hereby expressly waived or not, at the
option of Beneficiary, such option to be exercised prior to or at the time the
judgment is rendered in any foreclosure hereof. Mortgagor, for Mortgagor and all
who may claim through or under Mortgagor, waives, to the extent that Mortgagor
may lawfully do so, any and all right to have the Mortgaged Property marshalled
upon any foreclosure of the lien hereof, or sold in inverse order of alienation,
and agrees that Trustee, Beneficiary or any court having jurisdiction to
foreclose such lien may sell the Mortgaged Property as an entirety. Mortgagor,
for Mortgagor and all who may claim through or under Mortgagor, further waives,
to the full extent that Mortgagor may lawfully do so, any requirement for
posting a receiver's bond or replevin bond or other similar type of bond if
Trustee or Beneficiary commence an action for appointment of a receiver or an
action for replevin to recover possession of any of the Mortgaged Property. If
any law in this paragraph referred to and now in force, of which Mortgagor or
Mortgagor's successor or successors might take advantage despite the provisions
hereof, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to, constitute any part of the contract herein contained or
to preclude the operation or application of the provisions of this paragraph.
Pursuant to Section 39-5-19, New Mexico Statutes, Annotated, 1978 Comp., as
amended, Mortgagor agrees that as to the Mortgaged Property situated in the
State of New Mexico, the redemption period shall be shortened to one (1) month.
Mortgagor hereby waives all rights of appraisement, sale, homestead or
redemption allowed under any law or laws of the State of Arkansas, and
especially redemption under the Act of the General Assembly of the State of
Arkansas approved May 8, 1899, and acts amendatory thereto. If Mortgagor is an
individual, Mortgagor waives and releases all rights of dower, courtesy and
homestead in the Mortgaged Property insofar as such rights may in any way affect
the purposes of this Mortgage.

      5.13 Costs and Expenses. All costs and expenses (including attorneys'
fees) incurred by Trustee or Beneficiary in protecting and enforcing their
rights hereunder shall constitute a demand obligation owing by Mortgagor to the
party incurring such costs and expenses and shall draw interest at Default
Interest Rate, all of which shall constitute a portion of the Indebtedness.

      5.14 Sale of the Mortgaged Property in Texas. If Secured Debt is not paid
when due, whether by acceleration or otherwise, Trustee is hereby authorized and
empowered to (but shall not be obligated to) sell any part of the Mortgaged
Property located in the State of Texas at public sale to the highest bidder for
cash in the area at


                                      -31-


the county courthouse of the county in Texas in which the Texas portion of the
Mortgaged Property or any part thereof is situated, as herein described,
designated by such county's commissioner's court for such proceedings, or if no
area is so designated, at the door of the county courthouse of said county, at a
time between the hours of 10:00 A.M. and 4:00 P.M. which is no later than three
(3) hours after the time stated in the notice described immediately below as the
earliest time at which such sale would occur on the first Tuesday of any month,
after advertising the earliest time at which said sale would occur, the place,
and terms of said sale, and the portion of the Mortgaged Property to be sold, by
(a) posting (or by having some person or persons acting for Trustee post) for at
least twenty-one (21) days preceding the date of the sale, written or printed
notice of the proposed sale at the courthouse door of said county in which the
sale is to be made; and if such portion of the Mortgaged Property lies in more
than one county, one such notice of sale shall be posted at the courthouse door
of each county in which such part of the Mortgaged Property is situated and such
part of the Mortgaged Property may be sold in the area at the county courthouse
of any one of such counties designated by such county's commissioner's court for
such proceedings, or if no area is so designated, at the courthouse door of such
county, and the notice so posted shall designate in which county such property
shall be sold, and (b) filing in the office of the county clerk of each county
in which any part of the Texas portion of the Mortgaged Property which is to be
sold at such sale is situated a copy of the notice posted in accordance with the
preceding clause (a). In addition to such posting and filing of notice,
Beneficiary may or other holder of the Indebtedness shall, at least twenty-one
(21) days preceding the date of sale, serve or cause to be served written notice
of the proposed sale by certified mail on Mortgagor and on each other debtor, if
any, obligated to pay the Indebtedness according to the records of Beneficiary
or other holder of the Indebtedness. Service of such notice shall be completed
upon deposit of the notice, enclosed in a postpaid wrapper properly addressed to
Mortgagor and such other debtors at their most recent address or addresses as
shown by the records of Beneficiary or other holder of the Indebtedness in a
post office or official depository under the care and custody of the United
States Postal Service. The affidavit of any person having knowledge of the facts
to the effect that such a service was completed shall be prima facie evidence of
the fact of service. Mortgagor agrees that no notice of any sale, other than as
set out in this Section, need be given by Trustee, Beneficiary or any other
person, except as may otherwise be required by Applicable Law. Mortgagor hereby
designates as its address for the purpose of such notice the address set out on
the signature page hereof; and agrees that such address shall be changed only by
depositing notice of such change enclosed in a postpaid wrapper in a post office
or official depository under the care and custody of the United States Postal
Service, certified mail, postage prepaid, return receipt requested, addressed to
Beneficiary or other holder of the Indebtedness at the address for Beneficiary
set out herein (or to such other address as Beneficiary or other holder of the
Indebtedness may have designated by notice given as above provided to Mortgagor
and such other debtors). Any such notice of change of address of Mortgagor or
other debtors or of Beneficiary or of other holder of the Indebtedness shall be
effective three (3) business days after such deposit if such post office or
official depository is located in the State of Texas, otherwise to be effective
upon receipt. Mortgagor authorizes and empowers Trustee to


                                      -32-


sell the Texas portion of the Mortgaged Property in lots or parcels or in its
entirety as is customary in the industry or Trustee may elect; and to execute
and deliver to the purchaser or purchasers thereof good and sufficient deeds of
conveyance thereto by fee simple title, with evidence of general warranty by
Mortgagor, and the title of such purchaser or purchasers when so made by
Trustee, Mortgagor binds itself to warrant and forever defend. Where portions of
the Mortgaged Property lie in different counties, sales in such counties may be
conducted in any order that Trustee may deem expedient; and one or more such
sales may be conducted in the same month, or in successive or different months.
Notwithstanding anything to the contrary contained herein, Trustee may postpone
the sale provided for in this Section 5.14 at any time without the necessity of
a public announcement. The provisions hereof with respect to the posting and
giving of notices of sale are intended to comply with the provisions of Section
51.002 of the Property Code of the State of Texas, effective January 1, 1984,
and in the event the requirements, or any notice, under such Section 51.002 of
the Property Code of the State of Texas shall be eliminated or the prescribed
manner of giving such notices modified by future amendment to, or adoption of
any statute superseding, Section 51.002 of the Property Code of the State of
Texas, the requirement for such particular notices shall be deemed stricken from
or modified in this Mortgage in conformity with such amendment or superseding
statute, effective as of the effective date thereof.

      5.15 Fair Market Value. It is expressly agreed by Mortgagor that to the
extent Section 51.003 of the Texas Property Code, or any amendment thereto,
requires that the "fair market value" of the Mortgaged Property shall be
determined as of the foreclosure date in order to enforce a deficiency against
Mortgagor or any other party liable for repayment of the Indebtedness, the term
"fair market value" shall include those matters required by Applicable Law and
shall also include the additional factors set forth below:

            (a) The Mortgaged Property is to be valued "AS IS" and "WITH ALL
      FAULTS" and there shall be no assumption of restoration of or
      refurbishment of improvements, if any, after the date of the foreclosure;

            (b) An offset to the fair market value of the Mortgaged Property, as
      determined hereunder, shall be made by deducting from such value the
      reasonable estimated closing costs relating to the sale of the Mortgaged
      Property, including but not limited to brokerage commissions, title
      examination and curative expenses, tax prorations, escrow fees, and other
      common charges which are incurred by a seller of property; and

            (c) After consideration of the factors required by Applicable Law
      and those required above, an additional discount factor shall be
      calculated based upon the estimated time it will take to effectuate a sale
      of the Mortgaged Property so that the "fair market value" as so determined
      is discounted to be as of the date of the foreclosure sale of the
      Mortgaged Property.


                                      -33-


      5.16 Operation of the Mortgaged Property by Beneficiary. Upon the
occurrence of an Event of Default and during the continuance of such Event of
Default and in addition to all other rights herein conferred on Beneficiary,
Beneficiary (or any person, firm or corporation designated by Beneficiary) shall
have the right and power, but shall not be obligated, to enter upon and take
possession of any of the Mortgaged Property, and to exclude Mortgagor, and
Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer,
manage and operate the same to the extent that Mortgagor shall be at the time
entitled and in its place and stead. Beneficiary, or any person, firm or
corporation designated by Beneficiary, may operate the same without any
liability to Mortgagor in connection with such operations, except to use
ordinary care in the operation of such properties, and Beneficiary or any
person, firm or corporation designated by Beneficiary, shall have the right to
(but shall not be obligated to) collect, receive and receipt for all
Hydrocarbons produced and sold from said properties, to make repairs, purchase
machinery and equipment, conduct work-over operations, drill additional wells
and to exercise every power, right and privilege of Mortgagor with respect to
the Mortgaged Property. When and if the expenses of such operation and
development (including costs of unsuccessful work-over operations or additional
wells) paid by Beneficiary or attributable to Mortgagor's undivided interest
therein and withheld, or offset against, by an operator or other party have been
paid or reimbursed in full by Mortgagor and the Indebtedness paid, said
properties shall, if there has been no sale or foreclosure, be returned to
Mortgagor.

      5.17 Separate Sales. The Mortgaged Property may be sold in one or more
parcels and it being expressly understood and agreed that the right of sale
arising out of any Event of Default shall not be exhausted by any one or more
sales but other and successive sales may be made until all of the Mortgaged
Property has been sold or until the Indebtedness has been fully satisfied.

      5.18 Remedies Cumulative, Concurrent and Non-Exclusive. Beneficiary shall
have all rights, remedies and recourses granted in the Secured Debt Documents
and available at law or equity (including specifically those granted by the
Uniform Commercial Code in effect and applicable to the Mortgaged Property, or
any portion thereof), and the same (a) shall be cumulative and concurrent, (b)
may be pursued separately, successively or concurrently against any one or more
of Mortgagor, any Guarantor, or others obligated under the Secured Debt
Documents, or against the Mortgaged Property, pursuant to the Collateral Trust
Agreement and any Secured Debt Documents, (c) may be exercised as often as
occasion therefor shall arise, it being agreed by Mortgagor that the exercise or
failure to exercise any of same shall in no event be construed as a waiver or
release thereof or of any other right, remedy or recourse, and (d) are intended
to be, and shall be, non-exclusive.

      5.19 Release of and Resort to Collateral. Beneficiary may release,
regardless of consideration, any part of the Mortgaged Property without, as to
the remainder, in any way impairing, affecting, subordinating or releasing the
lien or security interests created in or evidenced by the Secured Debt Documents
or their stature as a first and prior lien and security interest in and to the
Mortgaged Property. For payment of the


                                      -34-


Indebtedness, Beneficiary may resort to any other security therefor held in such
order and manner as Beneficiary may elect.

      5.20 Discontinuance of Proceedings. In case Beneficiary shall have
proceeded to invoke any right, remedy or recourse permitted under the Secured
Debt Documents and shall thereafter elect to discontinue or abandon same for any
reason, Beneficiary shall have the unqualified right so to do and, in such an
event, Mortgagor and Beneficiary shall be restored to their former positions
with respect to the Indebtedness, the Obligations, the Secured Debt Documents,
the Mortgaged Property and otherwise, and the rights, remedies, recourses and
powers of Beneficiary shall continue as if same had never been invoked.

      5.21 Uniform Commercial Code Remedies. Beneficiary shall have all the
rights, remedies and recourses with respect to the Personalty, Fixtures, Leases
and Rents and Revenues afforded a Secured Party by the aforesaid Uniform
Commercial Code (being Chapter 9 of the Texas Business and Commerce Code, as to
property within the scope thereof and situated in the State of Texas) in
addition to, and not in limitation of, the other rights, remedies and recourses
afforded Beneficiary by the Secured Debt Documents.

      5.22 No Obligation of Trustee or Beneficiary. The assignment and security
interest herein granted shall not be deemed or construed (a) to constitute
Trustee or Beneficiary as a trustee in possession of the Mortgaged Property or,
(b) to obligate Trustee or Beneficiary to (i) lease the Mortgaged Property or
attempt to do same, (ii) take any action, (iii) incur any expenses or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise.

                                  ARTICLE VI.

                            MISCELLANEOUS PROVISIONS

      6.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby
authorized, to pool or unitize all or any part of the lands described in Exhibit
A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds
and other interests, when, in the reasonable judgment of Mortgagor, it is
necessary or advisable to do so in order to form a drilling and/or production
unit to facilitate the orderly development of that part of the Mortgaged
Property affected thereby, or to comply with the requirements of any Applicable
Law or governmental order or regulation relating to the spacing of wells or
proration of the production therefrom; provided, however, that any unit so
formed for the production of oil shall not substantially exceed 160 acres, and
any unit so formed for the production of gas shall not substantially exceed 640
acres, unless a larger area is required to conform to an Applicable Law or
governmental order or regulation relating to the spacing of wells or to obtain
the maximum allowable production under any Applicable Law or governmental order
or regulation relating to the proration of production therefrom; and further
provided that the Hydrocarbons produced from any unit so formed shall be
allocated among the separately owned tracts or interests comprising the unit in
a uniform manner consistently applied; and further provided that all interests
owned by Mortgagor in such unit shall be included within the


                                      -35-


Mortgaged Property. Any unit so formed may relate to one or more zones or
horizons, and a unit formed for a particular zone or horizon need not conform in
area to any other unit relating to a different zone or horizon, and a unit
formed for the production of oil need not conform in area with any unit formed
for the production of gas. Promptly after formation of any such unit, Mortgagor
shall furnish to Beneficiary and each Secured Debt Representative a true copy of
the pooling agreement, declaration of pooling or other instrument creating such
unit. The interest in any such unit attributable to the Mortgaged Property (or
any part thereof) included therein shall become a part of the Mortgaged Property
and shall be subject to the lien hereof in the same manner and with the same
effect as though such unit and the interest of Mortgagor therein were
specifically described in Exhibit A. Mortgagor is further authorized to amend,
modify or terminate any pooling or unitization agreement or order to which
Mortgagor is a party or the Mortgaged Property is subject, provided that such
action does not conflict with the provisions of this Mortgage, including this
Section 6.1. Mortgagor may enter into, or amend, modify or terminate, pooling or
unitization agreements not hereinabove authorized only as permitted under the
Secured Debt Documents.

      6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt
Representative or any of their agents shall be liable for any error of judgment
or act done in good faith, or be otherwise responsible or accountable under any
circumstances whatsoever, except for their gross negligence or willful
misconduct. None of Beneficiary, Trustee, any Secured Debt Representative or any
of their agents shall be personally liable in case of entry by them, or anyone
entering by virtue of the powers herein granted them, upon the Mortgaged
Property for debts contracted or liability or damages incurred in the management
or operation of the Mortgaged Property. Such persons shall have the right to
rely on any instrument, document or signature authorizing or supporting any
action taken or proposed to be taken by them hereunder, believed by them in good
faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or
any of their agents shall be entitled to reimbursement for expenses incurred by
them in the performance of their duties hereunder and to reasonable compensation
for such of their services hereunder as shall be rendered. Mortgagor will, from
time to time, pay the compensation due hereunder and reimburse such parties for,
and save them harmless against, any and all liability and expenses which may be
incurred by them in the performance of their duties.

      6.3 Successor Trustee. Any Trustee may resign in writing addressed to
Beneficiary or may be removed at any time with or without cause by an instrument
in writing duly executed by Beneficiary. In case of the death, resignation or
removal of a Trustee, one or more successor Trustee may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of Applicable Law, and in the absence of any such requirement
without formality other than appointment and designation in writing. Such
appointment and designation shall be full evidence of the right and authority to
make the same and of all facts therein recited, and upon the making of any such
appointment and designation this conveyance shall vest in the named successor
Trustee or Trustee, all the estate and title of the prior Trustee in all of the
Mortgaged Property, and he or they shall thereupon succeed to all the rights,
powers, privileges, immunities and duties hereby conferred upon the prior
Trustee. All


                                      -36-


references herein to Trustee shall be deemed to refer to Trustee from time to
time acting hereunder.

      6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant
herein contained shall be performed and kept by Mortgagor solely at Mortgagor's
expense. If Mortgagor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this Mortgage, Beneficiary, or Trustee or
any receiver appointed hereunder or under Applicable Law, may, but shall not be
obligated to, take action and/or make advances to perform the same in
Mortgagor's behalf; provided, however, that concurrently with the taking of such
action or making such advances, Beneficiary, Trustee or any Secured Debt
Representative shall deliver notice to Trustor. Mortgagor hereby agrees to repay
the expense of such action and such advances upon demand plus interest as set
forth in the Collateral Trust Agreement. No such advance or action by
Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to
relieve Mortgagor from any default hereunder.

      6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any
election by Trustee or Beneficiary not to insist, upon strict performance by
Mortgagor of any of the terms, provisions or conditions of the Collateral Trust
Agreement or any Secured Debt Documents shall not be deemed to be a waiver of
same or of any other term, provision or condition thereof, and Trustee and
Beneficiary shall have the right at any time or times thereafter to insist upon
strict performance by Mortgagor of any and all of such terms, provisions and
conditions.

      6.6 Defense of Claims. Mortgagor will notify Beneficiary and each Secured
Debt Representative, in writing, promptly of the commencement of any legal
proceedings affecting the lien or security interest hereof or the Mortgaged
Property, or any part thereof, and will take such action, employing attorneys as
set forth in Section 3.4(j), as may be necessary or appropriate to preserve
Mortgagor's or Beneficiary's rights affected thereby and/or to hold harmless
Beneficiary in respect of such proceedings; and should Mortgagor fail or refuse
to take any such action, Beneficiary may, upon giving prior written notice
thereof to Mortgagor, take such action in behalf and in the name of Mortgagor
and at Mortgagor's expense. Moreover, Beneficiary may take such independent
action in connection therewith as it may in its discretion deem proper,
Mortgagor hereby agreeing that all sums advanced or all expenses incurred in
such actions plus interest thereon at the Default Interest Rate, will, on
demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed
hereunder or under Applicable Law. The obligations of Mortgagor as hereinabove
set forth in this Section 6.6 shall survive the release, termination,
foreclosure or assignment of this Mortgage or any sale hereunder.

      6.7 The Mortgaged Property to Revert; Release. If the Indebtedness shall
be fully paid and the covenants herein contained shall be well and truly
performed, then all of the Mortgaged Property shall revert to Mortgagor and the
entire estate, right, title and interest of Trustee and Beneficiary shall
thereupon cease; and Trustee and Beneficiary in such case shall, upon the
request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor
proper instruments acknowledging satisfaction of this Mortgage


                                      -37-


and the release or reconveyance of the lien hereof in accordance with Applicable
Law. Notwithstanding anything contained herein to the contrary, the Mortgaged
Property, or any part thereof, shall, upon the written request of Mortgagor, be
released from the lien of this Mortgage, in accordance with the provisions of
the Collateral Trust Agreement, when such a release is permitted by the
Collateral Trust Agreement and the other Secured Debt Documents.

      6.8 Covenants Running with the Land. All Obligations contained in this
Mortgage are intended by the parties to be, and shall be construed as, covenants
running with the Mortgaged Property.

      6.9 Renewals, Amendments and Other Security. Renewals and extensions of
the Indebtedness and modifications of any kind of the Obligations may be given
at any time and amendments may be made to agreements with third parties relating
to any part of such Indebtedness or the Mortgaged Property and Trustee and
Beneficiary may take or may now hold other security from others for the
Indebtedness, all without notice to or consent of Mortgagor. Beneficiary may
resort first to such other security or any part thereof or first to the security
herein given or any part thereof, or from time to time to either or both, even
to the partial or complete abandonment of either security, and such action shall
not be a waiver of any rights conferred by this Mortgage, which shall continue
as a first lien upon and prior perfected security interest in the Mortgaged
Property not expressly released until the Secured Debt and all other
Indebtedness secured hereby are fully paid.

      6.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and
may be enforced from time to time as an assignment, chattel mortgage, contract,
deed of trust, financing statement, real estate mortgage, or security agreement,
and from time to time as any one or more thereof.

      6.11 Limitation on Interest. No provision of this Mortgage or the Secured
Debt Documents shall require the payment or permit the collection of interest in
excess of the Maximum Lawful Rate or which is otherwise contrary to Applicable
Law. If any excess of interest in such respect is in the Secured Debt Documents
or otherwise herein provided for, or shall be adjudicated to be so provided for
herein or in the Secured Debt Documents, Mortgagor shall not be obligated to pay
such excess.

      6.12 Severability. The Secured Debt Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable Legal
Requirements. If any provision of any of the Secured Debt Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the remainder of the instrument
in which such provision is contained nor the application of such provision to
other persons or circumstances nor the other instruments referred to hereinabove
shall be affected thereby, but rather shall be enforced to the greatest extent
permitted by Applicable Law. It is hereby expressly stipulated and agreed to be
the intent of Mortgagor and Beneficiary at all times to comply with the usury,
and all other, laws relating to the Secured Debt Documents. If, at any time, the
applicable Legal Requirements render


                                      -38-


usurious any amount called for in any Security Document, then it is Mortgagor's,
Trustee's and Secured Debtholders' express intent that such document be
immediately deemed reformed and the amounts collectible reduced, without the
necessity of the execution of any new document, so as to comply with the then
Applicable Law but so as to permit the recovery of the fullest amount otherwise
called for in such Secured Debt Documents.

      6.13 Waiver by Trustee and Beneficiary. Any and all covenants in this
Mortgage may from time to time by instrument in writing signed by Trustee and
Beneficiary be waived to such extent and in such manner as Trustee and
Beneficiary may desire, but no such waiver shall ever affect or impair either
Trustee's or Beneficiary's rights or liens or security interests hereunder,
except to the extent specifically stated in such written instrument.

      6.14 No Partnership. Nothing contained in this Mortgage is intended to, or
shall be construed as, creating to any extent and in any manner whatsoever, any
partnership, joint venture, or association among Mortgagor, Trustee, Beneficiary
and their respective Affiliates, or in any way as to make Beneficiary or
Trustee's co-principals with Mortgagor with reference to the Mortgaged Property,
and any inferences to the contrary are hereby expressly negated.

      6.15 Successors and Assigns. This Mortgage is binding upon Mortgagor,
Mortgagor's successors and assigns, and shall inure to the benefit of
Beneficiary, its successors and assigns, and the provisions hereof shall
likewise be covenants running with the land.

      6.16 Article and Section Headings. The article and section headings in
this Mortgage are inserted for convenience of reference and shall not be
considered a part of this Mortgage or used in its interpretation.

      6.17 Execution in Counterparts. This Mortgage may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be an
original and all of which are identical, except that, to facilitate recordation
or filing, in any particular counterpart portions of Exhibit A hereto which
describe properties situated in parishes or counties other than the parish or
county in which such counterpart is to be recorded or filed may have been
omitted.

      6.18 Special Filing as Financing Statement. This Mortgage shall likewise
be a Security Agreement and a Financing Statement. This Mortgage shall be filed
for record, among other places, in the real estate records of each county or
parish in which any portion of the real property covered by the oil and gas
leases described in Exhibit A hereto is situated, and, when filed in such
counties or parishes shall be effective as a financing statement covering
Fixtures located on oil and gas properties, which oil and gas properties (and
accounts arising therefrom) are to be financed at the wellheads of the wells
located on the lands described in Exhibit A. A carbon, photographic or other
reproduction of this Mortgage or of any financing statement covering the
Mortgaged Property or any portion thereof shall be sufficient as a financing
statement and may be


                                      -39-


filed as such. Mortgagor agrees that any Secured Debt Representative may, in
such manner, on such terms and at such times as may be elected by such Secured
Debt Representative, and without demand or notice to, or the consent or
signature of, Mortgagor, file and/or record such UCC financing statements,
fixture filings, and/or amendments to or continuations of any financing
statements or fixture filings to evidence, perfect and/or continue the
perfection of, any security interests created or to be created pursuant to this
Mortgage or any of the other Secured Debt Documents.

      6.19 Notices. Except as otherwise required by Sections 5.4 and 5.14
hereof, any notice, request or demand which may be required or permitted to be
given or served upon Mortgagor shall be sufficiently given when given or made
pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other
means and manner of giving of notice as may be required by Applicable Law.

      6.20 Reliance. Notwithstanding any reference herein to the Secured Debt
Documents, no party shall have any obligation to inquire into the terms or
conditions of any such documents and all parties shall be fully authorized to
rely upon any statement, certificate, or affidavit of Beneficiary or any future
holder of any portion of the Indebtedness as to the occurrence of any event such
as the occurrence of any event of default.

      6.21 Beneficiary as Agent for the Secured Debtholders. As described above,
certain Affiliates of Beneficiary and the Secured Debt Representatives are or
may become parties to certain Hedging Agreements with Mortgagor and/or
Affiliates of Mortgagor. This Mortgage secures the obligations of Mortgagor and
such Affiliates, as the case may be, under such Hedging Agreements, and the
parties acknowledge for all purposes that Beneficiary acts for itself and as
agent on behalf of such Affiliates of Beneficiary and the Secured Debtholders
which are so entitled to share in the rights and benefits accruing to
Beneficiary under this Mortgage in respect of the Mortgaged Property.

      6.22 Applicable Law. As to any tract or parcel of land comprising a
portion of the Mortgaged Property, this Mortgage shall be governed by and
construed according to the Applicable Laws of the State where such tract or
parcel of land is situated.

      6.23 Subrogation. If any or all of the proceeds of Secured Debt have been
used to extinguish, extend or renew any indebtedness heretofore existing against
the Mortgaged Property, then, to the extent of such funds so used, the
Indebtedness and this Mortgage shall be subrogated to all of the rights, claims,
liens, titles and interests heretofore existing against the Mortgaged Property
to secure the indebtedness so extinguished, extended or renewed and the former
rights, claims, liens, titles and interests, if any, are not waived but rather
are continued in full force and effect in favor of Beneficiary and are merged
with the lien and security interest created herein as cumulative security for
the repayment of the Indebtedness and the satisfaction of the Obligations.


                                      -40-


      6.24 Fixture Filing. Portions of the Mortgaged Property are or are to
become fixtures relating to the above described real estate, and Mortgagor
herein expressly covenants and agrees that the filing of this Mortgage in the
Real Estate Records in the county where the Mortgaged Property is located shall
also operate from the time of filing therein as a financing statement filed as a
fixture filing in accordance with Section 9.502(c) of the Uniform Commercial
Code - Secured Transactions of the State of Texas.


                                      -41-


      IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed this
Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing in the presence of the undersigned Notary
Public on this 14th day of July, 2003.

                                    MORTGAGOR AND DEBTOR

                                    CALPINE CORPORATION, a Delaware corporation


                                    By:_________________________________________
                                    Title: Executive Vice President
                                    Printed Name:  B.A. Berilgen

ATTEST:


________________________________
Printed Name:

The name and mailing address of Mortgagor is:

Calpine Corporation
1000 Louisiana Street, Suite 800
Houston, TX 77002

                                                           [Multistate Mortgage]


                             S-1



STATE OF TEXAS        )
                      )  SS.
COUNTY OF HARRIS      )

      BE IT REMEMBERED that I, Suzanne B. Snow, a Notary Public duly qualified,
commissioned, sworn and acting in and for the County and State aforesaid, hereby
certify that, on this 14th day of July, 2003, there appeared before me severally
each of the following persons, each being either a Trustee or else the
designated officer of the corporation or association set opposite his name, and
each such Trustee, corporation and association being a party to the foregoing
instrument:

      B.A. Berilgen, the Executive Vice President, and Michael H. Hickey, the
Vice President-Managing Counsel, of Calpine Corporation, a Delaware corporation,
which has no corporate seal whose address is 1000 Louisiana Street, Suite 800,
Houston, TX 77002.

ARKANSAS          Before me on this day appeared in person the aforementioned
                  persons, to me personally well known, who stated that they
                  held the offices in the corporation or association set forth
                  opposite their names above (or, in the case of the Trustees,
                  were validly appointed Trustees) and were duly authorized in
                  their respective capacities to execute the foregoing
                  instrument for and in the name and on behalf of said
                  corporation or association (or as Trustees, as the case may
                  be), and further stated and acknowledged that they had so
                  signed, executed and delivered said foregoing instrument for
                  the consideration, uses and purposes therein mentioned and set
                  forth.

COLORADO          The foregoing instrument was acknowledged before me this day
                  by each such person on behalf of said corporation or
                  association, or himself, as a Trustee, as the case may be.

KANSAS            On this day before me personally appeared the aforementioned
                  persons, who acknowledged themselves to hold the offices in
                  the corporation set forth opposite their names above (or, in
                  the case of the Trustees, were validly appointed Trustees) and
                  as such officers or Trustees, hereby authorized to do so,
                  executed the foregoing instrument for the purposes therein
                  contained.

MISSISSIPPI       Personally appeared before me, the undersigned authority in
                  and for the said county and state, on this 14th day of July,
                  2003, within my jurisdiction the within named B.A. Berilgen
                  who acknowledged that he is the Executive Vice President of
                  CALPINE CORPORATION, a Delaware corporation, and that for and
                  on behalf of said


                                                           [Multistate Mortgage]


                  corporation and as its act and deed (he)(she) executed the
                  above and foregoing instrument after first having been duly
                  authorized by said corporation so to do.

MONTANA           On this day before me personally appeared each such person,
                  each of whom is known to me to be the officer of the
                  corporation that executed the within instrument (or a Trustee,
                  as the case may be), and acknowledged to me that such
                  corporation (or Trustee, as the case may be) executed the
                  same.

NEBRASKA          The foregoing instrument was acknowledged before me this day
  and             by each such person as the designated officers of the
NEW MEXICO        corporation or association set opposite their names (or as
                  Trustees, as the case may be) on behalf of said corporation or
                  association, or himself as a Trustee, as the case may be.

OKLAHOMA          Before me on this day personally appeared the aforementioned
                  persons, to me known to be the identical persons who
                  subscribed the names of the respective makers thereof to the
                  foregoing instrument in the capacities set forth opposite the
                  names of such persons above, and each such person acknowledged
                  to me that he executed the same as his free and voluntary act
                  and deed and as the free and voluntary act and deed of the
                  corporation or association set opposite his name (or of
                  himself as Trustee, as the case may be) for the uses and
                  purposes therein set forth.

TEXAS             This instrument was acknowledged before me on this day by each
                  such person as the designated officer of the corporation or
                  association set opposite his name (or a Trustee, as the case
                  may be), on behalf of said corporation or association set
                  opposite his name (or of himself as Trustee, as the case may
                  be).

WYOMING           The foregoing instrument was acknowledged before me by the
                  above individuals on this day.

                       Witness my hand and official seal.


                                       _________________________________________
                                       Notary Public
                                       Residing at Houston, Harris County, Texas

My commission expires: 12/21/2006


                                                           [Multistate Mortgage]



     EXHIBIT A To Amended and Restated Mortgage, Deed of Trust, Assignment,
        Security Agreement, Financing Statement and Fixture Filing, dated
                     July 16, 2003, from CALPINE CORPORATION
                         to John Quick and Kemp Leonard
                            and THE BANK OF NEW YORK

                               List of Properties

1. Depth limitations, unit designations, unit tract descriptions and
descriptions (including percentages, decimals or fractions) of undivided
leasehold interests, well names, "Operating Interests," "Working Interests" and
"Net Revenue Interests" contained in this Exhibit A and the listing of any
percentage, decimal or fractional interest in this Exhibit A shall not be deemed
to limit or otherwise diminish the interests being subjected to the lien,
security interest and encumbrance of this Mortgage.

2. Some of the land descriptions in this Exhibit A may refer only to a portion
of the land covered by a particular lease. This Mortgage is not limited to the
land described in Exhibit A but is intended to cover the entire interest of
Mortgagor in any lease described in Exhibit A even if such interest relates to
land not described in Exhibit A. Reference is made to the land descriptions
contained in the documents of title recorded as described in this Exhibit A. To
the extent that the land descriptions in this Exhibit A are incomplete,
incorrect or not legally sufficient, the land descriptions contained in the
documents so recorded are incorporated herein by this reference.

3. References in Exhibit A to instruments on file in the public records are made
for all purposes. Unless provided otherwise, all recording references in Exhibit
A are to the official real property records of the county or counties (or parish
or parishes) in which the mortgaged property is located and in which records
such documents are or in the past have been customarily recorded, whether Deed
Records, Oil and Gas Records, Oil and Gas Lease Records or other records.

4. A statement herein that a certain interest described herein is subject to the
terms of certain described or referred to agreements, instruments or other
matters shall not operate to subject such interest to any such agreement,
instrument or other matter except to the extent that such agreement, instrument
or matter is otherwise valid and presently subsisting nor shall such statement
be deemed to constitute a recognition by the parties hereto that any such
agreement, instrument or other matter is valid and presently subsisting.

[Do not detach this page]


                                     Ex. A-1


                                   Schedule I

Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and
Fixture Filing (Multi-State) from Calpine Corporation, a Delaware corporation,
Trustor and Mortgagor to Kemp Leonard, Trustee, John Quick, Trustee and The Bank
of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:



       JURISDICTION                        FILE NO.                      FILE DATE
       ------------                        --------                      ---------
                                                                   
Columbia County, AK                   Book 334, Page 327                 5/14/2002

Miller County, AK                    Book M-763, Page 58                 5/15/2002

Jefferson Davis County, MS                 0201602                       5/16/2002
                                      Book 475, Page 39

Lawrence County, MS                   Book 386, Page 46                  5/14/2002

Marion County, MS                    Book 1375, Page 101                 5/14/2002

Warren County, MS                           184385                       5/14/2002
                                     Book 1319, Page 727

Lewis & Clark County, MT                   3019331                       5/14/2002
                                     Book M26, Page 4622

Sheridan County, MT                   Book 602, Page 725                 5/14/2002

Beckham County, OK                          03252                        5/14/2002
                                     Book 1738, Page 0237

Caddo County, OK                           20023691                      5/15/2002
                                     Book 2387, Page 486

Canadian County, OK                  Book 2573, Page 378                 5/28/2002

Custer County, OK                    Book 1166, Page 418                 5/14/2002

Garvin County, OK                    Book 1632, Page 107                 6/19/2002

Grady County, OK                             6604                        5/15/2002
                                     Book 3378, Page 303

Harper County, OK                    Book 0575, Page 706                 8/12/2002

Love County, OK                              1116                        5/14/2002
                                      Book 562, Page 472



                                      I-1




     JURISDICTION                          FILE NO.                      FILE DATE
     ------------                          --------                      ---------
                                                                   
Marshall County, OK                       I2002-1427                     5/14/2002
                                      Book 735, Page 239

McClain County, OK                    Book 1613, Page 25                 5/14/2002

Oklahoma County, OK                       2002085739                     6/06/2002
                                     Book 8459, Page 3-99

Roger Mills County, OK                    2002-2002                      5/14/2002
                                     Volume 1678, Page 20

Texas County, OK                         2002-662297                     5/14/2002

Washita County, OK                 Book 941, Pages 961-1057              5/14/2002

Woodward County, OK                          6162                        5/14/2002
                                     Book 1824, Page 001

Woods County, OK                      Book 935, Page 557                 5/14/2002

Cameron County, TX                         0026299                       5/15/2002
                                     Volume 8004, Page 1

Chambers County, TX                       02-557-473                     5/15/2002

Duval County, TX                            078197                       5/16/2002
                                     Volume 326, Page 787

Goliad County, TX                          00100688                      5/15/2002
                                     Volume 00163, Page 1

Hansford County, TX                         62490                        5/15/2002
                                     Volume 291, Page 748

Hardin County, TX                          02-03596                      5/15/2002
                                     Volume 1319, Page 54

Harris County, TX                          V803613                       5/15/2002

Hemphill County, TX                         034626                       5/15/2002
                                   Volume 547, Page 000272

Houston County, TX                      0200000002180                    5/15/2002

Jackson County, TX                   Volume 199, Page 623                5/31/2002

Jefferson County, TX                      2002016585                      5/6/2002

Jim Hogg County, TX                         67248                        5/14/2002
                                    Book 32, Pages 725-821



                                      I-2




     JURISDICTION                          FILE NO.                      FILE DATE
     ------------                          --------                      ---------
                                                                   

Live Oak County, TX                  00155319, Vol. 413,                  5/7/2002
                                    Page 282 D/T Records

Matagorda County, TX                        023187                       5/14/2002
                                     Volume 659, Page 658

Nueces County, TX                         2002022435                     5/14/2002

Ochiltree County, TX                        65164                        5/14/2002
                                     Volume 603, Page 772

Panola County, TX                           77340                        5/14/2002
                                    Volume 1150, Page 490

Polk County, TX                         2002-1266-186                    5/14/2002

San Jacinto County, TX                     02-3385                       5/14/2002
Webb County, TX                             760758                        5/7/2002
                                    Volume 1210, Page 237

Wharton County, TX                          223997                       5/14/2002
                                     Volume 458, Page 137

Zapata County, TX                           125697                        5/7/2002
                                  Volume 668, Pages 001-126

Minerals Management Service                  n/a                         5/08/2002
Gulf of Mexico OCS Region
(Jefferson County, TX)

Sweetwater County, WY                      1360525                       5/14/2002
                                     Book 0954, Page 1218

Washakie County, WY                         493612                       5/16/2002
                                   Book 89, Page 1800-1902


UCC-1 Financing Statement regarding Multi-State Mortgage, naming Calpine
Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party,
filed as follows:



     JURISDICTION                          FILE NO.                      FILE DATE
     ------------                          --------                      ---------
                                                                   
Minerals Management Service                  n/a                         5/13/2002
Gulf of Mexico OCS Region
(Jefferson County, TX)



                                      I-3


                                   Schedule II

First Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing (Multi-State) from Calpine Corporation, a
Delaware corporation, Trustor and Mortgagor to Dennis O'Meara, Trustee, James
Trimble, Trustee and The Bank of Nova Scotia, for itself and as Agent,
Beneficiary, filed as follows:



       JURISDICTION                        FILE NO.                      FILE DATE
       ------------                        --------                      ---------
                                                                   
Lewis & Clark County, MT                   3029268                       11/12/2002
                                     Book M27, Page 3822

Sheridan County, MT                  Book 603, Page 1464                 11/08/2002

Chambers County, TX                   8626-B; 02-585-663                  10/29/02

Webb County, TX                   778732; Vol. 1297, Pg. 544              10/30/02


Second Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement, and Fixture Filing (Multi-State) from Calpine Corporation
to Trustees and The Bank of Nova Scotia, filed as follows:



                           ORIGINAL          ORIGINAL          SUPPLEMENT         SUPPLEMENT
     JURISDICTION          FILE NO.          FILE DATE          FILE NO.           FILE DATE
     ------------          --------          ---------         ----------         ----------
                                                                      
Live Oak County, Texas     00155319;          5/7/02             159329;            4/1/03
                           Vol. 413,                            Vol. 430,
                          Pg. 282 D/T                            Pg. 55
                            Records

Panola County, Texas        77340;            5/14/02            84148;             4/1/03
                          Vol. 1150,                           Vol. 1179,
                            Pg. 490                              Pg. 691

Beckham County,             03252;            5/14/02        1-2003-003102;         4/2/03
Oklahoma                  Book 1738,                           Book 1769,
                           Pg. 0237                              Pg. 646

Garvin County,            Book 1632,          6/19/02            02267;             4/1/03
Oklahoma                    Pg. 107                            Book 1658,
                                                                 Pg. 100

Roger Mills County,       2002-2002;          5/14/02        1-2003-001454;         4/1/03
Oklahoma                  Vol. 1678,                           Book 1705,
                            Pg. 20                               Pg. 466



                                      II-1


                                  Schedule III

Partial Release of Lien and Security Interest by The Bank of Nova Scotia in
favor of Calpine Corporation (Multi-State Mortgage-partial release) filed as
follows:



                                                                PARTIAL             PARTIAL
                           ORIGINAL          ORIGINAL           RELEASE             RELEASE
     JURISDICTION          FILE NO.          FILE DATE          FILE NO.           FILE DATE
     ------------          --------          ---------          --------           ---------
                                                                       
Duval County, TX            078197;           5/16/02            079243;            9/26/02
(Guerra Prospect)          Vol. 326,                        Vol. 334, Pg. 800
                            Pg. 787

Duval County, TX            078197;           5/16/02       Vol. 335, Pg. 393       10/8/02
(IMPAC)                    Vol. 326,
                            Pg. 787

Webb County, TX             760758;           5/7/02             776680;           10/10/02
(Guerra Prospect)         Vol. 1210,                           Vol. 1287,
                            Pg. 237                              Pg. 558

Webb County, TX             760758;           5/7/02           Vol. 1285,           10/7/02
(IMPAC)                   Vol. 1210,                             Pg. 053
                           Pg. 237



                                      III-1

EX-10.28

                                                                   Exhibit 10.28

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

                              AMENDED AND RESTATED
                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

                                      FROM

                              CALPINE CORPORATION,
                             a Delaware corporation
                         (Taxpayer I.D. No. 77-0212977),
                              Trustor and Mortgagor

                                       TO

                             DENIS O'MEARA, Trustee

                                       AND

                             JAMES TRIMBLE, Trustee

                                       AND

                              THE BANK OF NEW YORK,
        not in its individual capacity but solely as Collateral Trustee,
                         (Taxpayer I.D. No. 13-5160382)
                                 as Beneficiary

                            Dated as of July 16, 2003

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

"THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS."

"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."

"THOSE PORTIONS OF THE MORTGAGED PROPERTY WHICH ARE AS-EXTRACTED COLLATERAL
(INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO,
WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES
DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR
RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS."



"MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS
DESCRIBED IN EXHIBIT A HERETO."

"SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS
FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL
ESTATE RECORDS."

"A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE."

THIS INSTRUMENT WAS PREPARED BY AND
WHEN RECORDED AND/OR FILED
RETURN TO:

Kevin L. Shaw, Esq.
Mayer, Brown, Rowe & Maw LLP
700 Louisiana Street
Suite 3600
Houston, Texas  77002




                              AMENDED AND RESTATED
                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

      THIS AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE"), dated as of
July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation
("MORTGAGOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113,
to DENIS O'MEARA and JAMES TRIMBLE (whether one or more, collectively called
"TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its
individual capacity but solely as Collateral Trustee under the Collateral Trust
Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among
Mortgagor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee,
Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose
address is 101 Barclay Street, New York, New York 10286. References to this
"Mortgage" shall mean this instrument and any and all renewals, modifications,
amendments, supplements, extensions, consolidations, substitutions, spreaders,
restatements and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                       ARTICLE I. RECITALS AND DEFINITIONS

      1.1 Mortgagor has heretofore executed and delivered to The Bank of Nova
Scotia, for itself and as agent for the Lender Parties (together with its
successors in such capacity, the "CREDIT AGREEMENT AGENT") and John Quick (as
predecessor-in-interest to Denis O'Meara) and Kemp Leonard (as
predecessor-in-interest to James Trimble), as Trustees, that certain mortgage or
deed of trust, dated as of May 1, 2002, as supplemented and amended prior to the
date hereof (as so supplemented and amended, herein called the "EXISTING
MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain
institutional lenders (the "EXISTING 2002 LENDERS") pursuant to the terms of
that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same
may be amended, modified or supplemented from time to time, called the "EXISTING
2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans
to Mortgagor and issued letters of credit for the benefit of Mortgagor (the
"EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time
outstanding $1,600,000,000, and Mortgagor, to evidence its indebtedness to the
Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and
delivered to the Existing 2002 Lenders its secured promissory notes to mature
not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002
Loan Notes being payable to the order of the Existing 2002 Lenders, bearing
interest as provided for therein, and containing provisions for payment of
attorneys' fees and acceleration of maturity in the event of default, as therein
set forth; and (ii) payment of indebtedness owed or to be owing to certain
institutional lenders (the "EXISTING 2000 LENDERS", and together with the
Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms of that
certain Second Amended and Restated Credit Agreement dated as of May 23, 2000
(herein, as the same may be amended, modified, or supplemented from time to

                                      -1-


time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing
2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant
to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of
credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in
amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor,
to evidence its indebtedness to the Existing 2000 Lenders under the Existing
2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders
its secured promissory notes to mature not later than May 24, 2003 (the
"EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the
Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing
2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing
interest as provided for therein, and containing provisions for payment of
attorney's fees and acceleration of maturity in the event of default, as therein
set forth.

      1.2 The Existing Mortgage, together with other mortgages and deeds of
trust (a) have been filed and recorded, among other places, as set forth in
Schedule I hereto; (b) have been supplemented and amended by various instruments
that have been filed and recorded, among other places, as set forth in Schedule
II hereto; and (c) have been amended and certain items of property mortgaged
thereby have been released by various instruments that have been filed and
recorded, among other places, as set forth in Schedule III hereto.

      1.3 Mortgagor, the Existing Lenders and the Credit Agreement Agent are (i)
terminating the commitments under the Existing 2000 Credit Agreement, and (ii)
amending and restating the Existing 2002 Credit Agreement (as so amended and
restated, and as the same may, from time to time hereafter, be amended,
supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT
AGREEMENT".

      1.4 Mortgagor is also (a) issuing $500,000,000 in aggregate principal
amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007
INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing
$1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal
amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the
"2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013
INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing
$750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement
dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and
Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its
successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds
from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the

                                      -2-


borrowing of the Term Loans will be used to refinance a portion of the loans and
other indebtedness outstanding under the Existing Credit Agreements.

      1.5 As permitted pursuant to the Secured Debt Documents, Mortgagor may
incur future debt which could, together with the obligations under the Amended
and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may
incur future debt which could, together with the 2007 Notes, 2010 Notes, the
2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the
aggregate amount of the Secured Debt to be secured hereby shall not exceed
$4,200,000,000. Mortgagor intends to secure the Indebtedness, including its
obligations (a) under the Amended and Restated Credit Agreement and any future
Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject
to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans
and any future Parity Lien Debt, equally and ratably, with liens and security
interests in, among other collateral, the Mortgaged Property under the Existing
Mortgage, as contemplated in the Collateral Trust Agreement.

      1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment
of Liens of even date herewith, the Credit Agreement Agent has assigned to
Beneficiary, all of the Credit Agreement Agent's right, title and interest in
and to, and its interest as beneficiary under, the Existing Mortgage. This
Mortgage amends and restates the Existing Mortgage. The Collateral Trust
Agreement sets forth the terms on which the Collateral Trustee, as trustee for
the present and future holders of the Indebtedness, will receive, hold,
maintain, administer, maintain, enforce and distribute this Mortgage and all
interests, rights, powers and remedies of the Collateral Trustee thereunder and
the proceeds thereof.

      1.7 For all purposes of this Mortgage, unless the context otherwise
requires:

                  A. "Actionable Default" is defined in the Collateral Trust
      Agreement.

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

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

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

                  C. "Applicable Law" means with respect to any Person or
      matter, any federal, state, regional, tribal or local statute, law, code,
      rule, treaty, convention, application, order, decree, consent decree,
      injunction, directive,


                                      -3-


      determination or other requirement (whether or not having the force of
      law) relating to such Person or matter and, where applicable, any
      interpretation thereof by a Governmental Authority having jurisdiction
      with respect thereto or charged with the administration or interpretation
      thereof.

                  D. "Default Interest Rate" means the lesser of (a) ten percent
      (10%), and (b) the Maximum Lawful Rate.

                  E. "Event of Default" means an Actionable Default.

                  F. "Environmental Laws" means any and all present and future
      Applicable Laws issued, promulgated or entered thereunder relating to
      pollution or protection of the environment, including laws relating to
      reclamation of land and waterways and laws relating to emissions,
      discharges, releases or threatened releases of pollutants, contaminants,
      chemicals, or industrial, toxic or hazardous substances or wastes into the
      environment (including, without limitation, ambient air, surface water,
      ground water, land surface or subsurface strata) or otherwise relating to
      the manufacture, processing, distribution, use, treatment, storage,
      disposal, transport or handling of pollutants, contaminants, chemicals, or
      industrial, toxic or hazardous substances or wastes.

                  G. "Governmental Authority" means any and all courts, boards,
      agencies, commissions, offices or authorities of any nature whatsoever for
      any governmental unit (federal, state, county, district, municipal, city,
      tribe or otherwise) whether now or hereafter in existence charged with the
      administration, interpretation or enforcement of any Applicable Law.

                  H. "Hedging Agreements" means: (a) interest rate swap
      agreements, basis swap agreements, interest rate cap agreements, forward
      rate agreements, interest rate floor agreements and interest rate collar
      agreements, and all other agreements or arrangements designed to protect
      such Person against fluctuations in interest rates or currency exchange
      rates, and (b) forward contracts, options, futures contracts, futures
      options, commodity swaps, commodity options, commodity collars, commodity
      caps, commodity floors and all other agreements or arrangements designed
      to protect such Person against fluctuations in the price of commodities.

                  I. "Hedging Obligations" means with respect to any Person, all
      liabilities (including without limitation obligations and liabilities
      arising in connection with or as a result of early or premature
      termination of a Hedging Agreement, whether or not occurring as a result
      of a default thereunder) of such Person under a Hedging Agreement.

                  J. "Hydrocarbons" means collectively, oil, gas, casinghead
      gas, drip gasoline, natural gasoline, condensate, distillate and all other
      liquid or gaseous hydrocarbons and related minerals and all products
      therefrom, in each case whether in a natural or a processed state.


                                      -4-


                  K. "Indebtedness" shall have the meaning set forth in Section
      2.2 of this Mortgage.

                  L. "Indemnification Claim" is defined in Section 4.6(a) of
      this Mortgage.

                  M. "Indemnified Person" is defined in Section 3.10(c) of this
      Mortgage.

                  N. "Joint Operating Agreements" shall mean, with respect to
      the lands described in Exhibit A, the respective operating agreement
      burdening the lands described in Exhibit A.

                  O. "lands described in Exhibit A" shall include the real
      property or other interest in any lands which are either described in
      Exhibit A attached hereto or the description of which is incorporated in
      Exhibit A by reference to an instrument or document containing in, or
      referring to, such a description, and shall also include any lands now or
      hereafter unitized or pooled with lands which are either described in
      Exhibit A or the description of which is incorporated in Exhibit A by
      reference and Fixtures and all rights, titles and interests appurtenant
      thereto. References to Exhibit A shall include, where applicable, Exhibit
      A-1 as well.

                  P. "Leases" means any and all leases (including without
      limitation oil and gas leases and oil, gas and other minerals leases),
      surface leases or easements, subleases, licenses, concessions, operating
      rights or other agreements (written or verbal, now or hereafter in effect)
      which grant a possessory interest in and to, or the right to explore, use,
      lease, license, possess, produce, process, store and transport
      Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged
      Property, together with all amendments, modifications, extensions and
      renewals thereof.

                  Q. "Legal Requirements" means (i) any and all present and
      future judicial decisions, statutes, rulings, rules, regulations,
      licenses, decisions, orders, injunctions, decrees, permits, certificates
      or ordinances of any Governmental Authority in any way applicable to
      Mortgagor, or the Mortgaged Property, including the ownership, use,
      occupancy, operation, maintenance, repair or reconstruction thereof, and
      any other Applicable Law enacted by any Governmental Authority relating to
      health or the environment, (ii) Mortgagor's presently or subsequently
      effective Organic Documents, (iii) any and all Leases, (iv) any and all
      leases and other contracts (written or oral) of any nature to which
      Mortgagor, or the Mortgaged Property may be bound and (v) any and all
      restrictions, restrictive covenants or zoning, present and future, as the
      same may apply to the Mortgaged Property.

                  R. "Losses" is defined in Section 3.10(c) of this Mortgage.


                                      -5-


                  S. "Maximum Lawful Rate" means the maximum nonusurious rate of
      interest that may be received, charged or contracted for under Applicable
      Law from time to time in effect.

                  T. "Mortgaged Property" means the properties, rights and
      interests hereinafter described in Section 1.8 and defined as the
      Mortgaged Property.

                  U. "Obligations" means any and all of the covenants,
      warranties, representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Mortgagor or others under any of the
      Secured Debt Documents.

                  V. "oil and gas leases" shall include oil, gas and mineral
      leases, subleases and assignments thereof, operating rights, and shall
      also include subleases and assignments of operating rights.

                  W. "Operating Equipment" means all surface or subsurface
      machinery, goods, equipment, fixtures, inventory, facilities, supplies or
      other property of whatsoever kind or nature (excluding drilling rigs,
      trucks, automotive equipment or other property taken to the premises to
      drill a well or for other similar temporary uses) now or hereafter located
      on or under any of the lands described in Exhibit A which are useful for
      the production, gathering, treatment, processing, storage or
      transportation of Hydrocarbons (together with all accessions, additions
      and attachments to any thereof), including, but not by way of limitation,
      all oil wells, gas wells, water wells, injection wells, casing, tubing,
      tubular goods, rods, pumping units and engines, christmas trees,
      platforms, derricks, separators, compressors, gun barrels, flow lines,
      tanks, gas systems (for gathering, treating and compression), pipelines
      (including gathering lines, laterals and trunklines), chemicals,
      solutions, water systems (for treating, disposal and injection), steam
      generation and injection equipment and systems, power plants, poles,
      lines, transformers, starters and controllers, supervisory control and
      data acquisition systems, machine shops, tools, storage yards and
      equipment stored therein, buildings and camps, telegraph, telephone and
      other communication systems, roads, loading docks, loading racks and
      shipping facilities.

                  X. "Organic Documents" means the Articles of Incorporation,
      Certificate of Incorporation, limited liability company certificate of
      formation and regulations or operating agreement, partnership agreement,
      limited partnership agreement, joint venture agreement, trust agreement or
      other similar documents governing the organization and operation of a
      business association.

                  Y. "Parity Lien Debt" is defined in the Collateral Trust
      Agreement.


                                      -6-


                  Z. "Parity Lien Documents" is defined in the Collateral Trust
      Agreement.

                  AA. "Parity Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Parity Lien Documents.

                  BB. "Permits" means all authorizations, approvals, permits,
      variances, land use entitlements, consents, licenses, franchises and
      agreements issued by or entered into with any Governmental Authority now
      or hereafter required for all stages of exploration, developing,
      operating, and plugging and abandoning oil and gas wells (including,
      without limitation, those shown on Exhibit A) on all or any part of the
      lands described in Exhibit A (or any other lands any production from
      which, or profits or proceeds from such production, is attributed to any
      interest in the lands described in Exhibit A).

                  CC. "Permitted Encumbrances" means the outstanding liens,
      easements, restrictions, exceptions, reservations, conditions,
      limitations, security interests and other matters as permitted by and
      defined in the Secured Debt Documents.

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

                  EE. "Personalty" means all of the right, title and interest of
      Mortgagor now owned or hereafter acquired in and to all furniture,
      furnishings, Equipment, machinery, Goods, General Intangibles, money,
      Accounts, receivables, Contract Rights, Inventory, all refundable,
      returnable or reimbursable fees, deposits or other funds or evidences of
      credit or indebtedness deposited by or on behalf of Mortgagor with any
      Governmental Authority, agencies, boards, corporations, providers of
      utility services, public or private, including specifically, but without
      limitation, all refundable, returnable or reimbursable tap fees, utility
      deposits, commitment fees and development costs, and all other personal
      property (other than the Fixtures) of any kind or character as defined in
      and subject to the provisions of Article 9 of the Uniform Commercial Code,
      now or hereafter located upon, within or about, or used in connection
      with, the lands described in Exhibit A together with all accessories,
      replacements and substitutions thereto or therefor and the Proceeds
      thereof.

                  FF. "Priority Lien Debt" is defined in the Collateral Trust
      Agreement.

                  GG. "Priority Lien Documents" is defined in the Collateral
      Trust Agreement.


                                      -7-


                  HH. "Priority Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Priority Lien Documents.

                  II. "Production Sale Contracts" means contracts now in effect,
      or hereafter entered into by Mortgagor, or entered into by Mortgagor's
      predecessors in interest, for the sale, purchase, exchange, gathering,
      transportation, treating or processing of Hydrocarbons produced from the
      lands described in Exhibit A.

                  JJ. "Rents and Revenues" means all of the rents, revenues,
      income, proceeds, profits and other benefits paid or payable by parties to
      the Leases other than Mortgagor for using, leasing, licensing, possessing,
      operating, selling or otherwise enjoying the Mortgaged Property, including
      the proceeds from the sale of Hydrocarbons.

                  KK. "Secured Debt" is defined in the Collateral Trust
      Agreement.

                  LL. "Secured Debtholder" is defined in the Collateral Trust
      Agreement.

                  MM. "Secured Debt Documents" is defined in the Collateral
      Trust Agreement.

                  NN. "Secured Debt Representative" is defined in the Collateral
      Trust Agreement.

                  OO. "Taxes" means all real property and personal property
      taxes, production taxes, assessments, permit fees, water, gas, sewer,
      electricity and other utility rates and charges, charges for any easement,
      license or agreement maintained for the benefit of the Mortgaged Property,
      and all other taxes, charges and assessments and any interest, costs or
      penalties with respect thereto, of any kind and nature whatsoever which at
      any time prior to or after the execution hereof may be charged, assessed,
      levied or imposed upon the Mortgaged Property or the Rents and Revenues or
      the ownership, use, occupancy or enjoyment thereof.

                  PP. "Transportation Agreements" shall mean any contracts or
      agreements entered into from time to time by Mortgagor, or entered into by
      Mortgagor's predecessors in interest, relating to the transportation of
      Hydrocarbons, as any such agreement or contract may be amended,
      supplemented, restated or otherwise modified from time to time.

                  QQ. "Uniform Commercial Code" means the Uniform Commercial
      Code as in effect from time to time in the State of New York or any other
      applicable state, and the terms "Accounts," "Account Debtor, "As Extracted
      Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
      "Documents,"


                                      -8-


      "Electronic Chattel Paper," "General Intangibles," "Goods," "Equipment,"
      "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the
      respective meanings assigned to such terms in the Uniform Commercial Code.

                  RR. "Water Rights" means (including without limitation those
      described in Exhibit A hereto) all now or hereafter existing or acquired
      water and water rights, reservoirs and reservoir rights, ditches and ditch
      rights, wells and well rights, whether evidenced or initiated by permit,
      decree, well registration, appropriation not decreed, water court
      application, shares of stock or other interests in mutual ditch or
      reservoir companies or carrier ditch or reservoir companies or otherwise,
      appertaining or appurtenant to or beneficially used or useful in
      connection with the lands described in Exhibit A, together with all pumps,
      well casings, wellheads, electrical installations, pumphouses, meters,
      monitoring wells and systems, measuring devices, pipes, pipelines, and
      other structures or personal property which are or may be used to produce,
      regulate, measure, distribute, store, or use water from the said water and
      water rights, reservoirs and reservoir rights, ditches and ditch rights,
      wells and well rights.

      1.8 Grant.

            Grant of Priority Lien

NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the Priority
Lien Indebtedness and the full and timely performance and discharge of the
Priority Lien Obligations, has granted, bargained, sold, warranted, mortgaged,
assigned, transferred and conveyed, and by these presents does grant, bargain,
sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey
unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of
Beneficiary, all Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to all of the hereinafter described properties,
rights and interests; and, insofar as such properties, rights and interests
consist of Equipment, General Intangibles, Accounts, As Extracted Collateral,
Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other
personal property of a kind or character defined in, or subject to the
applicable provisions of, the Uniform Commercial Code (as in effect from time to
time in the appropriate jurisdiction with respect to each of said properties,
rights and interests), Mortgagor hereby grants to said Beneficiary, a security
interest therein to the full extent of Mortgagor's legal and beneficial interest
therein, now owned or hereafter acquired, namely:

            (a) the lands described in Exhibit A, and Leases, the fee, mineral,
      overriding royalty, royalty and other interests which are described in
      Exhibit A,

            (b) the presently existing and (subject to the terms of Section 6.1
      hereof) hereafter arising unitization, unit operating, communitization and
      pooling agreements and the properties covered and the units created
      thereby (including, without limitation, all units formed under orders,
      regulations, rules, approvals, decisions or other official acts of any
      Governmental Authority) which are


                                      -9-


      specifically described in Exhibit A or which relate to any of the
      properties and interests specifically described in Exhibit A,

            (c) the Hydrocarbons which are in, under, upon, produced or to be
      produced from or which are attributed or allocated to the lands described
      in Exhibit A,

            (d) the Production Sale Contracts,

            (e) the Joint Operating Agreements,

            (f) the Transportation Agreements,

            (g) the Operating Equipment,

            (h) the Permits,

            (i) the Water Rights,

            (j) the Hedging Agreements,

            (k) the Leases,

            (l) the Personalty,

            (m) the Rents and Revenues,

            (n) without duplication of any other provision of this granting
      clause, Equipment, Fixtures and other Goods necessary or used in
      connection with, and Inventory, Accounts, As Extracted Collateral, General
      Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents,
      Electronic Chattel Paper, Instruments and Proceeds arising from, or
      relating to, the properties and other interests described in Exhibit A
      (including Exhibit A-1),

            (o) any and all liens and security interests in Hydrocarbons
      securing the payment of proceeds from the sale of Hydrocarbons, including
      but not limited to those liens and security interests provided for in
      Section 9.343 of the Texas Business and Commerce Code or similar statutes
      of other jurisdictions or any successor statutes,

together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, or replacements or substitutions for, any of the same, or
any instrument relating thereto, and all accounts, contracts, contract rights,
options, nominee agreements, unitization or pooling agreements, operating
agreements and unit operating agreements, processing agreements, farmin
agreements, farmout agreements, joint venture agreements, partnership agreements
(including mining partnerships), exploration agreements, bottom hole agreements,
dry hole agreements, support agreements, acreage contribution agreements,
surface use and surface


                                      -10-


damage agreements, net profits agreements, production payment agreements,
Hedging Agreements, insurance policies, title opinions, title abstracts, title
materials and information, files, records, writings, data bases, information,
systems, logs, well cores, fluid samples, production data and reports, well
testing data and reports, maps, seismic and geophysical, geological and chemical
data and information, interpretative and analytical reports of any kind or
nature (including, without limitation, reserve studies and reserve evaluations),
computer hardware and software and all documentation therefor or relating
thereto (including, without limitation, all licenses relating to or covering
such computer hardware, software and/or documentation), trade secrets,
trademarks, service marks and business names and the goodwill of the business
relating thereto, copyrights, copyright registrations, unpatented inventions,
patent applications and patents, rights-of-way, franchises, bonds, easements,
servitudes, surface leases, permits, licenses, tenements, hereditaments,
appurtenances, concessions, occupancy agreements, privileges, development
rights, condemnation awards, claims against third parties, general intangibles,
rents, royalties, issues, profits, products and proceeds, whether now or
hereafter existing or arising, used or useful in connection with, covering,
relating to, or arising from or in connection with, any of the aforesaid items
(a) through o), inclusive, in this granting clause mentioned, and all other
things of value and incident thereto (including, without limitation, any and all
liens, lien rights, security interests and other properties, rights and
interests) which Mortgagor might at any time have or be entitled to, but
excluding any data or contracts with respect to which mortgaging or granting of
a lien or a security interest is prohibited by existing third party agreements,

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien and security interest of this
Mortgage by means of supplements hereto, being hereinafter, collectively, called
the "Mortgaged Property."

      Grant of Parity Lien

      NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the
Parity Lien Indebtedness and the full and timely performance and discharge of
the Parity Lien Obligations, has granted, bargained, sold, warranted, mortgaged,
assigned, transferred and conveyed, and by these presents does grant, bargain,
sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey
unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of
Beneficiary, all Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to all of the Mortgaged Property.

      Subject, however, in each case to (i) Permitted Encumbrances (including
without limitation all presently existing royalties, overriding royalties,
payments out of production and other burdens which are referred to in Exhibit A
and which are taken into consideration in computing any percentage, decimal or
fractional interest as set forth in Exhibit A), (ii) the assignment of
production contained in Article IV hereof, but only insofar and so long as said
assignment of production is not inoperative under the provisions of Section 4.5
hereof, and (iii) the condition that none of Trustee, Beneficiary nor any
Secured Debtholder shall be liable in any respect for the performance of any
covenant or obligation (including, without limitation, measures required to
comply with Environmental Laws) of Mortgagor in respect of the Mortgaged
Property.


                                      -11-


      TO HAVE AND TO HOLD the Mortgaged Property for the benefit of Beneficiary,
and forever to secure the payment of the Indebtedness and to secure the
performance and discharge of the Obligations of Mortgagor herein and therein
contained.

      As set forth in the separate granting clauses above, it is the intent of
Mortgagor that such grants shall create two separate and distinct security
interests in all right, title and interest of Mortgagor in the Mortgaged
Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the
benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the
benefit of the Beneficiary, for the benefit of the holders of the Parity Lien
Debt.

      Notwithstanding (i) anything to the contrary contained in this Mortgage or
any other document, filing or agreement related to the creation, attachment,
perfection or existence of the liens and security interests granted herein, (ii)
the time, place, order or method of attachment or perfection of such liens or
security interests, (iii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect such security
interests, and (iv) the rules for determining priority under any law governing
the relative priorities of secured creditors, the lien securing the Parity Lien
Indebtedness is subordinated and junior in priority to the lien securing the
Priority Lien Indebtedness.

      Mortgagor, in consideration of the Secured Debt as set forth above, hereby
covenants and agrees with each of Trustee and Beneficiary:

                        ARTICLE II. INDEBTEDNESS SECURED

      2.1 Items of Indebtedness Secured. The following items of indebtedness are
secured hereby:

            (a) The Priority Lien Debt (including future advances to be made
      with respect thereto), and all other Obligations of Mortgagor under the
      Priority Lien Documents;

            (b) The Parity Lien Debt (including future advances to be made with
      respect thereto), and all other Obligations of Mortgagor under the Parity
      Lien Documents;

            (c) All Obligations under any other Priority Lien Debt or Parity
      Lien Debt;

            (d) Any sums advanced or expenses or costs incurred by Trustee,
      Beneficiary or any Secured Debtholder, or by any receiver appointed
      hereunder, which are made or incurred pursuant to, or permitted by, the
      terms hereof, plus interest thereon at the rate herein specified or
      otherwise agreed upon, from the date of the advances or the incurring of
      such expenses or costs until reimbursed;

            (e) Any and all other indebtedness of Mortgagor or any Affiliate of
      Mortgagor to Beneficiary now or hereafter owing, whether direct or
      indirect, primary or secondary, fixed or contingent, joint or several,
      regardless of how


                                      -12-


      evidenced or arising, where the indebtedness provides that it is secured
      hereby; and

            (f) Any extensions, refinancings, modifications or renewals of all
      such indebtedness described in subparagraphs (a) through (e) above,
      whether or not Mortgagor executes any extension agreement or renewal
      instrument.

      2.2 Indebtedness Defined. All the above items of indebtedness described in
subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section
2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively
referred to as the "Priority Lien Indebtedness." And all the above items of
indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c)
through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are
hereinafter collectively referred to as the "Parity Lien Indebtedness"; the
Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively
referred to as the "Indebtedness".

      2.3 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and
agrees that, except as otherwise provided by the Secured Debt Documents, the
Existing Mortgage constitutes a valid and subsisting first lien on the portion
of the Mortgaged Property encumbered thereby, and that none of the rights and
liens existing thereunder shall be impaired or released hereby, and that the
same as amended and restated hereby shall remain in full force and effect, and
all rights and liens existing and to exist thereunder are renewed, extended,
carried forward, and conveyed to secure all of the Indebtedness hereinabove
mentioned.

      2.4 Amended and Restated Mortgage. The Existing Mortgage is amended and
restated in full hereby in order to, among other things, secure all of the
Indebtedness herein described or referred to as if reference to such
Indebtedness were fully described in the Existing Mortgage. None of the rights,
titles, and interests, existing or to exist under the Existing Mortgage are
hereby released, diminished or impaired.

      2.5 No Impairment or Discharge of Liens. It is the express intention of
all parties hereto that the Secured Debtholders are subrogated to all of the
rights, powers, and equities of the original lenders and beneficiary under the
Existing Mortgage, that the liens created hereby shall relate back to and be
effective as of the effective date of the Existing Mortgage and that nothing
contained herein shall be construed to impair or discharge the liens and
security interests created thereby.

               ARTICLE III. PARTICULAR COVENANTS, REPRESENTATIONS
                           AND WARRANTIES OF MORTGAGOR

      3.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor
will duly and punctually pay the Indebtedness, as and when called for in the
Secured Debt Documents and on or before the due dates thereof, and will timely
perform and discharge all of the Obligations in full and on or before the dates
same are to be performed and discharged.


                                      -13-


      3.2 Certain Representations and Warranties. Mortgagor represents and
warrants (and with respect to those matters set forth in the following
subsections (b) and (f), as to those portions of the Mortgaged Property that are
operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor
makes such representation and warranty to the best of its knowledge) that

            (a) the oil and gas leases described in Exhibit A hereto are valid,
      subsisting leases, superior and paramount to all other oil and gas leases
      respecting the properties to which they pertain,

            (b) all producing wells located on the lands described in Exhibit A
      (including Exhibit A-1) have been drilled, operated and produced in
      conformity with all Applicable Laws of all Governmental Authorities having
      jurisdiction, and are subject to no penalties on account of past
      production, and such wells are in fact bottomed under and are producing
      from, and the well bores are wholly within, the lands described in Exhibit
      A or lands pooled or unitized therewith,

            (c) Mortgagor, to the extent of the interest specified in Exhibit A
      (including Exhibit A-1), has valid and indefeasible title to each property
      right or interest constituting the Mortgaged Property described in Exhibit
      A (including Exhibit A-1) and has a good and legal right to grant and
      convey the same to Trustee; such interest entitles Mortgagor to receive
      not less than the share of Hydrocarbons from such property indicated as
      its net revenue interest or "NRI" share of such Hydrocarbons, and
      obligates Mortgagor to pay for not more than the share of operating and
      other costs, liabilities and expenses associated with such property
      indicated as its working interest or "Wl" share of such costs, liabilities
      and expenses,

            (d) Excepting the Permitted Encumbrances, the Mortgaged Property is
      free from all encumbrances or liens whatsoever,

            (e) Mortgagor is not obligated, by virtue of any prepayment under
      any contract providing for the sale by Mortgagor of Hydrocarbons which
      contains a "take or pay" clause or under any similar arrangement, to
      deliver Hydrocarbons at some future time without then or thereafter
      receiving full payment therefor,

            (f) the Mortgaged Property is currently being operated, maintained
      and developed, in all material respects, in accordance with all applicable
      currently existing Permits, Legal Requirements and all Applicable Laws
      (including, without limitation, Environmental Laws),

            (g) the cover page to this Mortgage lists the correct legal name of
      Mortgagor and Mortgagor has not been known by any legal name different
      from the one set forth on the cover page of this Mortgage,

            (h) the execution, delivery, and performance by Mortgagor of this
      Mortgage (i) are within Mortgagor's corporate powers and have been duly
      authorized by Mortgagor's Board of Directors, shareholders and all other


                                      -14-


      requisite corporate action, (ii) have received all (if any) requisite
      prior governmental approval and consent in order to be legally binding and
      enforceable in accordance with the terms thereof, and (iii) will not
      violate, be in conflict with, result in a breach or constitute (with due
      notice or lapse of time, or both) a default under, any Legal Requirement
      or result in the creation or imposition of any lien, charge or encumbrance
      of any nature whatsoever upon any of Mortgagor's property or assets,
      except as contemplated by the provisions of the Secured Debt Documents,
      and

            (i) except as permitted by the Secured Debt Documents, there are no
      actions, suits or proceedings pending, or to the knowledge of Mortgagor
      threatened, against or affecting Mortgagor or the Mortgaged Property that
      could materially adversely affect Mortgagor or the Mortgaged Property, or
      involving the validity or enforceability of this Mortgage or the priority
      of the liens and security interests created by the Secured Debt Documents,
      and no event has occurred (including specifically Mortgagor's execution of
      this Mortgage which will violate, be in conflict with, result in the
      breach of, or constitute (with due notice or lapse of time, or both) a
      material default under, any Legal Requirement or result in the creation or
      imposition of any lien, charge or encumbrance of any nature whatsoever
      upon any of Mortgagor's property other than the liens and security
      interests created by the Secured Debt Documents.

      3.3 Further Assurances. Mortgagor will warrant and forever defend the
Mortgaged Property unto Trustee and Beneficiary as the case may be, against
every person whomsoever lawfully claiming the same or any part thereof, subject
to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and
security interest hereby created so long as any of the Indebtedness remains
unpaid. Mortgagor will execute and deliver such other and further instruments
and will do such other and further acts as may be required pursuant to the
Collateral Trust Agreement and/or any Secured Debt Documents to carry out more
effectually the purposes of this Mortgage, including, without limiting the
generality of the foregoing, (i) prompt correction of any defect which may
hereafter be discovered in the title to the Mortgaged Property or in the
execution and acknowledgment of this Mortgage, the Secured Debt Documents, or,
immediately upon the occurrence of an Event of Default, any other document
executed in connection herewith, and (ii) at any time a Secured Debt
Representative may request and upon such request, promptly execute all notices
to parties operating, purchasing or receiving proceeds of production of
Hydrocarbons from the Mortgaged Property, and all division orders or transfer
orders needed in order to transfer effectually or to assist in transferring
effectually to the Beneficiary the assigned proceeds of production from the
Mortgaged Property, which notices, division orders and transfer orders shall be
held by such Secured Debt Representative and delivered upon an Event of Default.

      3.4 Operation of the Mortgaged Property. So long as the Indebtedness or
any part thereof remains unpaid, and whether or not Mortgagor is the operator of
any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's
own expense:


                                      -15-


            (a) Do all things necessary to keep unimpaired Mortgagor's rights in
      the Mortgaged Property and not abandon any well or forfeit, surrender or
      release any Lease, except that Mortgagor may, in the ordinary course of
      business, (i) plug and abandon any well no longer capable of producing
      Hydrocarbons in paying quantities, (ii) surrender or release any Lease or
      a portion thereof so long as no well capable of producing Hydrocarbons in
      paying quantities is located on such Lease or a portion thereof or
      production from any such well is attributed to such Lease or a portion
      thereof, (iii) surrender or release any Lease or a portion thereof on
      which no producing well has ever been drilled or which has never been held
      by production from another well unless Proven Reserves (as defined in any
      Secured Debt Document) are attributed to such Lease or a portion thereof
      and (iv) abandon, forfeit, surrender or release any other portion of the
      Mortgaged Property to the extent permitted under the then existing Secured
      Debt Documents;

            (b) Obtain and maintain all required Permits and cause the lands
      described in Exhibit A to be maintained, developed, protected against
      drainage, and operated for the production of Hydrocarbons in a good and
      workmanlike manner as would a prudent operator, and consistent with
      industry practices, Joint Operating Agreements, and all Applicable Laws,
      excepting those being contested in good faith; and plug and abandon wells
      no longer capable of producing Hydrocarbons in paying quantities in
      accordance with all Applicable Laws, Legal Requirements and the terms and
      conditions of applicable Leases; and remediate the lands described in
      Exhibit A and facilities located thereon in accordance with all Applicable
      Laws, Legal Requirements and the terms and conditions of applicable
      Leases;

            (c) Duly pay and discharge, or cause to be paid and discharged,
      promptly as and when due and payable, all rentals and royalties (including
      shut-in royalties) payable in respect of the Mortgaged Property (other
      than rentals under Leases that are surrendered pursuant to the foregoing
      Section 3.4(a)), and all expenses incurred in or arising from the
      operation or development of the Mortgaged Property not later than the due
      date thereof, or the day any fine, penalty, interest or cost may be added
      thereto or imposed, or the day any lien may be filed, for the non-payment
      thereof (if such day is used to determine the due date of the respective
      item) except as to such matters which are being contested by Mortgagor in
      good faith;

            (d) Cause the Operating Equipment to be kept in good and effective
      operating condition, ordinary wear and tear excepted, and all repairs,
      renewals, replacements, additions and improvements thereof or thereto,
      needful to the production of Hydrocarbons from the lands described in
      Exhibit A, to be promptly made;

            (e) Not, except as permitted under the Secured Debt Documents,
      create, place or permit to be created or placed, or through any act or
      failure to act, acquiesce in the placing of, or allow to remain, any
      mortgage, pledge, lien


                                      -16-


      (statutory, constitutional or contractual), security interest, encumbrance
      or charge, or conditional sale or other title retention agreement,
      regardless of whether same are expressly subordinate to the liens of the
      Secured Debt Documents, with, respect to all or any portion of the
      Mortgaged Property, the Leases or the Rents and Revenues other than (1)
      the Permitted Encumbrances, (2) Taxes constituting a lien but not due and
      payable, (3) defects or irregularities in title, and liens, charges or
      encumbrances, which are customarily viewed in the industry as not
      interfering materially with the development, operation or value of the
      Mortgaged Property and not such as to affect materially title thereto, and
      (4) those being contested by Mortgagor in good faith in such manner as not
      to jeopardize Beneficiary's rights in and to the Mortgaged Property;

            (f) Carry with financially sound and reputable insurance companies
      and in amounts as is customary in the industry or as otherwise required
      pursuant to the Secured Debt Documents, the following insurance: (1)
      workmen's compensation insurance and public liability and property damage
      insurance in respect of all activities in which Mortgagor might incur
      personal liability for the death of or injury to an employee or third
      person, or damage to or destruction of another's property; and (2) to the
      extent such insurance is carried by similar companies engaged in similar
      undertakings in, the same general areas in which the Mortgaged Property,
      is located, insurance in respect of the Operating Equipment, against loss
      or damage by fire, lightning, hail, tornado, explosion and other similar
      risks, hazards, casualties and contingencies (including business
      interruption insurance covering loss of Rents and Revenues); provided,
      that any such insurance may be -------- provided by way of self insurance
      to the extent that similar companies engaged in similar undertakings in
      the same general areas also self-insure. Each insurance policy issued in
      connection therewith shall provide by way of endorsements, riders or
      otherwise that (i) name Beneficiary as a loss payee on all property
      insurance policies and an additional insured on all liability insurance
      policies, and provide that proceeds from property insurance policies will
      be payable to Beneficiary as its interest may appear, which proceeds are
      hereby assigned to Beneficiary, it being agreed by Mortgagor that such
      payments shall be applied A) if there be no Event of Default existing or
      which would exist but for due notice or lapse of time, or both, to the
      restoration, repair or replacement of the Mortgaged Property, or B) if
      there be an Event of Default existing, or which would exist but for due
      notice or lapse of time, or both, in accordance with the provisions of the
      Collateral Trust Agreement, either for the above stated purpose or toward
      the payment of the Indebtedness; (ii) the coverage of Beneficiary shall
      not be terminated, reduced or affected in any manner regardless of any
      breach or violation by Mortgagor of any warranties, declarations or
      conditions in such policy; (iii) no such insurance policy shall be
      canceled, endorsed, altered or reissued to effect a change in coverage for
      any reason and to any extent whatsoever unless such insurer shall have
      first given Beneficiary and each Secured Debt Representative thirty (30)
      days prior written notice thereof; and (iv) Beneficiary may, but shall not
      be obligated to, make premium payments to prevent any cancellation,
      endorsement, alteration or re-issuance and such payments shall be accepted
      by the insurer to prevent the


                                      -17-


      same. Beneficiary shall be furnished with a certificate evidencing such
      coverage in form and content comparable to coverage typically provided in
      the industry. All policies to be maintained under this Mortgage are to be
      issued on forms and by companies and with endorsements as are customary in
      the industry. Mortgagor shall maintain insurance in an amount sufficient
      to prevent Mortgagor from becoming a co-insurer under any policy required
      hereunder. If Mortgagor fails to maintain the level of insurance required
      under this Mortgage, then Mortgagor shall and hereby agrees to indemnify
      Beneficiary to the extent that a casualty occurs and insurance proceeds
      would have been available had such insurance been maintained;

            (g) Furnish to Beneficiary and each Secured Debt Representative, as
      soon as possible and in any event within five (5) days after the
      occurrence from time to time of any change in the address of Mortgagor's
      location (as described on the signature page hereto) or in the name of
      Mortgagor, notice in writing of such change;

            (h) Not initiate or acquiesce in any change in any material zoning
      or other land use or Water Rights classification now or hereafter in
      effect and affecting the Mortgaged Property or any part thereof;

            (i) Notify Beneficiary and each Secured Debt Representative in
      writing, as soon as possible and in any event within five (5) days after
      it shall become aware of the occurrence of any Event of Default or any
      event which, with notice, the passage of time or both would be such an
      Event of Default;

            (j) Appear and defend, and hold Beneficiary and any Secured
      Debtholder harmless from, any action, proceeding or claim affecting the
      Mortgaged Property or the rights and powers of Beneficiary or Secured
      Debtholders under the Secured Debt Documents, and all costs and expenses
      incurred by Beneficiary or any Secured Debtholder in protecting its
      interests hereunder in such an event (including all court costs and
      attorneys' fees) shall be borne by Mortgagor;

            (k) Subject to Mortgagor's right to contest the same, promptly pay
      all Taxes legally imposed upon this instrument or upon the Mortgaged
      Property or upon the income and profits thereof, or upon the interest of
      Beneficiary therein; provided that Mortgagor shall not be liable for taxes
      accruing after a transfer of the Mortgaged Property following a
      foreclosure;

            (l) Comply with, conform to and obey, in all material respects, all
      present and future Legal Requirements and not use, maintain, operate,
      occupy, or allow the use, maintenance, operation or occupancy of, the
      Mortgaged Property in any manner which (a) violates any present and future
      Legal Requirement, (b) may be dangerous unless safeguarded as required by
      Applicable Law, (c) constitutes a public or private nuisance or (d) makes
      void,


                                      -18-


      voidable or cancelable, or increases the premium of, any insurance then in
      force with respect thereto; and

            (m) Not, except as authorized under the Secured Debt Documents,
      permit any of the Fixtures or Personalty to be removed at any time from
      the lands described in Exhibit A unless (i) the removed item is removed
      temporarily for maintenance and repair, (ii) if removed permanently, is
      replaced by an article of equal suitability and value, owned by Mortgagor,
      free and clear of any lien or security interest or (iii) such Fixtures or
      Personalty are removed in connection with the plugging and abandoning of
      wells, or abandonment of other facilities, in each case as permitted by
      this Mortgage.

      3.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform
and comply with any and all representations, warranties, covenants and
agreements expressed as binding upon it under each of the Leases; (b) subject to
the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel
or waive its rights or the obligations of any other party under any of the
Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all
reasonable efforts to maintain each of the Leases in force and effect during the
full term thereof, and (d) appear in and defend (or cause its operator to appear
in and defend) any action or proceeding arising under or in any manner connected
with any of the Leases or the representations, warranties, covenants and
agreements of it or the other party or parties thereto.

      3.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense,
record, register, deposit and file this and every other instrument in addition
or supplemental hereto in such offices and places and at such times and as often
as may be necessary to preserve, protect and renew the lien and security
interest hereof as a first lien on and prior perfected security interest in real
or personal property, as the case may be, and the rights and remedies of
Beneficiary and Secured Debt Representatives, and otherwise will do and observe
all things or matters necessary or expedient to be done or observed by reason of
any Applicable Law, for the purpose of effectively creating, maintaining and
preserving the lien and security interest hereof on and in the Mortgaged
Property.

      3.7 Sale or Mortgage of the Mortgaged Property. Except (a) as set forth in
Section 6.1 of this Mortgage; (b) for sales of severed Hydrocarbons in the
ordinary course of Mortgagor's business; (c) for sales of or dispositions of
surplus, obsolete or worn inventory or equipment; (d) for the lien and security
interest created by this Mortgage, (e) for Permitted Encumbrances, and (f) for
sales, exchanges or other dispositions of Mortgaged Property permitted under the
Secured Debt Documents governing Priority Lien Debt and permitted under the
Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell,
convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or
encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's
right, title or interest therein, and Mortgagor will not enter into any
arrangement with any gas pipeline company or other consumer of Hydrocarbons
regarding the Mortgaged Property whereby said gas


                                      -19-


pipeline company or consumer may set off any claim against Mortgagor by
withholding payment for any Hydrocarbons actually delivered.

      3.8 Records, Statements and Reports. Mortgagor will keep proper books of
record and account in which complete and correct entries will be made of
Mortgagor's transactions in accordance with generally accepted accounting
principles and will furnish or cause to be furnished to each Secured Debt
Representative such information concerning the business, affairs and financial
condition of Mortgagor as required under the Secured Debt Documents. Without
limiting the generality of the foregoing, Mortgagor shall furnish to Beneficiary
and each Secured Debt Representative, but not more than every six (6) months:
(a) reports prepared by a reputable national independent petroleum engineer
regularly engaged by Mortgagor for such purposes or other engineering firm
acceptable to the Credit Agreement Agent concerning (1) the quantity of
Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income
and expense attributable to the Mortgaged Property, and (3) the expediency of
any change in methods of treatment or operation of all or any wells productive
of Hydrocarbons, any new drilling or development, any method of secondary
recovery by repressuring or otherwise, or any other action with respect to the
Mortgaged Property, the decision as to which may increase or reduce the quantity
of Hydrocarbons ultimately recoverable or the rate of production thereof, and
(b) reports for the prior period showing the gross proceeds from the sale of
Hydrocarbons produced from the lands described in Exhibit A (including any
thereof taken by Mortgagor for Mortgagor's own use), the quantity of such
Hydrocarbons sold, the severance, gross production, occupation, or gathering
taxes deducted from or paid out of such proceeds and the number of wells
operated, drilled or abandoned.

3.9      Right of Entry.

            (a) Upon at least twenty-four (24) hours notice to Mortgagor,
      Mortgagor will permit Beneficiary, each Secured Debt Representative and/or
      the agents of either of them, at the cost and expense of Mortgagor, to
      enter upon the Mortgaged Property and all parts thereof, for the purpose
      of investigating and inspecting the condition and operation thereof, and
      shall permit reasonable access to the field offices and other offices (to
      the fullest extent that Mortgagor may do so under the terms of the
      applicable Joint Operating Agreements and other applicable agreements
      affecting the Mortgaged Property), including the principal place of
      business, of Mortgagor to inspect and examine the Mortgaged Property and
      to inspect, review and reproduce as necessary any books, records,
      accounts, contracts or other documents of Mortgagor.

            (b) Without limiting the generality of the foregoing, Beneficiary
      shall have the right (but shall not be obligated to), and each Secured
      Debt Representative and its agents shall have the right (to the fullest
      extent that Mortgagor may do so under the terms of the applicable Joint
      Operating Agreements and other applicable agreements affecting the
      Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor
      to enter the Mortgaged Property to conduct (at the cost and expense of
      Mortgagor), or to cause


                                      -20-


      Mortgagor to conduct (at the cost and expense of Mortgagor), such tests
      and investigations as may be necessary to determine whether any hazardous
      materials or solid waste is being generated, transported, stored, or
      disposed of in accordance with applicable Environmental Laws. Such tests
      and investigations may include, without limitation, underground borings,
      ground water analyses and borings from the floors, ceilings and walls of
      any improvements located on the Mortgaged Property. This Section 3.9 shall
      not be construed to affect or limit the obligations of Mortgagor pursuant
      to Section 3.4 hereof.

            (c) Neither Beneficiary nor any Secured Debt Representative shall
      have any duty to visit or observe the Mortgaged Property, or to conduct
      tests, and no site visit, observation or testing by any such person (or
      its agents and independent contractors) shall impose any liability on any
      such person nor shall Mortgagor or any other obligor be entitled to rely
      on any such visit, observation or testing in any respect. Beneficiary or a
      Secured Debt Representative may, but shall not be obligated to, disclose
      to Mortgagor or, subject to the relevant confidentiality provisions of the
      Secured Debt Documents then in effect, any other Person, including any
      Governmental Authority, any report or finding made as a result of, or in
      connection with, any site visit, observation or testing. Mortgagor agrees
      that neither Beneficiary nor any Secured Debt Representative makes any
      warranty or representation to Mortgagor or any other obligor regarding the
      truth, accuracy or completeness of any such report or findings that may be
      so disclosed. Mortgagor also acknowledges that, depending upon the results
      of any site visit, observation or testing disclosed to Mortgagor,
      Mortgagor may have a legal obligation to notify one or more Governmental
      Authorities of such results, that such reporting requirements are
      site-specific, and are to be evaluated by Mortgagor without advice or
      assistance from Beneficiary or any Secured Debt Representative.

      3.10 Environmental Laws.

            (a) Mortgagor represents and warrants, to the best of its knowledge
      after due inquiry that:

                  (i) except as permitted by the Secured Debt Documents, the
            Mortgaged Property is in compliance in all material respects with
            all applicable Environmental Laws and there are no conditions
            existing currently which would be likely to subject Mortgagor to
            damages, penalties, injunctive relief or cleanup costs under any
            Environmental Laws or assertions thereof, or which require or are
            likely to require cleanup, removal, remedial action or other
            response pursuant to Environmental Laws by Mortgagor; and all use,
            generation, manufacturing, release, discharge, storage, deposit,
            treatment, recycling or disposal of any materials on, under or at
            the Mortgaged Property or transported to or from the Mortgaged
            Property (or tanks or other facilities thereon containing such
            materials) are being and will be conducted in accordance in all


                                      -21-


            material respects with applicable Environmental Laws including
            without limitation those requiring cleanup, removal or any other
            remedial action,

                  (ii) Mortgagor is not a party to any litigation or
            administrative proceedings, nor so far as is known by Mortgagor is
            any litigation or administrative proceeding threatened against it,
            which asserts or alleges that Mortgagor has violated or is violating
            Environmental Laws or that Mortgagor is required to clean up, remove
            or take remedial or other responsive action due to the disposal,
            depositing, discharge, leaking or other release of any hazardous
            substances or materials; neither the Mortgaged Property nor
            Mortgagor is subject to any judgment, decree, order or citation
            related to or arising out of Environmental Laws and neither has been
            named or listed as a potentially responsible party by any
            Governmental Authority in a matter arising under any Environmental
            Laws; and

                  (iii) Mortgagor has also obtained all Permits required under
            applicable Environmental Laws which are necessary for its current
            exploration, production, transportation, storage, use, and
            development activities at the Mortgaged Property.

            (b) Mortgagor shall not use or permit the Mortgaged Property or any
      part thereof to be used to generate, manufacture, refine, transport,
      treat, store, handle, dispose, transfer, produce or process any hazardous
      materials, except in material compliance with all applicable Environmental
      Laws, nor shall Mortgagor cause or permit, as a result of any intentional
      or unintentional act or omission on the part of Mortgagor or any tenant or
      subtenant, any material release of any hazardous materials onto the
      Mortgaged Property or onto any other property in material violation of any
      applicable Environmental Laws. Mortgagor shall comply, in all material
      respects, with all applicable Environmental Laws and shall obtain and
      comply, in all material respects, with any and all registrations or
      Permits required thereunder. To the extent any hazardous materials are
      released or discharged onto the Mortgaged Property on or after the date of
      this Mortgage, Mortgagor shall conduct and complete all investigations,
      studies, sampling, and testing, and all remedial, removal, and other
      actions necessary to clean up and remove all such hazardous materials on,
      from, or affecting the Mortgaged Property or any part thereof (i) in
      accordance, in all material respects, with all applicable Environmental
      Laws; and (ii) in accordance, in all material respects, with the orders
      and directives of all Governmental Authorities having jurisdiction over
      the Mortgaged Property. Mortgagor shall promptly notify Beneficiary and
      each Secured Debt Representative of its receipt of any notice of a
      violation of any Environmental Laws.

            (c) Regardless of whether any site assessments are conducted
      pursuant to this Mortgage, and without limiting the liability of Mortgagor
      for the breach of any warranty, representation or covenant contained
      herein or in any Secured Debt Document, and notwithstanding any limitation
      of liability contained


                                      -22-


      in the Secured Debt Documents, Mortgagor hereby agrees to unconditionally
      and absolutely defend, indemnify and hold harmless Beneficiary, Secured
      Debtholders, Trustee and their respective employees, affiliates, agents
      and attorneys, under the Mortgage and any successors or substitute trustee
      under the Mortgage (any person to be indemnified being herein called the
      "Indemnified Person"), from and against, and be responsible for, any and
      all liabilities (including strict liability), actions, demands, penalties,
      fines, taxes, assessments, losses (including, without limitation,
      diminution in the value of the Mortgaged Property), costs and expenses
      (including, without limitation, attorneys', paralegals', accountants' and
      other experts' and consultants' fees and expenses, and remedial costs,
      including, without limitation, costs of monitoring), suits, damages,
      including, without limitation, punitive damages and foreseeable and
      unforeseeable consequential damages, costs of any settlement or judgment
      and claims (including, without limitation, third-party claims for personal
      injury or real or personal property damage) of any and every kind
      whatsoever (hereinafter, collectively, called the "Losses"), which may now
      or in the future (whether before or after the release, or other
      termination of the Mortgage and the other Secured Debt Documents) be paid,
      imposed upon, incurred or suffered by or asserted or awarded against any
      of the Indemnified Persons or the Mortgaged Property by any person or
      entity or Governmental Authority for, with respect to, arising out of, or
      as a direct or indirect result of, any one or more of the following: (i)
      the presence or suspected presence, release or suspected release of any
      hazardous materials at, upon, under, within, above, from, by or in
      connection with the Mortgaged Property or any portion thereof, or
      elsewhere in connection with the transportation of hazardous materials to
      or from the Mortgaged Property (including, without limitation, in the air,
      soil, groundwater or surface water), or the escape, seepage, leakage,
      spillage, discharge, emission or release from the Mortgaged Property of
      any hazardous materials; (ii) any violations of any Environmental Laws at,
      upon, under, within, from, by or in connection with the Mortgaged
      Property; (iii) the environmental condition of the Mortgaged Property;
      (iv) the imposition by any Governmental Authority of any lien or so-called
      "super priority lien" upon the Mortgaged Property as a result of the
      presence or release of hazardous materials, or any violation of any
      Environmental Laws, at, upon, under, within, from, by or connection with
      the Mortgaged Property; (v) obligations to remediate hazardous materials
      contamination, or to remediate any condition which constitutes a violation
      of any Environmental Laws; (vi) any site assessments of the Mortgaged
      Property; (vii) liability for personal injury or property damage or damage
      to the environment or fines, penalties and punitive damages, resulting
      from the presence or release of hazardous materials or any violations of
      any Environmental Laws, at, upon, under, within, from, by or in connection
      with the Mortgaged Property; and (viii) any environmental matter described
      in this Mortgage, including, without limitation, matters arising out of
      any breach of the covenants, representations and warranties set forth
      herein in each instance described in (i) through (viii) hereof regardless
      of whether any such Losses arise out of or result from any breach of the
      covenants, representations and warranties pertaining to environmental
      matters set forth in this Mortgage or


                                      -23-


      the other Secured Debt Documents, and regardless of whether or not caused
      by or within the control of Mortgagor or any Indemnified Person; or
      whether any such matters arise before, during or after any foreclosure of
      the Mortgage or other taking of title to all or any portion of the
      Mortgaged Property or the enforcement of any other remedies under the
      Secured Debt Documents (if any such event occurs). WITHOUT LIMITATION, THE
      FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
      LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE SOLE,
      CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT LIABILITY OF ANY SUCH
      INDEMNIFIED PERSON, BUT NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
      ANY SUCH INDEMNIFIED PERSON.

            (d) Notwithstanding the foregoing or any contrary provision hereof,
      Mortgagor's indemnification obligations set forth in this Section 3.10
      shall not extend to any such Losses which are attributable solely to
      contamination by hazardous materials first introduced to the Mortgaged
      Property after a foreclosure of this Mortgage or other taking of title to
      the Mortgaged Property by any of Indemnified Persons.

            (e) The indemnification provided in this Section 3.10 shall
      specifically apply to and include claims or actions brought by or on
      behalf of tenants or employees of Mortgagor. Mortgagor hereby expressly
      waives (with respect to any claims of any Indemnified Person arising under
      this Section 3.10) any immunity to which Mortgagor may otherwise be
      entitled under any industrial or worker's compensation laws.

            (f) In the event any of the Indemnified Persons shall suffer or
      incur any such Losses, Mortgagor shall pay to such Indemnified Persons the
      total of all such Losses suffered or incurred within ten (10) days after
      demand therefore.

            (g) Mortgagor agrees that the representations, covenants, warranties
      and indemnifications contained in this Mortgage shall survive the release
      of the Mortgage, the foreclosure or the taking of a deed in lieu of
      foreclosure, other termination of the lien of the Mortgage, or the
      exercise by Beneficiary of any other remedies under the Secured Debt
      Documents, the discharge of Mortgagor's Obligations under any of the other
      Secured Debt Documents, or any transfer of the Mortgaged Property, even if
      as a part of such foreclosure, deed in lieu of foreclosure or other
      enforcement action, the Indebtedness is satisfied in full.

      3.11 Corporate Mortgagor. Mortgagor will continue to be duly qualified to
transact business in each state where the conduct of its business requires it to
be qualified, and will not, unless permitted pursuant to the Secured Debt
Documents, consolidate or merge with any other partnership, company, corporation
or other Person.


                                      -24-


      3.12 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor
is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382.

                      ARTICLE IV. ASSIGNMENT OF PRODUCTION

      4.1 Assignment.

            (a) Mortgagor hereby absolutely and irrevocably (a) transfers,
      assigns, warrants and conveys, to Beneficiary, effective as of July 1,
      2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter
      produced from and which accrue to the Mortgaged Property, and all proceeds
      therefrom, and (b) gives to and confers upon Beneficiary the right, power
      and authority to collect such Hydrocarbons and proceeds. Subject to the
      terms of Section 4.1 (b), all parties producing, purchasing or receiving
      any such Hydrocarbons, or having such, or proceeds therefrom, in their
      possession for which they or others are accountable to Beneficiary by
      virtue of the provisions of this Article IV, are authorized and directed
      to treat and regard Beneficiary as the assignee and transferee of
      Mortgagor and entitled in Mortgagor's place and stead to receive such
      Hydrocarbons and all proceeds therefrom; and said parties and each of them
      shall be fully protected in so treating and regarding Beneficiary and
      shall be under no obligation to see to the application by Beneficiary of
      any such proceeds or payments received by it; provided, however, that,
      until Beneficiary or any Secured Debt Representative shall have instructed
      such parties that an Event of Default has occurred and to deliver such
      Hydrocarbons and all proceeds therefrom directly to Beneficiary, such
      parties shall be entitled to deliver such Hydrocarbons and all proceeds
      therefrom directly to Mortgagor. So long as no Event of Default shall have
      occurred, Mortgagor shall be entitled to receive directly from such
      parties, and keep and retain, all such proceeds from the sale of such
      Hydrocarbons.

            (b) Upon the occurrence of an Event of Default (provided that the
      Secured Debt Representative shall not give such instruction and notice
      under this Article IV unless such Event of Default shall then be
      continuing), any Secured Debt Representative may at any time (and from
      time to time) thereafter give notice thereof to any party producing,
      purchasing or receiving any such Hydrocarbons, or having such, or proceeds
      therefrom, in their possession for which they or others are accountable to
      Beneficiary, directing that said Hydrocarbons and products are to be
      delivered into pipelines connected with the oil and gas leases, or to the
      purchaser thereof, free and clear of all Taxes, and the proceeds from the
      sale of such Hydrocarbons paid directly to Beneficiary in accordance with
      Section 4.5 of this Mortgage. Said parties producing, purchasing or
      receiving any such Hydrocarbons, or having such, or proceeds therefrom, in
      their possession for which they or others are accountable to Beneficiary
      by virtue of the provisions of this Article IV, shall be fully protected
      in relying on any such Secured Debt Representative's determination and
      notice of the occurrence of an Event of Default. Mortgagor agrees to
      perform all such acts, and to execute all such further assignments,
      transfers and division orders,


                                      -25-


      and other instruments as may be required pursuant to the Collateral Trust
      Agreement or any of the Secured Debt Documents in order to have said
      revenues and proceeds so paid to Beneficiary, as and when provided in this
      Article IV. With respect to any funds received by Beneficiary, Beneficiary
      is fully authorized to (but shall not be obligated to) receive and give
      receipt for any such revenues and proceeds that are received by
      Beneficiary; to endorse and cash any and all checks and drafts payable to
      the order of Mortgagor or Beneficiary for the account of Mortgagor
      received from or in connection with said revenues or proceeds and apply
      the proceeds thereof in accordance with Section 4.2 hereof, and to execute
      transfer and division orders in the name of Mortgagor, or otherwise, with
      warranties binding Mortgagor. The assignment of the Hydrocarbons and
      proceeds in this Section 4.1 is intended to be an absolute assignment from
      Mortgagor to Beneficiary and not merely the passing of a security
      interest. Such Hydrocarbons and proceeds are hereby assigned absolutely by
      Mortgagor to Beneficiary.

      4.2 Application of Proceeds. All payments received by Beneficiary pursuant
to Section 4.1 hereof shall be placed in a cash collateral account to be applied
in accordance with the provisions of the Collateral Trust Agreement.

      4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby
absolved from all liability for failure to enforce collection of any proceeds so
assigned (and no such failure shall be deemed to be a waiver of any right of
Beneficiary under this Article IV) and from all other responsibility in
connection therewith, except the responsibility to account to Mortgagor for
funds actually received.

      4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein
contained shall detract from or limit the absolute obligation of Mortgagor to
make payment of the Indebtedness regardless of whether the proceeds assigned by
this Article IV are sufficient to pay the same, and the rights under this
Article IV shall be in addition to all other security now or hereafter existing
to secure the payment of the Indebtedness.

      4.5 Status of Assignment. Notwithstanding the other provisions of this
Article IV and in addition to the other rights hereunder, Beneficiary or any
receiver appointed in judicial proceedings for the enforcement of this Mortgage
shall have the right to receive all of the Hydrocarbons herein assigned and the
proceeds therefrom after the occurrence and during the continuance of any Event
of Default and to apply all of said proceeds as provided in Section 4.2 hereof.
Upon any sale of the Mortgaged Property or any part thereof pursuant to Article
V, the Hydrocarbons thereafter produced from the property so sold, and the
proceeds therefrom, shall be included in such sale and shall pass to the
purchaser free and clear of the assignment contained in this Article IV.

      4.6 Indemnification Obligation. The following provisions shall apply to,
and be deemed in each case to modify, each of the provisions of this Mortgage
(except those set forth in Section 3.10 hereof) and the other Secured Debt
Documents (except to the


                                      -26-


extent otherwise expressly provided therein) wherein Mortgagor is obligated to
indemnify each of the Indemnified Persons:

            (a) Mortgagor agrees to indemnify Beneficiary, the Secured
      Debtholders, Trustee and their respective employees, affiliates, agents
      and attorneys, under the Mortgage and any successors or substitute trustee
      under the Mortgage, against all legal and administrative proceedings for
      which a claim for indemnification may be made by the Indemnified Person
      (herein, collectively, called "Indemnification Claims") made against or
      incurred by them or any of them as a consequence of the assertion, either
      before or after the payment in full of the Indebtedness, that they or any
      of them received Hydrocarbons herein assigned or the proceeds thereof
      claimed by third persons and Beneficiary, Secured Debtholders, and Trustee
      shall have the right to defend against any such Indemnification Claims,
      employing attorneys therefor, and unless furnished with reasonable
      indemnity, they or any of them shall have the right to pay or compromise
      and adjust all such Indemnification Claims. Mortgagor will indemnify and
      pay to Beneficiary, Secured Debtholders and Trustee any and all such
      amounts as may be paid in respect thereof or as may be successfully
      adjudged against such persons. The obligations of Mortgagor as hereinabove
      set forth in this Section 4.6 shall survive the release termination,
      foreclosure or assignment of this Mortgage or any sale hereunder.

            (b) Mortgagor shall pay when due any judgments with respect to an
      Indemnification Claim against any of the Indemnified Persons and which are
      rendered by a final order or decree of a court of competent jurisdiction
      from which no further appeal may be taken or has been taken within the
      applicable appeal period. In the event that such payment is not made, any
      of the Indemnified Persons at its sole discretion may pay any such
      judgments, in whole or in part, and look to Mortgagor for reimbursement
      pursuant to this Mortgage, or may proceed to file suit against Mortgagor
      to compel such payment.

            (c) Any amount which Mortgagor is obligated to pay to or for the
      benefit of an Indemnified Person with respect to an Indemnification Claim,
      but which is not paid when due, shall bear interest at the applicable rate
      set forth under the Secured Debt Documents from the date such amount is
      due until such amount is paid.

                     ARTICLE V. ENFORCEMENT OF THE SECURITY

      5.1 Title Examination. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Beneficiary shall have the right and
power to (but shall not be obligated to) cause to be brought down to date a
title examination and tax histories of the Mortgaged Property, procure title
opinions or title reports or, if necessary, procure new abstracts and tax
histories.

      5.2 Environmental Audit. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Beneficiary shall have the right and
power to


                                      -27-


(but shall not be obligated to) procure an updated or entirely new environmental
audit of the Mortgaged Property including the lands described in Exhibit A,
buildings, soil, ground water and subsurface investigations; have the buildings
inspected by an engineer or other qualified inspector; enter upon the Mortgaged
Property at any time and from time to time to show the Mortgaged Property to
potential purchasers and potential bidders at foreclosure sale; make available
to potential purchasers and potential bidders all information obtained pursuant
to the foregoing and any other information in the possession of Beneficiary
regarding the Mortgaged Property.

      5.3 Power of Sale of Real Property Constituting a Part of the Mortgaged
Property. Upon the occurrence of an Event of Default and if such Event of
Default shall be continuing, Trustee shall have the right and power to sell, to
the extent permitted by Applicable Law, at one or more sales, as an entirety or
in parcels, as they may elect, the real property constituting a part of the
Mortgaged Property, at such place or places and otherwise in such manner and
upon such notice as may be required by Applicable Law, or, in the absence of any
such requirement, as Trustee may deem appropriate, and to make conveyance to the
purchaser or purchasers; and Mortgagor shall warrant title to such real property
to such purchaser or purchasers. Trustee may postpone the sale of all or any
portion of such real property by public announcement at the time and place of
such sale, and from time to time thereafter may further postpone such sale by
public announcement made at the time of sale fixed by the preceding
postponement. The right of sale hereunder shall not be exhausted by one or any
sale, and Trustee may make other and successive sales until all of the trust
estate be legally sold. With respect to that portion, if any, of the Mortgaged
Property situated in the State of Wyoming, this Mortgage may be foreclosed by
advertisement and sale as provided by applicable Wyoming statutes. With respect
to that portion, if any, of the Mortgaged Property situated in the State of
Oklahoma, the Beneficiary shall have the right and power to (but shall not be
obligated to) declare the Indebtedness secured hereby due and payable and to
sell, or direct Trustee to sell, the "real estate," as such term is defined
under the provisions of 46 O.S. Supp. 1986, Section 42, constituting a part of
the Mortgaged Property, all under the terms of 46 O.S. Supp. 1986, Section 40 et
seq., and shall, to the extent permitted by Applicable Law, have the other
rights conferred on Trustee under the provisions of this Mortgage.

      5.4 Rights of Beneficiary with Respect to Personal Property Constituting a
Part of the Mortgaged Property. Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing, Beneficiary will have all rights
and remedies granted by Applicable Law, and particularly by the Uniform
Commercial Code, including, but not limited to, the right to take possession of
all personal property constituting a part of the Mortgaged Property, and for
this purpose Beneficiary may enter upon any premises on which any or all of such
personal property is situated and take possession of and operate such personal
property (or any portion thereof) or remove it therefrom. Beneficiary may
require Mortgagor to assemble such personal property and make it available to
Beneficiary at a place to be designated by Beneficiary which is reasonably
convenient to all parties. Unless such personal property is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Beneficiary will give Mortgagor reasonable notice of the time
and place of any public


                                      -28-


sale or of the time after which any private sale or other disposition of such
personal property is to be made. This requirement of sending reasonable notice
will be met if the notice is mailed by first-class mail, postage prepaid, to
Mortgagor at the address shown below the signatures at the end of this Mortgage
at least five (5) days before the time of the sale or disposition.

      5.5 Rights with Respect to Fixtures Constituting a Part of the Mortgaged
Property. Upon the occurrence of an Event of Default and if such Event of
Default shall be continuing, Beneficiary may elect to treat the fixtures
constituting a part of the Mortgaged Property as either real property collateral
or personal property collateral and then proceed to exercise such rights as
apply to such type of collateral.

      5.6 Judicial Proceedings. Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing, Trustee, in lieu of or in addition
to exercising any power of sale hereinabove given, may proceed by a suit or
suits in equity or at law, whether for a foreclosure hereunder for each or upon
credit in one or more parcels or portions under executory or ordinary process,
at Beneficiary's sole option, without appraisement (appraisement being expressly
waived), or for the sale of the Mortgaged Property, or for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Mortgaged Property, or for
the enforcement of any other appropriate legal or equitable remedy. Mortgagor
hereby acknowledges the Indebtedness secured hereby, whether now existing or to
arise hereafter, and confesses judgment thereon in the full amount of the
Indebtedness in favor of Beneficiary and any future holder or holders of Secured
Debt if such obligations are not paid at maturity.

      5.7 Possession of the Mortgaged Property. It shall not be necessary for
Trustee or Beneficiary to have physically present or constructively in their
possession at any sale held by Trustee or Beneficiary or by any court, receiver
or public officer any or all of the Mortgaged Property; and Mortgagor shall
deliver to the purchasers at such sale on the date of sale the Mortgaged
Property purchased by such purchasers at such sale, and if it should be
impossible or impracticable for any of such purchasers to take actual delivery
of the Mortgaged Property, then the title and right of possession to the
Mortgaged Property shall pass to such purchaser at such sale as completely as if
the same had been actually present and delivered.

      5.8 Certain Aspects of a Sale. Beneficiary shall have the right to (but
shall not be obligated to) become the purchaser at any sale held by Trustee,
Beneficiary or by any court, receiver or public officer, and Beneficiary shall
have the right to (but shall not be obligated to) credit upon the amount of the
bid made therefor the amount payable out of the net proceeds of such sale to it
Recitals contained in any conveyance made to any purchaser at any sale made
hereunder shall conclusively establish the truth and accuracy of the matters
therein stated, including, without limiting the generality of the foregoing,
nonpayment of the unpaid principal sum of, and the interest accrued on, Secured
Debt after the same have become due and payable, advertisement and


                                      -29-


conduct of such sale in the manner provided herein or appointment of any
successor Trustee hereunder.

      5.9 Receipt to Purchaser. Upon any sale, whether made under the power of
sale herein granted and conferred or by virtue of judicial proceedings, the
receipt of Trustee, Beneficiary or of the officer making sale under judicial
proceedings, shall be sufficient discharge to the purchaser or purchasers at any
sale for his or their purchase money, and such purchaser or purchasers, or his
or their assigns or personal representatives, shall not, after paying such
purchase money and receiving such receipt of Trustee, Beneficiary, or of such
officer therefor, be obliged to see to the application of such purchase money,
or be in anywise answerable for any loss, misapplication or nonapplication
thereof.

      5.10 Effect of Sale. Any sale or sales of the Mortgaged Property, whether
under the power of sale herein granted and conferred or by virtue of judicial
proceedings, shall operate to divest all right, title, interest, claim and
demand whatsoever either at law or in equity, of Mortgagor of, in and to the
premises and the property sold, and shall be a perpetual bar, both at law and in
equity, against Mortgagor, and Mortgagor's successors or assigns, and against
any and all persons claiming or who shall thereafter claim all or any of the
property sold from, through or under Mortgagor or Mortgagor's successors or
assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of
all proper conveyances, assignments and transfers of the properties so sold.

      5.11 Application of Proceeds. The proceeds of any sale of, and the Rents
and Revenues and other amounts generated by the holding, leasing, operation or
other use of, the Mortgaged Property shall be applied in accordance with the
provisions of the Collateral Trust Agreement.

      5.12 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights.
Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that
Mortgagor will not at any time insist upon or plead or in any manner whatever
claim the benefit of any appraisement, valuation, stay, extension or redemption
law now or hereafter in force, in order to prevent or hinder the enforcement or
foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or
the possession thereof by any purchaser at any sale made pursuant to any
provision hereof, or pursuant to the decree of any court of competent
jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or
under Mortgagor, so far as Mortgagor or those claiming through or under
Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such
laws; provided, however, that appraisement of any of the Mortgaged Property
located in the State of Oklahoma is hereby expressly waived or not, at the
option of Beneficiary, such option to be exercised prior to or at the time the
judgment is rendered in any foreclosure hereof. Mortgagor, for Mortgagor and all
who may claim through or under Mortgagor, waives, to the extent that Mortgagor
may lawfully do so, any and all right to have the Mortgaged Property marshalled
upon any foreclosure of the lien hereof, or sold in inverse order of alienation,
and agrees that Trustee, Beneficiary or any court having jurisdiction to
foreclose such lien may sell the Mortgaged Property as an entirety.


                                      -30-


Mortgagor, for Mortgagor and all who may claim through or under Mortgagor,
further waives, to the full extent that Mortgagor may lawfully do so, any
requirement for posting a receiver's bond or replevin bond or other similar type
of bond if Trustee or Beneficiary commence an action for appointment of a
receiver or an action for replevin to recover possession of any of the Mortgaged
Property. If any law in this paragraph referred to and now in force, of which
Mortgagor or Mortgagor's successor or successors might take advantage despite
the provisions hereof, shall hereafter be repealed or cease to be in force, such
law shall not thereafter be deemed to, constitute any part of the contract
herein contained or to preclude the operation or application of the provisions
of this paragraph. Pursuant to Section 39-5-19, New Mexico Statutes, Annotated,
1978 Comp., as amended, Mortgagor agrees that as to the Mortgaged Property
situated in the State of New Mexico, the redemption period shall be shortened to
one (1) month. Mortgagor hereby waives all rights of appraisement, sale,
homestead or redemption allowed under any law or laws of the State of Arkansas,
and especially redemption under the Act of the General Assembly of the State of
Arkansas approved May 8, 1899, and acts amendatory thereto. If Mortgagor is an
individual, Mortgagor waives and releases all rights of dower, courtesy and
homestead in the Mortgaged Property insofar as such rights may in any way affect
the purposes of this Mortgage.

      5.13 Costs and Expenses. All costs and expenses (including attorneys'
fees) incurred by Trustee or Beneficiary in protecting and enforcing their
rights hereunder shall constitute a demand obligation owing by Mortgagor to the
party incurring such costs and expenses and shall draw interest at Default
Interest Rate, all of which shall constitute a portion of the Indebtedness.

      5.14 Sale of the Mortgaged Property in Texas. If Secured Debt is not paid
when due, whether by acceleration or otherwise, Trustee is hereby authorized and
empowered to (but shall not be obligated to) sell any part of the Mortgaged
Property located in the State of Texas at public sale to the highest bidder for
cash in the area at the county courthouse of the county in Texas in which the
Texas portion of the Mortgaged Property or any part thereof is situated, as
herein described, designated by such county's commissioner's court for such
proceedings, or if no area is so designated, at the door of the county
courthouse of said county, at a time between the hours of 10:00 A.M. and 4:00
P.M. which is no later than three (3) hours after the time stated in the notice
described immediately below as the earliest time at which such sale would occur
on the first Tuesday of any month, after advertising the earliest time at which
said sale would occur, the place, and terms of said sale, and the portion of the
Mortgaged Property to be sold, by (a) posting (or by having some person or
persons acting for Trustee post) for at least twenty-one (21) days preceding the
date of the sale, written or printed notice of the proposed sale at the
courthouse door of said county in which the sale is to be made; and if such
portion of the Mortgaged Property lies in more than one county, one such notice
of sale shall be posted at the courthouse door of each county in which such part
of the Mortgaged Property is situated and such part of the Mortgaged Property
may be sold in the area at the county courthouse of any one of such counties
designated by such county's commissioner's court for such proceedings, or if no
area is so designated, at the courthouse door of such county, and the notice so
posted shall designate in which county such property shall be sold, and (b)
filing in the office of the


                                      -31-


county clerk of each county in which any part of the Texas portion of the
Mortgaged Property which is to be sold at such sale is situated a copy of the
notice posted in accordance with the preceding clause (a). In addition to such
posting and filing of notice, Beneficiary may or other holder of the
Indebtedness shall, at least twenty-one (21) days preceding the date of sale,
serve or cause to be served written notice of the proposed sale by certified
mail on Mortgagor and on each other debtor, if any, obligated to pay the
Indebtedness according to the records of Beneficiary or other holder of the
Indebtedness. Service of such notice shall be completed upon deposit of the
notice, enclosed in a postpaid wrapper properly addressed to Mortgagor and such
other debtors at their most recent address or addresses as shown by the records
of Beneficiary or other holder of the Indebtedness in a post office or official
depository under the care and custody of the United States Postal Service. The
affidavit of any person having knowledge of the facts to the effect that such a
service was completed shall be prima facie evidence of the fact of service.
Mortgagor agrees that no notice of any sale, other than as set out in this
Section, need be given by Trustee, Beneficiary or any other person, except as
may otherwise be required by Applicable Law. Mortgagor hereby designates as its
address for the purpose of such notice the address set out on the signature page
hereof; and agrees that such address shall be changed only by depositing notice
of such change enclosed in a postpaid wrapper in a post office or official
depository under the care and custody of the United States Postal Service,
certified mail, postage prepaid, return receipt requested, addressed to
Beneficiary or other holder of the Indebtedness at the address for Beneficiary
set out herein (or to such other address as Beneficiary or other holder of the
Indebtedness may have designated by notice given as above provided to Mortgagor
and such other debtors). Any such notice of change of address of Mortgagor or
other debtors or of Beneficiary or of other holder of the Indebtedness shall be
effective three (3) business days after such deposit if such post office or
official depository is located in the State of Texas, otherwise to be effective
upon receipt. Mortgagor authorizes and empowers Trustee to sell the Texas
portion of the Mortgaged Property in lots or parcels or in its entirety as is
customary in the industry or Trustee may elect; and to execute and deliver to
the purchaser or purchasers thereof good and sufficient deeds of conveyance
thereto by fee simple title, with evidence of general warranty by Mortgagor, and
the title of such purchaser or purchasers when so made by Trustee, Mortgagor
binds itself to warrant and forever defend. Where portions of the Mortgaged
Property lie in different counties, sales in such counties may be conducted in
any order that Trustee may deem expedient; and one or more such sales may be
conducted in the same month, or in successive or different months.
Notwithstanding anything to the contrary contained herein, Trustee may postpone
the sale provided for in this Section 5.14 at any time without the necessity of
a public announcement. The provisions hereof with respect to the posting and
giving of notices of sale are intended to comply with the provisions of Section
51.002 of the Property Code of the State of Texas, effective January 1, 1984,
and in the event the requirements, or any notice, under such Section 51.002 of
the Property Code of the State of Texas shall be eliminated or the prescribed
manner of giving such notices modified by future amendment to, or adoption of
any statute superseding, Section 51.002 of the Property Code of the State of
Texas, the requirement for such particular notices shall be deemed stricken from
or modified in this


                                      -32-


Mortgage in conformity with such amendment or superseding statute, effective as
of the effective date thereof.

      5.15 Fair Market Value. It is expressly agreed by Mortgagor that to the
extent Section 51.003 of the Texas Property Code, or any amendment thereto,
requires that the "fair market value" of the Mortgaged Property shall be
determined as of the foreclosure date in order to enforce a deficiency against
Mortgagor or any other party liable for repayment of the Indebtedness, the term
"fair market value" shall include those matters required by Applicable Law and
shall also include the additional factors set forth below:

            (a) The Mortgaged Property is to be valued "AS IS" and "WITH ALL
      FAULTS" and there shall be no assumption of restoration of or
      refurbishment of improvements, if any, after the date of the foreclosure;

            (b) An offset to the fair market value of the Mortgaged Property, as
      determined hereunder, shall be made by deducting from such value the
      reasonable estimated closing costs relating to the sale of the Mortgaged
      Property, including but not limited to brokerage commissions, title
      examination and curative expenses, tax prorations, escrow fees, and other
      common charges which are incurred by a seller of property; and

            (c) After consideration of the factors required by Applicable Law
      and those required above, an additional discount factor shall be
      calculated based upon the estimated time it will take to effectuate a sale
      of the Mortgaged Property so that the "fair market value" as so determined
      is discounted to be as of the date of the foreclosure sale of the
      Mortgaged Property.

      5.16 Operation of the Mortgaged Property by Beneficiary. Upon the
occurrence of an Event of Default and during the continuance of such Event of
Default and in addition to all other rights herein conferred on Beneficiary,
Beneficiary (or any person, firm or corporation designated by Beneficiary) shall
have the right and power, but shall not be obligated, to enter upon and take
possession of any of the Mortgaged Property, and to exclude Mortgagor, and
Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer,
manage and operate the same to the extent that Mortgagor shall be at the time
entitled and in its place and stead. Beneficiary, or any person, firm or
corporation designated by Beneficiary, may operate the same without any
liability to Mortgagor in connection with such operations, except to use
ordinary care in the operation of such properties, and Beneficiary or any
person, firm or corporation designated by Beneficiary, shall have the right to
(but shall not be obligated to) collect, receive and receipt for all
Hydrocarbons produced and sold from said properties, to make repairs, purchase
machinery and equipment, conduct work-over operations, drill additional wells
and to exercise every power, right and privilege of Mortgagor with respect to
the Mortgaged Property. When and if the expenses of such operation and
development (including costs of unsuccessful work-over operations or additional
wells) paid by Beneficiary or attributable to Mortgagor's undivided interest
therein and withheld, or offset against, by an operator or other party have been
paid or reimbursed


                                      -33-


in full by Mortgagor and the Indebtedness paid, said properties shall, if there
has been no sale or foreclosure, be returned to Mortgagor.

      5.17 Separate Sales. The Mortgaged Property may be sold in one or more
parcels and it being expressly understood and agreed that the right of sale
arising out of any Event of Default shall not be exhausted by any one or more
sales but other and successive sales may be made until all of the Mortgaged
Property has been sold or until the Indebtedness has been fully satisfied.

      5.18 Remedies Cumulative, Concurrent and Non-Exclusive. Beneficiary shall
have all rights, remedies and recourses granted in the Secured Debt Documents
and available at law or equity (including specifically those granted by the
Uniform Commercial Code in effect and applicable to the Mortgaged Property, or
any portion thereof), and the same (a) shall be cumulative and concurrent, (b)
may be pursued separately, successively or concurrently against any one or more
of Mortgagor, any Guarantor, or others obligated under the Secured Debt
Documents, or against the Mortgaged Property, pursuant to the Collateral Trust
Agreement and any Secured Debt Documents, (c) may be exercised as often as
occasion therefor shall arise, it being agreed by Mortgagor that the exercise or
failure to exercise any of same shall in no event be construed as a waiver or
release thereof or of any other right, remedy or recourse, and (d) are intended
to be, and shall be, non-exclusive.

      5.19 Release of and Resort to Collateral. Beneficiary may release,
regardless of consideration, any part of the Mortgaged Property without, as to
the remainder, in any way impairing, affecting, subordinating or releasing the
lien or security interests created in or evidenced by the Secured Debt Documents
or their stature as a first and prior lien and security interest in and to the
Mortgaged Property. For payment of the Indebtedness, Beneficiary may resort to
any other security therefor held in such order and manner as Beneficiary may
elect.

      5.20 Discontinuance of Proceedings. In case Beneficiary shall have
proceeded to invoke any right, remedy or recourse permitted under the Secured
Debt Documents and shall thereafter elect to discontinue or abandon same for any
reason, Beneficiary shall have the unqualified right so to do and, in such an
event, Mortgagor and Beneficiary shall be restored to their former positions
with respect to the Indebtedness, the Obligations, the Secured Debt Documents,
the Mortgaged Property and otherwise, and the rights, remedies, recourses and
powers of Beneficiary shall continue as if same had never been invoked.

      5.21 Uniform Commercial Code Remedies. Beneficiary shall have all the
rights, remedies and recourses with respect to the Personalty, Fixtures, Leases
and Rents and Revenues afforded a Secured Party by the aforesaid Uniform
Commercial Code (being Chapter 9 of the Texas Business and Commerce Code, as to
property within the scope thereof and situated in the State of Texas) in
addition to, and not in limitation of, the other rights, remedies and recourses
afforded Beneficiary by the Secured Debt Documents.


                                      -34-


      5.22 No Obligation of Trustee or Beneficiary. The assignment and security
interest herein granted shall not be deemed or construed (a) to constitute
Trustee or Beneficiary as a trustee in possession of the Mortgaged Property or,
(b) to obligate Trustee or Beneficiary to (i) lease the Mortgaged Property or
attempt to do same, (ii) take any action, (iii) incur any expenses or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise.

                      ARTICLE VI. MISCELLANEOUS PROVISIONS

      6.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby
authorized, to pool or unitize all or any part of the lands described in Exhibit
A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds
and other interests, when, in the reasonable judgment of Mortgagor, it is
necessary or advisable to do so in order to form a drilling and/or production
unit to facilitate the orderly development of that part of the Mortgaged
Property affected thereby, or to comply with the requirements of any Applicable
Law or governmental order or regulation relating to the spacing of wells or
proration of the production therefrom; provided, however, that any unit so
formed for the production of oil shall not substantially exceed 160 acres, and
any unit so formed for the production of gas shall not substantially exceed 640
acres, unless a larger area is required to conform to an Applicable Law or
governmental order or regulation relating to the spacing of wells or to obtain
the maximum allowable production under any Applicable Law or governmental order
or regulation relating to the proration of production therefrom; and further
provided that the Hydrocarbons produced from any unit so formed shall be
allocated among the separately owned tracts or interests comprising the unit in
a uniform manner consistently applied; and further provided that all interests
owned by Mortgagor in such unit shall be included within the Mortgaged Property.
Any unit so formed may relate to one or more zones or horizons, and a unit
formed for a particular zone or horizon need not conform in area to any other
unit relating to a different zone or horizon, and a unit formed for the
production of oil need not conform in area with any unit formed for the
production of gas. Promptly after formation of any such unit, Mortgagor shall
furnish to Beneficiary and each Secured Debt Representative a true copy of the
pooling agreement, declaration of pooling or other instrument creating such
unit. The interest in any such unit attributable to the Mortgaged Property (or
any part thereof) included therein shall become a part of the Mortgaged Property
and shall be subject to the lien hereof in the same manner and with the same
effect as though such unit and the interest of Mortgagor therein were
specifically described in Exhibit A. Mortgagor is further authorized to amend,
modify or terminate any pooling or unitization agreement or order to which
Mortgagor is a party or the Mortgaged Property is subject, provided that such
action does not conflict with the provisions of this Mortgage, including this
Section 6.1. Mortgagor may enter into, or amend, modify or terminate, pooling or
unitization agreements not hereinabove authorized only as permitted under the
Secured Debt Documents.

      6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt
Representative or any of their agents shall be liable for any error of judgment
or act done in good faith, or be otherwise responsible or accountable under any
circumstances whatsoever, except for their gross negligence or willful
misconduct. None of


                                      -35-


Beneficiary, Trustee, any Secured Debt Representative or any of their agents
shall be personally liable in case of entry by them, or anyone entering by
virtue of the powers herein granted them, upon the Mortgaged Property for debts
contracted or liability or damages incurred in the management or operation of
the Mortgaged Property. Such persons shall have the right to rely on any
instrument, document or signature authorizing or supporting any action taken or
proposed to be taken by them hereunder, believed by them in good faith to be
genuine. Beneficiary, Trustee, any Secured Debt Representative or any of their
agents shall be entitled to reimbursement for expenses incurred by them in the
performance of their duties hereunder and to reasonable compensation for such of
their services hereunder as shall be rendered. Mortgagor will, from time to
time, pay the compensation due hereunder and reimburse such parties for, and
save them harmless against, any and all liability and expenses which may be
incurred by them in the performance of their duties.

      6.3 Successor Trustee. Any Trustee may resign in writing addressed to
Beneficiary or may be removed at any time with or without cause by an instrument
in writing duly executed by Beneficiary. In case of the death, resignation or
removal of a Trustee, one or more successor Trustee may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of Applicable Law, and in the absence of any such requirement
without formality other than appointment and designation in writing. Such
appointment and designation shall be full evidence of the right and authority to
make the same and of all facts therein recited, and upon the making of any such
appointment and designation this conveyance shall vest in the named successor
Trustee or Trustee, all the estate and title of the prior Trustee in all of the
Mortgaged Property, and he or they shall thereupon succeed to all the rights,
powers, privileges, immunities and duties hereby conferred upon the prior
Trustee. All references herein to Trustee shall be deemed to refer to Trustee
from time to time acting hereunder.

      6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant
herein contained shall be performed and kept by Mortgagor solely at Mortgagor's
expense. If Mortgagor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this Mortgage, Beneficiary, or Trustee or
any receiver appointed hereunder or under Applicable Law, may, but shall not be
obligated to, take action and/or make advances to perform the same in
Mortgagor's behalf; provided, however, that concurrently with the taking of such
action or making such advances, Beneficiary, Trustee or any Secured Debt
Representative shall deliver notice to Mortgagor. Mortgagor hereby agrees to
repay the expense of such action and such advances upon demand plus interest as
set forth in the Collateral Trust Agreement. No such advance or action by
Beneficiary, Trustee or any receiver appointed hereunder shall be deemed to
relieve Mortgagor from any default hereunder.

      6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any
election by Trustee or Beneficiary not to insist, upon strict performance by
Mortgagor of any of the terms, provisions or conditions of the Collateral Trust
Agreement or any Secured Debt Documents shall not be deemed to be a waiver of
same or of any other term, provision or condition thereof, and Trustee and
Beneficiary shall have the right at any


                                      -36-


time or times thereafter to insist upon strict performance by Mortgagor of any
and all of such terms, provisions and conditions.

      6.6 Defense of Claims. Mortgagor will notify Beneficiary and each Secured
Debt Representative, in writing, promptly of the commencement of any legal
proceedings affecting the lien or security interest hereof or the Mortgaged
Property, or any part thereof, and will take such action, employing attorneys as
set forth in Section 3.4(j), as may be necessary or appropriate to preserve
Mortgagor's or Beneficiary's rights affected thereby and/or to hold harmless
Beneficiary in respect of such proceedings; and should Mortgagor fail or refuse
to take any such action, Beneficiary may, upon giving prior written notice
thereof to Mortgagor, take such action in behalf and in the name of Mortgagor
and at Mortgagor's expense. Moreover, Beneficiary may take such independent
action in connection therewith as it may in its discretion deem proper,
Mortgagor hereby agreeing that all sums advanced or all expenses incurred in
such actions plus interest thereon at the Default Interest Rate, will, on
demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed
hereunder or under Applicable Law. The obligations of Mortgagor as hereinabove
set forth in this Section 6.6 shall survive the release, termination,
foreclosure or assignment of this Mortgage or any sale hereunder.

      6.7 The Mortgaged Property to Revert; Release. If the Indebtedness shall
be fully paid and the covenants herein contained shall be well and truly
performed, then all of the Mortgaged Property shall revert to Mortgagor and the
entire estate, right, title and interest of Trustee and Beneficiary shall
thereupon cease; and Trustee and Beneficiary in such case shall, upon the
request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor
proper instruments acknowledging satisfaction of this Mortgage and the release
or reconveyance of the lien hereof in accordance with Applicable Law.
Notwithstanding anything contained herein to the contrary, the Mortgaged
Property, or any part thereof, shall, upon the written request of Mortgagor, be
released from the lien of this Mortgage, in accordance with the provisions of
the Collateral Trust Agreement, when such a release is permitted by the
Collateral Trust Agreement and the other Secured Debt Documents.

      6.8 Covenants Running with the Land. All Obligations contained in this
Mortgage are intended by the parties to be, and shall be construed as, covenants
running with the Mortgaged Property.

      6.9 Renewals, Amendments and Other Security. Renewals and extensions of
the Indebtedness and modifications of any kind of the Obligations may be given
at any time and amendments may be made to agreements with third parties relating
to any part of such Indebtedness or the Mortgaged Property and Trustee and
Beneficiary may take or may now hold other security from others for the
Indebtedness, all without notice to or consent of Mortgagor. Beneficiary may
resort first to such other security or any part thereof or first to the security
herein given or any part thereof, or from time to time to either or both, even
to the partial or complete abandonment of either security, and such action shall
not be a waiver of any rights conferred by this Mortgage, which shall continue
as a first lien upon and prior perfected security interest in the Mortgaged


                                      -37-


Property not expressly released until the Secured Debt and all other
Indebtedness secured hereby are fully paid.

      6.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and
may be enforced from time to time as an assignment, chattel mortgage, contract,
deed of trust, financing statement, real estate mortgage, or security agreement,
and from time to time as any one or more thereof.

      6.11 Limitation on Interest. No provision of this Mortgage or the Secured
Debt Documents shall require the payment or permit the collection of interest in
excess of the Maximum Lawful Rate or which is otherwise contrary to Applicable
Law. If any excess of interest in such respect is in the Secured Debt Documents
or otherwise herein provided for, or shall be adjudicated to be so provided for
herein or in the Secured Debt Documents, Mortgagor shall not be obligated to pay
such excess.

      6.12 Severability. The Secured Debt Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable Legal
Requirements. If any provision of any of the Secured Debt Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the remainder of the instrument
in which such provision is contained nor the application of such provision to
other persons or circumstances nor the other instruments referred to hereinabove
shall be affected thereby, but rather shall be enforced to the greatest extent
permitted by Applicable Law. It is hereby expressly stipulated and agreed to be
the intent of Mortgagor and Beneficiary at all times to comply with the usury,
and all other, laws relating to the Secured Debt Documents. If, at any time, the
applicable Legal Requirements render usurious any amount called for in any
Security Document, then it is Mortgagor's, Trustee's and Secured Debtholders'
express intent that such document be immediately deemed reformed and the amounts
collectible reduced, without the necessity of the execution of any new document,
so as to comply with the then Applicable Law but so as to permit the recovery of
the fullest amount otherwise called for in such Secured Debt Documents.

      6.13 Waiver by Trustee and Beneficiary. Any and all covenants in this
Mortgage may from time to time by instrument in writing signed by Trustee and
Beneficiary be waived to such extent and in such manner as Trustee and
Beneficiary may desire, but no such waiver shall ever affect or impair either
Trustee's or Beneficiary's rights or liens or security interests hereunder,
except to the extent specifically stated in such written instrument.

      6.14 No Partnership. Nothing contained in this Mortgage is intended to, or
shall be construed as, creating to any extent and in any manner whatsoever, any
partnership, joint venture, or association among Mortgagor, Trustee, Beneficiary
and their respective Affiliates, or in any way as to make Beneficiary or
Trustee's co-principals with Mortgagor with reference to the Mortgaged Property,
and any inferences to the contrary are hereby expressly negated.


                                      -38-


      6.15 Successors and Assigns. This Mortgage is binding upon Mortgagor,
Mortgagor's successors and assigns, and shall inure to the benefit of
Beneficiary, its successors and assigns, and the provisions hereof shall
likewise be covenants running with the land.

      6.16 Article and Section Headings. The article and section headings in
this Mortgage are inserted for convenience of reference and shall not be
considered a part of this Mortgage or used in its interpretation.

      6.17 Execution in Counterparts. This Mortgage may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be an
original and all of which are identical, except that, to facilitate recordation
or filing, in any particular counterpart portions of Exhibit A hereto which
describe properties situated in parishes or counties other than the parish or
county in which such counterpart is to be recorded or filed may have been
omitted.

      6.18 Special Filing as Financing Statement. This Mortgage shall likewise
be a Security Agreement and a Financing Statement. This Mortgage shall be filed
for record, among other places, in the real estate records of each county or
parish in which any portion of the real property covered by the oil and gas
leases described in Exhibit A hereto is situated, and, when filed in such
counties or parishes shall be effective as a financing statement covering
Fixtures located on oil and gas properties, which oil and gas properties (and
accounts arising therefrom) are to be financed at the wellheads of the wells
located on the lands described in Exhibit A. A carbon, photographic or other
reproduction of this Mortgage or of any financing statement covering the
Mortgaged Property or any portion thereof shall be sufficient as a financing
statement and may be filed as such. Mortgagor agrees that any Secured Debt
Representative may, in such manner, on such terms and at such times as may be
elected by such Secured Debt Representative, and without demand or notice to, or
the consent or signature of, Mortgagor, file and/or record such UCC financing
statements, fixture filings, and/or amendments to or continuations of any
financing statements or fixture filings to evidence, perfect and/or continue the
perfection of, any security interests created or to be created pursuant to this
Mortgage or any of the other Secured Debt Documents.

      6.19 Notices. Except as otherwise required by Sections 5.4 and 5.14
hereof, any notice, request or demand which may be required or permitted to be
given or served upon Mortgagor shall be sufficiently given when given or made
pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other
means and manner of giving of notice as may be required by Applicable Law.

      6.20 Reliance. Notwithstanding any reference herein to the Secured Debt
Documents, no party shall have any obligation to inquire into the terms or
conditions of any such documents and all parties shall be fully authorized to
rely upon any statement, certificate, or affidavit of Beneficiary or any future
holder of any portion of the Indebtedness as to the occurrence of any event such
as the occurrence of any event of default.


                                      -39-


      6.21 Beneficiary as Agent for the Secured Debtholders. As described above,
certain Affiliates of Beneficiary and the Secured Debt Representatives are or
may become parties to certain Hedging Agreements with Mortgagor and/or
Affiliates of Mortgagor. This Mortgage secures the obligations of Mortgagor and
such Affiliates, as the case may be, under such Hedging Agreements, and the
parties acknowledge for all purposes that Beneficiary acts for itself and as
agent on behalf of such Affiliates of Beneficiary and the Secured Debtholders
which are so entitled to share in the rights and benefits accruing to
Beneficiary under this Mortgage in respect of the Mortgaged Property.

      6.22 Applicable Law. As to any tract or parcel of land comprising a
portion of the Mortgaged Property, this Mortgage shall be governed by and
construed according to the Applicable Laws of the State where such tract or
parcel of land is situated.

      6.23 Subrogation. If any or all of the proceeds of Secured Debt have been
used to extinguish, extend or renew any indebtedness heretofore existing against
the Mortgaged Property, then, to the extent of such funds so used, the
Indebtedness and this Mortgage shall be subrogated to all of the rights, claims,
liens, titles and interests heretofore existing against the Mortgaged Property
to secure the indebtedness so extinguished, extended or renewed and the former
rights, claims, liens, titles and interests, if any, are not waived but rather
are continued in full force and effect in favor of Beneficiary and are merged
with the lien and security interest created herein as cumulative security for
the repayment of the Indebtedness and the satisfaction of the Obligations.

      6.24 Fixture Filing. Portions of the Mortgaged Property are or are to
become fixtures relating to the above described real estate, and Mortgagor
herein expressly covenants and agrees that the filing of this Mortgage in the
Real Estate Records in the county where the Mortgaged Property is located shall
also operate from the time of filing therein as a financing statement filed as a
fixture filing in accordance with Section 9.502(c) of the Uniform Commercial
Code - Secured Transactions of the State of Texas.


                                      -40-


      IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed this
Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing in the presence of the undersigned Notary
Public on this 14th day of July, 2003.

                              MORTGAGOR AND DEBTOR

                                                CALPINE CORPORATION, a Delaware
                                                corporation


                                                By:
                                                        ------------------------
                                                Title:  Executive Vice President
                                                Printed Name:  B.A. Berilgen

ATTEST:


- -------------------------------
Printed Name:

The name and mailing address of Mortgagor is:

Calpine Corporation
1000 Louisiana Street, Suite 800
Houston, TX 77002


                                      S-1


STATE OF TEXAS          )
                        )  SS.
COUNTY OF HARRIS        )

      BE IT REMEMBERED that I, Suzanne B. Snow, a Notary Public duly qualified,
commissioned, sworn and acting in and for the County and State aforesaid, hereby
certify that, on this 14th day of July, 2003, there appeared before me severally
each of the following persons, each being either a Trustee or else the
designated officer of the corporation or association set opposite his name, and
each such Trustee, corporation and association being a party to the foregoing
instrument:

      B.A. Berilgen, the Executive Vice President, and Michael H. Hickey, the
Vice President-Managing Counsel, of Calpine Corporation, a Delaware corporation,
which has no corporate seal whose address is 1000 Louisiana Street, Suite 800,
Houston, TX 77002.

ARKANSAS          Before me on this day appeared in person the aforementioned
                  persons, to me personally well known, who stated that they
                  held the offices in the corporation or association set forth
                  opposite their names above (or, in the case of the Trustees,
                  were validly appointed Trustees) and were duly authorized in
                  their respective capacities to execute the foregoing
                  instrument for and in the name and on behalf of said
                  corporation or association (or as Trustees, as the case may
                  be), and further stated and acknowledged that they had so
                  signed, executed and delivered said foregoing instrument for
                  the consideration, uses and purposes therein mentioned and set
                  forth.

COLORADO          The foregoing instrument was acknowledged before me this day
                  by each such person on behalf of said corporation or
                  association, or himself, as a Trustee, as the case may be.

KANSAS            On this day before me personally appeared the aforementioned
                  persons, who acknowledged themselves to hold the offices in
                  the corporation set forth opposite their names above (or, in
                  the case of the Trustees, were validly appointed Trustees) and
                  as such officers or Trustees, hereby authorized to do so,
                  executed the foregoing instrument for the purposes therein
                  contained.

MISSISSIPPI       Personally appeared before me, the undersigned authority in
                  and for the said county and state, on this 14th day of July,
                  2003, within my jurisdiction the within named B.A. Berilgen
                  who acknowledged that he is the Executive Vice President of
                  CALPINE CORPORATION, a Delaware corporation, and that for and
                  on behalf of said corporation and as its act and deed
                  (he)(she) executed the above and foregoing instrument after
                  first having been duly authorized by said



                  corporation so to do.

MONTANA           On this day before me personally appeared each such person,
                  each of whom is known to me to be the officer of the
                  corporation that executed the within instrument (or a Trustee,
                  as the case may be), and acknowledged to me that such
                  corporation (or Trustee, as the case may be) executed the
                  same.

NEBRASKA          The foregoing instrument was acknowledged before me this day
  and             by each such person as the designated officers of the
NEW MEXICO        corporation or association set opposite their names (or as
                  Trustees, as the case may be) on behalf of said corporation or
                  association, or himself as a Trustee, as the case may be.

OKLAHOMA          Before me on this day personally appeared the aforementioned
                  persons, to me known to be the identical persons who
                  subscribed the names of the respective makers thereof to the
                  foregoing instrument in the capacities set forth opposite the
                  names of such persons above, and each such person acknowledged
                  to me that he executed the same as his free and voluntary act
                  and deed and as the free and voluntary act and deed of the
                  corporation or association set opposite his name (or of
                  himself as Trustee, as the case may be) for the uses and
                  purposes therein set forth.

TEXAS             This instrument was acknowledged before me on this day by each
                  such person as the designated officer of the corporation or
                  association set opposite his name (or a Trustee, as the case
                  may be), on behalf of said corporation or association set
                  opposite his name (or of himself as Trustee, as the case may
                  be).

WYOMING           The foregoing instrument was acknowledged before me by the
                  above individuals on this day.

                       Witness my hand and official seal.


                                       -----------------------------------------
                                       Notary Public
                                       Residing at Houston, Harris County, Texas

My commission expires: 12/21/2006




     EXHIBIT A To Amended and Restated Mortgage, Deed of Trust, Assignment,
        Security Agreement, Financing Statement and Fixture Filing, dated
                     July 16, 2003, from CALPINE CORPORATION
                       to Denis O'Meara and James Trimble
                            and THE BANK OF NEW YORK

                               List of Properties

1. Depth limitations, unit designations, unit tract descriptions and
descriptions (including percentages, decimals or fractions) of undivided
leasehold interests, well names, "Operating Interests," "Working Interests" and
"Net Revenue Interests" contained in this Exhibit A and the listing of any
percentage, decimal or fractional interest in this Exhibit A shall not be deemed
to limit or otherwise diminish the interests being subjected to the lien,
security interest and encumbrance of this Mortgage.

2. Some of the land descriptions in this Exhibit A may refer only to a portion
of the land covered by a particular lease. This Mortgage is not limited to the
land described in Exhibit A but is intended to cover the entire interest of
Mortgagor in any lease described in Exhibit A even if such interest relates to
land not described in Exhibit A. Reference is made to the land descriptions
contained in the documents of title recorded as described in this Exhibit A. To
the extent that the land descriptions in this Exhibit A are incomplete,
incorrect or not legally sufficient, the land descriptions contained in the
documents so recorded are incorporated herein by this reference.

3. References in Exhibit A to instruments on file in the public records are made
for all purposes. Unless provided otherwise, all recording references in Exhibit
A are to the official real property records of the county or counties (or parish
or parishes) in which the mortgaged property is located and in which records
such documents are or in the past have been customarily recorded, whether Deed
Records, Oil and Gas Records, Oil and Gas Lease Records or other records.

4. A statement herein that a certain interest described herein is subject to the
terms of certain described or referred to agreements, instruments or other
matters shall not operate to subject such interest to any such agreement,
instrument or other matter except to the extent that such agreement, instrument
or matter is otherwise valid and presently subsisting nor shall such statement
be deemed to constitute a recognition by the parties hereto that any such
agreement, instrument or other matter is valid and presently subsisting.

[Do not detach this page]


                                      A-1


                                   SCHEDULE I

Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and
Fixture Filing (Colorado) from Calpine Corporation, a Delaware corporation,
Trustor and Mortgagor to Kemp Leonard, Trustee, John Quick, Trustee and The Bank
of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:



      JURISDICTION                   FILE NO.                    FILE DATE
      ------------                   --------                    ---------
                                                           
Garfield County, Colorado        Reception #602924               5/7/2002
                                 Book 1353, Page 8


UCC-1 Financing Statement regarding Multi-State Mortgage, naming Calpine
Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party,
filed as follows:


      JURISDICTION                    FILE NO.                   FILE DATE
      ------------                    --------                   ---------
                                                           
Garfield County, Colorado         Reception #603031              5/8/2002
                                 Book 1353, Page 410



                                  Schedule I-1



                                   SCHEDULE II

First Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing (Colorado) from Calpine Corporation, a
Delaware corporation, Trustor and Mortgagor to Dennis O'Meara, Trustee, James
Trimble, Trustee and The Bank of Nova Scotia, for itself and as Agent,
Beneficiary, filed as follows:



   JURISDICTION                        FILE NO.                   FILE DATE
   ------------                        --------                   ---------
                                                            
Garfield County, CO               Book 1405, Page 45              11/08/2002


Second Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement, and Fixture Filing (Colorado) from Calpine Corporation to
Trustees and The Bank of Nova Scotia, filed as follows:



                              ORIGINAL     ORIGINAL     SUPPLEMENT    SUPPLEMENT
    JURISDICTION              FILE NO.     FILE DATE     FILE NO.     FILE DATE
    ------------              --------     ---------     --------     ---------
                                                          
Garfield County, Colorado     602924;       5/7/02       624212;       4/2/03
                             Book 1353,                 Book 1453,
                               Pg. 8                     Pg. 812



                                  Schedule II-1



                                  SCHEDULE III

                                       N/A


                                 Schedule III-1

EX-10.29

                                                                   Exhibit 10.29

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

                              AMENDED AND RESTATED
                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

                                      FROM

                              CALPINE CORPORATION,
                             a Delaware corporation
                         (Taxpayer I.D. No. 77-0212977),
                              Trustor and Mortgagor

                                       TO

                                  DENIS O'MEARA
                                     Trustee

                                       AND

                                  JAMES TRIMBLE
                                     Trustee

                                       AND

                              THE BANK OF NEW YORK,
        not in its individual capacity but solely as Collateral Trustee,
                         (Taxpayer I.D. No. 13-5160382)
                                 as Beneficiary

                            Dated as of July 16, 2003

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

"THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS."

"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."

"THOSE PORTIONS OF THE MORTGAGED PROPERTY WHICH ARE AS-EXTRACTED COLLATERAL
(INCLUDING, WITHOUT LIMITATION, OIL AND GAS), AND THE ACCOUNTS RELATING THERETO,
WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES
DESCRIBED IN




EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG
OTHER PLACES, IN THE REAL ESTATE RECORDS."

"MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS
DESCRIBED IN EXHIBIT A HERETO."

"SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS
FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL
ESTATE RECORDS."

"A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE."

"MORTGAGOR AGREES BY EXPRESS LANGUAGE IN THIS MORTGAGE TO SUBJECT THE TRUST REAL
ESTATE TO THE TERMS OF THE DEED OF TRUST ACT (SECTIONS 48-10-1 THROUGH 21 NMSA
(1978))."

THIS INSTRUMENT WAS PREPARED BY AND
WHEN RECORDED AND/OR FILED
RETURN TO:

MAYER, BROWN, ROWE & MAW LLP
700 Louisiana Street
Suite 3600
Houston, Texas  77002
Attn:  Kevin L. Shaw, Esq.




                              AMENDED AND RESTATED
                  MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
                AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

      THIS AMENDED AND RESTATED MORTGAGE, DEED OF TRUST, ASSIGNMENT, SECURITY
AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this "MORTGAGE"), dated as of
July 16, 2003, is made by CALPINE CORPORATION, a Delaware corporation
("MORTGAGOR"), whose address is 50 West San Fernando Street, San Jose, CA 95113,
to DENIS O'MEARA and JAMES TRIMBLE (whether one or more, collectively called
"TRUSTEE"), and THE BANK OF NEW YORK, a New York banking corporation, not in its
individual capacity but solely as Collateral Trustee under the Collateral Trust
Agreement dated July 16, 2003 (the "COLLATERAL TRUST AGREEMENT") among
Mortgagor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee,
Credit Agreement Agent and Term Loan Administrative Agent ("BENEFICIARY"), whose
address is 101 Barclay Street, New York, New York 10286. References to this
"Mortgage" shall mean this instrument and any and all renewals, modifications,
amendments, supplements, extensions, consolidations, substitutions, spreaders,
restatements and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                   ARTICLE I.
                            RECITALS AND DEFINITIONS

      1.1 Mortgagor has heretofore executed and delivered to The Bank of Nova
Scotia, for itself and as agent for the Lender Parties (together with its
successors in such capacity, the "CREDIT AGREEMENT AGENT") and John Quick (as
predecessor-in-interest to Denis O'Meara) and Kemp Leonard (as
predecessor-in-interest to James Trimble), as Trustees, that certain mortgage or
deed of trust, dated as of May 1, 2002, as supplemented and amended prior to the
date hereof (as so supplemented and amended, herein called the "EXISTING
MORTGAGE"), to secure (i) payment of indebtedness owed or to be owing to certain
institutional lenders (the "EXISTING 2002 LENDERS") pursuant to the terms of
that certain Credit Agreement, dated as of March 8, 2002 (herein, as the same
may be amended, modified or supplemented from time to time, called the "EXISTING
2002 CREDIT AGREEMENT") pursuant to which the Existing 2002 Lenders made loans
to Mortgagor and issued letters of credit for the benefit of Mortgagor (the
"EXISTING 2002 LETTERS OF CREDIT") in amounts not to exceed at any one time
outstanding $1,600,000,000, and Mortgagor, to evidence its indebtedness to the
Existing 2002 Lenders under the Existing 2002 Credit Agreement, has executed and
delivered to the Existing 2002 Lenders its secured promissory notes to mature
not later than May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002
Loan Notes being payable to the order of the Existing 2002 Lenders, bearing
interest as provided for therein, and containing provisions for payment of
attorneys' fees and acceleration of maturity in the event of default, as therein
set forth; and (ii) payment of indebtedness owed or to be owing to certain
institutional lenders (the "EXISTING 2000 LENDERS", and together with the
Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the terms


                                      -1-


of that certain Second Amended and Restated Credit Agreement dated as of May 23,
2000 (herein, as the same may be amended, modified, or supplemented from time to
time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the Existing
2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS") pursuant
to which the Existing 2000 Lenders made loans to Mortgagor and issued letters of
credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF CREDIT") in
amounts not to exceed at any one time outstanding $400,000,000, and Mortgagor,
to evidence its indebtedness to the Existing 2000 Lenders under the Existing
2000 Credit Agreement, has executed and delivered to the Existing 2000 Lenders
its secured promissory notes to mature not later than May 24, 2003 (the
"EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the
Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing
2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing
interest as provided for therein, and containing provisions for payment of
attorney's fees and acceleration of maturity in the event of default, as therein
set forth.

      1.2 The Existing Mortgage, together with other mortgages and deeds of
trust (a) have been filed and recorded, among other places, as set forth in
Schedule I hereto; (b) have been supplemented and amended by various instruments
that have been filed and recorded, among other places, as set forth in Schedule
II hereto; and (c) have been amended and certain items of property mortgaged
thereby have been released by various instruments that have been filed and
recorded, among other places, as set forth in Schedule III hereto.

      1.3 Mortgagor, the Existing Lenders and the Credit Agreement Agent are (i)
terminating the commitments under the Existing 2000 Credit Agreement, and (ii)
amending and restating the Existing 2002 Credit Agreement (as so amended and
restated, and as the same may, from time to time hereafter, be amended,
supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT
AGREEMENT".

      1.4 Mortgagor is also (a) issuing $500,000,000 in aggregate principal
amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007
INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing
$1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 INDENTURE") between Mortgagor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal
amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the
"2013 NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2013
INDENTURE") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing
$750,000,000 in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement
dated as of July 16, 2003 (the "TERM LOAN AGREEMENT") between Mortgagor and
Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its


                                      -2-


successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds
from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the
borrowing of the Term Loans will be used to refinance a portion of the loans and
other indebtedness outstanding under the Existing Credit Agreements.

      1.5 As permitted pursuant to the Secured Debt Documents, Mortgagor may
incur future debt which could, together with the obligations under the Amended
and Restated Credit Agreement, constitute Priority Lien Debt and Mortgagor may
incur future debt which could, together with the 2007 Notes, 2010 Notes, the
2013 Notes and the Term Loans, constitute Parity Lien Debt, provided that the
aggregate amount of the Secured Debt to be secured hereby shall not exceed
$4,200,000,000. Mortgagor intends to secure the Indebtedness, including its
obligations (a) under the Amended and Restated Credit Agreement and any future
Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject
to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans
and any future Parity Lien Debt, equally and ratably, with liens and security
interests in, among other collateral, the Mortgaged Property under the Existing
Mortgage, as contemplated in the Collateral Trust Agreement..

      1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment
of Liens of even date herewith, the Credit Agreement Agent has assigned to
Beneficiary, all of the Credit Agreement Agent's right, title and interest in
and to, and its interest as beneficiary under, the Existing Mortgage. This
Mortgage amends and restates the Existing Mortgage. The Collateral Trust
Agreement sets forth the terms on which the Collateral Trustee, as trustee for
the present and future holders of the Indebtedness, will receive, hold,
maintain, administer, maintain, enforce and distribute this Mortgage and all
interests, rights, powers and remedies of the Collateral Trustee thereunder and
the proceeds thereof.

      1.7 For all purposes of this Mortgage, unless the context otherwise
requires:

                  A. "Actionable Default" is defined in the Collateral Trust
      Agreement.

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

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

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


                                      -3-


                  C. "Applicable Law" means with respect to any Person or
      matter, any federal, state, regional, tribal or local statute, law, code,
      rule, treaty, convention, application, order, decree, consent decree,
      injunction, directive, determination or other requirement (whether or not
      having the force of law) relating to such Person or matter and, where
      applicable, any interpretation thereof by a Governmental Authority having
      jurisdiction with respect thereto or charged with the administration or
      interpretation thereof.

                  D. "Default Interest Rate" means the lesser of (a) ten percent
      (10%), and (b) the Maximum Lawful Rate.

                  E. "Event of Default" means an Actionable Default.

                  F. "Environmental Laws" means any and all present and future
      Applicable Laws issued, promulgated or entered thereunder relating to
      pollution or protection of the environment, including laws relating to
      reclamation of land and waterways and laws relating to emissions,
      discharges, releases or threatened releases of pollutants, contaminants,
      chemicals, or industrial, toxic or hazardous substances or wastes into the
      environment (including, without limitation, ambient air, surface water,
      ground water, land surface or subsurface strata) or otherwise relating to
      the manufacture, processing, distribution, use, treatment, storage,
      disposal, transport or handling of pollutants, contaminants, chemicals, or
      industrial, toxic or hazardous substances or wastes.

                  G. "Governmental Authority" means any and all courts, boards,
      agencies, commissions, offices or authorities of any nature whatsoever for
      any governmental unit (federal, state, county, district, municipal, city,
      tribe or otherwise) whether now or hereafter in existence charged with the
      administration, interpretation or enforcement of any Applicable Law.

                  H. "Hedging Agreements" means: (a) interest rate swap
      agreements, basis swap agreements, interest rate cap agreements, forward
      rate agreements, interest rate floor agreements and interest rate collar
      agreements, and all other agreements or arrangements designed to protect
      such Person against fluctuations in interest rates or currency exchange
      rates, and (b) forward contracts, options, futures contracts, futures
      options, commodity swaps, commodity options, commodity collars, commodity
      caps, commodity floors and all other agreements or arrangements designed
      to protect such Person against fluctuations in the price of commodities.

                  I. "Hedging Obligations" means with respect to any Person, all
      liabilities (including without limitation obligations and liabilities
      arising in connection with or as a result of early or premature
      termination of a Hedging Agreement, whether or not occurring as a result
      of a default thereunder) of such Person under a Hedging Agreement.


                                      -4-


                  J. "Hydrocarbons" means collectively, oil, gas, casinghead
      gas, drip gasoline, natural gasoline, condensate, distillate and all other
      liquid or gaseous hydrocarbons and related minerals and all products
      therefrom, in each case whether in a natural or a processed state.

                  K. "Indebtedness" shall have the meaning set forth in Section
      2.2 of this Mortgage.

                  L. "Indemnification Claim" is defined in Section 4.6(a) of
      this Mortgage.

                  M. "Indemnified Person" is defined in Section 3.10(c) of this
      Mortgage.

                  N. "Joint Operating Agreements" shall mean, with respect to
      the lands described in Exhibit A, the respective operating agreement
      burdening the lands described in Exhibit A.

                  O. "lands described in Exhibit A" shall include the real
      property or other interest in any lands which are either described in
      Exhibit A attached hereto or the description of which is incorporated in
      Exhibit A by reference to an instrument or document containing in, or
      referring to, such a description, and shall also include any lands now or
      hereafter unitized or pooled with lands which are either described in
      Exhibit A or the description of which is incorporated in Exhibit A by
      reference and Fixtures and all rights, titles and interests appurtenant
      thereto. References to Exhibit A shall include, where applicable, Exhibit
      A-1 as well.

                  P. "Leases" means any and all leases (including without
      limitation oil and gas leases and oil, gas and other minerals leases),
      surface leases or easements, subleases, licenses, concessions, operating
      rights or other agreements (written or verbal, now or hereafter in effect)
      which grant a possessory interest in and to, or the right to explore, use,
      lease, license, possess, produce, process, store and transport
      Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged
      Property, together with all amendments, modifications, extensions and
      renewals thereof.

                  Q. "Legal Requirements" means (i) any and all present and
      future judicial decisions, statutes, rulings, rules, regulations,
      licenses, decisions, orders, injunctions, decrees, permits, certificates
      or ordinances of any Governmental Authority in any way applicable to
      Mortgagor, or the Mortgaged Property, including the ownership, use,
      occupancy, operation, maintenance, repair or reconstruction thereof, and
      any other Applicable Law enacted by any Governmental Authority relating to
      health or the environment, (ii) Mortgagor's presently or subsequently
      effective Organic Documents, (iii) any and all Leases, (iv) any and all
      leases and other contracts (written or oral) of any nature to which
      Mortgagor, or the Mortgaged Property may be bound and (v) any and all

                                      -5-


      restrictions, restrictive covenants or zoning, present and future, as the
      same may apply to the Mortgaged Property.

                  R. "Losses" is defined in Section 3.10(c) of this Mortgage.

                  S. "Maximum Lawful Rate" means the maximum nonusurious rate of
      interest that may be received, charged or contracted for under Applicable
      Law from time to time in effect.

                  T. "Mortgaged Property" means the properties, rights and
      interests hereinafter described in Section 1.8 and defined as the
      Mortgaged Property.

                  U. "Obligations" means any and all of the covenants,
      warranties, representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Mortgagor or others under any of the
      Secured Debt Documents.

                  V. "oil and gas leases" shall include oil, gas and mineral
      leases, subleases and assignments thereof, operating rights, and shall
      also include subleases and assignments of operating rights.

                  W. "Operating Equipment" means all surface or subsurface
      machinery, goods, equipment, fixtures, inventory, facilities, supplies or
      other property of whatsoever kind or nature (excluding drilling rigs,
      trucks, automotive equipment or other property taken to the premises to
      drill a well or for other similar temporary uses) now or hereafter located
      on or under any of the lands described in Exhibit A which are useful for
      the production, gathering, treatment, processing, storage or
      transportation of Hydrocarbons (together with all accessions, additions
      and attachments to any thereof), including, but not by way of limitation,
      all oil wells, gas wells, water wells, injection wells, casing, tubing,
      tubular goods, rods, pumping units and engines, christmas trees,
      platforms, derricks, separators, compressors, gun barrels, flow lines,
      tanks, gas systems (for gathering, treating and compression), pipelines
      (including gathering lines, laterals and trunklines), chemicals,
      solutions, water systems (for treating, disposal and injection), steam
      generation and injection equipment and systems, power plants, poles,
      lines, transformers, starters and controllers, supervisory control and
      data acquisition systems, machine shops, tools, storage yards and
      equipment stored therein, buildings and camps, telegraph, telephone and
      other communication systems, roads, loading docks, loading racks and
      shipping facilities.

                  X. "Organic Documents" means the Articles of Incorporation,
      Certificate of Incorporation, limited liability company certificate of
      formation and regulations or operating agreement, partnership agreement,
      limited partnership agreement, joint venture agreement, trust agreement or
      other similar documents governing the organization and operation of a
      business association.

                  Y. "Parity Lien Debt" is defined in the Collateral Trust
      Agreement.


                                      -6-


                  Z. "Parity Lien Documents" is defined in the Collateral Trust
      Agreement.

                  AA. "Parity Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Parity Lien Documents.

                  BB. "Permits" means all authorizations, approvals, permits,
      variances, land use entitlements, consents, licenses, franchises and
      agreements issued by or entered into with any Governmental Authority now
      or hereafter required for all stages of exploration, developing,
      operating, and plugging and abandoning oil and gas wells (including,
      without limitation, those shown on Exhibit A) on all or any part of the
      lands described in Exhibit A (or any other lands any production from
      which, or profits or proceeds from such production, is attributed to any
      interest in the lands described in Exhibit A).

                  CC. "Permitted Encumbrances" means the outstanding liens,
      easements, restrictions, exceptions, reservations, conditions,
      limitations, security interests and other matters as permitted by and
      defined in the Secured Debt Documents.

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

                  EE. "Personalty" means all of the right, title and interest of
      Mortgagor now owned or hereafter acquired in and to all furniture,
      furnishings, Equipment, machinery, Goods, General Intangibles, money,
      Accounts, receivables, Contract Rights, Inventory, all refundable,
      returnable or reimbursable fees, deposits or other funds or evidences of
      credit or indebtedness deposited by or on behalf of Mortgagor with any
      Governmental Authority, agencies, boards, corporations, providers of
      utility services, public or private, including specifically, but without
      limitation, all refundable, returnable or reimbursable tap fees, utility
      deposits, commitment fees and development costs, and all other personal
      property (other than the Fixtures) of any kind or character as defined in
      and subject to the provisions of Article 9 of the Uniform Commercial Code,
      now or hereafter located upon, within or about, or used in connection
      with, the lands described in Exhibit A together with all accessories,
      replacements and substitutions thereto or therefor and the Proceeds
      thereof.

                  FF. "Priority Lien Debt" is defined in the Collateral Trust
      Agreement.

                  GG. "Priority Lien Documents" is defined in the Collateral
      Trust Agreement.


                                      -7-


                  HH. "Priority Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Priority Lien Documents.

                  II. "Production Sale Contracts" means contracts now in effect,
      or hereafter entered into by Mortgagor, or entered into by Mortgagor's
      predecessors in interest, for the sale, purchase, exchange, gathering,
      transportation, treating or processing of Hydrocarbons produced from the
      lands described in Exhibit A.

                  JJ. "Rents and Revenues" means all of the rents, revenues,
      income, proceeds, profits and other benefits paid or payable by parties to
      the Leases other than Mortgagor for using, leasing, licensing, possessing,
      operating, selling or otherwise enjoying the Mortgaged Property, including
      the proceeds from the sale of Hydrocarbons.

                  KK. "Secured Debt" is defined in the Collateral Trust
      Agreement.

                  LL. "Secured Debtholder" is defined in the Collateral Trust
      Agreement.

                  MM. "Secured Debt Documents" is defined in the Collateral
      Trust Agreement.

                  NN. "Secured Debt Representative" is defined in the Collateral
      Trust Agreement.

                  OO. "Taxes" means all real property and personal property
      taxes, production taxes, assessments, permit fees, water, gas, sewer,
      electricity and other utility rates and charges, charges for any easement,
      license or agreement maintained for the benefit of the Mortgaged Property,
      and all other taxes, charges and assessments and any interest, costs or
      penalties with respect thereto, of any kind and nature whatsoever which at
      any time prior to or after the execution hereof may be charged, assessed,
      levied or imposed upon the Mortgaged Property or the Rents and Revenues or
      the ownership, use, occupancy or enjoyment thereof.

                  PP. "Transportation Agreements" shall mean any contracts or
      agreements entered into from time to time by Mortgagor, or entered into by
      Mortgagor's predecessors in interest, relating to the transportation of
      Hydrocarbons, as any such agreement or contract may be amended,
      supplemented, restated or otherwise modified from time to time.

                  QQ. "Uniform Commercial Code" means the Uniform Commercial
      Code as in effect from time to time in the State of New York or any other
      applicable state, and the terms "Accounts," "Account Debtor, "As Extracted
      Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
      "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
      "Equipment,"


                                      -8-


      "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have the
      respective meanings assigned to such terms in the Uniform Commercial Code.

                  RR. "Water Rights" means (including without limitation those
      described in Exhibit A hereto) all now or hereafter existing or acquired
      water and water rights, reservoirs and reservoir rights, ditches and ditch
      rights, wells and well rights, whether evidenced or initiated by permit,
      decree, well registration, appropriation not decreed, water court
      application, shares of stock or other interests in mutual ditch or
      reservoir companies or carrier ditch or reservoir companies or otherwise,
      appertaining or appurtenant to or beneficially used or useful in
      connection with the lands described in Exhibit A, together with all pumps,
      well casings, wellheads, electrical installations, pumphouses, meters,
      monitoring wells and systems, measuring devices, pipes, pipelines, and
      other structures or personal property which are or may be used to produce,
      regulate, measure, distribute, store, or use water from the said water and
      water rights, reservoirs and reservoir rights, ditches and ditch rights,
      wells and well rights.

      1.8 Grant.

      Grant of Priority Lien

      NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the
Priority Lien Indebtedness and the full and timely performance and discharge of
the Priority Lien Obligations, has granted, bargained, sold, warranted,
mortgaged, assigned, transferred and conveyed, and by these presents does grant,
bargain, sell, warrant, mortgage, assign, pledge and hypothecate, transfer and
convey unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of
Beneficiary, all Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to all of the hereinafter described properties,
rights and interests; and, insofar as such properties, rights and interests
consist of Equipment, General Intangibles, Accounts, As Extracted Collateral,
Contract Rights, Inventory, Fixtures, Proceeds of collateral or any other
personal property of a kind or character defined in, or subject to the
applicable provisions of, the Uniform Commercial Code (as in effect from time to
time in the appropriate jurisdiction with respect to each of said properties,
rights and interests), Mortgagor hereby grants to said Beneficiary, a security
interest therein to the full extent of Mortgagor's legal and beneficial interest
therein, now owned or hereafter acquired, namely:

            (a) the lands described in Exhibit A, and Leases, the fee, mineral,
      overriding royalty, royalty and other interests which are described in
      Exhibit A,

            (b) the presently existing and (subject to the terms of Section 6.1
      hereof) hereafter arising unitization, unit operating, communitization and
      pooling agreements and the properties covered and the units created
      thereby (including, without limitation, all units formed under orders,
      regulations, rules, approvals, decisions or other official acts of any
      Governmental Authority) which are


                                      -9-


      specifically described in Exhibit A or which relate to any of the
      properties and interests specifically described in Exhibit A,

            (c) the Hydrocarbons which are in, under, upon, produced or to be
      produced from or which are attributed or allocated to the lands described
      in Exhibit A,

            (d) the Production Sale Contracts,

            (e) the Joint Operating Agreements,

            (f) the Transportation Agreements,

            (g) the Operating Equipment,

            (h) the Permits,

            (i) the Water Rights,

            (j) the Hedging Agreements,

            (k) the Leases,

            (l) the Personalty,

            (m) the Rents and Revenues,

            (n) without duplication of any other provision of this granting
      clause, Equipment, Fixtures and other Goods necessary or used in
      connection with, and Inventory, Accounts, As Extracted Collateral, General
      Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents,
      Electronic Chattel Paper, Instruments and Proceeds arising from, or
      relating to, the properties and other interests described in Exhibit A
      (including Exhibit A-1),

            (o) any and all liens and security interests in Hydrocarbons
      securing the payment of proceeds from the sale of Hydrocarbons, including
      but not limited to those liens and security interests provided for in
      Section 48-9-1, et seq. NMSA (1978) or similar statutes of other
      jurisdictions or any successor statutes,

together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, or replacements or substitutions for, any of the same, or
any instrument relating thereto, and all accounts, contracts, contract rights,
options, nominee agreements, unitization or pooling agreements, operating
agreements and unit operating agreements, processing agreements, farmin
agreements, farmout agreements, joint venture agreements, partnership agreements
(including mining partnerships), exploration agreements, bottom hole agreements,
dry hole agreements, support agreements, acreage contribution agreements,
surface use and surface damage agreements, net profits agreements, production
payment agreements, Hedging


                                      -10-


Agreements, insurance policies, title opinions, title abstracts, title materials
and information, files, records, writings, data bases, information, systems,
logs, well cores, fluid samples, production data and reports, well testing data
and reports, maps, seismic and geophysical, geological and chemical data and
information, interpretative and analytical reports of any kind or nature
(including, without limitation, reserve studies and reserve evaluations),
computer hardware and software and all documentation therefor or relating
thereto (including, without limitation, all licenses relating to or covering
such computer hardware, software and/or documentation), trade secrets,
trademarks, service marks and business names and the goodwill of the business
relating thereto, copyrights, copyright registrations, unpatented inventions,
patent applications and patents, rights-of-way, franchises, bonds, easements,
servitudes, surface leases, permits, licenses, tenements, hereditaments,
appurtenances, concessions, occupancy agreements, privileges, development
rights, condemnation awards, claims against third parties, general intangibles,
rents, royalties, issues, profits, products and proceeds, whether now or
hereafter existing or arising, used or useful in connection with, covering,
relating to, or arising from or in connection with, any of the aforesaid items
(a) through o), inclusive, in this granting clause mentioned, and all other
things of value and incident thereto (including, without limitation, any and all
liens, lien rights, security interests and other properties, rights and
interests) which Mortgagor might at any time have or be entitled to, but
excluding any data or contracts with respect to which mortgaging or granting of
a lien or a security interest is prohibited by existing third party agreements,

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien and security interest of this
Mortgage by means of supplements hereto, being hereinafter, collectively, called
the "Mortgaged Property."

      Grant of Parity Lien

      NOW, THEREFORE, Mortgagor, to secure the full and timely payment of the
Parity Lien Indebtedness and the full and timely performance and discharge of
the Parity Lien Obligations, has granted, bargained, sold, warranted, mortgaged,
assigned, transferred and conveyed, and by these presents does grant, bargain,
sell, warrant, mortgage, assign, pledge and hypothecate, transfer and convey
unto Trustee, IN TRUST, WITH POWER OF SALE, for the use and benefit of
Beneficiary, all Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in and to all of the Mortgaged Property.

      Subject, however, in each case to (i) Permitted Encumbrances (including
without limitation all presently existing royalties, overriding royalties,
payments out of production and other burdens which are referred to in Exhibit A
and which are taken into consideration in computing any percentage, decimal or
fractional interest as set forth in Exhibit A), (ii) the assignment of
production contained in Article IV hereof, but only insofar and so long as said
assignment of production is not inoperative under the provisions of Section 4.5
hereof, and (iii) the condition that none of Trustee, Beneficiary nor any
Secured Debtholder shall be liable in any respect for the performance of any
covenant or obligation (including, without limitation, measures required to
comply with Environmental Laws) of Mortgagor in respect of the Mortgaged
Property.


                                      -11-


      TO HAVE AND TO HOLD the Mortgaged Property for the benefit of Beneficiary,
and forever to secure the payment of the Indebtedness and to secure the
performance and discharge of the Obligations of Mortgagor herein and therein
contained.

      As set forth in the separate granting clauses above, it is the intent of
Mortgagor that such grants shall create two separate and distinct security
interests in all right, title and interest of Mortgagor in the Mortgaged
Property in favor of (a) the Trustee for the benefit of the Beneficiary, for the
benefit of the holders of the Priority Lien Debt, and (b) the Trustee for the
benefit of the Beneficiary, for the benefit of the holders of the Parity Lien
Debt.

      Notwithstanding (i) anything to the contrary contained in this Mortgage or
any other document, filing or agreement related to the creation, attachment,
perfection or existence of the liens and security interests granted herein, (ii)
the time, place, order or method of attachment or perfection of such liens or
security interests, (iii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect such security
interests, and (iv) the rules for determining priority under any law governing
the relative priorities of secured creditors, the lien securing the Parity Lien
Indebtedness is subordinated and junior in priority to the lien securing the
Priority Lien Indebtedness.

      Mortgagor, in consideration of the Secured Debt as set forth above, hereby
covenants and agrees with each of Trustee and Beneficiary:

                                  ARTICLE II.
                              INDEBTEDNESS SECURED

      2.1 Items of Indebtedness Secured. The following items of indebtedness are
secured hereby:

            (a) The Priority Lien Debt (including future advances to be made
      with respect thereto), and all other Obligations of Mortgagor under the
      Priority Lien Documents;

            (b) The Parity Lien Debt (including future advances to be made with
      respect thereto), and all other Obligations of Mortgagor under the Parity
      Lien Documents;

            (c) All Obligations under any other Priority Lien Debt or Parity
      Lien Debt;

            (d) Any sums advanced or expenses or costs incurred by Trustee,
      Beneficiary or any Secured Debtholder, or by any receiver appointed
      hereunder, which are made or incurred pursuant to, or permitted by, the
      terms hereof or the other loan documents, plus interest thereon at the
      rate herein specified or otherwise agreed upon, from the date of the
      advances or the incurring of such expenses or costs until reimbursed;

            (e) Any and all other indebtedness of Mortgagor or any Affiliate of
      Mortgagor to Beneficiary now or hereafter owing, whether direct or
      indirect,


                                      -12-


      primary or secondary, fixed or contingent, joint or several, regardless of
      how evidenced or arising, where the indebtedness provides that it is
      secured hereby; and

            (f) Any extensions, refinancings, modifications or renewals of all
      such indebtedness described in subparagraphs (a) through (e) above,
      whether or not Mortgagor executes any extension agreement or renewal
      instrument.

      2.2 Indebtedness Defined. All the above items of indebtedness described in
subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section
2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively
referred to as the "Priority Lien Indebtedness." And all the above items of
indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c)
through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are
hereinafter collectively referred to as the "Parity Lien Indebtedness"; the
Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively
referred to as the "Indebtedness".

      2.3 Valid and Subsisting First Lien. Mortgagor hereby acknowledges and
agrees that, except as otherwise provided by the Secured Debt Documents, the
Existing Mortgage constitutes a valid and subsisting first lien on the portion
of the Mortgaged Property encumbered thereby, and that none of the rights and
liens existing thereunder shall be impaired or released hereby, and that the
same as amended and restated hereby shall remain in full force and effect, and
all rights and liens existing and to exist thereunder are renewed, extended,
carried forward, and conveyed to secure all of the Indebtedness hereinabove
mentioned.

      2.4 Amended and Restated Mortgage. The Existing Mortgage is amended and
restated in full hereby in order to, among other things, secure all of the
Indebtedness herein described or referred to as if reference to such
Indebtedness were fully described in the Existing Mortgage. None of the rights,
titles, and interests, existing or to exist under the Existing Mortgage are
hereby released, diminished or impaired.

      2.5 No Impairment or Discharge of Liens. It is the express intention of
all parties hereto that the Secured Debtholders are subrogated to all of the
rights, powers, and equities of the original lenders and beneficiary under the
Existing Mortgage, that the liens created hereby shall relate back to and be
effective as of the effective date of the Existing Mortgage and that nothing
contained herein shall be construed to impair or discharge the liens and
security interests created thereby.

                                  ARTICLE III.
                      PARTICULAR COVENANTS, REPRESENTATIONS
                           AND WARRANTIES OF MORTGAGOR

      3.1 Payment of the Indebtedness and Performance of Obligations. Mortgagor
will duly and punctually pay the Indebtedness, as and when called for in the
Secured Debt Documents and on or before the due dates thereof, and will timely
perform and


                                      -13-


discharge all of the Obligations in full and on or before the dates same are to
be performed and discharged.

      3.2 Certain Representations and Warranties. Mortgagor represents and
warrants (and with respect to those matters set forth in the following
subsections (b) and (f), as to those portions of the Mortgaged Property that are
operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor
makes such representation and warranty to the best of its knowledge) that

            (a) the oil and gas leases described in Exhibit A hereto are valid,
      subsisting leases, superior and paramount to all other oil and gas leases
      respecting the properties to which they pertain,

            (b) all producing wells located on the lands described in Exhibit A
      (including Exhibit A-1) have been drilled, operated and produced in
      conformity with all Applicable Laws of all Governmental Authorities having
      jurisdiction, and are subject to no penalties on account of past
      production, and such wells are in fact bottomed under and are producing
      from, and the well bores are wholly within, the lands described in Exhibit
      A or lands pooled or unitized therewith,

            (c) Mortgagor, to the extent of the interest specified in Exhibit A
      (including Exhibit A-1), has valid and indefeasible title to each property
      right or interest constituting the Mortgaged Property described in Exhibit
      A (including Exhibit A-1) and has a good and legal right to grant and
      convey the same to Trustee; such interest entitles Mortgagor to receive
      not less than the share of Hydrocarbons from such property indicated as
      its net revenue interest or "NRI" share of such Hydrocarbons, and
      obligates Mortgagor to pay for not more than the share of operating and
      other costs, liabilities and expenses associated with such property
      indicated as its working interest or "Wl" share of such costs, liabilities
      and expenses,

            (d) Excepting the Permitted Encumbrances, the Mortgaged Property is
      free from all encumbrances or liens whatsoever,

            (e) Mortgagor is not obligated, by virtue of any prepayment under
      any contract providing for the sale by Mortgagor of Hydrocarbons which
      contains a "take or pay" clause or under any similar arrangement, to
      deliver Hydrocarbons at some future time without then or thereafter
      receiving full payment therefor,

            (f) the Mortgaged Property is currently being operated, maintained
      and developed, in all material respects, in accordance with all applicable
      currently existing Permits, Legal Requirements and all Applicable Laws
      (including, without limitation, Environmental Laws),

            (g) the cover page to this Mortgage lists the correct legal name of
      Mortgagor and Mortgagor has not been known by any legal name different
      from the one set forth on the cover page of this Mortgage,


                                      -14-


            (h) the execution, delivery, and performance by Mortgagor of this
      Mortgage (i) are within Mortgagor's corporate powers and have been duly
      authorized by Mortgagor's Board of Directors, shareholders and all other
      requisite corporate action, (ii) have received all (if any) requisite
      prior governmental approval and consent in order to be legally binding and
      enforceable in accordance with the terms thereof, and (iii) will not
      violate, be in conflict with, result in a breach or constitute (with due
      notice or lapse of time, or both) a default under, any Legal Requirement
      or result in the creation or imposition of any lien, charge or encumbrance
      of any nature whatsoever upon any of Mortgagor's property or assets,
      except as contemplated by the provisions of the Secured Debt Documents,
      and

            (i) except as permitted by the Secured Debt Documents, there are no
      actions, suits or proceedings pending, or to the knowledge of Mortgagor
      threatened, against or affecting Mortgagor or the Mortgaged Property that
      could materially adversely affect Mortgagor or the Mortgaged Property, or
      involving the validity or enforceability of this Mortgage or the priority
      of the liens and security interests created by the Secured Debt Documents,
      and no event has occurred (including specifically Mortgagor's execution of
      this Mortgage which will violate, be in conflict with, result in the
      breach of, or constitute (with due notice or lapse of time, or both) a
      material default under, any Legal Requirement or result in the creation or
      imposition of any lien, charge or encumbrance of any nature whatsoever
      upon any of Mortgagor's property other than the liens and security
      interests created by the Secured Debt Documents.

      3.3 Further Assurances. Mortgagor will warrant and forever defend the
Mortgaged Property unto Trustee and Beneficiary, as the case may be, against
every person whomsoever lawfully claiming the same or any part thereof, subject
to Permitted Encumbrances, and Mortgagor will maintain and preserve the lien and
security interest hereby created so long as any of the Indebtedness remains
unpaid. Mortgagor will execute and deliver such other and further instruments
and will do such other and further acts as may be required pursuant to the
Collateral Trust Agreement and/or any Secured Debt Documents to carry out more
effectually the purposes of this Mortgage, including, without limiting the
generality of the foregoing, (i) prompt correction of any defect which may
hereafter be discovered in the title to the Mortgaged Property or in the
execution and acknowledgment of this Mortgage, the Secured Debt Documents, or,
immediately upon the occurrence of an Event of Default, any other document
executed in connection herewith, and (ii) at any time a Secured Debt
Representative may request and upon such request, promptly execute all notices
to parties operating, purchasing or receiving proceeds of production of
Hydrocarbons from the Mortgaged Property, and all division orders or transfer
orders needed in order to transfer effectually or to assist in transferring
effectually to the Beneficiary the assigned proceeds of production from the
Mortgaged Property, which notices, division orders and transfer orders shall be
held by such Secured Debt Representative and delivered upon an Event of Default.


                                      -15-


      3.4 Operation of the Mortgaged Property. So long as the Indebtedness or
any part thereof remains unpaid, and whether or not Mortgagor is the operator of
any particular part of the Mortgaged Property, Mortgagor shall, at Mortgagor's
own expense:

            (a) Do all things necessary to keep unimpaired Mortgagor's rights in
      the Mortgaged Property and not abandon any well or forfeit, surrender or
      release any Lease, except that Mortgagor may, in the ordinary course of
      business, (i) plug and abandon any well no longer capable of producing
      Hydrocarbons in paying quantities, (ii) surrender or release any Lease or
      a portion thereof so long as no well capable of producing Hydrocarbons in
      paying quantities is located on such Lease or a portion thereof or
      production from any such well is attributed to such Lease or a portion
      thereof, (iii) surrender or release any Lease or a portion thereof on
      which no producing well has ever been drilled or which has never been held
      by production from another well unless Proven Reserves (as defined in any
      Secured Debt Document) are attributed to such Lease or a portion thereof
      and (iv) abandon, forfeit, surrender or release any other portion of the
      Mortgaged Property to the extent permitted under the then existing Secured
      Debt Documents;

            (b) Obtain and maintain all required Permits and cause the lands
      described in Exhibit A to be maintained, developed, protected against
      drainage, and operated for the production of Hydrocarbons in a good and
      workmanlike manner as would a prudent operator, and consistent with
      industry practices, Joint Operating Agreements, and all Applicable Laws,
      excepting those being contested in good faith; and plug and abandon wells
      no longer capable of producing Hydrocarbons in paying quantities in
      accordance with all Applicable Laws, Legal Requirements and the terms and
      conditions of applicable Leases; and remediate the lands described in
      Exhibit A and facilities located thereon in accordance with all Applicable
      Laws, Legal Requirements and the terms and conditions of applicable
      Leases;

            (c) Duly pay and discharge, or cause to be paid and discharged,
      promptly as and when due and payable, all rentals and royalties (including
      shut-in royalties) payable in respect of the Mortgaged Property (other
      than rentals under Leases that are surrendered pursuant to the foregoing
      Section 3.4(a)), and all expenses incurred in or arising from the
      operation or development of the Mortgaged Property not later than the due
      date thereof, or the day any fine, penalty, interest or cost may be added
      thereto or imposed, or the day any lien may be filed, for the non-payment
      thereof (if such day is used to determine the due date of the respective
      item) except as to such matters which are being contested by Mortgagor in
      good faith;

            (d) Cause the Operating Equipment to be kept in good and effective
      operating condition, ordinary wear and tear excepted, and all repairs,
      renewals, replacements, additions and improvements thereof or thereto,
      needful to the production of Hydrocarbons from the lands described in
      Exhibit A, to be promptly made;


                                      -16-


            (e) Not, except as permitted under the Secured Debt Documents,
      create, place or permit to be created or placed, or through any act or
      failure to act, acquiesce in the placing of, or allow to remain, any
      mortgage, pledge, lien (statutory, constitutional or contractual),
      security interest, encumbrance or charge, or conditional sale or other
      title retention agreement, regardless of whether same are expressly
      subordinate to the liens of the Secured Debt Documents, with, respect to
      all or any portion of the Mortgaged Property, the Leases or the Rents and
      Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting
      a lien but not due and payable, (3) defects or irregularities in title,
      and liens, charges or encumbrances, which are customarily viewed in the
      industry as not interfering materially with the development, operation or
      value of the Mortgaged Property and not such as to affect materially title
      thereto, and (4) those being contested by Mortgagor in good faith in such
      manner as not to jeopardize Beneficiary's rights in and to the Mortgaged
      Property;

            (f) Carry with financially sound and reputable insurance companies
      and in amounts as is customary in the industry or as otherwise required
      pursuant to the Secured Debt Documents, the following insurance: (1)
      workmen's compensation insurance and public liability and property damage
      insurance in respect of all activities in which Mortgagor might incur
      personal liability for the death of or injury to an employee or third
      person, or damage to or destruction of another's property; and (2) to the
      extent such insurance is carried by similar companies engaged in similar
      undertakings in, the same general areas in which the Mortgaged Property,
      is located, insurance in respect of the Operating Equipment, against loss
      or damage by fire, lightning, hail, tornado, explosion and other similar
      risks, hazards, casualties and contingencies (including business
      interruption insurance covering loss of Rents and Revenues); provided,
      that any such insurance may be -------- provided by way of self insurance
      to the extent that similar companies engaged in similar undertakings in
      the same general areas also self-insure. Each insurance policy issued in
      connection therewith shall provide by way of endorsements, riders or
      otherwise that (i) name Beneficiary as a loss payee on all property
      insurance policies and an additional insured on all liability insurance
      policies, and provide that proceeds from property insurance policies will
      be payable to Beneficiary as its interest may appear, which proceeds are
      hereby assigned to Beneficiary, it being agreed by Mortgagor that such
      payments shall be applied A) if there be no Event of Default existing or
      which would exist but for due notice or lapse of time, or both, to the
      restoration, repair or replacement of the Mortgaged Property, or B) if
      there be an Event of Default existing, or which would exist but for due
      notice or lapse of time, or both, in accordance with the provisions of the
      Collateral Trust Agreement, either for the above stated purpose or toward
      the payment of the Indebtedness; (ii) the coverage of Beneficiary shall
      not be terminated, reduced or affected in any manner regardless of any
      breach or violation by Mortgagor of any warranties, declarations or
      conditions in such policy; (iii) no such insurance policy shall be
      canceled, endorsed, altered or reissued to effect a change in coverage for
      any reason and to any extent whatsoever unless such insurer shall have
      first given Beneficiary and each Secured Debt Representative thirty (30)
      days prior written


                                      -17-


      notice thereof; and (iv) Beneficiary may, but shall not be obligated to,
      make premium payments to prevent any cancellation, endorsement, alteration
      or re-issuance and such payments shall be accepted by the insurer to
      prevent the same. Beneficiary shall be furnished with a certificate
      evidencing such coverage in form and content comparable to coverage
      typically provided in the industry. All policies to be maintained under
      this Mortgage are to be issued on forms and by companies and with
      endorsements as are customary in the industry. Mortgagor shall maintain
      insurance in an amount sufficient to prevent Mortgagor from becoming a
      co-insurer under any policy required hereunder. If Mortgagor fails to
      maintain the level of insurance required under this Mortgage, then
      Mortgagor shall and hereby agrees to indemnify Beneficiary to the extent
      that a casualty occurs and insurance proceeds would have been available
      had such insurance been maintained;

            (g) Furnish to Beneficiary and each Secured Debt Representative, as
      soon as possible and in any event within five (5) days after the
      occurrence from time to time of any change in the address of Mortgagor's
      location (as described on the signature page hereto) or in the name of
      Mortgagor, notice in writing of such change;

            (h) Not initiate or acquiesce in any change in any material zoning
      or other land use or Water Rights classification now or hereafter in
      effect and affecting the Mortgaged Property or any part thereof;

            (i) Notify Beneficiary and each Secured Debt Representative in
      writing, as soon as possible and in any event within five (5) days after
      it shall become aware of the occurrence of any Event of Default or any
      event which, with notice, the passage of time or both would be such an
      Event of Default;

            (j) Appear and defend, and hold Beneficiary and any Secured
      Debtholder harmless from, any action, proceeding or claim affecting the
      Mortgaged Property or the rights and powers of Beneficiary or Secured
      Debtholders under the Secured Debt Documents, and all costs and expenses
      incurred by Beneficiary or any Secured Debtholder in protecting its
      interests hereunder in such an event (including all court costs and
      attorneys' fees) shall be borne by Mortgagor;

            (k) Subject to Mortgagor's right to contest the same, promptly pay
      all Taxes legally imposed upon this instrument or upon the Mortgaged
      Property or upon the income and profits thereof, or upon the interest of
      Beneficiary therein; provided that Mortgagor shall not be liable for taxes
      accruing after a transfer of the Mortgaged Property following a
      foreclosure;

            (l) Comply with, conform to and obey, in all material respects, all
      present and future Legal Requirements and not use, maintain, operate,
      occupy, or allow the use, maintenance, operation or occupancy of, the
      Mortgaged Property in any manner which (a) violates any present and future
      Legal Requirement, (b) may be dangerous unless safeguarded as required by
      Applicable Law, (c) constitutes a


                                      -18-


      public or private nuisance or (d) makes void, voidable or cancelable, or
      increases the premium of, any insurance then in force with respect
      thereto; and

            (m) Not, except as authorized under the Secured Debt Documents,
      permit any of the Fixtures or Personalty to be removed at any time from
      the lands described in Exhibit A unless (i) the removed item is removed
      temporarily for maintenance and repair, (ii) if removed permanently, is
      replaced by an article of equal suitability and value, owned by Mortgagor,
      free and clear of any lien or security interest or (iii) such Fixtures or
      Personalty are removed in connection with the plugging and abandoning of
      wells, or abandonment of other facilities, in each case as permitted by
      this Mortgage.

      3.5 Performance of Leases. Mortgagor will: (a) duly and punctually perform
and comply with any and all representations, warranties, covenants and
agreements expressed as binding upon it under each of the Leases; (b) subject to
the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel
or waive its rights or the obligations of any other party under any of the
Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all
reasonable efforts to maintain each of the Leases in force and effect during the
full term thereof, and (d) appear in and defend (or cause its operator to appear
in and defend) any action or proceeding arising under or in any manner connected
with any of the Leases or the representations, warranties, covenants and
agreements of it or the other party or parties thereto.

      3.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's expense,
record, register, deposit and file this and every other instrument in addition
or supplemental hereto in such offices and places and at such times and as often
as may be necessary to preserve, protect and renew the lien and security
interest hereof as a first lien on and prior perfected security interest in real
or personal property, as the case may be, and the rights and remedies of
Beneficiary and Secured Debtholders, and otherwise will do and observe all
things or matters necessary or expedient to be done or observed by reason of any
Applicable Law, for the purpose of effectively creating, maintaining and
preserving the lien and security interest hereof on and in the Mortgaged
Property.

      3.7 Sale or Mortgage of the Mortgaged Property. Except (a) as set forth in
Section 6.1 of this Mortgage; (b) for sales of severed Hydrocarbons in the
ordinary course of Mortgagor's business; (c) for sales of or dispositions of
surplus, obsolete or worn inventory or equipment; (d) for the lien and security
interest created by this Mortgage, (e) for Permitted Encumbrances, and (f) for
sales, exchanges or other dispositions of Mortgaged Property permitted under the
Secured Debt Documents governing Priority Lien Debt and permitted under the
Secured Debt Documents governing Parity Lien Debt, Mortgagor will not sell,
convey, mortgage, pledge, hypothecate, pool, unitize or otherwise dispose of or
encumber the Mortgaged Property nor any portion thereof, nor any of Mortgagor's
right, title or interest therein, and Mortgagor will not enter into any
arrangement with any gas pipeline company or other consumer of Hydrocarbons
regarding the Mortgaged Property whereby said gas


                                      -19-


pipeline company or consumer may set off any claim against Mortgagor by
withholding payment for any Hydrocarbons actually delivered.

      3.8 Records, Statements and Reports. Mortgagor will keep proper books of
record and account in which complete and correct entries will be made of
Mortgagor's transactions in accordance with generally accepted accounting
principles and will furnish or cause to be furnished to each Secured Debt
Representative such information concerning the business, affairs and financial
condition of Mortgagor as required under the Secured Debt Documents. Without
limiting the generality of the foregoing, Mortgagor shall furnish to Beneficiary
and each Secured Debt Representative, but not more than every six (6) months:
(a) reports prepared by a reputable national independent petroleum engineer
regularly engaged by Mortgagor for such purposes or other engineering firm
acceptable to the Credit Agreement Agent concerning (1) the quantity of
Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income
and expense attributable to the Mortgaged Property, and (3) the expediency of
any change in methods of treatment or operation of all or any wells productive
of Hydrocarbons, any new drilling or development, any method of secondary
recovery by repressuring or otherwise, or any other action with respect to the
Mortgaged Property, the decision as to which may increase or reduce the quantity
of Hydrocarbons ultimately recoverable or the rate of production thereof, and
(b) reports for the prior period showing the gross proceeds from the sale of
Hydrocarbons produced from the lands described in Exhibit A (including any
thereof taken by Mortgagor for Mortgagor's own use), the quantity of such
Hydrocarbons sold, the severance, gross production, occupation, or gathering
taxes deducted from or paid out of such proceeds and the number of wells
operated, drilled or abandoned.

      3.9 Right of Entry.

            (a) Upon at least twenty-four (24) hours notice to Mortgagor,
      Mortgagor will permit Beneficiary, each Secured Debt Representative and/or
      the agents of either of them, at the cost and expense of Mortgagor, to
      enter upon the Mortgaged Property and all parts thereof, for the purpose
      of investigating and inspecting the condition and operation thereof, and
      shall permit reasonable access to the field offices and other offices (to
      the fullest extent that Mortgagor may do so under the terms of the
      applicable Joint Operating Agreements and other applicable agreements
      affecting the Mortgaged Property), including the principal place of
      business, of Mortgagor to inspect and examine the Mortgaged Property and
      to inspect, review and reproduce as necessary any books, records,
      accounts, contracts or other documents of Mortgagor, , it being understood
      that any non-public information obtained in connection therewith shall be
      subject to the relevant confidentiality provisions of the Secured Debt
      Documents then in effect.

            (b) Without limiting the generality of the foregoing, Beneficiary
      shall have the right (but shall not be obligated to), and each Secured
      Debt Representative and its agents shall have the right (to the fullest
      extent that Mortgagor may do so under the terms of the applicable Joint
      Operating Agreements and other


                                      -20-


      applicable agreements affecting the Mortgaged Property), on twenty-four
      (24) hours prior notice to Mortgagor to enter the Mortgaged Property to
      conduct (at the cost and expense of Mortgagor), or to cause Mortgagor to
      conduct (at the cost and expense of Mortgagor), such tests and
      investigations as may be necessary to determine whether any hazardous
      materials or solid waste is being generated, transported, stored, or
      disposed of in accordance with applicable Environmental Laws. Such tests
      and investigations may include, without limitation, underground borings,
      ground water analyses and borings from the floors, ceilings and walls of
      any improvements located on the Mortgaged Property. This Section 3.9 shall
      not be construed to affect or limit the obligations of Mortgagor pursuant
      to Section 3.4 hereof.

            (c) Neither Beneficiary nor any Secured Debt Representative shall
      have any duty to visit or observe the Mortgaged Property, or to conduct
      tests, and no site visit, observation or testing by any such person (or
      its agents and independent contractors) shall impose any liability on any
      such person nor shall Mortgagor or any other obligor be entitled to rely
      on any such visit, observation or testing in any respect. Beneficiary or a
      Secured Debt Representative may, but shall not be obligated to, disclose
      to Mortgagor or, subject to the relevant confidentiality provisions of the
      Secured Debt Documents then in effect, any other Person, including any
      Governmental Authority, any report or finding made as a result of, or in
      connection with, any site visit, observation or testing. Mortgagor agrees
      that neither Beneficiary nor any Secured Debt Representative makes any
      warranty or representation to Mortgagor or any other obligor regarding the
      truth, accuracy or completeness of any such report or findings that may be
      so disclosed. Mortgagor also acknowledges that, depending upon the results
      of any site visit, observation or testing disclosed to Mortgagor,
      Mortgagor may have a legal obligation to notify one or more Governmental
      Authorities of such results, that such reporting requirements are
      site-specific, and are to be evaluated by Mortgagor without advice or
      assistance from Beneficiary or any Secured Debt Representative.

      3.10 Environmental Laws.

            (a) Mortgagor represents and warrants, to the best of its knowledge
      after due inquiry that:

                  (i) except as permitted by the Secured Debt Documents, the
            Mortgaged Property is in compliance in all material respects with
            all applicable Environmental Laws and there are no conditions
            existing currently which would be likely to subject Mortgagor to
            damages, penalties, injunctive relief or cleanup costs under any
            Environmental Laws or assertions thereof, or which require or are
            likely to require cleanup, removal, remedial action or other
            response pursuant to Environmental Laws by Mortgagor; and all use,
            generation, manufacturing, release, discharge, storage, deposit,
            treatment, recycling or disposal of any materials on, under or at
            the Mortgaged Property or transported to or from


                                      -21-


            the Mortgaged Property (or tanks or other facilities thereon
            containing such materials) are being and will be conducted in
            accordance, in all material respects, with applicable Environmental
            Laws including without limitation those requiring cleanup, removal
            or any other remedial action,

                  (ii) Mortgagor is not a party to any litigation or
            administrative proceedings, nor so far as is known by Mortgagor is
            any litigation or administrative proceeding threatened against it,
            which asserts or alleges that Mortgagor has violated or is violating
            Environmental Laws or that Mortgagor is required to clean up, remove
            or take remedial or other responsive action due to the disposal,
            depositing, discharge, leaking or other release of any hazardous
            substances or materials; neither the Mortgaged Property nor
            Mortgagor is subject to any judgment, decree, order or citation
            related to or arising out of Environmental Laws and neither has been
            named or listed as a potentially responsible party by any
            Governmental Authority in a matter arising under any Environmental
            Laws; and

                  (iii) Mortgagor has also obtained all Permits required under
            applicable Environmental Laws which are necessary for its current
            exploration, production, transportation, storage, use, and
            development activities at the Mortgaged Property.

            (b) Mortgagor shall not use or permit the Mortgaged Property or any
      part thereof to be used to generate, manufacture, refine, transport,
      treat, store, handle, dispose, transfer, produce or process any hazardous
      materials, except in strict compliance with all applicable Environmental
      Laws, nor shall Mortgagor cause or permit, as a result of any intentional
      or unintentional act or omission on the part of Mortgagor or any tenant or
      subtenant, a release of any hazardous materials onto the Mortgaged
      Property or onto any other property in material violation of any
      applicable Environmental Laws. Mortgagor shall comply, in all material
      respects, with all applicable Environmental Laws and shall obtain and
      comply with any and all registrations or Permits required thereunder. To
      the extent any hazardous materials are released or discharged onto the
      Mortgaged Property on or after the date of this Mortgage, Mortgagor shall
      conduct and complete all investigations, studies, sampling, and testing,
      and all remedial, removal, and other actions necessary to clean up and
      remove all such hazardous materials on, from, or affecting the Mortgaged
      Property or any part thereof (i) in accordance with all applicable
      Environmental Laws; and (ii) in accordance with the orders and directives
      of all Governmental Authorities having jurisdiction over the Mortgaged
      Property. Mortgagor shall promptly notify Beneficiary and each Secured
      Debt Representative of its receipt of any notice of a violation of any
      Environmental Laws.

            (c) Regardless of whether any site assessments are conducted
      pursuant to this Mortgage, and without limiting the liability of Mortgagor
      for the breach of any warranty, representation or covenant contained
      herein or in any Secured


                                      -22-


      Debt Document, and notwithstanding any limitation of liability contained
      in the Secured Debt Documents, Mortgagor hereby agrees to unconditionally
      and absolutely defend, indemnify and hold harmless Beneficiary, Secured
      Debtholders, Trustee and their respective employees, affiliates, agents
      and attorneys, under the Mortgage and any successors or substitute trustee
      under the Mortgage (any person to be indemnified being herein called the
      "Indemnified Person"), from and against, and be responsible for, any and
      all liabilities (including strict liability), actions, demands, penalties,
      fines, taxes, assessments, losses (including, without limitation,
      diminution in the value of the Mortgaged Property), costs and expenses
      (including, without limitation, attorneys', paralegals', accountants' and
      other experts' and consultants' fees and expenses, and remedial costs,
      including, without limitation, costs of monitoring), suits, damages,
      including, without limitation, punitive damages and foreseeable and
      unforeseeable consequential damages, costs of any settlement or judgment
      and claims (including, without limitation, third-party claims for personal
      injury or real or personal property damage) of any and every kind
      whatsoever (hereinafter, collectively, called the "Losses"), which may now
      or in the future (whether before or after the release, or other
      termination of the Mortgage and the other Secured Debt Documents) be paid,
      imposed upon, incurred or suffered by or asserted or awarded against any
      of the Indemnified Persons or the Mortgaged Property by any person or
      entity or Governmental Authority for, with respect to, arising out of, or
      as a direct or indirect result of, any one or more of the following: (i)
      the presence or suspected presence, release or suspected release of any
      hazardous materials at, upon, under, within, above, from, by or in
      connection with the Mortgaged Property or any portion thereof, or
      elsewhere in connection with the transportation of hazardous materials to
      or from the Mortgaged Property (including, without limitation, in the air,
      soil, groundwater or surface water), or the escape, seepage, leakage,
      spillage, discharge, emission or release from the Mortgaged Property of
      any hazardous materials; (ii) any violations of any Environmental Laws at,
      upon, under, within, from, by or in connection with the Mortgaged
      Property; (iii) the environmental condition of the Mortgaged Property;
      (iv) the imposition by any Governmental Authority of any lien or so-called
      "super priority lien" upon the Mortgaged Property as a result of the
      presence or release of hazardous materials, or any violation of any
      Environmental Laws, at, upon, under, within, from, by or connection with
      the Mortgaged Property; (v) obligations to remediate hazardous materials
      contamination, or to remediate any condition which constitutes a violation
      of any Environmental Laws; (vi) any site assessments of the Mortgaged
      Property; (vii) liability for personal injury or property damage or damage
      to the environment or fines, penalties and punitive damages, resulting
      from the presence or release of hazardous materials or any violations of
      any Environmental Laws, at, upon, under, within, from, by or in connection
      with the Mortgaged Property; and (viii) any environmental matter described
      in this Mortgage, including, without limitation, matters arising out of
      any breach of the covenants, representations and warranties set forth
      herein in each instance described in (i) through (viii) hereof regardless
      of whether any such Losses arise out of or result from any breach of the
      covenants, representations


                                      -23-


      and warranties pertaining to environmental matters set forth in this
      Mortgage or the other Secured Debt Documents, and regardless of whether or
      not caused by or within the control of Mortgagor or any Indemnified
      Person; or whether any such matters arise before, during or after any
      foreclosure of the Mortgage or other taking of title to all or any portion
      of the Mortgaged Property or the enforcement of any other remedies under
      the Secured Debt Documents (if any such event occurs). WITHOUT LIMITATION,
      THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH
      RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF
      THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT LIABILITY OF
      ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS NEGLIGENCE OR WILLFUL
      MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON. THE FOLLOWING SHALL APPLY TO
      THAT PORTION OF THE MORTGAGED PROPERTY LOCATED IN THE STATE OF NEW MEXICO:
      TO THE EXTENT THE FOREGOING INDEMNITY IS GOVERNED BY SECTION 56-7-1 NMSA
      (1978), SAID INDEMNITY SHALL NOT EXTEND TO LIABILITY, CLAIMS, DAMAGES,
      LOSSES OR EXPENSES, INCLUDING ATTORNEYS FEES, ARISING OUT OF (A) THE
      PREPARATION OR APPROVAL OF MAPS, DRAWINGS, OPINIONS, REPORTS, SURVEYS,
      CHANGE ORDERS, DESIGNS OR SPECIFICATIONS BY AN INDEMNIFIED PERSON, OR (B)
      THE GIVING OF OR THE FAILURE TO GIVE DIRECTIONS OR INSTRUCTIONS BY AN
      INDEMNIFIED PERSON WHERE SUCH GIVING OR FAILURE TO GIVE DIRECTIONS OR
      INSTRUCTIONS IS THE PRIMARY CAUSE OF BODILY INJURY TO PERSONS OR DAMAGE TO
      PROPERTY. TO THE EXTENT THE FOREGOING INDEMNITY IS GOVERNED BY SECTION
      56-7-2 NMSA (1978), SAID INDEMNITY SHALL NOT EXTEND TO (A) THE SOLE OR
      CONCURRENT NEGLIGENCE OF AN INDEMNIFIED PERSON, (B) THE SOLE OR CONCURRENT
      NEGLIGENCE OF AN INDEPENDENT CONTRACTOR WHO IS DIRECTLY RESPONSIBLE TO AN
      INDEMNIFIED PERSON, OR (C) AN ACCIDENT THAT OCCURS IN OPERATIONS CARRIED
      ON, AT THE DIRECTION, OR UNDER THE SUPERVISION OF AN INDEMNIFIED PERSON OR
      IN ACCORDANCE WITH METHODS AND MEANS SPECIFIED BY AN INDEMNIFIED PERSON.

            (d) Notwithstanding the foregoing or any contrary provision hereof,
      Mortgagor's indemnification obligations set forth in this Section 3.10
      shall not extend to any such Losses which are attributable solely to
      contamination by hazardous materials first introduced to the Mortgaged
      Property after a foreclosure of this Mortgage or other taking of title to
      the Mortgaged Property by any of Indemnified Persons.

            (e) The indemnification provided in this Section 3.10 shall
      specifically apply to and include claims or actions brought by or on
      behalf of tenants or employees of Mortgagor. Mortgagor hereby expressly
      waives (with respect to any claims of any Indemnified Person arising under
      this Section 3.10) any immunity to which Mortgagor may otherwise be
      entitled under any industrial or worker's compensation laws.

            (f) In the event any of the Indemnified Persons shall suffer or
      incur any such Losses, Mortgagor shall pay to such Indemnified Persons the
      total of all such Losses suffered or incurred within ten (10) days after
      demand therefore.


                                      -24-


            (g) Mortgagor agrees that the representations, covenants, warranties
      and indemnifications contained in this Mortgage shall survive the release
      of the Mortgage, the foreclosure or the taking of a deed in lieu of
      foreclosure, other termination of the lien of the Mortgage, or the
      exercise by Beneficiary of any other remedies under the Secured Debt
      Documents, the discharge of Mortgagor's Obligations under any of the other
      Secured Debt Documents, or any transfer of the Mortgaged Property, even if
      as a part of such foreclosure, deed in lieu of foreclosure or other
      enforcement action, the Indebtedness is satisfied in full.

      3.11 Corporate Mortgagor. Mortgagor will continue to be duly qualified to
transact business in each state where the conduct of its business requires it to
be qualified, and will not, unless permitted pursuant to the Secured Debt
Documents, consolidate or merge with any other partnership, company, corporation
or other Person.

      3.12 Taxpayer I.D. Number. The taxpayer identification number of Mortgagor
is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382.

                                   ARTICLE IV.
                            ASSIGNMENT OF PRODUCTION

      4.1 Assignment.

            (a) Mortgagor hereby absolutely and irrevocably (a) transfers,
      assigns, warrants and conveys, to Beneficiary, effective as of July 1,
      2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter
      produced from and which accrue to the Mortgaged Property, and all proceeds
      therefrom, and (b) gives to and confers upon Beneficiary the right, power
      and authority to collect such Hydrocarbons and proceeds. Subject to the
      terms of Section 4.1 (b), all parties producing, purchasing or receiving
      any such Hydrocarbons, or having such, or proceeds therefrom, in their
      possession for which they or others are accountable to Beneficiary by
      virtue of the provisions of this Article IV, are authorized and directed
      to treat and regard Beneficiary as the assignee and transferee of
      Mortgagor and entitled in Mortgagor's place and stead to receive such
      Hydrocarbons and all proceeds therefrom; and said parties and each of them
      shall be fully protected in so treating and regarding Beneficiary and
      shall be under no obligation to see to the application by Beneficiary of
      any such proceeds or payments received by it; provided, however, that,
      until Beneficiary or any Secured Debt Representative shall have instructed
      such parties that an Event of Default has occurred and to deliver such
      Hydrocarbons and all proceeds therefrom directly to Beneficiary, such
      parties shall be entitled to deliver such Hydrocarbons and all proceeds
      therefrom directly to Mortgagor. So long as no Event of Default shall have
      occurred, Mortgagor shall be entitled to receive directly from such
      parties, and keep and retain, all such proceeds from the sale of such
      Hydrocarbons.


                                      -25-


            (b) Upon the occurrence of an Event of Default (provided that the
      Secured Debt Representative shall not give such instruction and notice
      under this Article IV unless such Event of Default shall then be
      continuing), any Secured Debt Representative may at any time (and from
      time to time) thereafter give notice thereof to any party producing,
      purchasing or receiving any such Hydrocarbons, or having such, or proceeds
      therefrom, in their possession for which they or others are accountable to
      Beneficiary, directing that said Hydrocarbons and products are to be
      delivered into pipelines connected with the oil and gas leases, or to the
      purchaser thereof, free and clear of all Taxes, and the proceeds from the
      sale of such Hydrocarbons paid directly to Beneficiary in accordance with
      Section 4.5 of this Mortgage. Said parties producing, purchasing or
      receiving any such Hydrocarbons, or having such, or proceeds therefrom, in
      their possession for which they or others are accountable to Beneficiary
      by virtue of the provisions of this Article IV, shall be fully protected
      in relying on any such Secured Debt Representative's determination and
      notice of the occurrence of an Event of Default. Mortgagor agrees to
      perform all such acts, and to execute all such further assignments,
      transfers and division orders, and other instruments as may be required
      pursuant to the Collateral Trust Agreement or any of the Secured Debt
      Documents in order to have said revenues and proceeds so paid to
      Beneficiary, as and when provided in this Article IV. With respect to any
      funds received by Beneficiary, Beneficiary is fully authorized to (but
      shall not be obligated to) receive and give receipt for any such revenues
      and proceeds that are received by Beneficiary; to endorse and cash any and
      all checks and drafts payable to the order of Mortgagor or Beneficiary for
      the account of Mortgagor received from or in connection with said revenues
      or proceeds and apply the proceeds thereof in accordance with Section 4.2
      hereof, and to execute transfer and division orders in the name of
      Mortgagor, or otherwise, with warranties binding Mortgagor. The assignment
      of the Hydrocarbons and proceeds in this Section 4.1 is intended to be an
      absolute assignment from Mortgagor to Beneficiary and not merely the
      passing of a security interest. Such Hydrocarbons and proceeds are hereby
      assigned absolutely by Mortgagor to Beneficiary.

      4.2 Application of Proceeds. All payments received by Beneficiary pursuant
to Section 4.1 hereof shall be placed in a cash collateral account to be applied
in accordance with the provisions of the Collateral Trust Agreement.

      4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby
absolved from all liability for failure to enforce collection of any proceeds so
assigned (and no such failure shall be deemed to be a waiver of any right of
Beneficiary under this Article IV) and from all other responsibility in
connection therewith, except the responsibility to account to Mortgagor for
funds actually received.

      4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein
contained shall detract from or limit the absolute obligation of Mortgagor to
make payment of the Indebtedness regardless of whether the proceeds assigned by
this Article IV are sufficient to pay the same, and the rights under this
Article IV shall be in


                                      -26-


addition to all other security now or hereafter existing to secure the payment
of the Indebtedness.

      4.5 Status of Assignment. Notwithstanding the other provisions of this
Article IV and in addition to the other rights hereunder, Beneficiary or any
receiver appointed in judicial proceedings for the enforcement of this Mortgage
shall have the right to receive all of the Hydrocarbons herein assigned and the
proceeds therefrom after the occurrence and during the continuance of any Event
of Default and to apply all of said proceeds as provided in Section 4.2 hereof.
Upon any sale of the Mortgaged Property or any part thereof pursuant to Article
V, the Hydrocarbons thereafter produced from the property so sold, and the
proceeds therefrom, shall be included in such sale and shall pass to the
purchaser free and clear of the assignment contained in this Article IV.

      4.6 Indemnification Obligation. The following provisions shall apply to,
and be deemed in each case to modify, each of the provisions of this Mortgage
(except those set forth in Section 3.10 hereof) and the other Secured Debt
Documents (except to the extent otherwise expressly provided therein) wherein
Mortgagor is obligated to indemnify each of the Indemnified Persons:

            (a) Mortgagor agrees to indemnify Beneficiary, the Secured
      Debtholders, Trustee and their respective employees, affiliates, agents
      and attorneys, under the Mortgage and any successors or substitute trustee
      under the Mortgage, against all legal and administrative proceedings for
      which a claim for indemnification may be made by the Indemnified Person
      (herein, collectively, called "Indemnification Claims") made against or
      incurred by them or any of them as a consequence of the assertion, either
      before or after the payment in full of the Indebtedness, that they or any
      of them received Hydrocarbons herein assigned or the proceeds thereof
      claimed by third persons and Beneficiary, Secured Debtholders, and Trustee
      shall have the right to defend against any such Indemnification Claims,
      employing attorneys therefor, and unless furnished with reasonable
      indemnity, they or any of them shall have the right to pay or compromise
      and adjust all such Indemnification Claims. Mortgagor will indemnify and
      pay to Beneficiary, Secured Debtholders and Trustee any and all such
      amounts as may be paid in respect thereof or as may be successfully
      adjudged against such persons. The obligations of Mortgagor as hereinabove
      set forth in this Section 4.6 shall survive the release termination,
      foreclosure or assignment of this Mortgage or any sale hereunder.

            (b) Mortgagor shall pay when due any judgments with respect to an
      Indemnification Claim against any of the Indemnified Persons and which are
      rendered by a final order or decree of a court of competent jurisdiction
      from which no further appeal may be taken or has been taken within the
      applicable appeal period. In the event that such payment is not made, any
      of the Indemnified Persons at its sole discretion may pay any such
      judgments, in whole or in part, and look to Mortgagor for reimbursement
      pursuant to this Mortgage, or may proceed to file suit against Mortgagor
      to compel such payment.


                                      -27-


            (c) Any amount which Mortgagor is obligated to pay to or for the
      benefit of an Indemnified Person with respect to an Indemnification Claim,
      but which is not paid when due, shall bear interest at the applicable rate
      set forth under the Secured Debt Documents from the date such amount is
      due until such amount is paid.

      WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH
INDEMNIFIED PERSON WITH RESPECT TO LOSSES WHICH IN WHOLE OR IN PART ARE CAUSED
BY OR ARISE OUT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OR THE STRICT
LIABILITY OF ANY SUCH INDEMNIFIED PERSON, BUT NOT THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF ANY SUCH INDEMNIFIED PERSON. THE FOLLOWING SHALL APPLY TO
THAT PORTION OF THE MORTGAGED PROPERTY LOCATED IN THE STATE OF NEW MEXICO: TO
THE EXTENT THE FOREGOING INDEMNITY IS GOVERNED BY SECTION 56-7-1 NMSA (1978),
SAID INDEMNITY SHALL NOT EXTEND TO LIABILITY, CLAIMS, DAMAGES, LOSSES OR
EXPENSES, INCLUDING ATTORNEYS FEES, ARISING OUT OF (A) THE PREPARATION OR
APPROVAL OF MAPS, DRAWINGS, OPINIONS, REPORTS, SURVEYS, CHANGE ORDERS, DESIGNS
OR SPECIFICATIONS BY AN INDEMNIFIED PERSON, OR (B) THE GIVING OF OR THE FAILURE
TO GIVE DIRECTIONS OR INSTRUCTIONS BY AN INDEMNIFIED PERSON WHERE SUCH GIVING OR
FAILURE TO GIVE DIRECTIONS OR INSTRUCTIONS IS THE PRIMARY CAUSE OF BODILY INJURY
TO PERSONS OR DAMAGE TO PROPERTY. TO THE EXTENT THE FOREGOING INDEMNITY IS
GOVERNED BY SECTION 56-7-2 NMSA (1978), SAID INDEMNITY SHALL NOT EXTEND TO (A)
THE SOLE OR CONCURRENT NEGLIGENCE OF AN INDEMNIFIED PERSON, (B) THE SOLE OR
CONCURRENT NEGLIGENCE OF AN INDEPENDENT CONTRACTOR WHO IS DIRECTLY RESPONSIBLE
TO AN INDEMNIFIED PERSON, OR (C) AN ACCIDENT THAT OCCURS IN OPERATIONS CARRIED
ON, AT THE DIRECTION, OR UNDER THE SUPERVISION OF AN INDEMNIFIED PERSON OR IN
ACCORDANCE WITH METHODS AND MEANS SPECIFIED BY AN INDEMNIFIED PERSON.

                                   ARTICLE V.
                           ENFORCEMENT OF THE SECURITY

      5.1 Title Examination. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Beneficiary shall have the right and
power to (but shall not be obligated to) cause to be brought down to date a
title examination and tax histories of the Mortgaged Property, procure title
opinions or title reports or, if necessary, procure new abstracts and tax
histories.

      5.2 Environmental Audit. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Beneficiary shall have the right and
power to (but shall not be obligated to) procure an updated or entirely new
environmental audit of the Mortgaged Property including the lands described in
Exhibit A, buildings, soil, ground water and subsurface investigations; have the
buildings inspected by an engineer or other qualified inspector; enter upon the
Mortgaged Property at any time and from time to time to show the Mortgaged
Property to potential purchasers and potential bidders at foreclosure sale; make
available to potential purchasers and


                                      -28-


potential bidders all information obtained pursuant to the foregoing and any
other information in the possession of Beneficiary regarding the Mortgaged
Property.

      5.3 Power of Sale of Real Property Constituting a Part of the Mortgaged
Property. Upon the occurrence of an Event of Default and if such Event of
Default shall be continuing, Trustee shall have the right and power to sell, to
the extent permitted by Applicable Law, at one or more sales, as an entirety or
in parcels, as they may elect, the real property constituting a part of the
Mortgaged Property, at such place or places and otherwise in such manner and
upon such notice as may be required by Applicable Law, or, in the absence of any
such requirement, as Trustee may deem appropriate, and to make conveyance to the
purchaser or purchasers; and Mortgagor shall warrant title to such real property
to such purchaser or purchasers. Trustee may postpone the sale of all or any
portion of such real property by public announcement at the time and place of
such sale, and from time to time thereafter may further postpone such sale by
public announcement made at the time of sale fixed by the preceding
postponement. The right of sale hereunder shall not be exhausted by one or any
sale, and Trustee may make other and successive sales until all of the trust
estate be legally sold. With respect to that portion, if any, of the Mortgaged
Property situated in the State of Wyoming, this Mortgage may be foreclosed by
advertisement and sale as provided by applicable Wyoming statutes. With respect
to that portion, if any, of the Mortgaged Property situated in the State of
Oklahoma, the Beneficiary shall have the right and power to (but shall not be
obligated to) declare the Indebtedness secured hereby due and payable and to
sell, or direct Trustee to sell, the "real estate," as such term is defined
under the provisions of 46 O.S. Supp. 1986, Section 42, constituting a part of
the Mortgaged Property, all under the terms of 46 O.S. Supp. 1986, Section 40 et
seq., and shall, to the extent permitted by Applicable Law, have the other
rights conferred on Trustee under the provisions of this Mortgage.

      5.4 Rights of Beneficiary with Respect to Personal Property Constituting a
Part of the Mortgaged Property. Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing, Beneficiary will have all rights
and remedies granted by Applicable Law, and particularly by the Uniform
Commercial Code, including, but not limited to, the right to take possession of
all personal property constituting a part of the Mortgaged Property, and for
this purpose Beneficiary may enter upon any premises on which any or all of such
personal property is situated and take possession of and operate such personal
property (or any portion thereof) or remove it therefrom. Beneficiary may
require Mortgagor to assemble such personal property and make it available to
Beneficiary at a place to be designated by Beneficiary which is reasonably
convenient to all parties. Unless such personal property is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Beneficiary will give Mortgagor reasonable notice of the time
and place of any public sale or of the time after which any private sale or
other disposition of such personal property is to be made. This requirement of
sending reasonable notice will be met if the notice is mailed by first-class
mail, postage prepaid, to Mortgagor at the address shown below the signatures at
the end of this Mortgage at least five (5) days before the time of the sale or
disposition.


                                      -29-


      5.5 Rights with Respect to Fixtures Constituting a Part of the Mortgaged
Property. Upon the occurrence of an Event of Default and if such Event of
Default shall be continuing, Beneficiary may elect to treat the fixtures
constituting a part of the Mortgaged Property as either real property collateral
or personal property collateral and then proceed to exercise such rights as
apply to such type of collateral.

      5.6 Judicial Proceedings. Upon the occurrence of an Event of Default and
if such Event of Default shall be continuing, Trustee, in lieu of or in addition
to exercising any power of sale hereinabove given, may proceed by a suit or
suits in equity or at law, whether for a foreclosure hereunder for each or upon
credit in one or more parcels or portions under executory or ordinary process,
at Beneficiary's sole option, without appraisement (appraisement being expressly
waived), or for the sale of the Mortgaged Property, or for the specific
performance of any covenant or agreement herein contained or in aid of the
execution of any power herein granted, or for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Mortgaged Property, or for
the enforcement of any other appropriate legal or equitable remedy. Mortgagor
hereby acknowledges the Indebtedness secured hereby, whether now existing or to
arise hereafter, and confesses judgment thereon in the full amount of the
Indebtedness in favor of Beneficiary and any future holder or holders of Secured
Debt if such obligations are not paid at maturity.

      5.7 Possession of the Mortgaged Property. It shall not be necessary for
Trustee or Beneficiary to have physically present or constructively in their
possession at any sale held by Trustee or Beneficiary or by any court, receiver
or public officer any or all of the Mortgaged Property; and Mortgagor shall
deliver to the purchasers at such sale on the date of sale the Mortgaged
Property purchased by such purchasers at such sale, and if it should be
impossible or impracticable for any of such purchasers to take actual delivery
of the Mortgaged Property, then the title and right of possession to the
Mortgaged Property shall pass to such purchaser at such sale as completely as if
the same had been actually present and delivered.

      5.8 Certain Aspects of a Sale. Beneficiary shall have the right to (but
shall not be obligated to) become the purchaser at any sale held by Trustee,
Beneficiary or by any court, receiver or public officer, and Beneficiary shall
have the right to (but shall not be obligated to) credit upon the amount of the
bid made therefor the amount payable out of the net proceeds of such sale to it
Recitals contained in any conveyance made to any purchaser at any sale made
hereunder shall conclusively establish the truth and accuracy of the matters
therein stated, including, without limiting the generality of the foregoing,
nonpayment of the unpaid principal sum of, and the interest accrued on, Secured
Debt after the same have become due and payable, advertisement and conduct of
such sale in the manner provided herein or appointment of any successor Trustee
hereunder.

      5.9 Receipt to Purchaser. Upon any sale, whether made under the power of
sale herein granted and conferred or by virtue of judicial proceedings, the
receipt of Trustee, Beneficiary or of the officer making sale under judicial
proceedings, shall be sufficient discharge to the purchaser or purchasers at any
sale for his or their purchase


                                      -30-


money, and such purchaser or purchasers, or his or their assigns or personal
representatives, shall not, after paying such purchase money and receiving such
receipt of Trustee, Beneficiary, or of such officer therefor, be obliged to see
to the application of such purchase money, or be in anywise answerable for any
loss, misapplication or nonapplication thereof.

      5.10 Effect of Sale. Any sale or sales of the Mortgaged Property, whether
under the power of sale herein granted and conferred or by virtue of judicial
proceedings, shall operate to divest all right, title, interest, claim and
demand whatsoever either at law or in equity, of Mortgagor of, in and to the
premises and the property sold, and shall be a perpetual bar, both at law and in
equity, against Mortgagor, and Mortgagor's successors or assigns, and against
any and all persons claiming or who shall thereafter claim all or any of the
property sold from, through or under Mortgagor or Mortgagor's successors or
assigns. Nevertheless, Mortgagor, shall join in the execution and delivery of
all proper conveyances, assignments and transfers of the properties so sold.

      5.11 Application of Proceeds. The proceeds of any sale of, and the Rents
and Revenues and other amounts generated by the holding, leasing, operation or
other use of, the Mortgaged Property shall be applied in accordance with the
provisions of the Collateral Trust Agreement.

      5.12 Mortgagor's Waiver of Appraisement, Marshalling and Other Rights.
Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that
Mortgagor will not at any time insist upon or plead or in any manner whatever
claim the benefit of any appraisement, valuation, stay, extension or redemption
law now or hereafter in force, in order to prevent or hinder the enforcement or
foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or
the possession thereof by any purchaser at any sale made pursuant to any
provision hereof, or pursuant to the decree of any court of competent
jurisdiction; but Mortgagor, for Mortgagor and all who may claim through or
under Mortgagor, so far as Mortgagor or those claiming through or under
Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such
laws. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor,
waives, to the extent that Mortgagor may lawfully do so, any and all right to
have the Mortgaged Property marshalled upon any foreclosure of the lien hereof,
or sold in inverse order of alienation, and agrees that Trustee, Beneficiary or
any court having jurisdiction to foreclose such lien may sell the Mortgaged
Property as an entirety. Mortgagor, for Mortgagor and all who may claim through
or under Mortgagor, further waives, to the full extent that Mortgagor may
lawfully do so, any requirement for posting a receiver's bond or replevin bond
or other similar type of bond if Trustee or Beneficiary commence an action for
appointment of a receiver or an action for replevin to recover possession of any
of the Mortgaged Property. If any law in this paragraph referred to and now in
force, of which Mortgagor or Mortgagor's successor or successors might take
advantage despite the provisions hereof, shall hereafter be repealed or cease to
be in force, such law shall not thereafter be deemed to, constitute any part of
the contract herein contained or to preclude the operation or application of the
provisions of this paragraph. Pursuant to Section 39-5-19, New Mexico Statutes,
Annotated, 1978 Comp., as amended, Mortgagor agrees that as to the Mortgaged
Property situated in


                                      -31-


the State of New Mexico, the redemption period shall be shortened to one (1)
month. If Mortgagor is an individual, Mortgagor waives and releases all rights
of dower, courtesy and homestead in the Mortgaged Property insofar as such
rights may in any way affect the purposes of this Mortgage.

      5.13 Costs and Expenses. All costs and expenses (including attorneys'
fees) incurred by Trustee or Beneficiary in protecting and enforcing their
rights hereunder shall constitute a demand obligation owing by Mortgagor to the
party incurring such costs and expenses and shall draw interest at Default
Interest Rate, all of which shall constitute a portion of the Indebtedness.

      5.14 Intentionally Omitted.

      5.15 Intentionally Omitted.

      5.16 Operation of the Mortgaged Property by Beneficiary. Upon the
occurrence of an Event of Default and during the continuance of such Event of
Default and in addition to all other rights herein conferred on Beneficiary,
Beneficiary (or any person, firm or corporation designated by Beneficiary) shall
have the right and power, but shall not be obligated, to enter upon and take
possession of any of the Mortgaged Property, and to exclude Mortgagor, and
Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer,
manage and operate the same to the extent that Mortgagor shall be at the time
entitled and in its place and stead. Beneficiary, or any person, firm or
corporation designated by Beneficiary, may operate the same without any
liability to Mortgagor in connection with such operations, except to use
ordinary care in the operation of such properties, and Beneficiary or any
person, firm or corporation designated by Beneficiary, shall have the right to
(but shall not be obligated to) collect, receive and receipt for all
Hydrocarbons produced and sold from said properties, to make repairs, purchase
machinery and equipment, conduct work-over operations, drill additional wells
and to exercise every power, right and privilege of Mortgagor with respect to
the Mortgaged Property. When and if the expenses of such operation and
development (including costs of unsuccessful work-over operations or additional
wells) paid by Beneficiary or attributable to Mortgagor's undivided interest
therein and withheld, or offset against, by an operator or other party have been
paid or reimbursed in full by Mortgagor and the Indebtedness paid, said
properties shall, if there has been no sale or foreclosure, be returned to
Mortgagor.

      5.17 Separate Sales. The Mortgaged Property may be sold in one or more
parcels and it being expressly understood and agreed that the right of sale
arising out of any Event of Default shall not be exhausted by any one or more
sales but other and successive sales may be made until all of the Mortgaged
Property has been sold or until the Indebtedness has been fully satisfied.

      5.18 Remedies Cumulative, Concurrent and Non-Exclusive. Beneficiary shall
have all rights, remedies and recourses granted in the Secured Debt Documents
and available at law or equity (including specifically those granted by the
Uniform Commercial Code in effect and applicable to the Mortgaged Property, or
any portion


                                      -32-


thereof), and the same (a) shall be cumulative and concurrent, (b) may be
pursued separately, successively or concurrently against any one or more of
Mortgagor, any Guarantor, or others obligated under the Secured Debt Documents,
or against the Mortgaged Property, pursuant to the Collateral Trust Agreement
and any Secured Debt Documents, (c) may be exercised as often as occasion
therefor shall arise, it being agreed by Mortgagor that the exercise or failure
to exercise any of same shall in no event be construed as a waiver or release
thereof or of any other right, remedy or recourse, and (d) are intended to be,
and shall be, non-exclusive.

      5.19 Release of and Resort to Collateral. Beneficiary may release,
regardless of consideration, any part of the Mortgaged Property without, as to
the remainder, in any way impairing, affecting, subordinating or releasing the
lien or security interests created in or evidenced by the Secured Debt Documents
or their stature as a first and prior lien and security interest in and to the
Mortgaged Property. For payment of the Indebtedness, Beneficiary may resort to
any other security therefor held in such order and manner as Beneficiary may
elect.

      5.20 Discontinuance of Proceedings. In case Beneficiary shall have
proceeded to invoke any right, remedy or recourse permitted under the Secured
Debt Documents and shall thereafter elect to discontinue or abandon same for any
reason, Beneficiary shall have the unqualified right so to do and, in such an
event, Mortgagor and Beneficiary shall be restored to their former positions
with respect to the Indebtedness, the Obligations, the Secured Debt Documents,
the Mortgaged Property and otherwise, and the rights, remedies, recourses and
powers of Beneficiary shall continue as if same had never been invoked.

      5.21 Uniform Commercial Code Remedies. Beneficiary shall have all the
rights, remedies and recourses with respect to the Personalty, Fixtures, Leases
and Rents and Revenues afforded a Secured Party by the aforesaid Uniform
Commercial Code (being Chapter 9 of the Texas Business and Commerce Code, as to
property within the scope thereof and situated in the State of Texas) in
addition to, and not in limitation of, the other rights, remedies and recourses
afforded Beneficiary by the Secured Debt Documents.

      5.22 No Obligation of Trustee or Beneficiary. The assignment and security
interest herein granted shall not be deemed or construed (a) to constitute
Trustee or Beneficiary as a trustee in possession of the Mortgaged Property or,
(b) to obligate Trustee or Beneficiary to (i) lease the Mortgaged Property or
attempt to do same, (ii) take any action, (iii) incur any expenses or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise.

                                  ARTICLE VI.
                            MISCELLANEOUS PROVISIONS

      6.1 Pooling and Unitization. Mortgagor shall have the right, and is hereby
authorized, to pool or unitize all or any part of the lands described in Exhibit
A, insofar as relates to the Mortgaged Property, with adjacent lands, leaseholds
and other


                                      -33-


interests, when, in the reasonable judgment of Mortgagor, it is necessary or
advisable to do so in order to form a drilling and/or production unit to
facilitate the orderly development of that part of the Mortgaged Property
affected thereby, or to comply with the requirements of any Applicable Law or
governmental order or regulation relating to the spacing of wells or proration
of the production therefrom; provided, however, that any unit so formed for the
production of oil shall not substantially exceed 160 acres, and any unit so
formed for the production of gas shall not substantially exceed 640 acres,
unless a larger area is required to conform to an Applicable Law or governmental
order or regulation relating to the spacing of wells or to obtain the maximum
allowable production under any Applicable Law or governmental order or
regulation relating to the proration of production therefrom; and further
provided that the Hydrocarbons produced from any unit so formed shall be
allocated among the separately owned tracts or interests comprising the unit in
a uniform manner consistently applied; and further provided that all interests
owned by Mortgagor in such unit shall be included within the Mortgaged Property.
Any unit so formed may relate to one or more zones or horizons, and a unit
formed for a particular zone or horizon need not conform in area to any other
unit relating to a different zone or horizon, and a unit formed for the
production of oil need not conform in area with any unit formed for the
production of gas. Promptly after formation of any such unit, Mortgagor shall
furnish to Beneficiary and each Secured Debt Representative a true copy of the
pooling agreement, declaration of pooling or other instrument creating such
unit. The interest in any such unit attributable to the Mortgaged Property (or
any part thereof) included therein shall become a part of the Mortgaged Property
and shall be subject to the lien hereof in the same manner and with the same
effect as though such unit and the interest of Mortgagor therein were
specifically described in Exhibit A. Mortgagor is further authorized to amend,
modify or terminate any pooling or unitization agreement or order to which
Mortgagor is a party or the Mortgaged Property is subject, provided that such
action does not conflict with the provisions of this Mortgage, including this
Section 6.1. Mortgagor may enter into, or amend, modify or terminate, pooling or
unitization agreements not hereinabove authorized only as permitted under the
Secured Debt Documents.

      6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt
Representative or any of their agents shall be liable for any error of judgment
or act done in good faith, or be otherwise responsible or accountable under any
circumstances whatsoever, except for their gross negligence or willful
misconduct. None of Beneficiary, Trustee, any Secured Debt Representative or any
of their agents shall be personally liable in case of entry by them, or anyone
entering by virtue of the powers herein granted them, upon the Mortgaged
Property for debts contracted or liability or damages incurred in the management
or operation of the Mortgaged Property. Such persons shall have the right to
rely on any instrument, document or signature authorizing or supporting any
action taken or proposed to be taken by them hereunder, believed by them in good
faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or
any of their agents shall be entitled to reimbursement for expenses incurred by
them in the performance of their duties hereunder and to reasonable compensation
for such of their services hereunder as shall be rendered. Mortgagor will, from
time to time, pay the compensation due hereunder and reimburse such parties for,

                                      -34-


and save them harmless against, any and all liability and expenses which may be
incurred by them in the performance of their duties.

      6.3 Successor Trustee. Any Trustee may resign in writing addressed to
Beneficiary or may be removed at any time with or without cause by an instrument
in writing duly executed by Beneficiary. In case of the death, resignation or
removal of a Trustee, one or more successor Trustee may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of Applicable Law, and in the absence of any such requirement
without formality other than appointment and designation in writing. Such
appointment and designation shall be full evidence of the right and authority to
make the same and of all facts therein recited, and upon the making of any such
appointment and designation this conveyance shall vest in the named successor
Trustee or Trustee, all the estate and title of the prior Trustee in all of the
Mortgaged Property, and he or they shall thereupon succeed to all the rights,
powers, privileges, immunities and duties hereby conferred upon the prior
Trustee. All references herein to Trustee shall be deemed to refer to Trustee
from time to time acting hereunder.

      6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant
herein contained shall be performed and kept by Mortgagor solely at Mortgagor's
expense. If Mortgagor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this Mortgage, Beneficiary, or Trustee or
any receiver appointed hereunder or under Applicable Law, may, but shall not be
obligated to, take action and/or make advances to perform the same in
Mortgagor's behalf; provided, however, that concurrently with the taking of such
action or making such advances, Beneficiary, Trustee or any Secured Debt
Representative shall deliver notice to Mortgagor. Mortgagor hereby agrees to
repay the expense of such action (including all court costs and attorneys' fees)
and such advances upon demand plus interest as set forth in the Collateral Trust
Agreement. No such advance or action by Beneficiary, Trustee or any receiver
appointed hereunder shall be deemed to relieve Mortgagor from any default
hereunder.

      6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any
election by Trustee or Beneficiary not to insist, upon strict performance by
Mortgagor of any of the terms, provisions or conditions of the Collateral Trust
Agreement or any Secured Debt Documents shall not be deemed to be a waiver of
same or of any other term, provision or condition thereof, and Trustee and
Beneficiary shall have the right at any time or times thereafter to insist upon
strict performance by Mortgagor of any and all of such terms, provisions and
conditions.

      6.6 Defense of Claims. Mortgagor will notify Beneficiary and each Secured
Debt Representative, in writing, promptly of the commencement of any legal
proceedings affecting the lien or security interest hereof or the Mortgaged
Property, or any part thereof, and will take such action, employing attorneys as
set forth in Section 3.4(j), as may be necessary or appropriate to preserve
Mortgagor's or Beneficiary's rights affected thereby and/or to hold harmless
Beneficiary in respect of such proceedings; and should Mortgagor fail or refuse
to take any such action, Beneficiary


                                      -35-


may, upon giving prior written notice thereof to Mortgagor, take such action in
behalf and in the name of Mortgagor and at Mortgagor's expense. Moreover,
Beneficiary may take such independent action in connection therewith as it may
in its discretion deem proper, Mortgagor hereby agreeing that all sums advanced
or all expenses incurred in such actions (including all court costs and
attorneys' fees) plus interest thereon at the Default Interest Rate, will, on
demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed
hereunder or under Applicable Law. The obligations of Mortgagor as hereinabove
set forth in this Section 6.6 shall survive the release, termination,
foreclosure or assignment of this Mortgage or any sale hereunder.

      6.7 The Mortgaged Property to Revert; Release. If the Indebtedness shall
be fully paid and the covenants herein contained shall be well and truly
performed, then all of the Mortgaged Property shall revert to Mortgagor and the
entire estate, right, title and interest of Trustee and Beneficiary shall
thereupon cease; and Trustee and Beneficiary in such case shall, upon the
request of Mortgagor and at Mortgagor's cost and expense, deliver to Mortgagor
proper instruments acknowledging satisfaction of this Mortgage and the release
or reconveyance of the lien hereof in accordance with Applicable Law.
Notwithstanding anything contained herein to the contrary, the Mortgaged
Property, or any part thereof, shall, upon the written request of Mortgagor, be
released from the lien of this Mortgage, in accordance with the provisions of
the Collateral Trust Agreement, when such a release is permitted by the
Collateral Trust Agreement and the other Secured Debt Documents.

      6.8 Covenants Running with the Land. All Obligations contained in this
Mortgage are intended by the parties to be, and shall be construed as, covenants
running with the Mortgaged Property.

      6.9 Renewals, Amendments and Other Security. Renewals and extensions of
the Indebtedness and modifications of any kind of the Obligations may be given
at any time and amendments may be made to agreements with third parties relating
to any part of such Indebtedness or the Mortgaged Property and Trustee and
Beneficiary may take or may now hold other security from others for the
Indebtedness, all without notice to or consent of Mortgagor. Beneficiary may
resort first to such other security or any part thereof or first to the security
herein given or any part thereof, or from time to time to either or both, even
to the partial or complete abandonment of either security, and such action shall
not be a waiver of any rights conferred by this Mortgage, which shall continue
as a first lien upon and prior perfected security interest in the Mortgaged
Property not expressly released until the Secured Debt and all other
Indebtedness secured hereby are fully paid.

      6.10 Mortgage, Assignment, etc. This Mortgage shall be deemed to be and
may be enforced from time to time as an assignment, chattel mortgage, contract,
deed of trust, financing statement, real estate mortgage, or security agreement,
and from time to time as any one or more thereof.

      6.11 Limitation on Interest. No provision of this Mortgage or the Secured
Debt Documents shall require the payment or permit the collection of interest in
excess of the


                                      -36-


Maximum Lawful Rate or which is otherwise contrary to Applicable Law. If any
excess of interest in such respect is in the Secured Debt Documents or otherwise
herein provided for, or shall be adjudicated to be so provided for herein or in
the Secured Debt Documents, Mortgagor shall not be obligated to pay such excess.

      6.12 Severability. The Secured Debt Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable Legal
Requirements. If any provision of any of the Secured Debt Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the remainder of the instrument
in which such provision is contained nor the application of such provision to
other persons or circumstances nor the other instruments referred to hereinabove
shall be affected thereby, but rather shall be enforced to the greatest extent
permitted by Applicable Law. It is hereby expressly stipulated and agreed to be
the intent of Mortgagor and Beneficiary at all times to comply with the usury,
and all other, laws relating to the Secured Debt Documents. If, at any time, the
applicable Legal Requirements render usurious any amount called for in any
Security Document, then it is Mortgagor's, Trustee's and Secured Debtholders'
express intent that such document be immediately deemed reformed and the amounts
collectible reduced, without the necessity of the execution of any new document,
so as to comply with the then Applicable Law but so as to permit the recovery of
the fullest amount otherwise called for in such Secured Debt Documents.

      6.13 Waiver by Trustee and Beneficiary. Any and all covenants in this
Mortgage may from time to time by instrument in writing signed by Trustee and
Beneficiary be waived to such extent and in such manner as Trustee and
Beneficiary may desire, but no such waiver shall ever affect or impair either
Trustee's or Beneficiary's rights or liens or security interests hereunder,
except to the extent specifically stated in such written instrument.

      6.14 No Partnership. Nothing contained in this Mortgage is intended to, or
shall be construed as, creating to any extent and in any manner whatsoever, any
partnership, joint venture, or association among Mortgagor, Trustee, Beneficiary
and their respective Affiliates, or in any way as to make Beneficiary or
Trustee's co-principals with Mortgagor with reference to the Mortgaged Property,
and any inferences to the contrary are hereby expressly negated.

      6.15 Successors and Assigns. This Mortgage is binding upon Mortgagor,
Mortgagor's successors and assigns, and shall inure to the benefit of
Beneficiary, its successors and assigns, and the provisions hereof shall
likewise be covenants running with the land.

      6.16 Article and Section Headings. The article and section headings in
this Mortgage are inserted for convenience of reference and shall not be
considered a part of this Mortgage or used in its interpretation.

      6.17 Execution in Counterparts. This Mortgage may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be an
original and all


                                      -37-


of which are identical, except that, to facilitate recordation or filing, in any
particular counterpart portions of Exhibit A hereto which describe properties
situated in parishes or counties other than the parish or county in which such
counterpart is to be recorded or filed may have been omitted.

      6.18 Special Filing as Financing Statement. This Mortgage shall likewise
be a Security Agreement and a Financing Statement. This Mortgage shall be filed
for record, among other places, in the real estate records of each county or
parish in which any portion of the real property covered by the oil and gas
leases described in Exhibit A hereto is situated, and, when filed in such
counties or parishes shall be effective as a financing statement covering
Fixtures located on oil and gas properties, which oil and gas properties (and
accounts arising therefrom) are to be financed at the wellheads of the wells
located on the lands described in Exhibit A. A carbon, photographic or other
reproduction of this Mortgage or of any financing statement covering the
Mortgaged Property or any portion thereof shall be sufficient as a financing
statement and may be filed as such. Mortgagor agrees that any Secured Debt
Representative may, in such manner, on such terms and at such times as may be
elected by such Secured Debt Representative, and without demand or notice to, or
the consent or signature of, Mortgagor, file and/or record such UCC financing
statements, fixture filings, and/or amendments to or continuations of any
financing statements or fixture filings to evidence, perfect and/or continue the
perfection of, any security interests created or to be created pursuant to this
Mortgage or any of the other Secured Debt Documents.

      6.19 Notices. Except as otherwise required by Sections 5.4 and 5.14
hereof, any notice, request or demand which may be required or permitted to be
given or served upon Mortgagor shall be sufficiently given when given or made
pursuant to (a) the terms of the Collateral Trust Agreement, or (b) such other
means and manner of giving of notice as may be required by Applicable Law.

      6.20 Reliance. Notwithstanding any reference herein to the Secured Debt
Documents, no party shall have any obligation to inquire into the terms or
conditions of any such documents and all parties shall be fully authorized to
rely upon any statement, certificate, or affidavit of Beneficiary or any future
holder of any portion of the Indebtedness as to the occurrence of any event such
as the occurrence of any event of default.

      6.21 Beneficiary as Agent for the Secured Debt Debtholders. As described
above, certain Affiliates of Beneficiary and the Secured Debt Representatives
are or may become parties to certain Hedging Agreements with Mortgagor and/or
Affiliates of Mortgagor. This Mortgage secures the obligations of Mortgagor and
such Affiliates, as the case may be, under such Hedging Agreements, and the
parties acknowledge for all purposes that Beneficiary acts for itself and as
agent on behalf of such Affiliates of Beneficiary and the Secured Debtholders
which are so entitled to share in the rights and benefits accruing to
Beneficiary under this Mortgage in respect of the Mortgaged Property.


                                      -38-


      6.22 Applicable Law. As to any tract or parcel of land comprising a
portion of the Mortgaged Property, this Mortgage shall be governed by and
construed according to the Applicable Laws of the State where such tract or
parcel of land is situated.

      6.23 Subrogation. If any or all of the proceeds of Secured Debt have been
used to extinguish, extend or renew any indebtedness heretofore existing against
the Mortgaged Property, then, to the extent of such funds so used, the
Indebtedness and this Mortgage shall be subrogated to all of the rights, claims,
liens, titles and interests heretofore existing against the Mortgaged Property
to secure the indebtedness so extinguished, extended or renewed and the former
rights, claims, liens, titles and interests, if any, are not waived but rather
are continued in full force and effect in favor of Beneficiary and are merged
with the lien and security interest created herein as cumulative security for
the repayment of the Indebtedness and the satisfaction of the Obligations.

      6.24 Fixture Filing. Portions of the Mortgaged Property are or are to
become fixtures relating to the above described real estate, and Mortgagor
herein expressly covenants and agrees that the filing of this Mortgage in the
Real Estate Records in the county where the Mortgaged Property is located shall
also operate from the time of filing therein as a financing statement filed as a
fixture filing in accordance with Section 9.502(c) of the Uniform Commercial
Code - Secured Transactions of the State of New Mexico.


                                      -39-


      IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed this
Amended and Restated Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing in the presence of the undersigned Notary
Public on this 14th day of July, 2003.

                              MORTGAGOR AND DEBTOR

                                              CALPINE CORPORATION, a Delaware
                                              corporation


                                              By:
                                                      --------------------------
                                              Title:  Executive Vice President
                                              Printed Name:   B.A. Berilgen

ATTEST:


- ----------------------------
Printed Name:

The name and mailing address of Mortgagor is:

Calpine Corporation
1000 Louisiana Street, Suite 800
Houston, TX 77002




STATE OF TEXAS          )
                        )  SS.
COUNTY OF HARRIS        )

      BE IT REMEMBERED that I, Suzanne B. Snow, a Notary Public duly qualified,
commissioned, sworn and acting in and for the County and State aforesaid, hereby
certify that, on this 14th day of July, 2003, there appeared before me severally
each of the following persons, each being either a Trustee or else the
designated officer of the corporation or association set opposite his name, and
each such Trustee, corporation and association being a party to the foregoing
instrument:

      B.A. Berilgen, the Executive Vice President, and Michael H. Hickey, the
Vice President-Managing Counsel, of Calpine Corporation, a Delaware corporation,
which has no corporate seal, whose address is 1000 Louisiana Street, Suite 800,
Houston, TX 77002;

ARKANSAS          Before me on this day appeared in person the aforementioned
                  persons, to me personally well known, who stated that they
                  held the offices in the corporation or association set forth
                  opposite their names above (or, in the case of the Trustees,
                  were validly appointed Trustees) and were duly authorized in
                  their respective capacities to execute the foregoing
                  instrument for and in the name and on behalf of said
                  corporation or association (or as Trustees, as the case may
                  be), and further stated and acknowledged that they had so
                  signed, executed and delivered said foregoing instrument for
                  the consideration, uses and purposes therein mentioned and set
                  forth.

COLORADO(1)       The foregoing instrument was acknowledged before me this day
                  by each such person on behalf of said corporation or
                  association, or himself, as a Trustee, as the case may be.

KANSAS            On this day before me personally appeared the aforementioned
                  persons, who acknowledged themselves to hold the offices in
                  the corporation set forth opposite their names above (or, in
                  the case of the Trustees, were validly appointed Trustees) and
                  as such officers or Trustees, hereby authorized to do so,
                  executed the foregoing instrument for the purposes therein
                  contained.

MISSISSIPPI       Personally appeared before me, the undersigned authority in
                  and for the said county and state, on this 14th day of July,
                  2003, within my jurisdiction the within named B.A. Berilgen
                  who acknowledged that he is the Executive Vice President of
                  CALPINE Corporation, a Delaware corporation, and that for and
                  on behalf of said corporation

- ----------
(1)   Add blocks for Kansas and Montana.




                  and as its act and deed he executed the above and foregoing
                  instrument after first having been duly authorized by said
                  corporation so to do.

MONTANA           On this day before me personally appeared each such person,
                  each of whom is known to me to be the officer of the
                  corporation that executed the within instrument (or a Trustee,
                  as the case may be), and acknowledged to me that such
                  corporation (or Trustee, as the case may be) executed the
                  same.

NEBRASKA          The foregoing instrument was acknowledged before me this day
  and             by each such person as the designated officers of the
NEW MEXICO        corporation or association set opposite their names (or as
                  Trustees, as the case may be) on behalf of said corporation or
                  association, or himself as a Trustee, as the case may be.

OKLAHOMA          Before me on this day personally appeared the aforementioned
                  persons, to me known to be the identical persons who
                  subscribed the names of the respective makers thereof to the
                  foregoing instrument in the capacities set forth opposite the
                  names of such persons above, and each such person acknowledged
                  to me that he executed the same as his free and voluntary act
                  and deed and as the free and voluntary act and deed of the
                  corporation or association set opposite his name (or of
                  himself as Trustee, as the case may be) for the uses and
                  purposes therein set forth.

TEXAS             This instrument was acknowledged before me on this day by each
                  such person as the designated officer of the corporation or
                  association set opposite his name (or a Trustee, as the case
                  may be), on behalf of said corporation or association set
                  opposite his name (or of himself as Trustee, as the case may
                  be).

WYOMING           The foregoing instrument was acknowledged before me by the
                  above individuals on this day.

                       Witness my hand and official seal.


                                       -----------------------------------------
                                       Notary Public
                                       Residing at Houston, Harris County, Texas

My commission expires:

12/21/2006



     EXHIBIT A To Amended and Restated Mortgage, Deed of Trust, Assignment,
        Security Agreement, Financing Statement and Fixture Filing, dated
                     July 16, 2003, from CALPINE CORPORATION
                       to Denis O'Meara and James Trimble
                            and THE BANK OF NEW YORK

                               List of Properties

1. Depth limitations, unit designations, unit tract descriptions and
descriptions (including percentages, decimals or fractions) of undivided
leasehold interests, well names, "Operating Interests," "Working Interests" and
"Net Revenue Interests" contained in this Exhibit A and the listing of any
percentage, decimal or fractional interest in this Exhibit A shall not be deemed
to limit or otherwise diminish the interests being subjected to the lien,
security interest and encumbrance of this Mortgage.

2. Some of the land descriptions in this Exhibit A may refer only to a portion
of the land covered by a particular lease. This Mortgage is not limited to the
land described in Exhibit A but is intended to cover the entire interest of
Mortgagor in any lease described in Exhibit A even if such interest relates to
land not described in Exhibit A. Reference is made to the land descriptions
contained in the documents of title recorded as described in this Exhibit A. To
the extent that the land descriptions in this Exhibit A are incomplete,
incorrect or not legally sufficient, the land descriptions contained in the
documents so recorded are incorporated herein by this reference.

3. References in Exhibit A to instruments on file in the public records are made
for all purposes. Unless provided otherwise, all recording references in Exhibit
A are to the official real property records of the county or counties (or parish
or parishes) in which the mortgaged property is located and in which records
such documents are or in the past have been customarily recorded, whether Deed
Records, Oil and Gas Records, Oil and Gas Lease Records or other records.

4. A statement herein that a certain interest described herein is subject to the
terms of certain described or referred to agreements, instruments or other
matters shall not operate to subject such interest to any such agreement,
instrument or other matter except to the extent that such agreement, instrument
or matter is otherwise valid and presently subsisting nor shall such statement
be deemed to constitute a recognition by the parties hereto that any such
agreement, instrument or other matter is valid and presently subsisting.

[Do not detach this page]


                                      A-1


                                   Schedule I

Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and
Fixture Filing (New Mexico) from Calpine Corporation, a Delaware corporation,
Trustor and Mortgagor to Kemp Leonard, Trustee, John Quick, Trustee and The Bank
of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows::



         JURISDICTION                FILE NO.                  FILE DATE
         ------------                --------                  ---------
                                                         
San Juan County, NM                  200208710                 5/17/2002
                                Book 1342, Page 580


UCC-1 Financing Statement regarding Multi-State Mortgage, naming Calpine
Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party,
filed as follows:



         JURISDICTION                FILE NO.                  FILE DATE
         ------------                --------                  ---------
                                                         
New Mexico Secretary of State      2002050903023               5/9/2002



                                  Schedule I-1



                                   Schedule II

First Supplemental Mortgage, Deed of Trust, Assignment, Security Agreement,
Financing Statement and Fixture Filing (New Mexico) from Calpine Corporation, a
Delaware corporation, Trustor and Mortgagor to Dennis O'Meara, Trustee, James
Trimble, Trustee and The Bank of Nova Scotia, for itself and as Agent,
Beneficiary, filed as follows:



     JURISDICTION                    FILE NO.                   FILE DATE
     ------------                    --------                   ---------
                                                          
San Juan County, NM            Book 1353, Page 489              11/27/02



                                  Schedule II-1



                                  Schedule III

                                       N/A


                                 Schedule III-1

EX-10.30

                                                                   Exhibit 10.30

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

                              AMENDED AND RESTATED
                         MORTGAGE, ASSIGNMENT, SECURITY
                        AGREEMENT AND FINANCING STATEMENT

                                      FROM

                              CALPINE CORPORATION,
                                  as Mortgagor
                         (Taxpayer I.D. No. 77-0212977),

                                       TO

                              THE BANK OF NEW YORK,
        not in its individual capacity but solely as Collateral Trustee,
                         (TAXPAYER I.D. NO. 13-5160382)
                                  as Mortgagee

                            Dated as of July 16, 2003

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

"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."

"THIS FINANCING STATEMENT COVERS AS-EXTRACTED COLLATERAL WHICH WILL BE FINANCED
AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN EXHIBIT A
HERETO."

"MORTGAGOR HAS AN INTEREST OF RECORD IN THE IMMOVABLE PROPERTY CONCERNED, WHICH
IS DESCRIBED IN EXHIBIT A HERETO."

"SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS
FINANCING STATEMENT IS TO BE FILED AS A FIXTURE FILING AS DEFINED IN LA. REV.
STAT. SECTION 10:9-102(a)(40)."

THIS INSTRUMENT WAS PREPARED BY:

Kevin L. Shaw, Esq.
Mayer, Brown, Rowe & Maw LLP
700 Louisiana Street, 36th Floor
Houston, Texas  77002



AMENDED AND RESTATED                           *
MORTGAGE, ASSIGNMENT,
SECURITY AGREEMENT                             *
AND FINANCING STATEMENT                               UNITED STATES OF AMERICA
                                               *
                          BY                          STATE OF TEXAS
                                               *
CALPINE CORPORATION,                                  COUNTY OF HARRIS
A DELAWARE CORPORATION                         *
IN FAVOR OF
THE BANK OF NEW YORK,                          *
A NEW YORK BANKING CORPORATION,                       STATE OF NEW YORK
NOT INDIVIDUALLY, BUT SOLELY AS                *
COLLATERAL TRUSTEE                                    COUNTY OF NEW YORK

*  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *

      BE IT KNOWN, that on this 14th day of July, 2003, before me, the
undersigned Notary Public duly commissioned and qualified in and for the State
and County first written above, and in the presence of the undersigned witnesses
personally came and appeared:

CALPINE CORPORATION, a Delaware corporation having a mailing address of 1000
Louisiana Street, Suite 800, Houston TX 77002, and a federal taxpayer
identification number of 77-0212977, appearing herein through B.A. Berilgen, its
Executive Vice President, duly authorized by resolutions of the Board of
Directors of said corporation, a certified copy of which is attached hereto as
Exhibit B (herein called "MORTGAGOR"), who declared that Mortgagor does by these
presents declare and acknowledge an indebtedness unto The Bank of New York (as
hereinafter defined).

      BE IT KNOWN, that on this 14th day of July, 2003, before me, the
undersigned Notary Public duly commissioned and qualified in and for the State
and County second written above, and in the presence of the undersigned
witnesses personally came and appeared:

      THE BANK OF NEW YORK, a New York banking corporation, not in its
individual capacity, but solely as Collateral Trustee under that certain
Collateral Trust Agreement (defined below) ("MORTGAGEE"), having a mailing
address of 101 Barclay Street, 8 Floor West, New York, New York 10286, and a
federal taxpayer identification number of 13-5160382, appearing herein through
its undersigned representative, duly authorized hereunto

Mortgagor and Mortgagee declares as follows:


                                      -1-


                                    RECITALS

Mortgagor has heretofore executed and delivered to The Bank of Nova Scotia, for
itself and as agent for the Lender Parties (together with its successors in such
capacity, the "CREDIT AGREEMENT AGENT"), that certain Mortgage, Assignment,
Security Agreement and Financing Statement, dated as of May 1, 2002, as
recorded, supplemented, amended, and partially released prior to the date hereof
as indicated on Schedules I, II and III hereto (as so supplemented and amended,
herein called the "EXISTING MORTGAGE"), to secure (i) payment of indebtedness
owed or to be owing to certain institutional lenders (the "EXISTING 2002
Lenders") pursuant to the terms of that certain Credit Agreement, dated as of
March 8, 2002 (herein, as the same may be amended, modified or supplemented from
time to time, called the "EXISTING 2002 CREDIT AGREEMENT") pursuant to which the
Existing 2002 Lenders made loans to Mortgagor and issued letters of credit for
the benefit of Mortgagor (the "EXISTING 2002 LETTERS OF CREDIT") in amounts not
to exceed at any one time outstanding $1,600,000,000, and Mortgagor, to evidence
its indebtedness to the Existing 2002 Lenders under the Existing 2002 Credit
Agreement, has executed and delivered to the Existing 2002 Lenders its secured
promissory notes to mature not later than May 24, 2003 (the "EXISTING 2002 LOAN
NOTES"), the Existing 2002 Loan Notes being payable to the order of the Existing
2002 Lenders, bearing interest as provided for therein, and containing
provisions for payment of attorneys' fees and acceleration of maturity in the
event of default, as therein set forth; and (ii) payment of indebtedness owed or
to be owing to certain institutional lenders (the "EXISTING 2000 LENDERS", and
together with the Existing 2002 Lenders, the "EXISTING LENDERS") pursuant to the
terms of that certain Second Amended and Restated Credit Agreement dated as of
May 23, 2000 (herein, as the same may be amended, modified, or supplemented from
time to time, called the "EXISTING 2000 CREDIT AGREEMENT" and together with the
Existing 2002 Credit Agreement, collectively, the "EXISTING CREDIT AGREEMENTS")
pursuant to which the Existing 2000 Lenders made loans to Mortgagor and issued
letters of credit for the benefit of Mortgagor (the "EXISTING 2000 LETTERS OF
CREDIT") in amounts not to exceed at any one time outstanding $400,000,000, and
Mortgagor, to evidence its indebtedness to the Existing 2000 Lenders under the
Existing 2000 Credit Agreement, has executed and delivered to the Existing 2000
Lenders its secured promissory notes to mature not later than May 24, 2003 (the
"EXISTING 2000 LOAN NOTES") (the Existing 2000 Loan Notes, together with the
Existing 2002 Loan Notes, collectively, the "EXISTING LOAN NOTES"), the Existing
2000 Loan Notes being payable to the order of the Existing 2000 Lenders, bearing
interest as provided for therein, and containing provisions for payment of
attorney's fees and acceleration of maturity in the event of default, as therein
set forth.

Mortgagor, the Existing Lenders and the Credit Agreement Agent are (i)
terminating the commitments under the Existing 2000 Credit Agreement, and (ii)
amending and restating the Existing 2002 Credit Agreement (as so amended and
restated, and as the same may, from time to time hereafter, be amended,
supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT
AGREEMENT."


                                      -2-


Mortgagor is also (a) issuing $500,000,000 in aggregate principal amount of
Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007 NOTES")
pursuant to the Indenture dated as of July 16, 2003 (the "2007 INDENTURE")
between Mortgagor and Wilmington Trust Company, as Trustee (together with its
successors in such capacity, the "2007 TRUSTEE"), (b) issuing $1,150,000,000 in
aggregate principal amount of 8.5% Second Priority Senior Secured Fixed Rate
Notes due 2010 (the "2010 NOTES") pursuant to the Indenture dated as of July 16,
2003 (the "2010 INDENTURE") between Mortgagor and Wilmington Trust Company, as
Trustee (together with its successors in such capacity, the "2010 TRUSTEE"), (c)
issuing $900,000,000 in aggregate principal amount of 8.75% Second Priority
Senior Secured Fixed Rate Notes due 2013 (the "2013 NOTES") pursuant to the
Indenture dated as of July 16, 2003 (the "2013 INDENTURE") between Mortgagor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2013 TRUSTEE"), and (d) borrowing $750,000,000 in Term Loans (the
"TERM LOANS") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the
"TERM LOAN AGREEMENT") between Mortgagor and Goldman Sachs Credit Partners L.P.,
as Administrative Agent (together with its successors in such capacity, the
"TERM LOAN ADMINISTRATIVE AGENT"). The proceeds from the issuance of the 2007
Notes, the 2010 Notes and the 2013 Notes and the borrowing of the Term Loans
will be used to refinance a portion of the loans and other indebtedness
outstanding under the Existing Credit Agreements.

As permitted pursuant to the Secured Debt Documents, Mortgagor may incur future
debt which could, together with the obligations under the Amended and Restated
Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future
debt which could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes
and the Term Loans, constitute Parity Lien Debt, provided that the aggregate
amount of the Secured Debt to be secured hereby shall not exceed $4,200,000,000.
Mortgagor intends to secure the Indebtedness, including its obligations (a)
under the Amended and Restated Credit Agreement and any future Priority Lien
Debt, equally and ratably, on a priority basis, and, (b) subject to such
priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans and any
future Parity Lien Debt, equally and ratably, with liens and security interests
in, among other collateral, the Mortgaged Property under the Existing Mortgage,
as contemplated in that certain Collateral Trust Agreement of even date
herewith, by Mortgagor, Mortgagee and the other parties thereto (the "COLLATERAL
TRUST AGREEMENT").

Pursuant to the Collateral Trust Agreement and that certain Assignment of Liens
of even date herewith, the Credit Agreement Agent has assigned to Mortgagee, all
of the Credit Agreement Agent's right, title and interest in and to, and its
interest as mortgagee under, the Existing Mortgage. This Mortgage amends and
restates the Existing Mortgage. The Collateral Trust Agreement sets forth the
terms on which the Collateral Trustee, as trustee for the present and future
holders of the Indebtedness, will receive, hold, maintain, administer, maintain,
enforce and distribute this Mortgage and all interests, rights, powers and
remedies of the Collateral Trustee thereunder and the proceeds thereof.


                                      -3-


Capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Collateral Trust Agreement.

For all purposes of this instrument, unless the context otherwise requires:

                  A. "Actionable Default" is defined in the Collateral Trust
      Agreement.

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

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

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

                  C. "Applicable Law" means with respect to any Person or
      matter, any federal, state, regional, tribal or local statute, law, code,
      rule, treaty, convention, application, order, decree, consent decree,
      injunction, directive, determination or other requirement (whether or not
      having the force of law) relating to such Person or matter and, where
      applicable, any interpretation thereof by a Governmental Authority having
      jurisdiction with respect thereto or charged with the administration or
      interpretation thereof.

                  D. "Default Interest Rate" means the lesser of (a) ten percent
      (10%), or (b) the Maximum Lawful Rate.

                  E. "Event of Default" means an Actionable Default as defined
      under the Collateral Trust Agreement.

                  F. "Environmental Laws" shall mean any and all present and
      future United States federal, state and local laws or regulations, codes,
      plans, orders, decrees, judgments, injunctions and lawfully imposed
      requirements issued, promulgated or entered thereunder relating to
      pollution or protection of the environment, including laws relating to
      reclamation of land and waterways and laws relating to emissions,
      discharges, releases or threatened releases of pollutants, contaminants,
      chemicals, or industrial, toxic or hazardous substances or wastes into the
      environment (including, without limitation, ambient air, surface water,
      ground water, land surface or subsurface strata) or otherwise relating to
      the manufacture, processing, distribution, use, treatment, storage,
      disposal, transport or handling of pollutants, contaminants, chemicals, or
      industrial, toxic or hazardous substances or wastes.


                                      -4-


                  G. "Governmental Authority" means any and all courts, boards,
      agencies, commissions, offices or authorities of any nature whatsoever for
      any governmental unit (federal, state, county, district, municipal, city,
      tribe or otherwise) whether now or hereafter in existence charged with the
      administration, interpretation or enforcement of any Applicable Law.

                  H. "Hedging Agreements" means: (a) interest rate swap
      agreements, basis swap agreements, interest rate cap agreements, forward
      rate agreements, interest rate floor agreements and interest rate collar
      agreements, and all other agreements or arrangements designed to protect
      such Person against fluctuations in interest rates or currency exchange
      rates, and (b) forward contracts, options, futures contracts, futures
      options, commodity swaps, commodity options, commodity collars, commodity
      caps, commodity floors and all other agreements or arrangements designed
      to protect such Person against fluctuations in the price of commodities.

                  I. "Hedging Obligations" means with respect to any Person, all
      liabilities (including without limitation obligations and liabilities
      arising in connection with or as a result of early or premature
      termination of a Hedging Agreement, whether or not occurring as a result
      of a default thereunder) of such Person under a Hedging Agreement.

                  J. "Hydrocarbons" means collectively, oil, gas, casinghead
      gas, drip gasoline, natural gasoline, condensate, distillate and all other
      liquid or gaseous hydrocarbons and related minerals and all products
      therefrom, in each case whether in a natural or a processed state.

                  K. "Indebtedness" shall have the respective meanings set forth
      in Section 1.2 of this instrument.

                  L. "Indemnification Claim" is defined in Section 3.6(a) of
      this instrument.

                  M. "Indemnified Person" means Mortgagee and each of the
      Secured Debtholders, their respective employees, affiliates, agents and
      attorneys, and any other Person to be indemnified under this instrument.

                  N. "Joint Operating Agreements" shall mean, with respect to
      the lands described in Exhibit A, the respective operating agreement
      burdening the lands described in Exhibit A.

                  O. "lands described in Exhibit A" shall include the real
      property or other interest in any lands which are either described in
      Exhibit A attached hereto or the description of which is incorporated in
      Exhibit A by reference to an instrument or document containing in, or
      referring to, such a description, and shall also include any lands now or
      hereafter unitized or pooled with lands which are either described in
      Exhibit A or the description of which is incorporated in Exhibit A by
      reference and Fixtures and all rights, titles and interests appurtenant


                                      -5-


      thereto. References to Exhibit A shall include, where applicable, Exhibit
      A-1 as well.

                  P. "Leases" means any and all leases (including without
      limitation oil and gas leases and oil, gas and other minerals leases),
      surface leases or easements, subleases, licenses, concessions, operating
      rights or other agreements (written or verbal, now or hereafter in effect)
      which grant a possessory interest in and to, or the right to explore, use,
      lease, license, possess, produce, process, store and transport
      Hydrocarbons from, operate from, or otherwise enjoy, the Mortgaged
      Property, together with all amendments, modifications, extensions and
      renewals thereof.

                  Q. "Legal Requirements" means (i) any and all present and
      future judicial decisions, statutes, rulings, rules, regulations,
      licenses, decisions, orders, injunctions, decrees, permits, certificates
      or ordinances of any Governmental Authority in any way applicable to
      Mortgagor, or the Mortgaged Property, including the ownership, use,
      occupancy, operation, maintenance, repair or reconstruction thereof, and
      any other Applicable Law enacted by any Governmental Authority relating to
      health or the environment, (ii) Mortgagor's presently or subsequently
      effective Organic Documents, (iii) any and all Leases, (iv) any and all
      leases and other contracts (written or oral) of any nature to which
      Mortgagor, or the Mortgaged Property may be bound and (v) any and all
      restrictions, restrictive covenants or zoning, present and future, as the
      same may apply to the Mortgaged Property.

                  R. "Maximum Lawful Rate" means the maximum nonusurious rate of
      interest that may be received, charged or contracted for under Applicable
      Law from time to time in effect.

                  S. "Mortgaged Property" means the properties, rights and
      interests hereinafter described and defined as the Mortgaged Property.

                  T. "Obligations" means any and all of the covenants,
      warranties, representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Mortgagor or others under any of the
      Secured Debt Documents.

                  U. "oil and gas leases" shall include oil, gas and mineral
      leases, subleases and assignments thereof, operating rights, and shall
      also include subleases and assignments of operating rights.

                  V. "Operating Equipment" means all surface or subsurface
      machinery, goods, equipment, fixtures, movable property attached to
      immovable property and other movable property, inventory, facilities,
      supplies or other property of whatsoever kind or nature (excluding
      drilling rigs, trucks, automotive equipment or other property taken to the
      premises to drill a well or for other similar temporary uses) now or
      hereafter located on or under any of the lands


                                      -6-


      described in Exhibit A which are useful for the production, gathering,
      treatment, processing, storage or transportation of Hydrocarbons (together
      with all accessions, additions and attachments to any thereof), including,
      but not by way of limitation, all oil wells, gas wells, water wells,
      injection wells, casing, tubing, tubular goods, rods, pumping units and
      engines, christmas trees, platforms, derricks, separators, compressors,
      gun barrels, flow lines, tanks, gas systems (for gathering, treating and
      compression), pipelines (including gathering lines, laterals and
      trunklines), chemicals, solutions, water systems (for treating, disposal
      and injection), steam generation and injection equipment and systems,
      power plants, poles, lines, transformers, starters and controllers,
      supervisory control and data acquisition systems, machine shops, tools,
      storage yards and equipment stored therein, buildings and camps,
      telegraph, telephone and other communication systems, roads, loading
      docks, loading racks and shipping facilities.

                  W. "Organic Documents" means the Articles of Incorporation,
      Certificate of Incorporation, limited liability company certificate of
      formation and regulations or operating agreement, partnership agreement,
      limited partnership agreement, joint venture agreement, trust agreement or
      other similar documents governing the organization and operation of a
      business association.

                  X. "Parity Lien Debt" is defined in the Collateral Trust
      Agreement.

                  Y. "Parity Lien Documents" is defined in the Collateral Trust
      Agreement.

                  Z. "Parity Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Parity Lien Documents.

                  AA. "Permits" means all authorizations, approvals, permits,
      variances, land use entitlements, consents, licenses, franchises and
      agreements issued by or entered into with any Governmental Authority now
      or hereafter required for all stages of exploration, developing,
      operating, and plugging and abandoning oil and gas wells (including,
      without limitation, those shown on Exhibit A) on all or any part of the
      lands described in Exhibit A (or any other lands any production from
      which, or profits or proceeds from such production, is attributed to any
      interest in the lands described in Exhibit A).

                  BB. "Permitted Encumbrances" means the outstanding liens,
      easements, restrictions, exceptions, reservations, conditions,
      limitations, security interests and other matters as permitted by and
      defined in the Secured Debt Documents.


                                      -7-


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

                  DD. "Personalty" means all of the right, title and interest of
      Mortgagor now owned or hereafter acquired in and to all furniture,
      furnishings, Equipment, machinery, Goods, General Intangibles, money,
      Accounts, receivables, Contract Rights, Inventory, all refundable,
      returnable or reimbursable fees, deposits or other funds or evidences of
      credit or indebtedness deposited by or on behalf of Mortgagor with any
      Governmental Authority, agencies, boards, corporations, providers of
      utility services, public or private, including specifically, but without
      limitation, all refundable, returnable or reimbursable tap fees, utility
      deposits, commitment fees and development costs, and all other personal
      property (other than the Fixtures) of any kind or character as defined in
      and subject to the provisions of Article 9 of the Uniform Commercial Code,
      now or hereafter located upon, within or about, or used in connection
      with, the lands described in Exhibit A together with all accessories,
      replacements and substitutions thereto or therefor and the Proceeds
      thereof.

                  EE. "Priority Lien Debt" is defined in the Collateral Trust
      Agreement.

                  FF. "Priority Lien Documents" is defined in the Collateral
      Trust Agreement.

                  GG. "Priority Lien Obligations" means any and all of the
      covenants, warranties, representations and other obligations (other than
      to repay the Indebtedness) made or undertaken by Mortgagor or others under
      any of the Priority Lien Documents.

                  HH. "Production Sale Contracts" means contracts now in effect,
      or hereafter entered into by Mortgagor, or entered into by Mortgagor's
      predecessors in interest, for the sale, purchase, exchange, gathering,
      transportation, treating or processing of Hydrocarbons produced from the
      lands described in Exhibit A.

                  II. "Rents and Revenues" means all of the rents, revenues,
      income, proceeds, profits and other benefits paid or payable by parties to
      the Leases other than Mortgagor for using, leasing, licensing, possessing,
      operating, selling or otherwise enjoying the Mortgaged Property, including
      the proceeds from the sale of Hydrocarbons.

                  JJ. "Secured Debt" is defined in the Collateral Trust
      Agreement.

                  KK. "Secured Debtholder" is defined in the Collateral Trust
      Agreement.


                                      -8-


                  LL. "Secured Debt Documents" is defined in the Collateral
      Trust Agreement.

                  MM. "Secured Debt Representative" is defined in the Collateral
      Trust Agreement.

                  NN. "Taxes" means all real property and personal property
      taxes, production taxes, assessments, permit fees, water, gas, sewer,
      electricity and other utility rates and charges, charges for any easement,
      license or agreement maintained for the benefit of the Mortgaged Property,
      and all other taxes, charges and assessments and any interest, costs or
      penalties with respect thereto, of any kind and nature whatsoever which at
      any time prior to or after the execution hereof may be charged, assessed,
      levied or imposed upon the Mortgaged Property or the Rents and Revenues or
      the ownership, use, occupancy or enjoyment thereof.

                  OO. "Transportation Agreements" shall mean any contracts or
      agreements entered into from time to time by Mortgagor, or entered into by
      Mortgagor's predecessors in interest, relating to the transportation of
      Hydrocarbons, as any such agreement or contract may be amended,
      supplemented, restated or otherwise modified from time to time.

                  PP. "Uniform Commercial Code" shall mean the Uniform
      Commercial Code as in effect from time to time in the State of Louisiana
      (Louisiana Commercial Laws - Louisiana Revised Statutes Title 10) or any
      other applicable state, and the terms "Accounts", "Account Debtor", "As
      Extracted Collateral", "Deposit Account", "Chattel Paper", "Documents",
      "General Intangibles", "Goods", "Equipment", "Fixtures", "Inventory",
      "Instruments", and "Proceeds" shall have the respective meanings assigned
      to such terms in the Uniform Commercial Code.

                  QQ. "Water Rights" means (including without limitation those
      described in Exhibit A hereto) all now or hereafter existing or acquired
      water and water rights, reservoirs and reservoir rights, ditches and ditch
      rights, wells and well rights, whether evidenced or initiated by permit,
      decree, well registration, appropriation not decreed, water court
      application, shares of stock or other interests in mutual ditch or
      reservoir companies or carder ditch or reservoir companies or otherwise,
      appertaining or appurtenant to or beneficially used or useful in
      connection with the lands described in Exhibit A, together with all pumps,
      well casings, wellheads, electrical installations, pumphouses, meters,
      monitoring wells and systems, measuring devices, pipes, pipelines, and
      other structures or personal property which are or may be used to produce,
      regulate, measure, distribute, store, or use water from the said water and
      water rights, reservoirs and reservoir rights, ditches and ditch rights,
      wells and well rights.


                                      -9-


                                      GRANT

      Grant of Priority Lien

      NOW, THEREFORE, Mortgagor, for and in consideration of the premises and as
security for the Priority Lien Indebtedness as described below by these presents
does specially mortgage, collaterally assign, pledge, affect and hypothecate,
unto and in favor of Mortgagee, all Mortgagor's right, title and interest,
whether now owned or hereafter acquired, in and to all of the hereinafter
described properties, rights and interests; and, insofar as such properties,
rights and interests consist of Equipment, General Intangibles, Accounts,
Deposit Accounts, As-Extracted Collateral, Contract Rights, Inventory, Fixtures,
Proceeds of collateral or any other personal property of a kind or character
defined in or subject to the applicable provisions of the Uniform Commercial
Code (as in effect from time to time in the appropriate jurisdiction with
respect to each of said properties, rights and interests), Mortgagor hereby
grants to Mortgagee, a continuing security interest therein; namely:

            (a) the lands described in Exhibit A, and Leases, the fee, mineral,
overriding royalty, royalty and other interests which are described in Exhibit
A,

            (b) the presently existing and (subject to the terms of Section 5.1
hereof) hereafter arising unitization, unit operating, communitization and
pooling agreements and the properties covered and the units created thereby
(including, without limitation, all units formed under orders, regulations,
rules, approvals, decisions or other official acts of any Governmental
Authority) having jurisdiction which are specifically described in Exhibit A or
which relate to any of the properties and interests specifically described in
Exhibit A,

            (c) the Hydrocarbons which are in, under, upon, produced or to be
produced from or which are attributed or allocated to the lands described in
Exhibit A,

            (d) the Production Sale Contracts,

            (e) the Joint Operating Agreements,

            (f) the Transportation Agreements,

            (g) the Operating Equipment,

            (h) the Permits,

            (i) the Water Rights,

            (j) the Hedging Agreements,

            (k) the Leases,

            (l) the Personalty,


                                      -10-


            (m) the Rents and Revenues,

            (n) without duplication of any other provision of this granting
clause, all of Mortgagor's now owned or hereafter arising or acquired Equipment,
Fixtures and other Goods necessary or used in connection with, and Inventory,
Accounts, As Extracted Collateral, Deposit Accounts, General Intangibles,
Contract Rights, Chattel Paper, Electronic Chattel Paper, Documents, Instruments
and Proceeds arising from, or relating to, the properties and other interests
described in Exhibit A (including Exhibit A-1),

together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, or replacements or substitutions for, any of the same, or
any instrument relating thereto, and all accounts, contracts, contract rights,
"take-or-pay" settlements, buy-outs or buy-downs, gas balancing claims, options,
nominee agreements, unitization or pooling agreements, operating agreements and
unit operating agreements, processing agreements, salt water disposal
agreements, farmin agreements, farmout agreements, joint venture agreements,
partnership agreements (including mining partnerships), exploration agreements,
bottom hole agreements, dry hole agreements, support agreements, acreage
contribution agreements, surface use and surface damage agreements, net profits
agreements, production payment agreements, Hedging Agreements, insurance
policies, title opinions, title abstracts, title materials and information,
files, records, writings, data bases, information, systems, logs, well cores,
fluid samples, production data and reports, well testing data and reports, maps,
seismic and geophysical, geological and chemical data and information,
interpretative and analytical reports of any kind or nature (including, without
limitation, reserve studies and reserve evaluations), computer hardware and
software and all documentation therefor or relating thereto (including, without
limitation, all licenses relating to or covering such computer hardware,
software and/or documentation), trade secrets, trademarks, service marks and
business names and the goodwill of the business relating thereto, copyrights,
copyright registrations, unpatented inventions, patent applications and patents,
accounting records, rights-of-way, franchises, bonds, easements, servitudes,
surface leases, permits, licenses, tenements, hereditaments, appurtenances,
concessions, occupancy leases, privileges, development rights, condemnation
awards, claims against third parties, general intangibles, rents, royalties,
issues, profits, products and proceeds, whether now or hereafter existing or
arising, used or useful in connection with, covering, relating to, or arising
from or in connection with, any of the aforesaid items (a) through (o),
inclusive, in this granting clause mentioned, and all other things of value and
incident thereto (including, without limitation, any and all liens, lien rights,
security interests and other properties, rights and interests) which Mortgagor
might at any time have or be entitled to, but excluding any data or contracts
with respect to which mortgaging or granting of a lien or a security interest is
prohibited by existing third party agreements,

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien and security interest of this
instrument by means of supplements hereto, being hereinafter, collectively,
called the "MORTGAGED PROPERTY."


                                      -11-


      Grant of Parity Lien

      NOW, THEREFORE, Mortgagor, for and in consideration of the premises and as
security for the Parity Lien Indebtedness as described below by these presents
does specially mortgage, collaterally assign, pledge, affect and hypothecate,
unto and in favor of Mortgagee, all Mortgagor's right, title and interest,
whether now owned or hereafter acquired, in and to all of the Mortgaged
Property; and, insofar as such properties, rights and interests consist of
Equipment, General Intangibles, Accounts, Deposit Accounts, As-Extracted
Collateral, Contract Rights, Inventory, Fixtures, Proceeds of collateral or any
other personal property of a kind or character defined in or subject to the
applicable provisions of the Uniform Commercial Code (as in effect from time to
time in the appropriate jurisdiction with respect to each of said properties,
rights and interests), Mortgagor hereby grants to Mortgagee, a continuing
security interest therein.

      Subject, however, in each case to (i) Permitted Encumbrances (including
without limitation all presently existing royalties, overriding royalties,
payments out of production and other burdens which are referred to in Exhibit A
and which are taken into consideration in computing any percentage, decimal or
fractional interest as set forth in Exhibit A), (ii) the assignment of
production contained in Article III hereof, but only insofar and so long as said
assignment of production is not inoperative under the provisions of Section 3.5
hereof, and (iii) the condition that neither Mortgagee nor any Secured
Debtholder shall be liable in any respect for the performance of any covenant or
obligation (including, without limitation, measures required to comply with
Environmental Laws) of Mortgagor in respect of the Mortgaged Property.

      The Mortgaged Property is to remain so specially mortgaged, affected and
hypothecated unto and in favor of Mortgagee to secure the payment of the
Indebtedness (including the performance of the obligations of Mortgagor herein
contained) until the full and final payment or discharge of the Indebtedness,
and Mortgagor is herein and hereby bound and obligated not to sell or alienate
the Mortgaged Property to the prejudice of this act.

      As set forth in the separate granting clauses above, it is the intent of
Mortgagor that such grants shall create two separate and distinct mortgage liens
and security interests in all right, title and interest of Mortgagor in the
Mortgaged Property in favor of (a) the Mortgagee, for the benefit of the holders
of the Priority Lien Debt, and (b) the Mortgagee, for the benefit of the holders
of the Parity Lien Debt.

      Notwithstanding (i) anything to the contrary contained in this Mortgage or
any other document, filing or agreement related to the creation, attachment,
perfection or existence of the liens and security interests granted herein, (ii)
the time, place, order or method of attachment or perfection of such liens or
security interests, (iii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect such security
interests, and (iv) the rules for determining priority under any law governing
the relative priorities of secured creditors, the lien securing the Parity Lien


                                      -12-


Indebtedness is subordinated and junior in priority to the lien securing the
Priority Lien Indebtedness.

      Mortgagor, in consideration of the Secured Debt as set forth above, hereby
covenants and agrees with Mortgagee:

                                   ARTICLE I

                              INDEBTEDNESS SECURED

            1.1 Items of Indebtedness Secured. The following items of
indebtedness are secured hereby:

                  (a) The Priority Lien Debt (including future advances to be
      made with respect thereto), and all other Obligations of Mortgagor under
      the Priority Lien Documents;

                  (b) The Parity Lien Debt (including future advances to be made
      with respect thereto), and all other Obligations of Mortgagor under the
      Parity Lien Documents;

                  (c) All Obligations under any other Priority Lien Debt or
      Parity Lien Debt;

                  (d) Any sums advanced or expenses or costs incurred by
      Mortgagee or any Secured Debtholder, or by any receiver appointed
      hereunder, which are made or incurred pursuant to, or permitted by, the
      terms hereof, plus interest thereon at the rate herein specified or
      otherwise agreed upon, from the date of the advances or the incurring of
      such expenses or costs until reimbursed;

                  (e) Any and all other indebtedness of Mortgagor or any
      Affiliate of Mortgagor to Mortgagee now or hereafter owing, whether direct
      or indirect, primary or secondary, fixed or contingent, joint or several,
      regardless of how evidenced or arising, where the indebtedness provides
      that it is secured hereby; and

                  (f) Any extensions, refinancings, modifications or renewals of
      all such indebtedness described in subparagraphs (a) through (e) above,
      whether or not Mortgagor executes any extension agreement or renewal
      instruments. The indebtedness secured hereby further continues with
      respect to any new obligation arising from any novation (subjective or
      objective) of the foregoing indebtedness as permitted by Louisiana Civil
      Code Article 1884. Pursuant to Louisiana Revised Statutes 9:5390, this
      instrument shall automatically secure payment of any renewal or
      refinancing note or notes delivered in substitution for or exchange of the
      note or notes then secured by this instrument evidencing any part of the
      Indebtedness.


                                      -13-


            1.2 Indebtedness Defined. All the above items of indebtedness
described in subparagraphs (a) of Section 1.1 and subparagraphs (c) through (f)
of Section 1.1 hereof in respect of the Priority Lien Debt, are hereinafter
collectively referred to as the "Priority Lien Indebtedness." And all the above
items of indebtedness described in subparagraphs (b) of Section 1.1 and
subparagraphs (c) through (f) of Section 1.1 hereof in respect of the Parity
Lien Debt, are hereinafter collectively referred to as the "Parity Lien
Indebtedness"; the Priority Lien Indebtedness and the Parity Lien Indebtedness
are collectively referred to as the "Indebtedness".

            1.3 Maximum Amount. The maximum amount of the Indebtedness that may
be outstanding at any time and from time to time that this instrument secures,
including without limitation as a mortgage and as a collateral assignment, and
including without limitation any expenses, advances or costs incurred by the
Mortgagee and all other amounts included within the Indebtedness, is Six Billion
($6,000,000,000.00) dollars.

            1.4 Valid and Subsisting First Lien. Mortgagor hereby acknowledges
and agrees that, except as otherwise provided by the Secured Debt Documents, the
Existing Mortgage constitutes a valid and subsisting first lien on the portion
of the Mortgaged Property encumbered thereby, and that none of the rights and
liens existing thereunder shall be impaired or released hereby, and that the
same as amended and restated hereby shall remain in full force and effect, and
all rights and liens existing and to exist thereunder are renewed, extended,
carried forward, and conveyed to secure all of the Indebtedness hereinabove
mentioned.

            1.5 Amended and Restated Mortgage. The Existing Mortgage is amended
and restated in full hereby in order to, among other things, secure all of the
Indebtedness herein described or referred to as if reference to such
Indebtedness were fully described in the Existing Mortgage. None of the rights,
titles, and interests, existing or to exist under the Existing Mortgage are
hereby released, diminished or impaired.

            1.6 No Impairment or Discharge of Liens. It is the express intention
of all parties hereto that the Secured Debtholders are subrogated to all of the
rights, powers, and equities of the original lenders and beneficiary under the
Existing Mortgage, that the liens created hereby shall relate back to and be
effective as of the effective date of the Existing Mortgage and that nothing
contained herein shall be construed to impair or discharge the liens and
security interests created thereby.

            1.7 No Paraph. Mortgagor and Mortgagee acknowledge that no note or
other evidence of Indebtedness has been paraphed for identification with this
instrument.

                                   ARTICLE II

                    PARTICULAR COVENANTS, REPRESENTATIONS AND
                             WARRANTIES OF MORTGAGOR


                                      -14-


            2.1 Payment of the Indebtedness and Performance of Obligations.
Mortgagor will duly and punctually pay the Indebtedness, as and when called for
in the Secured Debt Documents and on or before the due dates thereof, and will
timely perform and discharge all of the Obligations in full and on or before the
dates same are to be performed and discharged.

            2.2 Certain Representations and Warranties. Mortgagor represents and
warrants (and with respect to those matters set forth in the following
subsections (b) and (f), as to those portions of the Mortgaged Property that are
operated by persons other than Mortgagor or a Subsidiary of Mortgagor, Mortgagor
makes such representation and warranty to the best of its knowledge) that

                  (a) the oil and gas leases described in Exhibit A hereto are
      valid, subsisting leases, superior and paramount to all other oil and gas
      leases respecting the properties to which they pertain,

                  (b) all producing wells located on the lands described in
      Exhibit A (including Exhibit A-1) have been drilled, operated and produced
      in conformity with all Applicable Laws of all Governmental Authorities
      having jurisdiction, and are subject to no penalties on account of past
      production, and such wells are in fact bottomed under and are producing
      from, and the well bores are wholly within, the lands described in Exhibit
      A or lands pooled or unitized therewith,

                  (c) Mortgagor, to the extent of the interest specified in
      Exhibit A (including Exhibit A-1), has valid and indefeasible title to
      each property right or interest constituting the Mortgaged Property
      described in Exhibit A (including Exhibit A-1) and has a good and legal
      right to grant and convey the same to Mortgagee; such interest entitles
      Mortgagor to receive not less than the share of Hydrocarbons from such
      property indicated as its net revenue interest or "NRI" share of such
      Hydrocarbons, and obligates Mortgagor to pay for not more than the share
      of operating and other costs, liabilities and expenses associated with
      such property indicated as its working interest or "Wl" share of such
      costs, liabilities and expenses,

                  (d) excepting the Permitted Encumbrances, the Mortgaged
      Property is free from all encumbrances or liens whatsoever,

                  (e) Mortgagor is not obligated, by virtue of any prepayment
      under any contract providing for the sale by Mortgagor of Hydrocarbons
      which contains a "take or pay" clause or under any similar arrangement, to
      deliver Hydrocarbons at some future time without then or thereafter
      receiving full payment therefor,

                  (f) the Mortgaged Property is currently being operated,
      maintained and developed, in all material respects, in accordance with all
      applicable currently existing Permits, Legal Requirements and all
      Applicable Laws (including, without limitation, Environmental Laws),


                                      -15-


                  (g) the cover page to this instrument lists the correct legal
      name of Mortgagor and Mortgagor has not been known by any legal name
      different from the one set forth on the cover page of this instrument,

                  (h) the execution, delivery, and performance by Mortgagor of
      this instrument (i) are within Mortgagor's corporate powers and have been
      duly authorized by Mortgagor's Board of Directors, shareholders and all
      other requisite corporate action, (ii) have received all (if any)
      requisite prior governmental approval and consent in order to be legally
      binding and enforceable in accordance with the terms thereof, and (iii)
      will not violate, be in conflict with, result in a breach or constitute
      (with due notice or lapse of time, or both) a default under, any Legal
      Requirement or result in the creation or imposition of any lien, charge or
      encumbrance of any nature whatsoever upon any of Mortgagor's property or
      assets, except as contemplated by the provisions of the Secured Debt
      Documents, and

                  (i) except as permitted by the Secured Debt Documents, there
      are no actions, suits or proceedings pending, or to the knowledge of
      Mortgagor threatened, against or affecting Mortgagor or the Mortgaged
      Property that could materially adversely affect Mortgagor or the Mortgaged
      Property, or involving the validity or enforceability of this instrument
      or the priority of the liens and security interests created by the Secured
      Debt Documents, and no event has occurred (including specifically
      Mortgagor's execution of this instrument which will violate, be in
      conflict with, result in the breach of, or constitute (with due notice or
      lapse of time, or both) a material default under, any Legal Requirement or
      result in the creation or imposition of any lien, charge or encumbrance of
      any nature whatsoever upon any of Mortgagor's property other than the
      liens and security interests created by the Secured Debt Documents.

            2.3 Further Assurances. Mortgagor will warrant and forever defend
the Mortgaged Property unto Mortgagee; as the case may be, against every person
whomsoever lawfully claiming the same or any part thereof, subject to Permitted
Encumbrances, and Mortgagor will maintain and preserve the lien and security
interest hereby created so long as any of the Indebtedness remains unpaid.
Mortgagor will execute and deliver such other and further instruments and will
do such other and further acts as may be required pursuant to the Collateral
Trust Agreement and/or any Secured Debt Documents to carry out more effectually
the purposes of this instrument, including, without limiting the generality of
the foregoing, (i) prompt correction of any defect which may hereafter be
discovered in the title to the Mortgaged Property or in the execution and
acknowledgment of this instrument, the Secured Debt Documents, or, immediately
upon the occurrence of an Event of Default, any other document executed in
connection herewith, and (ii) at any time a Secured Debt Representative may
request and upon such request, promptly execute all notices to parties
operating, purchasing or receiving proceeds of production of Hydrocarbons from
the Mortgaged Property, and all division orders or transfer orders needed in
order to transfer effectually or to assist in transferring effectually to the
Mortgagee the assigned proceeds of production from the


                                      -16-


Mortgaged Property, which notices, division orders and transfer orders shall be
held by such Secured Debt Representative and delivered upon an Event of Default.

            2.4 Operation of the Mortgaged Property. So long as the Indebtedness
or any part thereof remains unpaid, and whether or not Mortgagor is the operator
of any particular part of the Mortgaged Property, Mortgagor shall, at
Mortgagor's own expense:

                  (a) Do all things necessary to keep unimpaired Mortgagor's
      rights in the Mortgaged Property and not abandon any well or forfeit,
      surrender or release any Lease, except that Mortgagor may, in the ordinary
      course of business, (i) plug and abandon any well no longer capable of
      producing Hydrocarbons in paying quantities, (ii) surrender or release any
      Lease or a portion thereof so long as no well capable of producing
      Hydrocarbons in paying quantities is located on such Lease or a portion
      thereof or production from any such well is attributed to such Lease or a
      portion thereof, (iii) surrender or release any Lease or a portion thereof
      on which no producing well has ever been drilled or which has never been
      held by production from another well unless Proven Reserves (as defined in
      any Secured Debt Document) are attributed to such Lease or a portion
      thereof and (iv) abandon, forfeit, surrender or release any other portion
      of the Mortgaged Property to the extent permitted under all of the then
      existing Secured Debt Documents;

                  (b) Obtain and maintain all required Permits and cause the
      lands described in Exhibit A to be maintained, developed, protected
      against drainage, and operated for the production of Hydrocarbons in a
      good and workmanlike manner as would a prudent operator, and consistent
      with industry practices, Joint Operating Agreements, and all Applicable
      Laws, excepting those being contested in good faith; and plug and abandon
      wells no longer capable of producing Hydrocarbons in paying quantities in
      accordance with all Applicable Laws, Legal Requirements and the terms and
      conditions of applicable Leases; and remediate the lands described in
      Exhibit A and facilities located thereon in accordance with all Applicable
      Laws, Legal Requirements and the terms and conditions of applicable
      Leases;

                  (c) Duly pay and discharge, or cause to be paid and
      discharged, promptly as and when due and payable, all rentals and
      royalties (including shut-in royalties) payable in respect of the
      Mortgaged Property (other than rentals under Leases that are surrendered
      pursuant to the foregoing Section 2.4(a)), and all expenses incurred in or
      arising from the operation or development of the Mortgaged Property not
      later than the due date thereof, or the day any fine, penalty, interest or
      cost may be added thereto or imposed, or the day any lien may be filed,
      for the non-payment thereof (if such day is used to determine the due date
      of the respective item) except as to such matters which are being
      contested by Mortgagor in good faith;

                  (d) Cause the Operating Equipment to be kept in good and
      effective operating condition, ordinary wear and tear excepted, and all
      repairs,


                                      -17-


      renewals, replacements, additions and improvements thereof or thereto,
      needful to the production of Hydrocarbons from the lands described in
      Exhibit A, to be promptly made;

                  (e) Not, except as permitted under the Secured Debt Documents,
      create, place or permit to be created or placed, or through any act or
      failure to act, acquiesce in the placing of, or allow to remain, any
      mortgage, pledge, lien (statutory, constitutional or contractual),
      security interest, encumbrance or charge, or conditional sale or other
      title retention agreement, regardless of whether same are expressly
      subordinate to the liens of the Secured Debt Documents, with, respect to
      all or any portion of the Mortgaged Property, the Leases or the Rents and
      Revenues other than (1) the Permitted Encumbrances, (2) Taxes constituting
      a lien but not due and payable, (3) defects or irregularities in title,
      and liens, charges or encumbrances, which are customarily viewed in the
      industry as not interfering materially with the development, operation or
      value of the Mortgaged Property and not such as to affect materially title
      thereto, and (4) those being contested by Mortgagor in good faith in such
      manner as not to jeopardize Mortgagee's rights in and to the Mortgaged
      Property;

                  (f) Carry with financially sound and reputable insurance
      companies and in amounts as is customary in the industry or as otherwise
      required pursuant to the Secured Debt Documents, the following insurance:
      (1) workmen's compensation insurance and public liability and property
      damage insurance in respect of all activities in which Mortgagor might
      incur personal liability for the death of or injury to an employee or
      third person, or damage to or destruction of another's property; and (2)
      to the extent such insurance is carried by similar companies engaged in
      similar undertakings in, the same general areas in which the Mortgaged
      Property, is located, insurance in respect of the Operating Equipment,
      against loss or damage by fire, lightning, hail, tornado, explosion and
      other similar risks, hazards, casualties and contingencies (including
      business interruption insurance covering loss of Rents and Revenues);
      provided, that any such insurance may be provided by way of self insurance
      to the extent that similar companies engaged in similar undertakings in
      the same general areas also self-insure. Each insurance policy issued in
      connection therewith shall provide by way of endorsements, riders or
      otherwise that (i) name Mortgagee as a loss payee on all property
      insurance policies and an additional insured on all liability insurance
      policies, and provide that proceeds from property insurance policies will
      be payable to Mortgagee as its interest may appear, which proceeds are
      hereby assigned to Mortgagee, it being agreed by Mortgagor that such
      payments shall be applied A) if there be no Event of Default existing or
      which would exist but for due notice or lapse of time, or both, to the
      restoration, repair or replacement of the Mortgaged Property, or B) if
      there be an Event of Default existing, or which would exist but for due
      notice or lapse of time, or both, in accordance with the provisions of the
      Collateral Trust Agreement, either for the above stated purpose or toward
      the payment of the Indebtedness; (ii) the coverage of Mortgagee shall not
      be terminated, reduced or affected in any


                                      -18-


      manner regardless of any breach or violation by Mortgagor of any
      warranties, declarations or conditions in such policy; (iii) no such
      insurance policy shall be canceled, endorsed, altered or reissued to
      effect a change in coverage for any reason and to any extent whatsoever
      unless such insurer shall have first given Mortgagee and each Secured Debt
      Representative thirty (30) days prior written notice thereof; and (iv)
      Mortgagee may, but shall not be obligated to, make premium payments to
      prevent any cancellation, endorsement, alteration or re-issuance and such
      payments shall be accepted by the insurer to prevent the same. Mortgagee
      and each Secured Debt Representative shall be furnished with a certificate
      evidencing such coverage in form and content comparable to coverage
      typically provided in the industry. All policies to be maintained under
      this instrument are to be issued on forms and by companies and with
      endorsements as are customary in the industry. Mortgagor shall maintain
      insurance in an amount sufficient to prevent Mortgagor from becoming a
      co-insurer under any policy required hereunder. If Mortgagor fails to
      maintain the level of insurance required under this instrument, then
      Mortgagor shall and hereby agrees to indemnify Mortgagee to the extent
      that a casualty occurs and insurance proceeds would have been available
      had such insurance been maintained;

                  (g) Furnish to Mortgagee and each Secured Debt Representative,
      as soon as possible and in any event within five (5) days after the
      occurrence from time to time of any change in the address of Mortgagor's
      location (as described on the signature page hereto) or in the name of
      Mortgagor, notice in writing of such change;

                  (h) Not initiate or acquiesce in any change in any material
      zoning or other land use or Water Rights classification now or hereafter
      in effect and affecting the Mortgaged Property or any part thereof;

                  (i) Notify Mortgagee and each Secured Debt Representative in
      writing, as soon as possible and in any event within five (5) days after
      it shall become aware of the occurrence of any Event of Default or any
      event which, with notice, the passage of time or both would be such an
      Event of Default;

                  (j) Appear and defend, and hold Mortgagee and any Secured
      Debtholder harmless from, any action, proceeding or claim affecting the
      Mortgaged Property or the rights and powers of Mortgagee or Secured
      Debtholders under the Secured Debt Documents, and all costs and expenses
      incurred by Mortgagee or any Secured Debtholder in protecting its
      interests hereunder in such an event (including all court costs and
      attorneys' fees) shall be borne by Mortgagor;

                  (k) Subject to Mortgagor's right to contest the same, promptly
      pay all Taxes legally imposed upon this instrument or upon the Mortgaged
      Property or upon the income and profits thereof, or upon the interest of


                                      -19-


      Mortgagee therein; provided that Mortgagor shall not be liable for taxes
      accruing after a transfer of the Mortgaged Property following a
      foreclosure;

                  (l) Comply with, conform to and obey, in all material
      respects, all present and future Legal Requirements and not use, maintain,
      operate, occupy, or allow the use, maintenance, operation or occupancy of,
      the Mortgaged Property in any manner which (a) violates any present and
      future Legal Requirement, (b) may be dangerous unless safeguarded as
      required by Applicable Law, (c) constitutes a public or private nuisance
      or (d) makes void, voidable or cancelable, or increases the premium of,
      any insurance then in force with respect thereto; and

                  (m) Not, except as authorized under the Secured Debt
      Documents, permit any of the Fixtures or Personalty to be removed at any
      time from the lands described in Exhibit A unless (i) the removed item is
      removed temporarily for maintenance and repair, (ii) if removed
      permanently, is replaced by an article of equal suitability and value,
      owned by Mortgagor, free and clear of any lien or security interest or
      (iii) such Fixtures or Personalty are removed in connection with the
      plugging and abandoning of wells, or abandonment of other facilities, in
      each case as permitted by this instrument.

            2.5 Performance of Leases. Mortgagor will: (a) duly and punctually
perform and comply with any and all representations, warranties, covenants and
agreements expressed as binding upon it under each of the Leases; (b) subject to
the exceptions provided for in Section 2.4(a), not voluntarily terminate, cancel
or waive its rights or the obligations of any other party under any of the
Leases; (c) subject to the exceptions provided for in Section 2.4(a), use all
reasonable efforts to maintain each of the Leases in force and effect during the
full term thereof, and (d) appear in and defend (or cause its operator to appear
in and defend) any action or proceeding arising under or in any manner connected
with any of the Leases or the representations, warranties, covenants and
agreements of it or the other party or parties thereto.

            2.6 Recording, etc. Mortgagor will promptly, and at Mortgagor's
expense, record, register, deposit and file this and every other instrument in
addition or supplemental hereto in such offices and places and at such times and
as often as may be necessary to preserve, protect and renew the lien and
security interest hereof as a first lien on and prior perfected security
interest in real or personal property, as the case may be, and the rights and
remedies of Mortgagee and Secured Debtholders, and otherwise will do and observe
all things or matters necessary or expedient to be done or observed by reason of
any Applicable Law, for the purpose of effectively creating, maintaining and
preserving the lien and security interest hereof on and in the Mortgaged
Property.

            2.7 Sale or instrument of the Mortgaged Property. Except (a) as set
forth in Section 5.1 of this instrument; (b) for sales of severed Hydrocarbons
in the ordinary course of Mortgagor's business; (c) sales of or dispositions of
surplus, obsolete or worn inventory or equipment; and (d) the lien and security
interest created by this


                                      -20-


instrument; (e) for Permitted Encumbrances; and (f) for sales, exchanges or
other dispositions of Mortgaged Property permitted under the Secured Debt
Documents governing Priority Lien Debt and permitted under the Secured Debt
Documents governing Parity Lien Debt, Mortgagor will not sell, convey, mortgage,
pledge, hypothecate, pool, unitize or otherwise dispose of or encumber the
Mortgaged Property nor any portion thereof, nor any of Mortgagor's right, title
or interest therein, and Mortgagor will not enter into any arrangement with any
gas pipeline company or other consumer of Hydrocarbons regarding the Mortgaged
Property whereby said gas pipeline company or consumer may set off any claim
against Mortgagor by withholding payment for any Hydrocarbons actually
delivered.

            2.8 Records, Statements and Reports. Mortgagor will keep proper
books of record and account in which complete and correct entries will be made
of Mortgagor's transactions in accordance with generally accepted accounting
principles and will furnish or cause to be furnished to each Secured Debt
Representative such information concerning the business, affairs and financial
condition of Mortgagor as required under the Secured Debt Documents. Without
limiting the generality of the foregoing, Mortgagor shall furnish to Mortgagee
and each Secured Debt Representative, but not more than every six (6) months:
(a) reports prepared by a reputable national independent petroleum engineer
regularly engaged by Mortgagor for such purposes or other engineering firm
acceptable to the Credit Agreement Agent concerning (1) the quantity of
Hydrocarbons recoverable from the Mortgaged Property, (2) the projected income
and expense attributable to the Mortgaged Property, and (3) the expediency of
any change in methods of treatment or operation of all or any wells productive
of Hydrocarbons, any new drilling or development, any method of secondary
recovery by repressuring or otherwise, or any other action with respect to the
Mortgaged Property, the decision as to which may increase or reduce the quantity
of Hydrocarbons ultimately recoverable or the rate of production thereof, and
(b) reports for the prior period showing the gross proceeds from the sale of
Hydrocarbons produced from the lands described in Exhibit A (including any
thereof taken by Mortgagor for Mortgagor's own use), the quantity of such
Hydrocarbons sold, the severance, gross production, occupation, or gathering
taxes deducted from or paid out of such proceeds and the number of wells
operated, drilled or abandoned.

            2.9 Right of Entry.

                  (a) Upon at least twenty-four (24) hours notice to Mortgagor,
      Mortgagor will permit Mortgagee, each Secured Debt Representative and/or
      the agents of either of them, at the cost and expense of Mortgagor, to
      enter upon the Mortgaged Property and all parts thereof, for the purpose
      of investigating and inspecting the condition and operation thereof, and
      shall permit reasonable access to the field offices and other offices (to
      the fullest extent that Mortgagor may do so under the terms of the
      applicable Joint Operating Agreements and other applicable agreements
      affecting the Mortgaged Property), including the principal place of
      business, of Mortgagor to inspect and examine the Mortgaged Property and
      to inspect, review and reproduce as necessary any books, records,
      accounts, contracts or other documents of Mortgagor, it being understood
      that


                                      -21-


      any non-public information obtained in connection therewith shall be
      subject to the relevant confidentiality provisions of the Secured Debt
      Documents then in effect.

                  (b) Without limiting the generality of the foregoing,
      Mortgagee shall have the right (but shall not be obligated to), and each
      Secured Debt Representative and its agents shall have the right (to the
      fullest extent that Mortgagor may do so under the terms of the applicable
      Joint Operating Agreements and other applicable agreements affecting the
      Mortgaged Property), on twenty-four (24) hours prior notice to Mortgagor
      to enter the Mortgaged Property to conduct (at the cost and expense of
      Mortgagor), or to cause Mortgagor to conduct (at the cost and expense of
      Mortgagor), such tests and investigations as may be necessary to determine
      whether any hazardous materials or solid waste is being generated,
      transported, stored, or disposed of in accordance with applicable
      Environmental Laws. Such tests and investigations may include, without
      limitation, underground borings, ground water analyses and borings from
      the floors, ceilings and walls of any improvements located on the
      Mortgaged Property. This Section 2.9 shall not be construed to affect or
      limit the obligations of Mortgagor pursuant to Section 2.4 hereof.

                  (c) Neither Mortgagee nor any Secured Debt Representative
      shall have any duty to visit or observe the Mortgaged Property, or to
      conduct tests, and no site visit, observation or testing by any such
      person (or its agents and independent contractors) shall impose any
      liability on any such person nor shall Mortgagor or any other obligor be
      entitled to rely on any such visit, observation or testing in any respect.
      Mortgagee or a Secured Debt Representative may, but shall not be obligated
      to, disclose to Mortgagor or, subject to the relevant confidentiality
      provisions of the Secured Debt Documents then in effect, any other Person,
      including any Governmental Authority, any report or finding made as a
      result of, or in connection with, any site visit, observation or testing.
      Mortgagor agrees that neither Mortgagee nor any Secured Debt
      Representative makes any warranty or representation to Mortgagor or any
      other obligor regarding the truth, accuracy or completeness of any such
      report or findings that may be so disclosed. Mortgagor also acknowledges
      that, depending upon the results of any site visit, observation or testing
      disclosed to Mortgagor, Mortgagor may have a legal obligation to notify
      one or more Governmental Authorities of such results, that such reporting
      requirements are site-specific, and are to be evaluated by Mortgagor
      without advice or assistance from Mortgagee or any Secured Debt
      Representative.

            2.10 Taxes. Subject to Mortgagor's right to contest the same,
Mortgagor will promptly pay all taxes, assessments and governmental charges
legally imposed upon this instrument or upon the Mortgaged Property, or upon the
interest of Mortgagee therein, or upon the income and profits thereof.

            2.11 No Governmental Approvals. Mortgagor represents and warrants
that (a) no approval or consent of any regulatory or administrative commission
or


                                      -22-


authority, or of any other governmental body, is necessary to authorize the
execution and delivery of this instrument, or to authorize the observance or
performance by Mortgagor of the covenants herein contained, or that such
approvals as are required have been obtained or will be obtained promptly and
(b) Mortgagor has obtained all Permits which are necessary for the operation of
the Mortgaged Property.

            2.12 Environmental Laws.

                  (a) Mortgagor represents and warrants, to the best of its
      knowledge after due inquiry that: except as permitted by the Secured Debt
      Documents the Mortgaged Property is in compliance with all applicable
      Environmental Laws; there are no conditions existing currently which would
      be likely to subject Mortgagor to damages, penalties, injunctive relief or
      cleanup costs under any Environmental Laws or assertions thereof, or which
      require or are likely to require cleanup, removal, remedial action or
      other response pursuant to Environmental Laws by Mortgagor; Mortgagor is
      not a party to any litigation or administrative proceedings, nor so far as
      is known by Mortgagor is any litigation or administrative proceeding
      threatened against it, which asserts or alleges that Mortgagor has
      violated or is violating Environmental Laws or that Mortgagor is required
      to clean up, remove or take remedial or other responsive action due to the
      disposal, depositing, discharge, leaking or other release of any hazardous
      substances or materials; neither Mortgaged Property nor Mortgagor is
      subject to any judgment, decree, order or citation related to or arising
      out of Environmental Laws and neither has been named or listed as a
      potentially responsible party by any governmental body or agency in a
      matter arising under any Environmental Laws. Mortgagor has also obtained
      all permits, licenses or approvals required under applicable Environmental
      Laws which are necessary for its current exploration, use, and development
      activities at the Mortgaged Property; and to Mortgagor's knowledge after
      reasonable investigation all use, generation, manufacturing, release,
      discharge, storage, deposit, treatment, recycling or disposal of any
      materials on, under or at the Mortgaged Property or transported to or from
      the Mortgaged Property (or tanks or other facilities thereon containing
      such materials) are being and will be conducted in accordance, in all
      material respects, with applicable Environmental Laws including without
      limitation those requiring cleanup, removal or any other remedial action.

            2.13 Corporate Mortgagor. Mortgagor will continue to be duly
qualified to transact business in each state where the conduct of its business
requires it to be qualified, and will not, unless permitted pursuant to the
Secured Debt Documents, consolidate or merge with any other partnership,
company, corporation or other Person.

            2.14 Taxpayer I.D. Number. The taxpayer identification number of
Mortgagor is 77-0212977. The taxpayer identification number of Mortgagee is
13-5160382.


                                      -23-


                                  ARTICLE III

                            ASSIGNMENT OF PRODUCTION

            3.1 Assignment.

                  (a) Mortgagor hereby absolutely and irrevocably (a) transfers,
      assigns, warrants and conveys, to Mortgagee, effective as of July 1, 2003,
      at 7:00 A.M., local time, all Hydrocarbons which are thereafter produced
      from and which accrue to the Mortgaged Property, and all proceeds
      therefrom, and (b) gives to and confers upon Mortgagee the right, power
      and authority to collect such Hydrocarbons and proceeds. Subject to the
      terms of Section 3.1 (b), all parties producing, purchasing or receiving
      any such Hydrocarbons, or having such, or proceeds therefrom, in their
      possession for which they or others are accountable to Mortgagee by virtue
      of the provisions of this Article III, are authorized and directed to
      treat and regard Mortgagee as the assignee and transferee of Mortgagor and
      entitled in Mortgagor's place and stead to receive such Hydrocarbons and
      all proceeds therefrom; and said parties and each of them shall be fully
      protected in so treating and regarding Mortgagee and shall be under no
      obligation to see to the application by Mortgagee of any such proceeds or
      payments received by it; provided, however, that, until Mortgagee or any
      Secured Debt Representative shall have instructed such parties that an
      Event of Default has occurred and to deliver such Hydrocarbons and all
      proceeds therefrom directly to Mortgagee, such parties shall be entitled
      to deliver such Hydrocarbons and all proceeds therefrom directly to
      Mortgagor. So long as no Event of Default shall have occurred, Mortgagor
      shall be entitled to receive directly from such parties, and keep and
      retain, all such proceeds from the sale of such Hydrocarbons.

                  (b) Upon the occurrence of an Event of Default (provided that
      the Secured Debt Representative shall not give such instructions and
      notice under this Article III unless such Event of Default shall be
      continuing), any Secured Debt Representative may at any time (and from
      time to time) thereafter give notice thereof any party producing,
      purchasing or receiving any such Hydrocarbons, or having such, or proceeds
      therefrom, in their possession for which they or others are accountable to
      Mortgagee, directing that said Hydrocarbons and products are to be
      delivered into pipelines connected with the oil and gas leases, or to the
      purchaser thereof, free and clear of all Taxes, and the proceeds from the
      sale of such Hydrocarbons paid directly to Mortgagee in accordance with
      Section 3.5 of this instrument. Said parties producing, purchasing or
      receiving any such Hydrocarbons, or having such, or proceeds therefrom, in
      their possession for which they or others are accountable to Mortgagee by
      virtue of the provisions of this Article III, shall be fully protected in
      relying on any such Secured Debt Representative's determination and notice
      of the occurrence of an Event of Default. Mortgagor agrees to perform all
      such acts, and to execute all such further assignments, transfers and
      division orders, and other instruments as may be required pursuant to the
      Collateral Trust


                                      -24-


      Agreement or any of the Secured Debt Documents in order to have said
      revenues and proceeds so paid to Mortgagee, as and when provided in this
      Article III. With respect to any funds received by Mortgagee, Mortgagee is
      fully authorized to (but shall not be obligated to) receive and give
      receipt for any such revenues and proceeds that are received by Mortgagee;
      to endorse and cash any and all checks and drafts payable to the order of
      Mortgagor or Mortgagee for the account of Mortgagor received from or in
      connection with said revenues or proceeds and apply the proceeds thereof
      in accordance with Section 3.2 hereof, and to execute transfer and
      division orders in the name of Mortgagor, or otherwise, with warranties
      binding Mortgagor. The assignment of the Hydrocarbons and proceeds in this
      Section 3.1 is intended to be an absolute assignment from Mortgagor to
      Mortgagee and not merely the passing of a security interest. Such
      Hydrocarbons and proceeds are hereby assigned absolutely by Mortgagor to
      Mortgagee.

            3.2 Application of Proceeds. All payments received by Mortgagee
pursuant to Section 3.1 hereof shall be placed in a cash collateral account to
be applied in accordance with the provisions of the Collateral Trust Agreement.

            3.3 No Liability of Mortgagee in Collecting. Mortgagee is hereby
absolved from all liability for failure to enforce collection of any proceeds so
assigned (and no such failure shall be deemed to be a waiver of any right of
Mortgagee under this Article III) and from all other responsibility in
connection therewith, except the responsibility to account to Mortgagor for
funds actually received.

            3.4 Assignment Not a Restriction on Mortgagee's Rights. Nothing
herein contained shall detract from or limit the absolute obligation of
Mortgagor to make payment of the Indebtedness regardless of whether the proceeds
assigned by this Article III are sufficient to pay the same, and the rights
under this Article III shall be in addition to all other security now or
hereafter existing to secure the payment of the Indebtedness.

            3.5 Status of Assignment. Notwithstanding the other provisions of
this Article III and in addition to the other rights hereunder, Mortgagee or any
receiver or keeper appointed in judicial proceedings for the enforcement of this
instrument shall have the right to receive all of the Hydrocarbons herein
assigned and the proceeds therefrom after the occurrence and during the
continuance of any Event of Default and to apply all of said proceeds as
provided in Section 3.2 hereof. Upon any sale of the Mortgaged Property or any
part thereof pursuant to Article IV, the Hydrocarbons thereafter produced from
the property so sold, and the proceeds therefrom, shall be included in such sale
and shall pass to the purchaser free and clear of the assignment contained in
this Article III.

            3.6 Indemnification Obligations. The following provisions shall
apply to, and be deemed in each case to modify, each of the provisions of this
instrument (except those set forth in Section 2.12 and 5.11 hereof) and the
other Secured Debt Documents


                                      -25-


(except to the extent otherwise expressly provided therein) wherein Mortgagor is
obligated to indemnify each of the Indemnified Persons:

                  (a) Mortgagor agrees to indemnify Mortgagee, the Secured
      Debtholders, and their respective employees, affiliates, agents and
      attorneys, under the instrument and any successors or substitute trustee
      under the instrument, against all legal and administrative proceedings for
      which a claim for indemnification may be made by the Indemnified Person
      (herein, collectively, called "Indemnification Claims") made against or
      incurred by them or any of them as a consequence of the assertion, either
      before or after the payment in full of the Indebtedness, that they or any
      of them received Hydrocarbons herein assigned or the proceeds thereof
      claimed by third persons and Mortgagee and Secured Debtholders shall have
      the right to defend against any such Indemnification Claims, employing
      attorneys therefor, and unless furnished with reasonable indemnity, they
      or any of them shall have the right to pay or compromise and adjust all
      such Indemnification Claims. Mortgagor will indemnify and pay to Mortgagee
      and Secured Debtholders any and all such amounts as may be paid in respect
      thereof or as may be successfully adjudged against such persons. The
      obligations of Mortgagor as hereinabove set forth in this Section 3.6
      shall survive the release termination, foreclosure or assignment of this
      instrument or any sale hereunder.

                  (b) Mortgagor shall pay when due any judgments with respect to
      an Indemnification Claim against any of the Indemnified Persons and which
      are rendered by a final order or decree of a court of competent
      jurisdiction from which no further appeal may be taken or has been taken
      within the applicable appeal period. In the event that such payment is not
      made, any of the Indemnified Persons at its sole discretion may pay any
      such judgments, in whole or in part, and look to Mortgagor for
      reimbursement pursuant to this instrument, or may proceed to file suit
      against Mortgagor to compel such payment.

                  (c) Any amount which Mortgagor is obligated to pay to or for
      the benefit of an Indemnified Person with respect to an Indemnification
      Claim, but which is not paid when due, shall bear interest at the
      applicable interest rate set forth under the Secured Debt Documents from
      the date such amount is due until such amount is paid.

                                   ARTICLE IV

                           ENFORCEMENT OF THE SECURITY

            4.1 Rights of Mortgagee with Respect to Personal Property
Constituting a Part of the Mortgaged Property. Upon the occurrence of an Event
of Default and if such Event of Default shall be continuing, Mortgagee will have
all rights and remedies granted by law, and particularly by the Uniform
Commercial Code, including, but not limited to, the right to take possession of
all personal property constituting a part of the Mortgaged Property, and for
this purpose Mortgagee may enter upon any premises on


                                      -26-


which any or all of such personal property is situated and take possession of
and operate such personal property (or any portion thereof) or remove it
therefrom. Mortgagee may require Mortgagor to assemble such personal property
and make it available to Mortgagee at a place to be designated by Mortgagee
which is reasonably convenient to all parties. Unless such personal property is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Mortgagee will give Mortgagor reasonable notice of
the time and place of any public sale or of the time after which any private
sale or other disposition of such personal property is to be made. This
requirement of sending reasonable notice will be met if the notice is mailed by
first-class mail, postage prepaid, to Mortgagor at the address shown below the
signatures at the end of this instrument at least five (5) days before the time
of the sale or disposition. Further, Mortgagee shall have the right to utilize
executory process, as more fully set forth in Section 4.4 hereof and the right
to appointment of a keeper, as set forth in Section 4.3 hereof.

            4.2 Rights of Mortgagee with Respect to Fixtures Constituting a Part
of the Mortgaged Property. Upon the occurrence of an Event of Default and if
such Event of Default shall be continuing, Mortgagee may elect to treat the
fixtures constituting a part of the Mortgaged Property as either real property
collateral or personal property collateral and then proceed to exercise such
rights as apply to such type of collateral.

            4.3 Judicial Proceedings. Upon the occurrence of an Event of Default
and if such Event of Default shall be continuing, Trustee, in lieu of or in
addition to exercising any power of sale hereinabove given, may proceed by a
suit or suits in equity or at law, whether for a foreclosure hereunder for cash
or upon credit in one or more parcels or portions under executory or ordinary
process, at Mortgagee's sole option, without appraisement, appraisement being
expressly waived, or for the specific performance of any covenant or agreement
herein contained or in aid of the execution of any power herein granted, or for
the appointment of a receiver pending any foreclosure hereunder or the sale of
the Mortgaged Property, or for the enforcement of any other appropriate legal or
equitable remedy.

            4.4 Other Remedies. Mortgagor hereby acknowledges the Indebtedness
secured hereby, whether now existing or to arise hereafter, and, for the purpose
of foreclosure under Louisiana's executory process procedures, confesses
judgment thereon in the full amount of the Indebtedness in favor of Mortgagee
and any future holder or holders of the Indebtedness if such obligations are not
paid at maturity. Mortgagor in accordance with the terms hereof and the Secured
Debt Documents does by these presents consent, agree and stipulate that, upon
the occurrence of an Event of Default hereunder or under the Secured Debt
Documents, Mortgagee or any future holder or holders of any of the Indebtedness,
at its (or their) option, without making demand and without notice or putting in
default, the same being hereby expressly waived, may cause all and singular the
property of Mortgagor herein mortgaged to be seized and sold by executory
process issued by any competent court, or to proceed with the enforcement of
this instrument and pledge of production in any manner prescribed by law,
Mortgagor hereby waiving notice of demand or delay stipulated in Article 2639 of
the Code of Civil Procedure of Louisiana and the benefit of any laws, or


                                      -27-


parts of laws, relating to the appraisement of the property seized and sold
under executory process or other legal process, and consenting that the
Mortgaged Property situated in the State of Louisiana be sold without
appraisement to the highest bidder for cash.

            4.5 Certain Aspects of a Sale. Mortgagee shall have the right to
become the purchaser at any sale held by Mortgagee or by any court, receiver or
public officer, and Mortgagee shall have the right to credit upon the amount of
the bid made therefor the amount payable out of the net proceeds of such sale to
it. Recitals contained in any conveyance made to any purchaser at any sale made
hereunder shall conclusively establish the truth and accuracy of the matters
therein stated, including, without limiting the generality of the foregoing,
nonpayment of the unpaid principal sum of, and the interest accrued on, Secured
Debt after the same have become due and payable, advertisement and conduct of
such sale in the manner provided herein.

            4.6 Receipt to Purchaser. Upon any sale, the receipt of Mortgagee or
the officer making sale under judicial proceedings, shall be sufficient
discharge to the purchaser or purchasers at any sale for his or their purchase
money, and such purchaser or purchasers, or his or their assigns or personal
representatives, shall not, after paying such purchase money and receiving such
receipt of Mortgagee, or of such officer therefor, be obliged to see to the
application of such purchase money, or be in anywise answerable for any loss,
misapplication or nonapplication thereof.

            4.7 Effect of Sale. Any sale or sales of the Mortgaged Property,
shall operate to divest all right, title, interest, claim and demand whatsoever
either at law or in equity, of Mortgagor of, in and to the premises and the
property sold, and shall be a perpetual bar, both at law and in equity, against
Mortgagor, and Mortgagor's successors or assigns, and against any and all
persons claiming or who shall thereafter claim all or any of the property sold
from, through or under Mortgagor or Mortgagor's successors or assigns.
Nevertheless, Mortgagor, shall join in the execution and delivery of all proper
conveyances, assignments and transfers of the properties so sold.

            4.8 Application of Proceeds. The proceeds of any sale of the
Mortgaged Property, or any part thereof, whether under the power of sale herein
granted and conferred or by virtue of judicial proceedings, shall be applied in
accordance with the provisions of the Collateral Trust Agreement.

            4.9 Mortgagor's Waiver of Appraisement, Marshalling and Other
Rights. Mortgagor agrees, to the full extent that Mortgagor may lawfully so
agree, that Mortgagor will not at any time insist upon or plead or in any manner
whatever claim the benefit of any appraisement, valuation, stay, extension or
redemption law now or hereafter in force, in order to prevent or hinder the
enforcement or foreclosure of this instrument or the absolute sale of the
Mortgaged Property or the possession thereof by any purchaser at any sale made
pursuant to any provision hereof, or pursuant to the decree of any court of
competent jurisdiction; but Mortgagor, for Mortgagor and all who may claim
through or under Mortgagor, so far as Mortgagor or those claiming through or
under Mortgagor now or hereafter lawfully may, hereby waives the benefit of all
such


                                      -28-


laws. Mortgagor, for Mortgagor and all who may claim through or under Mortgagor,
waives, to the extent that Mortgagor may lawfully do so, any and all right to
have the Mortgaged Property marshalled upon any foreclosure of the lien hereof,
or sold in inverse order of alienation, and agrees that Mortgagee or any court
having jurisdiction to foreclose such lien may sell the Mortgaged Property as an
entirety. Mortgagor, for Mortgagor and all who may claim through or under
Mortgagor, further waives, to the full extent that Mortgagor may lawfully do so,
any requirement for posting a receiver's bond or replevin bond or other similar
type of bond if Mortgagee commence an action for appointment of a receiver or an
action for replevin to recover possession of any of the Mortgaged Property. If
any law in this paragraph referred to and now in force, of which Mortgagor or
Mortgagor's successor or successors might take advantage despite the provisions
hereof, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to, constitute any part of the contract herein contained or
to preclude the operation or application of the provisions of this paragraph. If
Mortgagor is an individual, Mortgagor waives and releases all rights of dower,
courtesy and homestead in the Mortgaged Property insofar as such rights may in
any way affect the purposes of this instrument.

            4.10 Costs and Expenses. All costs and expenses (including
attorneys' fees) incurred by Mortgagee in protecting and enforcing their rights
hereunder shall constitute a demand obligation owing by Mortgagor to the party
incurring such costs and expenses and shall draw interest at the Default
Interest Rate, all of which shall constitute a portion of the Indebtedness.

            4.11 Operation of the Mortgaged Property by Mortgagee. Upon the
occurrence of an Event of Default and during the continuance of such Event of
Default and in addition to all other rights herein conferred on Mortgagee,
Mortgagee (or any person, firm or corporation designated by Mortgagee) shall
have the right and power, but shall not be obligated, to enter upon and take
possession of any of the Mortgaged Property, and to exclude Mortgagor, and
Mortgagor's agents or servants, wholly therefrom, and to hold, use, administer,
manage and operate the same to the extent that Mortgagor shall be at the time
entitled and in its place and stead. Mortgagee, or any person, firm or
corporation designated by Mortgagee, may operate the same without any liability
to Mortgagor in connection with such operations, except to use ordinary care in
the operation of such properties, and Mortgagee or any person, firm or
corporation designated by Mortgagee, shall have the right to (but shall not be
obligated to) collect, receive and receipt for all Hydrocarbons produced and
sold from said properties, to make repairs, purchase machinery and equipment,
conduct work-over operations, drill additional wells and to exercise every
power, right and privilege of Mortgagor with respect to the Mortgaged Property.
When and if the expenses of such operation and development (including costs of
unsuccessful work-over operations or additional wells) paid by Mortgagee or
attributable to Mortgagor's undivided interest therein and withheld, or offset
against, by an operator or other party have been paid or reimbursed in full by
Mortgagor and the Indebtedness paid, said properties shall, if there has been no
sale or foreclosure, be returned to Mortgagor. Further, in the event that any of
the Mortgaged Property is seized as an incident to an action for the recognition
or the enforcement of this instrument, whether by executory process, ordinary
process,


                                      -29-


writ of fieri facias, sequestration, or otherwise, the court issuing the order
under which the seizure is to be effected shall, if such order is petitioned for
by the holder or holders of the Secured Debt or other Indebtedness, direct the
sheriff or other officer making the seizure to appoint as keeper of the
Mortgaged Property, in accordance with Louisiana Revised Statutes 9:5131 through
5135 and/or 9:5136 through 5140.2, as the same may be amended, such person as
may be named by Mortgagee at the time the seizure is effected.

                                   ARTICLE V

                            MISCELLANEOUS PROVISIONS

            5.1 Pooling and Unitization. Mortgagor shall have the right, and is
hereby authorized, to pool or unitize all or any part of the lands described in
Exhibit A, insofar as relates to the Mortgaged Property, with adjacent lands,
leaseholds and other interests, when, in the reasonable judgment of Mortgagor,
it is necessary or advisable to do so in order to form a drilling and/or
production unit to facilitate the orderly development of that part of the
Mortgaged Property affected thereby, or to comply with the requirements of any
Applicable Law or governmental order or regulation relating to the spacing of
wells or proration of the production therefrom; provided, however, that any unit
so formed for the production of oil shall not substantially exceed 160 acres,
and any unit so formed for the production of gas shall not substantially exceed
640 acres, unless a larger area is required to conform to an Applicable Law or
governmental order or regulation relating to the spacing of wells or to obtain
the maximum allowable production under any Applicable Law or governmental order
or regulation relating to the proration of production therefrom; and further
provided that the Hydrocarbons produced from any unit so formed shall be
allocated among the separately owned tracts or interests comprising the unit in
a uniform manner consistently applied. Any unit so formed may relate to one or
more zones or horizons, and a unit formed for a particular zone or horizon need
not conform in area to any other unit relating to a different zone or horizon,
and a unit formed for the production of oil need not conform in area with any
unit formed for the production of gas. Promptly after formation of any such
unit, Mortgagor shall furnish to Mortgagee and each Secured Debt Representative
a true copy of the pooling agreement, declaration of pooling or other instrument
creating such unit. The interest in any such unit attributable to the Mortgaged
Property (or any part thereof) included therein shall become a part of the
Mortgaged Property and shall be subject to the lien hereof in the same manner
and with the same effect as though such unit and the interest of Mortgagor
therein were specifically described in Exhibit A. Mortgagor is further
authorized to amend, modify or terminate any pooling or unitization agreement or
order to which Mortgagor is a party or the Mortgaged Property is subject,
provided that such action does not conflict with the provisions of this
Mortgage, including this Section 5.1. Mortgagor may enter into, or amend, modify
or terminate, pooling or unitization agreements not hereinabove authorized only
as permitted under the Secured Debt Documents.

            5.2 Actions or Advances by Mortgagee. Each and every covenant herein
contained shall be performed and kept by Mortgagor solely at Mortgagor's


                                      -30-


expense. If Mortgagor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this instrument, Mortgagee, any keeper or
any receiver appointed hereunder or under Applicable Law, may, but shall not be
obligated to, take action and/or make advances to perform the same in
Mortgagor's behalf; provided, however, that concurrently with the taking of such
action or making such advances, Mortgagee or any Secured Debt Representative
shall deliver notice to Mortgagor. Mortgagor hereby agrees to repay the expense
of such action and such advances upon demand plus interest as set forth in the
Collateral Trust Agreement. No such advance or action by Mortgagee, any keeper
or any receiver appointed hereunder shall be deemed to relieve Mortgagor from
any default hereunder.

            5.3 Defense of Claims. Mortgagor will notify Mortgagee and each
Secured Debt Representative, in writing, promptly of the commencement of any
legal proceedings affecting the lien or security interest hereof or the
Mortgaged Property, or any part thereof, and will take such action, employing
attorneys as set forth in Section 2.4(j), as may be necessary or appropriate to
preserve Mortgagor's or Mortgagee's rights affected thereby and/or to hold
harmless Mortgagee in respect of such proceedings; and should Mortgagor fail or
refuse to take any such action, Mortgagee may (but shall not be obligated to),
upon giving prior written notice thereof to Mortgagor, take such action in
behalf and in the name of Mortgagor and at Mortgagor's expense. Moreover,
Mortgagee may (but shall not be obligated to) take such independent action in
connection therewith as it may deem proper, Mortgagor hereby agreeing that all
sums advanced or all expenses incurred in such actions plus interest thereon at
the Default Interest Rate, will, on demand, be reimbursed, as appropriate, to
Mortgagee or any keeper or receiver appointed hereunder. The obligations of
Mortgagor as hereinabove set forth in this Section 5.3 shall survive the
release, termination, foreclosure or assignment of this instrument or any sale
hereunder.

            5.4 The Mortgaged Property to Revert; Release. If the Indebtedness
shall be fully paid and the covenants herein contained shall be well and truly
performed, then all of the Mortgaged Property shall revert to Mortgagor and the
entire estate, right, title and interest of Mortgagee shall thereupon cease; and
Mortgagee in such case shall, upon the request of Mortgagor and at Mortgagor's
cost and expense, deliver to Mortgagor proper instruments acknowledging
satisfaction of this Mortgage and the release or reconveyance of the lien hereof
in accordance with Applicable Law; Notwithstanding anything contained herein to
the contrary, the Mortgaged Property, or any part thereof, shall, upon the
written request of Mortgagor, be released from the lien of this Mortgage in
accordance with the provisions of the Collateral Trust Agreement, when such a
release is permitted by the Collateral Trust Agreement and the other Secured
Debt Documents.

            5.5 Renewals, Amendments and Other Security. Renewals and extensions
of the Indebtedness and modifications of any kind of the Obligations may be
given at any time and amendments may be made to agreements with third parties
relating to any part of such Indebtedness or the Mortgaged Property and
Mortgagee may take or may now hold other security from others for the
Indebtedness, all without notice to or consent of Mortgagor. Mortgagee may
resort first to such other security or


                                      -31-


any part thereof or first to the security herein given or any part thereof, or
from time to time to either or both, even to the partial or complete abandonment
of either security, and such action shall not be a waiver of any rights
conferred by this instrument, which shall continue as a first lien upon and
prior perfected security interest in the Mortgaged Property not expressly
released until the Secured Debt and all other Indebtedness secured hereby are
fully paid.

            5.6 Instrument, Assignment, etc. This instrument shall be deemed to
be and may be enforced from time to time as an assignment, chattel mortgage,
contract, financing statement, real estate (immovable property) mortgage, or
security agreement, and from time to time as any one or more thereof.

            5.7 Limitation on Interest. No provision of this instrument or the
Secured Debt Documents shall require the payment or permit the collection of
interest in excess of the Maximum Lawful Rate or which is otherwise contrary to
Applicable Law. If any excess of interest in such respect is in the Secured Debt
Documents or otherwise herein provided for, or shall be adjudicated to be so
provided for herein or in the Secured Debt Documents, Mortgagor shall not be
obligated to pay such excess.

            5.8 Unenforceable or Inapplicable Provisions. If any provision
hereof or of the Secured Debt Documents is invalid or unenforceable in any
jurisdiction, the other provisions hereof or of the Secured Debt Documents shall
remain in full force and effect in such jurisdiction, and the remaining
provisions hereof shall be liberally construed in favor of Mortgagee in order to
effectuate the provisions hereof, and the invalidity of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction. Any reference herein contained to a statute
or law of a state in which no part of the Mortgaged Property is situated shall
be deemed inapplicable to, and not used in, the interpretation hereof.

            5.9 Rights Cumulative. Each and every right, power and remedy herein
given to Mortgagee shall be cumulative and not exclusive; and each and every
right, power and remedy whether specifically herein given or otherwise existing
may be exercised from time to time and so often and in such order as may be
deemed expedient by Mortgagee, as the case may be, and the exercise, or the
beginning of the exercise, of any such right, power or remedy shall not be
deemed a waiver of the right to exercise, at the same time or thereafter, any
other right, power or remedy. No delay or omission by Mortgagee in the exercise
of any right, power or remedy shall impair any such right, power or remedy or
operate as a waiver thereof or of any other right, power or remedy then or
thereafter existing.

            5.10 Waiver by Mortgagee. Any and all covenants in this instrument
may from time to time by instrument in writing signed by Mortgagee be waived to
such extent and in such manner as Mortgagee may desire, but no such waiver shall
ever affect or impair either Mortgagee's rights or liens or security interests
hereunder, except to the extent specifically stated in such written instrument.


                                      -32-


            5.11 Environmental Indemnification. Mortgagor will indemnify and
hold Mortgagee harmless from and against and reimburse Mortgagee with respect
to, any and all claims, demands, causes of action, losses, damages, liabilities,
costs and expenses (including reasonable attorneys' fees and court costs) of any
and every kind or character, known or unknown, fixed or contingent,
out-of-pocket or consequential, asserted against or by Mortgagee at any time and
from time to time by reason of or arising out of any violation of any
Environmental Laws applicable to Mortgagor and/or the Mortgaged Property and any
and all matters arising out of any act, omission, event or circumstance existing
or occurring (including, without limitation, the presence on the Mortgaged
Property or release from the Mortgaged Property of hazardous substances or solid
waste disposed of or otherwise released), regardless of whether the act,
omission, event or circumstance constituted a violation of any Environmental Law
at the time of its existence or occurrence. The terms "hazardous substance" and
"release" shall have the meanings specified in the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as subsequently
modified, supplemented or amended (herein called "CERCLA"), and for purposes of
RCRA (as defined below) compliance the terms "solid waste" and "disposed" shall
have the meanings specified in the Federal Resource Conservation and Recovery
Act of 1976, as subsequently modified, supplemented or amended (herein called
"RCRA"); provided, in the event that either CERCLA or RCRA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment and provided further,
to the extent the laws of any jurisdiction where the Mortgaged Property is
located on the date hereof or on any subsequent date establish a meaning for
"hazardous substance," "release," "solid waste," or "disposal" which is broader
than that specified in either CERCLA or RCRA, such broader meaning shall apply.
If and to the extent that the foregoing undertaking may be unenforceable for any
reason, Mortgagor hereby agrees to make the maximum contribution to the payment
and satisfaction of the indemnified claims, demands, causes of action, losses,
damages, liabilities, costs, expenses and fees which is permissible under
applicable law. The obligations of Mortgagor as hereinabove set forth in this
Section 5.11 shall survive the release, termination, foreclosure or assignment
of this instrument or any sale hereunder.

            5.12 No Partnership. Nothing contained in this instrument is
intended to, or shall be construed as, creating to any extent and in any manner
whatsoever, any partnership, joint venture, or association among Mortgagor,
Mortgagee and their respective Affiliates, or in any way as to make Mortgagee or
a co-principal with Mortgagor with reference to the Mortgaged Property, and any
inferences to the contrary are hereby expressly negated.

            5.13 Successors and Assigns. This instrument is binding upon
Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit of
Mortgagee, its successors and assigns, and the provisions hereof shall likewise
be covenants running with the land.


                                      -33-


            5.14 Article and Section Headings. The article and section headings
in this instrument are inserted for convenience of reference and shall not be
considered a part of this instrument or used in its interpretation.

            5.15 Execution in Counterparts. This instrument may be executed in
any number of counterparts, each of which shall for all purposes be deemed to be
an original and all of which are identical, except that, to facilitate
recordation or filing, in any particular counterpart portions of Exhibit A
hereto which describe properties situated in parishes or counties other than the
parish or county in which such counterpart is to be recorded or filed may have
been omitted.

            5.16 Special Filing as Financing Statement. This instrument shall
likewise be a Security Agreement and a Financing Statement. This instrument
shall be filed for record, among other places, in the real estate records and in
the Uniform Commercial Code records of each parish in which any portion of the
immovable property covered by the oil and gas leases described in Exhibit A
hereto is situated, and, when filed in such parishes shall be effective as a
financing statement covering Fixtures located on oil and gas properties and
as-extracted collateral, which as-extracted collateral are to be financed at the
wellheads of the wells located on the lands described in Exhibit A. A carbon,
photographic or other reproduction of this instrument or of any financing
statement covering the Mortgaged Property or any portion thereof shall be
sufficient as a financing statement and may be filed as such. Mortgagor agrees
that Secured Debt Representative may, in such manner, on such terms and at such
times as may be elected by Secured Debt Representative, and without demand or
notice to, or the consent or signature of, Mortgagor, file and/or record such
UCC financing statements, fixture filings, and/or amendments to or continuations
of any financing statements or fixture filings to evidence, perfect and/or
continue the perfection of, any security interests created or to be created
pursuant to this Mortgage or any of the other Secured Debt Documents.

            5.17 Notices. Except as otherwise required by Section 4.1 hereof,
any notice, request or demand which may be required or permitted to be given or
served upon Mortgagor shall be sufficiently given when given or made pursuant to
(a) the terms of the Collateral Trust Agreement, or (b) such other means and
manner of giving of notice as may be required by Applicable Law.

            5.18 Waivers. The parties hereto expressly waive the production of
mortgage, conveyance, tax research or other certificates and hereby release and
hold the Notary Public whose name is hereunder signed harmless for and by reason
of the nonproduction and nonannexation thereof to this instrument. Mortgagor
waives in favor of Mortgagee any and all homestead exemptions and other
exemptions of seizure or otherwise to which Mortgagor is or may be entitled
under the constitution and statutes of the State of Louisiana insofar as the
Mortgaged Property is concerned. Mortgagor further waives: (a) the benefit of
appraisement as provided in Louisiana Code of Civil Procedure Articles 2332,
2336, 2723 and 2724, and all other laws conferring the same; (b) the demand and
three days delay accorded by Louisiana Code of Civil Procedure Articles 2639 and
2721; (c) the notice of seizure required by Louisiana Code of Civil


                                      -34-


Procedure 2293 and 2721; (d) the three days delay provided by Louisiana Code of
Civil Procedure Articles 2331 and 2722; and (e) the benefit of the other
provisions of Louisiana Code of Civil Procedure Articles 2331, 2722 and 2723,
not specifically mentioned above.

            5.19 Transfer of the Notes without Notarial Act. The parties hereto
agree that the Secured Debt may be transferred without the necessity for a
notarial act of transfer thereof, and that any such transfer without notarial
act shall carry with it into the hands of any future holder or holders of the
Secured Debt full and entire subrogation of title in and to the Secured Debt to
any and all rights and privileges under this instrument herein granted to the
Secured Debtholders. This instrument is for the benefit of Mortgagee, Secured
Debtholders and for such other person or persons as may from time to time become
or be the holders of any of the Indebtedness, and this instrument shall be
transferable and negotiable, with the same force and effect and to the same
extent as the Indebtedness may be transferable, it being understood that, upon
the transfer or assignment by Mortgagee of any of the Indebtedness, the legal
holder of such Indebtedness shall have all of the rights granted to Mortgagee
under this instrument. Mortgagor specifically agrees that upon any transfer of
all or any portion of the Indebtedness, this instrument shall secure with
retroactive rank the then existing Indebtedness of Mortgagor to the transferee
and any and all Indebtedness to such transferee thereafter arising.

            5.20 Authentic Evidence. Any and all declarations of facts made by
authentic act before a notary public in the presence of two witnesses by a
person declaring that such facts lie within his knowledge, shall constitute
authentic evidence of such facts for the purpose of executory process. Mortgagor
specifically agrees that such an affidavit by a representative of Mortgagee as
to the existence, amount, terms and maturity of the Indebtedness and of a
default thereunder shall constitute authentic evidence of such facts for the
purpose of executory process.

            5.21 Reliance. Notwithstanding any reference herein to the Secured
Debt Documents, no party shall have any obligation to inquire into the terms or
conditions of any such documents and all parties shall be fully authorized to
rely upon any statement, certificate, or affidavit of Mortgagee or any future
holder of any portion of the Indebtedness as to the occurrence of any event such
as the occurrence of any event of default.

            5.22 Governing Law. THIS INSTRUMENT IS MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE
STATE OF LOUISIANA.

            5.23 Acceptance. Pursuant to Louisiana Civil Code Article 3289,
Mortgagor acknowledges that this instrument need not be signed by Mortgagee,
whose consent is presumed and is hereby acknowledged by Mortgagor.

            5.24 No Liability. Mortgagee shall not be liable for any error of
judgment or act done by Mortgagee in good faith, or be otherwise responsible or
accountable


                                      -35-


under any circumstances whatsoever, except for their gross negligence or willful
misconduct. Mortgagee shall not be personally liable in case of entry by it, or
anyone entering by virtue of the powers herein granted them, upon the Mortgaged
Property for debts contracted or liability or damages incurred in the management
or operation of the Mortgaged Property. Mortgagee shall have the right to rely
on any instrument, document or signature authorizing or supporting any action
taken or proposed to be taken by them hereunder, believed by it in good faith to
be genuine. Mortgagor will, from time to time, pay the compensation due to
Mortgagee hereunder and reimburse Mortgagee for, and save it harmless against,
any and all liability and expenses which may be incurred by it in the
performance of its duties.

            5.25 Covenants Running with the Land. All Obligations contained in
this instrument are intended by the parties to be, and shall be construed as,
real rights and covenants running with the Mortgaged Property.

            5.26 Mortgagee as Agent for the Secured Debtholders. As described
above, certain Affiliates of Mortgagee and the Secured Debtholders are or may
become parties to certain Hedging Agreements with Mortgagor and/or Affiliates of
Mortgagor. This instrument secures the obligations of Mortgagor and such
Affiliates, as the case may be, under such Hedging Agreements, and the parties
acknowledge for all purposes that Mortgagee acts for itself and as agent on
behalf of such Affiliates of Mortgagee and the Secured Debtholders which are so
entitled to share in the rights and benefits accruing to Mortgagee under this
instrument in respect of the Mortgaged Property.

            5.27 Subrogation. If any or all of the proceeds of Secured Debt have
been used to extinguish, extend or renew any indebtedness heretofore existing
against the Mortgaged Property, then, to the extent of such funds so used, the
Indebtedness and this instrument shall be subrogated to all of the rights,
claims, liens, titles and interests heretofore existing against the Mortgaged
Property to secure the indebtedness so extinguished, extended or renewed and the
former rights, claims, liens, titles and interests, if any, are not waived but
rather are continued in full force and effect in favor of Mortgagee and are
merged with the lien and security interest created herein as cumulative security
for the repayment of the Indebtedness and the satisfaction of the Obligations.


                                      -36-


      THUS DONE AND PASSED IN MULTIPLE ORIGINALS on the 14th day of July, 2003,
effective as of the 16thday of July 2003, in the presence of the undersigned
competent witnesses, who hereunto sign their names, together with Mortgagor and
me, Notary, after due reading of the whole.

                                       CALPINE CORPORATION,
                                       a Delaware corporation


                                       By:______________________________________
                                       Title:  Executive Vice President
                                       Printed Name:  B.A. Berilgen

The name and address of
the Mortgagor and Debtor is:

Calpine Corporation
1000 Louisiana Street, Suite 800
Houston, TX 77002

WITNESSES TO SIGNATURE:

_________________________________

_________________________________


                                       _________________________________________
                                       NOTARY PUBLIC
                                       Residing at Houston, Harris County, Texas

                                       My Commission Expires 12/21/2006

                                                                   [LA Mortgage]



THUS DONE AND PASSED IN MULTIPLE ORIGINALS on the ____ day of July, 2003 in the
presence of the undersigned competent witnesses, who hereunto sign their names,
together with Mortgagee and me, Notary, after due reading of the whole.

                                             THE BANK OF NEW YORK, as Collateral
                                             Trustee


                                             By:________________________________
                                             Title:_____________________________
                                             Printed Name:______________________

The name and mailing address of
the Secured Party and Agent is:

The Bank of New York
101 Barclay Street, 8 Floor West
New York, New York 10286

WITNESSES TO SIGNATURE:

_________________________________

_________________________________


                                             ___________________________________
                                             NOTARY PUBLIC
                                             Residing at________________________
                                             My Commission Expires______________

                                                                   [LA Mortgage]



             EXHIBIT A To Amended and Restated Mortgage, Assignment,
                   Security Agreement and Financing Statement,
                              dated July 16, 2003,
                  from CALPINE CORPORATION to BANK OF NEW YORK

                               List of Properties

      1. Depth limitations, unit designations, unit tract descriptions and
descriptions (including percentages, decimals or fractions) of undivided
leasehold interests, well names, "Operating Interests", "Working Interests" and
"Net Revenue Interests" contained in this Exhibit A and the listing of any
percentage, decimal or fractional interest in this Exhibit A shall not be deemed
to limit or otherwise diminish the interests being subjected to the lien,
security interest and encumbrance of this instrument.

      2. Some of the land descriptions in this Exhibit A may refer only to a
portion of the land covered by a particular lease. This instrument is not
limited to the land described in Exhibit A but is intended to cover the entire
interest of the Mortgagor in any lease described in Exhibit A even if such
interest relates to land not described in Exhibit A. Reference is made to the
land descriptions contained in the documents of title recorded as described in
this Exhibit A. To the extent that the land descriptions in this Exhibit A are
incomplete, incorrect or not legally sufficient, the land descriptions contained
in the documents so recorded are incorporated herein by this reference.

      3. References in Exhibit A to instruments on file in the public records
are made for all purposes. Unless provided otherwise, all recording references
in Exhibit A are to the official real property records of the parish or parishes
in which the mortgaged property is located and in which records such documents
are or in the past have been customarily recorded, whether Conveyance Records,
Oil and Gas Records, Oil and Gas Lease Records or other records.

      4. A statement herein that a certain interest described herein is subject
to the terms of certain described or referred to agreements, instruments or
other matters shall not operate to subject such interest to any such agreement,
instrument or other matter except to the extent that such agreement, instrument
or matter is otherwise valid and presently subsisting nor shall such statement
be deemed to constitute a recognition by the parties hereto that any such
agreement, instrument or other matter is valid and presently subsisting.

                                                       [Do not detach this page]


                                      A-1


             EXHIBIT B To Amended and Restated Mortgage, Assignment,
                   Security Agreement and Financing Statement,
                              dated July 16, 2003,
                  from CALPINE CORPORATION to BANK OF NEW YORK

                         Certified Copies of Resolutions

                                   [Attached]


                                      B-1


                                   Schedule I



      JURISDICTION                                    FILE NO.                             FILE DATE
      ------------                                    --------                             ---------
                                                                                     
Acadia Parish, LA                             Original Act No. 699419                      5/15/2002
(Conveyance Records)                             COB W58, Page 589

Acadia Parish, LA                             Original Act No. 699419                      5/15/2002
(Mortgage Records)                               MOB 627, Page 849

Bienville Parish, LA                          Registry No. 2002-1571                       5/15/2002
(Conveyance Records)                             COB 943, Page 217

Bienville Parish, LA                          Registry No. 2002-1570                       5/15/2002
(Mortgage Records)                               MOB 361, Page 100

Calcasieu Parish, LA                                  2584415                              5/15/2002
(Conveyance Records)

Calcasieu Parish, LA                                  2584415                              5/15/2002
(Mortgage Records)

Cameron Parish, LA                                    275522                               5/07/2002
(offshore only)                                       COB 948
(Conveyance Records)

Cameron Parish, LA                                    275522                               5/07/2002
(offshore only)                                      MOB 269
(Mortgage Records)

Cameron Parish, LA                                    275730                               5/16/2002
(Conveyance Records)                                  COB 949

Cameron Parish, LA                                    275730                               5/16/2002
(Mortgage Records)                                    MOB 269

Claiborne Parish, LA                                  404351                               5/15/2002
(Conveyance Records)                             COB 1283, Page 76

Claiborne Parish, LA                                  404351                               5/15/2002
(Mortgage Records)                               MOB 429, Page 29

East Baton Rouge Parish, LA                 Original #393, Bundle 11347                    5/15/2002
(Conveyance Records)

East Baton Rouge Parish, LA                 Original #393, Bundle 11347                    5/15/2002
(Mortgage Records)

East Feliciana Parish, LA                             170667                               5/16/2002
(Conveyance Records)



                                      B-1




      JURISDICTION                                    FILE NO.                             FILE DATE
      ------------                                    --------                             ---------
                                                                                     
East Feliciana Parish, LA                             170667                               5/16/2002
(Mortgage Records)

Iberia Parish, LA                              COB 1237, Entry #02-                        5/15/2002
(Conveyance Records)                                   6520

Iberia Parish, LA                              MOB A890, Entry #02-                        5/15/2002
(Mortgage Records)                                     6520

Lafayette Parish, LA                                 02-022356                             5/20/2002
(Conveyance Records)

Lafayette Parish, LA                                 02-022356                             5/20/2002
(Mortgage Records)

Lincoln Parish, LA                               Entry No. 038312                          5/16/2002
(Conveyance Records)                             COB 1132, Page 85

Lincoln Parish, LA                               Entry No. 038312                          5/16/2002
(Mortgage Records)                               MOB 782, Page 615

Livingston Parish, LA                           Entry No. 00493865                         5/20/2002
(Conveyance Records)                             COB 806, Page 237

Livingston Parish, LA                           Entry No. 00493865                         5/20/2002
(Mortgage Records)                               MOB 786, Page 164

Plaquemines Parish, LA                          COB 1022, Folio 370                        5/17/2002
(Conveyance Records)

Plaquemines Parish, LA                          MOB 338, Folio 344                         5/17/2002
(Mortgage Records)

St. Bernard Parish, LA                                398-029                              5/17/2002
(Conveyance Records)                            COB 717, Folio 754

St. Bernard Parish, LA                                398-029                              5/17/2002
(Mortgage Records)                              MOB 1082, Folio 515

St. Martin Parish, LA                            Entry No. 339381                          5/16/2002
(Conveyance Records)                            COB 1365, Folio 740

St. Martin Parish, LA                            Entry No. 339382                          5/16/2002
(Mortgage Records)                               MOB 903, Page 394

St. Mary Parish, LA                             COB 45-A, Page 666                         5/16/2002
(Conveyance Records)                             Entry No. 277,321

St. Mary Parish, LA                              MOB 912, Page 144                         5/16/2002
(Mortgage Records)                               Entry No. 251,035

Terrebonne Parish, LA                           COB 1775, Entry No.                        5/7/2002
(Conveyance Records)                                  1119792



                                      B-2




      JURISDICTION                                    FILE NO.                           FILE DATE
      ------------                                    --------                           ---------
                                                                                   
Terrebonne Parish, LA                           MOB 1448, Entry No.                      5/7/2002
(Mortgage Records)                                    1119792

Vermilion Parish, LA                            Entry No. 20205877                       5/16/2002
(Conveyance Records)

Vermilion Parish, LA                            Entry No. 20205877                       5/16/2002
(Mortgage Records)

Webster Parish, LA                              Registry No. 453232                      5/20/2002
(Conveyance Records)                             COB 937, Page 816

Webster Parish, LA                              Registry No. 453232                      5/20/2002
(Mortgage Records)                               MOB 519, Page 587

West Feliciana Parish, LA                       Original No. 83976                       5/17/2002
(Conveyance Records)                             COB 145, Page 877

West Feliciana Parish, LA                       Original No. 83976                       5/17/2002
(Mortgage Records)                              MOB 117A, Page 691

Minerals Management                                   n/a                                5/08/2002
Service Gulf of Mexico
OCS Region
(Cameron Parish, LA)

Minerals Management                                   n/a                                5/08/2002
Service Gulf of Mexico
OCS Region
(Terrebonne Parish, LA)


UCC-1 Financing Statement regarding Louisiana Mortgage, naming Calpine
Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party,
filed as follows:



             JURISDICTION                            FILE NO.                              FILE DATE
             ------------                            --------                              ---------
                                                                                     
Jefferson Parish, LA                                 26262652                              5/7/2002

Minerals Management                                      n/a                               5/08/2002
Service Gulf of
Mexico OCS Region



                                      B-3


                                   Schedule II

                                       N/A


                                      B-1


                                  Schedule III

Partial Release by The Bank of Nova Scotia in favor of Calpine Corporation
(Louisiana-Mortgage) filed as follows:



                                                                                PARTIAL                PARTIAL
                                       ORIGINAL             ORIGINAL          RELEASE FILE           RELEASE FILE
         JURISDICTION                  FILE NO.            FILE DATE              NO.                   DATE
         ------------                  --------            ---------          ------------           -----------
                                                                                         
Cameron Parish, LA                   275522; COB            5/7/02              277541;                9/13/02
(Offshore Only)                      948, MOB 269                              COB 955,
                                                                            Folio 447; MOB
                                                                             272, Folio 412

Plaquemines Parish, LA                COB 1022,             5/17/02              Entry                11/13/02
(Drakes Bay)                          Folio 370;                               02006812,
                                       MOB 338,                                COB 1034,
                                      Folio 344                               Folio 794;
                                                                            Entry 2006813,
                                                                               MOB 349,
                                                                               Folio 815


UCC-3 Financing Statement Amendment relating to the Partial Release-Louisiana
mortgage naming Calpine Corporation as Debtor and The Bank of Nova Scotia, as
Agent, as Secured Party, filed as follows:



                                                                                PARTIAL                PARTIAL
                                  ORIGINAL              ORIGINAL              RELEASE FILE          RELEASE FILE
   JURISDICTION                   FILE NO.              FILE DATE                  NO.                  DATE
   ------------                   --------              ---------             ------------          ------------
                                                                                        
Jefferson Parish,                 26262652               5/7/02                26267302               11/13/02
LA (Drakes Bay)

Jefferson Parish,                 26262652               5/7/02                26265933                9/13/02
LA (OCS-0935 &
OCS-14357)

MMS (OCS-0935                  No file number            5/8/02             no file number             9/13/02
& OCS-14357)



                                      B-1

EX-10.31

                                                                   EXHIBIT 10.31

RECORDING REQUESTED BY AND
WHEN RECORDED AND/OR FILED
RETURN TO:

MAYER, BROWN, ROWE & MAW LLP
700 Louisiana Street
Suite 3600
Houston, Texas 77002
Attn: Kevin L. Shaw, Esq.

Instructions to County Recorder:

Index this document as:

(1) A deed of trust
(2) A fixture filing

                              AMENDED AND RESTATED
           DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF PRODUCTION,
           SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

                                      FROM

                              CALPINE CORPORATION,
                         a Delaware corporation, Trustor
                         (Taxpayer I.D. No. 77-0212977),

                                       TO

                         CHICAGO TITLE INSURANCE COMPANY
                                     Trustee

                                       AND

                              THE BANK OF NEW YORK,
        not in its individual capacity but solely as Collateral Trustee,
                         (Taxpayer I.D. No. 13-5160382)
                                 as Beneficiary

                            Dated as of July 16, 2003



"THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS."

"THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES."

"OIL AND GAS INTERESTS AND AS-EXTRACTED COLLATERAL INCLUDED IN THE ENCUMBERED
PROPERTY WILL BE FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE
PROPERTIES DESCRIBED IN EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE
FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS."

"TRUSTOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS
DESCRIBED IN EXHIBIT A HERETO."

"SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE ENCUMBERED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN EXHIBIT A HERETO AND THIS
FINANCING STATEMENT AND FIXTURE FILING IS TO BE FILED FOR RECORD, AMONG OTHER
PLACES, IN THE REAL ESTATE RECORDS."

"THE SECURED PARTIES ARE NOT SELLERS OR PURCHASE MONEY LENDERS OF COLLATERAL."

"A POWER OF SALE HAS BEEN GRANTED IN THIS DEED OF TRUST. A POWER OF SALE MAY
ALLOW THE TRUSTEE TO TAKE THE ENCUMBERED PROPERTY AND SELL IT WITHOUT GOING TO
COURT IN A FORECLOSURE ACTION UPON DEFAULT BY TRUSTOR UNDER THIS DEED OF TRUST."

"NOTICE TO JUNIOR LIENHOLDERS: THE OBLIGATIONS SECURED HEREBY PROVIDE FOR THE
ACCRUAL OF INTEREST WHICH MAY RESULT IN INCREASES IN THE PRINCIPAL BALANCE ABOVE
THE FACE PRINCIPAL AMOUNT OF THE APPLICABLE NOTES."



                              AMENDED AND RESTATED
           DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF PRODUCTION,
           SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING

      THIS AMENDED AND RESTATED DEED OF TRUST WITH POWER OF SALE, ASSIGNMENT OF
PRODUCTION, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING (this
"DEED OF TRUST"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a
Delaware corporation ("TRUSTOR"), whose address is 50 West San Fernando Street,
San Jose, CA 95113, to CHICAGO TITLE INSURANCE COMPANY (whether one or more,
collectively called "TRUSTEE"), and THE BANK OF NEW YORK, a New York banking
corporation, not in its individual capacity but solely as Collateral Trustee
under the Collateral Trust Agreement dated July 16, 2003 (the "COLLATERAL TRUST
AGREEMENT") among Trustor, Beneficiary, the 2007 Trustee, the 2010 Trustee, the
2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent
("BENEFICIARY"), whose address is 101 Barclay Street, New York, New York 10286.
References to this "DEED OF TRUST" shall mean this instrument and any and all
renewals, modifications, amendments, supplements, extensions, consolidations,
substitutions, spreaders, restatements and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                   ARTICLE I.

                            RECITALS AND DEFINITIONS

      1.1 Trustor has heretofore executed and delivered to The Bank of Nova
Scotia, for itself and as agent for the Lender Parties (together with its
successors in such capacity, the "CREDIT AGREEMENT AGENT") and Chicago Title
Insurance Company, as Trustee, that certain mortgage or deed of trust, dated as
of May 1, 2002, as supplemented and amended prior to the date hereof (as so
supplemented and amended, herein called the "EXISTING MORTGAGE"), to secure (i)
payment of indebtedness owed or to be owing to certain institutional lenders
(the "EXISTING 2002 LENDERS") pursuant to the terms of that certain Credit
Agreement, dated as of March 8, 2002 (herein, as the same may be amended,
modified or supplemented from time to time, called the "EXISTING 2002 CREDIT
AGREEMENT") pursuant to which the Existing 2002 Lenders made loans to Trustor
and issued letters of credit for the benefit of Trustor (the "EXISTING 2002
LETTERS OF CREDIT") in amounts not to exceed at any one time outstanding
$1,600,000,000, and Trustor, to evidence its indebtedness to the Existing 2002
Lenders under the Existing 2002 Credit Agreement, has executed and delivered to
the Existing 2002 Lenders its secured promissory notes to mature not later than
May 24, 2003 (the "EXISTING 2002 LOAN NOTES"), the Existing 2002 Loan Notes
being payable to the order of the Existing 2002 Lenders, bearing interest as
provided for therein, and containing provisions for payment of attorneys' fees
and acceleration of maturity in the event of default, as therein set forth; and
(ii) payment of indebtedness


                                       1


owed or to be owing to certain institutional lenders (the "EXISTING 2000
LENDERS", and together with the Existing 2002 Lenders, the "EXISTING LENDERS")
pursuant to the terms of that certain Second Amended and Restated Credit
Agreement dated as of May 23, 2000 (herein, as the same may be amended,
modified, or supplemented from time to time, called the "EXISTING 2000 CREDIT
AGREEMENT" and together with the Existing 2002 Credit Agreement, collectively,
the "EXISTING CREDIT AGREEMENTS") pursuant to which the Existing 2000 Lenders
made loans to Trustor and issued letters of credit for the benefit of Trustor
(the "EXISTING 2000 LETTERS OF CREDIT") in amounts not to exceed at any one time
outstanding $400,000,000, and Trustor, to evidence its indebtedness to the
Existing 2000 Lenders under the Existing 2000 Credit Agreement, has executed and
delivered to the Existing 2000 Lenders its secured promissory notes to mature
not later than May 24, 2003 (the "EXISTING 2000 LOAN NOTES") (the Existing 2000
Loan Notes, together with the Existing 2002 Loan Notes, collectively, the
"EXISTING LOAN NOTES"), the Existing 2000 Loan Notes being payable to the order
of the Existing 2000 Lenders, bearing interest as provided for therein, and
containing provisions for payment of attorney's fees and acceleration of
maturity in the event of default, as therein set forth.

      1.2 The Existing Mortgage, together with other mortgages and deeds of
trust (a) have been filed and recorded, among other places, as set forth in
Schedule I hereto; (b) have been supplemented and amended by various instruments
that have been filed and recorded, among other places, as set forth in Schedule
II hereto; and (c) have been amended and certain items of property encumbered
thereby have been released by various instruments that have been filed and
recorded, among other places, as set forth in Schedule III hereto.

      1.3 Trustor, the Existing Lenders and the Credit Agreement Agent are (i)
terminating the commitments under the Existing 2000 Credit Agreement, and (ii)
amending and restating the Existing 2002 Credit Agreement (as so amended and
restated, and as the same may, from time to time hereafter, be amended,
supplemented, modified or amended and restated, the "AMENDED AND RESTATED CREDIT
AGREEMENT."

      1.4 Trustor is also (a) issuing $500,000,000 in aggregate principal amount
of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
NOTES") pursuant to the Indenture dated as of July 16, 2003 (the "2007
INDENTURE") between Trustor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 TRUSTEE"), (b) issuing
$1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 NOTES") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 INDENTURE") between Trustor and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 TRUSTEE"), (c) issuing $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 NOTES")
pursuant to the Indenture dated as of July 16, 2003 (the "2013 INDENTURE")
between Trustor and Wilmington Trust Company, as Trustee (together with its
successors in such capacity, the "2013 TRUSTEE"), and (d) borrowing $750,000,000
in Term Loans (the "TERM LOANS") pursuant to a Term Loan Agreement dated as of
July 16, 2003 (the "TERM LOAN AGREEMENT") between Trustor and Goldman


                                       2


Sachs Credit Partners L.P., as Administrative Agent (together with its
successors in such capacity, the "TERM LOAN ADMINISTRATIVE AGENT"). The proceeds
from the issuance of the 2007 Notes, the 2010 Notes and the 2013 Notes and the
borrowing of the Term Loans will be used to refinance a portion of the loans and
other indebtedness outstanding under the Existing Credit Agreements.

      1.5 As permitted pursuant to the Secured Debt Documents, Trustor may incur
future debt which could, together with the obligations under the Amended and
Restated Credit Agreement, constitute Priority Lien Debt and Trustor may incur
future debt which could, together with the 2007 Notes, the 2010 Notes, the 2013
Notes and the Term Loans, constitute Parity Lien Debt, provided that the
aggregate amount of the Secured Debt to be secured hereby shall not exceed
$4,200,000,000. Trustor intends to secure the Indebtedness, including its
obligations (a) under the Amended and Restated Credit Agreement and any future
Priority Lien Debt, equally and ratably, on a priority basis, and, (b) subject
to such priority, under the 2007 Notes, 2010 Notes, 2013 Notes and Term Loans
and any future Parity Lien Debt, equally and ratably, with liens and security
interests in, among other collateral, the Encumbered Property under the Existing
Mortgage, as contemplated in the Collateral Trust Agreement.

      1.6 Pursuant to the Collateral Trust Agreement and that certain Assignment
of Liens of even date herewith, the Credit Agreement Agent has assigned to
Beneficiary, all of the Credit Agreement Agent's right, title and interest in
and to, and its interest as beneficiary under, the Existing Mortgage. This Deed
of Trust amends and restates the Existing Mortgage. The Collateral Trust
Agreement sets forth the terms on which the Beneficiary, as collateral trustee
for the present and future holders of the Indebtedness, will receive, hold,
maintain, administer, maintain, enforce and distribute this Deed of Trust and
all interests, rights, powers and remedies of the Collateral Trustee thereunder
and the proceeds thereof.

      1.7 For all purposes of this Deed of Trust, unless the context otherwise
requires:

            A. "Actionable Default" is defined in the Collateral Trust
      Agreement.

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

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

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


                                       3


            C. "Applicable Law" means with respect to any Person or matter, any
      federal, state, regional, tribal or local statute, law, code, rule,
      treaty, convention, application, order, decree, consent decree,
      injunction, directive, determination or other requirement (whether or not
      having the force of law) relating to such Person or matter and, where
      applicable, any interpretation thereof by a Governmental Authority having
      jurisdiction with respect thereto or charged with the administration or
      interpretation thereof.

            D. "Default Interest Rate" means the lesser of (a) ten percent
      (10%), or (b) the Maximum Lawful Rate.

            E. "Encumbered Property" means the properties, rights and interests
      hereinafter described in Section 1.8 and defined as the Encumbered
      Property.

            F. "Environmental Laws" shall mean any and all present and future
      United States federal, tribal, state and local laws or regulations, codes,
      plans, orders, decrees, directives, judgments, injunctions and lawfully
      imposed requirements issued, promulgated or entered thereunder relating to
      pollution or protection of the environment, including laws relating to
      reclamation of land and waterways and laws relating to emissions,
      discharges, releases or threatened releases of pollutants, contaminants,
      chemicals, or industrial, toxic or hazardous substances or wastes into the
      environment (including, without limitation, ambient air, surface water,
      ground water, land surface or subsurface strata) or otherwise relating to
      the manufacture, processing, distribution, use, treatment, storage,
      disposal, transport or handling of pollutants, contaminants, chemicals, or
      industrial, toxic or hazardous substances or wastes.

            G. "Event of Default" means an Actionable Default as defined under
      the Collateral Trust Agreement.

            H. "Governmental Authority" means any and all courts, boards,
      agencies, commissions, offices or authorities of any nature whatsoever for
      any governmental unit (federal, state, county, district, municipal, city,
      tribe or otherwise) whether now or hereafter in existence charged with the
      administration, interpretation or enforcement of any Applicable Law.

            I. "Hedging Agreements" means: (a) interest rate swap agreements,
      basis swap agreements, interest rate cap agreements, forward rate
      agreements, interest rate floor agreements and interest rate collar
      agreements, and all other agreements or arrangements designed to protect
      such Person against fluctuations in interest rates or currency exchange
      rates, and (b) forward contracts, options, futures contracts, futures
      options, commodity swaps, commodity options, commodity collars, commodity
      caps, commodity floors and all other agreements or arrangements designed
      to protect such Person against fluctuations in the price of commodities.


                                       4


            J. "Hedging Obligations" means with respect to any Person, all
      liabilities (including without limitation obligations and liabilities
      arising in connection with or as a result of early or premature
      termination of a Hedging Agreement, whether or not occurring as a result
      of a default thereunder) of such Person under a Hedging Agreement.

            K. "Hydrocarbons" means collectively, oil, gas, casinghead gas, drip
      gasoline, natural gasoline, condensate, distillate and all other liquid or
      gaseous hydrocarbons and related minerals and all products therefrom, in
      each case whether in a natural or a processed state.

            L. "Indebtedness" shall have the meaning set forth in Section 2.2 of
      this Deed of Trust.

            M. "Indemnification Claim" is defined in Section 4.6(a) of this Deed
      of Trust.

            N. "Indemnified Person" means Trustee, Beneficiary and each of the
      Secured Debtholders, their respective employees, affiliates, agents and
      attorneys, and any other Person to be indemnified under this Deed of
      Trust.

            O. "Joint Operating Agreements" shall mean, with respect to the
      lands described in Exhibit A, the respective operating agreement burdening
      the lands described in Exhibit A.

            P. "lands described in Exhibit A" shall include the real property or
      other interest in any lands which are either described in Exhibit A
      attached hereto or the description of which is incorporated in Exhibit A
      by reference to an instrument or document containing in, or referring to,
      such a description, and shall also include any lands now or hereafter
      unitized or pooled with lands which are either described in Exhibit A or
      the description of which is incorporated in Exhibit A by reference and
      Fixtures and all rights, titles and interests appurtenant thereto.
      References to Exhibit A shall include, where applicable, Exhibit A-1 as
      well.

            Q. "Leases" means any and all leases (including without limitation
      oil and gas leases and oil, gas and other minerals leases), surface leases
      or easements, subleases, licenses, concessions, operating rights or other
      agreements (written or verbal, now or hereafter in effect) which grant a
      possessory interest in and to, or the right to explore, use, lease,
      license, possess, produce, process, store and transport Hydrocarbons from,
      operate from, or otherwise enjoy, the Encumbered Property, together with
      all amendments, modifications, extensions and renewals thereof.

            R. "Legal Requirements" means (i) any and all present and future
      judicial decisions, statutes, rulings, rules, regulations, licenses,
      decisions, orders, injunctions, decrees, permits, certificates or
      ordinances of any Governmental Authority in any way applicable to Trustor,
      or the Encumbered Property, including


                                       5


      the ownership, use, occupancy, operation, maintenance, repair or
      reconstruction thereof, and any other Applicable Law enacted by any
      Governmental Authority relating to health or the environment, (ii)
      Trustor's presently or subsequently effective Organic Documents, (iii) any
      and all Leases, (iv) any and all leases and other contracts (written or
      oral) of any nature to which Trustor, or the Encumbered Property may be
      bound and (v) any and all restrictions, restrictive covenants or zoning,
      present and future, as the same may apply to the Encumbered Property.

            S. "Maximum Lawful Rate" means the maximum nonusurious rate of
      interest that may be received, charged or contracted for under Applicable
      Law from time to time in effect.

            T. "Obligations" means any and all of the covenants, warranties,
      representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Trustor or others under any of the
      Secured Debt Documents.

            U. "oil and gas leases" shall include oil, gas and mineral leases,
      subleases and assignments thereof, operating rights, servitudes and shall
      also include subleases and assignments of operating rights.

            V. "Operating Equipment" means all surface or subsurface machinery,
      goods, equipment, fixtures, movable property attached to immovable
      property and other movable property, inventory, facilities, supplies or
      other property of whatsoever kind or nature (excluding drilling rigs,
      trucks, automotive equipment or other property taken to the premises to
      drill a well or for other similar temporary uses) now or hereafter located
      on or under any of the lands described in Exhibit A which are useful for
      the production, gathering, treatment, processing, storage or
      transportation of Hydrocarbons (together with all accessions, additions
      and attachments to any thereof), including, but not by way of limitation,
      all oil wells, gas wells, water wells, injection wells, casing, tubing,
      tubular goods, rods, pumping units and engines, christmas trees,
      platforms, derricks, separators, compressors, gun barrels, flow lines,
      tanks, gas systems (for gathering, treating and compression), pipelines
      (including gathering lines, laterals and trunklines), chemicals,
      solutions, water systems (for treating, disposal and injection), steam
      generation and injection equipment and systems, power plants, poles,
      lines, transformers, starters and controllers, supervisory control and
      data acquisition systems, machine shops, tools, storage yards and
      equipment stored therein, buildings and camps, telegraph, telephone and
      other communication systems, roads, loading docks, loading racks and
      shipping facilities.

            W. "Organic Documents" means the Articles of Incorporation,
      Certificate of Incorporation, limited liability company certificate of
      formation and regulations or operating agreement, partnership agreement,
      limited partnership agreement, joint venture agreement, trust agreement or
      other similar documents governing the organization and operation of a
      business association.


                                       6


            X. "Parity Lien Debt" is defined in the Collateral Trust Agreement.

            Y. "Parity Lien Documents" is defined in the Collateral Trust
      Agreement.

            Z. "Parity Lien Indebtedness" is defined in Section 2.2 of this Deed
      of Trust.

            AA. "Parity Lien Obligations" means any and all of the covenants,
      warranties, representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Trustor or others under any of the
      Parity Lien Documents.

            BB. "Permits" means all authorizations, approvals, permits,
      variances, land use entitlements, consents, licenses, franchises and
      agreements issued by or entered into with any Governmental Authority now
      or hereafter required for all stages of exploration, developing,
      operating, and plugging and abandoning oil and gas wells (including,
      without limitation, those shown on Exhibit A) on all or any part of the
      lands described in Exhibit A (or any other lands any production from
      which, or profits or proceeds from such production, is attributed to any
      interest in the lands described in Exhibit A).

            CC. "Permitted Encumbrances" means the outstanding liens, easements,
      restrictions, exceptions, reservations, conditions, limitations, security
      interests and other matters as permitted by and defined in the Secured
      Debt Documents.

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

            EE. "Personalty" means all of the right, title and interest of
      Trustor now owned or hereafter acquired in and to all furniture,
      furnishings, Equipment, machinery, Goods, General Intangibles, money,
      Accounts, receivables, Contract Rights, Inventory, all refundable,
      returnable or reimbursable fees, deposits or other funds or evidences of
      credit or indebtedness deposited by or on behalf of Trustor with any
      Governmental Authority, agencies, boards, corporations, providers of
      utility services, public or private, including specifically, but without
      limitation, all refundable, returnable or reimbursable tap fees, utility
      deposits, commitment fees and development costs, and all other personal
      property (other than the Fixtures) of any kind or character as defined in
      and subject to the provisions of Article 9 of the Uniform Commercial Code,
      now or hereafter located upon, within or about, or used in connection
      with, the lands described in Exhibit A together with all accessories,
      replacements and substitutions thereto or therefor and the Proceeds
      thereof.

            FF. "Priority Lien Debt" is defined in the Collateral Trust
      Agreement.


                                       7


            GG. "Priority Lien Documents" is defined in the Collateral Trust
      Agreement.

            HH. "Priority Lien Indebtedness" is defined in Section 2.2 of this
      Deed of Trust.

            II. "Priority Lien Obligations" means any and all of the covenants,
      warranties, representations and other obligations (other than to repay the
      Indebtedness) made or undertaken by Trustor or others under any of the
      Priority Lien Documents.

            JJ. "Production Sale Contracts" means contracts now in effect, or
      hereafter entered into by Trustor, or entered into by Trustor's
      predecessors in interest, for the sale, purchase, exchange, gathering,
      transportation, treating or processing of Hydrocarbons produced from the
      lands described in Exhibit A.

            KK. "Rents and Revenues" means all of the rents, revenues, income,
      proceeds, profits and other benefits paid or payable by parties to the
      Leases other than Trustor for using, leasing, licensing, possessing,
      operating, selling or otherwise enjoying the Encumbered Property,
      including the proceeds from the sale of Hydrocarbons.

            LL. "Secured Debt" is defined in the Collateral Trust Agreement.

            MM. "Secured Debtholder" is defined in the Collateral Trust
      Agreement.

            NN. "Secured Debt Documents" is defined in the Collateral Trust
      Agreement.

            OO. "Secured Debt Representative" is defined in the Collateral Trust
      Agreement.

            PP. "Taxes" means all real property and personal property taxes,
      production taxes, assessments, permit fees, water, gas, sewer, electricity
      and other utility rates and charges, charges for any easement, license or
      agreement maintained for the benefit of the Encumbered Property, and all
      other taxes, charges and assessments and any interest, costs or penalties
      with respect thereto, of any kind and nature whatsoever which at any time
      prior to or after the execution hereof may be charged, assessed, levied or
      imposed upon the Encumbered Property or the Rents and Revenues or the
      ownership, use, occupancy or enjoyment thereof.

            QQ. "Transportation Agreements" shall mean any contracts or
      agreements entered into from time to time by Trustor, or entered into by
      Trustor's predecessors in interest, relating to the transportation of
      Hydrocarbons, as any such agreement or contract may be amended,
      supplemented, restated or otherwise modified from time to time.


                                       8


            RR. "Uniform Commercial Code" means the Uniform Commercial Code as
      in effect from time to time in the State of California or any other
      applicable state, and the terms "Accounts," "Account Debtor, "As Extracted
      Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
      "Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
      "Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall
      have the respective meanings assigned to such terms in the Uniform
      Commercial Code.

            SS. "Water Rights" means (including without limitation those
      described in Exhibit A hereto) all now or hereafter existing or acquired
      water and water rights, reservoirs and reservoir rights, ditches and ditch
      rights, wells and well rights, whether evidenced or initiated by permit,
      decree, well registration, appropriation not decreed, water court
      application, shares of stock or other interests in mutual ditch or
      reservoir companies or carrier ditch or reservoir companies or otherwise,
      appertaining or appurtenant to or beneficially used or useful in
      connection with the lands described in Exhibit A, together with all pumps,
      well casings, wellheads, electrical installations, pumphouses, meters,
      monitoring wells and systems, measuring devices, pipes, pipelines, and
      other structures or personal property which are or may be used to produce,
      regulate, measure, distribute, store, or use water from the said water and
      water rights, reservoirs and reservoir rights, ditches and ditch rights,
      wells and well rights.

      1.8 Grant.

      Grant of Priority Lien

      NOW, THEREFORE, Trustor, for and in consideration of the premises and of
the Priority Lien Indebtedness and trusts hereinafter mentioned, has granted,
bargained, sold, warranted, encumbered, assigned, transferred and conveyed, and
by these presents does grant, bargain, sell, warrant, encumber, assign, pledge
and hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE,
for the use and benefit of Beneficiary, all Trustor's right, title and interest,
whether now owned or hereafter acquired, in and to all of the hereinafter
described properties, rights and interests; and, insofar as such properties,
rights and interests consist of equipment, general intangibles, accounts, as
extracted collateral, chattel paper, contract rights, deposit accounts,
documents, goods, instruments, inventory, fixtures, proceeds of collateral or
any other personal property of a kind or character defined in, or subject to the
applicable provisions of the California Uniform Commercial Code, Trustor hereby
grants to said Beneficiary, a security interest therein to the full extent of
Trustor's legal and beneficial interest therein, now owned or hereafter
acquired, namely:

            (a) the lands described in Exhibit A, and Leases, profit a prendre,
      fee, mineral, overriding royalty, royalty and other interests which are
      described in Exhibit A,

            (b) the presently existing and (subject to the terms of Section 6.1
      hereof) hereafter arising unitization, unit operating, communitization and
      pooling


                                       9


      agreements and the properties covered and the units created thereby
      (including, without limitation, all units formed under orders,
      regulations, rules, approvals, decisions or other official acts of any
      Governmental Authority) which are specifically described in Exhibit A or
      which relate to any of the properties and interests specifically described
      in Exhibit A,

            (c) the Hydrocarbons which are in, under, upon, produced or to be
      produced from or which are attributed or allocated to the lands described
      in Exhibit A,

            (d) the Production Sale Contracts,

            (e) the Joint Operating Agreements,

            (f) the Transportation Agreements,

            (g) the Operating Equipment,

            (h) the Permits,

            (i) the Water Rights,

            (j) the Hedging Agreements,

            (k) the Leases,

            (l) the Personalty,

            (m) the Rents and Revenues,

            (n) without duplication of any other provision of this granting
      clause, Equipment, Fixtures and other Goods necessary or used in
      connection with, and Inventory, Accounts, As Extracted Collateral, General
      Intangibles, Contract Rights, Chattel Paper, Deposit Accounts, Documents,
      Electronic Chattel Paper, Instruments and Proceeds arising from, or
      relating to, the properties and other interests described in Exhibit A
      (including Exhibit A-1),

together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, or replacements or substitutions for, any of the same, or
any instrument relating thereto, and all accounts, contracts, contract rights,
options, nominee agreements, unitization or pooling agreements, operating
agreements and unit operating agreements, processing agreements, farmin
agreements, farmout agreements, joint venture agreements, partnership agreements
(including mining partnerships), exploration agreements, bottom hole agreements,
dry hole agreements, support agreements, acreage contribution agreements,
surface use and surface damage agreements, net profits agreements, production
payment agreements, Hedging Agreements, insurance policies, title opinions,
title abstracts, title materials and information, files, records, writings, data
bases, information, systems, logs, well cores,


                                       10


fluid samples, production data and reports, well testing data and reports, maps,
seismic and geophysical, geological and chemical data and information,
interpretative and analytical reports of any kind or nature (including, without
limitation, reserve studies and reserve evaluations), computer hardware and
software and all documentation therefor or relating thereto (including, without
limitation, all licenses relating to or covering such computer hardware,
software and/or documentation), trade secrets, trademarks, service marks and
business names and the goodwill of the business relating thereto, copyrights,
copyright registrations, unpatented inventions, patent applications and patents,
rights-of-way, franchises, bonds, easements, servitudes, surface leases,
permits, licenses, tenements, hereditaments, appurtenances, concessions,
occupancy agreements, privileges, development rights, condemnation awards,
claims against third parties, general intangibles, rents, royalties, issues,
profits, products and proceeds, whether now or hereafter existing or arising,
used or useful in connection with, covering, relating to, or arising from or in
connection with, any of the aforesaid items (a) through n), inclusive, in this
granting clause mentioned, and all other things of value and incident thereto
(including, without limitation, any and all liens, lien rights, security
interests and other properties, rights and interests) which Trustor might at any
time have or be entitled to, but excluding any data or contracts with respect to
which mortgaging or granting of a lien or a security interest is prohibited by
existing third party agreements,

all the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien and security interest of this Deed of
Trust by means of supplements hereto, being hereinafter, collectively, called
the "Encumbered Property."

      Grant of Parity Lien

      NOW, THEREFORE, Trustor, for and in consideration of the premises and the
Parity Lien Obligations and trusts hereafter mentioned, has granted, bargained,
sold, warranted, encumbered, assigned, transferred and conveyed, and by these
presents does grant, bargain, sell, warrant, encumber, assign, pledge and
hypothecate, transfer and convey unto Trustee, IN TRUST, WITH POWER OF SALE, for
the use and benefit of Beneficiary, all Trustor's right, title and interest,
whether now owned or hereafter acquired, in and to all of the Encumbered
Property.

      Subject, however, in each case to (i) Permitted Encumbrances (including
without limitation all presently existing royalties, overriding royalties,
payments out of production and other burdens which are referred to in Exhibit A
and which are taken into consideration in computing any percentage, decimal or
fractional interest as set forth in Exhibit A), (ii) the assignment of
production contained in Article IV hereof, but only insofar and so long as said
assignment of production is not inoperative under the provisions of Section 4.5
hereof, and (iii) the condition that none of Trustee, Beneficiary nor any
Secured Debtholder shall be liable in any respect for the performance of any
covenant or obligation (including, without limitation, measures required to
comply with Environmental Laws) of Trustor in respect of the Encumbered
Property.


                                       11


      TO HAVE AND TO HOLD the Encumbered Property for the benefit of
Beneficiary, and forever to secure the payment of the Indebtedness and to secure
the performance and discharge of the Obligations of Trustor herein and therein
contained.

      As set forth in the separate granting clauses above, it is the intent of
Trustor that such grants shall create two separate and distinct security
interests in all right, title and interest of Trustor in the Encumbered Property
in favor of (a) the Trustee for the benefit of the Beneficiary, for the benefit
of the holders of the Priority Lien Debt, and (b) the Trustee for the benefit of
the Beneficiary, for the benefit of the holders of the Parity Lien Debt.

      Notwithstanding (i) anything to the contrary contained in this instrument
or any other document, filing or agreement related to the creation, attachment,
perfection or existence of the liens and security interests granted herein, (ii)
the time, place, order or method of attachment or perfection of such liens or
security interests, (iii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect such security
interests, and (iv) the rules for determining priority under any law governing
the relative priorities of secured creditors, the lien securing the Parity Lien
Indebtedness is subordinated and junior in priority to the lien securing the
Priority Lien Indebtedness.

      Trustor, in consideration of the Secured Debt as set forth above, hereby
covenants and agrees with each of Trustee and Beneficiary:

                                  ARTICLE II.

                              INDEBTEDNESS SECURED

      2.1 Items of Indebtedness Secured. The following items of indebtedness are
secured hereby:

            (a) The Priority Lien Debt (including future advances to be made
      with respect thereto), and all other Obligations of Trustor under the
      Priority Lien Documents;

            (b) The Parity Lien Debt (including future advances to be made with
      respect thereto), and all other Obligations of Trustor under the Parity
      Lien Documents;

            (c) All Obligations under any other Priority Lien Debt or Parity
      Lien Debt;

            (d) Any sums advanced or expenses or costs incurred by Trustee,
      Beneficiary or any Secured Debtholder, or by any receiver appointed
      hereunder, which are made or incurred pursuant to, or permitted by, the
      terms hereof, plus interest thereon at the rate herein specified or
      otherwise agreed upon, from the date of the advances or the incurring of
      such expenses or costs until reimbursed;


                                       12


            (e) Any and all other indebtedness of Trustor or any Affiliate of
      Trustor to Beneficiary now or hereafter owing, whether direct or indirect,
      primary or secondary, fixed or contingent, joint or several, regardless of
      how evidenced or arising, where the indebtedness provides that it is
      secured hereby; and

            (f) Any extensions, refinancings, modifications or renewals of all
      such indebtedness described in subparagraphs (a) through (e) above,
      whether or not Trustor executes any extension agreement or renewal
      instrument.

      2.2 Indebtedness Defined. All the above items of indebtedness described in
subparagraphs (a) of Section 2.1 and subparagraphs (c) through (f) of Section
2.1 hereof in respect of the Priority Lien Debt, are hereinafter collectively
referred to as the "PRIORITY LIEN INDEBTEDNESS." And all the above items of
indebtedness described in subparagraphs (b) of Section 2.1 and subparagraphs (c)
through (f) of Section 2.1 hereof in respect of the Parity Lien Debt, are
hereinafter collectively referred to as the "PARITY LIEN INDEBTEDNESS"; the
Priority Lien Indebtedness and the Parity Lien Indebtedness are collectively
referred to as the "INDEBTEDNESS".

      2.3 Valid and Subsisting First Lien. Trustor hereby acknowledges and
agrees that, except as otherwise provided by the Secured Debt Documents, the
Existing Mortgage constitutes a valid and subsisting first lien on the portion
of the Encumbered Property encumbered thereby, and that none of the rights and
liens existing thereunder shall be impaired or released hereby, and that the
same as amended and restated hereby shall remain in full force and effect, and
all rights and liens existing and to exist thereunder are renewed, extended,
carried forward, and conveyed to secure all of the Indebtedness hereinabove
mentioned.

      2.4 Amended and Restated Deed of Trust. The Existing Mortgage is amended
and restated in full hereby in order to, among other things, secure all of the
Indebtedness herein described or referred to as if reference to such
Indebtedness were fully described in the Existing Mortgage. None of the rights,
titles, and interests, existing or to exist under the Existing Mortgage are
hereby released, diminished or impaired.

      2.5 No Impairment or Discharge of Liens. It is the express intention of
all parties hereto that the Secured Debtholders are subrogated to all of the
rights, powers, and equities of the original lenders and beneficiary under the
Existing Mortgage, that the liens created hereby shall relate back to and be
effective as of the effective date of the Existing Mortgage and that nothing
contained herein shall be construed to impair or discharge the liens and
security interests created thereby.

                                  ARTICLE III.

                      PARTICULAR COVENANTS, REPRESENTATIONS
                            AND WARRANTIES OF TRUSTOR

      3.1 Payment of the Indebtedness and Performance of Obligations. Trustor
will duly and punctually pay the Indebtedness, as and when called for in the
Secured


                                       13


Debt Documents and on or before the due dates thereof, and will timely perform
and discharge all of the Obligations in full and on or before the dates same are
to be performed and discharged.

      3.2 Certain Representations and Warranties. Trustor represents and
warrants (and with respect to those matters set forth in the following
subsections (b) and (f), as to those portions of the Encumbered Property that
are operated by persons other than Trustor or a Subsidiary of Trustor, Trustor
makes such representation and warranty to the best of its knowledge) that

            (a) the oil and gas leases described in Exhibit A hereto are valid,
      subsisting leases, superior and paramount to all other oil and gas leases
      respecting the properties to which they pertain,

            (b) all producing wells located on the lands described in Exhibit A
      (including Exhibit A-1) have been drilled, operated and produced in
      conformity with all Applicable Laws of all Governmental Authorities having
      jurisdiction, and are subject to no penalties on account of past
      production, and such wells are in fact bottomed under and are producing
      from, and the well bores are wholly within, the lands described in Exhibit
      A or lands pooled or unitized therewith,

            (c) Trustor, to the extent of the interest specified in Exhibit A
      (including Exhibit A-1), has valid and indefeasible title to each property
      right or interest constituting the Encumbered Property described in
      Exhibit A (including Exhibit A-1) and has a good and legal right to grant
      and convey the same to Trustee; such interest entitles Trustor to receive
      not less than the share of Hydrocarbons from such property indicated as
      its net revenue interest or "NRI" share of such Hydrocarbons, and
      obligates Trustor to pay for not more than the share of operating and
      other costs, liabilities and expenses associated with such property
      indicated as its working interest or "Wl" share of such costs, liabilities
      and expenses,

            (d) excepting the Permitted Encumbrances, the Encumbered Property is
      free from all encumbrances or liens whatsoever,

            (e) Trustor is not obligated, by virtue of any prepayment under any
      contract providing for the sale by Trustor of Hydrocarbons which contains
      a "take or pay" clause or under any similar arrangement, to deliver
      Hydrocarbons at some future time without then or thereafter receiving full
      payment therefor,

            (f) the Encumbered Property is currently being operated, maintained
      and developed, in all material respects, in accordance with all applicable
      currently existing Permits, Legal Requirements and all Applicable Laws
      (including, without limitation, Environmental Laws),

            (g) the cover page to this Deed of Trust lists the correct legal
      name of Trustor and Trustor has not been known by any legal name different
      from the one set forth on the cover page of this Deed of Trust,


                                       14


            (h) the execution, delivery, and performance by Trustor of this Deed
      of Trust (i) are within Trustor's corporate powers and have been duly
      authorized by Trustor's Board of Directors, shareholders and all other
      requisite corporate action, (ii) have received all (if any) requisite
      prior governmental approval and consent in order to be legally binding and
      enforceable in accordance with the terms thereof, and (iii) will not
      violate, be in conflict with, result in a breach or constitute (with due
      notice or lapse of time, or both) a default under, any Legal Requirement
      or result in the creation or imposition of any lien, charge or encumbrance
      of any nature whatsoever upon any of Trustor's property or assets, except
      as contemplated by the provisions of the Secured Debt Documents, and

            (i) except as permitted by the Secured Debt Documents, there are no
      actions, suits or proceedings pending, or to the knowledge of Trustor
      threatened, against or affecting Trustor or the Encumbered Property that
      could materially adversely affect Trustor or the Encumbered Property, or
      involving the validity or enforceability of this Deed of Trust or the
      priority of the liens and security interests created by the Secured Debt
      Documents, and no event has occurred (including specifically Trustor's
      execution of this Deed of Trust which will violate, be in conflict with,
      result in the breach of, or constitute (with due notice or lapse of time,
      or both) a material default under, any Legal Requirement or result in the
      creation or imposition of any lien, charge or encumbrance of any nature
      whatsoever upon any of Trustor's property other than the liens and
      security interests created by the Secured Debt Documents.

      3.3 Further Assurances. Trustor will warrant and forever defend the
Encumbered Property unto Trustee and Beneficiary, as the case may be, against
every person whomsoever lawfully claiming the same or any part thereof, subject
to Permitted Encumbrances, and Trustor will maintain and preserve the lien and
security interest hereby created so long as any of the Indebtedness remains
unpaid. Trustor will execute and deliver such other and further instruments and
will do such other and further acts as may be required pursuant to the
Collateral Trust Agreement and/or any Secured Debt Documents to carry out more
effectually the purposes of this Deed of Trust, including, without limiting the
generality of the foregoing, (i) prompt correction of any defect which may
hereafter be discovered in the title to the Encumbered Property or in the
execution and acknowledgment of this Deed of Trust, the Secured Debt Documents,
or any other document executed in connection herewith, and (ii) at any time a
Secured Debt Representative may request and upon such request, promptly execute
all notices to parties operating, purchasing or receiving proceeds of production
of Hydrocarbons from the Encumbered Property, and all division orders or
transfer orders needed in order to transfer effectually or to assist in
transferring effectually to the Beneficiary the assigned proceeds of production
from the Encumbered Property, which notices, division orders and transfer orders
shall be held by such Secured Debt Representative and delivered upon an Event of
Default.

      3.4 Operation of the Encumbered Property. So long as the Indebtedness or
any part thereof remains unpaid, and whether or not Trustor is the operator of
any particular part of the Encumbered Property, Trustor shall, at Trustor's own
expense:


                                       15


            (a) Do all things necessary to keep unimpaired Trustor's rights in
      the Encumbered Property and not abandon any well or forfeit, surrender or
      release any Lease, except that Trustor may, in the ordinary course of
      business, (i) plug and abandon any well no longer capable of producing
      Hydrocarbons in paying quantities, (ii) surrender or release any Lease or
      a portion thereof so long as no well capable of producing Hydrocarbons in
      paying quantities is located on such Lease or a portion thereof or
      production from any such well is attributed to such Lease or a portion
      thereof, (iii) surrender or release any Lease or a portion thereof on
      which no producing well has ever been drilled or which has never been held
      by production from another well unless Proven Reserves (as defined in any
      Secured Debt Document) are attributed to such Lease or a portion thereof
      and (iv) abandon, forfeit, surrender or release any other portion of the
      Encumbered Property to the extent permitted under the then existing
      Secured Debt Documents;

            (b) Obtain and maintain all required Permits and cause the lands
      described in Exhibit A to be maintained, developed, protected against
      drainage, and operated for the production of Hydrocarbons in a good and
      workmanlike manner as would a prudent operator, and consistent with
      industry practices, Joint Operating Agreements, and all Applicable Laws,
      excepting those being contested in good faith; and plug and abandon wells
      no longer capable of producing Hydrocarbons in paying quantities in
      accordance with all Applicable Laws, Legal Requirements and the terms and
      conditions of applicable Leases; and remediate the lands described in
      Exhibit A and facilities located thereon in accordance with all Applicable
      Laws, Legal Requirements and the terms and conditions of applicable
      Leases;

            (c) Duly pay and discharge, or cause to be paId and discharged,
      promptly as and when due and payable, all rentals and royalties (including
      shut-in royalties) payable in respect of the Encumbered Property (other
      than rentals under Leases that are surrendered pursuant to the foregoing
      Section 3.4(a)), and all expenses incurred in or arising from the
      operation or development of the Encumbered Property not later than the due
      date thereof, or the day any fine, penalty, interest or cost may be added
      thereto or imposed, or the day any lien may be filed, for the non-payment
      thereof (if such day is used to determine the due date of the respective
      item) except as to such matters which are being contested by Trustor in
      good faith;

            (d) Cause the Operating Equipment to be kept in good and effective
      operating condition, ordinary wear and tear excepted, and all repairs,
      renewals, replacements, additions and improvements thereof or thereto,
      needful to the production of Hydrocarbons from the lands described in
      Exhibit A, to be promptly made;

            (e) Not, except as permitted under the Secured Debt Documents,
      create, place or permit to be created or placed, or through any act or
      failure to act, acquiesce in the placing of, or allow to remain, any
      mortgage, pledge, lien


                                       16


      (statutory, constitutional or contractual), security interest, encumbrance
      or charge, or conditional sale or other title retention agreement,
      regardless of whether same are expressly subordinate to the liens of the
      Secured Debt Documents, with, respect to all or any portion of the
      Encumbered Property, the Leases or the Rents and Revenues other than (1)
      the Permitted Encumbrances, (2) Taxes constituting a lien but not due and
      payable, (3) defects or irregularities in title, and liens, charges or
      encumbrances, which are customarily viewed in the industry as not
      interfering materially with the development, operation or value of the
      Encumbered Property and not such as to affect materially title thereto,
      and (4) those being contested by Trustor in good faith in such manner as
      not to jeopardize Beneficiary's rights in and to the Encumbered Property;

            (f) Carry with financially sound and reputable insurance companies
      and in amounts as is customary in the industry or as otherwise required
      pursuant to the Secured Debt Documents, the following insurance: (1)
      workmen's compensation insurance and public liability and property damage
      insurance in respect of all activities in which Trustor might incur
      personal liability for the death of or injury to an employee or third
      person, or damage to or destruction of another's property; and (2) to the
      extent such insurance is carried by similar companies engaged in similar
      undertakings in, the same general areas in which the Encumbered Property,
      is located, insurance in respect of the Operating Equipment, against loss
      or damage by fire, lightning, hail, tornado, explosion and other similar
      risks, hazards, casualties and contingencies (including business
      interruption insurance covering loss of Rents and Revenues); provided,
      that any such insurance may be provided by way of self insurance to the
      extent that similar companies engaged in similar undertakings in the same
      general areas also self-insure. Each insurance policy issued in connection
      therewith shall provide by way of endorsements, riders or otherwise that
      (i) name Beneficiary as a loss payee on all property insurance policies
      and an additional insured on all liability insurance policies, and provide
      that proceeds from property insurance policies will be payable to
      Beneficiary as its interest may appear, which proceeds are hereby assigned
      to Beneficiary, it being agreed by Trustor that such payments shall be
      applied A) if there be no Event of Default existing or which would exist
      but for due notice or lapse of time, or both, to the restoration, repair
      or replacement of the Encumbered Property, or B) if there be an Event of
      Default existing, or which would exist but for due notice or lapse of
      time, or both, in accordance with the provisions of the Collateral Trust
      Agreement, either for the above stated purpose or toward the payment of
      the Indebtedness; (ii) the coverage of Beneficiary shall not be
      terminated, reduced or affected in any manner regardless of any breach or
      violation by Trustor of any warranties, declarations or conditions in such
      policy; (iii) no such insurance policy shall be canceled, endorsed,
      altered or reissued to effect a change in coverage for any reason and to
      any extent whatsoever unless such insurer shall have first given
      Beneficiary and each Secured Debt Representative thirty (30) days prior
      written notice thereof; and (iv) Beneficiary may, but shall not be
      obligated to, make premium payments to prevent any cancellation,
      endorsement, alteration or re-issuance and such payments shall be accepted
      by the insurer to prevent the


                                       17


      same. Beneficiary and each Secured Debt Representative shall be furnished
      with a certificate evidencing such coverage in form and content comparable
      to coverage typically provided in the industry. All policies to be
      maintained under this Deed of Trust are to be issued on forms and by
      companies and with endorsements as are customary in the industry. Trustor
      shall maintain insurance in an amount sufficient to prevent Trustor from
      becoming a co-insurer under any policy required hereunder. If Trustor
      fails to maintain the level of insurance required under this Deed of
      Trust, then Trustor shall and hereby agrees to indemnify Beneficiary to
      the extent that a casualty occurs and insurance proceeds would have been
      available had such insurance been maintained;

            (g) Furnish to Beneficiary and each Secured Debt Representative, as
      soon as possible and in any event within five (5) days after the
      occurrence from time to time of any change in the address of Trustor's
      location (as described on the signature page hereto) or in the name of
      Trustor, notice in writing of such change;

            (h) Not initiate or acquiesce in any change in any material zoning
      or other land use or Water Rights classification now or hereafter in
      effect and affecting the Encumbered Property or any part thereof;

            (i) Notify Beneficiary and each Secured Debt Representative in
      writing, as soon as possible and in any event within five (5) days after
      it shall become aware of the occurrence of any Event of Default or any
      event which, with notice, the passage of time or both would be such an
      Event of Default;

            (j) Appear and defend, and hold Beneficiary and any Secured
      Debtholder harmless from, any action, proceeding or claim affecting the
      Encumbered Property or the rights and powers of Beneficiary or Secured
      Debtholders under the Secured Debt Documents, and all costs and expenses
      incurred by Beneficiary or any Secured Debtholder in protecting its
      interests hereunder in such an event (including all court costs and
      attorneys' fees) shall be borne by Trustor;

            (k) Subject to Trustor's right to contest the same, promptly pay all
      Taxes legally imposed upon this instrument or upon the Encumbered Property
      or upon the income and profits thereof, or upon the interest of
      Beneficiary therein; provided that Trustor shall not be liable for taxes
      accruing after a transfer of the Encumbered Property following a
      foreclosure;

            (l) Comply with, conform to and obey, in all material respects, all
      present and future Legal Requirements and not use, maintain, operate,
      occupy, or allow the use, maintenance, operation or occupancy of, the
      Encumbered Property in any manner which (a) violates any present and
      future Legal Requirement, (b) may be dangerous unless safeguarded as
      required by Applicable Law, (c) constitutes a public or private nuisance
      or (d) makes void,


                                       18


      voidable or cancelable, or increases the premium of, any insurance then in
      force with respect thereto; and

            (m) Not, except as authorized under the Secured Debt Documents,
      permit any of the Fixtures or Personalty to be removed at any time from
      the lands described in Exhibit A unless (i) the removed item is removed
      temporarily for maintenance and repair, (ii) if removed permanently, is
      replaced by an article of equal suitability and value, owned by Trustor,
      free and clear of any lien or security interest or (iii) such Fixtures or
      Personalty are removed in connection with the plugging and abandoning of
      wells, or abandonment of other facilities, in each case as permitted by
      this Deed of Trust.

      3.5 Performance of Leases. Trustor will: (a) duly and punctually perform
and comply with any and all representations, warranties, covenants and
agreements expressed as binding upon it under each of the Leases; (b) subject to
the exceptions provided for in Section 3.4(a), not voluntarily terminate, cancel
or waive its rights or the obligations of any other party under any of the
Leases; (c) subject to the exceptions provided for in Section 3.4(a), use all
reasonable efforts to maintain each of the Leases in force and effect during the
full term thereof, and (d) appear in and defend (or cause its operator to appear
in and defend) any action or proceeding arising under or in any manner connected
with any of the Leases or the representations, warranties, covenants and
agreements of it or the other party or parties thereto.

      3.6 Recording, etc. Trustor will promptly, and at Trustor's expense,
record, register, deposit and file this and every other instrument in addition
or supplemental hereto in such offices and places and at such times and as often
as may be necessary to preserve, protect and renew the lien and security
interest hereof as a first lien on and prior perfected security interest in real
or personal property, as the case may be, and the rights and remedies of
Beneficiary and Secured Debtholders, and otherwise will do and observe all
things or matters necessary or expedient to be done or observed by reason of any
Applicable Law, for the purpose of effectively creating, maintaining and
preserving the lien and security interest hereof on and in the Encumbered
Property.

      3.7 Sale or Deed of Trust of the Encumbered Property. Except (a) as set
forth in Section 6.1 of this Deed of Trust; (b) for sales of severed
Hydrocarbons in the ordinary course of Trustor's business; (c) for sales of or
dispositions of surplus, obsolete or worn inventory or equipment; (d) for the
lien and security interest created by this Deed of Trust; (e) for Permitted
Encumbrances; and (f) for sales, exchanges or other dispositions of Encumbered
Property permitted under the Secured Debt Documents governing Priority Lien Debt
and permitted under the Secured Debt Documents governing Parity Lien Debt,
Trustor will not sell, convey, mortgage, pledge, hypothecate, pool, unitize or
otherwise dispose of or encumber the Encumbered Property nor any portion
thereof, nor any of Trustor's right, title or interest therein, and Trustor will
not enter into any arrangement with any gas pipeline company or other consumer
of Hydrocarbons regarding the Encumbered Property whereby said gas pipeline
company or consumer may set off any claim against Trustor by withholding payment
for any Hydrocarbons actually delivered.


                                       19


      3.8 Records, Statements and Reports. Trustor will keep proper books of
record and account in which complete and correct entries will be made of
Trustor's transactions in accordance with generally accepted accounting
principles and will furnish or cause to be furnished to each Secured Debt
Representative such information concerning the business, affairs and financial
condition of Trustor as required under the Secured Debt Documents. Without
limiting the generality of the foregoing, Trustor shall furnish to Beneficiary
and each Secured Debt Representative, but not more than every six (6) months:
(a) reports prepared by a reputable national independent petroleum engineer
regularly engaged by Trustor or other engineering firm acceptable to the Credit
Agreement Agent concerning (1) the quantity of Hydrocarbons recoverable from the
Encumbered Property, (2) the projected income and expense attributable to the
Encumbered Property, and (3) the expediency of any change in methods of
treatment or operation of all or any wells productive of Hydrocarbons, any new
drilling or development, any method of secondary recovery by repressuring or
otherwise, or any other action with respect to the Encumbered Property, the
decision as to which may increase or reduce the quantity of Hydrocarbons
ultimately recoverable or the rate of production thereof, and (b) reports for
the prior period showing the gross proceeds from the sale of Hydrocarbons
produced from the lands described in Exhibit A (including any thereof taken by
Trustor for Trustor's own use), the quantity of such Hydrocarbons sold, the
severance, gross production, occupation, or gathering taxes deducted from or
paid out of such proceeds and the number of wells operated, drilled or
abandoned.

      3.9 Right of Entry.

            (a) Upon at least twenty-four (24) hours notice to Trustor, Trustor
      will permit Beneficiary, each Secured Debt Representative and/or the
      agents of either of them, at the cost and expense of Trustor, to enter
      upon the Encumbered Property and all parts thereof, for the purpose of
      investigating and inspecting the condition and operation thereof, and
      shall permit reasonable access to the field offices and other offices (to
      the fullest extent that Trustor may do so under the terms of the
      applicable Joint Operating Agreements and other applicable agreements
      affecting the Encumbered Property), including the principal place of
      business, of Trustor to inspect and examine the Encumbered Property and to
      inspect, review and reproduce as necessary any books, records, accounts,
      contracts or other documents of Trustor, it being understood that any
      non-public information obtained in connection therewith shall be subject
      to the relevant confidentiality provisions of the Secured Debt Documents
      then in effect.

            (b) Without limiting the generality of the foregoing, Beneficiary
      shall have the right (but shall not be obligated to), and each Secured
      Debt Representative and its agents shall have the right (to the fullest
      extent that Trustor may do so under the terms of the applicable Joint
      Operating Agreements and other applicable agreements affecting the
      Encumbered Property), on twenty-four (24) hours prior notice to Trustor to
      enter the Encumbered Property to conduct (at the cost and expense of
      Trustor), or to cause Trustor to conduct (at the cost and expense of
      Trustor), such tests and investigations as may be necessary to determine
      whether any hazardous materials or solid waste is being


                                       20


      generated, transported, stored, or disposed of in accordance with
      applicable Environmental Laws. Such tests and investigations may include,
      without limitation, underground borings, ground water analyses and borings
      from the floors, ceilings and walls of any improvements located on the
      Encumbered Property. This Section 3.9 shall not be construed to affect or
      limit the obligations of Trustor pursuant to Section 3.4 hereof.

            (c) Neither Beneficiary nor any Secured Debt Representative shall
      have any duty to visit or observe the Encumbered Property, or to conduct
      tests, and no site visit, observation or testing by any such person (or
      its agents and independent contractors) shall impose any liability on any
      such person nor shall Trustor or any other obligor be entitled to rely on
      any such visit, observation or testing in any respect. Beneficiary or a
      Secured Debt Representative may, but shall not be obligated to, disclose
      to Trustor or, subject to the relevant confidentiality provisions of the
      Secured Debt Documents then in effect, any other Person, including any
      Governmental Authority, any report or finding made as a result of, or in
      connection with, any site visit, observation or testing. Trustor agrees
      that neither Beneficiary nor any Secured Debt Representative makes any
      warranty or representation to Trustor or any other obligor regarding the
      truth, accuracy or completeness of any such report or findings that may be
      so disclosed. Trustor also acknowledges that, depending upon the results
      of any site visit, observation or testing disclosed to Trustor, Trustor
      may have a legal obligation to notify one or more Governmental Authorities
      of such results, that such reporting requirements are site-specific, and
      are to be evaluated by Trustor without advice or assistance from
      Beneficiary or any Secured Debt Representative.

      3.10 Taxes. Subject to Trustor's right to contest the same, Trustor will
promptly pay all taxes, assessments and governmental charges legally imposed
upon this instrument or upon the Encumbered Property, or upon the interest of
Beneficiary therein, or upon the income and profits thereof.

      3.11 No Governmental Approvals. Trustor represents and warrants that (a)
no approval or consent of any regulatory or administrative commission or
authority, or of any other governmental body, is necessary to authorize the
execution and delivery of this Deed of Trust, or to authorize the observance or
performance by Trustor of the covenants herein, or that such approvals as are
required have been obtained or will be obtained promptly and (b) Trustor has
obtained all Permits which are necessary for the operation of the Encumbered
Property.

      3.12 Environmental Laws. Trustor represents and warrants, to the best of
its knowledge after due inquiry that, except as permitted by the Secured Debt
Documents, the Encumbered Property is in material compliance with all applicable
Environmental Laws; there are no conditions existing currently which would be
likely to subject Trustor to damages, penalties, injunctive relief or cleanup
costs under any Environmental Laws or assertions thereof, or which require or
are likely to require cleanup, removal, remedial action or other response
pursuant to Environmental Laws by Trustor; Trustor is not a


                                       21


party to any litigation or administrative proceedings, nor so far as is known by
Trustor is any litigation or administrative proceeding threatened against it,
which asserts or alleges that Trustor has violated or is violating Environmental
Laws or that Trustor is required to clean up, remove or take remedial or other
responsive action due to the disposal, depositing, discharge, leaking or other
release of any hazardous substances or materials; neither the Encumbered
Property nor Trustor is subject to any judgment, decree, order or citation
related to or arising out of Environmental Laws and neither has been named or
listed as a potentially responsible party by any governmental body or agency in
a matter arising under any Environmental Laws. Trustor has also obtained all
permits, licenses or approvals required under applicable Environmental Laws
which are necessary for its current exploration, use, and development activities
at the Encumbered Property; and to Trustor's knowledge after reasonable
investigation all use, generation, manufacturing, release, discharge, storage,
deposit, treatment, recycling or disposal of any materials on, under or at the
Encumbered Property or transported to or from the Encumbered Property (or tanks
or other facilities thereon containing such materials) are being and will be
conducted in accordance, in all material respects, with applicable Environmental
Laws including without limitation those requiring cleanup, removal or any other
remedial action.

      3.13 Corporate Status. Trustor will continue to be duly qualified to
transact business in California and each state where the conduct of its business
requires it to be qualified, and will not, unless permitted pursuant to the
Secured Debt Documents, consolidate or merge with any other partnership,
company, corporation or other Person.

      3.14 Taxpayer I.D. Number. The taxpayer identification number of Trustor
is 77-0212977. The taxpayer identification number of Beneficiary is 13-5160382.

                                  ARTICLE IV.

                            ASSIGNMENT OF PRODUCTION

      4.1 Assignment.

            (a) Trustor hereby absolutely and irrevocably (a) transfers,
      assigns, warrants and conveys, to Beneficiary, effective as of July 1,
      2003, at 7:00 A.M., local time, all Hydrocarbons which are thereafter
      produced from and which accrue to the Encumbered Property, and all
      proceeds therefrom, and (b) gives to and confers upon Beneficiary the
      right, power and authority to collect such Hydrocarbons and proceeds.
      Subject to the terms of Section 4.1 (b), all parties producing, purchasing
      or receiving any such Hydrocarbons, or having such, or proceeds therefrom,
      in their possession for which they or others are accountable to
      Beneficiary by virtue of the provisions of this Article IV, are authorized
      and directed to treat and regard Beneficiary as the assignee and
      transferee of Trustor and entitled in Trustor's place and stead to receive
      such Hydrocarbons and all proceeds therefrom; and said parties and each of
      them shall be fully protected in so treating and regarding Beneficiary and
      shall be under no obligation to see to the application by Beneficiary of
      any such proceeds or payments received by it;


                                       22


      provided, however, that, until Beneficiary or any Secured Debt
      Representative shall have instructed such parties that an Event of Default
      has occurred and to deliver such Hydrocarbons and all proceeds therefrom
      directly to Beneficiary, such parties shall be entitled to deliver such
      Hydrocarbons and all proceeds therefrom directly to Trustor. So long as no
      Event of Default has occurred, Trustor shall be entitled to receive
      directly from such parties, and keep and retain, all such proceeds from
      the sale of such Hydrocarbons.

            (b) Upon the occurrence of an Event of Default (provided that the
      Secured Debt Representative shall not give such instructions and notice
      under this Article IV unless such Event of Default shall then be
      continuing) any Secured Debt Representative may at any time (and from time
      to time) thereafter give notice thereof to any party producing, purchasing
      or receiving any such Hydrocarbons, or having such, or proceeds therefrom,
      in their possession for which they or others are accountable to
      Beneficiary, that said Hydrocarbons and products are to be delivered into
      pipelines connected with the oil and gas leases, or to the purchaser
      thereof, free and clear of all Taxes, and the proceeds from the sale of
      such Hydrocarbons paid directly to Beneficiary in accordance with Section
      4.5 of this Deed of Trust. Said parties producing, purchasing or receiving
      any such Hydrocarbons, or having such, or proceeds therefrom, in their
      possession for which they or others are accountable to Beneficiary by
      virtue of the provisions of this Article IV, shall be fully protected in
      relying on any such Secured Debt Representative's determination and notice
      of the occurrence of an Event of Default. Trustor agrees to perform all
      such acts, and to execute all such further assignments, transfers and
      division orders, and other instruments as may be required pursuant to the
      Collateral Trust Agreement or any of the Secured Debt Documents in order
      to have said revenues and proceeds so paid to Beneficiary, as and when
      provided in this Article IV. With respect to any funds received by
      Beneficiary, Beneficiary is fully authorized to (but shall not be
      obligated to) receive and give receipt for any such revenues and proceeds
      that are received by Beneficiary; to endorse and cash any and all checks
      and drafts payable to the order of Trustor or Beneficiary for the account
      of Trustor received from or in connection with said revenues or proceeds
      and apply the proceeds thereof in accordance with Section 4.2 hereof, and
      to execute transfer and division orders in the name of Trustor, or
      otherwise, with warranties binding Trustor. The assignment of the
      Hydrocarbons and proceeds in this Section 4.1 is intended to be an
      absolute assignment from Trustor to Beneficiary and not merely the passing
      of a security interest. Such Hydrocarbons and proceeds are hereby assigned
      absolutely by Trustor to Beneficiary.

      4.2 Application of Proceeds. All payments received by Beneficiary pursuant
to Section 4.1 hereof shall be placed in a cash collateral account to be applied
in accordance with the provisions of the Collateral Trust Agreement.

      4.3 No Liability of Beneficiary in Collecting. Beneficiary is hereby
absolved from all liability for failure to enforce collection of any proceeds so
assigned (and no such failure shall be deemed to be a waiver of any right of
Beneficiary under this Article


                                       23


IV) and from all other responsibility in connection therewith, except the
responsibility to account to Trustor for funds actually received.

      4.4 Assignment Not a Restriction on Beneficiary's Rights. Nothing herein
contained shall detract from or limit the absolute obligation of Trustor to make
payment of the Indebtedness regardless of whether the proceeds assigned by this
Article IV are sufficient to pay the same, and the rights under this Article IV
shall be in addition to all other security now or hereafter existing to secure
the payment of the Indebtedness.

      4.5 Status of Assignment. Notwithstanding the other provisions of this
Article IV and in addition to the other rights hereunder, Beneficiary or any
receiver appointed in judicial proceedings for the enforcement of this Deed of
Trust shall have the right to receive all of the Hydrocarbons herein assigned
and the proceeds therefrom after the occurrence and during the continuance of
any Event of Default and to apply all of said proceeds as provided in Section
4.2 hereof. Upon any sale of the Encumbered Property or any part thereof
pursuant to Article V, the rents, issues, profits and Hydrocarbons thereafter
produced from the property so sold, and the proceeds therefrom, shall be
included in such sale and shall pass to the purchaser free and clear of the
assignment contained in this Article IV.

      4.6 Indemnification Obligation. The following provisions shall apply to,
and be deemed in each case to modify, each of the provisions of this Deed of
Trust (except those set forth in Section 3.10 hereof) and the other Secured Debt
Documents (except to the extent otherwise expressly provided therein) wherein
Trustor is obligated to indemnify each of the Indemnified Persons:

            (a) Trustor agrees to indemnify Beneficiary, the Secured
      Debtholders, Trustee and their respective employees, affiliates, agents
      and attorneys, under the Deed of Trust and any successors or substitute
      trustee under the Deed of Trust, against all legal and administrative
      proceedings for which a claim for indemnification may be made by the
      Indemnified Person (herein, collectively, called "Indemnification Claims")
      made against or incurred by them or any of them as a consequence of the
      assertion, either before or after the payment in full of the Indebtedness,
      that they or any of them received Hydrocarbons herein assigned or the
      proceeds thereof claimed by third persons and Beneficiary, Secured
      Debtholders, and Trustee shall have the right to defend against any such
      Indemnification Claims, employing attorneys therefor, and unless furnished
      with reasonable indemnity, they or any of them shall have the right to pay
      or compromise and adjust all such Indemnification Claims. Trustor will
      indemnify and pay to Beneficiary, Secured Debtholders and Trustee any and
      all such amounts as may be paid in respect thereof or as may be
      successfully adjudged against such persons. The obligations of Trustor as
      hereinabove set forth in this Section 4.6 shall survive the release
      termination, foreclosure or assignment of this Deed of Trust or any sale
      hereunder.

            (b) Trustor shall pay when due any judgments with respect to an
      Indemnification Claim against any of the Indemnified Persons and which are


                                       24


      rendered by a final order or decree of a court of competent jurisdiction
      from which no further appeal may be taken or has been taken within the
      applicable appeal period. In the event that such payment is not made, any
      of the Indemnified Persons at its sole discretion may pay any such
      judgments, in whole or in part, and look to Trustor for reimbursement
      pursuant to this Deed of Trust, or may proceed to file suit against
      Trustor to compel such payment.

            (c) Any amount which Trustor is obligated to pay to or for the
      benefit of an Indemnified Person with respect to an Indemnification Claim,
      but which is not paid when due, shall bear interest at the applicable rate
      set forth under the Secured Debt Documents from the date such amount is
      due until such amount is paid.

                                   ARTICLE V.

                           ENFORCEMENT OF THE SECURITY

      5.1 REMEDIES. Upon the occurrence of an Event of Default, the Beneficiary
may:

            (a) Commence an action to foreclose this instrument as a mortgage,
      appoint a receiver, or specifically enforce any of the covenants hereof.

            (b) Exercise any or all of the remedies available to a secured party
      under the Uniform Commercial Code of the State of California, including,
      but not limited to:

                  (i) Either personally or by means of a court appointed
            receiver, take possession of all or any of the personal property
            constituting a part of the Encumbered Property and exclude therefrom
            the Trustor and all others claiming under the Trustor, and
            thereafter hold, store, use, operate, manage, maintain and control,
            make repairs, replacements, alterations, additions and improvements
            to and exercise all rights and powers of the Trustor in respect of
            such personal property or any part thereof. In the event the Secured
            Debt Representative demands or attempts to take possession of such
            personal property in the exercise of any rights under the Secured
            Debt Documents or any document executed in connection therewith, the
            Trustor promises and agrees promptly to turn over and deliver
            complete possession thereof to the Secured Debt Representative;

                  (ii) Without notice to or demand upon the Trustor, make such
            payments and do such acts as the Secured Debt Representative may
            deem necessary to protect its security interest in such personal
            property, including without limitation, paying, purchasing,
            contesting or compromising any encumbrance, charge or lien which is
            prior to or superior to the security interest granted hereunder, and
            in exercising any


                                       25


            such powers or authority to pay all expenses incurred in connection
            therewith;

                  (iii) Require the Trustor to assemble such personal property
            or any portion thereof, at a place designated by the Secured Debt
            Representative and reasonably convenient to both parties, and
            promptly to deliver such personal property to the Secured Debt
            Representative, or an agent or representative designated by it. The
            Secured Debt Representative, and its agents and representatives
            shall have the right to enter upon any or all of the Trustor's
            premises and property to exercise the Secured Debt Representative's
            rights hereunder;

                  (iv) Elect to treat the fixtures constituting a part of the
            Encumbered Property as either real property collateral or personal
            property collateral and then proceed to exercise such rights as
            apply to such type of collateral; and

                  (v) Sell, lease or otherwise dispose of such personal property
            at public sale, with or without having such personal property at the
            place of sale, and upon such terms and in such manner as the Secured
            Debt Representative may determine, and the Secured Debt
            Representative may be a purchaser at any such sale.

      Unless such personal property is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market, the
Secured Debt Representative shall give the Trustor at least ten (10) days prior
written notice of the time and place of any public sale of such personal
property or other intended disposition thereof. Such notice may be mailed to the
Trustor at the address set forth on the signature page(s) of this instrument.

            (c) Deliver to the Trustee a written declaration of default and
      demand for sale, and a written notice of default and election to cause the
      Trustor's interest in the Encumbered Property to be sold, which notice the
      Trustee or the Secured Debt Representative shall cause to be duly filed
      for record in the Official Records of the county or counties in which the
      Encumbered Property is located.

            (d) Any other remedy permitted to be exercised by the beneficiary of
      a deed of trust or a secured party or both under the laws of the State of
      California.

      5.2 Foreclosure By Power of Sale. Should Beneficiary elect to foreclose by
exercise of the power of sale herein contained, Beneficiary shall notify Trustee
and shall deposit with Trustee this instrument and such receipts and evidence of
expenditures made and secured hereby as Trustee may require.

            (a) Upon receipt of such notice from Beneficiary, Trustee shall
      cause to be recorded, published and delivered to Trustor such Notice of
      Default and Election to Sell as then required by law and by this
      instrument. Trustee shall, without demand on Trustor, after lapse of such
      time as may then be required by


                                       26


      law and after recordation of such Notice of Default and after Notice of
      Sale having been given as required by law, sell the Encumbered Property at
      the time and place of sale fixed by it in said Notice of Sale, either as a
      whole, or in separate lots or parcels or items as Trustee shall deem
      expedient, and in such order as it may determine, at public auction to the
      highest bidder for cash in lawful money of the United States payable at
      the time of sale. Trustee shall deliver to such purchaser or purchasers
      thereof its good and sufficient deed or deeds conveying the property so
      sold, but without any covenant or warranty, express or implied. The
      recitals in such deed of any matters or facts shall be conclusive proof of
      the truthfulness thereof. Any person, including, without limitation,
      Trustor, Trustee or Beneficiary, may purchase at such sale and Trustor
      hereby covenants to warrant and defend the title of such purchaser or
      purchasers.

            (b) After deducting all costs, fees and expenses of Trustee and of
      this Trust, including costs of evidence of title in connection with sale,
      Trustee shall apply the proceeds of sale to payment of: all sums expended
      under the terms hereof, not then repaid, with accrued interest at the
      highest rate of interest from time-to-time accruing under and as provided
      in the Secured Debt Documents; all other sums then secured hereby and the
      remainder, if any, to the person or persons legally entitled thereto.

            (c) Trustee may postpone sale of all or any portion of the
      Encumbered Property by public announcement at such time and place of sale,
      and from time to time thereafter may postpone such sale by public
      announcement at the time fixed by the preceding postponement or
      subsequently noticed sale, and without further notice make such sale at
      the time fixed by the last postponement, or may, in its discretion, give a
      new notice of sale.

      5.3 Appointment of Receiver. If an Event of Default shall have occurred
and be continuing, Beneficiary, as a matter of right and without notice to
Trustor or anyone claiming under Trustor, and without regard to the then value
of the Encumbered Property or the interest of Trustor therein, shall have the
right to (but shall not be obligated to) apply to any court having jurisdiction
to appoint a receiver or receivers of the Encumbered Property, and Trustor
hereby irrevocably consents to such appointment and waives notice of any
application therefor. Any such receiver or receivers shall have all the usual
powers and duties of receivers in like or similar cases and all the powers and
duties of Beneficiary in case of entry as provided in Section 5.4 of this
instrument and shall continue as such and exercise all such powers until the
date of confirmation of sale of the Encumbered Property unless such receivership
is sooner terminated.

      5.4 Operation of the Encumbered Property by Beneficiary. If an Event of
Default shall have occurred and be continuing, and in addition to all other
rights herein conferred on Beneficiary, Beneficiary (or any person, firm or
corporation designated by Beneficiary) shall have the right and power, but shall
not be obligated, to enter upon and take possession of any of the Encumbered
Property, and to exclude Trustor, and


                                       27


Trustor's agents or servants, wholly therefrom, and to hold, use, administer,
manage and operate the same to the extent that Trustor shall be at the time
entitled and in its place and stead. Beneficiary, or any person, firm or
corporation designated by Beneficiary, may operate the same without any
liability to Trustor in connection with such operations, except to use ordinary
care in the operation of such properties, and Beneficiary or any person, firm or
corporation designated by Beneficiary, shall have the right to (but shall not be
obligated to) collect, receive and receipt for all rents, issues, profits and
Hydrocarbons from said properties, to make repairs, purchase machinery and
equipment, conduct work-over operations, drill additional wells and to exercise
every power, right and privilege of Trustor with respect to the Encumbered
Property. When and if the expenses of such operation and development (including
costs of unsuccessful work-over operations or additional wells) have been paid
and the Indebtedness paid, said properties shall, if there has been no sale or
foreclosure, be returned to Trustor.

      5.5 Trustor's Waiver of Rights. Trustor waives the benefit of all laws now
existing or that hereafter may be enacted providing for (i) any appraisement
before sale of any portion of the Encumbered Property, and (ii) the benefit of
all laws that may be hereafter enacted in any way extending the time for the
enforcement of the collection of the Secured Debt or creating or extending a
period of redemption from any sale made in collecting said debt. To the full
extent Trustor may do so, Trustor agrees that Trustor will not at any time
insist upon, plead, claim or take the benefit or advantage of any law now or
hereafter in force providing for any appraisement, valuation, stay, extension or
redemption, and Trustor, for Trustor, Trustor's heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Encumbered Property, to the extent permitted by
law, hereby waives and releases all rights of redemption, valuation,
appraisement, stay of execution, notice of election to mature or declare due the
whole of the secured indebtedness and marshalling in the event of foreclosure of
the liens hereby created. If any law referred to in this Section and now in
force, of which Trustor, Trustor's heirs, devisees, representatives, successors
and assigns or other person might take advantage despite this Section, shall
hereafter be repealed or cease to be in force, such law shall not thereafter be
deemed to preclude the application of this Section. Trustor expressly waives and
relinquishes any and all rights and remedies which Trustor may have or be able
to assert by reason of the laws of the State of California pertaining to the
rights and remedies of sureties.

      5.6 Remedies Not Exclusive. Trustee and Beneficiary, and each of them,
shall be entitled to enforce payment and performance of any Indebtedness or
obligations secured hereby and to exercise all rights and powers under this Deed
of Trust or under the Collateral Trust Agreement or any other Secured Debt
Document or any laws now or hereafter in force, notwithstanding some or all of
the Indebtedness and obligations secured hereby may now or hereafter be
otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment
or otherwise. Neither the acceptance of this instrument nor its enforcement
whether by court action or pursuant to the power of sale or other powers herein
contained, shall prejudice or in any manner affect Trustee's or Beneficiary's
right to realize upon or enforce any other security now or


                                       28


hereafter held by Trustee or Beneficiary, it being agreed that Trustee and
Beneficiary, and each of them, shall be entitled to enforce this instrument and
any other security now or hereafter held by Beneficiary or Trustee in such order
and manner as they or either of them may in their absolute discretion determine.
No remedy herein conferred upon or reserved to Trustee or Beneficiary is
intended to be exclusive of any other remedy herein or by law provided or
permitted, but each shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. Every power or remedy given by the Collateral Trust Agreement or any
other Secured Debt Document to Trustee or Beneficiary or to which either of them
may be otherwise entitled, may be exercised, concurrently or independently, from
time to time and as often as may be deemed expedient by Trustee or Beneficiary
and either of them may pursue inconsistent remedies.

                                  ARTICLE VI.

                            MISCELLANEOUS PROVISIONS

      6.1 Pooling and Unitization. Trustor shall have the right, and is hereby
authorized, to pool or unitize all or any part of the lands described in Exhibit
A, insofar as relates to the Encumbered Property, with adjacent lands,
leaseholds and other interests, when, in the reasonable judgment of Trustor, it
is necessary or advisable to do so in order to form a drilling and/or production
unit to facilitate the orderly development of that part of the Encumbered
Property affected thereby, or to comply with the requirements of any Applicable
Law or governmental order or regulation relating to the spacing of wells or
proration of the production therefrom; provided, however, that any unit so
formed for the production of oil shall not substantially exceed 160 acres, and
any unit so formed for the production of gas shall not substantially exceed 640
acres, unless a larger area is required to conform to an Applicable Law or
governmental order or regulation relating to the spacing of wells or to obtain
the maximum allowable production under any Applicable Law or governmental order
or regulation relating to the proration of production therefrom; and further
provided that the Hydrocarbons produced from any unit so formed shall be
allocated among the separately owned tracts or interests comprising the unit in
a uniform manner consistently applied; and further provided that all interests
owned by Trustor in such unit shall be included within the Encumbered Property.
Any unit so formed may relate to one or more zones or horizons, and a unit
formed for a particular zone or horizon need not conform in area to any other
unit relating to a different zone or horizon, and a unit formed for the
production of oil need not conform in area with any unit formed for the
production of gas. Promptly after formation of any such unit, Trustor shall
furnish to Beneficiary and each Secured Debt Representative a true copy of the
pooling agreement, declaration of pooling or other instrument creating such
unit. The interest in any such unit attributable to the Encumbered Property (or
any part thereof) included therein shall become a part of the Encumbered
Property and shall be subject to the lien hereof in the same manner and with the
same effect as though such unit and the interest of Trustor therein were
specifically described in Exhibit A. Trustor is further authorized to amend,
modify or terminate any pooling or unitization agreement or order to which
Trustor is a party or the Encumbered Property is subject, provided that such
action does not conflict with the


                                       29


provisions of this Deed of Trust, including this Section 6.1. Trustor may enter
into, or amend, modify or terminate, pooling or unitization agreements not
hereinabove authorized only as permitted under the Secured Debt Documents.

      6.2 No Liability. None of Beneficiary, Trustee, any Secured Debt
Representative or any of their agents shall be liable for any error of judgment
or act done in good faith, or be otherwise responsible or accountable under any
circumstances whatsoever, except for their gross negligence or willful
misconduct. None of Beneficiary, Trustee, any Secured Debt Representative or any
of their agents shall be personally liable in case of entry by them, or anyone
entering by virtue of the powers herein granted them, upon the Encumbered
Property for debts contracted or liability or damages incurred in the management
or operation of the Encumbered Property. Such persons shall have the right to
rely on any instrument, document or signature authorizing or supporting any
action taken or proposed to be taken by them hereunder, believed by them in good
faith to be genuine. Beneficiary, Trustee, any Secured Debt Representative or
any of their agents shall be entitled to reimbursement for expenses incurred by
them in the performance of their duties hereunder and to reasonable compensation
for such of their services hereunder as shall be rendered. Trustor will, from
time to time, pay the compensation due hereunder and reimburse such parties for,
and save them harmless against, any and all liability and expenses which may be
incurred by them in the performance of their duties.

      6.3 Successor Trustee. Any Trustee may resign in writing addressed to
Beneficiary or may be removed at any time with or without cause by an instrument
in writing duly executed by Beneficiary. In case of the death, resignation or
removal of a Trustee, one or more successor Trustee may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of Applicable Law, and in the absence of any such requirement
without formality other than appointment and designation in writing. Such
appointment and designation shall be full evidence of the right and authority to
make the same and of all facts therein recited, and upon the making of any such
appointment and designation this conveyance shall vest in the named successor
Trustee or Trustee, all the estate and title of the prior Trustee in all of the
Encumbered Property, and he or they shall thereupon succeed to all the rights,
powers, privileges, immunities and duties hereby conferred upon the prior
Trustee. All references herein to Trustee shall be deemed to refer to Trustee
from time to time acting hereunder.

      6.4 Actions or Advances by Beneficiary or Trustee. Each and every covenant
herein contained shall be performed and kept by Trustor solely at Trustor's
expense. If Trustor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this Deed of Trust, Beneficiary, or
Trustee or any receiver appointed hereunder or under Applicable Law, may, but
shall not be obligated to, take action and/or make advances to perform the same
in Trustor's behalf; provided, however, that concurrently with the taking of
such action or making such advances, Beneficiary, Trustee or any Secured Debt
Representative shall deliver notice to Trustor. Trustor hereby agrees to repay
the expense of such action and such advances upon demand plus interest at the
Default Interest Rate. No such advance or action by Beneficiary,


                                       30


Trustee or any receiver appointed hereunder shall be deemed to relieve Trustor
from any default hereunder.

      6.5 No Waiver. Any failure by Trustee or Beneficiary to insist, or any
election by Trustee or Beneficiary not to insist, upon strict performance by
Trustor of any of the terms, provisions or conditions of the Collateral Trust
Agreement or any Secured Debt Documents shall not be deemed to be a waiver of
same or of any other term, provision or condition thereof, and Trustee and
Beneficiary shall have the right at any time or times thereafter to insist upon
strict performance by Trustor of any and all of such terms, provisions and
conditions.

      6.6 Defense of Claims. Trustor will notify Beneficiary and each Secured
Debt Representative, in writing, promptly of the commencement of any legal
proceedings affecting the lien or security interest hereof or the Encumbered
Property, or any part thereof, and will take such action, employing attorneys as
set forth in Section 3.4(j), as may be necessary or appropriate to preserve
Trustor's, the Trustee's or Beneficiary's rights affected thereby and/or to hold
harmless the Trustee and Beneficiary in respect of such proceedings; and should
Trustor fail or refuse to take any such action, Beneficiary may, upon giving
prior written notice thereof to Trustor, take such action in behalf and in the
name of Trustor and at Trustor's expense. Moreover, Beneficiary may take such
independent action in connection therewith as it may in its discretion deem
proper, Trustor hereby agreeing that all sums advanced or all expenses incurred
in such actions plus interest thereon at the Default Interest Rate, will, on
demand, be reimbursed, as appropriate, to Beneficiary or any receiver appointed
hereunder or under Applicable Law. The obligations of Trustor as hereinabove set
forth in this Section 6.6 shall survive the release, termination, foreclosure or
assignment of this Deed of Trust or any sale hereunder.

      6.7 Trustee's Powers. At any time, or from time to time, without liability
therefor and without notice, upon written request of Beneficiary and
presentation of this instrument and the Secured Debt secured hereby for
endorsement, and without affecting Trustor's personal liability or the effect of
this instrument upon the remainder of the Encumbered Property, Trustee may (a)
reconvey any part of the Encumbered Property, (b) consent in writing to the
making of any map or plat thereof, (c) join in granting any easement thereon, or
(d) join in any extension agreement or any agreement subordinating the lien or
security interest hereof.

      6.8 Beneficiary's Powers. Without affecting the liability of any other
person liable for the payment of the Indebtedness herein mentioned, and without
affecting perfection or priority of the lien or security interest of this
instrument against or in any portion of the Encumbered Property not then or
theretofore released as security for the full amount of all unpaid obligations,
Beneficiary may, from time to time and without notice (a) release any person so
liable, (b) extend the maturity or alter any of the terms of any such
obligation, (c) grant other indulgences, (d) release or reconvey, or cause to be
released or reconveyed at any time at Beneficiary's option, any parcel, portion
or all of the Encumbered Property, (e) take or release any other or additional
security for any


                                       31


obligation herein mentioned, or (f) make compositions or other arrangements with
debtors in relation thereto.

      6.9 Reconveyance by Trustee. Upon written request of Beneficiary stating
that all sums secured hereby have been paid, and upon surrender of this
instrument and the Secured Debt to Trustee for cancellation and retention and
upon payment by Trustor of Trustee's fees, Trustee shall reconvey to Trustor, or
the person or persons legally entitled thereto, without representation or
warranty, any portion of the Encumbered Property then held hereunder. The
recitals in such reconveyance of any matters or facts shall be conclusive proof
of the truthfulness thereof. The grantee in any reconveyance may be described as
"the person or persons legally entitled thereto".

      6.10 Effect of Partial Release or Reconveyance. If there is a partial
release or reconveyance by Trustee of any portion of the Encumbered Property,
Trustee and Beneficiary may look to the remainder of the Encumbered Property as
security for the full payment of the Secured Debt and all other Indebtedness
secured by this instrument.

      6.11 Subrogation. To the extent that proceeds of the Indebtedness are owed
to pay any outstanding lien, charge or prior encumbrance against the Encumbered
Property, such proceeds may be advanced by Beneficiary at Trustor's request and
Beneficiary may be subrogated to any and all rights and liens owed by any owner
or holder of such outstanding liens, charges and prior encumbrances,
irrespective of whether said liens, charges or encumbrances are released.

      6.12 No Merger. If both the lessor's and lessee's estates under any lease
or any portion thereof which constitutes a part of the Encumbered Property shall
at any time become vested in one owner, this instrument and the lien and
security interest created hereby shall not be destroyed or terminated by
application of the doctrine of merger and, in such event, Beneficiary shall
continue to have and enjoy all of the rights and privileges of Beneficiary as to
the separate estates. In addition, upon the foreclosure of the lien and security
interest created by this instrument on the Encumbered Property pursuant to the
provisions hereof, any leases or subleases then existing and created by Trustor
shall not be destroyed or terminated by application of the law of merger or as a
matter of law or as a result of such foreclosure unless Beneficiary or any
purchaser at any such foreclosure sale shall so elect. No act by or on behalf of
Beneficiary or any such purchaser shall constitute a termination of any lease or
sublease unless Beneficiary or such purchaser shall give written notice thereof
to such tenant or subtenant.

      6.13 The Encumbered Property to Revert; Release. If the Indebtedness shall
be fully paid and the covenants herein contained shall be well and truly
performed, then all of the Encumbered Property shall revert to Trustor and the
entire estate, right, title and interest of Trustee and Beneficiary shall
thereupon cease; and Trustee and Beneficiary in such case shall, upon the
request of Trustor and at Trustor's cost and expense, deliver to Trustor proper
instruments acknowledging satisfaction of this Deed of Trust and the release or
reconveyance of the lien hereof in accordance with Applicable Law.
Notwithstanding any provision herein to the contrary, the Encumbered


                                       32


Property, or any part thereof, shall, upon the written request of Trustor, be
released from the lien of this Deed of Trust in accordance with the provisions
of the Collateral Trust Agreement, when such a release is permitted by the
Collateral Trust Agreement and the other Secured Debt Documents.

      6.14 Renewals, Amendments and Other Security. Renewals and extensions of
the Indebtedness and modifications of any kind of the Obligations may be given
at any time and amendments may be made to agreements with third parties relating
to any part of such Indebtedness or the Encumbered Property and Trustee and
Beneficiary may take or may now hold other security from others for the
Indebtedness, all without notice to or consent of Trustor. Beneficiary may
resort first to such other security or any part thereof or first to the security
herein given or any part thereof, or from time to time to either or both, even
to the partial or complete abandonment of either security, and such action shall
not be a waiver of any rights conferred by this Deed of Trust, which shall
continue as a first lien upon and prior perfected security interest in the
Encumbered Property not expressly released until the Secured Debt and all other
Indebtedness secured hereby are fully paid.

      6.15 Deed of Trust, Assignment, etc. This Deed of Trust shall be deemed to
be and may be enforced from time to time as an assignment, chattel mortgage,
contract, deed of trust, financing statement, real estate mortgage, or security
agreement, and from time to time as any one or more thereof.

      6.16 Limitation on Interest. It is the intent of Trustor and Secured
Debtholders in the execution of this instrument and the Secured Debt Documents
to contract in strict compliance with the usury laws of the State of California
and any other jurisdiction whose laws may govern the Secured Debt. In
furtherance thereof, it is agreed that none of the terms and provisions
contained in the Collateral Trust Agreement or any other Secured Debt Document
shall ever be construed to create a contract for the use, forbearance or
detention of money requiring payment of interest at a rate in excess of the
Maximum Lawful Rate. Trustor or any guarantor, endorser or other party now or
hereafter becoming liable for the payment of the Secured Debt shall never be
liable for unearned interest on the Secured Debt and shall never be required to
pay interest on the Secured Debt at a rate in excess of the Maximum Lawful Rate,
and the provisions of this Section shall control over all other provisions of
the Secured Debt and any other instrument executed in connection herewith which
may be in apparent conflict herewith. In the event any Secured Debtholder shall
collect monies which are deemed to constitute interest which would otherwise
increase the effective interest rate on the Secured Debt to a rate in excess of
Maximum Lawful Rate, all such sums deemed to constitute interest in excess of
the legal rate shall be immediately returned to Trustor upon such determination.

      6.17 Unenforceable Provisions. If any provision hereof or of the Secured
Debt Documents is invalid or unenforceable in the State of California or
otherwise, the other provisions hereof or of the Secured Debt Documents shall
remain in full force and effect, and the remaining provisions hereof shall be
liberally construed in favor of Trustee and Beneficiary in order to effectuate
the provisions hereof.


                                       33


      6.18 Waiver by Trustee and Beneficiary. Any and all covenants in this Deed
of Trust may from time to time by instrument in writing signed by Trustee and
Beneficiary be waived to such extent and in such manner as Trustee and
Beneficiary may desire, but no such waiver shall ever affect or impair either
Trustee's or Beneficiary's rights or liens or security interests hereunder,
except to the extent specifically stated in such written instrument.

      6.19 Successors and Assigns. This Deed of Trust is binding upon Trustor,
Trustor's successors and assigns, and shall inure to the benefit of Beneficiary,
its successors and assigns, and the provisions hereof shall likewise be
covenants running with the land.

      6.20 Article and Section Headings. The article and section headings in
this Deed of Trust are inserted for convenience of reference and shall not be
considered a part of this Deed of Trust or used in its interpretation.

      6.21 Execution in Counterparts. This Deed of Trust may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be an
original and all of which are identical, except that, to facilitate recordation
or filing, in any particular counterpart portions of Exhibit A hereto which
describe properties situated in counties other than the county in which such
counterpart is to be recorded or filed may have been omitted.

      6.22 Special Filing as Financing Statement. This Deed of Trust shall
likewise be a security agreement and a financing statement. This Deed of Trust
shall be filed for record, among other places, in the real estate records of
each county in which any part of the real property covered by the oil and gas
leases described in Exhibit A hereto is situated, and, when filed in such
counties shall be effective as a financing statement covering fixtures located
on oil and gas properties, which oil and gas properties (and accounts arising
therefrom) are to be financed at the wellheads of the wells located on the real
property described in Exhibit A, hereto. A portion of the goods encumbered
hereby are, or are to become, fixtures as that term is defined in Section 9313
of the Uniform Commercial Code of the State of California. A carbon,
photographic or other reproduction of this Deed of Trust or of any financing
statement covering the Encumbered Property or any portion thereof shall be
sufficient as a financing statement and may be filed as such. Trustor agrees
that any Secured Debt Representative may, in such manner, on such terms and at
such times as may be elected by such Secured Debt Representative, and without
demand or notice to, or the consent or signature of, Trustor, file and/or record
such UCC financing statements, fixture filings, and/or amendments to or
continuations of any financing statements or fixture filings to evidence,
perfect and/or continue the perfection of, any security interests created or to
be created pursuant to this Deed of Trust or any of the other Secured Debt
Documents.

      6.23 Notices. Except as otherwise required by Section 5.1 hereof, any
notice, request or demand which may be required or permitted to be given or
served upon Trustor shall be sufficiently given when given or made pursuant to
(a) the terms of the


                                       34


Collateral Trust Agreement, or (b) such other means and manner of giving of
notice as may be required by Applicable Law.

      6.24 Request for Notice. Trustor hereby requests a copy of any notice of
default and that any notice of sale hereunder be mailed to it at the address set
forth on the signature page(s) of this instrument.

      6.25 Acceptance by the Trustee. The Trustee accepts this trust when this
instrument, duly executed and acknowledged, is made a public record as provided
by law.

      6.26 Release and Waiver. Trustor hereby waives and releases any and all
rights of contribution, reimbursement or indemnity it has or may hereafter have
against Trustee and/or Beneficiary arising from or relating to this instrument
and/or the Encumbered Property, including without limitation claims or
liabilities relating to Environmental Laws. Notwithstanding anything to the
contrary set forth in this instrument or any other Secured Debt Document, the
obligations and liabilities of Trustor under and pursuant to the Hazardous
Materials Undertaking and Unsecured Indemnity are not secured by this
instrument.

      6.27 No Partnership. Nothing contained in this instrument is intended to,
or shall be construed as, creating to any extent and in any manner whatsoever,
any partnership, mining partnership, joint venture, or association among
Trustor, Trustee and Beneficiary, or in any way as to make Beneficiary or
Trustee co-principals with Trustor with reference to the Encumbered Property,
and any inferences to the contrary are hereby expressly negated.

      6.28 Beneficiary as Agent for the Secured Debtholders. As described above,
certain Affiliates of Credit Agreement Agent and the Secured Debtholders are or
may become parties to certain Hedging Agreements with Trustor and/or Affiliates
of Trustor. This Deed of Trust secures the obligations of Trustor and such
Affiliates, as the case may be, under such Hedging Agreements, and the parties
acknowledge for all purposes that Beneficiary acts for itself and as agent on
behalf of such Affiliates of Credit Agreement Agent and the Secured Debtholders
which are so entitled to share in the rights and benefits accruing to
Beneficiary under this Deed of Trust in respect of the Encumbered Property.


                                       35


      IN WITNESS WHEREOF, Trustor has executed or caused to be executed this
Amended and Restated Deed of Trust with Power of Sale, Assignment of Production,
Security Agreement, Financing Statement and Fixture Filing in the presence of
the undersigned Notary Public on this 14th day of July, 2003.

                                        TRUSTOR AND DEBTOR

                                        CALPINE CORPORATION, a Delaware
                                        corporation


                                        By: ____________________________________
                                        Title: Executive Vice President
                                        Printed Name: B.A. Berilgen



                                   CALIFORNIA
                                 ACKNOWLEDGMENT

STATE OF TEXAS      )

COUNTY OF HARRIS    )

On July 14, 2003, before me, Suzanne B. Snow, a Notary Public in and for said
County and State, personally appeared B.A. Berilgen, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.

WITNESS my hand and office seal.

(SEAL)


      Signature: ______________________________
                 Suzanne B. Snow, Notary Public


                                      I-1


                                   Schedule I

                                Existing Mortgage

Deed of Trust with Power of Sale, Assignment of Production, Security Agreement,
Financing Statement and Fixture Filing (California) from Calpine Corporation, a
Delaware corporation, Trustor to Chicago Title Insurance Company, Trustee and
The Bank of Nova Scotia, for itself and as Agent, Beneficiary, filed as follows:



  JURISDICTION                       FILE NO.                FILE DATE
  ------------                       --------                ---------
                                                       
Colusa County, CA                    02-2145                 5/17/2002
Contra Costa County, CA          2002-0170008-00             5/13/2002
Fresno County, CA                 2002-0085593               5/23/2002
Kern County, CA                    0202084536                5/24/2002
Kings County, CA                     0210874                 5/20/2002
Sacramento County, CA          Book 20020507, Page           5/7/2002
                                      0611
Solano County, CA                 2002-00058871              5/9/2002
Sutter County, CA                 2002-0009817               5/17/2002
Tulare County, CA                 2002-0045392               6/14/2002
Yolo County, CA                  2002-0019210-00             5/7/2002


UCC-1 Financing Statement regarding California Deed of Trust, naming Calpine
Corporation as debtor and The Bank of Nova Scotia, as Agent, as secured party,
filed as follows:



  JURISDICTION                       FILE NO.                FILE DATE
  ------------                       --------                ---------
                                                       
Colusa County, CA                    02-2146                 5/17/2002
Contra Costa County, CA          2002-0170009-00             5/13/2002
Fresno County, CA                 2002-0085594               5/23/2002
Kern County, CA                    0202084537                5/24/2002
Kings County, CA                     0210875                 5/20/2002
Sacramento County, CA          Book 20020507, Page           5/7/2002
                                      0614
Solano County, CA                 2002-00058870              5/9/2002
Sutter County, CA                 2002-0009818               5/17/2002
Tulare County, CA                 2002-0045393               6/14/2002
Yolo County, CA                  2002-0019211-00             5/7/2002



                                      I-2


                                   Schedule II

                           Supplements and Amendments

                                       N/A


                                      II-1


                                  Schedule III

                                Partial Releases

Substitution of Trustee and Partial Reconveyance by The Bank of Nova Scotia, as
Agent, in favor of Calpine Corporation (California-Deed of Trust) filed as
follows:



  JURISDICTION         ORIGINAL       ORIGINAL         PARTIAL          PARTIAL
  ------------         FILE NO.      FILE DATE      RELEASE FILE     RELEASE FILE
                       --------      ---------           NO.             DATE
                                                         ---             ----
                                                         
Solano County,          2002-          5/9/02       2002-00127329      10/7/02
CA (Church 1-11)       00058871


UCC-3 Financing Statement Amendment relating to the Partial Release-California
Deed of Trust naming Calpine Corporation as Debtor and The Bank of Nova Scotia,
as Agent, as Secured Party, filed as follows:



  JURISDICTION         ORIGINAL       ORIGINAL         PARTIAL          PARTIAL
  ------------         FILE NO.      FILE DATE      RELEASE FILE     RELEASE FILE
                       --------      ---------           NO.             DATE
                                                         ---             ----
                                                         
Solano County,          2002-          5/9/02       2002-00132521      10/17/02
CA (Church 1-11)       00058870



                                     III-1


                                  EXHIBIT A To
             Amended and Restated Deed of Trust with Power of Sale,
                            Assignment of Production,
           Security Agreement, Financing Statement and Fixture Filing,
                            dated July 16, 2003, from
                        Calpine Corporation, As Trustor,
                                       to
                   Chicago Title Insurance Company, As Trustee
                    and The Bank of New York, As Beneficiary

                               List of Properties

1.    Depth limitations, unit designations, unit tract descriptions and
      descriptions (including percentages, decimals or fractions) of undivided
      leasehold interests, well names, "Operating Interests", "Working
      Interests" and "Net Revenue Interests" contained in this Exhibit A and the
      listing of any percentage, decimal or fractional interest in this Exhibit
      A shall not be deemed to limit or otherwise diminish the interests being
      subjected to the lien, security interest and encumbrance of this
      instrument.

2.    Some of the land descriptions in this Exhibit A may refer only to a
      portion of the land covered by a particular lease. This instrument is not
      limited to the land described in Exhibit A but is intended to cover the
      entire interest of Trustor in any lease described in Exhibit A even if
      such interest relates to land not described in Exhibit A. Reference is
      made to the land descriptions contained in the documents of title recorded
      as described in this Exhibit A. To the extent that the land descriptions
      in this Exhibit A are incomplete, incorrect or not legally sufficient, the
      land descriptions contained in the documents so recorded are incorporated
      herein by this reference.

3.    References in Exhibit A to instruments on file in the public records are
      made for all purposes. Unless provided otherwise, all recording references
      in Exhibit A are to the official real property records of the county or
      counties in which the encumbered property is located and in which records
      such documents are or in the past have been customarily recorded, whether
      Deed Records, Oil and Gas Records, Oil and Gas Lease Records, Official
      Records or other records.

4.    A statement herein that a certain interest described herein is subject to
      the terms of certain described or referred to agreements, instruments or
      other matters shall not operate to subject such interest to any such
      agreement, instrument or other matter except to the extent that such
      agreement, instrument or matter is otherwise valid and presently
      subsisting nor shall such statement be deemed to constitute a recognition
      by the parties hereto that any such agreement, instrument or other matter
      is valid and presently subsisting.

                                                       [Do not detach this page]


                                     III-2

EX-10.32

                                                                   EXHIBIT 10.32

____________________SPACE ABOVE THIS LINE FOR RECORDER'S USE____________________

STATE OF _________________              AFTER RECORDING  RETURN TO:
                                        ANE C. PRIESTER
COUNTY OF ________________              LATHAM & WATKINS LLP
                                        633 W. 5TH STREET, SUITE 4000
                                        LOS ANGELES, CA  90071

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

                    DEED TO SECURE DEBT, ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT

                            DATED AS OF JULY 16, 2003

                                       BY

                              CALPINE CORPORATION,
                             A DELAWARE CORPORATION,
                                   AS GRANTOR
                                       TO
                              THE BANK OF NEW YORK,
                         A NEW YORK BANKING CORPORATION,
                                   AS GRANTEE

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

PURSUANT TO O.C.G.A. SECTION 48-6-61, GEORGIA INTANGIBLE RECORDING TAX IN THE
MAXIMUM AMOUNT OF $25,000 IS BEING PAID WITH RESPECT TO THE SECURED OBLIGATIONS
UPON THE RECORDATION OF THIS SECURITY DEED.



                                TABLE OF CONTENTS



                                                                                                      Page
                                                                                                      ----
                                                                                                   
ARTICLE 1 - DEFINITIONS ..........................................................................       5

   1.1   DEFINED TERMS ...........................................................................       5
   1.2   ACCOUNTING TERMS ........................................................................       7

ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS .....................................................       7

   2.1   GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS ...........................................       7
   2.2   GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES .......................................       7
   2.3   COMPLIANCE WITH LEGAL REQUIREMENTS ......................................................       7
   2.4   INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS ....       7
   2.5   ASSIGNMENT OF RENTS .....................................................................       8
   2.6   REJECTION OF GROUND LEASE BY LESSOR .....................................................       9
   2.7   EXPENSES ................................................................................       9
   2.8   GRANTEE ASSUMES NO OBLIGATIONS ..........................................................       9
   2.9   FURTHER ASSURANCES ......................................................................      10
   2.10  ACTS OF GRANTOR .........................................................................      10
   2.11  AFTER-ACQUIRED PROPERTY .................................................................      10
   2.12  MORTGAGED PROPERTY ......................................................................      11
   2.13  POWER OF ATTORNEY .......................................................................      13
   2.14  COVENANT TO PAY .........................................................................      13
   2.15  SECURITY AGREEMENT ......................................................................      14

ARTICLE 3 - REMEDIES .............................................................................      15

   3.1   PROTECTIVE ADVANCES .....................................................................      15
   3.2   INSTITUTION OF EQUITY PROCEEDINGS .......................................................      15
   3.3   GRANTEE'S POWER OF ENFORCEMENT ..........................................................      15
   3.4   GRANTEE'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME ..................      17
   3.5   SEPARATE SALES ..........................................................................      18
   3.6   WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ......      18
   3.7   RECEIVER ................................................................................      18
   3.8   SUITS TO PROTECT THE MORTGAGED PROPERTY .................................................      19
   3.9   PROOFS OF CLAIM .........................................................................      19
   3.10  GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF
         MONIES BY GRANTEE .......................................................................      19
   3.11  DELAY OR OMISSION; NO WAIVER ............................................................      20
   3.12  NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER ..............................................      20
   3.13  DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED .............................      20
   3.14  REMEDIES CUMULATIVE .....................................................................      21
   3.15  INTEREST AFTER EVENT OF DEFAULT .........................................................      21
   3.16  FORECLOSURE; EXPENSES OF LITIGATION .....................................................      21
   3.17  DEFICIENCY JUDGMENTS ....................................................................      21
   3.18  WAIVER OF JURY TRIAL ....................................................................      22
   3.19  EXCULPATION OF GRANTEE ..................................................................      22

ARTICLE 4 - GENERAL ..............................................................................      22

   4.1   DISCHARGE ...............................................................................      22
   4.2   NO WAIVER ...............................................................................      22
   4.3   EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ......................................      22
   4.4   FORCIBLE DETAINER .......................................................................      23



                                       i


                                                                                                     
   4.5   WAIVER OF STAY OR EXTENSION .............................................................      24
   4.6   NOTICES .................................................................................      23
   4.7   SEVERABILITY ............................................................................      23
   4.8   APPLICATION OF PAYMENTS .................................................................      23
   4.9   GOVERNING LAW ...........................................................................      24
   4.10  AMENDMENTS ..............................................................................      24
   4.11  SUCCESSORS AND ASSIGNS ..................................................................      24
   4.12  RENEWAL, ETC ............................................................................      24
   4.13  FUTURE ADVANCES .........................................................................      24
   4.14  LIABILITY ...............................................................................      25
   4.15  SEVERABILITY AND COMPLIANCE WITH USURY LAW ..............................................      25
   4.16  RELEASE OF COLLATERAL ...................................................................      26
   4.17  TIME OF THE ESSENCE .....................................................................      26
   4.18  COUNTERPART EXECUTION ...................................................................      26
   4.19  WAIVER OF GRANTOR'S RIGHTS ..............................................................      26
   4.20  ATTORNEYS' FEES .........................................................................      27




                                       ii


                                                                     AUGUSTA, GA

                              DEED TO SECURE DEBT,
                   ASSIGNMENT OF RENTS AND SECURITY AGREEMENT

      This DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (this
"Security Deed"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a
Delaware corporation ("Grantor"), whose address is 50 West San Fernando Street,
San Jose, CA 95113, to THE BANK OF NEW YORK, a New York banking corporation, not
in its individual capacity but solely as Collateral Trustee under the Collateral
Trust Agreement dated July 16, 2003 (the "Collateral Trust Agreement") among
Grantor, Grantee, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee, Credit
Agreement Agent and Term Loan Administrative Agent ("Grantee"), whose address is
101 Barclay Street, New York, New York 10286. References to this "Security Deed"
shall mean this instrument and any and all renewals, modifications, amendments,
supplements, extensions, consolidations, substitutions, spreaders, restatements
and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                    Recitals

            A. Grantor has entered into an Amended and Restated Credit Agreement
dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Grantor,
the Lenders referred to therein and The Bank of Nova Scotia as Administrative
Agent, relating to a $500,000,000 senior secured credit facility made available
in the form of revolving loans and term loans, including letters of credit
issued thereunder.

            B. Grantor also intends to (a) issue $500,000,000 in aggregate
principal amount of Second Priority Senior Floating Rate Secured Notes due 2007
(the "2007 Notes"), with a maturity date of July 15, 2007, pursuant to the
Indenture dated as of July 16, 2003 (the "2007 Indenture") between Grantor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal
amount of 8.50% Second Priority Senior Secured Fixed Rate Notes due 2010 (the
"2010 Notes"), with a maturity date of July 15, 2010, pursuant to the Indenture
dated as of July 16, 2003 (the "2010 Indenture") between Grantor and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issue $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes"),
with a maturity date of July 15, 2013, pursuant to the Indenture dated as of
July 16, 2003 (the "2013 Indenture") between Grantor and Wilmington Trust
Company, as Trustee (together with its successors in such capacity, the "2013
Trustee"), and (d) borrow $750,000,000 in Term Loans (the "Term Loans"), with a
maturity date of July 15, 2007, pursuant to a Term Loan Agreement dated as of
July 16, 2003 (the "Term Loan Agreement") between Grantor and Goldman Sachs
Credit



Partners L.P., as Administrative Agent (together with its successors in such
capacity, the "Term Loan Administrative Agent").

            C. As permitted pursuant to the Secured Debt Documents, Grantor may
incur future debt which could, together with the obligations under the Credit
Agreement, constitute Priority Lien Debt and Grantor may incur future debt which
could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term
Loans, constitute Parity Lien Debt, provided that the aggregate amount of the
Secured Debt to be secured hereby shall not exceed $4,200,000,000. Grantor
intends to secure the obligations, including the obligations (a) under the
Credit Agreement and any future Priority Lien Debt, equally and ratably, on a
priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010
Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and
ratably, as contemplated in the Collateral Trust Agreement.

            D. Grantor (i) is the owner of the interests in the lands described
in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to
use all of the buildings, improvements, structures and fixtures located on the
lands described in Exhibit A and is executing and delivering this instrument in
order to secure its Obligations (as defined below).

                                    Agreement

      NOW, THEREFORE, to secure the prompt and complete payment and performance
when and as required, due and/or payable of all of the obligations and
liabilities of Grantor, by acceleration or otherwise, arising out of or in
connection with the Credit Agreement, the 2007 Indenture, the 2010 Indenture,
the 2013 Indenture, the Term Loan Agreement and other Secured Debt Documents,
and the obligations of Grantor set forth herein (collectively, the
"Obligations") and in consideration of the covenants herein and therein,
Grantor, intending to be legally bound, does hereby grant, bargain, sell,
convey, warrant, assign, transfer, pledge, set-over and confirm unto Grantee as
set forth in this Security Deed, for the use and benefit of Grantee, all of
Grantor's estate, right, title, interest, property, claim and demand, now or
hereinafter arising, in and to the following property and rights (herein
collectively called the "Mortgaged Property"):

            (a) Grantor's interest under the Ground Lease executed as of
      February 22, 2001, between DSM Chemicals North America, Inc. and Grantor,
      as amended by that First Amendment to Land Lease Agreement dated October
      16, 2001 (as modified, supplemented or amended from time to time, the
      "Ground Lease"), and the leasehold estate created thereby in and to the
      lands and premises more particularly described in Exhibit A hereto (the
      "Site");

            (b) any and all easements, leases, licenses, option rights,
      rights-of-way and other rights used in connection with the Site or as a
      means of access thereto (including, without limitation, all rights of
      Grantor to exercise any election or option, to make any determination or
      to give any notice, consent, waiver or approval, or to take any other
      action under the Ground Lease), all easements for ingress and egress and
      easements for water, natural gas and sewage pipelines, running in favor of
      Grantor, or appurtenant to the Site or arising out of the Ground Lease,
      and any and all sidewalks, alleys, strips and gores of land adjacent
      thereto or used in connection therewith together with all and singular the
      tenements,


                                       2


      hereditaments and appurtenances thereto, and with any land lying within
      the right-of-way of any streets, open or proposed, adjoining the same
      (including, without limitation, the easements, leases, licenses and other
      instruments described in Exhibit B hereto) (collectively, the "Easements";
      and the Site and the Easements collectively referred to herein as the
      "Real Property");

            (c) all buildings, structures, fixtures and other improvements now
      or hereafter erected on the Real Property, including the Project
      (collectively, the "Improvements");

            (d) all machinery, apparatus, equipment, fittings, fixtures,
      boilers, turbines and other articles of personal property, including all
      goods and all goods which become fixtures, now owned or hereafter acquired
      by Grantor and now or hereafter located on, attached to or used in the
      operation of or in connection with the Real Property and/or the
      Improvements, and all replacements thereof, additions thereto and
      substitutions therefor, to the fullest extent permitted by applicable law
      (all of the foregoing being hereinafter collectively called the
      "Equipment");

            (e) all raw materials, work in process and other materials used or
      consumed in the construction of, or now or hereafter located on or used in
      connection with, the Real Property, the Improvements and/or the Equipment,
      (including, without limitation, fuel and fuel deposits, now or hereafter
      located on the Real Property or elsewhere or otherwise owned by Grantor)
      (the above items, together with the Equipment, being hereinafter
      collectively called the "Tangible Collateral");

            (f) all rights, powers, privileges and other benefits of Grantor (to
      the extent assignable) now or hereafter obtained by Grantor under the
      Ground Lease and/or from any Governmental Authority, including, without
      limitation, permits issued in the name of Grantor, governmental actions
      relating to the ownership, operation, management and use of the Real
      Property, Improvements, Equipment or Tangible Collateral, the development
      and financing of the Project, the Improvements and the Equipment, and any
      improvements, modifications or additions thereto;

            (g) any right of Grantor to elect to terminate the Ground Lease or
      remain in possession of the Real Property pursuant to 11 U.S.C. section
      365(h)(1) or any similar provision of applicable law and any possessory
      rights of Grantor in the Real Property pursuant to 11 U.S.C. section
      365(h)(2) or any other similar provision of applicable law;

            (h) all the lands and interests in lands, tenements and
      hereditaments hereafter acquired by Grantor in connection with or
      appurtenant to the Real Property and/or any other property or rights
      subject to the lien hereof, including (without limitation) all interests
      of Grantor, whether as lessor or lessee, in any leases of land hereafter
      made and all rights of Grantor thereunder;

            (i) any and all other property in any way associated or used in
      connection with or appurtenant to the Real Property, Improvements,
      Equipment or Tangible Collateral that


                                       3


      may from time to time, by delivery or by writing of any kind, be subjected
      to the lien hereof by Grantor or by anyone on its behalf or with its
      consent, or which may come into the possession or be subject to the
      control of Grantee pursuant to this Security Deed, being hereby
      collaterally assigned to Grantee and subjected or added to the lien or
      estate created by this Security Deed forthwith upon the acquisition
      thereof by Grantor, as fully as if such property were now owned by Grantor
      and were specifically described in this Security Deed and subjected to the
      lien and security interest hereof; and Grantee is hereby authorized to
      receive any and all such property as and for additional security
      hereunder; and

            (j) all the remainder or remainders, reversion or reversions, rents,
      revenues, issues, profits, royalties, income and other benefits derived
      from any of the foregoing, all of which are hereby assigned to Grantee,
      who is hereby authorized to collect and receive the same, to give proper
      receipts and acquittances therefor and to apply the same in accordance
      with the provisions of this Security Deed.

      Notwithstanding any provision herein to the contrary, the Mortgaged
Property or any part thereof may be released from conveyance created by this
Security Deed in accordance with the provisions in the Collateral Trust
Agreement.

      TO HAVE AND TO HOLD the said Mortgaged Property, whether now owned or held
or hereafter acquired, unto Grantee, its successors and assigns, pursuant to the
provisions of this Security Deed.

      IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security
title, security interest or estate created by this Security Deed to secure the
payment of the Obligations, both present and future, shall be first, prior and
superior to any Lien, security interest, reservation of title or other interest
(other than superior Permitted Liens) heretofore, contemporaneously or
subsequently suffered or granted by Grantor, its legal representatives,
successors or assigns, except only those, if any, expressly hereinafter referred
to and that the Mortgaged Property is to be held, dealt with and disposed of by
Grantee, upon and subject to the terms, covenants, conditions, uses and
agreements set forth in this Security Deed.

      PROVIDED ALWAYS, that upon payment in full of the Obligations in
accordance with the terms and provisions hereof and of the other Secured Debt
Documents and the observance and performance by Grantor of its covenants and
agreements set forth herein and therein, then this Security Deed and the estate
hereby and therein granted shall be cancelled and surrendered and shall be
reconveyed as provided herein below.

      THIS CONVEYANCE is intended to operate and is to be construed as a deed
passing title to the Mortgaged Property to Grantee and is made under those
provisions of the existing laws of the State of Georgia relating to deeds to
secure debt, and not as a mortgage, and is given to secure the Obligations.


                                       4


                            ARTICLE 1 - DEFINITIONS

      1.1 Defined Terms. 11 Capitalized terms used in this Security Deed and not
otherwise defined herein shall have the meanings assigned to them in the
Collateral Trust Agreement. Any term defined by reference to an agreement,
instrument or other document shall have the meaning so assigned to it whether or
not such document is in effect. In addition, for purposes of this Security Deed,
the following definitions shall apply:

      "Applicable Law" means with respect to any Person or matter, any federal,
state, regional, tribal or local statute, law, code, rule, treaty, convention,
application, order, decree, consent decree, injunction, directive, determination
or other requirement (whether or not having the force of law) relating to such
Person or matter and, where applicable, any interpretation thereof by a
Governmental Authority having jurisdiction with respect thereto or charged with
the administration or interpretation thereof.

            "Default Rate" has the meaning ascribed to it in the Secured Debt
Documents.

            "Easements" has the meaning ascribed to it in the Granting Clauses.

            "Equipment" has the meaning ascribed to it in the Granting Clauses.

            "Event of Default" means an Actionable Default as defined under the
Collateral Trust Agreement.

            "Governmental Authority" means any and all courts, boards, agencies,
commissions, offices or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city, tribe or
otherwise) whether now or hereafter in existence charged with the
administration, interpretation or enforcement of any Applicable Law.

            "Ground Lease" has the meaning ascribed to it in the Granting
Clauses.

            "Improvements" has the meaning ascribed to it in the Granting
Clauses.

            "Legal Requirements" means (i) any and all present and future
judicial decisions, statutes, rulings, rules, regulations, licenses, decisions,
orders, injunctions, decrees, permits, certificates or ordinances of any
Governmental Authority in any way applicable to Grantor, or the Mortgaged
Property, including the ownership, use, occupancy, operation, maintenance,
repair or reconstruction thereof, and any other Applicable Law enacted by any
Governmental Authority relating to health or the environment, (ii) Grantor's
presently or subsequently effective Organic Documents, (iii) any and all Leases,
(iv) any and all leases and other contracts (written or oral) of any nature to
which Grantor, or the Mortgaged Property may be bound and (v) any and all
restrictions, restrictive covenants or zoning, present and future, as the same
may apply to the Mortgaged Property.

            "Mortgaged Property" has the meaning ascribed to it in the Granting
Clauses.


                                       5


            "Obligations" has the meaning ascribed to it in the Granting
Clauses.

            "Organic Documents" means the Articles of Incorporation, Certificate
of Incorporation, limited liability company certificate of formation and
regulations or operating agreement, partnership agreement, limited partnership
agreement, joint venture agreement, trust agreement or other similar documents
governing the organization and operation of a business association.

            "Permitted Lien" means the liens, easements, building lines,
restrictions, exceptions, reservations, conditions, limitations, security
interests and other matters (if any) as permitted in the Secured Debt Documents.

            "Person" means any natural person, corporation, partnership, limited
liability company, firm, association, trust, government, governmental agency or
any other entity, whether acting in an individual, fiduciary or other capacity.
"Proceeds" has the meaning assigned to it under the UCC and, in any event, shall
include, without limitation, (i) any and all proceeds of any insurance
(including, without limitation, property casualty and title insurance),
indemnity, warranty or guaranty payable from time to time with respect to any of
the Mortgaged Property; (ii) any and all proceeds in the form of accounts (as
such term is defined in the UCC), security deposits, tax escrows (if any), down
payments (to the extent the same may be pledged under applicable law),
collections, contract rights, documents, instruments, letters of credit, chattel
paper, liens and security instruments, guaranties or general intangibles
relating in whole or in part to the Mortgaged Property and all rights and
remedies of whatever kind or nature Grantor may hold or acquire for the purpose
of securing or enforcing any obligation due Grantor thereunder.

            "Project" means that certain 500 MW (approximately) power generating
facility located on the Real Property.

            "Real Property" has the meaning ascribed to it in the Granting
Clauses.

            "Secured Debt Documents" has the meaning ascribed it in the
Collateral Trust Agreement.

            "Site" has the meaning ascribed to it in the Granting Clauses.

            "State" means that state in which the Site is located.

            "Tangible Collateral" has the meaning ascribed to it in the Granting
Clauses.

            "UCC" means the Uniform Commercial Code as in effect from time to
time in the State of Georgia, and the terms "Accounts," "Account Debtor, "As
Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
"Documents," "Electronic Chattel Paper," "General


                                       6


Intangibles," "Goods," "Equipment," "Fixtures," "Inventory," "Instruments," and
"Proceeds" shall have the respective meanings assigned to such terms in the
Uniform Commercial Code.

      1.2 Accounting Terms. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not defined herein
shall have the respective meanings given to them under GAAP.

                  ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS

      2.1 Grantor Performance of Secured Debt Documents. Grantor shall perform,
observe and comply with each and every provision hereof, and with each and every
provision contained in the Secured Debt Documents and shall promptly pay, when
payment shall become due, the principal with interest thereon and all other sums
required to be paid by Grantor under this Security Deed and the other Secured
Debt Documents at the time and in the manner provided in the Secured Debt
Documents.

      2.2 General Representations, Covenants and Warranties. Grantor, to the
best of its knowledge, represents, covenants and warrants that as of the date
hereof: (a) Grantor has good and marketable title to that portion of the Real
Property which constitutes real property interests including the Ground Lease
and the leasehold estate created thereby, free and clear of all encumbrances
except Permitted Liens with respect to the Site, the Ground Lease and other
matters which, individually and in the aggregate, do not have a materially
adverse effect upon the ownership or operation of the Site; (b) Grantor has the
right to hold, occupy and enjoy its interest in the Real Property on and subject
to the terms and conditions of the Ground Lease, and has good right, full power
and lawful authority to grant the same as provided herein, and Grantee may at
all times peaceably and quietly enter upon, hold, occupy and enjoy the Real
Property in accordance with the terms hereof; (c) except as otherwise disclosed
in the Secured Debt Documents, all costs arising from construction of any
improvements, the performance of any labor and the purchase of all Mortgaged
Property have been or shall be paid when due; (d) the Site has access for
ingress and egress to dedicated street(s); and (e) no material part of the
Mortgaged Property has been damaged, destroyed, condemned or abandoned.

      2.3 Compliance with Legal Requirements. Grantor shall promptly comply in
all material respects with all Legal Requirements relating to its use and
occupancy of the Mortgaged Property, whether or not such compliance requires
work or remedial measures that are ordinary or extraordinary, foreseen or
unforeseen, structural or nonstructural, or that interfere with the use or
enjoyment of the Mortgaged Property.

      2.4 Insurance; Application of Insurance Proceeds; Application of Eminent
Domain Proceeds.

            2.4.1 Grantor shall carry, with financially sound and reputable
insurance companies and in amounts as is customary in the industry or as
otherwise required pursuant to the Secured Debt Documents, the following
insurance: (1) workmen's compensation insurance and public liability and
property damage insurance in respect of all activities in which Grantor might
incur personal liability for the death of or injury to an employee or third
person, or damage


                                       7


to or destruction of another's property; and (2) to the extent such insurance is
carried by similar companies engaged in similar undertakings in, the same
general areas in which the Mortgaged Property, is located, insurance in respect
of the Equipment, against loss or damage by fire, lightning, hail, tornado,
explosion and other similar risks, hazards, casualties and contingencies
(including business interruption insurance covering loss of revenues) with
limits and sublimits as appropriate; provided, that any such insurance may be
provided by way of self insurance to the extent that similar companies engaged
in similar undertakings in the same general areas also self-insure. Each
insurance policy issued in connection therewith shall provide by way of
endorsements, riders or otherwise that (i) name Grantee as a loss payee on all
property insurance policies and an additional insured on all liability insurance
policies, and provide that proceeds from property insurance policies will be
payable to Grantee as its interest may appear, which proceeds are hereby
assigned to Grantee, it being agreed by Grantor that such payments shall be
applied A) if there be no Event of Default existing or which would exist but for
due notice or lapse of time, or both, to the restoration, repair or replacement
of the Mortgaged Property, or B) if there be an Event of Default existing, or
which would exist but for due notice or lapse of time, or both, in accordance
with the provisions of the Collateral Trust Agreement, either for the above
stated purpose or toward the payment of the Indebtedness; (ii) the coverage of
Grantee shall not be terminated, reduced or affected in any manner regardless of
any breach or violation by Grantor of any warranties, declarations or conditions
in such policy; (iii) no such insurance policy shall be canceled, materially
endorsed, materially altered or reissued to effect a change in coverage for any
reason and to any extent whatsoever unless such insurer, their authorized
representative or Grantor shall have first given Grantee and each Secured Debt
Representative thirty (30) days prior written notice thereof; and (iv) Grantee
may, but shall not be obligated to, make premium payments to prevent any
cancellation, endorsement, alteration or re-issuance and such payments shall be
accepted by the insurer to prevent the same. Grantee shall be furnished with a
certificate evidencing such coverage in form and content as are customary in the
industry. All policies to be maintained under this Mortgage are to be issued on
forms and by companies and with endorsements as are customary in the industry.
Grantor shall maintain insurance in an amount sufficient to prevent Grantor from
becoming a co-insurer under any policy required hereunder. If Grantor fails to
maintain the level of insurance required under this Mortgage, then Grantor shall
and hereby agrees to indemnify Grantee to the extent that a casualty occurs and
insurance proceeds would have been available had such insurance been maintained;

            2.4.2 All insurance proceeds and all eminent domain proceeds shall
be paid and/or shall be applied in accordance with the provisions of the Secured
Debt Documents.

      2.5 Assignment of Rents. Grantor unconditionally and absolutely assigns to
Grantee all of Grantor's right, title and interest in and to: all leases,
subleases, occupancy agreements, licenses, rental contracts and other similar
agreements now or hereafter existing relating to the use or occupancy of the
Mortgaged Property, together with all guarantees, modifications, extensions and
renewals thereof; and all rents, issues, profits, income and proceeds due or to
become due from tenants of the Mortgaged Property (the "Leases"), including
rentals and all other payments of any kind under any leases now existing or
hereafter entered into, together with all deposits (including security deposits)
of tenants thereunder. This is an absolute assignment to Grantee and not an
assignment as security for the performance of the obligations under the Secured
Debt Documents, or any other indebtedness. Subject to the provisions of herein
below, Grantee shall have the right,


                                       8


power and authority to, but shall not be obligated to: notify any person that
the Leases have been assigned to Grantee and that all rents and other
obligations are to be paid directly to Grantee, whether or not Grantee has
commenced or completed foreclosure or taken possession of the Mortgaged
Property; settle compromise, release, extend the time of payment of, and make
allowances, adjustments and discounts of any rents or other obligations under
the Leases; enforce payment of rents and other rights under the Leases,
prosecute any action or proceeding , and defend against any claim with respect
to rents and Leases; enter upon, take possession of and operate the Mortgaged
Property; lease all or any part of the Mortgaged Property; and/or perform any
and all obligations of Grantor under the Leases and exercise any and all rights
of Grantor therein contained to the full extent of Grantor's rights and
obligations thereunder, with or without the bringing of any action or the
appointment of a receiver. At Grantee's request, Grantor shall deliver a copy of
this Security Deed to each tenant under a Lease. Grantor irrevocably directs any
tenant, without any requirement for notice to or consent by Grantor, to comply
with all demands of Grantee under this Section 2.5 and to turn over to Grantee
on demand all rents which it receives. Grantee shall have the right, but not the
obligation, to use and apply all rents received hereunder in such order and such
manner as Grantee may determine in accordance with the Collateral Trust
Agreement. Notwithstanding that this is an absolute assignment of the rents and
Leases and not merely the collateral assignment of, or the grant of a lien or
security interest in the rents and Leases, Grantee grants to Grantor a revocable
license to collect and receive the rents and to retain, use and enjoy such
rents. Such license may be revoked by Grantee only upon the occurrence of any
Event of Default. Grantor shall apply any rents which it receives to the payment
due under the Obligations, taxes, assessments, water charges, sewer rents and
other governmental charges levied, assessed or imposed against the Mortgaged
Property, insurance premiums, and other obligations of lessor under the Leases
before using such proceeds for any other purpose.

      2.6 Rejection of Ground Lease by Lessor. To the extent applicable, if the
lessor under the Ground Lease rejects or disaffirms the Ground Lease or purports
or seeks to disaffirm the Ground Lease pursuant to any bankruptcy law, then:

            2.6.1 To the extent permitted by law, Grantor shall remain in
possession of the Real Property demised under the Ground Lease and shall perform
all acts reasonably necessary for Grantor to remain in such possession for the
unexpired term of such Ground Lease (including all renewals), whether the then
existing terms and provisions of such Ground Lease require such acts or
otherwise; and

            2.6.2 All the terms and provisions of this Security Deed and the
lien created by this Security Deed shall remain in full force and effect and
shall extend automatically to all of Grantor's rights and remedies arising at
any time under, or pursuant to, any bankruptcy or insolvency laws, including all
of Grantor's rights to remain in possession of the Real Property.

      2.7 Expenses. Grantor shall indemnify Grantee with respect to any
transaction or matter in any way connected with any portion of the Mortgaged
Property, or Grantor's use, occupancy, or operation of the Mortgaged Property in
accordance with the Collateral Trust Agreement.

      2.8 Grantee Assumes No Obligations. It is expressly agreed that, anything
herein contained to the contrary notwithstanding, Grantor shall remain obligated
under all agreements


                                       9


which are included in the definition of "Mortgaged Property" and shall perform
all of its obligations thereunder in accordance with the provisions thereof, and
neither Grantee nor any of the Secured Debtholders shall have any obligation or
liability with respect to such obligations of Grantor, nor shall Grantee or any
of the Secured Debtholders be required or obligated in any manner to perform or
fulfill any obligations or duties of Grantor under such agreements, or to make
any payment or to make any inquiry as to the nature or sufficiency of any
payment received by it, or to present or file any claim or take any action to
collect or enforce the payment of any amounts which have been assigned to
Grantee hereunder or to which Grantee or the Secured Debtholders may be entitled
at any time or times.

      2.9 Further Assurances. Grantor shall, from time to time, at its expense,
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or that Grantee may reasonably request, in
order to perfect and continue the lien and security interest granted hereby and
to enable Grantee to obtain the full benefits of the lien and security interest
granted or intended to be granted hereby. Grantor shall keep the Mortgaged
Property free and clear of all Liens, other than Permitted Liens. Without
limiting the generality of the foregoing, Grantor shall execute and record or
file this Security Deed and each amendment hereto, and such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsements or notices, as may be necessary, or as Grantee may reasonably
request, in order to perfect and preserve the lien and security interest granted
or purported to be granted hereby. Grantor hereby authorizes Grantee to file one
or more financing statements or continuation statements, and amendments thereto,
relative to all or any part of the Mortgaged Property necessary to preserve or
protect the lien and security interest granted hereby without the signature of
Grantor where permitted by law.

      2.10 Acts of Grantor. Except as provided in or permitted by the Secured
Debt Documents, Grantor hereby represents and warrants that it has not granted,
mortgaged, hypothecated, assigned or pledged and hereby covenants that it will
not grant, mortgage, hypothecate, assign or pledge, so long as this Security
Deed shall remain in effect, any of its right, title or interest in and to the
Mortgaged Property or any part thereof, other than Permitted Liens, to anyone
other than Grantee.

      2.11 After-Acquired Property. Any and all of the Mortgaged Property which
is hereafter acquired shall immediately, without any further conveyance,
assignment or act on the part of Grantor or Grantee, become and be subject to
the lien and security interest of this Security Deed as fully and completely as
though specifically described herein, but nothing contained in this Section 2.11
shall be deemed to modify or change the obligations of Grantor under Section 2.9
hereof. If and whenever from time to time Grantor shall hereafter acquire any
real property or interest therein which constitutes or is intended to constitute
part of the Mortgaged Property hereunder, Grantor shall promptly give notice
thereof to Grantee and Grantor shall forthwith execute, acknowledge and deliver
to Grantee a supplement to this Security Deed subjecting the property so
acquired to the lien of this Security Deed.


                                       10


      2.12 Mortgaged Property.

            2.12.1 Grantor shall pay or cause to be paid all rent and other
charges required under the Ground Lease as and when the same are due and shall
promptly and faithfully perform or cause to be performed all other material
terms, obligations, covenants, conditions, agreements, indemnities and
liabilities of Grantor under the Ground Lease. Grantor shall observe all
applicable covenants, easements and other restrictions of record with respect to
the Site, the Easements or to any other part of the Mortgaged Property, in all
material respects.

            2.12.2 Grantor shall do, or cause to be done, all things necessary
to preserve and keep unimpaired all rights of Grantor as lessee under the Ground
Lease, and to prevent any default under the Ground Lease, or any termination,
surrender, cancellation, forfeiture, subordination or impairment thereof.
Grantor does hereby authorize and irrevocably appoint and constitute Grantee as
its true and lawful attorney-in-fact, which appointment is coupled with an
interest, in its name, place and stead, to take any and all actions deemed
necessary or desirable by Grantee to perform and comply with all the obligations
of Grantor under the Ground Lease, and to do and take upon the occurrence and
during continuation of an Event of Default, but without any obligation so to do
or take, any action which Grantee deems reasonably necessary to prevent or cure
any default by Grantor under the Ground Lease, to enter into and upon the Real
Property and Improvements or any part thereof as provided in the Secured Debt
Documents in order to prevent or cure any default of Grantor pursuant thereto,
to the end that the rights of Grantor in and to the leasehold estate created by
the Ground Lease shall be kept free from default.

            2.12.3 Grantor shall use all reasonable efforts to enforce the
obligations of the lessor under the Ground Lease in a commercially reasonable
manner.

            2.12.4 Grantor shall not voluntarily surrender its leasehold estate
and interest under the Ground Lease or modify, change, supplement, alter or
amend the Ground Lease or affirmatively waive any provisions thereof, either
orally or in writing, except as permitted in the Secured Debt Documents, and any
attempt on the part of Grantor to do any of the foregoing without the written
consent of Grantee shall be null and void.

            2.12.5 If any action or proceeding shall be instituted to evict
Grantor or to recover possession of the Mortgaged Property or any part thereof
or interest therein from Grantor or any action or proceeding otherwise affecting
the Mortgaged Property or this Security Deed shall be instituted, then Grantor
shall, immediately after receipt, deliver to Grantee a true and complete copy of
each petition, summons, complaint, notice of motion, order to show cause and all
other pleadings and papers, however designated, served in any such action or
proceeding.

            2.12.6 Grantor covenants and agrees that the fee title to the Real
Property and Improvements and the leasehold estate created under the Ground
Lease shall not merge but shall always remain separate and distinct,
notwithstanding the union of said estates either in Grantor or a third party by
purchase or otherwise and, in case Grantor acquires the fee title or any other
estate, title or interest in and to the Real Property and Improvements, the lien
of this Security Deed shall, without further conveyance, simultaneously with
such acquisition, be spread to cover


                                       11


and attach to such acquired estate and as so spread and attached shall be prior
to the lien of any security deed placed on the acquired estate after the date of
this Security Deed.

            2.12.7 No release or forbearance of any of Grantor's obligations
under the Ground Lease by the lessor thereunder, shall release Grantor from any
of its obligations under this Security Deed.

            2.12.8 Grantor shall, within ten days after written demand from
Grantee, deliver to Grantee proof of payment of all items that are required to
be paid by Grantor under the Ground Lease, including, without limitation, rent,
taxes, operating expenses and other charges.

            2.12.9 The lien of this Security Deed shall attach to all of
Grantor's rights and remedies at any time arising under or pursuant to
bankruptcy or insolvency law, including, without limitation, all of Grantor's
rights to remain in possession of the Mortgaged Property. Grantor shall not
elect to treat the Ground Lease as terminated under bankruptcy or insolvency
law, and any such election shall be void.

                  2.12.9.1 If pursuant to bankruptcy or insolvency law, Grantor
shall seek to offset against the rent reserved in the Ground Lease the amount of
any damages caused by the nonperformance by the lessor or any other party of any
of their respective obligations thereunder after the rejection by the lessor or
such other party of the Ground Lease under any bankruptcy or insolvency law,
then Grantor shall, prior to effecting such offset, notify Grantee of its intent
to do so, setting forth the amount proposed to be so offset and the basis
therefor. Grantee shall have the right to object to all or any part of such
offset that, in the reasonable judgment of Grantee, would constitute a breach of
the Ground Lease, and in the event of such objection, Grantor shall not effect
any offset of the amounts found objectionable by Grantee. Neither Grantee's
failure to object as aforesaid nor any objection relating to such offset shall
constitute an approval of any such offset by Grantee.

                  2.12.9.2 If any action, proceeding, motion or notice shall be
commenced or filed in respect of the lessor under the Ground Lease or any other
party or in respect of the Ground Lease in connection with any case under any
bankruptcy or insolvency law, then Grantee shall have the option to intervene in
any such litigation with counsel of Grantee's choice. Grantee may proceed in its
own name in connection with any such litigation, and Grantor agrees to execute
any and all powers, authorizations, consents or other documents required by
Grantee in connection therewith.

                  2.12.9.3 Grantor shall, after obtaining knowledge thereof,
promptly notify Grantee of any filing by or against the lessor or other party
with an interest in the Mortgaged Property of a petition under any bankruptcy or
insolvency law. Grantor shall promptly deliver to Grantee, following receipt,
copies of any and all notices, summonses, pleadings, applications and other
documents received by Grantor in connection with any such petition and any
proceedings relating thereto.

                  2.12.9.4 If there shall be filed by or against Grantor a
petition under any bankruptcy or insolvency law, and Grantor, as lessee under
the Ground Lease, shall determine to


                                       12


reject the Ground Lease pursuant to any bankruptcy or insolvency law, then
Grantor shall give Grantee a notice of the date on which Grantor shall apply to
the bankruptcy court for authority to reject the Ground Lease (such notice to be
no later than twenty (20) days prior to such date). Grantee shall have the
right, but not the obligation, to serve upon Grantor at any time prior to the
date on which Grantor shall so apply to the bankruptcy court a notice stating
that Grantee demands that Grantor assume and assign the Ground Lease to Grantee
pursuant to any bankruptcy or insolvency law. If Grantee shall serve upon
Grantor the notice described in the preceding sentence, to the extent permitted
by law or Governmental Authority, Grantor shall not seek to reject the Ground
Lease and shall comply with the demand provided for in the preceding sentence.
In addition, effective upon the entry of an order for relief with respect to
Grantor under any bankruptcy or insolvency law, Grantor hereby assigns and
transfers to Grantee a non-exclusive right to apply to the bankruptcy court
under any bankruptcy or insolvency law for an order extending the period during
which the Ground Lease may be rejected or assumed; and shall (a) promptly notify
Grantee of any default by Grantor in the performance or observance of any of the
terms, covenants or conditions on the part of Grantor to be performed or
observed under the Ground Lease and of the giving of any written notice by the
lessor thereunder to Grantor of any such default, and (b) promptly cause a copy
of each written notice given to Grantor by the lessor under the Ground Lease to
be delivered to Grantee. Grantee may rely on any notice received by it from any
such lessor of any default by Grantor under the Ground Lease and may take such
action as may be permitted by law or Governmental Authority to cure such default
even though the existence of such default or the nature thereof shall be
questioned or denied by Grantor or by any Person on its behalf.

      2.13 Power of Attorney. Grantor does hereby irrevocably constitute and
appoint Grantee, its true and lawful attorney (which appointment is coupled with
an interest), with full power of substitution, for Grantor and in the name,
place and stead of Grantor or in Grantee's own name, for so long as any of the
Obligations are outstanding, to ask, demand, collect, receive, receipt for and
sue for any and all rents, income and other sums which are assigned hereunder
with full power to endorse the name of Grantor on all instruments given in
payment or in part payment thereof, to settle, adjust or compromise any claims
thereunder as fully as Grantor itself could do and file any claim or take any
action or proceeding, either in its own name or in the name of Grantor or
otherwise, as are necessary or appropriate to protect and preserve the right,
title and interest of Grantee in and to such rents, income and other sums and
the security intended to be afforded hereby; provided that Grantee shall not
exercise such rights unless an Event of Default has occurred and is continuing.

      2.14 Covenant to Pay. If an Event of Default has occurred and is
continuing and such Event of Default could reasonably be expected to materially
and adversely affect Grantee's interest hereunder in the Mortgaged Property or
result in personal injury, then Grantee, among its other rights and remedies,
shall have the right, but not the obligation, to pay, observe or perform the
same, in whole or in part, and with such modifications as Grantee reasonably
shall deem advisable. To the extent provided in the Secured Debt Documents, all
sums, including, without limitation, reasonable attorneys fees, so expended or
incurred by Grantee by reason of the default of Grantor, or by reason of the
bankruptcy or insolvency of Grantor, as well as, without limitation, sums
expended or incurred to sustain the lien or estate of this Security Deed or its
priority, or to protect or enforce any rights of Grantee hereunder, or to
recover any of the Obligations, or to complete construction of the Project for
which the Secured Debt Documents are intended as financing, or for repairs,


                                       13


maintenance, alterations, replacements or improvements thereto or for the
protection thereof, or for real estate taxes or other governmental assessments
or charges against any part of the Mortgaged Property, or premiums for insurance
of the Mortgaged Property, shall be entitled to the benefit of the lien on the
Mortgaged Property as of the date of the recording of this Security Deed, shall
be deemed to be added to and be part of the Obligations secured hereby, whether
or not the result thereof causes the total amount of the Obligations to exceed
the stated amount set forth in the second introductory paragraph of this
Security Deed, and shall be repaid by Grantor as provided in the Secured Debt
Documents.

      2.15 Security Agreement.

            2.15.1 This Security Deed shall also be a security agreement between
Grantor and Grantee covering the Mortgaged Property constituting personal
property or fixtures (hereinafter collectively called "UCC Collateral") governed
by the UCC in effect in the State as the same may be more specifically set forth
in any financing statement delivered in connection with this Security Deed, and
as further security for the payment and performance of the Obligations, Grantor
hereby grants to Grantee a security interest in such portion of the Mortgaged
Property to the full extent that the Mortgaged Property may be subject to the
UCC. In addition to Grantee's other rights hereunder, Grantee shall have all
rights of a secured party under the UCC. Grantor shall execute and deliver to
Grantee all financing statements and such further assurances that may be
required to establish, create, perfect (to the extent the same can be achieved
by the filing of a financing statement) and maintain the validity and priority
of Grantee's security interests, and Grantor shall bear all reasonable costs
thereof, including all UCC searches. Except as otherwise provided in the Secured
Debt Documents, if Grantee should dispose of any of the Mortgaged Property
comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written
notice by Grantee to Grantor shall be deemed to be reasonable notice; provided,
however, Grantee may dispose of such property in accordance with the foreclosure
procedures of this Security Deed in lieu of proceeding under the UCC. Grantee
may, but shall not be obligated to, from time to time, execute and deliver at
Grantor's expense, all continuation statements, termination statements,
amendments, partial releases, or other instruments relating to all financing
statements by and between Grantor and Grantee. Except as otherwise provided in
the Secured Debt Documents, if an Event of Default shall occur and is
continuing, (a) Grantee, in addition to any other rights and remedies which it
may have, may exercise immediately and without demand to the extent permitted by
law, any and all rights and remedies granted to a secured party under the UCC
including, without limiting the generality of the foregoing, the right to take
possession of the UCC Collateral or any part thereof, and to take such other
measures as may be necessary for the care, protection and preservation of such
collateral and (b) upon request or demand of Grantee, Grantor shall at its
expense, assemble the UCC Collateral and make it available to Grantee at a
convenient place acceptable to Grantee. Grantor shall pay to Grantee on demand,
any and all expenses, including reasonable attorneys' fees and disbursements
incurred or paid by Grantee in protecting the interest in the UCC Collateral and
in enforcing the rights hereunder with respect to such UCC Collateral.

            2.15.2 Grantor agrees, to the extent permitted by law, that: (i) all
or a part of the Mortgaged Property are or are to become fixtures; and (ii) the
address of Grantor is as set forth on the first page of this Security Deed.


                                       14


                              ARTICLE 3 - REMEDIES

      3.1 Protective Advances. If an Event of Default shall have occurred and is
continuing, then without thereby limiting Grantee's other rights or remedies,
waiving or releasing any of Grantor's obligations, or imposing any obligation on
Grantee, Grantee may, but shall not be obligated to, either advance any amount
owing or perform any or all actions as may be necessary or appropriate to cure
such default. All such advances shall constitute "Protective Advances." No sums
advanced or performance rendered by Grantee shall cure, or be deemed a waiver of
any Event of Default.

      3.2 Institution of Equity Proceedings. If an Event of Default occurs and
is continuing, Grantee may institute an action, suit or proceeding in equity for
specific performance of this Security Deed or any other Secured Debt Document,
all of which shall be specifically enforceable by injunction or other equitable
remedy.

      3.3 Grantee's Power of Enforcement.

            3.3.1 If an Event of Default shall have occurred, Grantee may, but
shall not be obligated to, sell the Mortgaged Property or any part of the
Mortgaged Property at public sale or sales before the door of the courthouse of
the county in which the Mortgaged Property or any part of the Mortgaged Property
is situated, to the highest bidder for cash, in order to pay the indebtedness
secured hereby and accrued interest thereon and insurance premiums, liens,
assessments, taxes and charges, including utility charges, if any, with accrued
interest thereon, and all expenses of the sale and of all proceedings in
connection therewith, including reasonable attorneys' fees actually incurred,
after advertising the time, place and terms of sale once a week for four (4)
weeks immediately preceding such sale (but without regard to the number of days)
in a newspaper in which Sheriff's sales are advertised in said county. At any
such public sale, Grantee may, but shall not be obligated to, execute and
deliver to the purchaser a conveyance of the Mortgaged Property or any part of
the Mortgaged Property in fee simple, with full warranties of title (or without
warranties if Grantee shall so elect) and to this end, Grantor hereby
constitutes and appoints Grantee the agent and attorney-in-fact of Grantor to
make such sale and conveyance, and thereby to divest Grantor of all right,
title, interest, equity and equity of redemption that Grantor may have in and to
the Mortgaged Property and to vest the same in the purchaser or purchasers at
such sale or sales, and all the acts and doings of said agent and
attorney-in-fact are hereby ratified and confirmed and any recitals in said
conveyance or conveyances as to facts essential to a valid sale shall be binding
upon Grantor. The aforesaid power of sale and agency hereby granted are coupled
with an interest and are irrevocable by dissolution, insolvency or otherwise,
are granted as cumulative of the other remedies provided hereby or by law for
collection of the indebtedness secured hereby and shall not be exhausted by one
exercise thereof but may be exercised until full payment of all indebtedness
secured hereby. In the event of any such foreclosure sale by Grantee, Grantor
shall be deemed a tenant holding over and shall forthwith deliver possession to
the purchaser or purchasers at such sale or be summarily dispossessed according
to provisions of law applicable to tenants holding over.

            3.3.2 Grantee may adjourn from time to time any sale by it to be
made under or by virtue of this Security Deed by announcement at the time and
place appointed for such sale or


                                       15


for such adjourned sale or sales; and, except as otherwise provided by any
applicable provision of law, Grantee, without further notice or publication, may
make such sale at the time and place to which the same shall be so adjourned.

            3.3.3 Upon any sale made under or by virtue of this Section 3.3
(whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale),
Grantee may bid for and acquire the Mortgaged Property or any part thereof and
in lieu of paying cash therefor may make settlement for the purchase price by
crediting upon the indebtedness the net sales price after deducting therefrom
the expenses of the sale and the costs of the action and any other sums which
Grantee is authorized to deduct under this Security Deed.

            3.3.4 No recovery of any judgment by Grantee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Grantor shall affect in any manner or to any extent, the lien and
title of this Security Deed upon the Mortgaged Property or any part thereof, or
any liens, titles, rights, powers or remedies of Grantee hereunder, but such
liens, titles, rights, powers and remedies of Grantee shall continue unimpaired
as before.

            3.3.5 Grantee is authorized, but shall not be obligated, to
foreclose this Security Deed subject to the rights of any tenants of the
Mortgaged Property, and the failure to make any such tenants parties to any such
foreclosure proceedings and to foreclose their rights will not be, nor be
asserted to be by Grantor, a defense to any proceedings instituted by Grantee to
collect the sums secured hereby.

            3.3.6 After deducting all costs, fees and expenses of Grantee and of
this Security Deed, including, without limitation, costs of evidence of title
and reasonable attorneys' fees of Grantee in connection with a sale, Grantee
shall apply the proceeds of such sale to payment of all sums expended under the
terms hereof not then repaid, with accrued interest at the Default Rate then to
the payment of all other sums then secured hereby and the remainder, if any, to
the person or persons legally entitled thereto.

            3.3.7 If any Event of Default occurs and is continuing, Grantee may,
either with or without entry or taking possession of the Mortgaged Property, and
without regard to whether or not the indebtedness and other sums secured hereby
shall be due and without prejudice to the right of Grantee thereafter to bring
an action or proceeding to foreclose or any other action for any default
existing at the time such earlier action was commenced, proceed by any
appropriate action or proceeding: (1) to enforce payment of the Obligations, to
the extent permitted by law, or the performance of any term hereof or any other
right; (2) to foreclose this Security Deed in any manner provided by law for the
foreclosure of mortgages or deeds of trust or deeds to secure debt on real
property and to sell, as an entirety or in separate lots or parcels, the
Mortgaged Property or any portion thereof pursuant to the laws of the State or
under the judgment or decree of a court or courts of competent jurisdiction, and
Grantee shall be entitled to recover in any such proceeding all costs and
expenses incident thereto, including reasonable attorneys' fees in such amount
as shall be awarded by the court; (3) to exercise any or all of the rights and
remedies available to it under the Secured Debt Documents; and (4) to pursue any
other remedy available


                                       16


to it. Grantee may take action either by such proceedings or by the exercise of
its powers with respect to entry or taking possession, or both, as Grantee may
determine.

            3.3.8 The remedies described in this Section 3.3 may be exercised
with respect to all or any portion of the UCC Collateral, either simultaneously
with the sale of any real property encumbered hereby or independent thereof.
Grantee may at any time be permitted to proceed with respect to all or any
portion of the UCC Collateral in any manner permitted by the UCC. Grantor agrees
that Grantee's inclusion of all or any portion of the UCC Collateral in a sale
or other remedy exercised with respect to the real property encumbered hereby,
as permitted by the UCC, is a commercially reasonable disposition of such
property.

      3.4 Grantee's Right to Enter and Take Possession, Operate and Apply
Income.

            (a) If an Event of Default occurs and is continuing, Grantor, upon
demand of Grantee, shall forthwith surrender to Grantee the actual possession
and, if and to the extent permitted by law, Grantee itself, or by such officers
or agents as it may appoint, may enter and take possession of all of the
Mortgaged Property, including the Tangible Collateral, without liability for
trespass, damages or otherwise, and may exclude Grantor and its agents and
employees wholly therefrom and may have joint access with Grantor to the books,
papers and accounts of Grantor.

            (b) If an Event of Default has occurred and is continuing and
Grantor shall for any reason fail to surrender or deliver the Mortgaged Property
or any part thereof after Grantee's demand, Grantee may obtain a judgment or
decree conferring on Grantee the right to immediate possession or requiring
Grantor to deliver immediate possession of all or part of such property to
Grantee and Grantor hereby specifically consents to the entry of such judgment
or decree. Grantor shall pay to Grantee, upon demand, all costs and expenses of
obtaining such judgment or decree and reasonable compensation to Grantee, its
attorneys and agents, and all such costs, expenses and compensation shall, until
paid, be secured by the lien, security title and security interest of this
Security Deed.

            (c) Upon every such entering upon or taking of possession, Grantee
may hold, store, use, operate, manage and control the Mortgaged Property and
conduct the business thereof, and, from time to time and without being under any
duty to so act:

                  (1) make all necessary and proper maintenance, repairs,
renewals and replacements thereto and thereon, and all necessary additions,
betterments and improvements thereto and thereon and purchase or otherwise
acquire fixtures, personalty and other property in connection therewith;

                  (2) insure or keep the Mortgaged Property insured;

                  (3) manage and operate the Mortgaged Property and exercise all
the rights and powers of Grantor in their name or otherwise with respect to the
same;

                  (4) enter into agreements with others to exercise the powers
herein granted Grantee, all as Grantee from time to time may determine; and
shall apply the monies so received by Grantee in such priority as provided by
the Secured Debt Documents to (1) the payment


                                       17


of interest and principal due and payable to the Grantee, (2) the deposits for
taxes and assessments and insurance premiums due, (3) the cost of insurance,
taxes, assessments and other proper charges upon the Mortgaged Property or any
part thereof; (4) the compensation, expenses and disbursements of the agents,
attorneys and other representatives of Grantee as allowed under this Security
Deed; and (5) any other charges or costs required to be paid by Grantor under
the terms of the Secured Debt Documents.

                  (5) rent or sublet the Mortgaged Property or any portion
thereof for any purpose permitted by this Security Deed.

            Grantee shall surrender possession of the Mortgaged Property to
Grantor (i) as may be required by law or court order, or (ii) when all amounts
under any of the terms of the Secured Debt Documents, including this Security
Deed, shall have been paid current and all Events of Default have been cured or
waived. The same right of taking possession, however, shall exist if any
subsequent Event of Default shall occur and be continuing.

      3.5 Separate Sales. To the extent permitted by law or Governmental Rule,
the Mortgaged Property may be sold in one or more parcels and in such manner and
order as Grantee, in its sole discretion, may elect, it being expressly
understood and agreed that the right of sale arising out of any Event of Default
shall not be exhausted by any one or more sales.

      3.6 Waiver of Appraisement, Moratorium, Valuation, Stay, Extension and
Redemption Laws. Grantor agrees to the full extent permitted by law that if an
Event of Default occurs and is continuing, neither Grantor nor anyone claiming
through or under it shall or will set up, claim or seek to take advantage of any
appraisement, moratorium, valuation, stay, extension or redemption laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Security Deed or the absolute sale of the Mortgaged Property or any
portion thereof or the final and absolute putting into possession thereof,
immediately after such sale, of the purchasers thereof, and Grantor for itself
and all who may at any time claim through or under it, hereby waives, to the
full extent that it may lawfully so do, the benefit of all such laws, and any
and all right to have the assets comprising the Mortgaged Property marshaled
upon any foreclosure of the lien hereof and agrees that Grantee or any court
having jurisdiction to foreclose such lien may sell the Mortgaged Property in
part or as an entirety.

      3.7 Receiver. If an Event of Default occurs and is continuing, Grantee, to
the extent permitted by law, and without regard to the value, adequacy or
occupancy of the security for the indebtedness and other sums secured hereby,
shall be entitled as a matter of right, but shall not be obligated to, if it so
elects to the appointment of a receiver to enter upon and take possession of the
Mortgaged Property and to collect all earnings, revenues and receipts and apply
the same as the court may direct, and such receiver may be appointed by any
court of competent jurisdiction upon application by Grantee. To the extent
permitted by law, Grantee may have a receiver appointed without notice to
Grantor or any third party, and Grantee may waive any requirement that the
receiver post a bond. To the extent permitted by law, Grantee shall have the
power to designate and select the Person who shall serve as the receiver and to
negotiate all terms and conditions under which such receiver shall serve. To the
extent permitted by law, any receiver appointed on Grantee's behalf may be an
Affiliate of Grantee. The reasonable expenses, including receiver's


                                       18


fees, reasonable attorneys' fees, costs and agents' compensation, incurred
pursuant to the powers herein contained shall be secured by this Security Deed.
The right to enter and take possession of and to manage and operate the
Mortgaged Property and to collect all earnings, revenues and receipts, whether
by a receiver or otherwise, shall be cumulative to any other right or remedy
available to Grantee under this Security Deed, the other Secured Debt Documents
or otherwise available to Grantee and may be exercised concurrently therewith or
independently thereof, but such rights shall be exercised in a manner which is
otherwise in accordance with and consistent with the Secured Debt Documents.
Grantee shall be liable to account only for such earnings, revenues and receipts
(including, without limitation, security deposits) actually received by Grantee,
whether received pursuant to this section or any other provision hereof.
Notwithstanding the appointment of any receiver or other custodian, Grantee
shall be entitled as pledgee to the possession and control of any cash,
deposits, or instruments at the time held by, or payable or deliverable under
the terms of this Security Deed to, Grantee.

      3.8 Suits to Protect the Mortgaged Property. Grantee shall have the power
and authority to institute and maintain any suits and proceedings as may be
advisable (a) to prevent any impairment of the Mortgaged Property by any acts
which may be unlawful or in violation of this Security Deed, (b) to preserve or
protect its interest in the Mortgaged Property, or (c) to restrain the
enforcement of or compliance with any legislation or other Legal Requirement
that may be unconstitutional or otherwise invalid, if the enforcement of or
compliance with such enactment, rule or order might impair the security
hereunder or be prejudicial to Grantee's interest

      3.9 Proofs of Claim. In the case of any receivership, insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceedings affecting Grantor, any Affiliate or any guarantor, co-maker
or endorser of any of Grantor's obligations, its creditors or its property,
Grantee, to the extent permitted by law, shall be entitled, but not obligated to
file such proofs of claim or other documents as may be necessary or advisable in
order to have its claims allowed in such proceedings for the entire amount due
and payable by Grantor under the Secured Debt Documents, at the date of the
institution of such proceedings, and for any additional amounts which may become
due and payable by Grantor after such date.

      3.10 Grantor to Pay Amounts Secured Hereby on Any Default in Payment;
Application of Monies by Grantee.

            (a) In case of a foreclosure sale of all or any part of the
Mortgaged Property and of the application of the proceeds of sale to the payment
of the sums secured hereby, to the extent permitted by law, the Secured
Debtholders shall be entitled to enforce payment from Grantor of any additional
amounts then remaining due and unpaid and to recover judgment against Grantor
for any portion thereof remaining unpaid, with interest at the Default Rate.

            (b) Grantor hereby agrees to the extent permitted by law, that no
recovery of any such judgment by the Secured Debtholders or other action by the
Secured Debtholders and no attachment or levy of any execution upon any of the
Mortgaged Property or any other property shall in any way affect the Lien and
security interest of this Security Deed upon the Mortgaged Property or any part
thereof or any Lien, rights, powers or remedies of Grantee hereunder, but such
Lien, rights, powers and remedies shall continue unimpaired as before.


                                       19


            (c) Any monies collected or received by Grantee under this Section
3.10 shall be first applied to the payment of compensation, expenses and
disbursements of the agents, attorneys and other representatives of the Grantee
and the Secured Debtholders, and the balance remaining shall be applied as
provided in the Collateral Trustee Agreement.

      3.11 Delay or Omission; No Waiver. No delay or omission of Grantee or the
Secured Debtholders to exercise any right, power or remedy upon any Event of
Default shall exhaust or impair any such right, power or remedy or shall be
construed to waive any such Event of Default or to constitute acquiescence
therein. Every right, power and remedy given to Grantee whether contained herein
or in the other Secured Debt Documents or otherwise available to Grantee may be
exercised from time to time and as often as may be deemed expedient by Grantee.

      3.12 No Waiver of One Default to Affect Another. No waiver of any defaults
hereunder shall extend to or affect any subsequent or any other defaults then
existing, or impair any rights, powers or remedies consequent thereon. If
Grantee (a) grants forbearance or an extension of time for the payment of any
sums secured hereby; (b) takes other or additional security for the payment
thereof; (c) waives or does not exercise any right granted in this Security Deed
or any other Secured Debt Document; (d) releases any part of the Mortgaged
Property from the lien or security interest of this Security Deed or any other
instrument securing the Obligations; (e) consents to the filing of any map, plat
or replat of the Real Property or any part thereof; (f) consents to the granting
of any easement on the Real Property; or (g) makes or consents to any agreement
changing the terms of this Security Deed or any other Secured Debt Document
subordinating the lien or any charge hereof, no such act or omission shall
release, discharge, modify, change or affect the liability under this Security
Deed or any other Secured Debt Document or otherwise of Grantor, or any
subsequent purchaser of the Mortgaged Property or any part thereof or any maker,
co-signer, surety or guarantor with respect to any other matters not addressed
by such act or omission. No such act or omission shall preclude Grantee from
exercising any right, power or privilege herein granted or intended to be
granted in case of any Event of Default then existing or of any subsequent Event
of Default, nor, except as otherwise expressly provided in an instrument or
instruments executed by Grantee, shall the lien or security interest of this
Security Deed be altered thereby, except to the extent expressly provided in
such acts or omissions. In the event of the sale or transfer by operation of law
or otherwise of all or any part of the Mortgaged Property, Grantee, without
notice to any person, firm or corporation, is hereby authorized and empowered to
deal with any such vendee or transferee with reference to the Mortgaged Property
or the indebtedness secured hereby, or with reference to any of the terms or
conditions hereof, as fully and to the same extent as it might deal with the
original parties hereto and without in any way releasing or discharging any of
the liabilities or undertakings hereunder, or waiving its right to declare such
sale or transfer an Event of Default as provided herein. Notwithstanding
anything to the contrary contained in this Security Deed or any other Secured
Debt Document, (i) in the case of any non-monetary default, Grantee may continue
to accept payments due hereunder without thereby waiving the existence of such
or any other default and (ii) in the case of any monetary Event of Default,
Grantee may accept partial payments of any sums due hereunder without thereby
waiving the existence of such Event of Default if the partial payment is not
sufficient to completely cure such Event of Default.

      3.13 Discontinuance of Proceedings; Position of Parties Restored. If
Grantee shall have proceeded to enforce any right or remedy under this Security
Deed by foreclosure, entry of


                                       20


judgment or otherwise and such proceedings shall have been discontinued or
abandoned for any reason, or such proceedings shall have resulted in a final
determination adverse to Grantee, then and in every such case Grantor and
Grantee shall be restored to their former positions and rights hereunder, and
all rights, powers and remedies of Grantee shall continue as if no such
proceedings had occurred or had been taken.

      3.14 Remedies Cumulative. Subject to the provisions of Section 4.15
hereof, no right, power or remedy, including without limitation remedies with
respect to any security for the Obligations, conferred upon or reserved to
Grantee by this Security Deed or any other Secured Debt Document is exclusive of
any other right, power or remedy, but each and every such right, power and
remedy shall be cumulative and concurrent and shall be in addition to any other
right, power and remedy given hereunder or under any other Secured Debt
Document, now or hereafter existing at law, in equity or by statute, and Grantee
shall be entitled to resort to such rights, powers, remedies or security as
Grantee may deem advisable.

      3.15 Interest After Event of Default. If an Event of Default shall have
occurred and is continuing, all sums outstanding and unpaid under the Secured
Debt Documents, including this Security Deed, may bear interest at the Default
Rate until such Event of Default has been cured. Grantor's obligation to pay
such interest shall be secured by this Security Deed.

      3.16 Foreclosure; Expenses of Litigation. If Grantee forecloses,
reasonable attorneys' fees for services in the supervision of said foreclosure
proceeding shall be allowed to the Grantee as part of the foreclosure costs. In
the event of foreclosure of the lien hereof, there shall be allowed and included
as additional indebtedness all reasonable expenditures and expenses which may be
paid or incurred by or on behalf of Grantee for attorneys' fees, appraisers'
fees, outlays for documentary and expert evidence, stenographers' charges,
publication costs, and costs (which may be estimated as to items to be expended
after foreclosure sale or entry of the decree) of procuring all such abstracts
of title, title searches and examinations, title insurance policies and
guarantees, and similar data and assurances with respect to title as are
necessary either to prosecute such suit or to evidence to a bidder at any sale
which may be had pursuant to such decree the true condition of the title to or
the value of the Mortgaged Property or any portion thereof. All expenditures and
expenses of the nature in this section mentioned, and such expenses and fees as
may be incurred in the protection of the Mortgaged Property and the maintenance
of the lien and security interest of this Security Deed, including the
reasonable fees of any attorney employed by Grantee in any litigation or
proceeding affecting this Security Deed or any other Secured Debt Document, the
Mortgaged Property or any portion thereof, including, without limitation, civil,
probate, appellate and bankruptcy proceedings, or in preparation for the
commencement or defense of any proceeding or threatened suit or proceeding,
shall be immediately due and payable by Grantor, with interest thereon at the
Default Rate, and shall be secured by this Security Deed. Grantee waives its
right to any statutory fee in connection with any judicial or nonjudicial
foreclosure of the lien hereof and agrees to accept a reasonable fee for such
services.

      3.17 Deficiency Judgments. If after foreclosure of this Security Deed,
there shall remain any deficiency with respect to any amounts payable under the
Secured Debt Documents, including hereunder, or any amounts secured hereby, and
Grantee may institute any proceedings to recover such deficiency or
deficiencies, all such amounts shall continue to bear interest at the Default
Rate.


                                       21


Grantor waives any defense to Grantee's recovery against Grantor of any
deficiency after any foreclosure sale of the Mortgaged Property. To the extent
permitted by law, Grantor expressly waives any defense or benefits that may be
derived from any statute granting Grantor any defense to any such recovery by
Grantee. In addition, Grantee shall be entitled to recovery of all of its
reasonable costs and expenditures (including without limitation any court
imposed costs) in connection with such proceedings, including their reasonable
attorneys' fees, appraisal fees and the other costs, fees and expenditures
referred to in Section 3.16 above. This provision shall survive any foreclosure
or sale of the Mortgaged Property, any portion thereof and/or the extinguishment
of the lien hereof.

      3.18 Waiver of Jury Trial. Grantee and Grantor each waive any right to
have a jury participate in resolving any dispute whether sounding in contract,
tort or otherwise arising out of, connected with, related to or incidental to
the relationship established between them in connection with this Security Deed
or any other Secured Debt Document. Any such disputes shall be resolved in a
bench trial without a jury.

      3.19 Exculpation of Grantee. The acceptance by Grantee of the assignment
contained herein with all of the rights, powers, privileges and authority
created hereby shall not, prior to entry upon and taking possession of the
Mortgaged Property by Grantee, be deemed or construed to make Grantee a
"mortgagee in possession"; nor thereafter or at any time or in any event
obligate Grantee to appear in or defend any action or proceeding relating to the
Mortgaged Property, nor shall Grantee, prior to such entry and taking, be liable
in any way for any injury or damage to person or property sustained by any
Person in or about the Mortgaged Property.

                               ARTICLE 4 - GENERAL

      4.1 Discharge. When all of the Obligations shall have been paid in full,
then this Security Deed and the lien and security interest created hereby shall
be of no further force and effect, Grantor shall be released from the covenants,
agreements and obligations of Grantor contained in this Security Deed and all
right, title and interest in and to the Mortgaged Property shall revert to
Grantor. Grantee, at the request and the expense of Grantor, shall promptly
execute a deed of reconveyance and such other documents as may be reasonably
requested by Grantor to evidence the discharge and satisfaction of this Security
Deed and the release of Grantor from its obligations hereunder.

      4.2 No Waiver. The exercise of the privileges granted in this Security
Deed to perform Grantor's obligations under the agreements which constitute the
Mortgaged Property shall in no event be considered or constitute a waiver of any
right which Grantee may have at any time, after an Event of Default shall have
occurred and be continuing, to declare the Obligations to be immediately due and
payable. No delay or omission to exercise any right, remedy or power accruing
upon any default shall impair any such right, remedy or power or shall be
construed to be a waiver of any such default or acquiescence therein; and every
such right, remedy and power may be exercised from time to time and as often as
may be deemed expedient.

      4.3 Extension, Rearrangement or Renewal of Obligations. It is expressly
agreed that any of the Obligations at any time secured hereby may be from time
to time extended for any


                                       22


period, or with the consent of Grantor rearranged or renewed, and that any part
of the security herein described, or any other security for the Obligations, may
be waived or released, without altering, varying or diminishing the force,
effect or lien or security interest of this Security Deed; and the lien and
security interest granted by this Security Deed shall continue as a prior lien
and security interest on all of the Mortgaged Property not expressly so
released, until the Obligations are fully paid and this Security Deed is
terminated in accordance with the provisions hereof; and no other security now
existing or hereafter taken to secure the payment of the Obligations or any part
thereof or the performance of any obligation or liability of Grantor whatever
shall in any manner impair or affect the security given by this Security Deed;
and all security for the payment of the Obligations or any part thereof and the
performance of any obligation or liability shall be taken, considered and held
as cumulative.

      4.4 Forcible Detainer. Grantor agrees for itself and all Persons claiming
by, through or under it, that subsequent to foreclosure hereunder in accordance
with this Security Deed and applicable law if Grantor shall hold possession of
the Mortgaged Property or any part thereof, Grantor or the Persons so holding
possession shall be guilty of trespass; and any such Person (including Grantor)
failing or refusing to surrender possession upon demand shall be guilty of
forcible detainer and shall be liable to Grantee or any purchaser in
foreclosure, as applicable, for reasonable rental on said premises, and shall be
subject to eviction and removal in accordance with law.

      4.5 Waiver of Stay or Extension. To the extent permitted to be waived by
law, Grantor shall not at any time insist upon or plead or in any manner
whatever claim the benefit or advantage of any stay, extension or moratorium law
now or at any time hereafter in force in any locality where the Mortgaged
Property or any part thereof may or shall be situated, nor shall Grantor claim
any benefit or advantage from any law now or hereafter in force providing for
the valuation or appraisement of the Mortgaged Property or any part thereof
prior to any sale thereof to be made pursuant to any provision of this Security
Deed or to a decree of any court of competent jurisdiction, nor after any such
sale shall Grantor claim or exercise any right conferred by any law now or at
any time hereafter in force to redeem the Mortgaged Property so sold or any part
thereof; and Grantor hereby expressly waives all benefit or advantage of any
such law or laws and the appraisement of the Mortgaged Property or any part
thereof, and covenants that Grantor shall not hinder or delay the execution of
any power herein granted and delegated to Grantee but that Grantor shall permit
the execution of every such power as though no such law had been made.

      4.6 Notices. Except where certified or registered mail notice is required
by applicable law, any notice to Grantor or Grantee required or permitted
hereunder shall be deemed to be given when given in the manner prescribed in the
Collateral Trust Agreement.

      4.7 Severability. All rights, powers and remedies provided herein may be
exercised only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Security Deed invalid, unenforceable or not entitled
to be recorded, registered or filed under any applicable law. In the event any
term or provision contained in this Security Deed is in conflict, or may
hereafter be held to be in conflict, with the laws of the State or of the United
States of America, this Security Deed


                                       23


shall be affected only as to such particular term or provision, and shall in all
other respects remain in full force and effect.

      4.8 Application of Payments. In the event that any part of the Obligations
cannot lawfully be secured hereby, or in the event that the lien and security
interest hereof cannot be lawfully enforced to pay any part of the Obligations,
or in the event that the lien or security interest created by this Security Deed
shall be invalid or unenforceable as to any part of the Obligations, then all
payments on the Obligations shall be deemed to have been first applied to the
complete payment and liquidation of that part of the Obligations which is not
secured by this Security Deed and the unsecured portion of the Obligations shall
be completely paid and liquidated prior to the payment and liquidation of the
remaining secured portion of the Obligations.

      4.9 GOVERNING LAW. THIS SECURITY DEED IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.

      4.10 Amendments. This Security Deed may be amended, supplemented or
otherwise modified only by an instrument in writing signed by Grantor and
Grantee.

      4.11 Successors and Assigns. All terms of this Security Deed shall run
with the land and bind each of Grantor and Grantee and their respective
successors and assigns, and all Persons claiming under or through Grantor or
Grantee, as the case may be, or any such successor or assign, and shall inure to
the benefit of Grantee and Grantor, and their respective successors and assigns.

      4.12 Renewal, Etc. To the extent permitted under the other Secured Debt
Documents, Grantee may, but shall not be obligated to, at any time and from time
to time renew or extend this Security Deed, or alter or modify the same in any
way, or waive any of the terms, covenants or conditions hereof in whole or in
part and may release any portion of the Mortgaged Property or any other
security, and grant such extensions and indulgences in relation to the
Obligations as Grantee may determine, without the consent of any junior lienor
or encumbrancer and without any obligation to give notice of any kind thereto
and without in any manner affecting the priority of the lien and security
interest hereof on any part of the Mortgaged Property; provided that nothing in
this Section 4.12 shall grant Grantee the right to alter or modify the Security
Deed without the consent of the Grantor unless otherwise specifically permitted
in this Security Deed.

      4.13 Future Advances. It is understood and agreed that this Security Deed
secures, among other things, (i) the Priority Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of Grantor
under the Priority Lien Documents; (ii) the Parity Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of Grantor
under the Parity Lien Documents; (iii) all Obligations under any other Priority
Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs
incurred by Grantee or any Secured Debtholder, or by any receiver appointed
hereunder, which are made or incurred pursuant to, or permitted by, the terms
hereof, plus interest thereon at the rate therein specified or otherwise agreed
upon, from the date of the advances or the incurring of such expenses or costs
until reimbursed; (v) any and all other indebtedness of Grantor to Grantee now
or hereafter owing, whether direct or indirect, primary or secondary, fixed or
contingent, joint or several, regardless of how evidenced or


                                       24


arising, where the indebtedness provides that it is secured hereby; and (vi) any
extensions, refinancings, modifications or renewals of all such indebtedness
described in subparagraphs (i) through (iv) above, whether or not Grantor
executes any extension agreement or renewal instrument, and that the lien of any
such future advances shall relate to the date of this Security Deed.

      4.14 Liability. Notwithstanding any provision in this Security Deed to the
contrary, none of Grantee or any Secured Debt Representative or any of their
agents shall be liable for any error of judgment or act done in good faith, or
be otherwise responsible or accountable under any circumstances whatsoever. None
of Grantee or any Secured Debt Representative or any of their agents shall be
personally liable in case of entry by them, or anyone entering by virtue of the
powers herein granted them, upon the Mortgaged Property for debts contracted or
liability or damages incurred in the management or operation of the Mortgaged
Property. Such persons shall have the right to rely on any instrument, document
or signature authorizing or supporting any action taken or proposed to be taken
by them hereunder, believed by them in good faith to be genuine. Grantee or any
Secured Debt Representative or any of their agents shall be entitled to
reimbursement for expenses incurred by them in the performance of their duties
hereunder and to reasonable compensation for such of their services hereunder as
shall be rendered. Grantor will, from time to time, pay the compensation due
hereunder and reimburse such parties for, and save them harmless against, any
and all liability and expenses which may be incurred by them in the performance
of their duties.

      4.15 Severability and Compliance With Usury Law. The Secured Debt
Documents are intended to be performed in accordance with, and only to the
extent permitted by, all applicable Applicable Laws and Legal Requirements. If
any provision of any of the Secured Debt Documents or the application thereof to
any person or circumstance shall, for any reason and to any extent, be invalid
or unenforceable, neither the remainder of the instrument in which such
provision is contained, nor the application of such provision to other persons
or circumstances, nor the other instruments referred to hereinabove, shall be
affected thereby, but rather shall be enforceable to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of
Grantor at all times to comply with the applicable State law governing the
maximum rate or amount of interest payable on or in connection with the
Obligations. If the Applicable Law is ever judicially interpreted so as to
render usurious any amount called for under the Secured Debt Documents, or
contracted for, charged, taken, reserved or received with respect to the
extension of credit evidenced by the Secured Debt Documents or if acceleration
of the maturity of the Obligations or if any prepayment by Grantor results in
Grantor having paid any interest in excess of that permitted by law, then it is
Grantor's express intent that all excess amounts theretofore collected by
Grantee be credited on the principal balance due under the Secured Debt
Documents (or, if the Secured Debt Documents have been or would thereby be paid
in full, refunded to Grantor), and the provisions of the Secured Debt Documents
immediately be deemed reformed and the amounts thereafter collectible thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder and thereunder. The right to accelerate
maturity of Obligations does not include the right to accelerate any interest
which has not otherwise accrued on the date of such acceleration, and Grantee
may not collect any unearned interest in the event of acceleration. All sums
paid or agreed to be paid to Grantee for the use, forbearance or detention of
the Obligations


                                       25


may, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of the Obligations until payment
in full so that the rate or amount of interest on account of the Obligations
does not exceed the applicable usury ceiling.

      4.16 Release of Collateral. Notwithstanding any provision herein to the
contrary, the Mortgaged Property or any part thereof shall be released from the
security interest created by this Mortgage in accordance with the provisions of
the Collateral Trust Agreement.

      4.17 Time of the Essence. Grantor acknowledges that time is of the essence
in performing all of Grantor's obligations set forth herein.

      4.18 Counterpart Execution. This Security Deed may be executed by the
parties hereto in any number of counterparts (and be each of the parties hereof
on separate counterparts), each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.

      4.19 WAIVER OF GRANTOR'S RIGHTS. BY EXECUTION OF THIS SECURITY DEED AND BY
INITIALING THIS SECTION 4.19, GRANTOR EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT TO
ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTES AND THE POWER OF ATTORNEY
GIVEN HEREIN TO GRANTEE TO SELL THE MORTGAGED PROPERTY BY NONJUDICIAL
FORECLOSURE UPON DEFAULT BY GRANTOR WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY
NOTICE (EXCEPT AS OTHERWISE PROVIDED HEREIN); (B) EXCEPT TO THE EXTENT PROVIDED
OTHERWISE HEREIN, WAIVES ANY AND ALL RIGHTS WHICH GRANTOR MAY HAVE UNDER THE
CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH AMENDMENTS
THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR
BY REASON OF ANY OTHER APPLICABLE LAW, TO NOTICE AND TO JUDICIAL HEARING PRIOR
TO THE EXERCISE BY GRANTEE OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO GRANTEE;
(C) ACKNOWLEDGES THAT GRANTOR HAS READ THIS SECURITY DEED AND ITS PROVISIONS
HAVE BEEN EXPLAINED FULLY TO GRANTOR AND GRANTOR HAS CONSULTED WITH COUNSEL OF
GRANTOR'S CHOICE PRIOR TO EXECUTING THIS SECURITY DEED; AND (D) ACKNOWLEDGES
THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY GRANTOR AS PART OF A BARGAINED FOR LOAN
TRANSACTION:

                              INITIALED BY GRANTOR:

                     ______________________________________


                        By:______________________________


                                       26


      4.20 Attorneys' Fees. Notwithstanding anything contained herein to the
contrary, (i) "reasonable attorneys' fees" are not, and shall not be, statutory
attorneys' fees under the Official Code of Georgia Annotated ("O.C.G.A"), (ii)
if, under any circumstances Grantor is required hereunder to pay any or all of
Grantee's attorneys' fees and expenses, Grantor shall be responsible only for
actual legal fees and out of pocket expenses actually incurred by Grantee at
customary hourly rates for the work done, and (iii) Grantor shall not be liable
under any circumstances for additional attorneys' fees or expenses under the
O.C.G.A Section 13-1-11.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       27


                                                                     AUGUSTA, GA

      IN WITNESS WHEREOF, Grantor has caused this Security Deed to be duly
executed under seal and delivered as of the day and year first above written.

Signed, sealed and delivered            GRANTOR:
in the presence of:

                                        CALPINE CORPORATION,
______________________________          a Delaware corporation
Witness

                                        By:   ___________________________
________________________                Name:
Notary Public                           Title:

My Commission Expires

________________________
[NOTARY SEAL]

[corporate seal]



                                                                     AUGUSTA, GA

                                    EXHIBIT A

                               (LEGAL DESCRIPTION)



                                                                     AUGUSTA, GA

                                   EXHIBIT B

                          (ACCESS EASEMENT DESCRIPTION)

      All that tract or parcel of land situate, lying in the 86th G.M.D. of
Richmond County, Georgia, designated as "INGRESS-EGRESS EASEMENT (0.99 AC.)" on
a plat dated June 15, 2000 (last revised on October 3, 2001) by Cranston,
Robertson & Whitehurst, P.C. for AUGUSTA ENERGY LLC, AUGUSTA ENERGY CENTER. Said
access easement has a uniform width of Fifty (50') feet and begins on the
Northern boundary of an UNNAMED ROAD (C.R. #1028-having a 60' Right of Way) as
much UNNAMED ROAD is extended in a Westerly direction from its intersection with
Columbia Nitrogen Drive to and over the property now or formerly of DSM
CHEMICALS NORTH AMERICA, INC. and from said Northern boundary extends in a
Southerly direction over said uniform width of Fifty feet to the intersection of
the Northern boundary of the property designated as "COGENERATION PLANT SITE
22.02 AC." on the aforesaid plat to which reference is made by incorporation
herein for a more accurate description of the metes bounds and location of the
said Easement.

                         LAYDOWN YARD "A" EASEMENT AREA
                              (GRAVEL AREA=4.16 AC)

      All that tract or parcel of land situate, lying and being in the 86th
G.M.D. of Richmond County, Georgia known and designated as "LAYDOWN YARD "A"
EASEMENT AREA" (GRAVEL AREA = 4.16 AC) on a plat dated June 15, 2000 (last
revised on October 3, 2001) by Cranston, Robertson & Whitehurst, P.C. for
AUGUSTA ENERGY LLC, AUGUSTA ENERGY CENTER, to which plat reference is made by
incorporation herein for a more accurate description of the metes, bounds and
location of said Easement.

                         LAYDOWN YARD "B" EASEMENT AREA
                            (GRAVEL AREA = 12.80 AC.)

      All that tract or parcel of land situate, lying and being in the 86th
G.M.D. of Richmond County, Georgia known and designated as "LAYDOWN YARD "B"
EASEMENT AREA" (GRAVEL AREA = 12.80 AC.) on a plat dated June 15, 2000 (last
revised on October 3, 2001) by Cranston, Robertson & Whitehurst, P.C. for
AUGUSTA ENERGY LLC, AUGUSTA ENERGY CENTER, to which plat reference is made by
incorporation herein for a more accurate description of the metes, bounds and
location of said Easement.

                             (30' GAS LINE EASEMENT)

      All that tract or parcel of land situate lying and being in the 86th
G.M.D. of Richmond County, Georgia known and designated as "Proposed 30' Gas
Line Easement" on a plat dated June 15, 2000 (last revised on October 3, 2001)
by Cranston, Robertson, & Whitehurst, P.C. to which plat reference is made by
incorporation herein for a more accurate description of the


                                       28


metes, bounds and location of said Easement. Said Easement is located within the
bounds of that parcel of land shown on the aforesaid plat as "Lay Down Yard "B"
Easement Area" and extends from the southern boundary of the "90' Southern
Natural Gas Easement" in a southerly direction to its intersection with the
northern boundary of the "Cogeneration Plant site 22.02 Ac." all as shown on the
aforesaid plat. The purpose of this easement is to provide access to Natural Gas
supply and service from said pipeline to the Cogeneration Plant to be
constructed on said 22.02 acre tract.

                            (EASEMENT FOR PIPE RACK)

      All that tract or parcel of land situate, lying and being in the 86th
G.M.D. of Richmond County, Georgia, designated as "EASEMENT FOR PIPE RACK" on a
plat dated June 15, 2000 (last revised on October 3, 2001) by Cranston,
Robertson & Whitehurst, P.C. for AUGUSTA ENERGY LLC, AUGUSTA ENERGY CENTER. Said
Easement is 75 feet in width and begins on the Eastern Boundary of the
COGENERATION PLANT SITE-22.02 AC, as shown on the aforesaid plat and extents in
an Easterly Direction to the property of DSM CHEMICALS NORTH AMERICA, INC.
located on the Eastern right of way of. Columbia Nitrogen Drive. Reference is
made to the aforesaid plat which is incorporated herein for a more accurate
description of the metes, bounds and location of said Easement.

EX-10.33

                                                                   EXHIBIT 10.33

                                                                  SANTA ROSA, FL

RECORDING REQUESTED BY AND
WHEN RECORDED, RETURN TO:

Ane C. Priester
LATHAM & WATKINS LLP
633 W. FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90017

================================================================================

              MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT

                            DATED AS OF JULY 16, 2003

                                       BY

                              CALPINE CORPORATION,
                             A DELAWARE CORPORATION,
                                  AS MORTGAGOR

                                       TO

                              THE BANK OF NEW YORK,
                         A NEW YORK BANKING CORPORATION,
                                  AS MORTGAGEE

================================================================================

            THIS MORTGAGE IS GIVEN IN CONNECTION WITH A MULTISTATE TRANSACTION.
THE INDEBTEDNESS SECURED HEREBY IS EVIDENCED BY A PROMISSORY NOTE EXECUTED
OUTSIDE THE STATE OF FLORIDA. RECOVERY UNDER THIS MORTGAGE IS LIMITED TO SEVENTY
FIVE MILLION DOLLARS $75,000,000 IN PRINCIPAL PLUS INTEREST, PROTECTIVE ADVANCES
AND COSTS OF COLLECTION IN CONNECTION THEREWITH.



THIS MORTGAGE IS GIVEN TO SECURE A DEBT IN THE AMOUNT OF $75,000,000.00 ONLY.
DOCUMENTARY STAMP TAX IN THE AMOUNT OF $262,500.00 IS PAID IN ACCORDANCE WITH
FLORIDA ADMINISTRATIVE CODE RULE 12B-4.053(31)(b). INTANGIBLES TAX IN THE AMOUNT
OF $150,000.00 IS PAID IN ACCORDANCE WITH FLORIDA ADMINISTRATIVE CODE RULE
12C-2.004(2)(b).



                                                                  SANTA ROSA, FL

                                TABLE OF CONTENTS



                                                                                                      Page
                                                                                                      ----
                                                                                                   
ARTICLE 1 - DEFINITIONS ..........................................................................       4

   1.1   DEFINED TERMS ...........................................................................       4
   1.2   ACCOUNTING TERMS ........................................................................       6

ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS .....................................................       6

   2.1   MORTGAGOR PERFORMANCE OF SECURED DEBT DOCUMENTS .........................................       6
   2.2   GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES .......................................       7
   2.3   COMPLIANCE WITH LEGAL REQUIREMENTS ......................................................       7
   2.4   INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS ....       7
   2.5   ASSIGNMENT OF RENTS .....................................................................       8
   2.6   REJECTION OF GROUND LEASE BY LESSOR .....................................................       9
   2.7   EXPENSES ................................................................................       9
   2.8   MORTGAGEE ASSUMES NO OBLIGATIONS ........................................................       9
   2.9   FURTHER ASSURANCES ......................................................................      10
   2.10  ACTS OF MORTGAGOR .......................................................................      10
   2.11  AFTER-ACQUIRED PROPERTY .................................................................      10
   2.12  MORTGAGED PROPERTY ......................................................................      10
   2.13  POWER OF ATTORNEY .......................................................................      13
   2.14  COVENANT TO PAY .........................................................................      13
   2.15  SECURITY AGREEMENT ......................................................................      13

ARTICLE 3 - REMEDIES .............................................................................      14

   3.1   PROTECTIVE ADVANCES .....................................................................      14
   3.2   INSTITUTION OF EQUITY PROCEEDINGS .......................................................      14
   3.3   MORTGAGEE'S POWER OF ENFORCEMENT ........................................................      15
   3.4   MORTGAGEE'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME ................      17
   3.5   SEPARATE SALES ..........................................................................      18
   3.6   WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ......      18
   3.7   RECEIVER ................................................................................      18
   3.8   SUITS TO PROTECT THE MORTGAGED PROPERTY .................................................      19
   3.9   PROOFS OF CLAIM .........................................................................      19
   3.10  MORTGAGOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF
         MONIES BY MORTGAGEE .....................................................................      19
   3.11  DELAY OR OMISSION; NO WAIVER ............................................................      20
   3.12  NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER ..............................................      20
   3.13  DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED .............................      21
   3.14  REMEDIES CUMULATIVE .....................................................................      21
   3.15  INTEREST AFTER EVENT OF DEFAULT .........................................................      21
   3.16  FORECLOSURE; EXPENSES OF LITIGATION .....................................................      21
   3.17  DEFICIENCY JUDGMENTS ....................................................................      22
   3.18  WAIVER OF JURY TRIAL ....................................................................      22
   3.19  EXCULPATION OF MORTGAGEE ................................................................      22

ARTICLE 4 - GENERAL ..............................................................................      22

   4.1   DISCHARGE ...............................................................................      22



                                       i


                                                                                                     
   4.2   NO WAIVER ...............................................................................      23
   4.3   EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ......................................      23
   4.4   FORCIBLE DETAINER .......................................................................      23
   4.5   WAIVER OF STAY OR EXTENSION .............................................................      23
   4.6   NOTICES .................................................................................      24
   4.7   SEVERABILITY ............................................................................      24
   4.8   APPLICATION OF PAYMENTS .................................................................      24
   4.9   GOVERNING LAW ...........................................................................      24
   4.10  AMENDMENTS ..............................................................................      24
   4.11  SUCCESSORS AND ASSIGNS ..................................................................      24
   4.12  RENEWAL, ETC ............................................................................      24
   4.13  FUTURE ADVANCES .........................................................................      24
   4.14  LIABILITY ...............................................................................      25
   4.15  SEVERABILITY AND COMPLIANCE WITH USURY LAW ..............................................      25
   4.16  RELEASE OF COLLATERAL ...................................................................      26
   4.17  TIME OF THE ESSENCE .....................................................................      26
   4.18  COUNTERPART EXECUTION ...................................................................      26
   4.19  RESERVED ................................................................................      26
   4.20  ATTORNEYS' FEES .........................................................................      26
   4.21  FIXTURE FILING UNDER UNIFORM COMMERCIAL CODE ............................................      26




                                       ii


                                                                  SANTA ROSA, FL

                            MORTGAGE, ASSIGNMENT OF
                          RENTS AND SECURITY AGREEMENT

      This MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (this
"Mortgage"), dated as of July 16, 2003, is made by CALPINE CORPORATION, a
Delaware corporation ("Mortgagor"), whose address is 50 West San Fernando
Street, San Jose, CA 95113, to THE BANK OF NEW YORK, a New York banking
corporation, not in its individual capacity but solely as Collateral Trustee
under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust
Agreement") among Mortgagor, Mortgagee, the 2007 Trustee, the 2010 Trustee, the
2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent
("Mortgagee"), whose address is 101 Barclay Street, New York, New York 10286.
References to this "Mortgage" shall mean this instrument and any and all
renewals, modifications, amendments, supplements, extensions, consolidations,
substitutions, spreaders, restatements and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                    Recitals

            A. Mortgagor has entered into an Amended and Restated Credit
Agreement dated as of July 16, 2003 (the "Credit Agreement") among, inter alia,
Mortgagor, the Lenders referred to therein and The Bank of Nova Scotia as
Administrative Agent, relating to a $500,000,000 senior secured credit facility
made available in the form of revolving loans and term loan, including letters
of credit issued thereunder.

            B. Mortgagor also will (a) issue $500,000,000 in aggregate principal
amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007
Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 Trustee"), (b) issue
$1,150,000,000 in aggregate principal amount of 8.5% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 Indenture") between Mortgagor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2010 Trustee"), (c) issue $900,000,000 in aggregate principal
amount of 8.75% Second Priority Senior Secured Fixed Rate Notes due 2013 (the
"2013 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2013
Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2013 Trustee"), and (d) borrow
$750,000,000 in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement
dated as of July 16, 2003 (the "Term Loan Agreement") between Mortgagor and
Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its
successors in such capacity, the "Term Loan Administrative Agent").



            C. As permitted pursuant to the Secured Debt Documents, Mortgagor
may incur future debt which could, together with the obligations under the
Credit Agreement, constitute Priority Lien Debt and Mortgagor may incur future
debt which could, together with the 2007 Notes, 2010 Notes, the 2013 Notes and
the Term Loans, constitute Parity Lien Debt, provided that the aggregate amount
of the Secured Debt to be secured hereby shall not exceed $75,000,000. Mortgagor
intends to secure the obligations, including the obligations (a) under the
Credit Agreement and any future Priority Lien Debt, equally and ratably, on a
priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010
Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and
ratably, as contemplated in the Collateral Trust Agreement.

            D. Mortgagor (i) is the owner of the interests in the lands
described in Exhibit A attached hereto and (ii) owns, leases or otherwise has
the right to use all of the buildings, improvements, structures and fixtures
located on the lands described in Exhibit A and is executing and delivering this
instrument in order to secure its Obligations (as defined below).

                                    Agreement

      NOW, THEREFORE, to secure the prompt and complete payment when and as due
and payable of all of the obligations and liabilities of Mortgagor to Mortgagee,
by acceleration or otherwise, arising out of or in connection with the Credit
Agreement, the 2007 Indenture, the 2010 Indenture, the 2013 Indenture and the
Term Loan Agreement and the obligations of Mortgagor set forth herein
(collectively, the "Obligations"); however, granted, bargained, sold, warranted,
mortgaged, and in consideration of the covenants herein and therein, Mortgagor,
intending to be legally bound, does hereby grant, bargain, sell, convey,
warrant, assign, transfer, mortgage, pledge, set over hypothecate, transfer and
confirm unto Mortgagee as set forth in this Mortgage, all of Mortgagor's estate,
right, title, interest, property, claim and demand, now or hereafter arising, in
and to the following property and rights (herein collectively called the
"Mortgaged Property"):

            (a) Mortgagor's interest under the Ground Lease (as modified,
      supplemented or amended from time to time, the "Ground Lease") executed as
      of July 16, 1999 between Sterling Fibers, Inc. and Mortgagor, and the
      leasehold estate created thereby in and to the lands and premises more
      particularly described in Exhibit A hereto (the "Site");

            (b) any and all easements, leases, licenses, option rights,
      rights-of-way and other rights used in connection with the Site or as a
      means of access thereto (including, without limitation, all rights of
      Mortgagor to exercise any election or option, to make any determination or
      to give any notice, consent, waiver or approval, or to take any other
      action under the Ground Lease), all easements for ingress and egress and
      easements for water, natural gas and sewage pipelines, running in favor of
      Mortgagor, or appurtenant to the Site or arising out of the Ground Lease,
      and any and all sidewalks, alleys, strips and gores of land adjacent
      thereto or used in connection therewith together with all and singular the
      tenements, hereditaments and appurtenances thereto, and with any land
      lying within the right-of-way of any streets, open or proposed, adjoining
      the same (including, without limitation, the easements, leases, licenses
      and other instruments described in Exhibit B


                                       2


      hereto) (collectively, the "Easements"; and the Site and the Easements
      collectively referred to herein as the "Real Property");

            (c) all buildings, structures, fixtures and other improvements now
      or hereafter erected on the Real Property, including the Project
      (collectively, the "Improvements");

            (d) all machinery, apparatus, equipment, fittings, fixtures,
      boilers, turbines and other articles of personal property, including all
      goods and all goods which become fixtures, now owned or hereafter acquired
      by Mortgagor and now or hereafter located on, attached to or used in the
      operation of or in connection with the Real Property and/or the
      Improvements, and all replacements thereof, additions thereto and
      substitutions therefor, to the fullest extent permitted by applicable law
      (all of the foregoing being hereinafter collectively called the
      "Equipment");

            (e) all raw materials, work in process and other materials used or
      consumed in the construction of, or now or hereafter located on or used in
      connection with, the Real Property, the Improvements and/or the Equipment,
      (including, without limitation, fuel and fuel deposits, now or hereafter
      located on the Real Property or elsewhere or otherwise owned by Mortgagor)
      (the above items, together with the Equipment, being hereinafter
      collectively called the "Tangible Collateral");

            (f) all rights, powers, privileges and other benefits of Mortgagor
      (to the extent assignable) now or hereafter obtained by Mortgagor under
      the Ground Lease and/or from any Governmental Authority, including,
      without limitation, permits issued in the name of Mortgagor, governmental
      actions relating to the ownership, operation, management and use of the
      Real Property, Improvements, Equipment or Tangible Collateral, the
      development and financing of the Project, the Improvements and the
      Equipment, and any improvements, modifications or additions thereto;

            (g) any right of Mortgagor to elect to terminate the Ground Lease or
      remain in possession of the Real Property pursuant to 11 U.S.C. section
      365(h)(1) or any similar provision of applicable law and any possessory
      rights of Mortgagor in the Real Property pursuant to 11 U.S.C section
      365(h)(2) or any other similar provision of applicable law;

            (h) all the lands and interests in lands, tenements and
      hereditaments hereafter acquired by Mortgagor in connection with or
      appurtenant to the Real Property and/or any other property or rights
      subject to the lien hereof, including (without limitation) all interests
      of Mortgagor, whether as lessor or lessee, in any leases of land hereafter
      made and all rights of Mortgagor thereunder;

            (i) any and all other property in any way associated or used in
      connection with or appurtenant to the Real Property, Improvements,
      Equipment or Tangible Collateral that may from time to time, by delivery
      or by writing of any kind, be subjected to the lien hereof by Mortgagor or
      by anyone on its behalf or with its consent, or which may come into the
      possession or be subject to the control of Mortgagee pursuant to this
      Mortgage, being hereby


                                       3


      collaterally assigned to Mortgagee and subjected or added to the lien or
      estate created by this Mortgage forthwith upon the acquisition thereof by
      Mortgagor, as fully as if such property were now owned by Mortgagor and
      were specifically described in this Mortgage and subjected to the lien and
      security interest hereof; and Mortgagee is hereby authorized to receive
      any and all such property as and for additional security hereunder; and

            (j) all the remainder or remainders, reversion or reversions, rents,
      revenues, issues, profits, royalties, income and other benefits derived
      from any of the foregoing, all of which are hereby assigned to Mortgagee,
      who is hereby authorized to collect and receive the same, to give proper
      receipts and acquittances therefor and to apply the same in accordance
      with the provisions of this Mortgage.

      Notwithstanding any provision herein to the contrary, the Mortgaged
Property or any part thereof may be released from the conveyance created by this
Mortgage in accordance with the provisions of the Collateral Trust Agreement.

      TO HAVE AND TO HOLD the said Mortgaged Property, whether now owned or held
or hereafter acquired, unto Mortgagee, its successors and assigns, pursuant to
the provisions of this Mortgage.

      IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security
title, security interest or estate created by this Mortgage to secure the
payment of the Obligations, both present and future, shall be first, prior and
superior to any Lien, security interest, reservation of title or other interest
(other than superior Permitted Liens) heretofore, contemporaneously or
subsequently suffered or granted by Mortgagor, its legal representatives,
successors or assigns, except only those, if any, expressly hereinafter referred
to and that the Mortgaged Property is to be held, dealt with and disposed of by
Mortgagee, upon and subject to the terms, covenants, conditions, uses and
agreements set forth in this Mortgage.

      PROVIDED ALWAYS, that upon payment in full of the Obligations in
accordance with the terms and provisions hereof and of the other Secured Debt
Documents and the observance and performance by Mortgagor of its covenants and
agreements set forth herein and therein, then this Mortgage and the estate
hereby and therein granted shall be cancelled and surrendered and shall be
reconveyed as provided herein below.

                            ARTICLE 1 - DEFINITIONS

      1.1 Defined Terms. 11 Capitalized terms used in this Mortgage and not
otherwise defined herein shall have the meanings assigned to them in the
Collateral Trust Agreement. Any term defined by reference to an agreement,
instrument or other document shall have the meaning so assigned to it whether or
not such document is in effect. In addition, for purposes of this Mortgage, the
following definitions shall apply:

            "Applicable Law" means with respect to any Person or matter, any
federal, state, regional, tribal or local statute, law, code, rule, treaty,
convention, application, order, decree, consent decree, injunction, directive,
determination or other requirement (whether or not having the


                                       4


force of law) relating to such Person or matter and, where applicable, any
interpretation thereof by a Governmental Authority having jurisdiction with
respect thereto or charged with the administration or interpretation thereof.

            "Default Rate" has the meaning ascribed to it in the Secured Debt
Documents.

            "Easements" has the meaning ascribed to it in the Granting Clauses.

            "Equipment" has the meaning ascribed to it in the Granting Clauses.

            "Event of Default" means an Actionable Default as defined under the
Collateral Trust Agreement.

            "Governmental Authority" means any and all courts, boards, agencies,
commissions, offices or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city, tribe or
otherwise) whether now or hereafter in existence charged with the
administration, interpretation or enforcement of any Applicable Law.

            "Ground Lease" has the meaning ascribed to it in the Granting
Clauses.

            "Improvements" has the meaning ascribed to it in the Granting
Clauses.

            "Legal Requirements" means (i) any and all present and future
judicial decisions, statutes, rulings, rules, regulations, licenses, decisions,
orders, injunctions, decrees, permits, certificates or ordinances of any
Governmental Authority in any way applicable to Mortgagor, or the Mortgaged
Property, including the ownership, use, occupancy, operation, maintenance,
repair or reconstruction thereof, and any other Applicable Law enacted by any
Governmental Authority relating to health or the environment, (ii) Mortgagor's
presently or subsequently effective Organic Documents, (iii) any and all Leases,
(iv) any and all leases and other contracts (written or oral) of any nature to
which Mortgagor, or the Mortgaged Property may be bound and (v) any and all
restrictions, restrictive covenants or zoning, present and future, as the same
may apply to the Mortgaged Property.

            "Mortgaged Property" has the meaning ascribed to it in the Granting
Clauses.

            "Obligations" has the meaning ascribed to it in the Granting
Clauses.

            "Organic Documents" means the Articles of Incorporation, Certificate
of Incorporation, limited liability company certificate of formation and
regulations or operating agreement, partnership agreement, limited partnership
agreement, joint venture agreement, trust agreement or other similar documents
governing the organization and operation of a business association.

            "Permitted Lien" means the outstanding liens, easements, building
lines, restrictions, exceptions, reservations, conditions, limitations, security
interests and other matters (if any) as set forth in the Secured Debt Documents.


                                       5


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

            "Proceeds" has the meaning assigned to it under the UCC and, in any
event, shall include, without limitation, (i) any and all proceeds of any
insurance (including, without limitation, property casualty and title
insurance), indemnity, warranty or guaranty payable from time to time with
respect to any of the Mortgaged Property; (ii) any and all proceeds in the form
of accounts (as such term is defined in the UCC), security deposits, tax escrows
(if any), down payments (to the extent the same may be pledged under applicable
law), collections, contract rights, documents, instruments, letters of credit,
chattel paper, liens and security instruments, guaranties or general intangibles
relating in whole or in part to the Mortgaged Property and all rights and
remedies of whatever kind or nature Mortgagor may hold or acquire for the
purpose of securing or enforcing any obligation due Mortgagor thereunder.

            "Project" means that certain 500 MW (approximately) power generating
facility located on the Real Property.

            "Real Property" has the meaning ascribed to it in the Granting
Clauses.

            "Secured Debt Documents" has the meaning ascribed it in the
Collateral Trust Agreement.

            "Site" has the meaning ascribed to it in the Granting Clauses.

            "State" means that state in which the Site is located.

            "Tangible Collateral" has the meaning ascribed to it in the Granting
Clauses.

            "UCC" means the Uniform Commercial Code as in effect from time to
time in the State of Florida, and the terms "Accounts," "Account Debtor, "As
Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
"Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
"Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have
the respective meanings assigned to such terms in the Uniform Commercial Code.

      1.2 Accounting Terms. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not defined herein
shall have the respective meanings given to them under GAAP.

                  ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS

      2.1 Mortgagor Performance of Secured Debt Documents. Mortgagor shall
perform, observe and comply with each and every provision hereof, and with each
and every provision contained in the Secured Debt Documents and shall promptly
pay, when payment shall become due, the principal with interest thereon and all
other sums required to be paid by Mortgagor under this


                                       6


Mortgage and the other Secured Debt Documents at the time and in the manner
provided in the Secured Debt Documents.

      2.2 General Representations, Covenants and Warranties. Mortgagor, to the
best of its knowledge, represents, covenants and warrants that as of the date
hereof: (a) Mortgagor has good and marketable title to that portion of the Real
Property which constitutes real property interests including the Ground Lease
and the leasehold estate created thereby, free and clear of all encumbrances
except Permitted Liens with respect to the Site, the Ground Lease and other
matters which, individually and in the aggregate, do not have a materially
adverse effect upon the ownership or operation of the Site; (b) Mortgagor has
the right to hold, occupy and enjoy its interest in the Real Property on and
subject to the terms and conditions of the Ground Lease, and has good right,
full power and lawful authority to grant the same as provided herein, and
Mortgagee may at all times peaceably and quietly enter upon, hold, occupy and
enjoy the Real Property in accordance with the terms hereof; (c) except as
otherwise disclosed in the Secured Debt Documents, all costs arising from
construction of any improvements, the performance of any labor and the purchase
of all Mortgaged Property have been or shall be paid when due; (d) the Site has
access for ingress and egress to dedicated street(s); and (e) no material part
of the Mortgaged Property has been damaged, destroyed, condemned or abandoned.

      2.3 Compliance with Legal Requirements. Mortgagor shall promptly comply in
all material respects with all Legal Requirements relating to its use and
occupancy of the Mortgaged Property, whether or not such compliance requires
work or remedial measures that are ordinary or extraordinary, foreseen or
unforeseen, structural or nonstructural, or that interfere with the use or
enjoyment of the Mortgaged Property.

      2.4 Insurance; Application of Insurance Proceeds; Application of Eminent
Domain Proceeds.

            2.4.1 Mortgagor shall carry with financially sound and reputable
insurance companies and in amounts as is customary in the industry or as
otherwise required pursuant to the Secured Debt Documents, the following
insurance: (1) workmen's compensation insurance and public liability and
property damage insurance in respect of all activities in which Mortgagor might
incur personal liability for the death of or injury to an employee or third
person, or damage to or destruction of another's property; and (2) to the extent
such insurance is carried by similar companies engaged in similar undertakings
in, the same general areas in which the Mortgaged Property, is located,
insurance in respect of the Equipment, against loss or damage by fire,
lightning, hail, tornado, explosion and other similar risks, hazards, casualties
and contingencies (including business interruption insurance covering loss of
revenues) with limits and sublimits as appropriate; provided, that any such
insurance may be provided by way of self insurance to the extent that similar
companies engaged in similar undertakings in the same general areas also
self-insure. Each insurance policy issued in connection therewith shall provide
by way of endorsements, riders or otherwise that (i) name Mortgagee as a loss
payee on all property insurance policies and an additional insured on all
liability insurance policies, and provide that proceeds from property insurance
policies will be payable to Mortgagee as its interest may appear, which proceeds
are hereby assigned to Mortgagee, it being agreed by Mortgagor that such
payments shall be applied A) if there be no Event of Default existing or which
would exist


                                       7


but for due notice or lapse of time, or both, to the restoration, repair or
replacement of the Mortgaged Property, or B) if there be an Event of Default
existing, or which would exist but for due notice or lapse of time, or both, in
accordance with the provisions of the Collateral Trust Agreement, either for the
above stated purpose or toward the payment of the Indebtedness; (ii) the
coverage of Mortgagee shall not be terminated, reduced or affected in any manner
regardless of any breach or violation by Mortgagor of any warranties,
declarations or conditions in such policy; (iii) no such insurance policy shall
be canceled, materially endorsed, materially altered or reissued to effect a
change in coverage for any reason and to any extent whatsoever unless such
insurer, their authorized representative or Mortgagor shall have first given
Mortgagee and each Secured Debt Representative thirty (30) days prior written
notice thereof; and (iv) Mortgagee may, but shall not be obligated to, make
premium payments to prevent any cancellation, endorsement, alteration or
re-issuance and such payments shall be accepted by the insurer to prevent the
same. Mortgagee shall be furnished with a certificate evidencing such coverage
in form and content as are customary in the industry. All policies to be
maintained under this Mortgage are to be issued on forms and by companies and
with endorsements as are customary in the industry. Mortgagor shall maintain
insurance in an amount sufficient to prevent Mortgagor from becoming a
co-insurer under any policy required hereunder. If Mortgagor fails to maintain
the level of insurance required under this Mortgage, then Mortgagor shall and
hereby agrees to indemnify Mortgagee to the extent that a casualty occurs and
insurance proceeds would have been available had such insurance been maintained;

            2.4.2 All insurance proceeds and all eminent domain proceeds shall
be paid and/or shall be applied in accordance with the provisions of the Secured
Debt Documents.

      2.5 Assignment of Rents. Mortgagor unconditionally and absolutely assigns
to Mortgagee all of Mortgagor's right, title and interest in and to: all leases,
subleases, occupancy agreements, licenses, rental contracts and other similar
agreements now or hereafter existing relating to the use or occupancy of the
Mortgaged Property, together with all guarantees, modifications, extensions and
renewals thereof; and all rents, issues, profits, income and proceeds due or to
become due from tenants of the Mortgaged Property (the "Leases"), including
rentals and all other payments of any kind under any leases now existing or
hereafter entered into, together with all deposits (including security deposits)
of tenants thereunder. This is an absolute assignment to Mortgagee and not an
assignment as security for the performance of the obligations under the Secured
Debt Documents, or any other indebtedness. Subject to the provisions of herein
below, Mortgagee shall have the right, power and authority to, but shall not be
obligated to: notify any person that the Leases have been assigned to Mortgagee
and that all rents and other obligations are to be paid directly to Mortgagee,
whether or not Mortgagee has commenced or completed foreclosure or taken
possession of the Mortgaged Property; settle compromise, release, extend the
time of payment of, and make allowances, adjustments and discounts of any rents
or other obligations under the Leases; enforce payment of rents and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to rents and Leases; enter upon, take possession of and
operate the Mortgaged Property; lease all or any part of the Mortgaged Property;
and/or perform any and all obligations of Mortgagor under the Leases and
exercise any and all rights of Mortgagor therein contained to the full extent of
Mortgagor's rights and obligations thereunder, with or without the bringing of
any action or the appointment of a receiver. At Mortgagee's request, Mortgagor
shall deliver a copy of this Mortgage to each tenant under a Lease.


                                       8


Mortgagor irrevocably directs any tenant, without any requirement for notice to
or consent by Mortgagor, to comply with all demands of Mortgagee under this
Section 2.5 and to turn over to Mortgagee on demand all rents which it receives.
Mortgagee shall have the right, but not the obligation, to use and apply all
rents received hereunder in such order and such manner as Mortgagee may
determine in accordance with the Collateral Trust Agreement. Notwithstanding
that this is an absolute assignment of the rents and Leases and not merely the
collateral assignment of, or the grant of a lien or security interest in the
rents and Leases, Mortgagee grants to Mortgagor a revocable license to collect
and receive the rents and to retain, use and enjoy such rents. Such license may
be revoked by Mortgagee only upon the occurrence of any Event of Default.
Mortgagor shall apply any rents which it receives to the payment due under the
Obligations, taxes, assessments, water charges, sewer rents and other
governmental charges levied, assessed or imposed against the Mortgaged Property,
insurance premiums, and other obligations of lessor under the Leases before
using such proceeds for any other purpose.

      2.6 Rejection of Ground Lease by Lessor. To the extent applicable, if the
lessor under the Ground Lease rejects or disaffirms the Ground Lease or purports
or seeks to disaffirm the Ground Lease pursuant to any bankruptcy law, then:

            2.6.1 To the extent permitted by law, Mortgagor shall remain in
possession of the Real Property demised under the Ground Lease and shall perform
all acts reasonably necessary for Mortgagor to remain in such possession for the
unexpired term of such Ground Lease (including all renewals), whether the then
existing terms and provisions of such Ground Lease require such acts or
otherwise; and

            2.6.2 All the terms and provisions of this Mortgage and the lien
created by this Mortgage shall remain in full force and effect and shall extend
automatically to all of Mortgagor's rights and remedies arising at any time
under, or pursuant to, any bankruptcy or insolvency laws, including all of
Mortgagor's rights to remain in possession of the Real Property.

      2.7 Expenses. Mortgagor shall indemnify Mortgagee with respect to any
transaction or matter in any way connected with any portion of the Mortgaged
Property, or Mortgagor's use, occupancy, or operation of the Mortgaged Property
in accordance with the Collateral Trust Agreement.

      2.8 Mortgagee Assumes No Obligations. It is expressly agreed that,
anything herein contained to the contrary notwithstanding, Mortgagor shall
remain obligated under all agreements which are included in the definition of
"Mortgaged Property" and shall perform all of its obligations thereunder in
accordance with the provisions thereof, and neither Mortgagee nor any of the
Secured Debtholders shall have any obligation or liability with respect to such
obligations of Mortgagor, nor shall Mortgagee or any of the Secured Debtholders
be required or obligated in any manner to perform or fulfill any obligations or
duties of Mortgagor under such agreements, or to make any payment or to make any
inquiry as to the nature or sufficiency of any payment received by it, or to
present or file any claim or take any action to collect or enforce the payment
of any amounts which have been assigned to Mortgagee hereunder or to which
Mortgagee or the Secured Debtholders may be entitled at any time or times.


                                       9


      2.9 Further Assurances. Mortgagor shall, from time to time, at its
expense, promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that Mortgagee may reasonably
request, in order to perfect and continue the lien and security interest granted
hereby and to enable Mortgagee to obtain the full benefits of the lien and
security interest granted or intended to be granted hereby. Mortgagor shall keep
the Mortgaged Property free and clear of all Liens, other than Permitted Liens.
Without limiting the generality of the foregoing, Mortgagor shall execute and
record or file this Mortgage and each amendment hereto, and such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsements or notices, as may be necessary, or as Mortgagee may reasonably
request, in order to perfect and preserve the lien and security interest granted
or purported to be granted hereby. Mortgagor hereby authorizes Mortgagee to file
one or more financing statements or continuation statements, and amendments
thereto, relative to all or any part of the Mortgaged Property necessary to
preserve or protect the lien and security interest granted hereby without the
signature of Mortgagor where permitted by law.

      2.10 Acts of Mortgagor. Except as provided in or permitted by the Secured
Debt Documents, Mortgagor hereby represents and warrants that it has not
granted, mortgaged, hypothecated, assigned or pledged and hereby covenants that
it will not grant, mortgage, hypothecate, assign or pledge, so long as this
Mortgage shall remain in effect, any of its right, title or interest in and to
the Mortgaged Property or any part thereof, other than Permitted Liens, to
anyone other than Mortgagee.

      2.11 After-Acquired Property. Any and all of the Mortgaged Property which
is hereafter acquired shall immediately, without any further conveyance,
assignment or act on the part of Mortgagor or Mortgagee, become and be subject
to the lien and security interest of this Mortgage as fully and completely as
though specifically described herein, but nothing contained in this Section 2.11
shall be deemed to modify or change the obligations of Mortgagor under Section
2.9 hereof. If and whenever from time to time Mortgagor shall hereafter acquire
any real property or interest therein which constitutes or is intended to
constitute part of the Mortgaged Property hereunder, Mortgagor shall promptly
give notice thereof to Mortgagee and Mortgagor shall forthwith execute,
acknowledge and deliver to Mortgagee a supplement to this Mortgage subjecting
the property so acquired to the lien of this Mortgage.

      2.12 Mortgaged Property.

            2.12.1 Mortgagor shall pay or cause to be paid all rent and other
charges required under the Ground Lease as and when the same are due and shall
promptly and faithfully perform or cause to be performed all other material
terms, obligations, covenants, conditions, agreements, indemnities and
liabilities of Mortgagor under the Ground Lease. Mortgagor shall observe all
applicable covenants, easements and other restrictions of record with respect to
the Site, the Easements or to any other part of the Mortgaged Property, in all
material respects.

            2.12.2 Mortgagor shall do, or cause to be done, all things necessary
to preserve and keep unimpaired all rights of Mortgagor as lessee under the
Ground Lease, and to prevent any default under the Ground Lease, or any
termination, surrender, cancellation, forfeiture, subordination or impairment
thereof. Mortgagor does hereby authorize and irrevocably appoint and


                                       10


constitute Mortgagee as its true and lawful attorney-in-fact, which appointment
is coupled with an interest, in its name, place and stead, to take any and all
actions deemed necessary or desirable by Mortgagee to perform and comply with
all the obligations of Mortgagor under the Ground Lease, and to do and take upon
the occurrence and during continuation of an Event of Default, but without any
obligation so to do or take, any action which Mortgagee deems reasonably
necessary to prevent or cure any default by Mortgagor under the Ground Lease, to
enter into and upon the Real Property and Improvements or any part thereof as
provided in the Secured Debt Documents in order to prevent or cure any default
of Mortgagor pursuant thereto, to the end that the rights of Mortgagor in and to
the leasehold estate created by the Ground Lease shall be kept free from
default.

            2.12.3 Mortgagor shall use all reasonable efforts to enforce the
obligations of the lessor under the Ground Lease in a commercially reasonable
manner.

            2.12.4 Mortgagor shall not voluntarily surrender its leasehold
estate and interest under the Ground Lease or modify, change, supplement, alter
or amend the Ground Lease or affirmatively waive any provisions thereof, either
orally or in writing, except as permitted in the Secured Debt Documents, and any
attempt on the part of Mortgagor to do any of the foregoing without the written
consent of Mortgagee shall be null and void.

            2.12.5 If any action or proceeding shall be instituted to evict
Mortgagor or to recover possession of the Mortgaged Property or any part thereof
or interest therein from Mortgagor or any action or proceeding otherwise
affecting the Mortgaged Property or this Mortgage shall be instituted, then
Mortgagor shall, immediately after receipt, deliver to Mortgagee a true and
complete copy of each petition, summons, complaint, notice of motion, order to
show cause and all other pleadings and papers, however designated, served in any
such action or proceeding.

            2.12.6 Mortgagor covenants and agrees that the fee title to the Real
Property and Improvements and the leasehold estate created under the Ground
Lease shall not merge but shall always remain separate and distinct,
notwithstanding the union of said estates either in Mortgagor or a third party
by purchase or otherwise and, in case Mortgagor acquires the fee title or any
other estate, title or interest in and to the Real Property and Improvements,
the lien of this Mortgage shall, without further conveyance, simultaneously with
such acquisition, be spread to cover and attach to such acquired estate and as
so spread and attached shall be prior to the lien of any mortgage placed on the
acquired estate after the date of this Mortgage.

            2.12.7 No release or forbearance of any of Mortgagor's obligations
under the Ground Lease by the lessor thereunder, shall release Mortgagor from
any of its obligations under this Mortgage.

            2.12.8 Mortgagor shall, within ten days after written demand from
Mortgagee, deliver to Mortgagee proof of payment of all items that are required
to be paid by Mortgagor under the Ground Lease, including, without limitation,
rent, taxes, operating expenses and other charges.

            2.12.9 The lien of this Mortgage shall attach to all of Mortgagor's
rights and remedies at any time arising under or pursuant to bankruptcy or
insolvency law, including, without limitation, all of Mortgagor's rights to
remain in possession of the Mortgaged Property. Mortgagor


                                       11


shall not elect to treat the Ground Lease as terminated under bankruptcy or
insolvency law, and any such election shall be void.

                  2.12.9.1 If pursuant to bankruptcy or insolvency law,
Mortgagor shall seek to offset against the rent reserved in the Ground Lease the
amount of any damages caused by the nonperformance by the lessor or any other
party of any of their respective obligations thereunder after the rejection by
the lessor or such other party of the Ground Lease under any bankruptcy or
insolvency law, then Mortgagor shall, prior to effecting such offset, notify
Mortgagee of its intent to do so, setting forth the amount proposed to be so
offset and the basis therefor. Mortgagee shall have the right to object to all
or any part of such offset that, in the reasonable judgment of Mortgagee, would
constitute a breach of the Ground Lease, and in the event of such objection,
Mortgagor shall not effect any offset of the amounts found objectionable by
Mortgagee. Neither Mortgagee's failure to object as aforesaid nor any objection
relating to such offset shall constitute an approval of any such offset by
Mortgagee.

                  2.12.9.2 If any action, proceeding, motion or notice shall be
commenced or filed in respect of the lessor under the Ground Lease or any other
party or in respect of the Ground Lease in connection with any case under any
bankruptcy or insolvency law, then Mortgagee shall have the option to intervene
in any such litigation with counsel of Mortgagee's choice. Mortgagee may proceed
in its own name in connection with any such litigation, and Mortgagor agrees to
execute any and all powers, authorizations, consents or other documents required
by Mortgagee in connection therewith.

                  2.12.9.3 Mortgagor shall, after obtaining knowledge thereof,
promptly notify Mortgagee of any filing by or against the lessor or other party
with an interest in the Mortgaged Property of a petition under any bankruptcy or
insolvency law. Mortgagor shall promptly deliver to Mortgagee, following
receipt, copies of any and all notices, summonses, pleadings, applications and
other documents received by Mortgagor in connection with any such petition and
any proceedings relating thereto.

                  2.12.9.4 If there shall be filed by or against Mortgagor a
petition under any bankruptcy or insolvency law, and Mortgagor, as lessee under
the Ground Lease, shall determine to reject the Ground Lease pursuant to any
bankruptcy or insolvency law, then Mortgagor shall give Mortgagee a notice of
the date on which Mortgagor shall apply to the bankruptcy court for authority to
reject the Ground Lease (such notice to be no later than twenty (20) days prior
to such date). Mortgagee shall have the right, but not the obligation, to serve
upon Mortgagor at any time prior to the date on which Mortgagor shall so apply
to the bankruptcy court a notice stating that Mortgagee demands that Mortgagor
assume and assign the Ground Lease to Mortgagee pursuant to any bankruptcy or
insolvency law. If Mortgagee shall serve upon Mortgagor the notice described in
the preceding sentence, to the extent permitted by law or Governmental
Authority, Mortgagor shall not seek to reject the Ground Lease and shall comply
with the demand provided for in the preceding sentence. In addition, effective
upon the entry of an order for relief with respect to Mortgagor under any
bankruptcy or insolvency law, Mortgagor hereby assigns and transfers to
Mortgagee a non-exclusive right to apply to the bankruptcy court under any
bankruptcy or insolvency law for an order extending the period during which the
Ground Lease may be rejected or assumed; and shall (a) promptly notify Mortgagee
of any default by Mortgagor in the performance or observance of


                                       12


any of the terms, covenants or conditions on the part of Mortgagor to be
performed or observed under the Ground Lease and of the giving of any written
notice by the lessor thereunder to Mortgagor of any such default, and (b)
promptly cause a copy of each written notice given to Mortgagor by the lessor
under the Ground Lease to be delivered to Mortgagee. Mortgagee may rely on any
notice received by it from any such lessor of any default by Mortgagor under the
Ground Lease and may take such action as may be permitted by law or Governmental
Authority to cure such default even though the existence of such default or the
nature thereof shall be questioned or denied by Mortgagor or by any Person on
its behalf.

      2.13 Power of Attorney. Mortgagor does hereby irrevocably constitute and
appoint Mortgagee, its true and lawful attorney (which appointment is coupled
with an interest), with full power of substitution, for Mortgagor and in the
name, place and stead of Mortgagor or in Mortgagee's own name, for so long as
any of the Obligations are outstanding, to ask, demand, collect, receive,
receipt for and sue for any and all rents, income and other sums which are
assigned hereunder with full power to endorse the name of Mortgagor on all
instruments given in payment or in part payment thereof, to settle, adjust or
compromise any claims thereunder as fully as Mortgagor itself could do and file
any claim or take any action or proceeding, either in its own name or in the
name of Mortgagor or otherwise, as are necessary or appropriate to protect and
preserve the right, title and interest of Mortgagee in and to such rents, income
and other sums and the security intended to be afforded hereby; provided that
Mortgagee shall not exercise such rights unless an Event of Default has occurred
and is continuing.

      2.14 Covenant to Pay. If an Event of Default has occurred and is
continuing and such Event of Default could reasonably be expected to materially
and adversely affect Mortgagee's interest hereunder in the Mortgaged Property or
result in personal injury, then Mortgagee, among its other rights and remedies,
shall have the right, but not the obligation, to pay, observe or perform the
same, in whole or in part, and with such modifications as Mortgagee reasonably
shall deem advisable. To the extent provided in the Secured Debt Documents, all
sums, including, without limitation, reasonable attorneys fees, so expended or
incurred by Mortgagee by reason of the default of Mortgagor, or by reason of the
bankruptcy or insolvency of Mortgagor, as well as, without limitation, sums
expended or incurred to sustain the lien or estate of this Mortgage or its
priority, or to protect or enforce any rights of Mortgagee hereunder, or to
recover any of the Obligations, or to complete construction of the Project for
which the Secured Debt Documents are intended as financing, or for repairs,
maintenance, alterations, replacements or improvements thereto or for the
protection thereof, or for real estate taxes or other governmental assessments
or charges against any part of the Mortgaged Property, or premiums for insurance
of the Mortgaged Property, shall be entitled to the benefit of the lien on the
Mortgaged Property as of the date of the recording of this Mortgage, shall be
deemed to be added to and be part of the Obligations secured hereby, whether or
not the result thereof causes the total amount of the Obligations to exceed the
stated amount set forth in the second introductory paragraph of this Mortgage,
and shall be repaid by Mortgagor as provided in the Secured Debt Documents.

      2.15 Security Agreement.

            2.15.1 This Mortgage shall also be a security agreement between
Mortgagor and Mortgagee covering the Mortgaged Property constituting personal
property or fixtures (hereinafter


                                       13


collectively called "UCC Collateral") governed by the UCC in effect in the State
as the same may be more specifically set forth in any financing statement
delivered in connection with this Mortgage, and as further security for the
payment and performance of the Obligations, Mortgagor hereby grants to Mortgagee
a security interest in such portion of the Mortgaged Property to the full extent
that the Mortgaged Property may be subject to the UCC. In addition to
Mortgagee's other rights hereunder, Mortgagee shall have all rights of a secured
party under the UCC. Mortgagor shall execute and deliver to Mortgagee all
financing statements and such further assurances that may be required to
establish, create, perfect (to the extent the same can be achieved by the filing
of a financing statement) and maintain the validity and priority of Mortgagee's
security interests, and Mortgagor shall bear all reasonable costs thereof,
including all UCC searches. Except as otherwise provided in the Secured Debt
Documents, if Mortgagee should dispose of any of the Mortgaged Property
comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written
notice by Mortgagee to Mortgagor shall be deemed to be reasonable notice;
provided, however, Mortgagee may dispose of such property in accordance with the
foreclosure procedures of this Mortgage in lieu of proceeding under the UCC.
Mortgagee may, but shall not be obligated to, from time to time execute and
deliver at Mortgagor's expense, all continuation statements, termination
statements, amendments, partial releases, or other instruments relating to all
financing statements by and between Mortgagor and Mortgagee. Except as otherwise
provided in the Secured Debt Documents, if an Event of Default shall occur and
is continuing, (a) Mortgagee, in addition to any other rights and remedies which
it may have, may exercise immediately and without demand to the extent permitted
by law, any and all rights and remedies granted to a secured party under the UCC
including, without limiting the generality of the foregoing, the right to take
possession of the UCC Collateral or any part thereof, and to take such other
measures as may be necessary for the care, protection and preservation of such
collateral and (b) upon request or demand of Mortgagee, Mortgagor shall at its
expense, assemble the UCC Collateral and make it available to Mortgagee at a
convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on
demand, any and all expenses, including reasonable attorneys' fees and
disbursements incurred or paid by Mortgagee in protecting the interest in the
UCC Collateral and in enforcing the rights hereunder with respect to such UCC
Collateral.

            2.15.2 Mortgagor agrees, to the extent permitted by law, that: (i)
all or a part of the Mortgaged Property are or are to become fixtures; and (ii)
the address of Mortgagor is as set forth on the first page of this Mortgage.

                              ARTICLE 3 - REMEDIES

      3.1 Protective Advances. If an Event of Default shall have occurred and is
continuing, then without thereby limiting Mortgagee's other rights or remedies,
waiving or releasing any of Mortgagor's obligations, or imposing any obligation
on Mortgagee, Mortgagee may, but shall not be obligated to, either advance any
amount owing or perform any or all actions as may be necessary or appropriate to
cure such default. All such advances shall constitute "Protective Advances." No
sums advanced or performance rendered by Mortgagee shall cure, or be deemed a
waiver of any Event of Default.

      3.2 Institution of Equity Proceedings. If an Event of Default occurs and
is continuing, Mortgagee may institute an action, suit or proceeding in equity
for specific performance of this


                                       14


Mortgage or any other Secured Debt Document, all of which shall be specifically
enforceable by injunction or other equitable remedy.

      3.3 Mortgagee's Power of Enforcement.

            3.3.1 If an Event of Default occurs and is continuing, Mortgagee
may, but shall not be obligated to, with respect to Mortgagee's equitable
remedies set forth herein and as permitted under Florida law, subject to the
terms and provisions of the Secured Debt Documents, exercise any or all of the
following rights, remedies and recourses:

            3.3.2 Declare the Obligations to be immediately due and payable, and
upon such declaration such principal and interest and other sums shall
immediately become due and payable without further notice, presentment, protest,
notice of intent to accelerate, notice of acceleration, demand or action of any
nature whatsoever (each of which hereby is expressly waived by Mortgagor);
provided, however, that such acceleration shall be automatic if the Event of
Default is caused by a bankruptcy of Mortgagor.

            3.3.3 Enter the Mortgaged Property and take exclusive possession
thereof and may have joint access with Mortgagor to the books, records and
accounts relating thereto, without liability for trespass, damages or otherwise.
If Mortgagor remains in possession of the Mortgaged Property after an Event of
Default and without Mortgagee's prior written consent, Mortgagee may invoke any
legal remedies to dispossess Mortgagor. Mortgagor shall pay to Mortgagee, upon
demand, all costs and expenses of invoking such legal remedies and reasonable
compensation to Mortgagee, its attorneys and agents, and all such costs,
expenses and compensation shall, until paid, be secured by the lien of this
Mortgage.

            3.3.4 Hold, lease, control, develop, manage, operate or otherwise
use the Mortgaged Property upon such terms and conditions as reasonable under
the circumstances but without being under any duty to so act:

                  (a) make all necessary and proper maintenance, repairs,
      renewals and replacements thereto and thereon, and all necessary
      additions, betterments and improvements thereto and thereon and purchase
      or otherwise acquire fixtures, personalty and other property in connection
      therewith;

                  (b) insure or keep the Mortgaged Property insured;

                  (c) manage and operate the Mortgaged Property and exercise all
      the rights and powers of Mortgagor in its name or otherwise with respect
      to the same;

                  (d) enter into agreements with others to exercise the powers
      herein granted Mortgagee, all as Mortgagee from time to time may
      determine; and shall apply the monies so received by Mortgagee in such
      priority as provided by Secured Debt Documents payable to the;

                  (e) rent or sublet the Mortgaged Property or any portion
      thereof for any purpose permitted by this Mortgage.


                                       15


            Mortgagee shall surrender possession of the Mortgaged Property to
Mortgagor (i) as may be required by law or court order, or (ii) when all amounts
under any of the terms of the Secured Debt Documents, including this Mortgage,
shall have been paid current and all Events of Default have been cured or
waived. The same right of taking possession, however, shall exist if any
subsequent Event of Default shall occur and be continuing.

            3.3.5 Institute proceedings for the complete foreclosure of this
Mortgage, in which case the Mortgaged Property may be sold for cash or credit in
one or more parcels. With respect to any notices required or permitted under the
UCC, Mortgagor agrees that ten (10) days prior written notice shall be deemed
commercially reasonable. At any such sale by virtue of any judicial proceedings
or any other legal right, remedy or recourse, the title to and right of
possession of any such property shall pass to the purchaser thereof, and to the
fullest extent permitted by law, Mortgagor shall be completely and irrevocably
divested of all of its right, title, interest, claim and demand whatsoever,
either at law or in equity, in and to the property sold and such sale shall be a
perpetual bar both at law and in equity against Mortgagor, and against all other
persons claiming or to claim the property sold or any part thereof, by, through
or under Mortgagor. Mortgagee, the Secured Debtholders or their nominee may be a
purchaser at such sale and if Mortgagee, the Secured Debtholders or such nominee
is the highest bidder, may credit the portion of the purchase price that would
be distributed to Mortgagee (on behalf of the Secured Debtholders) against the
Obligations in lieu of paying cash.

            3.3.6 Mortgagee, to the extent permitted by law, and without regard
to the value, adequacy or occupancy of the security for the indebtedness and
other sums secured hereby, may elect to the appoint a receiver to enter upon and
take possession of the Mortgaged Property and to collect all earnings, revenues
and receipts and apply the same as the court may direct, and such receiver may
be appointed by any court of competent jurisdiction upon application by
Mortgagee. To the extent permitted by law, or governmental rule or the Secured
Debt Documents, Mortgagee may have a receiver appointed without notice to
Mortgagor or any third party, and Mortgagee may waive any requirement that the
receiver post a bond. To the extent permitted by law, or governmental rule or
the Secured Debt Documents, Mortgagee shall have the power to designate and
select the Person who shall serve as the receiver and to negotiate all terms and
conditions under which such receiver shall serve. To the extent permitted by
law, or governmental rule or the Secured Debt Documents, any receiver appointed
on Mortgagee's behalf may be an affiliate of Mortgagee. The reasonable expenses,
including receiver's fees, reasonable attorneys' fees, costs and agent's
compensation, incurred pursuant to the powers herein contained shall be secured
by this Mortgage. The right to enter and take possession of and to manage and
operate the Mortgaged Property and to collect all earnings, revenues and
receipts, whether by a receiver or otherwise, shall be cumulative to any other
right or remedy available to Mortgagee under this Mortgage, the other Secured
Debt Documents or otherwise available to Mortgagee and may be exercised
concurrently therewith or independently thereof, but such rights shall be
exercised in a manner which is otherwise in accordance with and consistent with
the Secured Debt Documents. Mortgagee shall be liable to account only for such
earnings, revenues and receipts (including, without limitation, security
deposits) actually received by Mortgagee, whether received pursuant to this
section or any other provision hereof. Notwithstanding the appointment of any
receiver or other custodian, Mortgagee shall be entitled


                                       16


as pledgee to the possession and control of any cash, deposits, or instruments
at the time held by, or payable or deliverable under the terms of this Mortgage
to, Mortgagee.

            3.3.7 If an Event of Default occurs and is continuing, Mortgagee may
institute an action, suit or proceeding in equity for specific performance of
this Mortgage or any other Secured Debt Document, all of which shall be
specifically enforceable by injunction or other equitable remedy Mortgagee may
determine.

            3.3.8 The remedies described in this Section 3.3 may be exercised
with respect to all or any portion of the UCC Collateral, either simultaneously
with the judicial foreclosure of any real property encumbered hereby or
independent thereof. Mortgagee may at any time be permitted to proceed with
respect to all or any portion of the UCC Collateral in any manner permitted by
the UCC. Mortgagor agrees that Mortgagee's inclusion of all or any portion of
the UCC Collateral in a sale or other remedy exercised with respect to the real
property encumbered hereby, as permitted by the UCC, is a commercially
reasonable disposition of such property.

      3.4 Mortgagee's Right to Enter and Take Possession, Operate and Apply
Income.

            (a) If an Event of Default occurs and is continuing, Mortgagor, upon
demand of Mortgagee, shall forthwith surrender to Mortgagee the actual
possession and, if and to the extent permitted by law, Mortgagee itself, or by
such officers or agents as it may appoint, may enter and take possession of all
of the Mortgaged Property, including the Tangible Collateral, without liability
for trespass, damages or otherwise, and may exclude Mortgagor and its agents and
employees wholly therefrom and may have joint access with Mortgagor to the
books, papers and accounts of Mortgagor.

            (b) If an Event of Default has occurred and is continuing and
Mortgagor shall for any reason fail to surrender or deliver the Mortgaged
Property or any part thereof after Mortgagee's demand, Mortgagee may obtain a
judgment or decree conferring on Mortgagee the right to immediate possession or
requiring Mortgagor to deliver immediate possession of all or part of such
property to Mortgagee and Mortgagor hereby specifically consents to the entry of
such judgment or decree. Mortgagor shall pay to Mortgagee, upon demand, all
costs and expenses of obtaining such judgment or decree and reasonable
compensation to Mortgagee, its attorneys and agents, and all such costs,
expenses and compensation shall, until paid, be secured by the lien, security
title and security interest of this Mortgage.

            (c) Upon every such entering upon or taking of possession, Mortgagee
may hold, store, use, operate, manage and control the Mortgaged Property and
conduct the business thereof, and, from time to time without being under any
duty to so act, may:

                  (1) make all necessary and proper maintenance, repairs,
renewals and replacements thereto and thereon, and all necessary additions,
betterments and improvements thereto and thereon and purchase or otherwise
acquire fixtures, personalty and other property in connection therewith;

                  (2) insure or keep the Mortgaged Property insured;


                                       17


                  (3) manage and operate the Mortgaged Property and exercise all
the rights and powers of Mortgagor in their name or otherwise with respect to
the same;

                  (4) enter into agreements with others to exercise the powers
herein granted Mortgagee, all as Mortgagee from time to time may determine; and
shall apply the monies so received by Mortgagee in such priority as provided by
the Secured Debt Documents to (1) the payment of interest and principal due and
payable to the Mortgagee, (2) the deposits for taxes and assessments and
insurance premiums due, (3) the cost of insurance, taxes, assessments and other
proper charges upon the Mortgaged Property or any part thereof; (4) the
compensation, expenses and disbursements of the agents, attorneys and other
representatives of Mortgagee as allowed under this Mortgage; and (5) any other
charges or costs required to be paid by Mortgagor under the terms of the Secured
Debt Documents.

                  (5) rent or sublet the Mortgaged Property or any portion
thereof for any purpose permitted by this Mortgage.

            Mortgagee shall surrender possession of the Mortgaged Property to
Mortgagor (i) as may be required by law or court order, or (ii) when all amounts
under any of the terms of the Secured Debt Documents, including this Mortgage,
shall have been paid current and all Events of Default have been cured or
waived. The same right of taking possession, however, shall exist if any
subsequent Event of Default shall occur and be continuing.

      3.5 Separate Sales. To the extent permitted by law or Governmental
Authority, the Mortgaged Property may be sold in one or more parcels and in such
manner and order as Mortgagee, in its sole discretion, may elect, it being
expressly understood and agreed that the right of sale arising out of any Event
of Default shall not be exhausted by any one or more sales.

      3.6 Waiver of Appraisement, Moratorium, Valuation, Stay, Extension and
Redemption Laws. Mortgagor agrees to the full extent permitted by law that if an
Event of Default occurs and is continuing, neither Mortgagor nor anyone claiming
through or under it shall or will set up, claim or seek to take advantage of any
appraisement, moratorium, valuation, stay, extension or redemption laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Mortgage or the absolute sale of the Mortgaged Property or any portion
thereof or the final and absolute putting into possession thereof, immediately
after such sale, of the purchasers thereof, and Mortgagor for itself and all who
may at any time claim through or under it, hereby waives, to the full extent
that it may lawfully so do, the benefit of all such laws, and any and all right
to have the assets comprising the Mortgaged Property marshalled upon any
foreclosure of the lien hereof and agrees that Mortgagee or any court having
jurisdiction to foreclose such lien may sell the Mortgaged Property in part or
as an entirety.

      3.7 Receiver. If an Event of Default occurs and is continuing, Mortgagee,
to the extent permitted by law, and without regard to the value, adequacy or
occupancy of the security for the indebtedness and other sums secured hereby,
shall be entitled as a matter of right, but shall not be obligated to, if it so
elects to the appointment of a receiver to enter upon and take possession of the
Mortgaged Property and to collect all earnings, revenues and receipts and apply
the same as the


                                       18


court may direct, and such receiver may be appointed by any court of competent
jurisdiction upon application by Mortgagee. To the extent permitted by law,
Mortgagee may have a receiver appointed without notice to Mortgagor or any third
party, and Mortgagee may waive any requirement that the receiver post a bond. To
the extent permitted by law, Mortgagee shall have the power to designate and
select the Person who shall serve as the receiver and to negotiate all terms and
conditions under which such receiver shall serve. To the extent permitted by
law, any receiver appointed on Mortgagee's behalf may be an Affiliate of
Mortgagee. The reasonable expenses, including receiver's fees, reasonable
attorneys' fees, costs and agents' compensation, incurred pursuant to the powers
herein contained shall be secured by this Mortgage. The right to enter and take
possession of and to manage and operate the Mortgaged Property and to collect
all earnings, revenues and receipts, whether by a receiver or otherwise, shall
be cumulative to any other right or remedy available to Mortgagee under this
Mortgage, the other Secured Debt Documents or otherwise available to Mortgagee
and may be exercised concurrently therewith or independently thereof, but such
rights shall be exercised in a manner which is otherwise in accordance with and
consistent with the Secured Debt Documents. Mortgagee shall be liable to account
only for such earnings, revenues and receipts (including, without limitation,
security deposits) actually received by Mortgagee, whether received pursuant to
this section or any other provision hereof. Notwithstanding the appointment of
any receiver or other custodian, Mortgagee shall be entitled as pledgee to the
possession and control of any cash, deposits, or instruments at the time held
by, or payable or deliverable under the terms of this Mortgage to, Mortgagee.

      3.8 Suits to Protect the Mortgaged Property. Mortgagee shall have the
power and authority but shall not be obligated to institute and maintain any
suits and proceedings as may be advisable (a) to prevent any impairment of the
Mortgaged Property by any acts which may be unlawful or in violation of this
Mortgage, (b) to preserve or protect its interest in the Mortgaged Property, or
(c) to restrain the enforcement of or compliance with any legislation or other
Legal Requirement that may be unconstitutional or otherwise invalid, if the
enforcement of or compliance with such enactment, rule or order might impair the
security hereunder or be prejudicial to Mortgagee's interest.

      3.9 Proofs of Claim. In the case of any receivership, insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceedings affecting Mortgagor, any Affiliate or any guarantor,
co-maker or endorser of any of Mortgagor's obligations, its creditors or its
property, Mortgagee, to the extent permitted by law, shall be entitled but shall
not be obligated to file such proofs of claim or other documents as may be
necessary or advisable in order to have its claims allowed in such proceedings
for the entire amount due and payable by Mortgagor under the Secured Debt
Documents, at the date of the institution of such proceedings, and for any
additional amounts which may become due and payable by Mortgagor after such
date.

      3.10 Mortgagor to Pay Amounts Secured Hereby on Any Default in Payment;
Application of Monies by Mortgagee.

            (a) In case of a foreclosure sale of all or any part of the
Mortgaged Property and of the application of the proceeds of sale to the payment
of the sums secured hereby, to the extent permitted by law, the Secured
Debtholders shall be entitled to enforce payment from Mortgagor of


                                       19


any additional amounts then remaining due and unpaid and to recover judgment
against Mortgagor for any portion thereof remaining unpaid, with interest at the
Default Rate.

            (b) Mortgagor hereby agrees to the extent permitted by law, that no
recovery of any such judgment by the Secured Debtholders or other action by the
Secured Debtholders and no attachment or levy of any execution upon any of the
Mortgaged Property or any other property shall in any way affect the Lien and
security interest of this Mortgage upon the Mortgaged Property or any part
thereof or any Lien, rights, powers or remedies of Mortgagee hereunder, but such
Lien, rights, powers and remedies shall continue unimpaired as before.

            (c) Any monies collected or received by Mortgagee under this Section
3.10 shall be first applied to the payment of compensation, expenses and
disbursements of the agents, attorneys and other representatives of the
Mortgagee and the Secured Debtholders, and the balance remaining shall be
applied as provided in the Collateral Trustee Agreement.

      3.11 Delay or Omission; No Waiver. No delay or omission of Mortgagee or
the Secured Debtholders to exercise any right, power or remedy upon any Event of
Default shall exhaust or impair any such right, power or remedy or shall be
construed to waive any such Event of Default or to constitute acquiescence
therein. Every right, power and remedy given to Mortgagee whether contained
herein or in the other Secured Debt Documents or otherwise available to
Mortgagee may be exercised from time to time and as often as may be deemed
expedient by Mortgagee.

      3.12 No Waiver of One Default to Affect Another. No waiver of any defaults
hereunder shall extend to or affect any subsequent or any other defaults then
existing, or impair any rights, powers or remedies consequent thereon. If
Mortgagee (a) grants forbearance or an extension of time for the payment of any
sums secured hereby; (b) takes other or additional security for the payment
thereof; (c) waives or does not exercise any right granted in this Mortgage or
any other Secured Debt Document; (d) releases any part of the Mortgaged Property
from the lien or security interest of this Mortgage or any other instrument
securing the Obligations; (e) consents to the filing of any map, plat or replat
of the Real Property or any part thereof; (f) consents to the granting of any
easement on the Real Property; or (g) makes or consents to any agreement
changing the terms of this Mortgage or any other Secured Debt Document
subordinating the lien or any charge hereof, no such act or omission shall
release, discharge, modify, change or affect the liability under this Mortgage
or any other Secured Debt Document or otherwise of Mortgagor, or any subsequent
purchaser of the Mortgaged Property or any part thereof or any maker, co-signer,
surety or guarantor with respect to any other matters not addressed by such act
or omission. No such act or omission shall preclude Mortgagee from exercising
any right, power or privilege herein granted or intended to be granted in case
of any Event of Default then existing or of any subsequent Event of Default,
nor, except as otherwise expressly provided in an instrument or instruments
executed by Mortgagee, shall the lien or security interest of this Mortgage be
altered thereby, except to the extent expressly provided in such acts or
omissions. In the event of the sale or transfer by operation of law or otherwise
of all or any part of the Mortgaged Property, Mortgagee, without notice to any
person, firm or corporation, is hereby authorized and empowered to deal with any
such vendee or transferee with reference to the Mortgaged Property or the
indebtedness secured hereby, or with reference to any of the terms or conditions
hereof, as fully and to the same extent as it might deal with the original
parties hereto and without in any way releasing or discharging any of the
liabilities or


                                       20


undertakings hereunder, or waiving its right to declare such sale or transfer an
Event of Default as provided herein. Notwithstanding anything to the contrary
contained in this Mortgage or any other Secured Debt Document, (i) in the case
of any non-monetary default, Mortgagee may continue to accept payments due
hereunder without thereby waiving the existence of such or any other default and
(ii) in the case of any monetary Event of Default, Mortgagee may accept partial
payments of any sums due hereunder without thereby waiving the existence of such
Event of Default if the partial payment is not sufficient to completely cure
such Event of Default.

      3.13 Discontinuance of Proceedings; Position of Parties Restored. If
Mortgagee shall have proceeded to enforce any right or remedy under this
Mortgage by foreclosure, entry of judgment or otherwise and such proceedings
shall have been discontinued or abandoned for any reason, or such proceedings
shall have resulted in a final determination adverse to Mortgagee, then and in
every such case Mortgagor and Mortgagee shall be restored to their former
positions and rights hereunder, and all rights, powers and remedies of Mortgagee
shall continue as if no such proceedings had occurred or had been taken.

      3.14 Remedies Cumulative. Subject to the provisions of Section 4.15
hereof, no right, power or remedy, including without limitation remedies with
respect to any security for the Obligations, conferred upon or reserved to
Mortgagee by this Mortgage or any other Secured Debt Document is exclusive of
any other right, power or remedy, but each and every such right, power and
remedy shall be cumulative and concurrent and shall be in addition to any other
right, power and remedy given hereunder or under any other Secured Debt
Document, now or hereafter existing at law, in equity or by statute, and
Mortgagee shall be entitled to resort to such rights, powers, remedies or
security as Mortgagee may deem advisable.

      3.15 Interest After Event of Default. If an Event of Default shall have
occurred and is continuing, all sums outstanding and unpaid under the Secured
Debt Documents, including this Mortgage, may bear interest at the Default Rate
until such Event of Default has been cured. Mortgagor's obligation to pay such
interest shall be secured by this Mortgage.

      3.16 Foreclosure; Expenses of Litigation. If Mortgagee forecloses,
reasonable attorneys' fees for services in the supervision of said foreclosure
proceeding shall be allowed to the Mortgagee as part of the foreclosure costs.
In the event of foreclosure of the lien hereof, there shall be allowed and
included as additional indebtedness all reasonable expenditures and expenses
which may be paid or incurred by or on behalf of Mortgagee for attorneys' fees,
appraisers' fees, outlays for documentary and expert evidence, stenographers'
charges, publication costs, and costs (which may be estimated as to items to be
expended after foreclosure sale or entry of the decree) of procuring all such
abstracts of title, title searches and examinations, title insurance policies
and guarantees, and similar data and assurances with respect to title as are
necessary either to prosecute such suit or to evidence to a bidder at any sale
which may be had pursuant to such decree the true condition of the title to or
the value of the Mortgaged Property or any portion thereof. All expenditures and
expenses of the nature in this section mentioned, and such expenses and fees as
may be incurred in the protection of the Mortgaged Property and the maintenance
of the lien and security interest of this Mortgage, including the reasonable
fees of any attorney employed by Mortgagee in any litigation or proceeding
affecting this Mortgage or any other Secured Debt Document, the Mortgaged
Property or any portion thereof, including, without limitation, civil,


                                       21


probate, appellate and bankruptcy proceedings, or in preparation for the
commencement or defense of any proceeding or threatened suit or proceeding,
shall be immediately due and payable by Mortgagor, with interest thereon at the
Default Rate, and shall be secured by this Mortgage. Mortgagee waives its right
to any statutory fee in connection with any judicial or nonjudicial foreclosure
of the lien hereof and agrees to accept a reasonable fee for such services.

      3.17 Deficiency Judgments. If after foreclosure of this Mortgage, there
shall remain any deficiency with respect to any amounts payable under the
Secured Debt Documents, including hereunder, or any amounts secured hereby, and
Mortgagee may institute any proceedings to recover such deficiency or
deficiencies, all such amounts shall continue to bear interest at the Default
Rate. Mortgagor waives any defense to Mortgagee's recovery against Mortgagor of
any deficiency after any foreclosure sale of the Mortgaged Property. To the
extent permitted by law, Mortgagor expressly waives any defense or benefits that
may be derived from any statute granting Mortgagor any defense to any such
recovery by Mortgagee. In addition, Mortgagee shall be entitled to recovery of
all of its reasonable costs and expenditures (including without limitation any
court imposed costs) in connection with such proceedings, including their
reasonable attorneys' fees, appraisal fees and the other costs, fees and
expenditures referred to in Section 3.16 above. This provision shall survive any
foreclosure or sale of the Mortgaged Property, any portion thereof and/or the
extinguishment of the lien hereof.

      3.18 Waiver of Jury Trial. Mortgagee and Mortgagor each waive any right to
have a jury participate in resolving any dispute whether sounding in contract,
tort or otherwise arising out of, connected with, related to or incidental to
the relationship established between them in connection with this Mortgage or
any other Secured Debt Document. Any such disputes shall be resolved in a bench
trial without a jury.

      3.19 Exculpation of Mortgagee. The acceptance by Mortgagee of the
assignment contained herein with all of the rights, powers, privileges and
authority created hereby shall not, prior to entry upon and taking possession of
the Mortgaged Property by Mortgagee, be deemed or construed to make Mortgagee a
"mortgagee in possession"; nor thereafter or at any time or in any event
obligate Mortgagee to appear in or defend any action or proceeding relating to
the Mortgaged Property, nor shall Mortgagee, prior to such entry and taking, be
liable in any way for any injury or damage to person or property sustained by
any Person in or about the Mortgaged Property.

                               ARTICLE 4 - GENERAL

      4.1 Discharge. When all of the Obligations shall have been paid in full,
then this Mortgage and the lien and security interest created hereby shall be of
no further force and effect, Mortgagor shall be released from the covenants,
agreements and obligations of Mortgagor contained in this Mortgage and all
right, title and interest in and to the Mortgaged Property shall revert to
Mortgagor. Mortgagee, at the request and the expense of Mortgagor, shall
promptly execute a deed of reconveyance and such other documents as may be
reasonably requested by Mortgagor to evidence the discharge and satisfaction of
this Mortgage and the release of Mortgagor from its obligations hereunder.


                                       22


      4.2 No Waiver. The exercise of the privileges granted in this Mortgage to
perform Mortgagor's obligations under the agreements which constitute the
Mortgaged Property shall in no event be considered or constitute a waiver of any
right which Mortgagee may have at any time, after an Event of Default shall have
occurred and be continuing, to declare the Obligations to be immediately due and
payable. No delay or omission to exercise any right, remedy or power accruing
upon any default shall impair any such right, remedy or power or shall be
construed to be a waiver of any such default or acquiescence therein; and every
such right, remedy and power may be exercised from time to time and as often as
may be deemed expedient.

      4.3 Extension, Rearrangement or Renewal of Obligations. It is expressly
agreed that any of the Obligations at any time secured hereby may be from time
to time extended for any period, or with the consent of Mortgagor rearranged or
renewed, and that any part of the security herein described, or any other
security for the Obligations, may be waived or released, without altering,
varying or diminishing the force, effect or lien or security interest of this
Mortgage; and the lien and security interest granted by this Mortgage shall
continue as a prior lien and security interest on all of the Mortgaged Property
not expressly so released, until the Obligations are fully paid and this
Mortgage is terminated in accordance with the provisions hereof; and no other
security now existing or hereafter taken to secure the payment of the
Obligations or any part thereof or the performance of any obligation or
liability of Mortgagor whatever shall in any manner impair or affect the
security given by this Mortgage; and all security for the payment of the
Obligations or any part thereof and the performance of any obligation or
liability shall be taken, considered and held as cumulative.

      4.4 Forcible Detainer. Mortgagor agrees for itself and all Persons
claiming by, through or under it, that subsequent to foreclosure hereunder in
accordance with this Mortgage and applicable law if Mortgagor shall hold
possession of the Mortgaged Property or any part thereof, Mortgagor or the
Persons so holding possession shall be guilty of trespass; and any such Person
(including Mortgagor) failing or refusing to surrender possession upon demand
shall be guilty of forcible detainer and shall be liable to Mortgagee or any
purchaser in foreclosure, as applicable, for reasonable rental on said premises,
and shall be subject to eviction and removal in accordance with law.

      4.5 Waiver of Stay or Extension. To the extent permitted to be waived by
law, Mortgagor shall not at any time insist upon or plead or in any manner
whatever claim the benefit or advantage of any stay, extension or moratorium law
now or at any time hereafter in force in any locality where the Mortgaged
Property or any part thereof may or shall be situated, nor shall Mortgagor claim
any benefit or advantage from any law now or hereafter in force providing for
the valuation or appraisement of the Mortgaged Property or any part thereof
prior to any sale thereof to be made pursuant to any provision of this Mortgage
or to a decree of any court of competent jurisdiction, nor after any such sale
shall Mortgagor claim or exercise any right conferred by any law now or at any
time hereafter in force to redeem the Mortgaged Property so sold or any part
thereof; and Mortgagor hereby expressly waives all benefit or advantage of any
such law or laws and the appraisement of the Mortgaged Property or any part
thereof, and covenants that Mortgagor shall not hinder or delay the execution of
any power herein granted and delegated to Mortgagee but that Mortgagor shall
permit the execution of every such power as though no such law had been made.


                                       23


      4.6 Notices. Except where certified or registered mail notice is required
by applicable law, any notice to Mortgagor or Mortgagee required or permitted
hereunder shall be deemed to be given when given in the manner prescribed in the
Collateral Trust Agreement.

      4.7 Severability. All rights, powers and remedies provided herein may be
exercised only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Mortgage invalid, unenforceable or not entitled to be
recorded, registered or filed under any applicable law. In the event any term or
provision contained in this Mortgage is in conflict, or may hereafter be held to
be in conflict, with the laws of the State or of the United States of America,
this Mortgage shall be affected only as to such particular term or provision,
and shall in all other respects remain in full force and effect.

      4.8 Application of Payments. In the event that any part of the Obligations
cannot lawfully be secured hereby, or in the event that the lien and security
interest hereof cannot be lawfully enforced to pay any part of the Obligations,
or in the event that the lien or security interest created by this Mortgage
shall be invalid or unenforceable as to any part of the Obligations, then all
payments on the Obligations shall be deemed to have been first applied to the
complete payment and liquidation of that part of the Obligations which is not
secured by this Mortgage and the unsecured portion of the Obligations shall be
completely paid and liquidated prior to the payment and liquidation of the
remaining secured portion of the Obligations.

      4.9 GOVERNING LAW. THIS MORTGAGE IS GOVERNED BY AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA.

      4.10 Amendments. This Mortgage may be amended, supplemented or otherwise
modified only by an instrument in writing signed by Mortgagor and Mortgagee.

      4.11 Successors and Assigns. All terms of this Mortgage shall run with the
land and bind each of Mortgagor and Mortgagee and their respective successors
and assigns, and all Persons claiming under or through Mortgagor or Mortgagee,
as the case may be, or any such successor or assign, and shall inure to the
benefit of Mortgagee and Mortgagor, and their respective successors and assigns.

      4.12 Renewal, Etc. To the extent permitted under the other Secured Debt
Documents, Mortgagee may, but shall not be obligated to, at any time and from
time to time renew or extend this Mortgage, or alter or modify the same in any
way, or waive any of the terms, covenants or conditions hereof in whole or in
part and may release any portion of the Mortgaged Property or any other
security, and grant such extensions and indulgences in relation to the
Obligations as Mortgagee may determine, without the consent of any junior lienor
or encumbrancer and without any obligation to give notice of any kind thereto
and without in any manner affecting the priority of the lien and security
interest hereof on any part of the Mortgaged Property; provided that nothing in
this Section 4.12 shall grant Mortgagee the right to alter or modify the
Mortgage without the consent of the Mortgagor unless otherwise specifically
permitted in this Mortgage.

      4.13 Future Advances. It is understood and agreed that this Mortgage
secures, among other things, (i) the Priority Lien Debt (including future
advances to be made with respect thereto),


                                       24


and all other Obligations of Mortgagor under the Priority Lien Documents; (ii)
the Parity Lien Debt (including future advances to be made with respect
thereto), and all other Obligations of Mortgagor under the Parity Lien
Documents; (iii) all Obligations under any other Priority Lien Debt or Parity
Lien Debt; (iv) any sums advanced or expenses or costs incurred by Mortgagee or
any Secured Debtholder, or by any receiver appointed hereunder, which are made
or incurred pursuant to, or permitted by, the terms hereof, plus interest
thereon at the rate therein specified or otherwise agreed upon, from the date of
the advances or the incurring of such expenses or costs until reimbursed; (v)
any and all other indebtedness of Mortgagor to Mortgagee now or hereafter owing,
whether direct or indirect, primary or secondary, fixed or contingent, joint or
several, regardless of how evidenced or arising, where the indebtedness provides
that it is secured hereby; and (vi) any extensions, refinancings, modifications
or renewals of all such indebtedness described in subparagraphs (i) through (iv)
above, whether or not Mortgagor executes any extension agreement or renewal
instrument, and that the lien of any such future advances shall relate to the
date of this Mortgage. The maximum amount of future advances secured by this
Mortgage is $75,000,000.

      4.14 Liability. Notwithstanding any provision in this Mortgage to the
contrary, none of Mortgagee or any Secured Debt Representative or any of their
agents shall be liable for any error of judgment or act done in good faith, or
be otherwise responsible or accountable under any circumstances whatsoever. None
of Mortgagee or any Secured Debt Representative or any of their agents shall be
personally liable in case of entry by them, or anyone entering by virtue of the
powers herein granted them, upon the Mortgaged Property for debts contracted or
liability or damages incurred in the management or operation of the Mortgaged
Property. Such persons shall have the right to rely on any instrument, document
or signature authorizing or supporting any action taken or proposed to be taken
by them hereunder, believed by them in good faith to be genuine. Mortgagee or
any Secured Debt Representative or any of their agents shall be entitled to
reimbursement for expenses incurred by them in the performance of their duties
hereunder and to reasonable compensation for such of their services hereunder as
shall be rendered. Mortgagor will, from time to time, pay the compensation due
hereunder and reimburse such parties for, and save them harmless against, any
and all liability and expenses which may be incurred by them in the performance
of their duties.

      4.15 Severability and Compliance With Usury Law. The Secured Debt
Documents are intended to be performed in accordance with, and only to the
extent permitted by, all applicable Applicable Laws and Legal Requirements. If
any provision of any of the Secured Debt Documents or the application thereof to
any person or circumstance shall, for any reason and to any extent, be invalid
or unenforceable, neither the remainder of the instrument in which such
provision is contained, nor the application of such provision to other persons
or circumstances, nor the other instruments referred to hereinabove, shall be
affected thereby, but rather shall be enforceable to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of
Mortgagor at all times to comply with the applicable State law governing the
maximum rate or amount of interest payable on or in connection with the
Obligations. If the Applicable Law is ever judicially interpreted so as to
render usurious any amount called for under the Secured Debt Documents, or
contracted for, charged, taken, reserved or received with respect to the
extension of credit evidenced by the Secured Debt Documents or if acceleration
of the maturity of the Obligations or if any prepayment by Mortgagor results in
Mortgagor having paid any interest in excess of that permitted by law, then it
is Mortgagor's express intent that all excess amounts theretofore collected by


                                       25


Mortgagee be credited on the principal balance due under the Secured Debt
Documents (or, if the Secured Debt Documents have been or would thereby be paid
in full, refunded to Mortgagor), and the provisions of the Secured Debt
Documents immediately be deemed reformed and the amounts thereafter collectible
thereunder reduced, without the necessity of the execution of any new document,
so as to comply with the applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder and thereunder. The right to
accelerate maturity of Obligations does not include the right to accelerate any
interest which has not otherwise accrued on the date of such acceleration, and
Mortgagee may not collect any unearned interest in the event of acceleration.
All sums paid or agreed to be paid to Mortgagee for the use, forbearance or
detention of the Obligations may, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of the
Obligations until payment in full so that the rate or amount of interest on
account of the Obligations does not exceed the applicable usury ceiling.

      4.16 Release of Collateral. Notwithstanding any provision herein to the
contrary, the Mortgaged Property or any part thereof shall be released from the
security interest created by this Mortgage in accordance with the provisions of
the Collateral Trust Agreement.

      4.17 Time of the Essence. Mortgagor acknowledges that time is of the
essence in performing all of Mortgagor's obligations set forth herein.

      4.18 Counterpart Execution. This Mortgage may be executed by the parties
hereto in any number of counterparts (and be each of the parties hereof on
separate counterparts), each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.

      4.19 Reserved

      4.20 Attorneys' Fees. Notwithstanding anything contained herein to the
contrary, (i) "reasonable attorneys' fees" are not, and shall not be, statutory
attorneys' fees under State law, (ii) if, under any circumstances Mortgagor is
required hereunder to pay any or all of Mortgagee's attorneys' fees and
expenses, Mortgagor shall be responsible only for actual legal fees and out of
pocket expenses actually incurred by Mortgagee at customary hourly rates for the
work done, and (iii) Mortgagor shall not be liable under any circumstances for
additional attorneys' fees or expenses under the State law.

      4.21 Fixture Filing Under Uniform Commercial Code. Mortgagor and Mortgagee
agree, to the extent permitted by law, that: (i) this Mortgage upon recording or
registration in the real estate records of the proper office shall constitute a
financing statement filed as a "fixture filing" within the meaning of Sections
9-313 and 9-402 of the UCC; and (ii) the addresses of Mortgagor and Mortgagee
are as set forth on the first page of this Mortgage.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       26


            IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be duly
executed and delivered as of the day and year first above written.

                                        MORTGAGOR:

                                        CALPINE CORPORATION, a Delaware
                                        corporation


                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________


                                       27


THE STATE OF       ss.
                   ss.
COUNTY OF          ss.

            This instrument was acknowledged before me on ___________________,
2003, by ___________________, as ___________________ of Calpine Corporation, a
Delaware corporation.


                                        ________________________________________
                                        Notary Public, State of ________________
                                        My Commission Expires: _________________

                                        ________________________________________
                                        Printed Name of Notary


                                       28


                                                                  SANTA ROSA, FL

                                    EXHIBIT A

                            (DESCRIPTION OF PREMISES)




                                                                  SANTA ROSA, FL

                                    EXHIBIT B

                          (ACCESS EASEMENT DESCRIPTION)

            Grant of Easements, dated as of May 7, 2001, executed by Sterling
Fibers, Inc., in favor of Santa Rosa Energy LLC, recorded on May 29, 2001 with
the Public Records of Santa Rosa County, Florida in Book 1906, Page 1675.

EX-10.34

                                                                   EXHIBIT 10.34

                                                                  DEER PARK - TX

RECORDING REQUESTED BY AND
WHEN RECORDED, RETURN TO:

Ane C. Priester
LATHAM & WATKINS LLP
633 W. FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90017

================================================================================

            DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
                               AND FIXTURE FILING

                            DATED AS OF JULY 16, 2003

                                       BY

                              CALPINE CORPORATION,
                             A DELAWARE CORPORATION,
                                   AS TRUSTOR

                                       TO

                               MALCOLM S. MORRIS,
                                   AS TRUSTEE

                               FOR THE BENEFIT OF

                                BANK OF NEW YORK,
                         A NEW YORK BANKING CORPORATION,
                                 AS BENEFICIARY

================================================================================

            THIS DEED OF TRUST IS GIVEN IN CONNECTION WITH A MULTISTATE
TRANSACTION. THE INDEBTEDNESS SECURED HEREBY IS EVIDENCED BY A PROMISSORY NOTE
EXECUTED OUTSIDE THE STATE OF TEXAS. RECOVERY UNDER THIS DEED OF TRUST IS
LIMITED TO TWO BILLION FIVE HUNDRED MILLION



DOLLARS ($2,500,000,000) IN PRINCIPAL PLUS INTEREST, PROTECTIVE ADVANCES AND
COSTS OF COLLECTION IN CONNECTION THEREWITH.



                                TABLE OF CONTENTS



                                                                                                      Page
                                                                                                      ----
                                                                                                   
ARTICLE 1 - DEFINITIONS ..........................................................................       4

   1.1   DEFINED TERMS ...........................................................................       4
   1.2   ACCOUNTING TERMS ........................................................................       6

ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS .....................................................       7

   2.1   TRUSTOR PERFORMANCE OF SECURED DEBT DOCUMENTS ...........................................       7
   2.2   GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES .......................................       7
   2.3   COMPLIANCE WITH LEGAL REQUIREMENTS ......................................................       7
   2.4   INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS ....       7
   2.5   ASSIGNMENT OF RENTS .....................................................................       8
   2.6   REJECTION OF GROUND LEASE BY LESSOR .....................................................       9
   2.7   EXPENSES ................................................................................       9
   2.8   BENEFICIARY ASSUMES NO OBLIGATIONS ......................................................       9
   2.9   FURTHER ASSURANCES ......................................................................      10
   2.10  ACTS OF TRUSTOR .........................................................................      10
   2.11  AFTER-ACQUIRED PROPERTY .................................................................      10
   2.12  TRUST ESTATE ............................................................................      10
   2.13  POWER OF ATTORNEY .......................................................................      13
   2.14  COVENANT TO PAY .........................................................................      13
   2.15  SECURITY AGREEMENT ......................................................................      14

ARTICLE 3 - REMEDIES .............................................................................      14

   3.1   ACCELERATION OF MATURITY ................................................................      14
   3.2   PROTECTIVE ADVANCES .....................................................................      15
   3.3   INSTITUTION OF EQUITY PROCEEDINGS .......................................................      15
   3.4   BENEFICIARY'S POWER OF ENFORCEMENT ......................................................      15
   3.5   BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME ..............      17
   3.6   SEPARATE SALES ..........................................................................      18
   3.7   WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ......      18
   3.8   RECEIVER ................................................................................      18
   3.9   SUITS TO PROTECT THE TRUST ESTATE .......................................................      19
   3.10  PROOFS OF CLAIM .........................................................................      19
   3.11  TRUSTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF
         MONIES BY BENEFICIARY ...................................................................      19
   3.12  DELAY OR OMISSION; NO WAIVER ............................................................      20
   3.13  NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER ..............................................      20
   3.14  DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED .............................      21
   3.15  REMEDIES CUMULATIVE .....................................................................      21
   3.16  INTEREST AFTER EVENT OF DEFAULT .........................................................      21
   3.17  FORECLOSURE; EXPENSES OF LITIGATION .....................................................      21
   3.18  DEFICIENCY JUDGMENTS ....................................................................      22
   3.19  WAIVER OF JURY TRIAL ....................................................................      22
   3.20  EXCULPATION OF BENEFICIARY ..............................................................      22
   3.21  FAIR MARKET VALUE DETERMINATION .........................................................      22

ARTICLE 4 - GENERAL ..............................................................................      23



                                       i


                                                                                                     
   4.1   DISCHARGE ...............................................................................      23
   4.2   NO WAIVER ...............................................................................      23
   4.3   EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ......................................      23
   4.4   FORCIBLE DETAINER .......................................................................      24
   4.5   WAIVER OF STAY OR EXTENSION .............................................................      24
   4.6   NOTICES .................................................................................      24
   4.7   SEVERABILITY ............................................................................      24
   4.8   APPLICATION OF PAYMENTS .................................................................      24
   4.9   GOVERNING LAW ...........................................................................      25
   4.10  ENTIRE AGREEMENT ........................................................................      25
   4.11  AMENDMENTS ..............................................................................      25
   4.12  SUCCESSORS AND ASSIGNS ..................................................................      25
   4.13  RENEWAL, ETC ............................................................................      26
   4.14  FUTURE ADVANCES .........................................................................      26
   4.15  LIABILITY ...............................................................................      26
   4.16  SUCCESSOR TRUSTEE .......................................................................      27
   4.17  ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE ...........................................      27
   4.18  SEVERABILITY AND COMPLIANCE WITH USURY LAW ..............................................      27
   4.19  RELEASE OF COLLATERAL ...................................................................      28
   4.20  TIME OF THE ESSENCE .....................................................................      28
   4.21  COUNTERPART EXECUTION ...................................................................      28
   4.22  LANDLORD'S INTEREST IN TRUST ESTATE .....................................................      28




                                       ii


                                                                  DEER PARK - TX

                          DEED OF TRUST, ASSIGNMENT OF
                          RENTS AND SECURITY AGREEMENT
                               AND FIXTURE FILING

      This DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT AND FIXTURE
FILING, dated as of July 16, 2003 (this "Deed of Trust") by CALPINE CORPORATION,
a Delaware corporation ("Trustor"), whose address is 50 West San Fernando
Street, San Jose, CA 95113, to MALCOLM S. MORRIS, as trustee ("Trustee"), whose
address is c/o Stewart Title Guaranty Company, 1980 Post Oak Blvd., Suite 110,
Houston, Texas 77056, in favor of THE BANK OF NEW YORK, a New York banking
corporation, not in its individual capacity but solely as Collateral Trustee
under the Collateral Trust Agreement dated July 16, 2003 (the "Collateral Trust
Agreement") among Trustor, the 2007 Trustee, the 2010 Trustee, the 2013 Trustee,
Credit Agreement Agent and Term Loan Administrative Agent ("Beneficiary"), whose
address is 101 Barclay Street, New York, New York 10286. References to this
"Deed of Trust" shall mean this instrument and any and all renewals,
modifications, amendments, supplements, extensions, consolidations,
substitutions, spreaders, restatements and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                    Recitals

            A. Trustor has entered into an Amended and Restated Credit Agreement
dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Trustor,
the Lenders referred to therein and The Bank of Nova Scotia as Administrative
Agent, relating to a $500,000,000 senior secured credit facility made available
in the form of revolving loans and term loans, including letters of credit
issued thereunder.

            B. Trustor has (a) issued $500,000,000 in aggregate principal amount
of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007
Indenture") between Trustor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 Trustee"), (b) issued
$1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 Indenture") between Trustor and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issued $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes")
pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture")
between Trustor and Wilmington Trust Company, as Trustee (together with its
successors in such capacity, the "2013 Trustee"), and (d) borrowed $750,000,000
in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of
July 16, 2003 (the "Term Loan Agreement") between Trustor and



Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its
successors in such capacity, the "Term Loan Administrative Agent").

            C. As permitted pursuant to the Secured Debt Documents, Trustor may
incur future debt which could, together with the obligations under the Credit
Agreement, constitute Priority Lien Debt and Trustor may incur future debt which
could, together with the 2007 Notes, 2010 Notes, the 2013 Notes and the Term
Loans, constitute Parity Lien Debt, provided that the aggregate amount of the
Secured Debt to be secured hereby shall not exceed $4,200,000,000. Trustor
intends to secure the obligations, including the obligations (a) under the
Credit Agreement and any future Priority Lien Debt, equally and ratably, on a
priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010
Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and
ratably, with liens and security interests in, among other collateral, the Trust
Estate under the Existing Deed of Trust, as contemplated in the Collateral Trust
Agreement.

            D. Trustor (i) is the owner of the interests in the lands described
in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to
use all of the buildings, improvements, structures and fixtures located on the
lands described in Exhibit A and is executing and delivering this instrument in
order to secure its Obligations (as defined below).

                                    Agreement

      NOW, THEREFORE, to secure the full performance and prompt and complete
payment and performance when and as due and payable of all of the obligations
and liabilities of Trustor to Beneficiary, by acceleration or otherwise, arising
out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010
Indenture, the 2013 Indenture, the Term Loan Agreement and the obligations of
Trustor set forth herein (collectively, the "Obligations,") and in consideration
of the covenants herein and therein, Trustor, intending to be legally bound,
does hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage,
pledge, set-over and confirm unto Trustee, for the use and benefit of
Beneficiary, all of Trustor's estate, right, title, interest, property, claim
and demand, now or hereinafter arising, in and to the following property and
rights (herein collectively called the "Trust Estate"):

            (a) Trustor's interest under the Ground Lease and Easement Agreement
      (as modified, supplemented or amended from time to time, the "Ground
      Lease") executed on March 8, 2001 between Shell Chemical, LP, a Delaware
      limited partnership ("Landlord"), as lessor, and Deer Park Energy Center,
      L.P., as lessee, and the leasehold estate created thereby in and to the
      lands and premises more particularly described in Exhibit A hereto (the
      "Site");

            (b) any and all easements, leases, licenses, option rights,
      rights-of-way and other rights used in connection with the Site or as a
      means of access thereto (including, without limitation, all rights of
      Trustor to exercise any election or option, to make any determination or
      to give any notice, consent, waiver or approval, or to take any other
      action under the Ground Lease), all easements for ingress and egress and
      easements for water, natural gas and sewage pipelines, running in favor of
      Trustor, or appurtenant to the Site or arising under the Ground Lease, and
      any and all sidewalks, alleys, strips and gores of land adjacent thereto


                                       2


      or used in connection therewith together with all and singular the
      tenements, hereditaments and appurtenances thereto, and with any land
      lying within the right-of-way of any streets, open or proposed, adjoining
      the same (including, without limitation, the easements, leases, licenses
      and other instruments described in Exhibit B hereto) (collectively, the
      "Easements"; and the Site and the Easements collectively referred to
      herein as the "Real Property");

            (c) all buildings, structures, fixtures and other improvements now
      or hereafter erected on the Real Property, including the Project
      (collectively, the "Improvements");

            (d) all machinery, apparatus, equipment, fittings, fixtures,
      boilers, turbines and other articles of personal property, including all
      goods and all goods which become fixtures, now owned or hereafter acquired
      by Trustor and now or hereafter located on, attached to or used in the
      operation of or in connection with the Real Property and/or the
      Improvements, and all replacements thereof, additions thereto and
      substitutions therefor, to the fullest extent permitted by Applicable Law
      (all of the foregoing being hereinafter collectively called the
      "Equipment");

            (e) all raw materials, work in process and other materials used or
      consumed in the construction of, or now or hereafter located on or used in
      connection with, the Real Property, the Improvements and/or the Equipment,
      (including, without limitation, fuel and fuel deposits, now or hereafter
      located on the Real Property or elsewhere or otherwise owned by Trustor)
      (the above items, together with the Equipment, being hereinafter
      collectively called the "Tangible Collateral");

            (f) all rights, powers, privileges and other benefits of Trustor (to
      the extent assignable) now or hereafter obtained by Trustor under the
      Ground Lease and/or from any Governmental Authority, including, without
      limitation, permits issued in the name of Trustor, governmental actions
      relating to the ownership, operation, management and use of the Real
      Property, Improvements, Equipment or Tangible Collateral, the development
      and financing of the Project (hereinafter defined), the Improvements and
      the Equipment, and any improvements, modifications or additions thereto;

            (g) any right of Trustor to elect to terminate the Ground Lease or
      remain in possession of the Real Property pursuant to 11 U.S.C. Section
      365(h)(1) or any similar provision of Applicable Law and any possessory
      rights of Trustor in the Real Property pursuant to 11 U.S.C. Section
      365(h)(2) or any other similar provision of Applicable Law;

            (h) all the lands and interests in lands, tenements and
      hereditaments hereafter acquired by Trustor in connection with or
      appurtenant to the Real Property and/or any other property or rights
      subject to the lien hereof, including (without limitation) all interests
      of Trustor, whether as lessor or lessee, in any leases of land hereafter
      made and all rights of Trustor thereunder;

            (i) any and all other property in any way associated or used in
      connection with or appurtenant to the Real Property, Improvements,
      Equipment or Tangible Collateral that


                                       3


      may from time to time, by delivery or by writing of any kind, be subjected
      to the lien hereof by Trustor or by anyone on its behalf or with its
      consent, or which may come into the possession or be subject to the
      control of Trustee or Beneficiary pursuant to this Deed of Trust, being
      hereby collaterally assigned to Beneficiary and subjected or added to the
      lien or estate created by this Deed of Trust forthwith upon the
      acquisition thereof by Trustor, as fully as if such property were now
      owned by Trustor and were specifically described in this Deed of Trust and
      subjected to the lien and security interest hereof; and Trustee and
      Beneficiary are hereby authorized to receive any and all such property as
      and for additional security hereunder; and

            (j) all the remainder or remainders, reversion or reversions, rents,
      revenues, issues, profits, royalties, income and other benefits derived
      from any of the foregoing, all of which are hereby assigned to
      Beneficiary, who is hereby authorized to collect and receive the same, to
      give proper receipts and acquittances therefor and to apply the same in
      accordance with the provisions of this Deed of Trust.

      TO HAVE AND TO HOLD the said Trust Estate, whether now owned or held or
hereafter acquired, unto Beneficiary, its successors and assigns, pursuant to
the provisions of this Deed of Trust.

      IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security
title, security interest or estate created by this Deed of Trust to secure the
payment of the Obligations, both present and future, shall be first, prior and
superior to any Lien, security interest, reservation of title or other interest
(other than superior Permitted Liens) heretofore, contemporaneously or
subsequently suffered or granted by Trustor, its legal representatives,
successors or assigns, except only those, if any, expressly hereinafter referred
to and that the Trust Estate is to be held, dealt with and disposed of by
Beneficiary, upon and subject to the terms, covenants, conditions, uses and
agreements set forth in this Deed of Trust.

      PROVIDED ALWAYS, that upon payment in full of the Obligations in
accordance with the terms and provisions hereof and of the other Secured Debt
Documents and the observance and performance by Trustor of its covenants and
agreements set forth herein and therein, then this Deed of Trust and the estate
hereby and therein granted shall be cancelled and surrendered and shall be
reconveyed as provided herein below.

                            ARTICLE 1 - DEFINITIONS

      1.1 DEFINED TERMS. 11 Capitalized terms used in this Deed of Trust and not
otherwise defined herein shall have the meanings assigned to them in the
Collateral Trust Agreement. Any term defined by reference to an agreement,
instrument or other document shall have the meaning so assigned to it whether or
not such document is in effect. In addition, for purposes of this Deed of Trust,
the following definitions shall apply:

            "Applicable Law" means with respect to any Person or matter, any
federal, state, regional, tribal or local statute, law, code, rule, treaty,
convention, application, order, decree,


                                       4


consent decree, injunction, directive, determination or other requirement
(whether or not having the force of law) relating to such Person or matter and,
where applicable, any interpretation thereof by a Governmental Authority having
jurisdiction with respect thereto or charged with the administration or
interpretation thereof.

            "Default Rate" has the meaning ascribed to it in the Secured Debt
Documents.

            "Easements" has the meaning ascribed to it in the Granting Clauses.

            "Equipment" has the meaning ascribed to it in the Granting Clauses.

            "Event of Default" means an Actionable Default as defined under the
Collateral Trust Agreement.

            "Governmental Authority" means any and all courts, boards, agencies,
commissions, offices or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city, tribe or
otherwise) whether now or hereafter in existence charged with the
administration, interpretation or enforcement of any Applicable Law.

            "Ground Lease" has the meaning ascribed to it in the Granting
Clauses.

            "Improvements" has the meaning ascribed to it in the Granting
Clauses.

            "Leases" has the meaning ascribed to it in Section 2.5.

            "Legal Requirements" means (i) any and all present and future
judicial decisions, statutes, rulings, rules, regulations, licenses, decisions,
orders, injunctions, decrees, permits, certificates or ordinances of any
Governmental Authority in any way applicable to Trustor, or the Trust Estate,
including the ownership, use, occupancy, operation, maintenance, repair or
reconstruction thereof, and any other Applicable Law enacted by any Governmental
Authority relating to health or the environment, (ii) Trustor's presently or
subsequently effective Organic Documents, (iii) any and all Leases (as defined
herein), (iv) any and all leases and other contracts (written or oral) of any
nature to which Trustor, or the Trust Estate may be bound and (v) any and all
restrictions, restrictive covenants or zoning, present and future, as the same
may apply to the Trust Estate.

            "Obligations" has the meaning ascribed to it in the Granting
Clauses.

            "Organic Documents" means the Articles of Incorporation, Certificate
of Incorporation, limited liability company certificate of formation and
regulations or operating agreement, partnership agreement, limited partnership
agreement, joint venture agreement, trust agreement or other similar documents
governing the organization and operation of a business association.


                                       5


            "Permitted Lien" means the liens, easements, restrictions,
exceptions, reservations, conditions, limitations, security interests and other
matters (if any) as permitted in the Secured Debt Documents.

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

            "Proceeds" has the meaning assigned to it under the UCC and, in any
event, shall include, without limitation, (i) any and all proceeds of any
insurance (including, without limitation, property casualty and title
insurance), indemnity, warranty or guaranty payable from time to time with
respect to any of the Trust Estate; (ii) any and all proceeds in the form of
accounts (as such term is defined in the UCC), security deposits, tax escrows
(if any), down payments (to the extent the same may be pledged under applicable
law), collections, contract rights, documents, instruments, letters of credit,
chattel paper, liens and security instruments, guaranties or general intangibles
relating in whole or in part to the Trust Estate and all rights and remedies of
whatever kind or nature Trustor may hold or acquire for the purpose of securing
or enforcing any obligation due Trustor thereunder.

            "Project" means that certain electric and steam production facility
located on the Real Property.

            "Real Property" has the meaning ascribed to it in the Granting
Clauses.

            "Secured Debt Documents" has the meaning ascribed to it in the
Collateral Trust Agreement.

            "Site" has the meaning ascribed to it in the Granting Clauses.

            "State" means that state in which the Site is located.

            "Tangible Collateral" has the meaning ascribed to it in the Granting
Clauses.

            "Trust Estate" has the meaning ascribed to it in the Granting
Clauses.

            "UCC" means the Uniform Commercial Code as in effect from time to
time in the State, and the terms "Accounts," "Account Debtor, "As Extracted
Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
"Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
"Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have
the respective meanings assigned to such terms in the UCC.

      1.2 ACCOUNTING TERMS. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not defined herein
shall have the respective meanings given to them under GAAP.


                                       6


                  ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS

      2.1 TRUSTOR PERFORMANCE OF SECURED DEBT DOCUMENTS. Trustor shall perform,
observe and comply with each and every provision hereof, and with each and every
provision contained in the Secured Debt Documents and shall promptly pay, when
payment shall become due, the principal with interest thereon and all other sums
required to be paid by Trustor under this Deed of Trust and the other Secured
Debt Documents at the time and in the manner provided in the Secured Debt
Documents.

      2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES. Trustor, to the
best of its knowledge, represents, covenants and warrants that as of the date
hereof: (a) Trustor has good and indefeasible title to that portion of the Real
Property which constitutes real property interests including the Ground Lease
and the leasehold estate created thereby, free and clear of all encumbrances
except Permitted Liens with respect to the Site, the Ground Lease and other
matters which, individually and in the aggregate, do not have a materially
adverse effect upon the ownership or operation of the Site; (b) Trustor has the
right to hold, occupy and enjoy its interest in the Real Property on and subject
to the terms and conditions of the Ground Lease, and has good right, full power
and lawful authority to grant the same as provided herein, and Beneficiary may,
subject to the Permitted Liens and the terms of the Ground Lease, at all times
peaceably and quietly enter upon, hold, occupy and enjoy the Real Property in
accordance with the terms hereof; (c) except as otherwise discussed in the
Secured Debt Documents, all costs arising from construction of any Improvements,
the performance of any labor and the purchase of all Tangible Collateral and
Improvements have been or shall be paid when due; (d) the Site has access for
ingress and egress to dedicated street(s); and (e) no material part of the Trust
Estate has been damaged, destroyed, condemned or abandoned.

      2.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Trustor shall promptly comply in
all material respects with all Legal Requirements relating to its use and
occupancy of the Trust Estate, whether or not such compliance requires work or
remedial measures that are ordinary or extraordinary, foreseen or unforeseen,
structural or nonstructural, or that interfere with the use or enjoyment of the
Trust Estate.

      2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT
DOMAIN PROCEEDS.

            Trustor shall carry, with financially sound and reputable insurance
companies and in amounts as is customary in the industry or as otherwise
required pursuant to the Secured Debt Documents, the following insurance: (1)
workmen's compensation insurance and public liability and property damage
insurance in respect of all activities in which Trustor might incur personal
liability for the death of or injury to an employee or third person, or damage
to or destruction of another's property; and (2) to the extent such insurance is
carried by similar companies engaged in similar undertakings in, the same
general areas in which the Trust Estate, is located, insurance in respect of the
Equipment, against loss or damage by fire, lightning, hail, tornado, explosion
and other similar risks, hazards, casualties and contingencies (including
business interruption insurance covering loss of revenues) with limits and
sublimits as appropriate; provided, that any such insurance may be provided by
way of self insurance to the extent that similar companies engaged in


                                       7


similar undertakings in the same general areas also self-insure. Each insurance
policy issued in connection therewith shall provide by way of endorsements,
riders or otherwise that (i) name Beneficiary as a loss payee on all property
insurance policies and an additional insured on all liability insurance
policies, and provide that proceeds from property insurance policies will be
payable to Beneficiary as its interest may appear, which proceeds are hereby
assigned to Beneficiary, it being agreed by Trustor that such payments shall be
applied A) if there be no Event of Default existing or which would exist but for
due notice or lapse of time, or both, to the restoration, repair or replacement
of the Trust Estate, or B) if there be an Event of Default existing, or which
would exist but for due notice or lapse of time, or both, in accordance with the
provisions of the Collateral Trust Agreement, either for the above stated
purpose or toward the payment of the Obligations; (ii) the coverage of
Beneficiary shall not be terminated, reduced or affected in any manner
regardless of any breach or violation by Trustor of any warranties, declarations
or conditions in such policy; (iii) no such insurance policy shall be canceled,
materially endorsed, materially altered or reissued to effect a change in
coverage for any reason and to any extent whatsoever unless such insurer, their
authorized representative or Trustor shall have first given Beneficiary and each
Secured Debt Representative thirty (30) days prior written notice thereof; and
(iv) Beneficiary may, but shall not be obligated to, make premium payments to
prevent any cancellation, endorsement, alteration or re-issuance and such
payments shall be accepted by the insurer to prevent the same. Beneficiary shall
be furnished with a certificate evidencing such coverage in form and content as
are customary in the industry. All policies to be maintained under this Deed of
Trust are to be issued on forms and by companies and with endorsements as are
customary in the industry. Trustor shall maintain insurance in an amount
sufficient to prevent Trustor from becoming a co-insurer under any policy
required hereunder. If Trustor fails to maintain the level of insurance required
under this Deed of Trust, then Trustor shall and hereby agrees to indemnify
Beneficiary to the extent that a casualty occurs and insurance proceeds would
have been available had such insurance been maintained;

            All insurance proceeds and all eminent domain proceeds shall be paid
and/or shall be applied in accordance with the provisions of the Secured Debt
Documents.

      2.5 ASSIGNMENT OF RENTS. Trustor unconditionally and absolutely assigns to
Beneficiary all of Trustor's right, title and interest in and to: all leases,
subleases, occupancy agreements, licenses, rental contracts and other similar
agreements now or hereafter existing relating to the use or occupancy of the
Trust Estate, arising by, through or under Trustor, together with all
guarantees, modifications, extensions and renewals thereof; and all rents,
issues, profits, income and proceeds due or to become due from tenants of the
Trust Estate (the "Leases"), including rentals and all other payments of any
kind under any leases now existing or hereafter entered into, together with all
deposits (including security deposits) of tenants thereunder. This is an
absolute assignment to Beneficiary and not an assignment as security for the
performance of the obligations under the Secured Debt Documents, or any other
indebtedness. Subject to the provisions herein, Beneficiary shall have the
right, power and authority to, but shall not be obligated to: notify any person
that the Leases have been assigned to Beneficiary and that all rents and other
obligations are to be paid directly to Beneficiary, whether or not Beneficiary
has commenced or completed foreclosure or taken possession of the Trust Estate;
settle, compromise, release, extend the time of payment of, and make allowances,
adjustments and discounts of any rents or other obligations under the Leases;
enforce payment of rents and other rights under the Leases, prosecute any action
or proceeding, and


                                       8


defend against any claim with respect to rents and Leases; enter upon, take
possession of and operate the Trust Estate; lease all or any part of the Trust
Estate; and/or perform any and all obligations of Trustor under the Leases and
exercise any and all rights of Trustor therein contained to the full extent of
Trustor's rights and obligations thereunder, with or without the bringing of any
action or the appointment of a receiver. At Beneficiry's request, Trustor shall
deliver a copy of this Deed of Trust to each tenant under a Lease. Trustor
irrevocably directs any tenant, without any requirement for notice to or consent
by Trustor, to comply with all demands of Beneficiary under this Section 2.5 and
to turn over to Beneficiary on demand all rents which it receives. Beneficiary
shall have the right, but not the obligation, to use and apply all rents
received hereunder in such order and such manner as Beneficiary may determine in
accordance with the Collateral Trust Agreement. Notwithstanding that this is an
absolute assignment of the rents and Leases and not merely the collateral
assignment of, or the grant of a lien or security interest in the rents and
Leases, Beneficiary grants to Trustor a revocable license to collect and receive
the rents and to retain, use and enjoy such rents. Such license may be revoked
by Beneficiary only upon the occurrence of any Event of Default. Trustor shall
apply any rents which it receives to the payment due under the Obligations,
taxes, assessments, water charges, sewer rents and other governmental charges
levied, assessed or imposed against the Trust Estate, insurance premiums, and
other obligations of lessor under the Leases before using such proceeds for any
other purpose.

      2.6 REJECTION OF GROUND LEASE BY LESSOR. To the extent applicable, if the
lessor under the Ground Lease rejects or disaffirms the Ground Lease or purports
or seeks to disaffirm the Ground Lease pursuant to any bankruptcy law, then:

            2.6.1 To the extent permitted by law, Trustor shall remain in
possession of the Real Property demised under the Ground Lease and shall perform
all acts reasonably necessary for Trustor to remain in such possession for the
unexpired term of such Ground Lease (including all renewals), whether the then
existing terms and provisions of such Ground Lease require such acts or
otherwise; and

            2.6.2 All the terms and provisions of this Deed of Trust and the
lien created by this Deed of Trust shall remain in full force and effect and
shall extend automatically to all of Trustor's rights and remedies arising at
any time under, or pursuant to, any bankruptcy or insolvency laws, including all
of Trustor's rights to remain in possession of the Real Property.

      2.7 EXPENSES. Trustor shall indemnify Beneficiary with respect to any
transaction or matter in any way connected with any portion of the Trust Estate,
or Trustor's use, occupancy, or operation of the Trust Estate in accordance with
the Collateral Trust Agreement.

      2.8 BENEFICIARY ASSUMES NO OBLIGATIONS. It is expressly agreed that,
anything herein contained to the contrary notwithstanding, Trustor shall remain
obligated under all agreements which are included in the definition of "Trust
Estate" and shall perform all of its obligations thereunder in accordance with
the provisions thereof, and neither Beneficiary, Trustee nor any of the Secured
Debtholders shall have any obligation or liability with respect to such
obligations of Trustor, nor shall Beneficiary, Trustee or any of the Secured
Debtholders be required or obligated in any manner to perform or fulfill any
obligations or duties of Trustor under such agreements, or to make any payment
or to make any inquiry as to the nature or sufficiency of any payment received


                                       9


by it, or to present or file any claim or take any action to collect or enforce
the payment of any amounts which have been assigned to Beneficiary hereunder or
to which Beneficiary or the Secured Debtholders may be entitled at any time or
times.

      2.9 FURTHER ASSURANCES. Trustor shall, from time to time, at its expense,
promptly execute and deliver all further instruments and documents, and take all
further action, that may be required pursuant to the Collateral Trust Agreement
and/or any Secured Debt Document, in order to perfect and continue the lien and
security interest granted hereby and to enable Beneficiary to obtain the full
benefits of the lien and security interest granted or intended to be granted
hereby. Trustor shall keep the Trust Estate free and clear of all Liens, other
than Permitted Liens. Without limiting the generality of the foregoing, Trustor
shall execute and record or file this Deed of Trust and each amendment hereto,
and such financing or continuation statements, or amendments thereto, and such
other instruments, endorsements or notices, as may be necessary, or as may be
required pursuant to the Collateral Trust Agreement and/or any Secured Debt
Document, in order to perfect and preserve the lien and security interest
granted or purported to be granted hereby. Trustor hereby authorizes Beneficiary
to file one or more financing statements or continuation statements, and
amendments thereto, relative to all or any part of the Trust Estate necessary to
preserve or protect the lien and security interest granted hereby without the
signature of Trustor where permitted by law.

      2.10 ACTS OF TRUSTOR. Except as provided in or permitted by the Secured
Debt Documents, Trustor hereby represents and warrants that it has not granted,
mortgaged, hypothecated, assigned or pledged and hereby covenants that it will
not grant, mortgage, hypothecate, assign or pledge, so long as this Deed of
Trust shall remain in effect, any of its right, title or interest in and to the
Trust Estate or any part thereof, other than Permitted Liens, to anyone other
than Beneficiary.

      2.11 AFTER-ACQUIRED PROPERTY. Any and all of the Trust Estate which is
hereafter acquired shall immediately, without any further conveyance, assignment
or act on the part of Trustor or Beneficiary, become and be subject to the lien
and security interest of this Deed of Trust as fully and completely as though
specifically described herein, but nothing contained in this Section 2.11 shall
be deemed to modify or change the obligations of Trustor under Section 2.9
hereof. If and whenever from time to time Trustor shall hereafter acquire any
real property or interest therein which constitutes or is intended to constitute
part of the Trust Estate hereunder, Trustor shall promptly give notice thereof
to Beneficiary and Trustor shall forthwith execute, acknowledge and deliver to
Beneficiary a supplement to this Deed of Trust subjecting the property so
acquired to the lien of this Deed of Trust.

      2.12 TRUST ESTATE.

            2.12.1 Trustor shall pay or cause to be paid all rent and other
charges required under the Ground Lease as and when the same are due and shall
promptly and faithfully perform or cause to be performed all other material
terms, obligations, covenants, conditions, agreements, indemnities and
liabilities of Trustor under the Ground Lease. Trustor shall observe all
applicable covenants, easements and other restrictions of record with respect to
the Site, the Easements or to any other part of the Trust Estate, in all
material respects.


                                       10


            2.12.2 Trustor shall do, or cause to be done, all things necessary
to preserve and keep unimpaired all rights of Trustor as lessee under the Ground
Lease, and to prevent any default under the Ground Lease, or any termination,
surrender, cancellation, forfeiture, subordination or impairment thereof.
Trustor does hereby authorize and irrevocably appoint and constitute Beneficiary
as its true and lawful attorney-in-fact, which appointment is coupled with an
interest, in its name, place and stead, to take any and all actions deemed
necessary or desirable by Beneficiary to perform and comply with all the
obligations of Trustor under the Ground Lease, and to do and take upon the
occurrence and during continuation of an Event of Default, but without any
obligation so to do or take, any action which Beneficiary deems reasonably
necessary to prevent or cure any default by Trustor under the Ground Lease, to
enter into and upon the Real Property and Improvements or any part thereof as
provided in the Secured Debt Documents in order to prevent or cure any default
of Trustor pursuant thereto, to the end that the rights of Trustor in and to the
leasehold estate created by the Ground Lease shall be kept free from default.

            2.12.3 Trustor shall use all reasonable efforts to enforce the
obligations of the lessor under the Ground Lease in a commercially reasonable
manner.

            2.12.4 Trustor shall not voluntarily surrender its leasehold estate
and interest under the Ground Lease or modify, change, supplement, alter or
amend the Ground Lease or affirmatively waive any provisions thereof, either
orally or in writing, except as permitted in the Secured Debt Documents, and any
attempt on the part of Trustor to do any of the foregoing without the written
consent of Beneficiary shall be null and void.

            2.12.5 If any action or proceeding shall be instituted to evict
Trustor or to recover possession of the Trust Estate or any part thereof or
interest therein from Trustor or any action or proceeding otherwise affecting
the Trust Estate or this Deed of Trust shall be instituted, then Trustor shall,
immediately after receipt, deliver to Beneficiary a true and complete copy of
each petition, summons, complaint, notice of motion, order to show cause and all
other pleadings and papers, however designated, served in any such action or
proceeding.

            2.12.6 Trustor covenants and agrees that the fee title to the Real
Property and Improvements and the leasehold estate created under the Ground
Lease shall not merge but shall always remain separate and distinct,
notwithstanding the union of said estates either in Trustor or a third party by
purchase or otherwise and, in case Trustor acquires the fee title or any other
estate, title or interest in and to the Real Property and Improvements, the lien
of this Deed of Trust shall, without further conveyance, simultaneously with
such acquisition, be spread to cover and attach to such acquired estate and as
so spread and attached shall be prior to the lien of any deed of trust placed on
the acquired estate by Trustor or its successors in title after the date of this
Deed of Trust.

            2.12.7 No release or forbearance of any of Trustor's obligations
under the Ground Lease by the lessor thereunder, shall release Trustor from any
of its obligations under this Deed of Trust.

            2.12.8 Trustor shall, within ten days after written demand from
Beneficiary, deliver to Beneficiary proof of payment of all items that are
required to be paid by Trustor under the Ground Lease, including, without
limitation, rent, taxes, operating expenses and other charges.


                                       11


            2.12.9 The lien of this Deed of Trust shall attach to all of
Trustor's rights and remedies at any time arising under or pursuant to
bankruptcy or insolvency law, including, without limitation, all of Trustor's
rights to remain in possession of the Trust Estate. Trustor shall not elect to
treat the Ground Lease as terminated under bankruptcy or insolvency law, and any
such election shall be void.

                  2.12.9.1 If pursuant to bankruptcy or insolvency law, Trustor
shall seek to offset against the rent reserved in the Ground Lease the amount of
any damages caused by the nonperformance by the lessor or any other party of any
of their respective obligations thereunder after the rejection by the lessor or
such other party of the Ground Lease under any bankruptcy or insolvency law,
then Trustor shall, prior to effecting such offset, notify Beneficiary of its
intent to do so, setting forth the amount proposed to be so offset and the basis
therefor. Beneficiary shall have the right to object to all or any part of such
offset that would constitute a breach of the Ground Lease, and in the event of
such objection, Trustor shall not effect any offset of the amounts found
objectionable by Beneficiary. Neither Beneficiary's failure to object as
aforesaid nor any objection relating to such offset shall constitute an approval
of any such offset by Beneficiary.

                  2.12.9.2 If any action, proceeding, motion or notice shall be
commenced or filed in respect of the lessor under the Ground Lease or any other
party or in respect of the Ground Lease in connection with any case under any
bankruptcy or insolvency law, then Beneficiary shall have the option to
intervene in any such litigation with counsel of Beneficiary's choice.
Beneficiary may proceed in its own name in connection with any such litigation,
and Trustor agrees to execute any and all powers, authorizations, consents or
other documents required by Beneficiary in connection therewith.

                  2.12.9.3 Trustor shall, after obtaining knowledge thereof,
promptly notify Beneficiary of any filing by or against the lessor or other
party with an interest in the Trust Estate of a petition under any bankruptcy or
insolvency law. Trustor shall promptly deliver to Beneficiary, following
receipt, copies of any and all notices, summonses, pleadings, applications and
other documents received by Trustor in connection with any such petition and any
proceedings relating thereto.

                  2.12.9.4 If there shall be filed by or against Trustor a
petition under any bankruptcy or insolvency law, and Trustor, as lessee under
the Ground Lease, shall determine to reject the Ground Lease pursuant to any
bankruptcy or insolvency law, then Trustor shall give Beneficiary a notice of
the date on which Trustor shall apply to the bankruptcy court for authority to
reject the Ground Lease (such notice to be no later than twenty (20) days prior
to such date). Beneficiary shall have the right, but not the obligation, to
serve upon Trustor at any time prior to the date on which Trustor shall so apply
to the bankruptcy court a notice stating that Beneficiary demands that Trustor
assume and assign the Ground Lease to Beneficiary pursuant to any bankruptcy or
insolvency law. If Beneficiary shall serve upon Trustor the notice described in
the preceding sentence, to the extent permitted by law or Governmental Authority
Trustor shall not seek to reject the Ground Lease and shall comply with the
demand provided for in the preceding sentence. In addition, effective upon the
entry of an order for relief with respect to Trustor under any bankruptcy or
insolvency law, Trustor hereby assigns and transfers to Beneficiary a
non-exclusive right to apply to the bankruptcy court under any bankruptcy or
insolvency law for an


                                       12


order extending the period during which the Ground Lease may be rejected or
assumed; and shall (a) promptly notify Beneficiary of any default by Trustor in
the performance or observance of any of the terms, covenants or conditions on
the part of Trustor to be performed or observed under the Ground Lease and of
the giving of any written notice by the lessor thereunder to Trustor of any such
default, and (b) promptly cause a copy of each written notice given to Trustor
by the lessor under the Ground Lease to be delivered to Beneficiary. Beneficiary
may rely on any notice received by it from any such lessor of any default by
Trustor under the Ground Lease and may take such action as may be permitted by
law or Governmental Authority to cure such default even though the existence of
such default or the nature thereof shall be questioned or denied by Trustor or
by any Person on its behalf.

      2.13 POWER OF ATTORNEY. Trustor does hereby irrevocably constitute and
appoint Beneficiary, its true and lawful attorney (which appointment is coupled
with an interest), with full power of substitution, for Trustor and in the name,
place and stead of Trustor or in Beneficiary's own name, for so long as any of
the Obligations are outstanding, to ask, demand, collect, receive, receipt for
and sue for any and all rents, income and other sums which are assigned
hereunder with full power to endorse the name of Trustor on all instruments
given in payment or in part payment thereof, to settle, adjust or compromise any
claims thereunder as fully as Trustor itself could do and file any claim or take
any action or proceeding, either in its own name or in the name of Trustor or
otherwise, as is necessary or appropriate to protect and preserve the right,
title and interest of Beneficiary in and to such rents, income and other sums
and the security intended to be afforded hereby; provided that Beneficiary shall
not exercise such rights unless an Event of Default has occurred and is
continuing.

      2.14 COVENANT TO PAY. If an Event of Default has occurred and is
continuing and such Event of Default could reasonably be expected to materially
and adversely affect Beneficiary's interest hereunder in the Trust Estate or
result in personal injury, then Beneficiary, among its other rights and
remedies, shall have the right, but not the obligation, to pay, observe or
perform the same, in whole or in part, and with such modifications as
Beneficiary reasonably shall deem advisable. To the extent provided in the
Secured Debt Documents, all sums, including, without limitation, reasonable
attorneys fees, so expended or incurred by Beneficiary by reason of the default
of Trustor, or by reason of the bankruptcy or insolvency of Trustor, as well as,
without limitation, sums expended or incurred to sustain the lien or estate of
this Deed of Trust or its priority, or to protect or enforce any rights of
Beneficiary hereunder, or to recover any of the Obligations, or to complete
construction of the Project for which the Secured Debt Documents are intended as
financing, or for repairs, maintenance, alterations, replacements or
improvements thereto or for the protection thereof, or for real estate taxes or
other governmental assessments or charges against any part of the Trust Estate,
or premiums for insurance of the Trust Estate, shall be entitled to the benefit
of the lien on the Trust Estate as of the date of the recording of this Deed of
Trust, shall be deemed to be added to and be part of the Obligations secured
hereby, whether or not the result thereof causes the total amount of the
Obligations to exceed the stated amount set forth in the second introductory
paragraph of this Deed of Trust, and shall be repaid by Trustor as provided in
the Secured Debt Documents.


                                       13


      2.15 SECURITY AGREEMENT.

            2.15.1 This Deed of Trust shall also be a security agreement between
Trustor and Beneficiary covering the Trust Estate constituting personal property
or fixtures (hereinafter collectively called "UCC Collateral") governed by the
UCC in effect in the State as the same may be more specifically set forth in any
financing statement delivered in connection with this Deed of Trust, and as
further security for the payment and performance of the Obligations, Trustor
hereby grants to Beneficiary a security interest in such portion of the Trust
Estate to the full extent that the Trust Estate may be subject to the UCC. In
addition to Beneficiary's other rights hereunder, Beneficiary shall have all
rights of a secured party under the UCC. Trustor shall execute and deliver to
Beneficiary all financing statements and such further assurances that may be
required to establish, create, perfect (to the extent the same can be achieved
by the filing of a financing statement) and maintain the validity and priority
of Beneficiary's security interests, and Trustor shall bear all reasonable costs
thereof, including all UCC searches. Except as otherwise provided in the Secured
Debt Documents, if Beneficiary should dispose of any of the Trust Estate
comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written
notice by Beneficiary to Trustor shall be deemed to be reasonable notice;
provided, however, Beneficiary may dispose of such property in accordance with
the foreclosure procedures of this Deed of Trust in lieu of proceeding under the
UCC. Beneficiary may, but shall not be obligated to, from time to time execute
and deliver at Trustor's expense, all continuation statements, termination
statements, amendments, partial releases, or other instruments relating to all
financing statements by and between Trustor and Beneficiary. Except as otherwise
provided in the Secured Debt Documents, if an Event of Default shall occur and
is continuing, (a) Beneficiary, in addition to any other rights and remedies
which it may have, may exercise immediately and without demand to the extent
permitted by law, any and all rights and remedies granted to a secured party
under the UCC including, without limiting the generality of the foregoing, the
right to take possession of the UCC Collateral or any part thereof, and to take
such other measures may be necessary for the care, protection and preservation
of such collateral and (b) upon request or demand of Beneficiary, Trustor shall
at its expense, assemble the UCC Collateral and make it available to Beneficiary
at a convenient place acceptable to Beneficiary. Trustor shall pay to
Beneficiary on demand, any and all expenses, including reasonable attorneys'
fees and disbursements incurred or paid by Beneficiary in protecting the
interest in the UCC Collateral and in enforcing the rights hereunder with
respect to such UCC Collateral.

            2.15.2 To the extent permitted by law: (i) this Deed of Trust upon
recording or registration in the real estate records of the proper office shall
constitute a financing statement filed as a "fixture filing" within the meaning
of Sections 9.334, 9.502 and 9.604 of the UCC; (ii) all or a part of the Trust
Estate are or are to become fixtures; and (iii) the address of Trustor is as set
forth on the first page of this Deed of Trust.

                              ARTICLE 3 - REMEDIES

      3.1 ACCELERATION OF MATURITY. If an Event of Default occurs and is
continuing, Beneficiary may declare the Obligations to be due and payable
immediately, and upon such declaration such principal and interest and other
sums shall immediately become due and payable without demand, presentment,
notice or other requirements of any kind (all of which Trustor waives).


                                       14


      3.2 PROTECTIVE ADVANCES. If an Event of Default shall have occurred and is
continuing, then without thereby limiting Beneficiary's other rights or
remedies, waiving or releasing any of Trustor's obligations, or imposing any
obligation on Beneficiary, Beneficiary may, but shall not be obligated to,
either advance any amount owing or perform any or all actions as may be
necessary or appropriate to cure such default. All such advances shall
constitute "Protective Advances." No sums advanced or performance rendered by
Beneficiary shall cure, or be deemed a waiver of any Event of Default.

      3.3 INSTITUTION OF EQUITY PROCEEDINGS. If an Event of Default occurs and
is continuing, Beneficiary may, but shall not be obligated to, institute an
action, suit or proceeding in equity for specific performance of this Deed of
Trust or any other Secured Debt Document, all of which shall be specifically
enforceable by injunction or other equitable remedy.

      3.4 BENEFICIARY'S POWER OF ENFORCEMENT.

            3.4.1 If an Event of Default occurs and is continuing, Beneficiary
may, but shall not be obligated to, sell or offer for sale the Trust Estate (i)
in such portions, order and parcels as Beneficiary may determine, with or
without having first taken possession of same, to the highest bidder for cash at
public auction at the county courthouse of any county in which any of the Trust
Estate to be sold is situated, in the area in such courthouse designated for
real property foreclosure sales in accordance with Applicable Law (or in the
absence of any such designation, in the area set forth in the notice of sale
hereinafter described), on the first Tuesday of any month between the hours of
10:00 A.M. and 4:00 P.M. (commencing no earlier than such time as may be
designated in the hereinafter described notice of sale), after giving legally
adequate notice of the time, place and terms of sale and that portion of the
Trust Estate to be sold, by (1) posting or causing to be posted written or
printed notices thereof for at least 21 consecutive days prior to the date of
said sale at the county courthouse door of each county in which the Trust Estate
is situated, (2) filing or causing to be filed a copy of such notice in the
office of the county clerk of each county in which the Trust Estate is situated
at least 21 days preceding the date of such sale, and (3) at least 21 days
preceding the date of such sale, serving written notice (by the Beneficiary or
any person chosen by the Beneficiary) of such proposed sale by certified mail on
each debtor obligated to pay the Obligations according to the records of
Beneficiary; service of such notice to each debtor to be made in the manner
provided in the Credit Agreement, or (ii) in such manner as permitted or
required by Section 51.002 of the Property Code of the State of Texas relating
to the sale of real estate or by the UCC relating to the sale of collateral
after default by a debtor (as the UCC now exists or as may be hereafter
amended), or by any other present or subsequent articles or enactments relating
to same but in a manner consistent with Trustor's rights and the manner of
giving notices under the Credit Agreement; provided, however, that nothing
contained in this Section 3.4 shall be construed so as to limit in any way
Trustee's rights to sell the Trust Estate, or any portion thereof, by private
sale if, and to the extent that, such private sale is permitted under the laws
of the State of Texas or by public or private sale after entry of a judgment by
any court of competent jurisdiction ordering same. At any such sale (i) whether
made under the power herein contained, the aforesaid Property Code Section
51.002, the UCC or any other legal enactment, or by virtue of any judicial
proceedings or any other legal right, remedy or recourse, it shall not be
necessary for Trustee to have physically present, or to have constructive
possession of, the Trust Estate (Trustor hereby covenanting and agreeing to
deliver to Trustee any portion of the Trust Estate not actually or
constructively


                                       15


possessed by Trustee immediately upon demand by Trustee) and the title to and
right of possession of any such property shall pass to the purchaser thereof as
completely as if the same had been actually present and delivered to purchaser
at such sale, (ii) each instrument of conveyance executed by Trustee shall
contain a special warranty of title, binding upon Trustor and its successors and
assigns, (iii) each and every recital contained in any instrument of conveyance
made by Trustee shall establish the truth and accuracy of the matters recited
therein, including, without limitation, nonpayment of the Obligations,
advertisement and conduct of such sale in the manner provided herein and
otherwise by law and appointment of any successor Trustee hereunder, (iv) any
and all prerequisites to the validity thereof shall be presumed to have been
performed, (v) the receipt of Trustee or of such other party or officer making
the sale shall be a sufficient discharge to the purchaser or purchasers for its
purchase money and no such purchaser or purchasers, or its assigns or personal
representatives, shall thereafter be obligated to see to the application of such
purchase money, or be in any way answerable for any loss, misapplication or
nonapplication thereof, (vi) to the fullest extent permitted by law, Trustor
shall be completely and irrevocably divested of all of its right, title,
interest, claim and demand whatsoever, either at law or in equity, in and to the
property sold and such sale shall be a perpetual bar both at law and in equity
against Trustor, and against any and all other persons claiming or to claim the
property sold or any part thereof, by, through or under Trustor, and (vii) to
the extent and under such circumstances as are permitted by law, Beneficiary may
bid for and acquire the Trust Estate or any part thereof and in lieu of paying
cash therefor may make settlement for the purchase price by crediting upon the
Obligations the net sales price after deducting therefrom the expenses of the
sale and the costs of the action and any other sums which Beneficiary is
authorized to deduct under this Deed of Trust.

            3.4.2 Beneficiary may adjourn from time to time any sale by it to be
made under or by virtue of this Deed of Trust by announcement at the time and
place appointed for such sale or for such adjourned sale or sales; and, except
as otherwise provided by any Applicable Law, Beneficiary, without further notice
or publication, may make such sale at the time and place to which the same shall
be so adjourned.

            3.4.3 No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Estate or upon any other property of
Trustor shall affect in any manner or to any extent, the lien and title of this
Deed of Trust upon the Trust Estate or any part thereof, or any liens, titles,
rights, powers or remedies of Beneficiary hereunder, but such liens, titles,
rights, powers and remedies of Beneficiary shall continue unimpaired as before.

            3.4.4 Beneficiary is authorized but shall not be obligated to
foreclose this Deed of Trust subject to the rights of any tenants of the Trust
Estate, and the failure to make any such tenants parties to any such foreclosure
proceedings and to foreclose their rights will not be, nor be asserted to be by
Trustor, a defense to any proceedings instituted by Beneficiary to collect the
sums secured hereby.

            3.4.5 After deducting all costs, fees and expenses of Beneficiary
and of this Deed of Trust, including, without limitation, costs of evidence of
title and reasonable attorneys' fees of Beneficiary in connection with a sale,
Beneficiary shall apply the proceeds of such sale to payment of all sums
expended under the terms hereof not then repaid, with accrued interest at the


                                       16


Default Rate then to the payment of all other sums then secured hereby and the
remainder, if any, to the person or persons legally entitled thereto.

            3.4.6 If any Event of Default occurs and is continuing, Beneficiary
may, either with or without entry or taking possession of the Trust Estate, and
without regard to whether or not the indebtedness and other sums secured hereby
shall be due and without prejudice to the right of Beneficiary thereafter to
bring an action or proceeding to foreclose or any other action for any Event of
Default existing at the time such earlier action was commenced, proceed by any
appropriate action or proceeding: (1) to enforce payment of the Obligations, to
the extent permitted by law, or the performance of any term hereof or any other
right; (2) to foreclose this Deed of Trust in any manner provided by law for the
foreclosure of mortgages or deeds of trust or deeds to secure debt on real
property and to sell, as an entirety or in separate lots or parcels, the Trust
Estate or any portion thereof pursuant to the laws of the State or under the
judgment or decree of a court or courts of competent jurisdiction, and
Beneficiary shall be entitled to recover in any such proceeding all costs and
expenses incident thereto, including reasonable attorneys' fees in such amount
as shall be awarded by the court; (3) to exercise any or all of the rights and
remedies available to it under the Secured Debt Documents; and (4) to pursue any
other remedy available to it. Beneficiary may take action either by such
proceedings or by the exercise of its powers with respect to entry or taking
possession, or both, as Beneficiary may determine.

            3.4.7 The remedies described in this Section 3.4 may be exercised
with respect to all or any portion of the UCC Collateral, either simultaneously
with the sale of any real property encumbered hereby or independent thereof.
Beneficiary may at any time be permitted to proceed with respect to all or any
portion of the UCC Collateral in any manner permitted by the UCC. Trustor agrees
that Beneficiary's inclusion of all or any portion of the UCC Collateral in a
sale or other remedy exercised with respect to the real property encumbered
hereby, as permitted by the UCC, is a commercially reasonable disposition of
such property.

      3.5 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY
INCOME.

            (a) If an Event of Default occurs and is continuing, Trustor, upon
demand of Beneficiary, shall forthwith surrender to Beneficiary the actual
possession and, if and to the extent permitted by law, Beneficiary itself, or by
such officers or agents as it may appoint, may enter and take possession of all
of the Trust Estate, including the Tangible Collateral, without liability for
trespass, damages or otherwise, and may exclude Trustor and its agents and
employees wholly therefrom and may have joint access with Trustor to the books,
papers and accounts of Trustor.

            (b) Upon every such entering upon or taking of possession, if and to
the extent permitted by law, Beneficiary may hold, store, use, operate, manage
and control the Trust Estate and conduct the business thereof, and, from time to
time and without being under any duty to so act:

                  (1) make all necessary and proper maintenance, repairs,
renewals and replacements thereto and thereon, and all necessary additions,
betterments and improvements thereto and thereon and purchase or otherwise
acquire fixtures, personalty and other property in connection therewith;


                                       17


                  (2) insure or keep the Trust Estate insured;

                  (3) manage and operate the Trust Estate and exercise all the
rights and powers of Trustor in their name or otherwise with respect to the
same;

                  (4) enter into agreements with others to exercise the powers
herein granted Beneficiary and Trustee, all as Beneficiary or Trustee from time
to time may determine; and shall apply the monies so received by Beneficiary in
such priority as provided by the Secured Debt Documents to (1) the payment of
interest and principal due and payable to the Beneficiary, (2) the deposits for
taxes and assessments and insurance premiums due, (3) the cost of insurance,
taxes, assessments and other proper charges upon the Trust Estate or any part
thereof; (4) the compensation, expenses and disbursements of the agents,
attorneys and other representatives of Beneficiary or Trustee as allowed under
this Deed of Trust; and (5) any other charges or costs required to be paid by
Trustor under the terms of the Secured Debt Documents.

                  (5) rent or sublet the Trust Estate or any portion thereof for
any purpose permitted by this Deed of Trust; subject, however, to the Permitted
Liens and the terms of the Ground Lease.

            Beneficiary shall surrender possession of the Trust Estate to
Trustor (i) as may be required by law or court order, or (ii) when all amounts
under any of the terms of the Secured Debt Documents, including this Deed of
Trust, shall have been paid current and all Events of Default have been cured or
waived. The same right of taking possession, however, shall exist if any
subsequent Event of Default shall occur and be continuing.

      3.6 SEPARATE SALES. To the extent permitted by law or Governmental
Authority, the Trust Estate may be sold in one or more parcels and in such
manner and order as Beneficiary or Trustee, in its sole discretion, may elect,
it being expressly understood and agreed that the right of sale arising out of
any Event of Default shall not be exhausted by any one or more sales.

      3.7 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND
REDEMPTION LAWS. Trustor agrees to the full extent permitted by law that if an
Event of Default occurs and is continuing, neither Trustor nor anyone claiming
through or under it shall or will set up, claim or seek to take advantage of any
appraisement, moratorium, valuation, stay, extension or redemption laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Deed of Trust or the absolute sale of the Trust Estate or any portion
thereof or the final and absolute putting into possession thereof, immediately
after such sale, of the purchasers thereof, and Trustor for itself and all who
may at any time claim through or under it, hereby waives, to the full extent
that it may lawfully so do, the benefit of all such laws, and any and all right
to have the assets comprising the Trust Estate marshalled upon any foreclosure
of the lien hereof and agrees that Beneficiary, Trustee or any court having
jurisdiction to foreclose such lien may sell the Trust Estate in part or as an
entirety.

      3.8 RECEIVER. If an Event of Default occurs and is continuing,
Beneficiary, to the extent permitted by law, and without regard to the value,
adequacy or occupancy of the security for the Obligations and other sums secured
hereby, shall be entitled as a matter of right, but shall not be


                                       18


obligated to, if it so elects to the appointment of a receiver to enter upon and
take possession of the Trust Estate and to collect all earnings, revenues and
receipts and apply the same as the court may direct, and such receiver may be
appointed by any court of competent jurisdiction upon application by
Beneficiary. To the extent permitted by law, Beneficiary may have a receiver
appointed without notice to Trustor or any third party, and Beneficiary may
waive any requirement that the receiver post a bond. To the extent permitted by
law, Beneficiary shall have the power to designate and select the Person who
shall serve as the receiver and to negotiate all terms and conditions under
which such receiver shall serve. To the extent permitted by law, any receiver
appointed on Beneficiary's behalf may be an Affiliate of Beneficiary. The
reasonable expenses, including receiver's fees, reasonable attorneys' fees,
costs and agents' compensation, incurred pursuant to the powers herein contained
shall be secured by this Deed of Trust. The right to enter and take possession
of and to manage and operate the Trust Estate and to collect all earnings,
revenues and receipts, whether by a receiver or otherwise, shall be cumulative
to any other right or remedy available to Beneficiary under this Deed of Trust,
the other Secured Debt Documents or otherwise available to Beneficiary and may
be exercised concurrently therewith or independently thereof, but such rights
shall be exercised in a manner which is otherwise in accordance with and
consistent with the Secured Debt Documents. Beneficiary shall be liable to
account only for such earnings, revenues and receipts (including, without
limitation, security deposits) actually received by Beneficiary, whether
received pursuant to this section or any other provision hereof. Notwithstanding
the appointment of any receiver or other custodian, Beneficiary shall be
entitled as pledgee to the possession and control of any cash, deposits, or
instruments at the time held by, or payable or deliverable under the terms of
this Deed of Trust to, Beneficiary.

      3.9 SUITS TO PROTECT THE TRUST ESTATE. Beneficiary shall have the power
and authority but shall not be obligated to institute and maintain any suits and
proceedings as may be advisable (a) to prevent any impairment of the Trust
Estate by any acts which may be unlawful or in violation of this Deed of Trust,
(b) to preserve or protect its interest in the Trust Estate, or (c) to restrain
the enforcement of or compliance with any legislation or other Legal Requirement
that may be unconstitutional or otherwise invalid, if the enforcement of or
compliance with such enactment, rule or order might impair the security
hereunder or be prejudicial to Beneficiary's interest

      3.10 PROOFS OF CLAIM. In the case of any receivership, insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceedings affecting Trustor, any Affiliate or any guarantor, co-maker
or endorser of any of Trustor's obligations, its creditors or its property,
Beneficiary, to the extent permitted by law, shall be entitled but shall not be
obligated to file such proofs of claim or other documents as may be necessary or
advisable in order to have its claims allowed in such proceedings for the entire
amount due and payable by Trustor under the Secured Debt Documents, at the date
of the institution of such proceedings, and for any additional amounts which may
become due and payable by Trustor after such date.

      3.11 TRUSTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT;
APPLICATION OF MONIES BY BENEFICIARY.

            (a) In case of a foreclosure sale of all or any part of the Trust
Estate and of the application of the proceeds of sale to the payment of the sums
secured hereby, to the extent permitted by law, the Secured Debtholders shall be
entitled to enforce payment from Trustor of any


                                       19


additional amounts then remaining due and unpaid and to recover judgment against
Trustor for any portion thereof remaining unpaid, with interest at the Default
Rate.

            (b) Trustor hereby agrees to the extent permitted by law, that no
recovery of any such judgment by the Secured Debtholders or other action by the
Secured Debtholders and no attachment or levy of any execution upon any of the
Trust Estate or any other property shall in any way affect the Lien and security
interest of this Deed of Trust upon the Trust Estate or any part thereof or any
Lien, rights, powers or remedies of Beneficiary hereunder, but such Lien,
rights, powers and remedies shall continue unimpaired as before.

            (c) Any monies collected or received by Beneficiary under this
Section 3.11 shall be first applied to the payment of compensation, expenses and
disbursements of the agents, attorneys and other representatives of the
Beneficiary and the Secured Debtholders, and the balance remaining shall be
applied as provided in the Collateral Trustee Agreement.

      3.12 DELAY OR OMISSION; NO WAIVER. No delay or omission of Beneficiary or
the Secured Debtholders to exercise any right, power or remedy upon any Event of
Default shall exhaust or impair any such right, power or remedy or shall be
construed to waive any such Event of Default or to constitute acquiescence
therein. Every right, power and remedy given to Beneficiary whether contained
herein or in the other Secured Debt Documents or otherwise available to
Beneficiary may be exercised from time to time and as often as may be deemed
expedient by Beneficiary.

      3.13 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER. No waiver of any defaults
hereunder shall extend to or affect any subsequent or any other defaults then
existing, or impair any rights, powers or remedies consequent thereon. If
Beneficiary (a) grants forbearance or an extension of time for the payment of
any sums secured hereby; (b) takes other or additional security for the payment
thereof; (c) waives or does not exercise any right granted in this Deed of Trust
or any other Secured Debt Document; (d) releases any part of the Trust Estate
from the lien or security interest of this Deed of Trust or any other instrument
securing the Obligations; (e) consents to the filing of any map, plat or replat
of the Real Property or any part thereof; (f) consents to the granting of any
easement on the Real Property; or (g) makes or consents to any agreement
changing the terms of this Deed of Trust or any other Secured Debt Document
subordinating the lien or any charge hereof, no such act or omission shall
release, discharge, modify, change or affect the liability under this Deed of
Trust or any other Secured Debt Document or otherwise of Trustor, or any
subsequent purchaser of the Trust Estate or any part thereof or any maker,
co-signer, surety or guarantor with respect to any other matters not addressed
by such act or omission. No such act or omission shall preclude Beneficiary from
exercising any right, power or privilege herein granted or intended to be
granted in case of any Event of Default then existing or of any subsequent Event
of Default, nor, except as otherwise expressly provided in an instrument or
instruments executed by Beneficiary, shall the lien or security interest of this
Deed of Trust be altered thereby, except to the extent expressly provided in
such acts or omissions. In the event of the sale or transfer by operation of law
or otherwise of all or any part of the Trust Estate, Beneficiary, without notice
to any person, firm or corporation, is hereby authorized and empowered to deal
with any such vendee or transferee with reference to the Trust Estate or the
Obligations secured hereby, or with reference to any of the terms or conditions
hereof, as fully and to the same extent as it might deal with the original
parties


                                       20


hereto and without in any way releasing or discharging any of the liabilities or
undertakings hereunder, or waiving its right to declare such sale or transfer an
Event of Default as provided herein. Notwithstanding anything to the contrary
contained in this Deed of Trust or any other Secured Debt Document, (i) in the
case of any non-monetary default, Beneficiary may continue to accept payments
due hereunder without thereby waiving the existence of such or any other default
and (ii) in the case of any monetary Event of Default, Beneficiary may accept
partial payments of any sums due hereunder without thereby waiving the existence
of such Event of Default if the partial payment is not sufficient to completely
cure such Event of Default.

      3.14 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED. If
Beneficiary shall have proceeded to enforce any right or remedy under this Deed
of Trust by foreclosure, whether by the power of sale created in this Deed of
Trust, by judicial foreclosure or otherwise, and such proceedings shall have
been discontinued or abandoned prior to completion for any reason, then and in
every such case Trustor and Beneficiary shall be restored to their former
positions and rights hereunder, and all rights, powers and remedies of
Beneficiary shall continue as if no such proceedings had occurred or had been
taken.

      3.15 REMEDIES CUMULATIVE. Subject to the provisions of Section 4.17
hereof, no right, power or remedy, including without limitation remedies with
respect to any security for the Obligations, conferred upon or reserved to
Beneficiary by this Deed of Trust or any other Secured Debt Document is
exclusive of any other right, power or remedy, but each and every such right,
power and remedy shall be cumulative and concurrent and shall be in addition to
any other right, power and remedy given hereunder or under any other Secured
Debt Document, now or hereafter existing at law, in equity or by statute, and
Beneficiary shall be entitled to resort to such rights, powers, remedies or
security as Beneficiary may deem advisable.

      3.16 INTEREST AFTER EVENT OF DEFAULT. If an Event of Default shall have
occurred and is continuing, all sums outstanding and unpaid under the Secured
Debt Documents, including this Deed of Trust, may bear interest at the Default
Rate until such Event of Default has been cured. Trustor's obligation to pay
such interest shall be secured by this Deed of Trust.

      3.17 FORECLOSURE; EXPENSES OF LITIGATION. If Beneficiary or Trustee
foreclose, reasonable attorneys' fees for services in the supervision of said
foreclosure proceeding shall be allowed to the Beneficiary or Trustee as part of
the foreclosure costs. In the event of foreclosure of the lien hereof, there
shall be allowed and included as additional indebtedness all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraisers' fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after foreclosure sale or entry of the
decree) of procuring all such abstracts of title, title searches and
examinations, title insurance policies and guarantees, and similar data and
assurances with respect to title as are necessary either to prosecute such suit
or to evidence to a bidder at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Trust Estate or any
portion thereof. All expenditures and expenses of the nature in this section
mentioned, and such expenses and fees as may be incurred in the protection of
the Trust Estate and the maintenance of the lien and security interest of this
Deed of Trust, including the reasonable fees of any attorney employed by
Beneficiary in any litigation or proceeding affecting this Deed of Trust or any
other


                                       21


Secured Debt Document, the Trust Estate or any portion thereof, including,
without limitation, civil, probate, appellate and bankruptcy proceedings, or in
preparation for the commencement or defense of any proceeding or threatened suit
or proceeding, shall be immediately due and payable by Trustor, with interest
thereon at the Default Rate, and shall be secured by this Deed of Trust. Trustee
waives its right to any statutory fee in connection with any judicial or
nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee
for such services.

      3.18 DEFICIENCY JUDGMENTS. If after foreclosure of this Deed of Trust,
there shall remain any deficiency with respect to any amounts payable under the
Secured Debt Documents, including hereunder, or any amounts secured hereby, and
Beneficiary may institute any proceedings to recover such deficiency or
deficiencies, all such amounts shall continue to bear interest at the Default
Rate. To the extent permitted by law, Trustor waives any defense to
Beneficiary's recovery against Trustor of any deficiency after any foreclosure
sale of the Trust Estate. To the extent permitted by law, Trustor expressly
waives any defense or benefits that may be derived from any statute granting
Trustor any defense to any such recovery by Beneficiary. In addition, and to the
extent permitted by law, Beneficiary and Trustee shall be entitled to recovery
of all of its reasonable costs and expenditures (including without limitation
any court imposed costs) in connection with such proceedings, including their
reasonable attorneys' fees, appraisal fees and the other costs, fees and
expenditures referred to in Section 3.17 above. This provision shall survive any
foreclosure or sale of the Trust Estate, any portion thereof and/or the
extinguishment of the lien hereof.

      3.19 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, BENEFICIARY AND TRUSTOR EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ARISING
OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS DEED OF TRUST OR ANY OTHER SECURED DEBT
DOCUMENT. ANY SUCH DISPUTES SHALL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

      3.20 EXCULPATION OF BENEFICIARY. The acceptance by Beneficiary of the
assignment contained herein with all of the rights, powers, privileges and
authority created hereby shall not, prior to entry upon and taking possession of
the Trust Estate by Beneficiary, be deemed or construed to make Beneficiary a
"mortgagee in possession"; nor thereafter or at any time or in any event
obligate Beneficiary to appear in or defend any action or proceeding relating to
the Trust Estate, nor shall Beneficiary, prior to such entry and taking, be
liable in any way for any injury or damage to person or property sustained by
any Person in or about the Trust Estate.

      3.21 FAIR MARKET VALUE DETERMINATION. To the extent Section 51.003 of the
Texas Property Code, or any amendment thereto or judicial interpretation
thereof, requires that the "fair market value" of the Trust Estate shall be
determined as of the foreclosure date in order to enforce a deficiency against
Trustor, the term "fair market value" shall include those matters required by
law and shall also include the following additional factors:


                                       22


            (a) The Trust Estate is to be valued "AS IS, WHERE IS" and "WITH ALL
FAULTS" and there shall be no assumption of restoration of or refurbishment of
the Improvements after the date of foreclosure;

            (b) There shall be an assumption of a prompt resale of the Trust
Estate for an all cash sales price by the purchaser at the foreclosure so that
no extensive holding period should be factored into the determination of "fair
market value" of Trust Estate;

            (c) An offset to the fair market value of the Trust Estate, as
determined hereunder, shall be made by deducting from such value the reasonable
estimated closing costs relating to the sale of the Trust Estate including but
not limited to brokerage commissions, title policy expenses, tax prorations,
escrow fees, and other common charges which are incurred by a seller of real
property similar to the Trust Estate; and

            (d) After consideration of the factors required by law and those
required above, an additional discount factor shall be calculated based upon the
estimated time it will take to effectuate a sale of the Trust Estate so that the
"fair market value" as so determined is discounted to be as of the date of the
foreclosure of the Trust Estate.

                              ARTICLE 4 - GENERAL

      4.1 DISCHARGE. When all of the Obligations shall have been paid in full,
then this Deed of Trust and the lien and security interest created hereby shall
be of no further force and effect, Trustor shall be released from the covenants,
agreements and obligations of Trustor contained in this Deed of Trust and all
right, title and interest in and to the Trust Estate shall revert to Trustor.
Beneficiary, at the request and the expense of Trustor, shall promptly execute a
deed of reconveyance and such other documents as may be reasonably requested by
Trustor to evidence the discharge and satisfaction of this Deed of Trust and the
release of Trustor from its obligations hereunder.

      4.2 NO WAIVER. The exercise of the privileges granted in this Deed of
Trust to perform Trustor's obligations under the agreements which constitute the
Trust Estate shall in no event be considered or constitute a waiver of any right
which Beneficiary may have at any time, after an Event of Default shall have
occurred and be continuing, to declare the Obligations to be immediately due and
payable. No delay or omission to exercise any right, remedy or power accruing
upon any default shall impair any such right, remedy or power or shall be
construed to be a waiver of any such default or acquiescence therein; and every
such right, remedy and power may be exercised from time to time and as often as
may be deemed expedient.

      4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS. It is expressly
agreed that any of the Obligations at any time secured hereby may be from time
to time extended for any period, or with the consent of Trustor rearranged or
renewed, and that any part of the security herein described, or any other
security for the Obligations, may be waived or released, without altering,
varying or diminishing the force, effect or lien or security interest of this
Deed of Trust; and the lien and security interest granted by this Deed of Trust
shall continue as a prior lien and security interest on all of the Trust Estate
not expressly so released, until the Obligations are fully paid and this Deed


                                       23


of Trust is terminated in accordance with the provisions hereof; and no other
security now existing or hereafter taken to secure the payment of the
Obligations or any part thereof or the performance of any obligation or
liability of Trustor whatever shall in any manner impair or affect the security
given by this Deed of Trust; and all security for the payment of the Obligations
or any part thereof and the performance of any obligation or liability shall be
taken, considered and held as cumulative.

      4.4 FORCIBLE DETAINER. Trustor agrees for itself and all Persons claiming
by, through or under it, that subsequent to foreclosure hereunder in accordance
with this Deed of Trust and applicable law if Trustor shall hold possession of
the Trust Estate or any part thereof, Trustor or the Persons so holding
possession shall be guilty of trespass; and any such Person (including Trustor)
failing or refusing to surrender possession upon demand shall be guilty of
forcible detainer and shall be liable to Beneficiary or any purchaser in
foreclosure, as applicable, for reasonable rental on said premises, and shall be
subject to eviction and removal in accordance with law.

      4.5 WAIVER OF STAY OR EXTENSION. To the extent permitted to be waived by
law, Trustor shall not at any time insist upon or plead or in any manner
whatever claim the benefit or advantage of any stay, extension or moratorium law
now or at any time hereafter in force in any locality where the Trust Estate or
any part thereof may or shall be situated, nor shall Trustor claim any benefit
or advantage from any law now or hereafter in force providing for the valuation
or appraisement of the Trust Estate or any part thereof prior to any sale
thereof to be made pursuant to any provision of this Deed of Trust or to a
decree of any court of competent jurisdiction, nor after any such sale shall
Trustor claim or exercise any right conferred by any law now or at any time
hereafter in force to redeem the Trust Estate so sold or any part thereof; and
Trustor hereby expressly waives all benefit or advantage of any such law or laws
and the appraisement of the Trust Estate or any part thereof, and covenants that
Trustor shall not hinder or delay the execution of any power herein granted and
delegated to Beneficiary but that Trustor shall permit the execution of every
such power as though no such law had been made.

      4.6 NOTICES. Except where certified or registered mail notice is required
by Applicable Law, and subject to the terms of Section 3.4, any notice to
Trustor or Beneficiary required or permitted hereunder shall be deemed to be
given when given in the manner prescribed in the Collateral Trust Agreement.

      4.7 SEVERABILITY. All rights, powers and remedies provided herein may be
exercised only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Deed of Trust invalid, unenforceable or not entitled
to be recorded, registered or filed under any applicable law. In the event any
term or provision contained in this Deed of Trust is in conflict, or may
hereafter be held to be in conflict, with the laws of the State or of the United
States of America, this Deed of Trust shall be affected only as to such
particular term or provision, and shall in all other respects remain in full
force and effect.

      4.8 APPLICATION OF PAYMENTS. In the event that any part of the Obligations
cannot lawfully be secured hereby, or in the event that the lien and security
interest hereof cannot be lawfully enforced to pay any part of the Obligations,
or in the event that the lien or security interest created by this Deed of Trust
shall be invalid or unenforceable as to any part of the Obligations,


                                       24


then all payments on the Obligations shall be deemed to have been first applied
to the complete payment and liquidation of that part of the Obligations which is
not secured by this Deed of Trust and the unsecured portion of the Obligations
shall be completely paid and liquidated prior to the payment and liquidation of
the remaining secured portion of the Obligations.

      4.9 GOVERNING LAW. THIS DEED OF TRUST SHALL BE GOVERNED BY, AND ALL THE
RIGHTS AND OBLIGATIONS OF TRUSTOR, TRUSTEE AND BENEFICIARY HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO THE CONFLICTS OF LAWS PRINCIPLES OF THE STATE OF NEW YORK) AND THE LAWS OF
THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF THE
STATE OF NEW YORK) SHALL GOVERN (I) ALL ISSUES RELATING TO THIS TRANSACTION,
INCLUDING THE VALIDITY OR ENFORCEABILITY OF THIS DEED OF TRUST OR ANY PROVISION
OF THIS DEED OF TRUST AND (II) THE INTERPRETATION AND CONSTRUCTION OF THIS DEED
OF TRUST, EXCEPT TO THE EXTENT SECTIONS 1.105 AND 35.51 OF THE TEXAS BUSINESS &
COMMERCE CODE REQUIRE TEXAS LAW TO APPLY NOTWITHSTANDING THE FOREGOING CHOICE OF
LAWS OF THE STATE OF NEW YORK. TO THE EXTENT AND ONLY TO THE EXTENT REQUIRED BY
SECTIONS 1.105 AND 35.51 OF THE TEXAS BUSINESS & COMMERCE CODE, TEXAS LAW SHALL
GOVERN (A) THIS DEED OF TRUST TO THE EXTENT NECESSARY FOR BENEFICIARY TO
PERFECT, PROTECT OR ENFORCE THE RIGHTS AND REMEDIES GRANTED TO IT IN THIS DEED
OF TRUST AND TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN
WITH RESPECT TO THE TRUST ESTATE LOCATED IN TEXAS AND (B) PROCEDURAL
REQUIREMENTS WHICH MUST BE GOVERNED BY THE LAW OF THE STATE IN WHICH THE TRUST
ESTATE IS LOCATED.

      4.10 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER SECURED DEBT
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

AS OF THE DATE HEREOF, THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.


          _______________________           _______________________
                  TRUSTOR                         BENEFICIARY

      4.11 AMENDMENTS. This Deed of Trust may be amended, supplemented or
otherwise modified only by an instrument in writing signed by Trustor and
Beneficiary.

      4.12 SUCCESSORS AND ASSIGNS. All terms of this Deed of Trust shall run
with the land and bind each of Trustor and Beneficiary and their respective
successors and assigns, and all


                                       25


Persons claiming under or through Trustor or Beneficiary, as the case may be, or
any such successor or assign, and shall inure to the benefit of Beneficiary and
Trustor, and their respective successors and assigns.

      4.13 RENEWAL, ETC. To the extent permitted under the other Secured Debt
Documents, Beneficiary may, but shall not be obligated to, at any time and from
time to time renew or extend this Deed of Trust, or alter or modify the same in
any way, or waive any of the terms, covenants or conditions hereof in whole or
in part and may release any portion of the Trust Estate or any other security,
and grant such extensions and indulgences in relation to the Obligations as
Beneficiary may determine, without the consent of any junior lienor or
encumbrancer and without any obligation to give notice of any kind thereto and
without in any manner affecting the priority of the lien and security interest
hereof on any part of the Trust Estate; provided that nothing in this Section
4.13 shall grant Beneficiary the right to alter or modify the Deed of Trust
without the consent of the Trustor unless otherwise specifically permitted in
this Deed of Trust.

      4.14 FUTURE ADVANCES. It is understood and agreed that this Deed of Trust
secures, among other things, (i) the Priority Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of Trustor
under the Priority Lien Documents; (ii) the Parity Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of Trustor
under the Parity Lien Documents; (iii) all Obligations under any other Priority
Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs
incurred by Beneficiary or any Secured Debtholder, or by any receiver appointed
hereunder, which are made or incurred pursuant to, or permitted by, the terms
hereof, plus interest thereon at the rate therein specified or otherwise agreed
upon, from the date of the advances or the incurring of such expenses or costs
until reimbursed; (v) any and all other indebtedness of Trustor to Beneficiary
now or hereafter owing, whether direct or indirect, primary or secondary, fixed
or contingent, joint or several, regardless of how evidenced or arising, where
the indebtedness provides that it is secured hereby; and (vi) any extensions,
refinancings, modifications or renewals of all such indebtedness described in
subparagraphs (i) through (iv) above, whether or not Trustor executes any
extension agreement or renewal instrument, and that the lien of any such future
advances shall relate to the date of this Deed of Trust.

      4.15 LIABILITY. Notwithstanding any provision in this Deed of Trust to the
contrary, none of Beneficiary, Trustee or any Secured Debt Representative or any
of their agents shall be liable for any error of judgment or act done in good
faith, or be otherwise responsible or accountable under any circumstances
whatsoever. None of Beneficiary, Trustee or any Secured Debt Representative or
any of their agents shall be personally liable in case of entry by them, or
anyone entering by virtue of the powers herein granted them, upon the Trust
Estate for debts contracted or liability or damages incurred in the management
or operation of the Trust Estate. Such persons shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or proposed to be taken by them hereunder, believed by them in good faith to be
genuine. Beneficiary, Trustee or any Secured Debt Representative or any of their
agents shall be entitled to reimbursement for expenses incurred by them in the
performance of their duties hereunder and to reasonable compensation for such of
their services hereunder as shall be rendered. Trustor will, from time to time,
pay the compensation due hereunder and reimburse such parties for, and save them
harmless


                                       26


against, any and all liability and expenses which may be incurred by them in the
performance of their duties.

      4.16 SUCCESSOR TRUSTEE. Any Trustee may resign in writing addressed to
Beneficiary or may be removed at any time with or without cause by an instrument
in writing duly executed by Beneficiary. In case of the death, resignation or
removal of a Trustee, one or more successor Trustee may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of Applicable Law, and in the absence of any such requirement
without formality other than appointment and designation in writing. Such
appointment and designation shall be full evidence of the right and authority to
make the same and of all facts therein recited, and upon the making of any such
appointment and designation this conveyance shall vest in the named successor
Trustee or Trustee, all the estate and title of the prior Trustee in all of the
Trust Estate, and he or they shall thereupon succeed to all the rights, powers,
privileges, immunities and duties hereby conferred upon the prior Trustee. All
references herein to Trustee shall be deemed to refer to Trustee from time to
time acting hereunder.

      4.17 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE. Each and every
covenant herein contained shall be performed and kept by Trustor solely at
Trustor's expense. If Trustor shall fail to perform or keep any of the covenants
of whatsoever kind or nature contained in this Deed of Trust, Beneficiary, or
Trustee or any receiver appointed hereunder or under Applicable Law, may, but
shall not be obligated to, take action and/or make advances to perform the same
in Trustor's behalf, and Trustor hereby agrees to repay the expense of such
action and such advances upon demand plus interest as set forth in the
Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or
any receiver appointed hereunder shall be deemed to relieve Trustor from any
default hereunder.

      4.18 SEVERABILITY AND COMPLIANCE WITH USURY LAW. The Secured Debt
Documents are intended to be performed in accordance with, and only to the
extent permitted by, all Applicable Laws and Legal Requirements. If any
provision of any of the Secured Debt Documents or the application thereof to any
person or circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the remainder of the instrument in which such provision
is contained, nor the application of such provision to other persons or
circumstances, nor the other instruments referred to hereinabove, shall be
affected thereby, but rather shall be enforceable to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of
Trustor at all times to comply with the Applicable Law governing the maximum
rate or amount of interest payable on or in connection with the Obligations. If
the Applicable Law is ever judicially interpreted so as to render usurious any
amount called for under the Secured Debt Documents, or contracted for, charged,
taken, reserved or received with respect to the extension of credit evidenced by
the Secured Debt Documents or if acceleration of the maturity of the Obligations
or if any prepayment by Trustor results in Trustor having paid any interest in
excess of that permitted by law, then it is Trustor's express intent that all
excess amounts theretofore collected by Beneficiary be credited on the principal
balance due under the Secured Debt Documents (or, if the Secured Debt Documents
have been or would thereby be paid in full, refunded to Trustor), and the
provisions of the Secured Debt Documents immediately be deemed reformed and the
amounts thereafter collectible thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the Applicable Law, but so
as to permit the recovery of the fullest amount otherwise called for


                                       27


hereunder and thereunder. The right to accelerate maturity of Obligations does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Beneficiary may not collect any unearned
interest in the event of acceleration. All sums paid or agreed to be paid to
Beneficiary for the use, forbearance or detention of the Obligations may, to the
extent permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of the Obligations until payment in full so that the
rate or amount of interest on account of the Obligations does not exceed the
applicable usury ceiling.

      4.19 RELEASE OF COLLATERAL. Notwithstanding any provision herein to the
contrary, the Trust Estate or any part thereof may be released from the security
interest created by this Deed of Trust in accordance with the provisions of the
Collateral Trust Agreement.

      4.20 TIME OF THE ESSENCE. Trustor acknowledges that time is of the essence
in performing all of Trustor's obligations set forth herein.

      4.21 COUNTERPART EXECUTION. This Deed of Trust may be executed by the
parties hereto in any number of counterparts (and be each of the parties hereof
on separate counterparts), each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.

      4.22 LANDLORD'S INTEREST IN TRUST ESTATE. For purposes of clarification,
the lien of this Deed of Trust shall in no way attach to any of the rights,
titles or interests of Landlord in the "Project Site" (as defined in the Ground
Lease).

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       28


                                                                   EXHIBIT 10.34

                                                                  DEER PARK - TX

      IN WITNESS WHEREOF, Trustor has caused this Deed of Trust to be duly
executed and delivered on the date set forth in their respective
acknowledgements below, to be effective as of the day and year first above
written.

                                        TRUSTOR:

                                        CALPINE CORPORATION, a Delaware
                                        corporation


                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________



THE STATE OF    ss.
                ss.
COUNTY OF       ss.

      This instrument was acknowledged before me on ____________, 2003, by
________________ of ____________, on behalf of such corporation.


                                        ________________________________________
                                        Notary Public, State of ________________
                                        My Commission Expires: _________________

                                        ________________________________________
                                        Printed Name of Notary


                                      S-2


                                                                   EXHIBIT 10.34

                                                                  DEER PARK - TX

                                    EXHIBIT A

                               DESCRIPTION OF SITE

                                  SEE ATTACHED.



                                                                   EXHIBIT 10.34

                                                                  DEER PARK - TX

                                    EXHIBIT B

                            DESCRIPTION OF EASEMENTS

               [LEGAL DESCRIPTIONS TO BE INSERTED AT A LATER DATE]

EX-10.35

                                                                   EXHIBIT 10.35

                                                                 GOLDENDALE (WA)

After Filing Return To:

Latham & Watkins LLP
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: Ane C. Priester

                       DEED OF TRUST, ASSIGNMENT OF RENTS,
                      FIXTURE FILING AND SECURITY AGREEMENT

GRANTOR(S):

      1.    CALPINE CORPORATION

      | |   Additional names on page _____ of document

GRANTEE(S):

      1.    THE BANK OF NEW YORK

      2.    CHICAGO TITLE INSURANCE COMPANY, as Trustee

      | |   Additional names on page _____ of document

ABBREVIATED LEGAL DESCRIPTION (lot, block and plat name, or
section-township-range):

            1.    S 1/2 SE 1/4 12-3N-R15E
                  N 1/2 NE 1/4 13-3N-R15E

            2.    S 1/2 7-3N-R16E

            3.    N 1/2 SE 1/4 , and SE 1/4 NE 1/4 12-3N-15E

            4.    SW 1/4 SE 1/4 20-4N-R16E

            5.    N 1/2 NE 1/4 NE 1/4 NW 1/4 N 1/2 SE 1/4 NE 1/4 29-4N-R16E.

      |X|   Additional legal description is on Schedule A

ASSESSOR'S PROPERTY TAX PARCEL ACCOUNT NUMBER(S):

            04-16-2034-000/100; 04-16-2033-0001/00; 04-16-2040-002/00

REFERENCE NUMBERS OF DOCUMENTS ASSIGNED OR RELEASED (IF APPLICABLE):

      | |   Additional reference numbers on page _____ of document

NOTICE: Certain of the Secured Debt Documents evidence revolving credits, and
        within the amount and time specified in such documents, Grantor may
        borrow, repay and reborrow sums thereunder.



                                TABLE OF CONTENTS



                                                                                                      Page
                                                                                                      ----
                                                                                                   
ARTICLE 1 - DEFINITIONS ..........................................................................       4

   1.1   DEFINED TERMS ...........................................................................       4
   1.2   ACCOUNTING TERMS ........................................................................       6

ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS .....................................................       6

   2.1   GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS ...........................................       6
   2.2   GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES .......................................       7
   2.3   COMPLIANCE WITH LEGAL REQUIREMENTS ......................................................       7
   2.4   INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS ....       7
   2.5   ASSIGNMENT OF RENTS .....................................................................       8
   2.6   [RESERVED.] .............................................................................       9
   2.7   EXPENSES ................................................................................       9
   2.8   BENEFICIARY ASSUMES NO OBLIGATIONS ......................................................       9
   2.9   FURTHER ASSURANCES ......................................................................       9
   2.10  ACTS OF GRANTOR .........................................................................      10
   2.11  AFTER-ACQUIRED PROPERTY .................................................................      10
   2.12  ENCUMBERED PROPERTY .....................................................................      10
   2.13  POWER OF ATTORNEY .......................................................................      10
   2.14  COVENANT TO PAY .........................................................................      10
   2.15  SECURITY AGREEMENT ......................................................................      11

ARTICLE 3 - REMEDIES .............................................................................      12

   3.1   PROTECTIVE ADVANCES .....................................................................      12
   3.2   INSTITUTION OF EQUITY PROCEEDINGS .......................................................      12
   3.3   BENEFICIARY'S POWER OF ENFORCEMENT ......................................................      12
   3.4   BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME ..............      14
   3.5   SEPARATE SALES ..........................................................................      15
   3.6   WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ......      15
   3.7   RECEIVER ................................................................................      16
   3.8   SUITS TO PROTECT THE ENCUMBERED PROPERTY ................................................      16
   3.9   PROOFS OF CLAIM .........................................................................      16
   3.10  GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF
         MONIES BY BENEFICIARY ...................................................................      17
   3.11  DELAY OR OMISSION; NO WAIVER ............................................................      17
   3.12  NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER ..............................................      17
   3.13  DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED .............................      18
   3.14  REMEDIES CUMULATIVE .....................................................................      18
   3.15  INTEREST AFTER EVENT OF DEFAULT .........................................................      18
   3.16  FORECLOSURE; EXPENSES OF LITIGATION .....................................................      18
   3.17  DEFICIENCY JUDGMENTS ....................................................................      19
   3.18  WAIVER OF JURY TRIAL ....................................................................      19
   3.19  EXCULPATION OF BENEFICIARY ..............................................................      19

ARTICLE 4 - GENERAL ..............................................................................      20

   4.1   DISCHARGE ...............................................................................      20
   4.2   NO WAIVER ...............................................................................      20
   4.3   EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ......................................      20
   4.4   FORCIBLE DETAINER .......................................................................      20




                                                                                                     
   4.5   WAIVER OF STAY OR EXTENSION .............................................................      21
   4.6   NOTICES .................................................................................      21
   4.7   SEVERABILITY ............................................................................      21
   4.8   APPLICATION OF PAYMENTS .................................................................      21
   4.9   GOVERNING LAW ...........................................................................      21
   4.10  AMENDMENTS ..............................................................................      22
   4.11  SUCCESSORS AND ASSIGNS ..................................................................      22
   4.12  RENEWAL, ETC ............................................................................      22
   4.13  FUTURE ADVANCES .........................................................................      22
   4.14  LIABILITY ...............................................................................      22
   4.15  SUCCESSOR TRUSTEE .......................................................................      23
   4.16  ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE ...........................................      23
   4.17  SEVERABILITY AND COMPLIANCE WITH USURY LAW ..............................................      23
   4.18  RELEASE OF COLLATERAL ...................................................................      24
   4.19  TIME OF THE ESSENCE .....................................................................      24
   4.20  COUNTERPART EXECUTION ...................................................................      24
   4.21  WAIVER OF GRANTOR'S RIGHTS ..............................................................      24
   4.22  ATTORNEYS' FEES .........................................................................      25
   4.23  FIXTURE FILING UNDER UNIFORM COMMERCIAL CODE ............................................      25





                                                                 GOLDENDALE (WA)

                          DEED OF TRUST, ASSIGNMENT OF
                  RENTS, FIXTURE FILING AND SECURITY AGREEMENT

      This DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT, dated as
of July 16, 2003 (this "Deed of Trust") by CALPINE CORPORATION, a Delaware
corporation, successor by merger to Goldendale Energy, Inc., a Washington
corporation ("Grantor"), whose address is 50 West San Fernando Street, San Jose,
CA 95113, to CHICAGO TITLE INSURANCE COMPANY, whose address is 701 Fifth Avenue,
Suite 1800, Seattle, WA 98104 ("Trustee"), in favor of THE BANK OF NEW YORK, a
New York banking corporation, not in its individual capacity but solely as
Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the
"Collateral Trust Agreement") among Grantor, the 2007 Trustee, the 2010 Trustee,
the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative Agent
("Beneficiary"), whose address is 101 Barclay Street, New York, New York 10286.
References to this "Deed of Trust" shall mean this instrument and any and all
renewals, modifications, amendments, supplements, extensions, consolidations,
substitutions, spreaders, restatements and replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                    Recitals

            A. Grantor has entered into an Amended and Restated Credit Agreement
dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Grantor,
the Lenders referred to therein and The Bank of Nova Scotia as Administrative
Agent, relating to a $500,000,000 senior secured credit facility, made available
in the form of revolving loans and term loans, including letters of credit
issued thereunder.

            B. Grantor has (a) issued $500,000,000 in aggregate principal amount
of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007
Indenture") between Grantor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 Trustee"), (b) issued
$1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 Indenture") between Grantor and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issued $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes")
pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture")
between Grantor and Wilmington Trust Company, as Trustee (together with its
successors in such capacity, the "2013 Trustee"), and (d) borrowed $750,000,000
in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of
July 16, 2003 (the "Term Loan Agreement") between Grantor and Goldman Sachs
Credit Partners L.P., as


                                       1


Administrative Agent (together with its successors in such capacity, the "Term
Loan Administrative Agent").

            C. As permitted pursuant to the Secured Debt Documents, Grantor may
incur future debt which could, together with the obligations under the Credit
Agreement, constitute Priority Lien Debt and Grantor may incur future debt which
could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term
Loans, constitute Parity Lien Debt, provided that the aggregate amount of the
Secured Debt to be secured hereby shall not exceed $4,200,000,000. Grantor
intends to secure the obligations, including the obligations (a) under the
Credit Agreement and any future Priority Lien Debt, equally and ratably, on a
priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010
Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and
ratably, with liens and security interests in, among other collateral, the
Encumbered Property under the Existing Deed of Trust, as contemplated in the
Collateral Trust Agreement.

            D. Grantor (i) is the owner of the interests in the lands described
in Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to
use all of the buildings, improvements, structures and fixtures located on the
lands described in Exhibit A and is executing and delivering this instrument in
order to secure its Obligations (as defined below).

                                    Agreement

      NOW THEREFORE, to secure the full performance and prompt and complete
payment and performance when and as due and payable of all of the obligations
and liabilities of Grantor to Beneficiary, by acceleration or otherwise, arising
out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010
Indenture, the 2013 Indenture, the Term Loan Agreement and the obligations of
Grantor set forth herein (collectively, the "Obligations") and in consideration
of the covenants herein and therein, Grantor, intending to be legally bound,
does hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage,
pledge, set-over and confirm unto Trustee, in trust with power of sale, for the
use and benefit of Beneficiary, all of Grantor's estate, right, title, interest,
property, claim and demand, now or hereinafter arising, in and to the following
property and rights (herein collectively called the "Encumbered Property"):

            (a) Grantor's interest in the lands and premises more particularly
      described in Exhibit A hereto (the "Site").

            (b) any and all easements, leases, licenses, option rights,
      rights-of-way and other rights used in connection with the Site or as a
      means of access thereto, all easements for ingress and egress and
      easements for water, natural gas and sewage pipelines, running in favor of
      Grantor, or appurtenant to the Site, and any and all sidewalks, alleys,
      strips and gores of land adjacent thereto or used in connection therewith
      together with all and singular the tenements, hereditaments and
      appurtenances thereto, and with any land lying within the right-of-way of
      any streets, open or proposed, adjoining the same (including, without
      limitation, the easements, leases, licenses and


                                       2


      other instruments described in Exhibit B hereto) (collectively, the
      "Easements"; and the Site and the Easements collectively referred to
      herein as the "Real Property");

            (c) all buildings, structures, fixtures and other improvements now
      or hereafter erected on the Real Property, including the Project
      (collectively, the "Improvements");

            (d) all machinery, apparatus, equipment, fittings, fixtures,
      boilers, turbines and other articles of personal property, including all
      goods and all goods which become fixtures, now owned or hereafter acquired
      by Grantor and now or hereafter located on, attached to or used in the
      operation of or in connection with the Real Property and/or the
      Improvements, and all replacements thereof, additions thereto and
      substitutions therefor, to the fullest extent permitted by applicable law
      (all of the foregoing being hereinafter collectively called the
      "Equipment");

            (e) all raw materials, work in process and other materials used or
      consumed in the construction of, or now or hereafter located on or used in
      connection with, the Real Property, the Improvements and/or the Equipment,
      (including, without limitation, fuel and fuel deposits, now or hereafter
      located on the Real Property or elsewhere or otherwise owned by Grantor)
      (the above items, together with the Equipment, being hereinafter
      collectively called the "Tangible Collateral");

            (f) all rights, powers, privileges and other benefits of Grantor (to
      the extent assignable) now or hereafter obtained by Grantor and/or from
      any Governmental Authority, including, without limitation, permits issued
      in the name of Grantor, governmental actions relating to the ownership,
      operation, management and use of the Real Property, Improvements,
      Equipment or Tangible Collateral, the development and financing of the
      Project, the Improvements and the Equipment, and any improvements,
      modifications or additions thereto;

            (g) all the lands and interests in lands, tenements and
      hereditaments hereafter acquired by Grantor in connection with or
      appurtenant to the Real Property and/or any other property or rights
      subject to the lien hereof, including (without limitation) all interests
      of Grantor, whether as lessor or lessee, in any leases of land hereafter
      made and all rights of Grantor thereunder;

            (h) any and all other property in any way associated or used in
      connection with or appurtenant to the Real Property, Improvements,
      Equipment or Tangible Collateral that may from time to time, by delivery
      or by writing of any kind, be subjected to the lien hereof by Grantor or
      by anyone on its behalf or with its consent, or which may come into the
      possession or be subject to the control of Trustee or Beneficiary pursuant
      to this Deed of Trust, being hereby collaterally assigned to Beneficiary
      and subjected or added to the lien or estate created by this Deed of Trust
      forthwith upon the acquisition thereof by Grantor, as fully as if such
      property were now owned by Grantor and were specifically described in this
      Deed of Trust and subjected to the lien and security interest


                                       3


      hereof; and Trustee and Beneficiary are hereby authorized to receive any
      and all such property as and for additional security hereunder; and

            (i) all the remainder or remainders, reversion or reversions, rents,
      revenues, issues, profits, royalties, income and other benefits derived
      from any of the foregoing, all of which are hereby assigned to
      Beneficiary, who is hereby authorized to collect and receive the same, to
      give proper receipts and acquittances therefor and to apply the same in
      accordance with the provisions of this Deed of Trust.

      Notwithstanding the foregoing, the Encumbered Property shall not include
that certain turbine on the Site that is encumbered by the Siemans' lien as of
the date hereof.

      TO HAVE AND TO HOLD the said Encumbered Property, whether now owned or
held or hereafter acquired, unto Beneficiary, its successors and assigns,
pursuant to the provisions of this Deed of Trust.

      IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security
title, security interest or estate created by this Deed of Trust to secure the
payment of the Obligations, both present and future, shall be first, prior and
superior to any Lien, security interest, reservation of title or other interest
(other than superior Permitted Liens) heretofore, contemporaneously or
subsequently suffered or granted by Grantor, its legal representatives,
successors or assigns, except only those, if any, expressly hereinafter referred
to and that the Deed of Trust Property is to be held, dealt with and disposed of
by Beneficiary, upon and subject to the terms, covenants, conditions, uses and
agreements set forth in this Deed of Trust.

      PROVIDED ALWAYS, that upon payment in full of the Obligations in
accordance with the terms and provisions hereof and of the other Secured Debt
Documents and the observance and performance by Grantor of its covenants and
agreements set forth herein and therein, then this Deed of Trust and the estate
hereby and therein granted shall be cancelled and surrendered and shall be
reconveyed as provided herein below.

                            ARTICLE 1 - DEFINITIONS

      1.1 DEFINED TERMS. 11 Capitalized terms used in this Deed of Trust and not
otherwise defined herein shall have the meanings assigned to them in the
Collateral Trust Agreement. Any term defined by reference to an agreement,
instrument or other document shall have the meaning so assigned to it whether or
not such document is in effect. In addition, for purposes of this Deed of Trust,
the following definitions shall apply:

            "Applicable Law" means with respect to any Person or matter, any
federal, state, regional, tribal or local statute, law, code, rule, treaty,
convention, application, order, decree, consent decree, injunction, directive,
determination or other requirement (whether or not having the force of law)
relating to such Person or matter and, where applicable, any interpretation
thereof by a Governmental Authority having jurisdiction with respect thereto or
charged with the administration or interpretation thereof.


                                       4


            "Default Rate" has the meaning ascribed to it in the Secured Debt
Documents.

            "Easements" has the meaning ascribed to it in the Granting Clauses.

            "Encumbered Property" has the meaning ascribed to it in the Granting
Clauses.

            "Equipment" has the meaning ascribed to it in the Granting Clauses.

            "Event of Default" means an Actionable Default as defined under the
Collateral Trust Agreement.

            "Governmental Authority" means any and all courts, boards, agencies,
commissions, offices or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city, tribe or
otherwise) whether now or hereafter in existence charged with the
administration, interpretation or enforcement of any Applicable Law.

            "Improvements" has the meaning ascribed to it in the Granting
Clauses.

            "Legal Requirements" means (i) any and all present and future
judicial decisions, statutes, rulings, rules, regulations, licenses, decisions,
orders, injunctions, decrees, permits, certificates or ordinances of any
Governmental Authority in any way applicable to Grantor, or the Encumbered
Property, including the ownership, use, occupancy, operation, maintenance,
repair or reconstruction thereof, and any other Applicable Law enacted by any
Governmental Authority relating to health or the environment, (ii) Grantor's
presently or subsequently effective Organic Documents, (iii) any and all Leases,
(iv) any and all leases and other contracts (written or oral) of any nature to
which Grantor, or the Encumbered Property may be bound and (v) any and all
restrictions, restrictive covenants or zoning, present and future, as the same
may apply to the Encumbered Property.

            "Obligations" has the meaning ascribed to it in the Granting
Clauses.

            "Organic Documents" means the Articles of Incorporation, Certificate
of Incorporation, limited liability company certificate of formation and
regulations or operating agreement, partnership agreement, limited partnership
agreement, joint venture agreement, trust agreement or other similar documents
governing the organization and operation of a business association.

            "Permitted Lien" means the liens, easements, restrictions,
exceptions, reservations, conditions, limitations, security interests and other
matters (if any) as permitted in the Secured Debt Documents.

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


                                       5


            "Proceeds" has the meaning assigned to it under the UCC and, in any
event, shall include, without limitation, (i) any and all proceeds of any
insurance (including, without limitation, property casualty and title
insurance), indemnity, warranty or guaranty payable from time to time with
respect to any of the Encumbered Property; (ii) any and all proceeds in the form
of accounts (as such term is defined in the UCC), security deposits, tax escrows
(if any), down payments (to the extent the same may be pledged under applicable
law), collections, contract rights, documents, instruments, letters of credit,
chattel paper, liens and security instruments, guaranties or general intangibles
relating in whole or in part to the Encumbered Property and all rights and
remedies of whatever kind or nature Grantor may hold or acquire for the purpose
of securing or enforcing any obligation due Grantor thereunder.

            "Project" means that certain power generating facility located on
the Real Property.

            "Real Property" has the meaning ascribed to it in the Granting
Clauses.

            "Secured Debt Documents" has the meaning ascribed to it in the
Collateral Trust Agreement.

            "Site" has the meaning ascribed to it in the Granting Clauses.

            "State" means that state in which the Site is located.

            "Tangible Collateral" has the meaning ascribed to it in the Granting
Clauses.

            "UCC" means the Uniform Commercial Code as in effect from time to
time in the State of Washington, and the terms "Accounts," "Account Debtor, "As
Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
"Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
"Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have
the respective meanings assigned to such terms in the Uniform Commercial Code.

      1.2 ACCOUNTING TERMS. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not defined herein
shall have the respective meanings given to them under GAAP.

                  ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS

      2.1 GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS. Grantor shall perform,
observe and comply with each and every provision hereof, and with each and every
provision contained in the Secured Debt Documents and shall promptly pay, when
payment shall become due, the principal with interest thereon and all other sums
required to be paid by Grantor under this Deed of Trust and the other Secured
Debt Documents at the time and in the manner provided in the Secured Debt
Documents.


                                       6


      2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES. Grantor, to the
best of its knowledge, represents, covenants and warrants that as of the date
hereof: (a) Grantor has good and marketable title to that portion of the Real
Property which constitutes real property interests free and clear of all
encumbrances except Permitted Liens with respect to the Site, and other matters
which, individually and in the aggregate, do not have a materially adverse
effect upon the ownership or operation of the Site; (b) Grantor has the right to
hold, occupy and enjoy its interest in the Real Property and has good right,
full power and lawful authority to grant the same as provided herein, and
Beneficiary may at all times peaceably and quietly enter upon, hold, occupy and
enjoy the Real Property in accordance with the terms hereof; (c) except as
otherwise discussed in the Secured Debt Documents, all costs arising from
construction of any improvements, the performance of any labor and the purchase
of all Encumbered Property have been or shall be paid when due; (d) the Site has
access for ingress and egress to dedicated street(s); (e) the Encumbered
Property is not used principally for agricultural purposes; and (f) no material
part of the Encumbered Property has been damaged, destroyed, condemned or
abandoned.

      2.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Grantor shall promptly comply in
all material respects with all Legal Requirements relating to its use and
occupancy of the Encumbered Property, whether or not such compliance requires
work or remedial measures that are ordinary or extraordinary, foreseen or
unforeseen, structural or nonstructural, or that interfere with the use or
enjoyment of the Encumbered Property.

      2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT
DOMAIN PROCEEDS.

            2.4.1 Grantor shall carry with financially sound and reputable
insurance companies and in amounts as is customary in the industry or as
otherwise required pursuant to the Secured Debt Documents, the following
insurance: (1) workmen's compensation insurance and public liability and
property damage insurance in respect of all activities in which Grantor might
incur personal liability for the death of or injury to an employee or third
person, or damage to or destruction of another's property; and (2) to the extent
such insurance is carried by similar companies engaged in similar undertakings
in, the same general areas in which the Encumbered Property, is located,
insurance in respect of the Equipment, against loss or damage by fire,
lightning, hail, tornado, explosion and other similar risks, hazards, casualties
and contingencies (including business interruption insurance covering loss of
revenues) with limits and sublimits as appropriate; provided, that any such
insurance may be provided by way of self insurance to the extent that similar
companies engaged in similar undertakings in the same general areas also
self-insure. Each insurance policy issued in connection therewith shall provide
by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss
payee on all property insurance policies and an additional insured on all
liability insurance policies, and provide that proceeds from property insurance
policies will be payable to Beneficiary as its interest may appear, which
proceeds are hereby assigned to Beneficiary, it being agreed by Grantor that
such payments shall be applied A) if there be no Event of Default existing or
which would exist but for due notice or lapse of time, or both, to the
restoration, repair or replacement of the Encumbered Property, or B) if there be
an Event of Default existing, or which would exist but for due notice or lapse
of time, or both, in


                                       7


accordance with the provisions of the Collateral Trust Agreement, either for the
above stated purpose or toward the payment of the Indebtedness; (ii) the
coverage of Beneficiary shall not be terminated, reduced or affected in any
manner regardless of any breach or violation by Grantor of any warranties,
declarations or conditions in such policy; (iii) no such insurance policy shall
be canceled, materially endorsed, materially altered or reissued to effect a
change in coverage for any reason and to any extent whatsoever unless such
insurer, their authorized representative or Grantor shall have first given
Beneficiary and each Secured Debt Representative thirty (30) days prior written
notice thereof; and (iv) Beneficiary may, but shall not be obligated to, make
premium payments to prevent any cancellation, endorsement, alteration or
re-issuance and such payments shall be accepted by the insurer to prevent the
same. Beneficiary shall be furnished with a certificate evidencing such coverage
in form and content as are customary in the industry. All policies to be
maintained under this Deed of Trust are to be issued on forms and by companies
and with endorsements as are customary in the industry. Grantor shall maintain
insurance in an amount sufficient to prevent Grantor from becoming a co-insurer
under any policy required hereunder. If Grantor fails to maintain the level of
insurance required under this Deed of Trust, then Grantor shall and hereby
agrees to indemnify Beneficiary to the extent that a casualty occurs and
insurance proceeds would have been available had such insurance been maintained;

            2.4.2 All insurance proceeds and all eminent domain proceeds shall
be paid and/or shall be applied in accordance with the provisions of the Secured
Debt Documents.

      2.5 ASSIGNMENT OF RENTS. Grantor unconditionally and absolutely assigns to
Beneficiary all of Grantor's right, title and interest in and to: all leases,
subleases, occupancy agreements, licenses, rental contracts and other similar
agreements now or hereafter existing relating to the use or occupancy of the
Encumbered Property, together with all guarantees, modifications, extensions and
renewals thereof; and all rents, issues, profits, income and proceeds due or to
become due from tenants of the Encumbered Property (the "Leases"), including
rentals and all other payments of any kind under any leases now existing or
hereafter entered into, together with all deposits (including security deposits)
of tenants thereunder. This is an absolute assignment to Beneficiary and not an
assignment as security for the performance of the obligations under the Secured
Debt Documents, or any other indebtedness. Subject to the provisions of herein
below, Beneficiary shall have the right, power and authority to, but shall not
be obligated to: notify any person that the Leases have been assigned to
Beneficiary and that all rents and other obligations are to be paid directly to
Beneficiary, whether or not Beneficiary has commenced or completed foreclosure
or taken possession of the Encumbered Property; settle compromise, release,
extend the time of payment of, and make allowances, adjustments and discounts of
any rents or other obligations under the Leases; enforce payment of rents and
other rights under the Leases, prosecute any action or proceeding , and defend
against any claim with respect to rents and Leases; enter upon, take possession
of and operate the Encumbered Property; lease all or any part of the Encumbered
Property; and/or perform any and all obligations of Grantor under the Leases and
exercise any and all rights of Grantor therein contained to the full extent of
Grantor's rights and obligations thereunder, with or without the bringing of any
action or the appointment of a receiver. At Beneficiary's request, Grantor shall
deliver a copy of this Deed of Trust to each tenant under a Lease. Grantor
irrevocably directs any tenant, without any requirement for notice to or consent
by Grantor, to comply with all demands of Beneficiary


                                       8


under this Section 2.5 and to turn over to Beneficiary on demand all rents which
it receives. Beneficiary shall have the right, but not the obligation, to use
and apply all rents received hereunder in such order and such manner as
Beneficiary may determine in accordance with the Collateral Trust Agreement.
Notwithstanding that this is an absolute assignment of the rents and Leases and
not merely the collateral assignment of, or the grant of a lien or security
interest in the rents and Leases, Beneficiary grants to Grantor a revocable
license to collect and receive the rents and to retain, use and enjoy such
rents. Such license may be revoked by Beneficiary only upon the occurrence of
any Event of Default. Grantor shall apply any rents which it receives to the
payment due under the Obligations, taxes, assessments, water charges, sewer
rents and other governmental charges levied, assessed or imposed against the
Encumbered Property, insurance premiums, and other obligations of lessor under
the Leases before using such proceeds for any other purpose.

      2.6 [Reserved.]

      2.7 EXPENSES. Grantor shall indemnify Beneficiary with respect to any
transaction or matter in any way connected with any portion of the Encumbered
Property, or Grantor's use, occupancy, or operation of the Encumbered Property
in accordance with the Collateral Trust Agreement.

      2.8 BENEFICIARY ASSUMES NO OBLIGATIONS. It is expressly agreed that,
anything herein contained to the contrary notwithstanding, Grantor shall remain
obligated under all agreements which are included in the definition of
"Encumbered Property" and shall perform all of its obligations thereunder in
accordance with the provisions thereof, and neither Beneficiary, Trustee nor any
of the Secured Debtholders shall have any obligation or liability with respect
to such obligations of Grantor, nor shall Beneficiary, Trustee or any of the
Secured Debtholders be required or obligated in any manner to perform or fulfill
any obligations or duties of Grantor under such agreements, or to make any
payment or to make any inquiry as to the nature or sufficiency of any payment
received by it, or to present or file any claim or take any action to collect or
enforce the payment of any amounts which have been assigned to Beneficiary
hereunder or to which Beneficiary or the Secured Debtholders may be entitled at
any time or times.

      2.9 FURTHER ASSURANCES. Grantor shall, from time to time, at its expense,
promptly execute and deliver all further instruments and documents, and take all
further action, that may be required pursuant to the Collateral Trust Agreement
and/or any Secured Debt Document, in order to perfect and continue the lien and
security interest granted hereby and to enable Beneficiary to obtain the full
benefits of the lien and security interest granted or intended to be granted
hereby. Grantor shall keep the Encumbered Property free and clear of all Liens,
other than Permitted Liens. Without limiting the generality of the foregoing,
Grantor shall execute and record or file this Deed of Trust and each amendment
hereto, and such financing or continuation statements, or amendments thereto,
and such other instruments, endorsements or notices, as may be necessary, or as
may be required pursuant to the Collateral Trust Agreement and/or any Secured
Debt Document, in order to perfect and preserve the lien and security interest
granted or purported to be granted hereby. Grantor hereby authorizes Beneficiary
to file one or more financing statements or continuation statements, and
amendments thereto, relative to all or any


                                       9


part of the Encumbered Property necessary to preserve or protect the lien and
security interest granted hereby without the signature of Grantor where
permitted by law.

      2.10 ACTS OF GRANTOR. Except as provided in or permitted by the Secured
Debt Documents, Grantor hereby represents and warrants that it has not granted,
mortgaged, hypothecated, assigned or pledged and hereby covenants that it will
not grant, mortgage, hypothecate, assign or pledge, so long as this Deed of
Trust shall remain in effect, any of its right, title or interest in and to the
Encumbered Property or any part thereof, other than Permitted Liens, to anyone
other than Beneficiary.

      2.11 AFTER-ACQUIRED PROPERTY. Any and all of the Encumbered Property which
is hereafter acquired shall immediately, without any further conveyance,
assignment or act on the part of Grantor or Beneficiary, become and be subject
to the lien and security interest of this Deed of Trust as fully and completely
as though specifically described herein, but nothing contained in this Section
2.11 shall be deemed to modify or change the obligations of Grantor under
Section 2.9 hereof. If and whenever from time to time Grantor shall hereafter
acquire any real property or interest therein which constitutes or is intended
to constitute part of the Encumbered Property hereunder, Grantor shall promptly
give notice thereof to Beneficiary and Grantor shall forthwith execute,
acknowledge and deliver to Beneficiary a supplement to this Deed of Trust
subjecting the property so acquired to the lien of this Deed of Trust.

      2.12 ENCUMBERED PROPERTY. Grantor shall observe all applicable covenants,
easements and other restrictions of record with respect to the Site, the
Easements or to any other part of the Encumbered Property, in all material
respects.

      2.13 POWER OF ATTORNEY. Grantor does hereby irrevocably constitute and
appoint Beneficiary, its true and lawful attorney (which appointment is coupled
with an interest), with full power of substitution, for Grantor and in the name,
place and stead of Grantor or in Beneficiary's own name, for so long as any of
the Obligations are outstanding, to ask, demand, collect, receive, receipt for
and sue for any and all rents, income and other sums which are assigned
hereunder with full power to endorse the name of Grantor on all instruments
given in payment or in part payment thereof, to settle, adjust or compromise any
claims thereunder as fully as Grantor itself could do and file any claim or take
any action or proceeding, either in its own name or in the name of Grantor or
otherwise, as are necessary or appropriate to protect and preserve the right,
title and interest of Beneficiary in and to such rents, income and other sums
and the security intended to be afforded hereby; provided that Beneficiary shall
not exercise such rights unless an Event of Default has occurred and is
continuing.

      2.14 COVENANT TO PAY. If an Event of Default has occurred and is
continuing and such Event of Default could reasonably be expected to materially
and adversely affect Beneficiary's interest hereunder in the Encumbered Property
or result in personal injury, then Beneficiary, among its other rights and
remedies, shall have the right, but not the obligation, to pay, observe or
perform the same, in whole or in part, and with such modifications as
Beneficiary reasonably shall deem advisable. To the extent provided in the
Secured Debt Documents, all sums, including, without limitation, reasonable
attorneys fees, so expended or incurred by Beneficiary by reason of the default
of Grantor, or by reason of the bankruptcy or


                                       10


insolvency of Grantor, as well as, without limitation, sums expended or incurred
to sustain the lien or estate of this Deed of Trust or its priority, or to
protect or enforce any rights of Beneficiary hereunder, or to recover any of the
Obligations, or to complete construction of the Project for which the Secured
Debt Documents are intended as financing, or for repairs, maintenance,
alterations, replacements or improvements thereto or for the protection thereof,
or for real estate taxes or other governmental assessments or charges against
any part of the Encumbered Property, or premiums for insurance of the Encumbered
Property, shall be entitled to the benefit of the lien on the Encumbered
Property as of the date of the recording of this Deed of Trust, shall be deemed
to be added to and be part of the Obligations secured hereby, whether or not the
result thereof causes the total amount of the Obligations to exceed the stated
amount set forth in the second introductory paragraph of this Deed of Trust, and
shall be repaid by Grantor as provided in the Secured Debt Documents.

      2.15 SECURITY AGREEMENT.

            2.15.1 This Deed of Trust shall also be a security agreement between
Grantor and Beneficiary covering the Encumbered Property constituting personal
property or fixtures (hereinafter collectively called "UCC Collateral") governed
by the UCC in effect in the State as the same may be more specifically set forth
in any financing statement delivered in connection with this Deed of Trust, and
as further security for the payment and performance of the Obligations, Grantor
hereby grants to Beneficiary a security interest in such portion of the
Encumbered Property to the full extent that the Encumbered Property may be
subject to the UCC. In addition to Beneficiary's other rights hereunder,
Beneficiary shall have all rights of a secured party under the UCC. Grantor
shall execute and deliver to Beneficiary all financing statements and such
further assurances that may be required to establish, create, perfect (to the
extent the same can be achieved by the filing of a financing statement) and
maintain the validity and priority of Beneficiary's security interests, and
Grantor shall bear all reasonable costs thereof, including all UCC searches.
Except as otherwise provided in the Secured Debt Documents, if Beneficiary
should dispose of any of the Encumbered Property comprising the UCC Collateral
pursuant to the UCC, ten (10) days prior written notice by Beneficiary to
Grantor shall be deemed to be reasonable notice; provided, however, Beneficiary
may dispose of such property in accordance with the foreclosure procedures of
this Deed of Trust in lieu of proceeding under the UCC. Beneficiary may, but
shall not be obligated to, from time to time execute and deliver at Grantor's
expense, all continuation statements, termination statements, amendments,
partial releases, or other instruments relating to all financing statements by
and between Grantor and Beneficiary. Except as otherwise provided in the Secured
Debt Documents, if an Event of Default shall occur and is continuing, (a)
Beneficiary, in addition to any other rights and remedies which it may have, may
exercise immediately and without demand to the extent permitted by law, any and
all rights and remedies granted to a secured party under the UCC including,
without limiting the generality of the foregoing, the right to take possession
of the UCC Collateral or any part thereof, and to take such other measures as
may be necessary for the care, protection and preservation of such collateral
and (b) upon request or demand of Beneficiary, Grantor shall at its expense,
assemble the UCC Collateral and make it available to Beneficiary at a convenient
place acceptable to Beneficiary. Grantor shall pay to Beneficiary on demand, any
and all expenses, including reasonable attorneys' fees and disbursements
incurred or paid by Beneficiary in protecting the interest in the UCC Collateral
and in enforcing the rights


                                       11


hereunder with respect to such UCC Collateral.

            2.15.2 Grantor agrees, to the extent permitted by law, that: (i) all
or a part of the Encumbered Property are or are to become fixtures; and (ii) the
address of Grantor is as set forth on the first page of this Deed of Trust.

                              ARTICLE 3 - REMEDIES

      3.1 PROTECTIVE ADVANCES. If an Event of Default shall have occurred and is
continuing, then without thereby limiting Beneficiary's other rights or
remedies, waiving or releasing any of Grantor's obligations, or imposing any
obligation on Beneficiary, Beneficiary may, but shall not be obligated to,
either advance any amount owing or perform any or all actions as may be
necessary or appropriate to cure such default. All such advances shall
constitute "Protective Advances." No sums advanced or performance rendered by
Beneficiary shall cure, or be deemed a waiver of any Event of Default.

      3.2 INSTITUTION OF EQUITY PROCEEDINGS. If an Event of Default occurs and
is continuing, Beneficiary may, but shall not be obligated to, institute an
action, suit or proceeding in equity for specific performance of this Deed of
Trust or any other Secured Debt Document, all of which shall be specifically
enforceable by injunction or other equitable remedy.

      3.3 BENEFICIARY'S POWER OF ENFORCEMENT.

            3.3.1 If an Event of Default shall have occurred, Beneficiary may,
but shall not be obligated to, cause Trustee to sell, in accordance with the
applicable law of the state in which the Encumbered Property or any part of the
Encumbered Property is situated, the Encumbered Property or any part of the
Encumbered Property at public sale or sales before the door of the courthouse of
the county in which the Encumbered Property or any part of the Encumbered
Property is situated, to the highest bidder for cash, in order to pay the
indebtedness secured hereby and accrued interest thereon and insurance premiums,
liens, assessments, taxes and charges, including utility charges, if any, with
accrued interest thereon, and all expenses of the sale and of all proceedings in
connection therewith, including reasonable attorneys' fees actually incurred,
after advertising the time, place and terms of the sale. Trustee shall deliver
to the purchaser at the sale of the Site, its deed, without warranty, which
shall convey to the purchaser the interest in the Site which Grantor had or had
the power to convey at the time of its execution of this Deed of Trust, or such
as it may have acquired thereafter. The Trustee's deed shall recite the facts
showing that the sale was conducted in compliance with all the requirements of
law and this Deed of Trust, which recital shall be prima facie evidence of such
compliance and conclusive evidence thereof in favor of bona fide purchasers and
encumbrancers for value. The power of sale conferred by this Deed of Trust and
by applicable law is not an exclusive remedy, and when not being exercised,
Beneficiary may, but shall not be obligated to, foreclose this Deed of Trust as
a mortgage and Grantor shall pay all costs incurred by Beneficiary in any suit,
or appeal therefrom, brought by Beneficiary to foreclose this Deed of Trust,
including without limitation costs of guaranty of title and reasonable
attorneys' fees. Trustee is not obligated to notify any party hereto of a
pending sale under any other deed of trust or of any action or proceeding in
which Grantor, Trustee or Beneficiary shall be a party, unless such action or


                                       12


proceeding is brought by Trustee. In the event of any such foreclosure sale by
Trustee, Grantor shall be deemed a tenant holding over and shall forthwith
deliver possession to the purchaser or purchasers at such sale or be summarily
dispossessed according to provisions of law applicable to tenants holding over.

            3.3.2 Beneficiary may cause Trustee to adjourn from time to time any
sale by it to be made under or by virtue of this Deed of Trust by announcement
at the time and place appointed for such sale or for such adjourned sale or
sales; and, except as otherwise provided by any applicable provision of law,
Beneficiary, without further notice or publication, may cause Trustee to make
such sale at the time and place to which the same shall be so adjourned.

            3.3.3 Upon any sale made under or by virtue of this Section 3.3
(whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale),
Beneficiary may bid for and acquire the Encumbered Property or any part thereof
and in lieu of paying cash therefor may make settlement for the purchase price
by crediting upon the indebtedness the net sales price after deducting therefrom
the expenses of the sale, including a reasonable Trustee's fee and Trustee's
attorneys' fees, and the costs of the action and any other sums which
Beneficiary is authorized to deduct under this Deed of Trust.

            3.3.4 No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Encumbered Property or upon any other
property of Grantor shall affect in any manner or to any extent, the lien and
title of this Deed of Trust upon the Encumbered Property or any part thereof, or
any liens, titles, rights, powers or remedies of Beneficiary hereunder, but such
liens, titles, rights, powers and remedies of Beneficiary shall continue
unimpaired as before.

            3.3.5 Beneficiary is authorized, but shall not be obligated, to
cause Trustee to foreclose this Deed of Trust subject to the rights of any
tenants of the Encumbered Property, and the failure to make any such tenants
parties to any such foreclosure proceedings and to foreclose their rights will
not be, nor be asserted to be by Grantor, a defense to any proceedings
instituted by Beneficiary to collect the sums secured hereby.

            3.3.6 After deducting all costs, fees and expenses of Trustee and of
this Deed of Trust, including, without limitation, costs of evidence of title
and reasonable attorneys' fees of Beneficiary in connection with a sale,
Beneficiary shall cause Trustee to apply the proceeds of such sale to payment of
all sums expended under the terms hereof not then repaid, with accrued interest
at the Default Rate then to the payment of all other sums then secured hereby
and the remainder, if any, to the person or persons legally entitled thereto.

            3.3.7 If any Event of Default occurs and is continuing, Beneficiary
may, either with or without entry or taking possession of the Encumbered
Property, and without regard to whether or not the indebtedness and other sums
secured hereby shall be due and without prejudice to the right of Beneficiary
thereafter to bring an action or proceeding to foreclose or any other action for
any default existing at the time such earlier action was


                                       13


commenced, proceed by any appropriate action or proceeding: (1) to enforce
payment of the Obligations, to the extent permitted by law, or the performance
of any term hereof or any other right; (2) to foreclose this Deed of Trust in
any manner provided by law for the foreclosure of mortgages or deeds of trust or
deeds to secure debt on real property and to sell, as an entirety or in separate
lots or parcels, the Encumbered Property or any portion thereof pursuant to the
laws of the State or under the judgment or decree of a court or courts of
competent jurisdiction, and Beneficiary shall be entitled to recover in any such
proceeding all costs and expenses incident thereto, including reasonable
attorneys' fees in such amount as shall be awarded by the court; (3) to exercise
any or all of the rights and remedies available to it under the Secured Debt
Documents; and (4) to pursue any other remedy available to it. Beneficiary may
take action either by such proceedings or by the exercise of its powers with
respect to entry or taking possession, or both, as Beneficiary may determine.

            3.3.8 The remedies described in this Section 3.3 may be exercised
with respect to all or any portion of the UCC Collateral, either simultaneously
with the sale of any real property encumbered hereby or independent thereof.
Beneficiary may at any time be permitted to proceed with respect to all or any
portion of the UCC Collateral in any manner permitted by the UCC. Grantor agrees
that Beneficiary's inclusion of all or any portion of the UCC Collateral in a
sale or other remedy exercised with respect to the real property encumbered
hereby, as permitted by the UCC, is a commercially reasonable disposition of
such property.

      3.4 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY
INCOME.

            (a) If an Event of Default occurs and is continuing, Grantor, upon
demand of Beneficiary, shall forthwith surrender to Beneficiary the actual
possession and, if and to the extent permitted by law, Beneficiary itself, or by
such officers or agents as it may appoint, may enter and take possession of all
of the Encumbered Property, including the Tangible Collateral, without liability
for trespass, damages or otherwise, and may exclude Grantor and its agents and
employees wholly therefrom and may have joint access with Grantor to the books,
papers and accounts of Grantor.

            (b) If an Event of Default has occurred and is continuing and
Grantor shall for any reason fail to surrender or deliver the Encumbered
Property or any part thereof after Beneficiary's demand, Beneficiary may obtain
a judgment or decree conferring on Beneficiary or Trustee the right to immediate
possession or requiring Grantor to deliver immediate possession of all or part
of such property to Beneficiary or Trustee and Grantor hereby specifically
consents to the entry of such judgment or decree. Grantor shall pay to
Beneficiary or Trustee, upon demand, all costs and expenses of obtaining such
judgment or decree and reasonable compensation to Beneficiary or Trustee, its
attorneys and agents, and all such costs, expenses and compensation shall, until
paid, be secured by the lien, security title and security interest of this Deed
of Trust.

            (c) Upon every such entering upon or taking of possession,
Beneficiary may hold, store, use, operate, manage and control the Encumbered
Property and conduct the business


                                       14


thereof, and, from time to time and without being under any duty to so act:

                  (1) make all necessary and proper maintenance, repairs,
renewals and replacements thereto and thereon, and all necessary additions,
betterments and improvements thereto and thereon and purchase or otherwise
acquire fixtures, personalty and other property in connection therewith;

                  (2) insure or keep the Encumbered Property insured;

                  (3) manage and operate the Encumbered Property and exercise
all the rights and powers of Grantor in their name or otherwise with respect to
the same;

                  (4) enter into agreements with others to exercise the powers
herein granted Beneficiary and Trustee, all as Beneficiary or Trustee from time
to time may determine; and shall apply the monies so received by Beneficiary in
such priority as provided by the Secured Debt Documents to (1) the payment of
interest and principal due and payable to the Beneficiary, (2) the deposits for
taxes and assessments and insurance premiums due, (3) the cost of insurance,
taxes, assessments and other proper charges upon the Encumbered Property or any
part thereof; (4) the compensation, expenses and disbursements of the agents,
attorneys and other representatives of Beneficiary or Trustee as allowed under
this Deed of Trust; and (5) any other charges or costs required to be paid by
Grantor under the terms of the Secured Debt Documents.

                  (5) rent or sublet the Encumbered Property or any portion
thereof for any purpose permitted by this Deed of Trust.

            Beneficiary shall surrender possession of the Encumbered Property to
Grantor (i) as may be required by law or court order, or (ii) when all amounts
under any of the terms of the Secured Debt Documents, including this Deed of
Trust, shall have been paid current and all Events of Default have been cured or
waived. The same right of taking possession, however, shall exist if any
subsequent Event of Default shall occur and be continuing.

      3.5 SEPARATE SALES. To the extent permitted by law or Governmental
Authority, the Encumbered Property may be sold in one or more parcels and in
such manner and order as Beneficiary or Trustee, in its sole discretion, may
elect, it being expressly understood and agreed that the right of sale arising
out of any Event of Default shall not be exhausted by any one or more sales.

      3.6 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND
REDEMPTION LAWS. Grantor agrees to the full extent permitted by law that if an
Event of Default occurs and is continuing, neither Grantor nor anyone claiming
through or under it shall or will set up, claim or seek to take advantage of any
appraisement, moratorium, valuation, stay, extension or redemption laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Deed of Trust or the absolute sale of the Encumbered Property or any
portion thereof or the final and absolute putting into possession thereof,
immediately after such sale, of the purchasers thereof, and Grantor for itself
and all who may at any time claim through or under it, hereby waives, to the
full extent that it may lawfully so do, the benefit of all


                                       15


such laws, and any and all right to have the assets comprising the Encumbered
Property marshalled upon any foreclosure of the lien hereof and agrees that
Beneficiary, Trustee or any court having jurisdiction to foreclose such lien may
sell the Encumbered Property in part or as an entirety.

      3.7 RECEIVER. If an Event of Default occurs and is continuing,
Beneficiary, to the extent permitted by law, and without regard to the value,
adequacy or occupancy of the security for the indebtedness and other sums
secured hereby, shall be entitled as a matter of right, but shall not be
obligated to, if it so elects to the appointment of a receiver to enter upon and
take possession of the Encumbered Property and to collect all earnings, revenues
and receipts and apply the same as the court may direct, and such receiver may
be appointed by any court of competent jurisdiction upon application by
Beneficiary. To the extent permitted by law, Beneficiary may have a receiver
appointed without notice to Grantor or any third party, and Beneficiary may
waive any requirement that the receiver post a bond. To the extent permitted by
law, Beneficiary shall have the power to designate and select the Person who
shall serve as the receiver and to negotiate all terms and conditions under
which such receiver shall serve. To the extent permitted by law, any receiver
appointed on Beneficiary's behalf may be an Affiliate of Beneficiary. The
reasonable expenses, including receiver's fees, reasonable attorneys' fees,
costs and agents' compensation, incurred pursuant to the powers herein contained
shall be secured by this Deed of Trust. The right to enter and take possession
of and to manage and operate the Encumbered Property and to collect all
earnings, revenues and receipts, whether by a receiver or otherwise, shall be
cumulative to any other right or remedy available to Beneficiary under this Deed
of Trust, the other Secured Debt Documents or otherwise available to Beneficiary
and may be exercised concurrently therewith or independently thereof, but such
rights shall be exercised in a manner which is otherwise in accordance with and
consistent with the Secured Debt Documents. Beneficiary shall be liable to
account only for such earnings, revenues and receipts (including, without
limitation, security deposits) actually received by Beneficiary, whether
received pursuant to this section or any other provision hereof. Notwithstanding
the appointment of any receiver or other custodian, Beneficiary shall be
entitled as pledgee to the possession and control of any cash, deposits, or
instruments at the time held by, or payable or deliverable under the terms of
this Deed of Trust to, Beneficiary.

      3.8 SUITS TO PROTECT THE ENCUMBERED PROPERTY. Beneficiary shall have the
power and authority, but shall not be obligated, to institute and maintain any
suits and proceedings as may be advisable (a) to prevent any impairment of the
Encumbered Property by any acts which may be unlawful or in violation of this
Deed of Trust, (b) to preserve or protect its interest in the Encumbered
Property, or (c) to restrain the enforcement of or compliance with any
legislation or other Legal Requirement that may be unconstitutional or otherwise
invalid, if the enforcement of or compliance with such enactment, rule or order
might impair the security hereunder or be prejudicial to Beneficiary's interest

      3.9 PROOFS OF CLAIM. In the case of any receivership, insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceedings affecting Grantor, any Affiliate or any guarantor, co-maker
or endorser of any of Grantor's obligations, its creditors or its property,
Beneficiary, to the extent permitted by law, shall be entitled, but shall not be
obligated, to file such proofs of claim or other documents as may be necessary
or


                                       16


advisable in order to have its claims allowed in such proceedings for the entire
amount due and payable by Grantor under the Secured Debt Documents, at the date
of the institution of such proceedings, and for any additional amounts which may
become due and payable by Grantor after such date.

      3.10 GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT;
APPLICATION OF MONIES BY BENEFICIARY.

            (a) In case of a foreclosure sale of all or any part of the
Encumbered Property and of the application of the proceeds of sale to the
payment of the sums secured hereby, to the extent permitted by law, the Secured
Debtholders shall be entitled to enforce payment from Grantor of any additional
amounts then remaining due and unpaid and to recover judgment against Grantor
for any portion thereof remaining unpaid, with interest at the Default Rate.

            (b) Grantor hereby agrees to the extent permitted by law, that no
recovery of any such judgment by the Secured Debtholders or other action by the
Secured Debtholders and no attachment or levy of any execution upon any of the
Encumbered Property or any other property shall in any way affect the Lien and
security interest of this Deed of Trust upon the Encumbered Property or any part
thereof or any Lien, rights, powers or remedies of Beneficiary hereunder, but
such Lien, rights, powers and remedies shall continue unimpaired as before.

            (c) Any monies collected or received by Beneficiary under this
Section 3.10 shall be first applied to the payment of compensation, expenses and
disbursements of the agents, attorneys and other representatives of the
Beneficiary and the Secured Debtholders, and the balance remaining shall be
applied as provided in the Collateral Trustee Agreement.

      3.11 DELAY OR OMISSION; NO WAIVER. No delay or omission of Beneficiary or
the Secured Debtholders to exercise any right, power or remedy upon any Event of
Default shall exhaust or impair any such right, power or remedy or shall be
construed to waive any such Event of Default or to constitute acquiescence
therein. Every right, power and remedy given to Beneficiary whether contained
herein or in the other Secured Debt Documents or otherwise available to
Beneficiary may be exercised from time to time and as often as may be deemed
expedient by Beneficiary.

      3.12 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER. No waiver of any defaults
hereunder shall extend to or affect any subsequent or any other defaults then
existing, or impair any rights, powers or remedies consequent thereon. If
Beneficiary (a) grants forbearance or an extension of time for the payment of
any sums secured hereby; (b) takes other or additional security for the payment
thereof; (c) waives or does not exercise any right granted in this Deed of Trust
or any other Secured Debt Document; (d) releases any part of the Encumbered
Property from the lien or security interest of this Deed of Trust or any other
instrument securing the Obligations; (e) consents to the filing of any map, plat
or replat of the Real Property or any part thereof; (f) consents to the granting
of any easement on the Real Property; or (g) makes or consents to any agreement
changing the terms of this Deed of Trust or any other Secured Debt Document
subordinating the lien or any charge hereof, no such act or omission shall
release, discharge, modify, change or affect the liability under this Deed of
Trust or any other Secured


                                       17


Debt Document or otherwise of Grantor, or any subsequent purchaser of the
Encumbered Property or any part thereof or any maker, co-signer, surety or
guarantor with respect to any other matters not addressed by such act or
omission. No such act or omission shall preclude Beneficiary from exercising any
right, power or privilege herein granted or intended to be granted in case of
any Event of Default then existing or of any subsequent Event of Default, nor,
except as otherwise expressly provided in an instrument or instruments executed
by Beneficiary, shall the lien or security interest of this Deed of Trust be
altered thereby, except to the extent expressly provided in such acts or
omissions. In the event of the sale or transfer by operation of law or otherwise
of all or any part of the Encumbered Property, Beneficiary, without notice to
any person, firm or corporation, is hereby authorized and empowered to deal with
any such vendee or transferee with reference to the Encumbered Property or the
indebtedness secured hereby, or with reference to any of the terms or conditions
hereof, as fully and to the same extent as it might deal with the original
parties hereto and without in any way releasing or discharging any of the
liabilities or undertakings hereunder, or waiving its right to declare such sale
or transfer an Event of Default as provided herein. Notwithstanding anything to
the contrary contained in this Deed of Trust or any other Secured Debt Document,
(i) in the case of any non-monetary default, Beneficiary may continue to accept
payments due hereunder without thereby waiving the existence of such or any
other default and (ii) in the case of any monetary Event of Default, Beneficiary
may accept partial payments of any sums due hereunder without thereby waiving
the existence of such Event of Default if the partial payment is not sufficient
to completely cure such Event of Default.

      3.13 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED. If
Beneficiary shall have proceeded to enforce any right or remedy under this Deed
of Trust by foreclosure, entry of judgment or otherwise and such proceedings
shall have been discontinued or abandoned for any reason, or such proceedings
shall have resulted in a final determination adverse to Beneficiary, then and in
every such case Grantor and Beneficiary shall be restored to their former
positions and rights hereunder, and all rights, powers and remedies of
Beneficiary shall continue as if no such proceedings had occurred or had been
taken.

      3.14 REMEDIES CUMULATIVE. Subject to the provisions of Section 4.17
hereof, no right, power or remedy, including without limitation remedies with
respect to any security for the Obligations, conferred upon or reserved to
Beneficiary by this Deed of Trust or any other Secured Debt Document is
exclusive of any other right, power or remedy, but each and every such right,
power and remedy shall be cumulative and concurrent and shall be in addition to
any other right, power and remedy given hereunder or under any other Secured
Debt Document, now or hereafter existing at law, in equity or by statute, and
Beneficiary shall be entitled to resort to such rights, powers, remedies or
security as Beneficiary may deem advisable.

      3.15 INTEREST AFTER EVENT OF DEFAULT. If an Event of Default shall have
occurred and is continuing, all sums outstanding and unpaid under the Secured
Debt Documents, including this Deed of Trust, may bear interest at the Default
Rate until such Event of Default has been cured. Grantor's obligation to pay
such interest shall be secured by this Deed of Trust.

      3.16 FORECLOSURE; EXPENSES OF LITIGATION. If Beneficiary or Trustee
foreclose, reasonable attorneys' fees for services in the supervision of said
foreclosure proceeding shall be


                                       18


allowed to the Beneficiary or Trustee as part of the foreclosure costs. In the
event of foreclosure of the lien hereof, there shall be allowed and included as
additional indebtedness all reasonable expenditures and expenses which may be
paid or incurred by or on behalf of Beneficiary for attorneys' fees, appraisers'
fees, outlays for documentary and expert evidence, stenographers' charges,
publication costs, and costs (which may be estimated as to items to be expended
after foreclosure sale or entry of the decree) of procuring all such abstracts
of title, title searches and examinations, title insurance policies and
guarantees, and similar data and assurances with respect to title as necessary
either to prosecute such suit or to evidence to a bidder at any sale which may
be had pursuant to such decree the true condition of the title to or the value
of the Encumbered Property or any portion thereof. All expenditures and expenses
of the nature in this section mentioned, and such expenses and fees as may be
incurred in the protection of the Encumbered Property and the maintenance of the
lien and security interest of this Deed of Trust, including the reasonable fees
of any attorney employed by Beneficiary in any litigation or proceeding
affecting this Deed of Trust or any other Secured Debt Document, the Encumbered
Property or any portion thereof, including, without limitation, civil, probate,
appellate and bankruptcy proceedings, or in preparation for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Grantor, with interest thereon at the Default Rate, and shall
be secured by this Deed of Trust. Trustee waives its right to any statutory fee
in connection with any judicial or nonjudicial foreclosure of the lien hereof
and agrees to accept a reasonable fee for such services.

      3.17 DEFICIENCY JUDGMENTS. If after foreclosure of this Deed of Trust,
there shall remain any deficiency with respect to any amounts payable under the
Secured Debt Documents, including hereunder, or any amounts secured hereby, and
Beneficiary may institute any proceedings to recover such deficiency or
deficiencies, all such amounts shall continue to bear interest at the Default
Rate. Grantor waives any defense to Beneficiary's recovery against Grantor of
any deficiency after any foreclosure sale of the Encumbered Property. To the
extent permitted by law, Grantor expressly waives any defense or benefits that
may be derived from any statute granting Grantor any defense to any such
recovery by Beneficiary. In addition, Beneficiary and Trustee shall be entitled
to recovery of all of its reasonable costs and expenditures (including without
limitation any court imposed costs) in connection with such proceedings,
including their reasonable attorneys' fees, appraisal fees and the other costs,
fees and expenditures referred to in Section 3.16 above. This provision shall
survive any foreclosure or sale of the Encumbered Property, any portion thereof
and/or the extinguishment of the lien hereof.

      3.18 WAIVER OF JURY TRIAL. Beneficiary and Grantor each waive any right to
have a jury participate in resolving any dispute whether sounding in contract,
tort or otherwise arising out of, connected with, related to or incidental to
the relationship established between them in connection with this Deed of Trust
or any other Secured Debt Document. Any such disputes shall be resolved in a
bench trial without a jury.

      3.19 EXCULPATION OF BENEFICIARY. The acceptance by Beneficiary of the
assignment contained herein with all of the rights, powers, privileges and
authority created hereby shall not, prior to entry upon and taking possession of
the Encumbered Property by Beneficiary, be deemed or construed to make
Beneficiary a "mortgagee in possession"; nor thereafter or at any


                                       19


time or in any event obligate Beneficiary to appear in or defend any action or
proceeding relating to the Encumbered Property, nor shall Beneficiary, prior to
such entry and taking, be liable in any way for any injury or damage to person
or property sustained by any Person in or about the Encumbered Property.

                              ARTICLE 4 - GENERAL

      4.1 DISCHARGE. When all of the Obligations shall have been paid in full,
then this Deed of Trust and the lien and security interest created hereby shall
be of no further force and effect, Grantor shall be released from the covenants,
agreements and obligations of Grantor contained in this Deed of Trust and all
right, title and interest in and to the Encumbered Property shall revert to
Grantor. Beneficiary, at the request and the expense of Grantor, shall promptly
execute a deed of reconveyance and such other documents as may be reasonably
requested by Grantor to evidence the discharge and satisfaction of this Deed of
Trust and the release of Grantor from its obligations hereunder.

      4.2 NO WAIVER. The exercise of the privileges granted in this Deed of
Trust to perform Grantor's obligations under the agreements which constitute the
Encumbered Property shall in no event be considered or constitute a waiver of
any right which Beneficiary may have at any time, after an Event of Default
shall have occurred and be continuing, to declare the Obligations to be
immediately due and payable. No delay or omission to exercise any right, remedy
or power accruing upon any default shall impair any such right, remedy or power
or shall be construed to be a waiver of any such default or acquiescence
therein; and every such right, remedy and power may be exercised from time to
time and as often as may be deemed expedient.

      4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS. It is expressly
agreed that any of the Obligations at any time secured hereby may be from time
to time extended for any period, or with the consent of Grantor rearranged or
renewed, and that any part of the security herein described, or any other
security for the Obligations, may be waived or released, without altering,
varying or diminishing the force, effect or lien or security interest of this
Deed of Trust; and the lien and security interest granted by this Deed of Trust
shall continue as a prior lien and security interest on all of the Encumbered
Property not expressly so released, until the Obligations are fully paid and
this Deed of Trust is terminated in accordance with the provisions hereof; and
no other security now existing or hereafter taken to secure the payment of the
Obligations or any part thereof or the performance of any obligation or
liability of Grantor whatever shall in any manner impair or affect the security
given by this Deed of Trust; and all security for the payment of the Obligations
or any part thereof and the performance of any obligation or liability shall be
taken, considered and held as cumulative.

      4.4 FORCIBLE DETAINER. Grantor agrees for itself and all Persons claiming
by, through or under it, that subsequent to foreclosure hereunder in accordance
with this Deed of Trust and applicable law if Grantor shall hold possession of
the Encumbered Property or any part thereof, Grantor or the Persons so holding
possession shall be guilty of trespass; and any such Person (including Grantor)
failing or refusing to surrender possession upon demand shall be guilty of
forcible detainer and shall be liable to Beneficiary or any purchaser in
foreclosure, as


                                       20


applicable, for reasonable rental on said premises, and shall be subject to
eviction and removal in accordance with law.

      4.5 WAIVER OF STAY OR EXTENSION. To the extent permitted to be waived by
law, Grantor shall not at any time insist upon or plead or in any manner
whatever claim the benefit or advantage of any stay, extension or moratorium law
now or at any time hereafter in force in any locality where the Encumbered
Property or any part thereof may or shall be situated, nor shall Grantor claim
any benefit or advantage from any law now or hereafter in force providing for
the valuation or appraisement of the Encumbered Property or any part thereof
prior to any sale thereof to be made pursuant to any provision of this Deed of
Trust or to a decree of any court of competent jurisdiction, nor after any such
sale shall Grantor claim or exercise any right conferred by any law now or at
any time hereafter in force to redeem the Encumbered Property so sold or any
part thereof; and Grantor hereby expressly waives all benefit or advantage of
any such law or laws and the appraisement of the Encumbered Property or any part
thereof, and covenants that Grantor shall not hinder or delay the execution of
any power herein granted and delegated to Beneficiary but that Grantor shall
permit the execution of every such power as though no such law had been made.

      4.6 NOTICES. Except where certified or registered mail notice is required
by applicable law, any notice to Grantor or Beneficiary required or permitted
hereunder shall be deemed to be given when given in the manner prescribed in the
Collateral Trust Agreement.

      4.7 SEVERABILITY. All rights, powers and remedies provided herein may be
exercised only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Deed of Trust invalid, unenforceable or not entitled
to be recorded, registered or filed under any applicable law. In the event any
term or provision contained in this Deed of Trust is in conflict, or may
hereafter be held to be in conflict, with the laws of the State or of the United
States of America, this Deed of Trust shall be affected only as to such
particular term or provision, and shall in all other respects remain in full
force and effect.

      4.8 APPLICATION OF PAYMENTS. In the event that any part of the Obligations
cannot lawfully be secured hereby, or in the event that the lien and security
interest hereof cannot be lawfully enforced to pay any part of the Obligations,
or in the event that the lien or security interest created by this Deed of Trust
shall be invalid or unenforceable as to any part of the Obligations, then all
payments on the Obligations shall be deemed to have been first applied to the
complete payment and liquidation of that part of the Obligations which is not
secured by this Deed of Trust and the unsecured portion of the Obligations shall
be completely paid and liquidated prior to the payment and liquidation of the
remaining secured portion of the Obligations.

      4.9 GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON. ORAL
AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.


                                       21


      4.10 AMENDMENTS. This Deed of Trust may be amended, supplemented or
otherwise modified only by an instrument in writing signed by Grantor and
Beneficiary.

      4.11 SUCCESSORS AND ASSIGNS. All terms of this Deed of Trust shall run
with the land and bind each of Grantor and Beneficiary and their respective
successors and assigns, and all Persons claiming under or through Grantor or
Beneficiary, as the case may be, or any such successor or assign, and shall
inure to the benefit of Beneficiary and Grantor, and their respective successors
and assigns.

      4.12 RENEWAL, ETC. To the extent permitted under the other Secured Debt
Documents, Beneficiary may, but shall not be obligated to, at any time and from
time to time renew or extend this Deed of Trust, or alter or modify the same in
any way, or waive any of the terms, covenants or conditions hereof in whole or
in part and may release any portion of the Encumbered Property or any other
security, and grant such extensions and indulgences in relation to the
Obligations as Beneficiary may determine, without the consent of any junior
lienor or encumbrancer and without any obligation to give notice of any kind
thereto and without in any manner affecting the priority of the lien and
security interest hereof on any part of the Encumbered Property; provided that
nothing in this Section 4.12 shall grant Beneficiary the right to alter or
modify the Deed of Trust without the consent of the Grantor unless otherwise
specifically permitted in this Deed of Trust.

      4.13 FUTURE ADVANCES. It is understood and agreed that this Deed of Trust
secures, among other things, (i) the Priority Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of Grantor
under the Priority Lien Documents; (ii) the Parity Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of Grantor
under the Parity Lien Documents; (iii) all Obligations under any other Priority
Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs
incurred by Beneficiary or any Secured Debtholder, or by any receiver appointed
hereunder, which are made or incurred pursuant to, or permitted by, the terms
hereof, plus interest thereon at the rate therein specified or otherwise agreed
upon, from the date of the advances or the incurring of such expenses or costs
until reimbursed; (v) any and all other indebtedness of Grantor to Beneficiary
now or hereafter owing, whether direct or indirect, primary or secondary, fixed
or contingent, joint or several, regardless of how evidenced or arising, where
the indebtedness provides that it is secured hereby; and (vi) any extensions,
refinancings, modifications or renewals of all such indebtedness described in
subparagraphs (i) through (iv) above, whether or not Grantor executes any
extension agreement or renewal instrument, and that the lien of any such future
advances shall relate to the date of this Deed of Trust.

      4.14 LIABILITY. Notwithstanding any provision in this Deed of Trust to the
contrary, none of Beneficiary, Trustee or any Secured Debt Representative or any
of their agents shall be liable for any error of judgment or act done in good
faith, or be otherwise responsible or accountable under any circumstances
whatsoever. None of Beneficiary, Trustee or any Secured Debt Representative or
any of their agents shall be personally liable in case of entry by them, or
anyone entering by virtue of the powers herein granted them, upon the Encumbered
Property for debts contracted or liability or damages incurred in the management
or operation of the Encumbered Property. Such persons shall have the right to
rely on any instrument, document or


                                       22


signature authorizing or supporting any action taken or proposed to be taken by
them hereunder, believed by them in good faith to be genuine. Beneficiary,
Trustee or any Secured Debt Representative or any of their agents shall be
entitled to reimbursement for expenses incurred by them in the performance of
their duties hereunder and to reasonable compensation for such of their services
hereunder as shall be rendered. Grantor will, from time to time, pay the
compensation due hereunder and reimburse such parties for, and save them
harmless against, any and all liability and expenses which may be incurred by
them in the performance of their duties.

      4.15 SUCCESSOR TRUSTEE. Any Trustee may resign in writing addressed to
Beneficiary or may be removed at any time with or without cause by an instrument
in writing duly executed by Beneficiary. In case of the death, resignation or
removal of a Trustee, one or more successor Trustee may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of Applicable Law, and in the absence of any such requirement
without formality other than appointment and designation in writing. Such
appointment and designation shall be full evidence of the right and authority to
make the same and of all facts therein recited, and upon the making of any such
appointment and designation this conveyance shall vest in the named successor
Trustee or Trustee, all the estate and title of the prior Trustee in all of the
Encumbered Property, and he or they shall thereupon succeed to all the rights,
powers, privileges, immunities and duties hereby conferred upon the prior
Trustee. All references herein to Trustee shall be deemed to refer to Trustee
from time to time acting hereunder.

      4.16 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE. Each and every
covenant herein contained shall be performed and kept by Grantor solely at
Grantor's expense. If Grantor shall fail to perform or keep any of the covenants
of whatsoever kind or nature contained in this Deed of Trust, Beneficiary, or
Trustee or any receiver appointed hereunder or under Applicable Law, may, but
shall not be obligated to, take action and/or make advances to perform the same
in Grantor's behalf, and Grantor hereby agrees to repay the expense of such
action and such advances upon demand plus interest as set forth in the
Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or
any receiver appointed hereunder shall be deemed to relieve Grantor from any
default hereunder.

      4.17 SEVERABILITY AND COMPLIANCE WITH USURY LAW. The Secured Debt
Documents are intended to be performed in accordance with, and only to the
extent permitted by, all applicable Applicable Laws and Legal Requirements. If
any provision of any of the Secured Debt Documents or the application thereof to
any person or circumstance shall, for any reason and to any extent, be invalid
or unenforceable, neither the remainder of the instrument in which such
provision is contained, nor the application of such provision to other persons
or circumstances, nor the other instruments referred to hereinabove, shall be
affected thereby, but rather shall be enforceable to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of
Grantor at all times to comply with the applicable State law governing the
maximum rate or amount of interest payable on or in connection with the
Obligations. If the Applicable Law is ever judicially interpreted so as to
render usurious any amount called for under the Secured Debt Documents, or
contracted for, charged, taken, reserved or received with respect to the
extension of credit evidenced by the Secured Debt Documents or if acceleration
of the maturity of the Obligations or if any prepayment by Grantor results in
Grantor having paid any interest in excess of that permitted by law, then it is
Grantor's express intent that all excess


                                       23


amounts theretofore collected by Beneficiary be credited on the principal
balance due under the Secured Debt Documents (or, if the Secured Debt Documents
have been or would thereby be paid in full, refunded to Grantor), and the
provisions of the Secured Debt Documents immediately be deemed reformed and the
amounts thereafter collectible thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder
and thereunder. The right to accelerate maturity of Obligations does not include
the right to accelerate any interest which has not otherwise accrued on the date
of such acceleration, and Beneficiary may not collect any unearned interest in
the event of acceleration. All sums paid or agreed to be paid to Beneficiary for
the use, forbearance or detention of the Obligations may, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the Obligations until payment in full so that the
rate or amount of interest on account of the Obligations does not exceed the
applicable usury ceiling.

      4.18 RELEASE OF COLLATERAL. Notwithstanding any provision herein to the
contrary, the Encumbered Property or any part thereof may be released from the
security interest created by this Deed of Trust in accordance with the
provisions of the Collateral Trust Agreement.

      4.19 TIME OF THE ESSENCE. Grantor acknowledges that time is of the essence
in performing all of Grantor's obligations set forth herein.

      4.20 COUNTERPART EXECUTION. This Deed of Trust may be executed by the
parties hereto in any number of counterparts (and be each of the parties hereof
on separate counterparts), each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.

      4.21 WAIVER OF GRANTOR'S RIGHTS. BY EXECUTION OF THIS DEED OF TRUST AND BY
INITIALING THIS SECTION 4.21, GRANTOR EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT TO
ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTES AND THE POWER OF ATTORNEY
GIVEN HEREIN TO BENEFICIARY TO SELL THE ENCUMBERED PROPERTY BY NONJUDICIAL
FORECLOSURE UPON DEFAULT BY GRANTOR WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY
NOTICE (EXCEPT AS OTHERWISE PROVIDED HEREIN); (B) EXCEPT TO THE EXTENT PROVIDED
OTHERWISE HEREIN, WAIVES ANY AND ALL RIGHTS WHICH GRANTOR MAY HAVE UNDER THE
CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH AMENDMENTS
THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR
BY REASON OF ANY OTHER APPLICABLE LAW, TO NOTICE AND TO JUDICIAL HEARING PRIOR
TO THE EXERCISE BY BENEFICIARY OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO
BENEFICIARY; (C) ACKNOWLEDGES THAT GRANTOR HAS READ THIS DEED OF TRUST AND ITS
PROVISIONS HAVE BEEN EXPLAINED FULLY TO GRANTOR AND GRANTOR HAS CONSULTED WITH
COUNSEL OF GRANTOR'S CHOICE PRIOR TO EXECUTING THIS DEED OF TRUST; AND (D)
ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF GRANTOR HAVE BEEN MADE
KNOWINGLY, INTENTIONALLY AND WILLINGLY BY GRANTOR AS PART OF A BARGAINED FOR
LOAN TRANSACTION:


                                       24


                              INITIALED BY GRANTOR:

                     ______________________________________


                        By:______________________________

      4.22 ATTORNEYS' FEES. Notwithstanding anything contained herein to the
contrary, (i) "reasonable attorneys' fees" are not, and shall not be, statutory
attorneys' fees under State law, (ii) if, under any circumstances Grantor is
required hereunder to pay any or all of Beneficiary's attorneys' fees and
expenses, Grantor shall be responsible only for actual legal fees and out of
pocket expenses actually incurred by Beneficiary at customary hourly rates for
the work done, and (iii) Grantor shall not be liable under any circumstances for
additional attorneys' fees or expenses under the State law.

      4.23 FIXTURE FILING UNDER UNIFORM COMMERCIAL CODE. Grantor and Beneficiary
agree, to the extent permitted by law, that: (i) this Deed of Trust upon
recording or registration in the real estate records of the proper office shall
constitute a financing statement filed as a "fixture filing" within the meaning
of Section 9-502 of the UCC; and (ii) the addresses of Grantor and Beneficiary
are as set forth on the first page of this Deed of Trust.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       25


      IN WITNESS WHEREOF, Grantor has caused this Deed of Trust to be duly
executed and delivered as of the day and year first above written.

                                        GRANTOR:

                                        CALPINE CORPORATION, a Delaware
                                        corporation


                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________



THE STATE OF        ss.
                    ss.
COUNTY OF           ss.

      This instrument was acknowledged before me on _______________, 2003, by
___________________ of_____________, on behalf of such corporation.


                                        ________________________________________
                                        Notary Public, State of ________________
                                        My Commission Expires: _________________

                                        ________________________________________
                                                  Printed Name of Notary



THE STATE OF        ss.
                    ss.
COUNTY OF           ss.

      This instrument was acknowledged before me on _______________, 2003, by
___________________ of_____________, on behalf of such corporation.


                                        ________________________________________
                                        Notary Public, State of ________________
                                        My Commission Expires: _________________

                                        ________________________________________
                                                  Printed Name of Notary



                                    EXHIBIT A

                             DESCRIPTION OF PREMISES

                                  SEE ATTACHED.



                                    EXHIBIT B

                            DESCRIPTION OF EASEMENTS

               [legal descriptions to be inserted at a later date]

EX-10.36

                                                                   EXHIBIT 10.36

                                                 [OTAY MESA/METCALF], CALIFORNIA

RECORDING REQUESTED BY AND
WHEN RECORDED, RETURN TO:

Ane C. Priester
LATHAM & WATKINS LLP
633 W. FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90017

================================================================================

    DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY AGREEMENT

                            DATED AS OF JULY 16, 2003

                                       BY

                              CALPINE CORPORATION,
                             A DELAWARE CORPORATION,
                                   AS GRANTOR

                                       TO

                             CHICAGO TITLE COMPANY,
                                   AS TRUSTEE

                               FOR THE BENEFIT OF

                              THE BANK OF NEW YORK,
                         A NEW YORK BANKING CORPORATION,
                                 AS BENEFICIARY

================================================================================



                                TABLE OF CONTENTS



                                                                                                      Page
                                                                                                      ----
                                                                                                   
ARTICLE 1 - DEFINITIONS ..........................................................................       4

   1.1   DEFINED TERMS ...........................................................................       4
   1.2   ACCOUNTING TERMS ........................................................................       6

ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS .....................................................       6

   2.1   GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS ...........................................       6
   2.2   GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES .......................................       7
   2.3   COMPLIANCE WITH LEGAL REQUIREMENTS ......................................................       7
   2.4   INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT DOMAIN PROCEEDS ....       7
   2.5   ASSIGNMENT OF RENTS .....................................................................       8
   2.6   REJECTION OF GROUND LEASE BY LESSOR .....................................................       9
   2.7   EXPENSES ................................................................................       9
   2.8   BENEFICIARY ASSUMES NO OBLIGATIONS ......................................................       9
   2.9   FURTHER ASSURANCES ......................................................................       9
   2.10  ACTS OF GRANTOR .........................................................................      10
   2.11  AFTER-ACQUIRED PROPERTY .................................................................      10
   2.12  ENCUMBERED PROPERTY .....................................................................      10
   2.13  POWER OF ATTORNEY .......................................................................      13
   2.14  COVENANT TO PAY .........................................................................      13
   2.15  SECURITY AGREEMENT ......................................................................      13

ARTICLE 3 - REMEDIES .............................................................................      14

   3.1   PROTECTIVE ADVANCES .....................................................................      14
   3.2   INSTITUTION OF EQUITY PROCEEDINGS .......................................................      14
   3.3   BENEFICIARY'S POWER OF ENFORCEMENT ......................................................      14
   3.4   BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY INCOME ..............      16
   3.5   SEPARATE SALES ..........................................................................      17
   3.6   WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND REDEMPTION LAWS ......      18
   3.7   RECEIVER ................................................................................      18
   3.8   SUITS TO PROTECT THE ENCUMBERED PROPERTY ................................................      18
   3.9   PROOFS OF CLAIM .........................................................................      19
   3.10  GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT; APPLICATION OF
         MONIES BY BENEFICIARY.19
   3.11  DELAY OR OMISSION; NO WAIVER ............................................................      19
   3.12  NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER ..............................................      19
   3.13  DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED .............................      20
   3.14  REMEDIES CUMULATIVE .....................................................................      20
   3.15  INTEREST AFTER EVENT OF DEFAULT .........................................................      20
   3.16  FORECLOSURE; EXPENSES OF LITIGATION .....................................................      21
   3.17  DEFICIENCY JUDGMENTS ....................................................................      21
   3.18  WAIVER OF JURY TRIAL ....................................................................      21
   3.19  EXCULPATION OF BENEFICIARY ..............................................................      21

ARTICLE 4 - GENERAL ..............................................................................      22

   4.1   DISCHARGE ...............................................................................      22
   4.2   NO WAIVER ...............................................................................      22
   4.3   EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS ......................................      22



                                       i


                                                                                                     
   4.4   FORCIBLE DETAINER .......................................................................      22
   4.5   WAIVER OF STAY OR EXTENSION .............................................................      23
   4.6   NOTICES .................................................................................      23
   4.7   SEVERABILITY ............................................................................      23
   4.8   APPLICATION OF PAYMENTS .................................................................      23
   4.9   GOVERNING LAW ...........................................................................      23
   4.10  AMENDMENTS ..............................................................................      23
   4.11  SUCCESSORS AND ASSIGNS ..................................................................      23
   4.12  RENEWAL, ETC ............................................................................      24
   4.13  FUTURE ADVANCES .........................................................................      24
   4.14  LIABILITY ...............................................................................      24
   4.15  SUCCESSOR TRUSTEE .......................................................................      25
   4.16  ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE ...........................................      25
   4.17  SEVERABILITY AND COMPLIANCE WITH USURY LAW ..............................................      25
   4.18  RELEASE OF COLLATERAL ...................................................................      26
   4.19  TIME OF THE ESSENCE .....................................................................      26
   4.20  COUNTERPART EXECUTION ...................................................................      26
   4.21  FIXTURE FILING ..........................................................................      26




                                       ii


                                                 [OTAY MESA/METCALF], CALIFORNIA

                       DEED OF TRUST, ASSIGNMENT OF RENTS,
                      FIXTURE FILING AND SECURITY AGREEMENT

      This DEED OF TRUST, ASSIGNMENT OF RENTS, FIXTURE FILING AND SECURITY
AGREEMENT, dated as of July 16, 2003 (this "Deed of Trust") by CALPINE
CORPORATION, a Delaware corporation ("Grantor"), whose address is 50 West San
Fernando Street, San Jose, CA 95113, to CHICAGO TITLE COMPANY ("Trustee"),whose
address is 700 South Flower Street #900, Los Angeles, CA 90017, in favor of THE
BANK OF NEW YORK, a New York banking corporation, not in its individual capacity
but solely as Collateral Trustee under the Collateral Trust Agreement dated July
16, 2003 (the "Collateral Trust Agreement") among Grantor, Beneficiary, the 2007
Trustee, the 2010 Trustee, the 2013 Trustee, Credit Agreement Agent and Term
Loan Administrative Agent ("Beneficiary"), whose address is 101 Barclay Street,
New York, New York 10286. References to this "Deed of Trust" shall mean this
instrument and any and all renewals, modifications, amendments, supplements,
extensions, consolidations, substitutions, spreaders, restatements and
replacements of this instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                    Recitals

            A. Grantor has entered into an Amended and Restated Credit Agreement
dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Grantor,
the Lenders referred to therein and The Bank of Nova Scotia as Administrative
Agent relating to a $500,000,000 senior secured credit facility, made available
in the form of revolving loans and term loans, including letters of credit
issued thereunder.

            B. Grantor has (a) issued $500,000,000 in aggregate principal amount
of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2007
Indenture") between Grantor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2007 Trustee"), (b) issued
$1,150,000,000 in aggregate principal amount of 8.50% Second Priority Senior
Secured Fixed Rate Notes due 2010 (the "2010 Notes") pursuant to the Indenture
dated as of July 16, 2003 (the "2010 Indenture") between Grantor and Wilmington
Trust Company, as Trustee (together with its successors in such capacity, the
"2010 Trustee"), (c) issued $900,000,000 in aggregate principal amount of 8.75%
Second Priority Senior Secured Fixed Rate Notes due 2013 (the "2013 Notes")
pursuant to the Indenture dated as of July 16, 2003 (the "2013 Indenture")
between Grantor and Wilmington Trust Company, as Trustee (together with its
successors in such capacity, the "2013 Trustee"), and (d) borrowed $750,000,000
in Term Loans (the "Term Loans") pursuant to a Term Loan Agreement dated as of
July 16, 2003 (the "Term Loan Agreement") between Grantor and



Goldman Sachs Credit Partners L.P., as Administrative Agent (together with its
successors in such capacity, the "Term Loan Administrative Agent").

            C. As permitted pursuant to the Secured Debt Documents, Grantor may
incur future debt which could, together with the obligations under the Credit
Agreement, constitute Priority Lien Debt and Grantor may incur future debt which
could, together with the 2007 Notes, the 2010 Notes, the 2013 Notes and the Term
Loans, constitute Parity Lien Debt, provided that the aggregate amount of the
Secured Debt to be secured hereby shall not exceed $4,200,000,000. Grantor
intends to secure the obligations, including the obligations (a) under the
Credit Agreement and any future Priority Lien Debt, equally and ratably, on a
priority basis, and, (b) subject to such priority, under the 2007 Notes, 2010
Notes, 2013 Notes and Term Loans and any future Parity Lien Debt equally and
ratably, with liens and security interests in, among other collateral, the
Encumbered Property under the Existing Deed of Trust, as contemplated in the
Collateral Trust Agreement.

            D. Grantor (i) is the owner of the leasehold in the lands or other
interest described in Exhibit A attached hereto and (ii) owns, leases or
otherwise has the right to use all of the buildings, improvements, structures
and fixtures located on the lands described in Exhibit A and is executing and
delivering this instrument in order to secure its Obligations (as defined
below).

                                    Agreement

      NOW THEREFORE, to secure the full performance and prompt and complete
payment and performance when and as due and payable of all of the obligations
and liabilities of Grantor to Beneficiary, by acceleration or otherwise, arising
out of or in connection with the Credit Agreement, the 2007 Indenture, the 2010
Indenture, the 2013 Indenture, the Term Loan Agreement and the obligations of
Grantor set forth herein (collectively, the "Obligations,") and in consideration
of the covenants herein and therein, Grantor, intending to be legally bound,
does hereby grant, bargain, sell, convey, warrant, assign, transfer, mortgage,
pledge, set-over and confirm unto Trustee, IN TRUST, WITH POWER OF SALE, for the
use and benefit of Beneficiary, all of Grantor's estate, right, title, interest,
property, claim and demand, now or hereinafter arising, in and to the following
property and rights (herein collectively called the "Encumbered Property"):

            (a) Grantor's interest in the lands and premises including Grantor's
      interest in the leasehold estate created thereby in and to the lands and
      premises more particularly described in Exhibit A attached hereto (the
      "Site").

            (b) any and all easements, leases, licenses, option rights,
      rights-of-way and other rights used in connection with the Site or as a
      means of access thereto (including, without limitation, all rights of
      Grantor to exercise any election or option, to make any determination or
      give any notice, consent, waiver or approval, or to take any other action
      under the Ground Lease), all easements for ingress and egress and
      easements for water, natural gas and sewage pipelines, running in favor of
      Grantor, or appurtenant to the Site or arising under the Ground Lease, and
      any and all sidewalks, alleys, strips and gores of land adjacent thereto
      or used in connection therewith together with all and singular the
      tenements, hereditaments and appurtenances thereto, and with any land
      lying within the right-of-way of any streets, open


                                       2


      or proposed, adjoining the same (including, without limitation, the
      easements, leases, licenses and other instruments described in Exhibit B
      hereto) (collectively, the "Easements"; and the Site and the Easements
      collectively referred to herein as the "Real Property");

            (c) all buildings, structures, fixtures and other improvements now
      or hereafter erected on the Real Property, including the Project
      (collectively, the "Improvements");

            (d) all machinery, apparatus, equipment, fittings, fixtures,
      boilers, turbines and other articles of personal property, including all
      goods and all goods which become fixtures, now owned or hereafter acquired
      by Grantor and now or hereafter located on, attached to or used in the
      operation of or in connection with the Real Property and/or the
      Improvements, and all replacements thereof, additions thereto and
      substitutions therefor, to the fullest extent permitted by applicable law
      (all of the foregoing being hereinafter collectively called the
      "Equipment");

            (e) all raw materials, work in process and other materials used or
      consumed in the construction of, or now or hereafter located on or used in
      connection with, the Real Property, the Improvements and/or the Equipment,
      (including, without limitation, fuel and fuel deposits, now or hereafter
      located on the Real Property or elsewhere or otherwise owned by Grantor)
      (the above items, together with the Equipment, being hereinafter
      collectively called the "Tangible Collateral");

            (f) all rights, powers, privileges and other benefits of Grantor (to
      the extent assignable) now or hereafter obtained by Grantor and/or from
      any Governmental Authority, including, without limitation, permits issued
      in the name of Grantor, governmental actions relating to the ownership,
      operation, management and use of the Real Property, Improvements,
      Equipment or Tangible Collateral, the development and financing of the
      Project, the Improvements and the Equipment, and any improvements,
      modifications or additions thereto;

            (g) all the lands and interests in lands, tenements and
      hereditaments hereafter acquired by Grantor in connection with or
      appurtenant to the Real Property and/or any other property or rights
      subject to the lien hereof, including (without limitation) all interests
      of Grantor, whether as lessor or lessee, in any leases of land hereafter
      made and all rights of Grantor thereunder;

            (h) any and all other property in any way associated or used in
      connection with or appurtenant to the Real Property, Improvements,
      Equipment or Tangible Collateral that may from time to time, by delivery
      or by writing of any kind, be subjected to the lien hereof by Grantor or
      by anyone on its behalf or with its consent, or which may come into the
      possession or be subject to the control of Trustee or Beneficiary pursuant
      to this Deed of Trust, being hereby collaterally assigned to Beneficiary
      and subjected or added to the lien or estate created by this Deed of Trust
      forthwith upon the acquisition thereof by Grantor, as fully as if such
      property were now owned by Grantor and were specifically described in this
      Deed of Trust and subjected to the lien and security interest hereof; and
      Trustee and


                                       3


      Beneficiary are hereby authorized to receive any and all such property as
      and for additional security hereunder; and

            (i) any right of Grantor to elect to terminate the Ground Lease or
      remain in possession of the Real Property pursuant to 11 U.S.C. section
      365(h)(1) or any similar provision of applicable law and any possessory
      rights of Grantor in the Real Property pursuant to 11 U.S.C section
      365(h)(2) or any other similar provision of applicable law;

            (j) all the remainder or remainders, reversion or reversions, rents,
      revenues, issues, profits, royalties, income and other benefits derived
      from any of the foregoing, all of which are hereby assigned to
      Beneficiary, who is hereby authorized to collect and receive the same, to
      give proper receipts and acquittances therefor and to apply the same in
      accordance with the provisions of this Deed of Trust.

      Notwithstanding the foregoing, the Encumbered Property shall not include
that certain turbine that is currently on the Site that is encumbered by the
Siemans' lien as of the date hereof.

      TO HAVE AND TO HOLD the said Encumbered Property, whether now owned or
held or hereafter acquired, unto Beneficiary, its successors and assigns,
pursuant to the provisions of this Deed of Trust.

      IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security
interest or estate created by this Deed of Trust to secure the payment of the
Obligations, both present and future, shall be first, prior and superior to any
Lien, security interest, reservation of title or other interest (other than
superior Permitted Liens) heretofore, contemporaneously or subsequently suffered
or granted by Grantor, its legal representatives, successors or assigns, except
only those, if any, expressly hereinafter referred to and that the Deed of Trust
Property is to be held, dealt with and disposed of by Beneficiary, upon and
subject to the terms, covenants, conditions, uses and agreements set forth in
this Deed of Trust.

      PROVIDED ALWAYS, that upon payment in full of the Obligations in
accordance with the terms and provisions hereof and of the other Secured Debt
Documents and the observance and performance by Grantor of its covenants and
agreements set forth herein and therein, then this Deed of Trust and the estate
hereby and therein granted shall be cancelled and surrendered and shall be
reconveyed as provided herein below.

                            ARTICLE 1 - DEFINITIONS

      1.1 DEFINED TERMS. 11 Capitalized terms used in this Deed of Trust and not
otherwise defined herein shall have the meanings assigned to them in the
Collateral Trust Agreement. Any term defined by reference to an agreement,
instrument or other document shall have the meaning so assigned to it whether or
not such document is in effect. In addition, for purposes of this Deed of Trust,
the following definitions shall apply:

            "Applicable Law" means with respect to any Person or matter, any
federal, state, regional, tribal or local statute, law, code, rule, treaty,
convention, application, order, decree,


                                       4


      consent decree, injunction, directive, determination or other requirement
      (whether or not having the force of law) relating to such Person or matter
      and, where applicable, any interpretation thereof by a Governmental
      Authority having jurisdiction with respect thereto or charged with the
      administration or interpretation thereof.

            "Default Rate" has the meaning ascribed to it in the Secured Debt
Documents.

            "Easements" has the meaning ascribed to it in the Granting Clauses.

            "Encumbered Property" has the meaning ascribed to it in the Granting
Clauses.

            "Equipment" has the meaning ascribed to it in the Granting Clauses.

            "Event of Default" means an Actionable Default as defined under the
Collateral Trust Agreement.

            "Governmental Authority" means any and all courts, boards, agencies,
commissions, offices or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city, tribe or
otherwise) whether now or hereafter in existence charged with the
administration, interpretation or enforcement of any Applicable Law.

            "Improvements" has the meaning ascribed to it in the Granting
Clauses.

            "Legal Requirements" means (i) any and all present and future
judicial decisions, statutes, rulings, rules, regulations, licenses, decisions,
orders, injunctions, decrees, permits, certificates or ordinances of any
Governmental Authority in any way applicable to Grantor, or the Encumbered
Property, including the ownership, use, occupancy, operation, maintenance,
repair or reconstruction thereof, and any other Applicable Law enacted by any
Governmental Authority relating to health or the environment, (ii) Grantor's
presently or subsequently effective Organic Documents, (iii) any and all Leases,
(iv) any and all contracts (written or oral) of any nature to which Grantor, or
the Encumbered Property may be bound and (v) any and all restrictions,
restrictive covenants or zoning, present and future, as the same may apply to
the Encumbered Property.

            "Obligations" has the meaning ascribed to it in the Granting
Clauses.

            "Organic Documents" means the Articles of Incorporation, Certificate
of Incorporation, limited liability company certificate of formation and
regulations or operating agreement, partnership agreement, limited partnership
agreement, joint venture agreement, trust agreement or other similar documents
governing the organization and operation of a business association.

            "Permitted Lien" means the liens, easements, restrictions,
exceptions, reservations, conditions, limitations, security interests and other
matters (if any) as permitted in the Secured Debt Documents .


                                       5


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

            "Proceeds" has the meaning assigned to it under the UCC and, in any
event, shall include, without limitation, (i) any and all proceeds of any
insurance (including, without limitation, property casualty and title
insurance), indemnity, warranty or guaranty payable from time to time with
respect to any of the Encumbered Property; (ii) any and all proceeds in the form
of accounts (as such term is defined in the UCC), security deposits, tax escrows
(if any), down payments (to the extent the same may be pledged under applicable
law), collections, contract rights, documents, instruments, letters of credit,
chattel paper, liens and security instruments, guaranties or general intangibles
relating in whole or in part to the Encumbered Property and all rights and
remedies of whatever kind or nature Grantor may hold or acquire for the purpose
of securing or enforcing any obligation due Grantor thereunder.

            "Project" means that certain electric and steam production facility
located on the Site.

            "Real Property" has the meaning ascribed to it in the Granting
Clauses.

            "Secured Debt Documents" has the meaning ascribed to it in the
Collateral Trust Agreement.

            "Obligations" has the meaning ascribed to it in the Granting
Clauses.

            "Site" has the meaning ascribed to it in the Granting Clauses.

            "State" means the State of California.

            "Tangible Collateral" has the meaning ascribed to it in the Granting
Clauses.

            "UCC" means the Uniform Commercial Code as in effect from time to
time in the State of California, and the terms "Accounts," "Account Debtor, "As
Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
"Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
"Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have
the respective meanings assigned to such terms in the Uniform Commercial Code.

      1.2 ACCOUNTING TERMS. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not defined herein
shall have the respective meanings given to them under GAAP.

                  ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS

      2.1 GRANTOR PERFORMANCE OF SECURED DEBT DOCUMENTS. Grantor shall perform,
observe and comply with each and every provision hereof, and with each and every
provision contained in the Secured Debt Documents and shall promptly pay, when
payment shall become due,


                                       6


the principal with interest thereon and all other sums required to be paid by
Grantor under this Deed of Trust and the other Secured Debt Documents at the
time and in the manner provided in the Secured Debt Documents.

      2.2 GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES. Grantor, to the
best of its knowledge, represents, covenants and warrants that as of the date
hereof: (a) Grantor has good and marketable title to that portion of the Real
Property which constitutes real property interests including the Ground Lease
and the leasehold estate created thereby, free and clear of all encumbrances
except Permitted Liens with respect to the Site, the Ground Lease and other
matters which, individually and in the aggregate, do not have a materially
adverse effect upon the ownership or operation of the Site; (b) Grantor has the
right to hold, occupy and enjoy its interest in the Real Property on and subject
to the terms and conditions of the Ground Lease, and has good right, full power
and lawful authority to mortgage the same as provided herein, and Beneficiary
may at all times peaceably and quietly enter upon, hold, occupy and enjoy the
Real Property in accordance with the terms hereof; (c) except as otherwise
permitted in the Secured Debt Documents, all costs arising from construction of
any improvements, the performance of any labor and the purchase of all
Encumbered Property have been or shall be paid when due (except as permitted
(including permitted contests) in the Secured Debt Documents; (d) the Site has
access for ingress and egress to dedicated street(s); and (e) no material part
of the Encumbered Property has been damaged, destroyed, condemned or abandoned.

      2.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Grantor shall promptly comply in
all material respects with all Legal Requirements relating to its use and
occupancy of the Encumbered Property, whether or not such compliance requires
work or remedial measures that are ordinary or extraordinary, foreseen or
unforeseen, structural or nonstructural, or that interfere with the use or
enjoyment of the Encumbered Property (except as permitted (including permitted
contests) in the Secured Debt Documents).

      2.4 INSURANCE; APPLICATION OF INSURANCE PROCEEDS; APPLICATION OF EMINENT
DOMAIN PROCEEDS.

            2.4.1 Grantor shall carry, with financially sound and reputable
insurance companies and in amounts as is customary in the industry or as
otherwise required pursuant to the Secured Debt Documents, the following
insurance: (1) workmen's compensation insurance and public liability and
property damage insurance in respect of all activities in which Grantor might
incur personal liability for the death of or injury to an employee or third
person, or damage to or destruction of another's property; and (2) to the extent
such insurance is carried by similar companies engaged in similar undertakings
in, the same general areas in which the Encumbered Property, is located,
insurance in respect of the Equipment, against loss or damage by fire,
lightning, hail, tornado, explosion and other similar risks, hazards, casualties
and contingencies (including business interruption insurance covering loss of
revenues) with limits and sublimits as appropriate; provided, that any such
insurance may be provided by way of self insurance to the extent that similar
companies engaged in similar undertakings in the same general areas also
self-insure. Each insurance policy issued in connection therewith shall provide
by way of endorsements, riders or otherwise that (i) name Beneficiary as a loss
payee on all property insurance policies and an additional insured on all
liability insurance policies, and provide that proceeds from property insurance
policies will be payable to Beneficiary as its interest may


                                       7


appear, which proceeds are hereby assigned to Beneficiary, it being agreed by
Grantor that such payments shall be applied A) if there be no Event of Default
existing or which would exist but for due notice or lapse of time, or both, to
the restoration, repair or replacement of the Encumbered Property, or B) if
there be an Event of Default existing, or which would exist but for due notice
or lapse of time, or both, in accordance with the provisions of the Collateral
Trust Agreement, either for the above stated purpose or toward the payment of
the Indebtedness; (ii) the coverage of Beneficiary shall not be terminated,
reduced or affected in any manner regardless of any breach or violation by
Grantor of any warranties, declarations or conditions in such policy; (iii) no
such insurance policy shall be canceled, materially endorsed, materially altered
or reissued to effect a change in coverage for any reason and to any extent
whatsoever unless such insurer, their authorized representative or Grantor shall
have first given Beneficiary and each Secured Debt Representative thirty (30)
days prior written notice thereof; and (iv) Beneficiary may, but shall not be
obligated to, make premium payments to prevent any cancellation, endorsement,
alteration or re-issuance and such payments shall be accepted by the insurer to
prevent the same. Beneficiary shall be furnished with a certificate evidencing
such coverage in form and content as are customary in the industry. All policies
to be maintained under this Deed of Trust are to be issued on forms and by
companies and with endorsements as are customary in the industry. Grantor shall
maintain insurance in an amount sufficient to prevent Grantor from becoming a
co-insurer under any policy required hereunder. If Grantor fails to maintain the
level of insurance required under this Deed of Trust, then Grantor shall and
hereby agrees to indemnify Beneficiary to the extent that a casualty occurs and
insurance proceeds would have been available had such insurance been maintained;

            All insurance proceeds and all eminent domain proceeds shall be paid
and/or shall be applied in accordance with the provisions of the Secured Debt
Documents.

      2.5 ASSIGNMENT OF RENTS. Grantor unconditionally and absolutely assigns to
Beneficiary all of Grantor's right, title and interest in and to: all leases,
subleases, occupancy agreements, licenses, rental contracts and other similar
agreements now or hereafter existing relating to the use or occupancy of the
Encumbered Property, together with all guarantees, modifications, extensions and
renewals thereof; and all rents, issues, profits, income and proceeds due or to
become due from tenants of the Encumbered Property (the "Leases"), including
rentals and all other payments of any kind under any Leases now existing or
hereafter entered into, together with all deposits (including security deposits)
of tenants thereunder. This is an absolute assignment to Beneficiary and not an
assignment as security for the performance of the obligations under the Secured
Debt Documents, or any other indebtedness. Subject to the provisions of herein
below, Beneficiary shall have the right, power and authority to, but shall not
be obligated to: notify any person that the Leases have been assigned to
Beneficiary and that all rents and other obligations are to be paid directly to
Beneficiary, whether or not Beneficiary has commenced or completed foreclosure
or taken possession of the Encumbered Property; settle compromise, release,
extend the time of payment of, and make allowances, adjustments and discounts of
any rents or other obligations under the Leases; enforce payment of rents and
other rights under the Leases, prosecute any action or proceeding , and defend
against any claim with respect to rents and Leases; enter upon, take possession
of and operate the Encumbered Property; lease all or any part of the Encumbered
Property; and/or perform any and all obligations of Grantor under the Leases and
exercise any and all rights of Grantor therein contained to the full extent of
Grantor's rights and obligations thereunder, with or without the bringing of any
action or the appointment of a receiver.


                                       8


At Beneficiary's request, Grantor shall deliver a copy of this Deed of Trust to
each tenant under a Lease. Grantor irrevocably directs any tenant, without any
requirement for notice to or consent by Grantor, to comply with all demands of
Beneficiary under this Section 2.5 and to turn over to Beneficiary on demand all
rents which it receives. Beneficiary shall have the right, but not the
obligation, to use and apply all rents received hereunder in such order and such
manner as Beneficiary may determine in accordance with the Collateral Trust
Agreement. Notwithstanding that this is an absolute assignment of the rents and
Leases and not merely the collateral assignment of, or the grant of a lien or
security interest in the rents and Leases, Beneficiary grants to Grantor a
revocable license to collect and receive the rents and to retain, use and enjoy
such rents. Such license may be revoked by Beneficiary only upon the occurrence
of any Event of Default. Grantor shall apply any rents which it receives to the
payment due under the Obligations, taxes, assessments, water charges, sewer
rents and other governmental charges levied, assessed or imposed against the
Encumbered Property, insurance premiums, and other obligations of lessor under
the Leases before using such proceeds for any other purpose.

      2.6 REJECTION OF GROUND LEASE BY LESSOR. To the extent applicable, if the
lessor under the Ground Lease rejects or disaffirms the Ground Lease or purports
or seeks to disaffirm the Ground Lease pursuant to any bankruptcy law, then:

            2.6.1 To the extent permitted by law, Grantor shall remain in
possession of the Real Property demised under the Ground Lease and shall perform
all acts reasonably necessary for Grantor to remain in such possession for the
unexpired term of such Ground Lease (including all renewals), whether the then
existing terms and provisions of such Ground Lease require such acts or
otherwise; and

            2.6.2 All the terms and provisions of this Deed of Trust and the
lien created by this Deed of Trust shall remain in full force and effect and
shall extend automatically to all of Grantor's rights and remedies arising at
any time under, or pursuant to, any bankruptcy or insolvency laws, including all
of Grantor's rights to remain in possession of the Real Property.

      2.7 EXPENSES. Grantor shall indemnify Beneficiary with respect to any
transaction or matter in any way connected with any portion of the Encumbered
Property, or Grantor's use, occupancy, or operation of the Encumbered Property
in accordance with the Collateral Trust Agreement.

      2.8 BENEFICIARY ASSUMES NO OBLIGATIONS. It is expressly agreed that,
anything herein contained to the contrary notwithstanding, Grantor shall remain
obligated under all agreements which are included in the definition of
"Encumbered Property" and shall perform all of its obligations thereunder in
accordance with the provisions thereof, and neither Beneficiary, Trustee nor any
of the Secured Debtholders shall have any obligation or liability with respect
to such obligations of Grantor, nor shall Beneficiary, Trustee or any of the
Secured Debtholders be required or obligated in any manner to perform or fulfill
any obligations or duties of Grantor under such agreements, or to make any
payment or to make any inquiry as to the nature or sufficiency of any payment
received by it, or to present or file any claim or take any action to collect or
enforce the payment of any amounts which have been assigned to Beneficiary
hereunder or to which Beneficiary or the Secured Debtholders may be entitled at
any time or times.


                                       9


      2.9 FURTHER ASSURANCES. Grantor shall, from time to time, at its expense,
promptly execute and deliver all further instruments and documents, and take all
further action, that may be required pursuant to the Collateral Trust Agreement
and/or any Secured Debt Document, in order to perfect and continue the lien and
security interest granted hereby and to enable Beneficiary to obtain the full
benefits of the lien and security interest granted or intended to be granted
hereby. Grantor shall keep the Encumbered Property free and clear of all Liens,
other than Permitted Liens. Without limiting the generality of the foregoing,
Grantor shall execute and record or file this Deed of Trust and each amendment
hereto, and such financing or continuation statements, or amendments thereto,
and such other instruments, endorsements or notices, as may be necessary, or as
may be required pursuant to the Collateral Trust Agreement and/or any Secured
Debt Document, in order to perfect and preserve the lien and security interest
granted or purported to be granted hereby. Grantor hereby authorizes Beneficiary
to file one or more financing statements or continuation statements, and
amendments thereto, relative to all or any part of the Encumbered Property
necessary to preserve or protect the lien and security interest granted hereby
without the signature of Grantor where permitted by law.

      2.10 ACTS OF GRANTOR. Except as provided in or permitted by the Secured
Debt Documents, Grantor hereby represents and warrants that it has not granted,
mortgaged, hypothecated, assigned or pledged and hereby covenants that it will
not grant, mortgage, hypothecate, assign or pledge, so long as this Deed of
Trust shall remain in effect, any of its right, title or interest in and to the
Encumbered Property or any part thereof, other than Permitted Liens, to anyone
other than Beneficiary.

      2.11 AFTER-ACQUIRED PROPERTY. Any and all of the Encumbered Property which
is hereafter acquired shall immediately, without any further conveyance,
assignment or act on the part of Grantor or Beneficiary, become and be subject
to the lien and security interest of this Deed of Trust as fully and completely
as though specifically described herein, but nothing contained in this Section
2.11 shall be deemed to modify or change the obligations of Grantor under
Section 2.9 hereof. If and whenever from time to time Grantor shall hereafter
acquire any real property or interest therein which constitutes or is intended
to constitute part of the Encumbered Property hereunder, Grantor shall promptly
give notice thereof to Beneficiary and Grantor shall forthwith execute,
acknowledge and deliver to Beneficiary a supplement to this Deed of Trust
subjecting the property so acquired to the lien of this Deed of Trust.

      2.12 ENCUMBERED PROPERTY.

            2.12.1 Grantor shall pay or cause to be paid all rent and other
charges required under the Ground Lease as and when the same are due and shall
promptly and faithfully perform or cause to be performed all other material
terms, obligations, covenants, conditions, agreements, indemnities and
liabilities of Grantor under the Ground Lease. Grantor shall observe all
applicable covenants, easements and other restrictions of record with respect to
the Site, the Easements or to any other part of the Encumbered Property, in all
material respects.

            2.12.2 Grantor shall do, or cause to be done, all things necessary
to preserve and keep unimpaired all rights of Grantor as lessee under the Ground
Lease, and to prevent any default under the Ground Lease, or any termination,
surrender, cancellation, forfeiture, subordination or impairment thereof.
Grantor does hereby authorize and irrevocably appoint and


                                       10


constitute Beneficiary as its true and lawful attorney-in-fact, which
appointment is coupled with an interest, in its name, place and stead, to take
any and all actions deemed necessary or desirable by Beneficiary to perform and
comply with all the obligations of Grantor under the Ground Lease, and to do and
take upon the occurrence and during continuation of an Event of Default, but
without any obligation so to do or take, any action which Beneficiary deems
reasonably necessary to prevent or cure any default by Grantor under the Ground
Lease, to enter into and upon the Real Property and Improvements or any part
thereof as provided in the Secured Debt Documents in order to prevent or cure
any default of Grantor pursuant thereto, to the end that the rights of Grantor
in and to the leasehold estate created by the Ground Lease shall be kept free
from default.

            2.12.3 Grantor shall use all reasonable efforts to enforce the
obligations of the lessor under the Ground Lease in a commercially reasonable
manner.

            2.12.4 Grantor shall not voluntarily surrender its leasehold estate
and interest under the Ground Lease or modify, change, supplement, alter or
amend the Ground Lease or affirmatively waive any provisions thereof, either
orally or in writing, except as permitted in the Secured Debt Documents, and any
attempt on the part of Grantor to do any of the foregoing without the written
consent of Beneficiary shall be null and void.

            2.12.5 If any action or proceeding shall be instituted to evict
Grantor or to recover possession of the Encumbered Property or any part thereof
or interest therein from Grantor or any action or proceeding otherwise affecting
the Encumbered Property or this Deed of Trust shall be instituted, then Grantor
shall, immediately after receipt, deliver to Beneficiary a true and complete
copy of each petition, summons, complaint, notice of motion, order to show cause
and all other pleadings and papers, however designated, served in any such
action or proceeding.

            2.12.6 Grantor covenants and agrees that the fee title to the Real
Property and Improvements and the leasehold estate created under the Ground
Lease shall not merge but shall always remain separate and distinct,
notwithstanding the union of said estates either in Grantor or a third party by
purchase or otherwise and, in case Grantor acquires the fee title or any other
estate, title or interest in and to the Real Property and Improvements, the lien
of this Deed of Trust shall, without further conveyance, simultaneously with
such acquisition, be spread to cover and attach to such acquired estate and as
so spread and attached shall be prior to the lien of any deed of trust placed on
the acquired estate after the date of this Deed of Trust.

            2.12.7 No release or forbearance of any of Grantor's obligations
under the Ground Lease by the lessor thereunder, shall release Grantor from any
of its obligations under this Deed of Trust.

            2.12.8 Grantor shall, within ten days after written demand from
Beneficiary, deliver to Beneficiary proof of payment of all items that are
required to be paid by Grantor under the Ground Lease, including, without
limitation, rent, taxes, operating expenses and other charges.


                                       11


            2.12.9 The lien of this Deed of Trust shall attach to all of
Grantor's rights and remedies at any time arising under or pursuant to
bankruptcy or insolvency law, including, without limitation, all of Grantor's
rights to remain in possession of the Encumbered Property. Grantor shall not
elect to treat the Ground Lease as terminated under bankruptcy or insolvency
law, and any such election shall be void.

                  2.12.9.1 If pursuant to bankruptcy or insolvency law, Grantor
shall seek to offset against the rent reserved in the Ground Lease the amount of
any damages caused by the nonperformance by the lessor or any other party of any
of their respective obligations thereunder after the rejection by the lessor or
such other party of the Ground Lease under any bankruptcy or insolvency law,
then Grantor shall, prior to effecting such offset, notify Beneficiary of its
intent to do so, setting forth the amount proposed to be so offset and the basis
therefor. Beneficiary shall have the right to object to all or any part of such
offset that would constitute a breach of the Ground Lease, and in the event of
such objection, Grantor shall not effect any offset of the amounts found
objectionable by Beneficiary. Neither Beneficiary's failure to object as
aforesaid nor any objection relating to such offset shall constitute an approval
of any such offset by Beneficiary.

                  2.12.9.2 If any action, proceeding, motion or notice shall be
commenced or filed in respect of the lessor under the Ground Lease or any other
party or in respect of the Ground Lease in connection with any case under any
bankruptcy or insolvency law, then Beneficiary shall have the option to
intervene in any such litigation with counsel of Beneficiary's choice.
Beneficiary may proceed in its own name in connection with any such litigation,
and Grantor agrees to execute any and all powers, authorizations, consents or
other documents required by Beneficiary in connection therewith.

                  2.12.9.3 Grantor shall, after obtaining knowledge thereof,
promptly notify Beneficiary of any filing by or against the lessor or other
party with an interest in the Encumbered Property of a petition under any
bankruptcy or insolvency law. Grantor shall promptly deliver to Beneficiary,
following receipt, copies of any and all notices, summonses, pleadings,
applications and other documents received by Grantor in connection with any such
petition and any proceedings relating thereto.

                  2.12.9.4 If there shall be filed by or against Grantor a
petition under any bankruptcy or insolvency law, and Grantor, as lessee under
the Ground Lease, shall determine to reject the Ground Lease pursuant to any
bankruptcy or insolvency law, then Grantor shall give Beneficiary a notice of
the date on which Grantor shall apply to the bankruptcy court for authority to
reject the Ground Lease (such notice to be no later than twenty (20) days prior
to such date). Beneficiary shall have the right, but not the obligation, to
serve upon Grantor at any time prior to the date on which Grantor shall so apply
to the bankruptcy court a notice stating that Beneficiary demands that Grantor
assume and assign the Ground Lease to Beneficiary pursuant to any bankruptcy or
insolvency law. If Beneficiary shall serve upon Grantor the notice described in
the preceding sentence, to the extent permitted by law or Governmental Authority
Grantor shall not seek to reject the Ground Lease and shall comply with the
demand provided for in the preceding sentence. In addition, effective upon the
entry of an order for relief with respect to Grantor under any bankruptcy or
insolvency law, Grantor hereby assigns and transfers to Beneficiary a
non-exclusive right to apply to the bankruptcy court under any bankruptcy or
insolvency law for an


                                       12


order extending the period during which the Ground Lease may be rejected or
assumed; and shall (a) promptly notify Beneficiary of any default by Grantor in
the performance or observance of any of the terms, covenants or conditions on
the part of Grantor to be performed or observed under the Ground Lease and of
the giving of any written notice by the lessor thereunder to Grantor of any such
default, and (b) promptly cause a copy of each written notice given to Grantor
by the lessor under the Ground Lease to be delivered to Beneficiary. Beneficiary
may rely on any notice received by it from any such lessor of any default by
Grantor under the Ground Lease and may take such action as may be permitted by
law or Governmental Authority to cure such default even though the existence of
such default or the nature thereof shall be questioned or denied by Grantor or
by any Person on its behalf.

      2.13 POWER OF ATTORNEY. Grantor does hereby irrevocably constitute and
appoint Beneficiary, its true and lawful attorney (which appointment is coupled
with an interest), with full power of substitution, for Grantor and in the name,
place and stead of Grantor or in Beneficiary's own name, for so long as any of
the Obligations are outstanding, to ask, demand, collect, receive, receipt for
and sue for any and all rents, income and other sums which are assigned
hereunder with full power to endorse the name of Grantor on all instruments
given in payment or in part payment thereof, to settle, adjust or compromise any
claims thereunder as fully as Grantor itself could do and file any claim or take
any action or proceeding, either in its own name or in the name of Grantor or
otherwise, as are necessary or appropriate to protect and preserve the right,
title and interest of Beneficiary in and to such rents, income and other sums
and the security intended to be afforded hereby; provided that Beneficiary shall
not exercise such rights unless an Event of Default has occurred and is
continuing.

      2.14 COVENANT TO PAY. If an Event of Default has occurred and is
continuing and such Event of Default could reasonably be expected to materially
and adversely affect Beneficiary's interest hereunder in the Encumbered Property
or result in personal injury, then Beneficiary, among its other rights and
remedies, shall have the right, but not the obligation, to pay, observe or
perform the same, in whole or in part, and with such modifications as
Beneficiary reasonably shall deem advisable. To the extent provided in the
Secured Debt Documents, all sums, including, without limitation, reasonable
attorneys fees, so expended or incurred by Beneficiary by reason of the default
of Grantor, or by reason of the bankruptcy or insolvency of Grantor, as well as,
without limitation, sums expended or incurred to sustain the lien or estate of
this Deed of Trust or its priority, or to protect or enforce any rights of
Beneficiary hereunder, or to recover any of the Obligations, or to complete
construction of the Project for which the Secured Debt Documents are intended as
financing, or for repairs, maintenance, alterations, replacements or
improvements thereto or for the protection thereof, or for real estate taxes or
other governmental assessments or charges against any part of the Encumbered
Property, or premiums for insurance of the Encumbered Property, shall be
entitled to the benefit of the lien on the Encumbered Property as of the date of
the recording of this Deed of Trust, shall be deemed to be added to and be part
of the Obligations secured hereby, whether or not the result thereof causes the
total amount of the Obligations to exceed the stated amount set forth in the
Recital B of this Deed of Trust, and shall be repaid by Grantor as provided in
the Secured Debt Documents.

      2.15 SECURITY AGREEMENT.

            2.15.1 This Deed of Trust shall also be a security agreement between
Grantor and


                                       13


Beneficiary covering the Encumbered Property constituting personal property or
fixtures (hereinafter collectively called "UCC Collateral") governed by the UCC
in effect in the State as the same may be more specifically set forth in any
financing statement delivered in connection with this Deed of Trust, and as
further security for the payment and performance of the Obligations, Grantor
hereby grants to Beneficiary a security interest in such portion of the
Encumbered Property to the full extent that the Encumbered Property may be
subject to the UCC. In addition to Beneficiary's other rights hereunder,
Beneficiary shall have all rights of a secured party under the UCC. Grantor
shall execute and deliver to Beneficiary all financing statements and such
further assurances that may be required to establish, create, perfect (to the
extent the same can be achieved by the filing of a financing statement) and
maintain the validity and priority of Beneficiary's security interests, and
Grantor shall bear all reasonable costs thereof, including all UCC searches.
Except as otherwise provided in the Secured Debt Documents, if Beneficiary
should dispose of any of the Encumbered Property comprising the UCC Collateral
pursuant to the UCC, ten (10) days prior written notice by Beneficiary to
Grantor shall be deemed to be reasonable notice; provided, however, Beneficiary
may, but shall not obligated to, dispose of such property in accordance with the
foreclosure procedures of this Deed of Trust in lieu of proceeding under the
UCC. Beneficiary may, but shall not be obligated, from time to time, execute and
deliver at Grantor's expense, all continuation statements, termination
statements, amendments, partial releases, or other instruments relating to all
financing statements by and between Grantor and Beneficiary. Except as otherwise
provided in the Secured Debt Documents, if an Event of Default shall occur and
is continuing, (a) Beneficiary, in addition to any other rights and remedies
which it may have, may exercise immediately and without demand to the extent
permitted by law, any and all rights and remedies granted to a secured party
under the UCC including, without limiting the generality of the foregoing, the
right to take possession of the UCC Collateral or any part thereof, and to take
such other measures as may be necessary for the care, protection and
preservation of such collateral and (b) upon request or demand of Beneficiary,
Grantor shall at its expense, assemble the UCC Collateral and make it available
to Beneficiary at a convenient place acceptable to Beneficiary. Grantor shall
pay to Beneficiary on demand, any and all expenses, including reasonable
attorneys' fees and disbursements incurred or paid by Beneficiary in protecting
the interest in the UCC Collateral and in enforcing the rights hereunder with
respect to such UCC Collateral.

                              ARTICLE 3 - REMEDIES

      3.1 PROTECTIVE ADVANCES. If an Event of Default shall have occurred and is
continuing, then without thereby limiting Beneficiary's other rights or
remedies, waiving or releasing any of Grantor's obligations, or imposing any
obligation on Beneficiary, Beneficiary may, but shall not be obligated to,
either advance any amount owing or perform any or all actions as may be
necessary or appropriate to cure such default. All such advances shall
constitute "Protective Advances." No sums advanced or performance rendered by
Beneficiary shall cure, or be deemed a waiver of any Event of Default.

      3.2 INSTITUTION OF EQUITY PROCEEDINGS. If an Event of Default occurs and
is continuing, Beneficiary may, but shall not be obligated to, institute an
action, suit or proceeding in equity for specific performance of this Deed of
Trust or any other Secured Debt Document, all of which shall be specifically
enforceable by injunction or other equitable remedy.


                                       14


      3.3 BENEFICIARY'S POWER OF ENFORCEMENT.

            3.3.1 If an Event of Default occurs and is continuing, Beneficiary
may, but shall not be obligated to, prepare and record on its own behalf, or to
deliver to Trustee for recording, if appropriate, written declaration of default
and demand for sale and written notice of breach and election to sell (or other
statutory notice) to cause the Encumbered Property to be sold to satisfy the
obligations hereof, and in the case of delivery to Trustee, Trustee shall cause
said notice to be filed for record.

            3.3.2 After the lapse of such time as may then be required by law
following the recordation of said notice of breach of election to sell, and
notice of sale having been given as then required by law, Trustee without demand
on Grantor, shall sell the Encumbered Property or any portion thereof at the
time and place fixed by it in said notice, either as a whole or in separate
parcels, and in such order as it may determine, at public auction to the highest
bidder, of cash in lawful money of the United States payable at the time of
sale. Trustee may, for any cause it deems expedient, postpone the sale of all or
any portion of said property until it shall be completed and, in every case,
notice of postponement shall be given by public announcement thereof at the time
and place last appointed for the sale and from time to time thereafter Trustee
may postpone such sale by public announcement at the time fixed by the preceding
postponement; provided that Trustee shall give Grantor notice of such
postponement to the extent required by law. Trustee shall execute and deliver to
the purchaser its deed, bill of sale, or other instrument conveying said
property so sold, but without any covenant or warranty, express or implied. The
recitals in such instrument of conveyance of any matters or facts shall be
conclusive proof of the truthfulness thereof. Any person, including Beneficiary,
may bid at the sale.

            3.3.3 After deducting all costs, fees and expenses of Trustee and of
this Deed of Trust, including, without limitation, costs of evidence of title
and reasonable attorneys' fees of Trustee or Beneficiary in connection with a
sale, Trustee shall apply the proceeds of such sale to payment of all sums
expended under the terms hereof not then repaid, with accrued interest at the
interest rate on the Obligations, then to the payment of all other sums then
secured hereby, and the remainder, if any, to the person or persons legally
entitled thereto.

            3.3.4 If any Event of Default occurs and is continuing, Beneficiary
may, but shall not be obligated, to the extent permitted by law, either with or
without entry or taking possession of the Encumbered Property, and without
regard to whether or not the indebtedness and other sums secured hereby shall be
due and without prejudice to the right of Beneficiary thereafter to bring an
action or proceeding to foreclose or any other action for any other Event of
Default existing at the time such earlier action was commended, proceed by any
appropriate action or proceeding: (1) to enforce payment of the Obligations, to
the extent permitted by law, or the performance of any term hereof or any other
right; (2) to foreclose this Deed of Trust in any manner provided by law for the
foreclosure of mortgages or deeds of trust on real property and to sell, as an
entirety or in separate lots or parcels, the Encumbered Property or any portion
thereof pursuant to the laws of the State of or under the judgment or decree of
a court or courts of competent jurisdiction, and Beneficiary shall be entitled
to recover in any such proceeding all costs and expenses incident thereto,
including reasonable attorneys' fees in such amount as shall be awarded by the
court; (3) to exercise any or all of the rights and remedies available to it
under the Secured Debt Documents; and (4) to pursue any other remedy available
to it. Beneficiary may take action either by such proceedings or by the


                                       15


exercise of its powers with respect to entry or taking possession, or both, as
Beneficiary may in its sole discretion, determine.

            3.3.5 The remedies described in this Section 3.3 may be exercised
with respect to all or any portion of the UCC Collateral, either simultaneously
with the sale of any real property encumbered hereby or independent thereof.
Beneficiary may, at any time, proceed with respect to all or any portion of the
UCC Collateral in any manner permitted by the UCC. Trustor agrees that
Beneficiary's inclusion of all or any portion of the UCC Collateral in a sale or
other remedy exercised with respect to the real property encumbered hereby, as
permitted by the UCC, is a commercially reasonable disposition of such property.

            3.3.6 Where the Encumbered Property consists of real property and
personal property, any reinstatement of the Obligations, following the
occurrence of an Event of Default and an election by the Beneficiary to
accelerate the maturity of the Obligations, which is made by Trustor or any
other person or entity permitted to exercise the right of reinstatement under
Section 2924c of the California Civil Code, or any successor statute, shall, in
accordance with the terms of UCC Section 9604, not prohibit the Beneficiary from
conducting a sale or other disposition of any personally property or from
otherwise proceeding against or continuing to proceed against any personal
property in any manner permitted by the UCC; nor shall any such reinstatement
invalidate, rescind or otherwise affect any sale, disposition or other
proceeding held, conducted or instituted with respect to any personal property
prior to such reinstatement. Any sums paid to Beneficiary, in effecting any
reinstatement pursuant to Section 2924c of the California Civil Code shall be
applied to the Obligations and to Beneficiary's and Trustee's reasonable costs
and expenses in the manner required by Section 2924c.

            3.3.7 Beneficiary is authorized, but shall not be obligated, to
foreclose this Deed of Trust subject to the rights of any tenants of the
Encumbered Property, and the failure to make any such tenants parties to any
such foreclosure proceedings and to foreclose their rights will not be, nor be
asserted to be by Grantor, a defense to any proceedings instituted by
Beneficiary to collect the sums secured hereby.

            3.3.8 After deducting all costs, fees and expenses of Beneficiary
and of this Deed of Trust, including, without limitation, costs of evidence of
title and reasonable attorneys' fees of Beneficiary in connection with a sale,
Beneficiary may, but shall not be obligated to, apply the proceeds of such sale
to payment of all sums expended under the terms hereof not then repaid, with
accrued interest at the Default Rate then to the payment of all other sums then
secured hereby and the remainder, if any, to the person or persons legally
entitled thereto.

      3.4 BENEFICIARY'S RIGHT TO ENTER AND TAKE POSSESSION, OPERATE AND APPLY
INCOME.

            (a) If an Event of Default occurs and is continuing, Grantor, upon
demand of Beneficiary, shall forthwith surrender to Beneficiary the actual
possession and, if and to the extent permitted by law, Beneficiary itself, or by
such officers or agents as it may appoint, may enter and take possession of all
of the Encumbered Property, including the Tangible Collateral, without liability
for trespass, damages or otherwise, and may exclude Grantor and its agents and
employees wholly therefrom and may have joint access with Grantor to the books,
papers and accounts of


                                       16


Grantor.

            (b) If an Event of Default has occurred and is continuing and
Grantor shall for any reason fail to surrender or deliver the Encumbered
Property or any part thereof after Beneficiary's demand, Beneficiary may obtain
a judgment or decree conferring on Beneficiary or Trustee the right to immediate
possession or requiring Grantor to deliver immediate possession of all or part
of such property to Beneficiary or Trustee and Grantor hereby specifically
consents to the entry of such judgment or decree. Grantor shall pay to
Beneficiary or Trustee, upon demand, all costs and expenses of obtaining such
judgment or decree and reasonable compensation to Beneficiary or Trustee, its
attorneys and agents, and all such costs, expenses and compensation shall, until
paid, be secured by the lien, security title and security interest of this Deed
of Trust.

            (c) Upon every such entering upon or taking of possession,
Beneficiary may hold, store, use, operate, manage and control the Encumbered
Property and conduct the business thereof, and, from time to time and without
being under any duty to so act:

                  (1) make all necessary and proper maintenance, repairs,
renewals and replacements thereto and thereon, and all necessary additions,
betterments and improvements thereto and thereon and purchase or otherwise
acquire fixtures, personalty and other property in connection therewith;

                  (2) insure or keep the Encumbered Property insured;

                  (3) manage and operate the Encumbered Property and exercise
all the rights and powers of Grantor in their name or otherwise with respect to
the same;

                  (4) enter into agreements with others to exercise the powers
herein granted Beneficiary and Trustee, all as Beneficiary or Trustee from time
to time may determine; and shall apply the monies so received by Beneficiary in
such priority as provided by the Secured Debt Documents to (1) the payment of
interest and principal due and payable to the Beneficiary, (2) the deposits for
taxes and assessments and insurance premiums due, (3) the cost of insurance,
taxes, assessments and other proper charges upon the Encumbered Property or any
part thereof; (4) the compensation, expenses and disbursements of the agents,
attorneys and other representatives of Beneficiary or Trustee as allowed under
this Deed of Trust; and (5) any other charges or costs required to be paid by
Grantor under the terms of the Secured Debt Documents.

                  (5) rent or sublet the Encumbered Property or any portion
thereof for any purpose permitted by this Deed of Trust.

            Beneficiary shall surrender possession of the Encumbered Property to
Grantor (i) as may be required by law or court order, or (ii) when all amounts
under any of the terms of the Secured Debt Documents, including this Deed of
Trust, shall have been paid current and all Events of Default have been cured or
waived. The same right of taking possession, however, shall exist if any
subsequent Event of Default shall occur and be continuing.


                                       17


      3.5 SEPARATE SALES. To the extent permitted by law or Governmental
Authority, the Encumbered Property may be sold in one or more parcels and in
such manner and order as Beneficiary or Trustee, in its sole discretion, may
elect, it being expressly understood and agreed that the right of sale arising
out of any Event of Default shall not be exhausted by any one or more sales.

      3.6 WAIVER OF APPRAISEMENT, MORATORIUM, VALUATION, STAY, EXTENSION AND
REDEMPTION LAWS. Grantor agrees to the full extent permitted by law that if an
Event of Default occurs and is continuing, neither Grantor nor anyone claiming
through or under it shall or will set up, claim or seek to take advantage of any
appraisement, moratorium, valuation, stay, extension or redemption laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Deed of Trust or the absolute sale of the Encumbered Property or any
portion thereof or the final and absolute putting into possession thereof,
immediately after such sale, of the purchasers thereof, and Grantor for itself
and all who may at any time claim through or under it, hereby waives, to the
full extent that it may lawfully so do, the benefit of all such laws, and any
and all right to have the assets comprising the Encumbered Property marshaled
upon any foreclosure of the lien hereof and agrees that Beneficiary, Trustee or
any court having jurisdiction to foreclose such lien may sell the Encumbered
Property in part or as an entirety.

      3.7 RECEIVER. If an Event of Default occurs and is continuing,
Beneficiary, to the extent permitted by law, and without regard to the value,
adequacy or occupancy of the security for the indebtedness and other sums
secured hereby, shall be entitled but not obligated to, if it so elects to the
appointment of a receiver to enter upon and take possession of the Encumbered
Property and to collect all earnings, revenues and receipts and apply the same
as the court may direct, and such receiver may be appointed by any court of
competent jurisdiction upon application by Beneficiary. To the extent permitted
by law, Beneficiary may have a receiver appointed without notice to Grantor or
any third party, and Beneficiary may waive any requirement that the receiver
post a bond. To the extent permitted by law, Beneficiary shall have the power to
designate and select the Person who shall serve as the receiver and to negotiate
all terms and conditions under which such receiver shall serve. To the extent
permitted by law, any receiver appointed on Beneficiary's behalf may be an
Affiliate of Beneficiary. The reasonable expenses, including receiver's fees,
reasonable attorneys' fees, costs and agents' compensation, incurred pursuant to
the powers herein contained shall be secured by this Deed of Trust. The right to
enter and take possession of and to manage and operate the Encumbered Property
and to collect all earnings, revenues and receipts, whether by a receiver or
otherwise, shall be cumulative to any other right or remedy available to
Beneficiary under this Deed of Trust, the other Secured Debt Documents or
otherwise available to Beneficiary and may be exercised concurrently therewith
or independently thereof, but such rights shall be exercised in a manner which
is otherwise in accordance with and consistent with the Secured Debt Documents.
Beneficiary shall be liable to account only for such earnings, revenues and
receipts (including, without limitation, security deposits) actually received by
Beneficiary, whether received pursuant to this section or any other provision
hereof. Notwithstanding the appointment of any receiver or other custodian,
Beneficiary shall be entitled as pledgee to the possession and control of any
cash, deposits, or instruments at the time held by, or payable or deliverable
under the terms of this Deed of Trust to, Beneficiary.

      3.8 SUITS TO PROTECT THE ENCUMBERED PROPERTY. Beneficiary shall have the
power and authority to institute and maintain any suits and proceedings as may
be advisable (a) to prevent


                                       18


any impairment of the Encumbered Property by any acts which may be unlawful or
in violation of this Deed of Trust, (b) to preserve or protect its interest in
the Encumbered Property, or (c) to restrain the enforcement of or compliance
with any legislation or other Legal Requirement that may be unconstitutional or
otherwise invalid, if the enforcement of or compliance with such enactment, rule
or order might impair the security hereunder or be prejudicial to Beneficiary's
interest.

      3.9 PROOFS OF CLAIM. In the case of any receivership, insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceedings affecting Grantor, any Affiliate or any guarantor, co-maker
or endorser of any of Grantor's obligations, its creditors or its property,
Beneficiary, to the extent permitted by law, shall be entitled, but shall not be
obligated, to file such proofs of claim or other documents as may be necessary
or advisable in order to have its claims allowed in such proceedings for the
entire amount due and payable by Grantor under the Secured Debt Documents, at
the date of the institution of such proceedings, and for any additional amounts
which may become due and payable by Grantor after such date.

      3.10 GRANTOR TO PAY AMOUNTS SECURED HEREBY ON ANY DEFAULT IN PAYMENT;
APPLICATION OF MONIES BY BENEFICIARY.

            (a) In case of a foreclosure sale of all or any part of the
Encumbered Property and of the application of the proceeds of sale to the
payment of the sums secured hereby, to the extent permitted by law, the Secured
Debtholders shall be entitled to enforce payment from Grantor of any additional
amounts then remaining due and unpaid and to recover judgment against Grantor
for any portion thereof remaining unpaid, with interest at the Default Rate.

            (b) Grantor hereby agrees to the extent permitted by law, that no
recovery of any such judgment by the Secured Debtholders or other action by the
Secured Debtholders and no attachment or levy of any execution upon any of the
Encumbered Property or any other property shall in any way affect the Lien and
security interest of this Deed of Trust upon the Encumbered Property or any part
thereof or any Lien, rights, powers or remedies of Beneficiary hereunder, but
such Lien, rights, powers and remedies shall continue unimpaired as before.

            (c) Any monies collected or received by Beneficiary under this
Section 3.10 shall be first applied to the payment of compensation, expenses and
disbursements of the agents, attorneys and other representatives of the
Beneficiary and the Secured Debtholders, and the balance remaining shall be
applied as provided in the Collateral Trustee Agreement.

      3.11 DELAY OR OMISSION; NO WAIVER. No delay or omission of Beneficiary or
the Secured Debtholders to exercise any right, power or remedy upon any Event of
Default shall exhaust or impair any such right, power or remedy or shall be
construed to waive any such Event of Default or to constitute acquiescence
therein. Every right, power and remedy given to Beneficiary whether contained
herein or in the other Secured Debt Documents or otherwise available to
Beneficiary may be exercised from time to time and as often as may be deemed
expedient by Beneficiary.

      3.12 NO WAIVER OF ONE DEFAULT TO AFFECT ANOTHER. No waiver of any defaults
hereunder shall extend to or affect any subsequent or any other defaults then
existing, or impair any rights, powers or remedies consequent thereon. If
Beneficiary (a) grants forbearance or an


                                       19


extension of time for the payment of any sums secured hereby; (b) takes other or
additional security for the payment thereof; (c) waives or does not exercise any
right granted in this Deed of Trust or any other Secured Debt Document; (d)
releases any part of the Encumbered Property from the lien or security interest
of this Deed of Trust or any other instrument securing the Obligations; (e)
consents to the filing of any map, plat or replat of the Real Property or any
part thereof; (f) consents to the granting of any easement on the Real Property;
or (g) makes or consents to any agreement changing the terms of this Deed of
Trust or any other Secured Debt Document subordinating the lien or any charge
hereof, no such act or omission shall release, discharge, modify, change or
affect the liability under this Deed of Trust or any other Secured Debt Document
or otherwise of Grantor, or any subsequent purchaser of the Encumbered Property
or any part thereof or any maker, co-signer, surety or guarantor with respect to
any other matters not addressed by such act or omission. No such act or omission
shall preclude Beneficiary from exercising any right, power or privilege herein
granted or intended to be granted in case of any Event of Default then existing
or of any subsequent Event of Default, nor, except as otherwise expressly
provided in an instrument or instruments executed by Beneficiary, shall the lien
or security interest of this Deed of Trust be altered thereby, except to the
extent expressly provided in such acts or omissions. In the event of the sale or
transfer by operation of law or otherwise of all or any part of the Encumbered
Property, Beneficiary, without notice to any person, firm or corporation, is
hereby authorized and empowered to deal with any such vendee or transferee with
reference to the Encumbered Property or the indebtedness secured hereby, or with
reference to any of the terms or conditions hereof, as fully and to the same
extent as it might deal with the original parties hereto and without in any way
releasing or discharging any of the liabilities or undertakings hereunder, or
waiving its right to declare such sale or transfer an Event of Default as
provided herein. Notwithstanding anything to the contrary contained in this Deed
of Trust or any other Secured Debt Document, (i) in the case of any non-monetary
default, Beneficiary may continue to accept payments due hereunder without
thereby waiving the existence of such or any other default and (ii) in the case
of any monetary Event of Default, Beneficiary may accept partial payments of any
sums due hereunder without thereby waiving the existence of such Event of
Default if the partial payment is not sufficient to completely cure such Event
of Default.

      3.13 DISCONTINUANCE OF PROCEEDINGS; POSITION OF PARTIES RESTORED. If
Beneficiary shall have proceeded to enforce any right or remedy under this Deed
of Trust by foreclosure, entry of judgment or otherwise and such proceedings
shall have been discontinued or abandoned for any reason, or such proceedings
shall have resulted in a final determination adverse to Beneficiary, then and in
every such case Grantor and Beneficiary shall be restored to their former
positions and rights hereunder, and all rights, powers and remedies of
Beneficiary shall continue as if no such proceedings had occurred or had been
taken.

      3.14 REMEDIES CUMULATIVE. Subject to the provisions of Section 4.17
hereof, no right, power or remedy, including without limitation remedies with
respect to any security for the Obligations, conferred upon or reserved to
Beneficiary by this Deed of Trust or any other Secured Debt Document is
exclusive of any other right, power or remedy, but each and every such right,
power and remedy shall be cumulative and concurrent and shall be in addition to
any other right, power and remedy given hereunder or under any other Secured
Debt Document, now or hereafter existing at law, in equity or by statute, and
Beneficiary shall be entitled to resort to such rights, powers, remedies or
security as Beneficiary may deem advisable.


                                       20


      3.15 INTEREST AFTER EVENT OF DEFAULT. If an Event of Default shall have
occurred and is continuing, all sums outstanding and unpaid under the Secured
Debt Documents, including this Deed of Trust, may bear interest at the Default
Rate until such Event of Default has been cured. Grantor's obligation to pay
such interest shall be secured by this Deed of Trust.

      3.16 FORECLOSURE; EXPENSES OF LITIGATION. If Beneficiary or Trustee
foreclose, reasonable attorneys' fees for services in the supervision of said
foreclosure proceeding shall be allowed to the Beneficiary or Trustee as part of
the foreclosure costs. In the event of foreclosure of the lien hereof, there
shall be allowed and included as additional indebtedness all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraisers' fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after foreclosure sale or entry of the
decree) of procuring all such abstracts of title, title searches and
examinations, title insurance policies and guarantees, and similar data and
assurances with respect to title as are necessary either to prosecute such suit
or to evidence to a bidder at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Encumbered Property or
any portion thereof. All expenditures and expenses of the nature in this section
mentioned, and such expenses and fees as may be incurred in the protection of
the Encumbered Property and the maintenance of the lien and security interest of
this Deed of Trust, including the reasonable fees of any attorney employed by
Beneficiary in any litigation or proceeding affecting this Deed of Trust or any
other Secured Debt Document, the Encumbered Property or any portion thereof,
including, without limitation, civil, probate, appellate and bankruptcy
proceedings, or in preparation for the commencement or defense of any proceeding
or threatened suit or proceeding, shall be immediately due and payable by
Grantor, with interest thereon at the Default Rate, and shall be secured by this
Deed of Trust. Trustee waives its right to any statutory fee in connection with
any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept
a reasonable fee for such services.

      3.17 DEFICIENCY JUDGMENTS. If after foreclosure of this Deed of Trust,
there shall remain any deficiency with respect to any amounts payable under the
Secured Debt Documents, including hereunder, or any amounts secured hereby, and
Beneficiary may institute, to the extent permitted by law, any proceedings to
recover such deficiency or deficiencies, all such amounts shall continue to bear
interest at the Default Rate. Grantor waives any defense to Beneficiary's
recovery against Grantor, to the extent permitted by law, of any deficiency
after any foreclosure sale of the Encumbered Property. To the extent permitted
by law, Grantor expressly waives any defense or benefits that may be derived
from any statute granting Grantor any defense to any such recovery by
Beneficiary. In addition, Beneficiary and Trustee shall be entitled to recovery
of all of its reasonable costs and expenditures (including without limitation
any court imposed costs) in connection with such proceedings, including their
reasonable attorneys' fees, appraisal fees and the other costs, fees and
expenditures referred to in Section 3.16 above. This provision shall survive any
foreclosure or sale of the Encumbered Property, any portion thereof and/or the
extinguishment of the lien hereof.

      3.18 WAIVER OF JURY TRIAL. Beneficiary and Grantor each waive any right to
have a jury participate in resolving any dispute whether sounding in contract,
tort or otherwise arising out of, connected with, related to or incidental to
the relationship established between them in connection with this Deed of Trust
or any other Secured Debt Document. Any such disputes shall be resolved in a
bench trial without a jury.


                                       21


      3.19 EXCULPATION OF BENEFICIARY. The acceptance by Beneficiary of the
assignment contained herein with all of the rights, powers, privileges and
authority created hereby shall not, prior to entry upon and taking possession of
the Encumbered Property by Beneficiary, be deemed or construed to make
Beneficiary a "mortgagee in possession"; nor thereafter or at any time or in any
event obligate Beneficiary to appear in or defend any action or proceeding
relating to the Encumbered Property, nor shall Beneficiary, prior to such entry
and taking, be liable in any way for any injury or damage to person or property
sustained by any Person in or about the Encumbered Property.

                               ARTICLE 4 - GENERAL

      4.1 DISCHARGE. When all of the Obligations shall have been paid in full,
then this Deed of Trust and the lien and security interest created hereby shall
be of no further force and effect, Grantor shall be released from the covenants,
agreements and obligations of Grantor contained in this Deed of Trust and all
right, title and interest in and to the Encumbered Property shall revert to
Grantor. Beneficiary, at the request and the expense of Grantor, shall promptly
execute a deed of reconveyance and such other documents as may be reasonably
requested by Grantor to evidence the discharge and satisfaction of this Deed of
Trust and the release of Grantor from its obligations hereunder.

      4.2 NO WAIVER. The exercise of the privileges granted in this Deed of
Trust to perform Grantor's obligations under the agreements which constitute the
Encumbered Property shall in no event be considered or constitute a waiver of
any right which Beneficiary may have at any time, after an Event of Default
shall have occurred and be continuing, to declare the Obligations to be
immediately due and payable. No delay or omission to exercise any right, remedy
or power accruing upon any default shall impair any such right, remedy or power
or shall be construed to be a waiver of any such default or acquiescence
therein; and every such right, remedy and power may be exercised from time to
time and as often as may be deemed expedient.

      4.3 EXTENSION, REARRANGEMENT OR RENEWAL OF OBLIGATIONS. It is expressly
agreed that any of the Obligations at any time secured hereby may be from time
to time extended for any period, or with the consent of Grantor rearranged or
renewed, and that any part of the security herein described, or any other
security for the Obligations, may be waived or released, without altering,
varying or diminishing the force, effect or lien or security interest of this
Deed of Trust; and the lien and security interest granted by this Deed of Trust
shall continue as a prior lien and security interest on all of the Encumbered
Property not expressly so released, until the Obligations are fully paid and
this Deed of Trust is terminated in accordance with the provisions hereof; and
no other security now existing or hereafter taken to secure the payment of the
Obligations or any part thereof or the performance of any obligation or
liability of Grantor whatever shall in any manner impair or affect the security
given by this Deed of Trust; and all security for the payment of the Obligations
or any part thereof and the performance of any obligation or liability shall be
taken, considered and held as cumulative.

      4.4 FORCIBLE DETAINER. Grantor agrees for itself and all Persons claiming
by, through or under it, that subsequent to foreclosure hereunder in accordance
with this Deed of Trust and applicable law if Grantor shall hold possession of
the Encumbered Property or any part thereof, Grantor or the Persons so holding
possession shall be guilty of trespass; and any such Person


                                       22


(including Grantor) failing or refusing to surrender possession upon demand
shall be guilty of forcible detainer and shall be liable to Beneficiary or any
purchaser in foreclosure, as applicable, for reasonable rental on said premises,
and shall be subject to eviction and removal in accordance with law.

      4.5 WAIVER OF STAY OR EXTENSION. To the extent permitted to be waived by
law, Grantor shall not at any time insist upon or plead or in any manner
whatever claim the benefit or advantage of any stay, extension or moratorium law
now or at any time hereafter in force in any locality where the Encumbered
Property or any part thereof may or shall be situated, nor shall Grantor claim
any benefit or advantage from any law now or hereafter in force providing for
the valuation or appraisement of the Encumbered Property or any part thereof
prior to any sale thereof to be made pursuant to any provision of this Deed of
Trust or to a decree of any court of competent jurisdiction, nor after any such
sale shall Grantor claim or exercise any right conferred by any law now or at
any time hereafter in force to redeem the Encumbered Property so sold or any
part thereof; and Grantor hereby expressly waives all benefit or advantage of
any such law or laws and the appraisement of the Encumbered Property or any part
thereof, and covenants that Grantor shall not hinder or delay the execution of
any power herein granted and delegated to Beneficiary but that Grantor shall
permit the execution of every such power as though no such law had been made.

      4.6 NOTICES. Except where certified or registered mail notice is required
by applicable law, any notice to Grantor or Beneficiary required or permitted
hereunder shall be deemed to be given when given in the manner prescribed in the
Collateral Trust Agreement.

      4.7 SEVERABILITY. All rights, powers and remedies provided herein may be
exercised only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Deed of Trust invalid, unenforceable or not entitled
to be recorded, registered or filed under any applicable law. In the event any
term or provision contained in this Deed of Trust is in conflict, or may
hereafter be held to be in conflict, with the laws of the State or of the United
States of America, this Deed of Trust shall be affected only as to such
particular term or provision, and shall in all other respects remain in full
force and effect.

      4.8 APPLICATION OF PAYMENTS. In the event that any part of the Obligations
cannot lawfully be secured hereby, or in the event that the lien and security
interest hereof cannot be lawfully enforced to pay any part of the Obligations,
or in the event that the lien or security interest created by this Deed of Trust
shall be invalid or unenforceable as to any part of the Obligations, then all
payments on the Obligations shall be deemed to have been first applied to the
complete payment and liquidation of that part of the Obligations which is not
secured by this Deed of Trust and the unsecured portion of the Obligations shall
be completely paid and liquidated prior to the payment and liquidation of the
remaining secured portion of the Obligations.

      4.9 GOVERNING LAW. THIS DEED OF TRUST IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

      4.10 AMENDMENTS. This Deed of Trust may be amended, supplemented or
otherwise modified only by an instrument in writing signed by Grantor and
Beneficiary.


                                       23


      4.11 SUCCESSORS AND ASSIGNS. All terms of this Deed of Trust shall run
with the land and bind each of Grantor and Beneficiary and their respective
successors and assigns, and all Persons claiming under or through Grantor or
Beneficiary, as the case may be, or any such successor or assign, and shall
inure to the benefit of Beneficiary and Grantor, and their respective successors
and assigns.

      4.12 RENEWAL, ETC. To the extent permitted under the other Secured Debt
Documents, Beneficiary may, but shall not be obligated to, at any time and from
time to time renew or extend this Deed of Trust, or alter or modify the same in
any way, or waive any of the terms, covenants or conditions hereof in whole or
in part and may release any portion of the Encumbered Property or any other
security, and grant such extensions and indulgences in relation to the
Obligations as Beneficiary may determine, without the consent of any junior
lienor or encumbrancer and without any obligation to give notice of any kind
thereto and without in any manner affecting the priority of the lien and
security interest hereof on any part of the Encumbered Property; provided that
nothing in this Section 4.12 shall grant Beneficiary the right to alter or
modify the Deed of Trust without the consent of the Grantor unless otherwise
specifically permitted in this Deed of Trust.

      4.13 FUTURE ADVANCES. It is understood and agreed that this Deed of Trust
secures, among other things, (i) the Priority Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of Grantor
under the Priority Lien Documents; (ii) the Parity Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of Grantor
under the Parity Lien Documents; (iii) all Obligations under any other Priority
Lien Debt or Parity Lien Debt; (iv) any sums advanced or expenses or costs
incurred by Beneficiary or any Secured Debtholder, or by any receiver appointed
hereunder, which are made or incurred pursuant to, or permitted by, the terms
hereof, plus interest thereon at the rate therein specified or otherwise agreed
upon, from the date of the advances or the incurring of such expenses or costs
until reimbursed; (v) any and all other indebtedness of Grantor to Beneficiary
now or hereafter owing, whether direct or indirect, primary or secondary, fixed
or contingent, joint or several, regardless of how evidenced or arising, where
the indebtedness provides that it is secured hereby; and (vi) any extensions,
refinancings, modifications or renewals of all such indebtedness described in
subparagraphs (i) through (iv) above, whether or not Grantor executes any
extension agreement or renewal instrument, and that the lien of any such future
advances shall relate to the date of this Deed of Trust.

      4.14 LIABILITY. Notwithstanding any provision in this Deed of Trust to the
contrary, none of Beneficiary, Trustee or any Secured Debt Representative or any
of their agents shall be liable for any error of judgment or act done in good
faith, or be otherwise responsible or accountable under any circumstances
whatsoever. None of Beneficiary, Trustee or any Secured Debt Representative or
any of their agents shall be personally liable in case of entry by them, or
anyone entering by virtue of the powers herein granted them, upon the Encumbered
Property for debts contracted or liability or damages incurred in the management
or operation of the Encumbered Property. Such persons shall have the right to
rely on any instrument, document or signature authorizing or supporting any
action taken or proposed to be taken by them hereunder, believed by them in good
faith to be genuine. Beneficiary, Trustee or any Secured Debt Representative or
any of their agents shall be entitled to reimbursement for expenses incurred by
them in the performance of their duties hereunder and to reasonable compensation
for such of their services hereunder as shall be rendered. Grantor will, from
time to time, pay the compensation due hereunder and reimburse such parties for,


                                       24


and save them harmless against, any and all liability and expenses which may be
incurred by them in the performance of their duties.

      4.15 SUCCESSOR TRUSTEE. Any Trustee may resign in writing addressed to
Beneficiary or may be removed at any time with or without cause by an instrument
in writing duly executed by Beneficiary. In case of the death, resignation or
removal of a Trustee, one or more successor Trustee may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of Applicable Law, and in the absence of any such requirement
without formality other than appointment and designation in writing. Such
appointment and designation shall be full evidence of the right and authority to
make the same and of all facts therein recited, and upon the making of any such
appointment and designation this conveyance shall vest in the named successor
Trustee or Trustee, all the estate and title of the prior Trustee in all of the
Encumbered Property, and he or they shall thereupon succeed to all the rights,
powers, privileges, immunities and duties hereby conferred upon the prior
Trustee. All references herein to Trustee shall be deemed to refer to Trustee
from time to time acting hereunder.

      4.16 ACTIONS OR ADVANCES BY BENEFICIARY OR TRUSTEE. Each and every
covenant herein contained shall be performed and kept by Grantor solely at
Grantor's expense. If Grantor shall fail to perform or keep any of the covenants
of whatsoever kind or nature contained in this Deed of Trust, Beneficiary, or
Trustee or any receiver appointed hereunder or under Applicable Law, may, but
shall not be obligated to, take action and/or make advances to perform the same
in Grantor's behalf, and Grantor hereby agrees to repay the expense of such
action and such advances upon demand plus interest as set forth in the
Collateral Trust Agreement. No such advance or action by Beneficiary, Trustee or
any receiver appointed hereunder shall be deemed to relieve Grantor from any
default hereunder.

      4.17 SEVERABILITY AND COMPLIANCE WITH USURY LAW. The Secured Debt
Documents are intended to be performed in accordance with, and only to the
extent permitted by, all applicable Applicable Laws and Legal Requirements. If
any provision of any of the Secured Debt Documents or the application thereof to
any person or circumstance shall, for any reason and to any extent, be invalid
or unenforceable, neither the remainder of the instrument in which such
provision is contained, nor the application of such provision to other persons
or circumstances, nor the other instruments referred to hereinabove, shall be
affected thereby, but rather shall be enforceable to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of
Grantor at all times to comply with the applicable State law governing the
maximum rate or amount of interest payable on or in connection with the
Obligations. If the Applicable Law is ever judicially interpreted so as to
render usurious any amount called for under the Secured Debt Documents, or
contracted for, charged, taken, reserved or received with respect to the
extension of credit evidenced by the Secured Debt Documents or if acceleration
of the maturity of the Obligations or if any prepayment by Grantor results in
Grantor having paid any interest in excess of that permitted by law, then it is
Grantor's and Beneficiary's express intent that all excess amounts theretofore
collected by Beneficiary be credited on the principal balance due under the
Secured Debt Documents (or, if the Secured Debt Documents have been or would
thereby be paid in full, refunded to Grantor), and the provisions of the Secured
Debt Documents immediately be deemed reformed and the amounts thereafter
collectible thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and thereunder.
The right to


                                       25


accelerate maturity of Obligations does not include the right to accelerate any
interest which has not otherwise accrued on the date of such acceleration, and
Beneficiary may not collect any unearned interest in the event of acceleration.
All sums paid or agreed to be paid to Beneficiary for the use, forbearance or
detention of the Obligations may, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of the
Obligations until payment in full so that the rate or amount of interest on
account of the Obligations does not exceed the applicable usury ceiling.

      4.18 RELEASE OF COLLATERAL. Notwithstanding any provision herein to the
contrary, the Encumbered Property or any part thereof may be released from the
security interest created by this Deed of Trust in accordance with the
provisions of the Collateral Trust Agreement.

      4.19 TIME OF THE ESSENCE. Grantor acknowledges that time is of the essence
in performing all of Grantor's obligations set forth herein.

      4.20 COUNTERPART EXECUTION. This Deed of Trust may be executed by the
parties hereto in any number of counterparts (and be each of the parties hereof
on separate counterparts), each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.

      4.21 FIXTURE FILING. Under Uniform Commercial Code, Grantor and
Beneficiary agree, to the extent permitted by law, that: (i) this Deed of Trust
upon recording or registration in the real estate records of the proper office
shall constitute a financing statement filed as a "fixture filing" within the
meaning of Sections 9334 and 9502 of the UCC; (ii) all or part of the Encumbered
Property are or are to become fixtures; and (iii) the addresses of Grantor and
Beneficiary are as set forth on the first page of this Deed of Trust.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       26


                                                 [OTAY MESA/METCALF], CALIFORNIA

      IN WITNESS WHEREOF, Grantor has caused this Deed of Trust to be duly
executed and delivered as of the day and year first above written.

                                        GRANTOR:

                                        CALPINE CORPORATION, a Delaware
                                        corporation


                                        By: ____________________________________
                                        Name: __________________________________
                                        Title: _________________________________


                                      S-1


STATE OF            )
                    )
COUNTY OF _________ )

            On _______________, before me, ____________________, a Notary Public
in and for said state, personally appeared _______________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.

            WITNESS my hand and official seal.


                                        ________________________________________
                                        Notary Public in and for said State


                                      S-2


                                                 [OTAY MESA/METCALF], CALIFORNIA

                                    EXHIBIT A

                         DESCRIPTION OF LEASED PREMISES

                                  See attached.



                                                 [OTAY MESA/METCALF], CALIFORNIA

                                    EXHIBIT B

                            DESCRIPTION OF EASEMENTS

               [legal descriptions to be inserted at a later date]

EX-10.37

                                                                   EXHIBIT 10.37

                                                           WASHINGTON PARISH, LA

RECORDING REQUESTED BY AND
WHEN RECORDED, RETURN TO:

ANE C. PRIESTER
LATHAM & WATKINS LLP
633 W. FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071

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

              MORTGAGE, COLLATERAL ASSIGNMENT OF LEASES AND RENTS,
                   SECURITY AGREEMENT AND FINANCING STATEMENT

                            DATED AS OF JULY 16, 2003

                                       BY

                              CALPINE CORPORATION,
                             A DELAWARE CORPORATION,
                                  AS MORTGAGOR

                                       TO

                              THE BANK OF NEW YORK,
                         A NEW YORK BANKING CORPORATION,
                                  AS MORTGAGEE

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



                                TABLE OF CONTENTS



                                                                                                   PAGE
                                                                                                   ----
                                                                                                
ARTICLE 1 - DEFINITIONS .......................................................................       4

         1.1    Defined Terms .................................................................       4
         1.2    Accounting Terms ..............................................................       6

ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS ..................................................       6

         2.1    Mortgagor Performance of Secured Debt Documents ...............................       6
         2.2    General Representations, Covenants and Warranties .............................       6
         2.3    Compliance with Legal Requirements ............................................       7
         2.4    Insurance; Application of Insurance Proceeds; Application of Eminent Domain
                Proceeds ......................................................................       7
         2.5    Assignment of Rents ...........................................................       8
         2.6    [Reserved.] ...................................................................       9
         2.7    Expenses ......................................................................       9
         2.8    Mortgagee Assumes No Obligations ..............................................       9
         2.9    Further Assurances ............................................................       9
         2.10   Acts of Mortgagor .............................................................       9
         2.11   After-Acquired Property .......................................................       9
         2.12   Site ..........................................................................      10
         2.13   Power of Attorney .............................................................      10
         2.14   Covenant to Pay ...............................................................      10
         2.15   Security Agreement ............................................................      11

ARTICLE 3 - REMEDIES ..........................................................................      11

         3.1    Protective Advances ...........................................................      11
         3.2    Institution of Equity Proceedings .............................................      12
         3.3    Mortgagee's Power of Enforcement ..............................................      12
         3.4    Mortgagee's Right to Enter and Take Possession, Operate and Apply Income ......      14
         3.5    Separate Sales ................................................................      15
         3.6    Waiver of Appraisement, Moratorium, Valuation, Stay, Extension, Redemption
                Laws and Other Rights .........................................................      15
         3.7    Receiver ......................................................................      15
         3.8    Suits to Protect the Mortgaged Property .......................................      16
         3.9    Proofs of Claim ...............................................................      16
         3.10   Mortgagor to Pay Amounts Secured Hereby on Any Default in Payment;
                Application of Monies
                by Mortgagee ..................................................................      16
         3.11   Delay or Omission; No Waiver ..................................................      17
         3.12   No Waiver of One Default to Affect Another ....................................      17
         3.13   Discontinuance of Proceedings; Position of Parties Restored ...................      18
         3.14   Remedies Cumulative ...........................................................      18
         3.15   Interest After Event of Default ...............................................      18
         3.16   Foreclosure; Expenses of Litigation ...........................................      18
         3.17   Deficiency Judgments ..........................................................      19
         3.18   Waiver of Jury Trial ..........................................................      19
         3.19   Exculpation of Mortgagee ......................................................      19



                                        i


                                                                                                  
ARTICLE 4 - GENERAL ...........................................................................      19

         4.1    Discharge .....................................................................      19
         4.2    No Waiver .....................................................................      19
         4.3    Extension, Rearrangement or Renewal of Obligations ............................      20
         4.4    Forcible Detainer .............................................................      20
         4.5    Waiver of Stay or Extension ...................................................      20
         4.6    Notices .......................................................................      20
         4.7    Severability ..................................................................      20
         4.8    Application of Payments .......................................................      21
         4.9    GOVERNING LAW .................................................................      21
         4.10   Amendments ....................................................................      21
         4.11   Successors and Assigns ........................................................      21
         4.12   Renewal .......................................................................      21
         4.13   Future Advances ...............................................................      21
         4.14   Liability .....................................................................      22
         4.15   Severability and Compliance With Usury Law ....................................      22
         4.16   Release of Collateral .........................................................      23
         4.17   Time of the Essence ...........................................................      23
         4.18   Counterpart Execution .........................................................      23
         4.19   WAIVER OF MORTGAGOR'S RIGHTS ..................................................      23
         4.20   Attorneys' Fees ...............................................................      23




                                       ii


                                                           WASHINGTON PARISH, LA

              MORTGAGE, COLLATERAL ASSIGNMENT OF LEASES AND RENTS,
                   SECURITY AGREEMENT AND FINANCING STATEMENT

STATE OF LOUISIANA

COUNTY OR PARISH OF WASHINGTON

      BE IT KNOWN, that on this 16th day of July, 2003, before me, the
undersigned Notary Public duly commissioned and qualified, personally came and
appeared:

            CALPINE CORPORATION, a Delaware corporation, successor by merger
            with Washington Parish Energy Center, LLC, having a mailing address
            of 50 West San Fernando Street, San Jose, CA 95113, and a federal
            taxpayer identification number of 77-0212977, appearing herein
            through its undersigned representative, duly authorized hereunto
            pursuant to resolutions of its Board of Directors

(the "Mortgagor"), who declared that Mortgagor does by these presents declare
and acknowledge an indebtedness unto:

            THE BANK OF NEW YORK, a New York banking corporation, having a
            mailing address of 101 Barclay Street, New York, New York 10286, and
            a federal taxpayer identification number of 13-5160382, acting not
            in its individual capacity but solely as Collateral Trustee under
            the Collateral Trust Agreement dated July 16, 2003 (the "Collateral
            Trust Agreement") among Mortgagor, the 2007 Trustee, the 2010
            Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan
            Administrative Agent

(the "Mortgagee"). References to this "Mortgage" shall mean this instrument and
any and all renewals, modifications, amendments, supplements, extensions,
consolidations, substitutions, spreaders, restatements and replacements of this
instrument.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                    Recitals

      A. Mortgagor has entered into an Amended and Restated Credit Agreement
dated as of July 16, 2003 (the "Credit Agreement") among, inter alia, Mortgagor,
the Lenders referred to therein and The Bank of Nova Scotia as Administrative
Agent, relating to a $500,000,000 senior secured credit facility made available
in the form of revolving loans and term loans, including letters of credit
issued thereunder.

      B. Mortgagor also intends to (a) issue $500,000,000 in aggregate principal
amount of Second Priority Senior Floating Rate Secured Notes due 2007 (the "2007
Notes") pursuant to the



Indenture dated as of July 16, 2003 (the "2007 Indenture") between Mortgagor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2007 Trustee"), (b) issue $1,150,000,000 in aggregate principal
amount of 8.50% Second Priority Senior Secured Fixed Rate Notes due 2010 (the
"2010 Notes") pursuant to the Indenture dated as of July 16, 2003 (the "2010
Indenture") between Mortgagor and Wilmington Trust Company, as Trustee (together
with its successors in such capacity, the "2010 Trustee"), (c) issue
$900,000,000 in aggregate principal amount of 8.75% Second Priority Senior
Secured Fixed Rate Notes due 2013 (the "2013 Notes") pursuant to the Indenture
dated as of July 16, 2003 (the "2013 Indenture") between Mortgagor and
Wilmington Trust Company, as Trustee (together with its successors in such
capacity, the "2013 Trustee"), and (d) borrow $750,000,000 in Term Loans (the
"Term Loans") pursuant to a Term Loan Agreement dated as of July 16, 2003 (the
"Term Loan Agreement") between Mortgagor and Goldman Sachs Credit Partners L.P.,
as Administrative Agent (together with its successors in such capacity, the
"Term Loan Administrative Agent").

      C. As permitted pursuant to the Secured Debt Documents, Mortgagor may
incur future debt which could, together with the obligations under the Credit
Agreement, constitute Priority Lien Debt and Mortgagor may incur future debt
which could, together with the 2007 Notes, 2010 Notes, the 2013 Notes and the
Term Loans, constitute Parity Lien Debt, provided that the aggregate amount of
the Secured Debt to be secured hereby shall not exceed $4,200,000,000. Mortgagor
intends to secure certain obligations, including the obligations (a) under the
Credit Agreement and any future Priority Lien Debt, equally and ratably, on a
priority basis, and (b) subject to such priority, under the 2007 Notes, 2010
Notes, 2013 Notes and Term Loans and any future Parity Lien Debt, equally and
ratably, with liens and security interests in, among other collateral, the
Mortgaged Property under the Existing Mortgage, as contemplated in the
Collateral Trust Agreement.

      D. Mortgagor (i) is the owner of the interests in the lands described in
Exhibit A attached hereto and (ii) owns, leases or otherwise has the right to
use all of the buildings, improvements, structures and fixtures located on the
lands described in Exhibit A and is executing and delivering this instrument in
order to secure its Obligations (as defined below).

                                    Agreement

      NOW, THEREFORE, to secure the prompt and complete payment when and as due
and payable of all of the obligations and liabilities of Mortgagor to Mortgagee,
by acceleration or otherwise, arising out of or in connection with the Credit
Agreement, the 2007 Indenture, the 2010 Indenture, the 2013 Indenture and the
Term Loan Agreement and the obligations of Mortgagor set forth herein
(collectively, the "Obligations"), and in consideration of the covenants herein
and therein, Mortgagor, intending to be legally bound, does hereby grant,
bargain, sell, convey, warrant, assign, transfer, mortgage, pledge, set over
hypothecate, transfer and confirm unto Mortgagee as set forth in this Mortgage,
all of Mortgagor's estate, right, title, interest, property, claim and demand,
now or hereafter arising, in and to the following property and rights (herein
collectively called the "Mortgaged Property"):

            (a) Mortgagor's interest in the lands and premises more particularly
      described in Exhibit A hereto (the "Site");

            (b) any and all easements, leases, licenses, option rights,
      rights-of-way and other rights used in connection with the Site or as a
      means of access thereto, all easements for


                                       2


      ingress and egress and easements for water, natural gas and sewage
      pipelines, running in favor of Mortgagor, or appurtenant to the Site, and
      any and all sidewalks, alleys, strips and gores of land adjacent thereto
      or used in connection therewith together with all and singular the
      tenements, hereditaments and appurtenances thereto, and with any land
      lying within the right-of-way of any streets, open or proposed, adjoining
      the same (including, without limitation, the easements, leases, licenses
      and other instruments described in Exhibit B hereto) (collectively, the
      "Easements"; and the Site and the Easements collectively referred to
      herein as the "Real Property");

            (c) all buildings, structures, fixtures and other improvements now
      or hereafter erected on the Real Property, including the Project
      (collectively, the "Improvements");

            (d) all machinery, apparatus, equipment, fittings, fixtures,
      boilers, turbines and other articles of personal property, including all
      goods and all goods which become fixtures, now owned or hereafter acquired
      by Mortgagor and now or hereafter located on, attached to or used in the
      operation of or in connection with the Real Property and/or the
      Improvements, and all replacements thereof, additions thereto and
      substitutions therefor, to the fullest extent permitted by applicable law
      (all of the foregoing being hereinafter collectively called the
      "Equipment");

            (e) all raw materials, work in process and other materials used or
      consumed in the construction of, or now or hereafter located on or used in
      connection with, the Real Property, the Improvements and/or the Equipment,
      (including, without limitation, fuel and fuel deposits, now or hereafter
      located on the Real Property or elsewhere or otherwise owned by Mortgagor)
      (the above items, together with the Equipment, being hereinafter
      collectively called the "Tangible Collateral");

            (f) all rights, powers, privileges and other benefits of Mortgagor
      (to the extent assignable) now or hereafter obtained by Mortgagor and/or
      from any Governmental Authority, including, without limitation, permits
      issued in the name of Mortgagor, governmental actions relating to the
      ownership, operation, management and use of the Real Property,
      Improvements, Equipment or Tangible Collateral, the development and
      financing of the Project, the Improvements and the Equipment, and any
      improvements, modifications or additions thereto;

            (g) all the lands and interests in lands, tenements and
      hereditaments hereafter acquired by Mortgagor in connection with or
      appurtenant to the Real Property and/or any other property or rights
      subject to the lien hereof, including (without limitation) all interests
      of Mortgagor, whether as lessor or lessee, in any leases of land hereafter
      made and all rights of Mortgagor thereunder;

            (h) any and all other property in any way associated or used in
      connection with or appurtenant to the Real Property, Improvements,
      Equipment or Tangible Collateral that may from time to time, by delivery
      or by writing of any kind, be subjected to the lien hereof by Mortgagor or
      by anyone on its behalf or with its consent, or which may come into the
      possession or be subject to the control of Mortgagee pursuant to this
      Mortgage, being hereby collaterally assigned to Mortgagee and subjected or
      added to the lien or estate created by this Mortgage forthwith upon the
      acquisition thereof by Mortgagor, as fully as if such property


                                       3


      were now owned by Mortgagor and were specifically described in this
      Mortgage and subjected to the lien and security interest hereof; and
      Mortgagee is hereby authorized to receive any and all such property as and
      for additional security hereunder; and

            (i) all the remainder or remainders, reversion or reversions, rents,
      revenues, issues, profits, royalties, income and other benefits derived
      from any of the foregoing, all of which are hereby assigned to Mortgagee,
      who is hereby authorized to collect and receive the same, to give proper
      receipts and acquittances therefor and to apply the same in accordance
      with the provisions of this Mortgage.

      The maximum amount of the Obligations that may be outstanding at any time
and from time to time that this Mortgage secures, including without limitation
as a mortgage and a collateral assignment, including all principal, interest and
any sums paid or incurred by Mortgagee pursuant to this Mortgage, including
without limitation under Section 2.14 and Section 3.1 hereof, and all other
amounts included within the Obligations, is 4.2 billion ($4,200,000,000)
dollars.

      Notwithstanding any provision herein to the contrary, the Mortgaged
Property or any part thereof may be released from the conveyance created by this
Mortgage in accordance with the provisions of the Collateral Trust Agreement.

      TO HAVE AND TO HOLD the said Mortgaged Property, whether now owned or held
or hereafter acquired, unto Mortgagee, its successors and assigns, pursuant to
the provisions of this Mortgage.

      IT IS HEREBY COVENANTED, DECLARED AND AGREED that the lien, security
title, security interest or estate created by this Mortgage to secure the
payment of the Obligations, both present and future, shall be first, prior and
superior to any Lien, security interest, reservation of title or other interest
(other than superior Permitted Liens) heretofore, contemporaneously or
subsequently suffered or granted by Mortgagor, its legal representatives,
successors or assigns, except only those, if any, expressly hereinafter referred
to and that the Mortgaged Property is to be held, dealt with and disposed of by
Mortgagee, upon and subject to the terms, covenants, conditions, uses and
agreements set forth in this Mortgage.

      PROVIDED ALWAYS, that upon payment in full of the Obligations in
accordance with the terms and provisions hereof and of the other Secured Debt
Documents and the observance and performance by Mortgagor of its covenants and
agreements set forth herein and therein, then this Mortgage and the estate
hereby and therein granted shall be cancelled and surrendered and shall be
reconveyed as provided herein below.

                            ARTICLE 1 - DEFINITIONS

      1.1 Defined Terms. (a) Capitalized terms used in this Mortgage and not
otherwise defined herein shall have the meanings assigned to them in the
Collateral Trust Agreement. Any term defined by reference to an agreement,
instrument or other document shall have the meaning so assigned to it whether or
not such document is in effect. In addition, for purposes of this Mortgage, the
following definitions shall apply:


                                       4


            "Applicable Law" means with respect to any Person or matter, any
federal, state, regional, tribal or local statute, law, code, rule, treaty,
convention, application, order, decree, consent decree, injunction, directive,
determination or other requirement (whether or not having the force of law)
relating to such Person or matter and, where applicable, any interpretation
thereof by a Governmental Authority having jurisdiction with respect thereto or
charged with the administration or interpretation thereof.

            "Default Rate" has the meaning ascribed to it in the Secured Debt
Documents.

            "Easements" has the meaning ascribed to it in the Granting Clauses.

            "Equipment" has the meaning ascribed to it in the Granting Clauses.

            "Event of Default" means an Actionable Default as defined under the
Collateral Trust Agreement.

            "Governmental Authority" means any and all courts, boards, agencies,
commissions, offices or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city, tribe or
otherwise) whether now or hereafter in existence charged with the
administration, interpretation or enforcement of any Applicable Law.

            "Improvements" has the meaning ascribed to it in the Granting
Clauses.

            "Legal Requirements" means (i) any and all present and future
judicial decisions, statutes, rulings, rules, regulations, licenses, decisions,
orders, injunctions, decrees, permits, certificates or ordinances of any
Governmental Authority in any way applicable to Mortgagor, or the Mortgaged
Property, including the ownership, use, occupancy, operation, maintenance,
repair or reconstruction thereof, and any other Applicable Law enacted by any
Governmental Authority relating to health or the environment, (ii) Mortgagor's
presently or subsequently effective Organic Documents, (iii) any and all Leases,
(iv) any and all leases and other contracts (written or oral) of any nature to
which Mortgagor, or the Mortgaged Property may be bound and (v) any and all
restrictions, restrictive covenants or zoning, present and future, as the same
may apply to the Mortgaged Property.

            "Mortgaged Property" has the meaning ascribed to it in the Granting
Clauses.

            "Obligations" has the meaning ascribed to it in the Granting
Clauses.

            "Organic Documents" means the Articles of Incorporation, Certificate
of Incorporation, limited liability company certificate of formation and
regulations or operating agreement, partnership agreement, limited partnership
agreement, joint venture agreement, trust agreement or other similar documents
governing the organization and operation of a business association.

            "Permitted Lien" means the liens, easements, building lines,
restrictions, exceptions, reservations, conditions, limitations, security
interests and other matters (if any) as permitted in the Secured Debt Documents.


                                       5


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

            "Proceeds" has the meaning assigned to it under the UCC and, in any
event, shall include, without limitation, (i) any and all proceeds of any
insurance (including, without limitation, property casualty and title
insurance), indemnity, warranty or guaranty payable from time to time with
respect to any of the Mortgaged Property; (ii) any and all proceeds in the form
of accounts (as such term is defined in the UCC), security deposits, tax escrows
(if any), down payments (to the extent the same may be pledged under applicable
law), collections, contract rights, documents, instruments, letters of credit,
chattel paper, liens and security instruments, guaranties or general intangibles
relating in whole or in part to the Mortgaged Property and all rights and
remedies of whatever kind or nature Mortgagor may hold or acquire for the
purpose of securing or enforcing any obligation due Mortgagor thereunder.

            "Project" means that certain 600 MW (approximately) power generating
facility located on the Real Property.

            "Real Property" has the meaning ascribed to it in the Granting
Clauses.

            "Secured Debt Documents" has the meaning ascribed to it in the
Collateral Trust Agreement.

            "Site" has the meaning ascribed to it in the Granting Clauses.

            "State" means that state in which the Site is located.

            "Tangible Collateral" has the meaning ascribed to it in the Granting
Clauses.

            "UCC" means the Uniform Commercial Code as in effect from time to
time in the State of Louisiana, and the terms "Accounts," "Account Debtor, "As
Extracted Collateral," "Chattel Paper," "Contract Rights," "Deposit Accounts,"
"Documents," "Electronic Chattel Paper," "General Intangibles," "Goods,"
"Equipment," "Fixtures," "Inventory," "Instruments," and "Proceeds" shall have
the respective meanings assigned to such terms in the Uniform Commercial Code.

      1.2 Accounting Terms. As used herein and in any certificate or other
document made or delivered pursuant hereto, accounting terms not defined herein
shall have the respective meanings given to them under GAAP.

                  ARTICLE 2 - GENERAL COVENANTS AND PROVISIONS

      2.1 Mortgagor Performance of Secured Debt Documents. Mortgagor shall
perform, observe and comply with each and every provision hereof, and with each
and every provision contained in the Secured Debt Documents and shall promptly
pay, when payment shall become due, the principal with interest thereon and all
other sums required to be paid by Mortgagor under this Mortgage and the other
Secured Debt Documents at the time and in the manner provided in the Secured
Debt Documents.


                                       6


      2.2 General Representations, Covenants and Warranties. Mortgagor, to the
best of its knowledge, represents, covenants and warrants that as of the date
hereof: (a) Mortgagor has good and marketable title to that portion of the Real
Property which constitutes real property interests free and clear of all
encumbrances except Permitted Liens with respect to the Site, and other matters
which, individually and in the aggregate, do not have a materially adverse
effect upon the ownership or operation of the Site; (b) Mortgagor has the right
to hold, occupy and enjoy its interest in the Real Property and has good right,
full power and lawful authority to grant the same as provided herein, and
Mortgagee may at all times peaceably and quietly enter upon, hold, occupy and
enjoy the Real Property in accordance with the terms hereof; (c) except as
otherwise disclosed in the Secured Debt Documents, all costs arising from
construction of any improvements, the performance of any labor and the purchase
of all Mortgaged Property have been or shall be paid when due; (d) the Site has
access for ingress and egress to dedicated street(s); and (e) no material part
of the Mortgaged Property has been damaged, destroyed, condemned or abandoned.

      2.3 Compliance with Legal Requirements. Mortgagor shall promptly comply in
all material respects with all Legal Requirements relating to its use and
occupancy of the Mortgaged Property, whether or not such compliance requires
work or remedial measures that are ordinary or extraordinary, foreseen or
unforeseen, structural or nonstructural, or that interfere with the use or
enjoyment of the Mortgaged Property.

      2.4 Insurance; Application of Insurance Proceeds; Application of Eminent
Domain Proceeds.

            2.4.1 Mortgagor shall carry with financially sound and reputable
insurance companies and in amounts as is customary in the industry or as
otherwise required pursuant to the Secured Debt Documents, the following
insurance: (1) workmen's compensation insurance and public liability and
property damage insurance in respect of all activities in which Mortgagor might
incur personal liability for the death of or injury to an employee or third
person, or damage to or destruction of another's property; and (2) to the extent
such insurance is carried by similar companies engaged in similar undertakings
in, the same general areas in which the Mortgaged Property, is located,
insurance in respect of the Equipment, against loss or damage by fire,
lightning, hail, tornado, explosion and other similar risks, hazards, casualties
and contingencies (including business interruption insurance covering loss of
revenues) with limits and sublimits as appropriate; provided, that any such
insurance may be provided by way of self insurance to the extent that similar
companies engaged in similar undertakings in the same general areas also
self-insure. Each insurance policy issued in connection therewith shall provide
by way of endorsements, riders or otherwise that (i) name Mortgagee as a loss
payee on all property insurance policies and an additional insured on all
liability insurance policies, and provide that proceeds from property insurance
policies will be payable to Mortgagee as its interest may appear, which proceeds
are hereby assigned to Mortgagee, it being agreed by Mortgagor that such
payments shall be applied A) if there be no Event of Default existing or which
would exist but for due notice or lapse of time, or both, to the restoration,
repair or replacement of the Mortgaged Property, or B) if there be an Event of
Default existing, or which would exist but for due notice or lapse of time, or
both, in accordance with the provisions of the Collateral Trust Agreement,
either for the above stated purpose or toward the payment of the Indebtedness;
(ii) the coverage of Mortgagee shall not be terminated, reduced or affected in
any manner regardless of any breach or violation by Mortgagor of any warranties,
declarations or conditions in such


                                       7


policy; (iii) no such insurance policy shall be canceled, materially endorsed,
materially altered or reissued to effect a change in coverage for any reason and
to any extent whatsoever unless such insurer, their authorized representative or
Mortgagor shall have first given Mortgagee and each Secured Debt Representative
thirty (30) days prior written notice thereof; and (iv) Mortgagee may, but shall
not be obligated to, make premium payments to prevent any cancellation,
endorsement, alteration or re-issuance and such payments shall be accepted by
the insurer to prevent the same. Mortgagee shall be furnished with a certificate
evidencing such coverage in form and content as are customary in the industry.
All policies to be maintained under this Mortgage are to be issued on forms and
by companies and with endorsements as are customary in the industry. Mortgagor
shall maintain insurance in an amount sufficient to prevent Mortgagor from
becoming a co-insurer under any policy required hereunder. If Mortgagor fails to
maintain the level of insurance required under this Mortgage, then Mortgagor
shall and hereby agrees to indemnify Mortgagee to the extent that a casualty
occurs and insurance proceeds would have been available had such insurance been
maintained;

            2.4.2 All insurance proceeds and all eminent domain proceeds shall
be paid and/or shall be applied in accordance with the provisions of the Secured
Debt Documents.

      2.5 Assignment of Rents. Mortgagor unconditionally and absolutely assigns
to Mortgagee all of Mortgagor's right, title and interest in and to: all leases,
subleases, occupancy agreements, licenses, rental contracts and other similar
agreements now or hereafter existing relating to the use or occupancy of the
Mortgaged Property, together with all guarantees, modifications, extensions and
renewals thereof; and all rents, issues, profits, income and proceeds due or to
become due from tenants of the Mortgaged Property (the "Leases"), including
rentals and all other payments of any kind under any leases now existing or
hereafter entered into, together with all deposits (including security deposits)
of tenants thereunder. This is an absolute assignment to Mortgagee and not an
assignment as security for the performance of the obligations under the Secured
Debt Documents, or any other indebtedness. Subject to the provisions of herein
below, Mortgagee shall have the right, power and authority to, but shall not be
obligated to: notify any person that the Leases have been assigned to Mortgagee
and that all rents and other obligations are to be paid directly to Mortgagee,
whether or not Mortgagee has commenced or completed foreclosure or taken
possession of the Mortgaged Property; settle compromise, release, extend the
time of payment of, and make allowances, adjustments and discounts of any rents
or other obligations under the Leases; enforce payment of rents and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to rents and Leases; enter upon, take possession of and
operate the Mortgaged Property; lease all or any part of the Mortgaged Property;
and/or perform any and all obligations of Mortgagor under the Leases and
exercise any and all rights of Mortgagor therein contained to the full extent of
Mortgagor's rights and obligations thereunder, with or without the bringing of
any action or the appointment of a receiver. At Mortgagee's request, Mortgagor
shall deliver a copy of this Mortgage to each tenant under a Lease. Mortgagor
irrevocably directs any tenant, without any requirement for notice to or consent
by Mortgagor, to comply with all demands of Mortgagee under this Section 2.5 and
to turn over to Mortgagee on demand all rents which it receives. Mortgagee shall
have the right, but not the obligation, to use and apply all rents received
hereunder in such order and such manner as Mortgagee may determine in accordance
with the Collateral Trust Agreement. Notwithstanding that this is an absolute
assignment of the rents and Leases and not merely the collateral assignment of,
or the grant of a lien or security interest in the rents and Leases, Mortgagee
grants to Mortgagor a


                                       8


revocable license to collect and receive the rents and to retain, use and enjoy
such rents. Such license may be revoked by Mortgagee only upon the occurrence of
any Event of Default. Mortgagor shall apply any rents which it receives to the
payment due under the Obligations, taxes, assessments, water charges, sewer
rents and other governmental charges levied, assessed or imposed against the
Mortgaged Property, insurance premiums, and other obligations of lessor under
the Leases before using such proceeds for any other purpose.

      2.6 [Reserved.]

      2.7 Expenses. Mortgagor shall indemnify Mortgagee with respect to any
transaction or matter in any way connected with any portion of the Mortgaged
Property, or Mortgagor's use, occupancy, or operation of the Mortgaged Property
in accordance with the Collateral Trust Agreement.

      2.8 Mortgagee Assumes No Obligations. It is expressly agreed that,
anything herein contained to the contrary notwithstanding, Mortgagor shall
remain obligated under all agreements which are included in the definition of
"Mortgaged Property" and shall perform all of its obligations thereunder in
accordance with the provisions thereof, and neither Mortgagee nor any of the
Secured Debtholders shall have any obligation or liability with respect to such
obligations of Mortgagor, nor shall Mortgagee or any of the Secured Debtholders
be required or obligated in any manner to perform or fulfill any obligations or
duties of Mortgagor under such agreements, or to make any payment or to make any
inquiry as to the nature or sufficiency of any payment received by it, or to
present or file any claim or take any action to collect or enforce the payment
of any amounts which have been assigned to Mortgagee hereunder or to which
Mortgagee or the Secured Debtholders may be entitled at any time or times.

      2.9 Further Assurances. Mortgagor shall, from time to time, at its
expense, promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that Mortgagee may reasonably
request, in order to perfect and continue the lien and security interest granted
hereby and to enable Mortgagee to obtain the full benefits of the lien and
security interest granted or intended to be granted hereby. Mortgagor shall keep
the Mortgaged Property free and clear of all Liens, other than Permitted Liens.
Without limiting the generality of the foregoing, Mortgagor shall execute and
record or file this Mortgage and each amendment hereto, and such financing or
continuation statements, or amendments thereto, and such other instruments,
endorsements or notices, as may be necessary, or as Mortgagee may reasonably
request, in order to perfect and preserve the lien and security interest granted
or purported to be granted hereby. Mortgagor hereby authorizes Mortgagee to file
one or more financing statements or continuation statements, and amendments
thereto, relative to all or any part of the Mortgaged Property necessary to
preserve or protect the lien and security interest granted hereby without the
signature of Mortgagor where permitted by law.

      2.10 Acts of Mortgagor. Except as provided in or permitted by the Secured
Debt Documents, Mortgagor hereby represents and warrants that it has not
granted, mortgaged, hypothecated, assigned or pledged and hereby covenants that
it will not grant, mortgage, hypothecate, assign or pledge, so long as this
Mortgage shall remain in effect, any of its right, title or interest in and to
the Mortgaged Property or any part thereof, other than Permitted Liens, to
anyone other than Mortgagee.


                                       9


      2.11 After-Acquired Property. Any and all of the Mortgaged Property which
is hereafter acquired shall immediately, without any further conveyance,
assignment or act on the part of Mortgagor or Mortgagee, become and be subject
to the lien and security interest of this Mortgage as fully and completely as
though specifically described herein, but nothing contained in this Section 2.11
shall be deemed to modify or change the obligations of Mortgagor under Section
2.9 hereof. If and whenever from time to time Mortgagor shall hereafter acquire
any real property or interest therein which constitutes or is intended to
constitute part of the Mortgaged Property hereunder, Mortgagor shall promptly
give notice thereof to Mortgagee and Mortgagor shall forthwith execute,
acknowledge and deliver to Mortgagee a supplement to this Mortgage subjecting
the property so acquired to the lien of this Mortgage.

      2.12 Site. Mortgagor shall observe all applicable covenants, easements and
other restrictions of record with respect to the Site, the Easements or to any
other part of the Mortgaged Property, in all material respects.

      2.13 Power of Attorney. Mortgagor does hereby irrevocably constitute and
appoint Mortgagee, its true and lawful attorney (which appointment is coupled
with an interest), with full power of substitution, for Mortgagor and in the
name, place and stead of Mortgagor or in Mortgagee's own name, for so long as
any of the Obligations are outstanding, to ask, demand, collect, receive,
receipt for and sue for any and all rents, income and other sums which are
assigned hereunder with full power to endorse the name of Mortgagor on all
instruments given in payment or in part payment thereof, to settle, adjust or
compromise any claims thereunder as fully as Mortgagor itself could do and file
any claim or take any action or proceeding, either in its own name or in the
name of Mortgagor or otherwise, as are necessary or appropriate to protect and
preserve the right, title and interest of Mortgagee in and to such rents, income
and other sums and the security intended to be afforded hereby; provided that
Mortgagee shall not exercise such rights unless an Event of Default has occurred
and is continuing.

      2.14 Covenant to Pay. If an Event of Default has occurred and is
continuing and such Event of Default could reasonably be expected to materially
and adversely affect Mortgagee's interest hereunder in the Mortgaged Property or
result in personal injury, then Mortgagee, among its other rights and remedies,
shall have the right, but not the obligation, to pay, observe or perform the
same, in whole or in part, and with such modifications as Mortgagee reasonably
shall deem advisable. To the extent provided in the Secured Debt Documents, all
sums, including, without limitation, reasonable attorneys fees, so expended or
incurred by Mortgagee by reason of the default of Mortgagor, or by reason of the
bankruptcy or insolvency of Mortgagor, as well as, without limitation, sums
expended or incurred to sustain the lien or estate of this Mortgage or its
priority, or to protect or enforce any rights of Mortgagee hereunder, or to
recover any of the Obligations, or to complete construction of the Project for
which the Secured Debt Documents are intended as financing, or for repairs,
maintenance, alterations, replacements or improvements thereto or for the
protection thereof, or for real estate taxes or other governmental assessments
or charges against any part of the Mortgaged Property, or premiums for insurance
of the Mortgaged Property, shall be entitled to the benefit of the lien on the
Mortgaged Property as of the date of the recording of this Mortgage, shall be
deemed to be added to and be part of the Obligations secured hereby, whether or
not the result thereof causes the total amount of the Obligations to exceed the
stated amount set forth in the second introductory paragraph of this Mortgage,
and shall be repaid by Mortgagor as provided in the Secured Debt Documents.


                                       10


      2.15 Security Agreement.

            2.15.1 This Mortgage shall also be a security agreement between
Mortgagor and Mortgagee covering the Mortgaged Property constituting personal
property or fixtures (hereinafter collectively called "UCC Collateral") governed
by the UCC in effect in the State as the same may be more specifically set forth
in any financing statement delivered in connection with this Mortgage, and as
further security for the payment and performance of the Obligations, Mortgagor
hereby grants to Mortgagee a security interest in such portion of the Mortgaged
Property to the full extent that the Mortgaged Property may be subject to the
UCC. In addition to Mortgagee's other rights hereunder, Mortgagee shall have all
rights of a secured party under the UCC. Mortgagor shall execute and deliver to
Mortgagee all financing statements and such further assurances that may be
required to establish, create, perfect (to the extent the same can be achieved
by the filing of a financing statement) and maintain the validity and priority
of Mortgagee's security interests, and Mortgagor shall bear all reasonable costs
thereof, including all UCC searches. Except as otherwise provided in the Secured
Debt Documents, if Mortgagee should dispose of any of the Mortgaged Property
comprising the UCC Collateral pursuant to the UCC, ten (10) days prior written
notice by Mortgagee to Mortgagor shall be deemed to be reasonable notice;
provided, however, Mortgagee may dispose of such property in accordance with the
foreclosure procedures of this Mortgage in lieu of proceeding under the UCC.
Mortgagee may, but shall not be obligated to, from time to time execute and
deliver at Mortgagor's expense, all continuation statements, termination
statements, amendments, partial releases, or other instruments relating to all
financing statements by and between Mortgagor and Mortgagee. Except as otherwise
provided in the Secured Debt Documents, if an Event of Default shall occur and
is continuing, (a) Mortgagee, in addition to any other rights and remedies which
it may have, may exercise immediately and without demand to the extent permitted
by law, any and all rights and remedies granted to a secured party under the UCC
including, without limiting the generality of the foregoing, the right to take
possession of the UCC Collateral or any part thereof, and to take such other
measures as may be necessary for the care, protection and preservation of such
collateral and (b) upon request or demand of Mortgagee, Mortgagor shall at its
expense, assemble the UCC Collateral and make it available to Mortgagee at a
convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on
demand, any and all expenses, including reasonable attorneys' fees and
disbursements incurred or paid by Mortgagee in protecting the interest in the
UCC Collateral and in enforcing the rights hereunder with respect to such UCC
Collateral.

            2.15.2 Mortgagor agrees, to the extent permitted by law, that: (i)
all or a part of the Mortgaged Property are or are to become fixtures; and (ii)
the address of Mortgagor is as set forth on the first page of this Mortgage.

                              ARTICLE 3 - REMEDIES

      3.1 Protective Advances. If an Event of Default shall have occurred and is
continuing, then without thereby limiting Mortgagee's other rights or remedies,
waiving or releasing any of Mortgagor's obligations, or imposing any obligation
on Mortgagee, Mortgagee may, but shall not be obligated to, either advance any
amount owing or perform any or all actions as may be necessary or appropriate to
cure such default. All such advances shall constitute "Protective Advances." No
sums advanced or performance rendered by Mortgagee shall cure, or be deemed a
waiver of any Event of Default.


                                       11


      3.2 Institution of Equity Proceedings. If an Event of Default occurs and
is continuing, Mortgagee may, but shall not be obligated to, institute an
action, suit or proceeding in equity for specific performance of this Mortgage
or any other Secured Debt Document, all of which shall be specifically
enforceable by injunction or other equitable remedy.

      3.3 Mortgagee's Power of Enforcement.

            3.3.1 If an Event of Default shall have occurred, Mortgagee may, but
shall not be obligated to, sell the Mortgaged Property or any part of the
Mortgaged Property at public sale or sales before the door of the courthouse of
the county in which the Mortgaged Property or any part of the Mortgaged Property
is situated, to the highest bidder for cash, in order to pay the indebtedness
secured hereby and accrued interest thereon and insurance premiums, liens,
assessments, taxes and charges, including utility charges, if any, with accrued
interest thereon, and all expenses of the sale and of all proceedings in
connection therewith, including reasonable attorneys' fees actually incurred,
after advertising the time, place and terms of sale once a week for four (4)
weeks immediately preceding such sale (but without regard to the number of days)
in a newspaper in which Sheriff's sales are advertised in said county. At any
such public sale, Mortgagee may, but shall not be obligated to, execute and
deliver to the purchaser a conveyance of the Mortgaged Property or any part of
the Mortgaged Property in fee simple, with full warranties of title (or without
warranties if Mortgagee shall so elect) and to this end, Mortgagor hereby
constitutes and appoints Mortgagee the agent and attorney-in-fact of Mortgagor
to make such sale and conveyance, and thereby to divest Mortgagor of all right,
title, interest, equity and equity of redemption that Mortgagor may have in and
to the Mortgaged Property and to vest the same in the purchaser or purchasers at
such sale or sales, and all the acts and doings of said agent and
attorney-in-fact are hereby ratified and confirmed and any recitals in said
conveyance or conveyances as to facts essential to a valid sale shall be binding
upon Mortgagor. The aforesaid power of sale and agency hereby granted are
coupled with an interest and are irrevocable by dissolution, insolvency or
otherwise, are granted as cumulative of the other remedies provided hereby or by
law for collection of the indebtedness secured hereby and shall not be exhausted
by one exercise thereof but may be exercised until full payment of all
indebtedness secured hereby. In the event of any such foreclosure sale by
Mortgagee, Mortgagor shall be deemed a tenant holding over and shall forthwith
deliver possession to the purchaser or purchasers at such sale or be summarily
dispossessed according to provisions of law applicable to tenants holding over.

            3.3.2 Mortgagee may adjourn from time to time any sale by it to be
made under or by virtue of this Mortgage by announcement at the time and place
appointed for such sale or for such adjourned sale or sales; and, except as
otherwise provided by any applicable provision of law, Mortgagee, without
further notice or publication, may make such sale at the time and place to which
the same shall be so adjourned.

            3.3.3 Upon any sale made under or by virtue of this Section 3.3
(whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale),
Mortgagee may bid for and acquire the Mortgaged Property or any part thereof and
in lieu of paying cash therefor may make settlement for the purchase price by
crediting upon the indebtedness the net sales price after deducting therefrom
the expenses of the sale and the costs of the action and any other sums which
Mortgagee is authorized to deduct under this Mortgage.


                                       12


            3.3.4 No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect in any manner or to any extent, the lien and
title of this Mortgage upon the Mortgaged Property or any part thereof, or any
liens, titles, rights, powers or remedies of Mortgagee hereunder, but such
liens, titles, rights, powers and remedies of Mortgagee shall continue
unimpaired as before.

            3.3.5 Mortgagee is authorized, but shall not be obligated, to
foreclose this Mortgage subject to the rights of any tenants of the Mortgaged
Property, and the failure to make any such tenants parties to any such
foreclosure proceedings and to foreclose their rights will not be, nor be
asserted to be by Mortgagor, a defense to any proceedings instituted by
Mortgagee to collect the sums secured hereby.

            3.3.6 After deducting all costs, fees and expenses of Mortgagee and
of this Mortgage, including, without limitation, costs of evidence of title and
reasonable attorneys' fees of Mortgagee in connection with a sale, Mortgagee
shall apply the proceeds of such sale to payment of all sums expended under the
terms hereof not then repaid, with accrued interest at the Default Rate then to
the payment of all other sums then secured hereby and the remainder, if any, to
the person or persons legally entitled thereto.

            3.3.7 If any Event of Default occurs and is continuing, Mortgagee
may, either with or without entry or taking possession of the Mortgaged
Property, and without regard to whether or not the indebtedness and other sums
secured hereby shall be due and without prejudice to the right of Mortgagee
thereafter to bring an action or proceeding to foreclose or any other action for
any default existing at the time such earlier action was commenced, proceed by
any appropriate action or proceeding: (1) to enforce payment of the Obligations,
to the extent permitted by law, or the performance of any term hereof or any
other right; (2) to foreclose this Mortgage in any manner provided by law for
the foreclosure of mortgages or deeds of trust or deeds to secure debt on real
property and to sell, as an entirety or in separate lots or parcels, the
Mortgaged Property or any portion thereof upon executory or ordinary process and
pursuant to the laws of the State or under the judgment or decree of a court or
courts of competent jurisdiction, and Mortgagee shall be entitled to recover in
any such proceeding all costs and expenses incident thereto, including
reasonable attorneys' fees in such amount as shall be awarded by the court; (3)
to exercise any or all of the rights and remedies available to it under the
Secured Debt Documents; and (4) to pursue any other remedy available to it.
Mortgagee may take action either by such proceedings or by the exercise of its
powers with respect to entry or taking possession, or both, as Mortgagee may
determine.

            3.3.8 The remedies described in this Section 3.3 may be exercised
with respect to all or any portion of the UCC Collateral, either simultaneously
with the sale of any real property encumbered hereby or independent thereof.
Mortgagee may at any time be permitted to proceed with respect to all or any
portion of the UCC Collateral in any manner permitted by the UCC. Mortgagor
agrees that Mortgagee's inclusion of all or any portion of the UCC Collateral in
a sale or other remedy exercised with respect to the real property encumbered
hereby, as permitted by the UCC, is a commercially reasonable disposition of
such property.


                                       13


      3.4 Mortgagee's Right to Enter and Take Possession, Operate and Apply
Income.

            (a) If an Event of Default occurs and is continuing, Mortgagor, upon
demand of Mortgagee, shall forthwith surrender to Mortgagee the actual
possession and, if and to the extent permitted by law, Mortgagee itself, or by
such officers or agents as it may appoint, may enter and take possession of all
of the Mortgaged Property, including the Tangible Collateral, without liability
for trespass, damages or otherwise, and may exclude Mortgagor and its agents and
employees wholly therefrom and may have joint access with Mortgagor to the
books, papers and accounts of Mortgagor.

            (b) If an Event of Default has occurred and is continuing and
Mortgagor shall for any reason fail to surrender or deliver the Mortgaged
Property or any part thereof after Mortgagee's demand, Mortgagee may obtain a
judgment or decree conferring on Mortgagee the right to immediate possession or
requiring Mortgagor to deliver immediate possession of all or part of such
property to Mortgagee and Mortgagor hereby specifically consents to the entry of
such judgment or decree. Mortgagor shall pay to Mortgagee, upon demand, all
costs and expenses of obtaining such judgment or decree and reasonable
compensation to Mortgagee, its attorneys and agents, and all such costs,
expenses and compensation shall, until paid, be secured by the lien, security
title and security interest of this Mortgage.

            (c) Upon every such entering upon or taking of possession, Mortgagee
may hold, store, use, operate, manage and control the Mortgaged Property and
conduct the business thereof, and, from time to time and without being under any
duty to so act:

                  (1) make all necessary and proper maintenance, repairs,
renewals and replacements thereto and thereon, and all necessary additions,
betterments and improvements thereto and thereon and purchase or otherwise
acquire fixtures, personalty and other property in connection therewith;

                  (2) insure or keep the Mortgaged Property insured;

                  (3) manage and operate the Mortgaged Property and exercise all
the rights and powers of Mortgagor in their name or otherwise with respect to
the same;

                  (4) enter into agreements with others to exercise the powers
herein granted Mortgagee, all as Mortgagee from time to time may determine; and
shall apply the monies so received by Mortgagee in such priority as provided by
the Secured Debt Documents to (1) the payment of interest and principal due and
payable to the Mortgagee, (2) the deposits for taxes and assessments and
insurance premiums due, (3) the cost of insurance, taxes, assessments and other
proper charges upon the Mortgaged Property or any part thereof; (4) the
compensation, expenses and disbursements of the agents, attorneys and other
representatives of Mortgagee as allowed under this Mortgage; and (5) any other
charges or costs required to be paid by Mortgagor under the terms of the Secured
Debt Documents.

                  (5) rent or sublet the Mortgaged Property or any portion
thereof for any purpose permitted by this Mortgage.


                                       14


      Mortgagee shall surrender possession of the Mortgaged Property to
Mortgagor (i) as may be required by law or court order, or (ii) when all amounts
under any of the terms of the Secured Debt Documents, including this Mortgage,
shall have been paid current and all Events of Default have been cured or
waived. The same right of taking possession, however, shall exist if any
subsequent Event of Default shall occur and be continuing.

      3.5 Separate Sales. To the extent permitted by law or Governmental
Authority, the Mortgaged Property may be sold in one or more parcels and in such
manner and order as Mortgagee, in its sole discretion, may elect, it being
expressly understood and agreed that the right of sale arising out of any Event
of Default shall not be exhausted by any one or more sales.

      3.6 Waiver of Appraisement, Moratorium, Valuation, Stay, Extension,
Redemption Laws and Other Rights.

            (a) Mortgagor agrees to the full extent permitted by law that if an
Event of Default occurs and is continuing, neither Mortgagor nor anyone claiming
through or under it shall or will set up, claim or seek to take advantage of any
appraisement, moratorium, valuation, stay, extension or redemption laws now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Mortgage or the absolute sale of the Mortgaged Property or any portion
thereof or the final and absolute putting into possession thereof, immediately
after such sale, of the purchasers thereof, and Mortgagor for itself and all who
may at any time claim through or under it, hereby waives, to the full extent
that it may lawfully so do, the benefit of all such laws, and any and all right
to have the assets comprising the Mortgaged Property marshalled upon any
foreclosure of the lien hereof and agrees that Mortgagee or any court having
jurisdiction to foreclose such lien may sell the Mortgaged Property in part or
as an entirety.

            (b) Mortgagor waives in favor of Mortgagee any and all homestead
exemptions and other exemptions of seizure or otherwise to which Mortgagor is or
may be entitled under the constitution and statutes of the State of Louisiana
insofar as the Mortgaged Property is concerned. Mortgagor further waives: (i)
the benefit of appraisement as provided in Louisiana Code of Civil Procedure
Articles 2332, 2336, 2723, 2724, and all other laws conferring the same; (ii)
the demand and three days delay accorded by Louisiana Code of Civil Procedure
Articles 2639 and 2721; (iii) the notice of seizure required by Louisiana Code
of Civil Procedure Articles 2293 and 2721; (iv) the three days delay provided by
Louisiana Code of Civil Procedure Articles 2331 and 2722; and (v) the benefit of
the other provisions of Louisiana Code of Civil Procedure Articles 2331, 2722
and 2723, not specifically mentioned above.

            (c) Any and all declarations of facts made by authentic act before a
notary public in the presence of two witnesses by a person declaring that such
facts lie within his knowledge, shall constitute authentic evidence of such
facts for the purpose of executory process. Mortgagor specifically agrees that
such an affidavit by a representative of Mortgagee as to the existence, amount,
terms and maturity of the Obligations and of a default thereunder shall
constitute authentic evidence of such facts for the purpose of executory
process.

      3.7 Receiver. If an Event of Default occurs and is continuing, Mortgagee,
to the extent permitted by law, and without regard to the value, adequacy or
occupancy of the security for the indebtedness and other sums secured hereby,
shall be entitled as a matter of right, but shall not be


                                       15


obligated to, if it so elects to the appointment of a receiver to enter upon and
take possession of the Mortgaged Property and to collect all earnings, revenues
and receipts and apply the same as the court may direct, and such receiver may
be appointed by any court of competent jurisdiction upon application by
Mortgagee. To the extent permitted by law, Mortgagee may have a receiver
appointed without notice to Mortgagor or any third party, and Mortgagee may
waive any requirement that the receiver post a bond. To the extent permitted by
law, Mortgagee shall have the power to designate and select the Person who shall
serve as the receiver and to negotiate all terms and conditions under which such
receiver shall serve. To the extent permitted by law, any receiver appointed on
Mortgagee's behalf may be an Affiliate of Mortgagee. The reasonable expenses,
including receiver's fees, reasonable attorneys' fees, costs and agents'
compensation, incurred pursuant to the powers herein contained shall be secured
by this Mortgage. The right to enter and take possession of and to manage and
operate the Mortgaged Property and to collect all earnings, revenues and
receipts, whether by a receiver or otherwise, shall be cumulative to any other
right or remedy available to Mortgagee under this Mortgage, the other Secured
Debt Documents or otherwise available to Mortgagee and may be exercised
concurrently therewith or independently thereof, but such rights shall be
exercised in a manner which is otherwise in accordance with and consistent with
the Secured Debt Documents. Mortgagee shall be liable to account only for such
earnings, revenues and receipts (including, without limitation, security
deposits) actually received by Mortgagee, whether received pursuant to this
section or any other provision hereof. Notwithstanding the appointment of any
receiver or other custodian, Mortgagee shall be entitled as pledgee to the
possession and control of any cash, deposits, or instruments at the time held
by, or payable or deliverable under the terms of this Mortgage to, Mortgagee.

      3.8 Suits to Protect the Mortgaged Property. Mortgagee shall have the
power and authority, but shall not be obligated, to institute and maintain any
suits and proceedings as may be advisable (a) to prevent any impairment of the
Mortgaged Property by any acts which may be unlawful or in violation of this
Mortgage, (b) to preserve or protect its interest in the Mortgaged Property, or
(c) to restrain the enforcement of or compliance with any legislation or other
Legal Requirement that may be unconstitutional or otherwise invalid, if the
enforcement of or compliance with such enactment, rule or order might impair the
security hereunder or be prejudicial to Mortgagee's interest

      3.9 Proofs of Claim. In the case of any receivership, insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceedings affecting Mortgagor, any Affiliate or any guarantor,
co-maker or endorser of any of Mortgagor's obligations, its creditors or its
property, Mortgagee, to the extent permitted by law, shall be entitled, but
shall not be obligated, to file such proofs of claim or other documents as may
be necessary or advisable in order to have its claims allowed in such
proceedings for the entire amount due and payable by Mortgagor under the Secured
Debt Documents, at the date of the institution of such proceedings, and for any
additional amounts which may become due and payable by Mortgagor after such
date.

      3.10 Mortgagor to Pay Amounts Secured Hereby on Any Default in Payment;
Application of Monies by Mortgagee.

            (a) In case of a foreclosure sale of all or any part of the
Mortgaged Property and of the application of the proceeds of sale to the payment
of the sums secured hereby, to the extent permitted by law, the Secured
Debtholders shall be entitled to enforce payment from


                                       16


Mortgagor of any additional amounts then remaining due and unpaid and to recover
judgment against Mortgagor for any portion thereof remaining unpaid, with
interest at the Default Rate.

            (b) Mortgagor hereby agrees to the extent permitted by law, that no
recovery of any such judgment by the Secured Debtholders or other action by the
Secured Debtholders and no attachment or levy of any execution upon any of the
Mortgaged Property or any other property shall in any way affect the Lien and
security interest of this Mortgage upon the Mortgaged Property or any part
thereof or any Lien, rights, powers or remedies of Mortgagee hereunder, but such
Lien, rights, powers and remedies shall continue unimpaired as before.

            (c) Any monies collected or received by Mortgagee under this Section
3.10 shall be first applied to the payment of compensation, expenses and
disbursements of the agents, attorneys and other representatives of the
Beneficiary and the Secured Debtholders, and the balance remaining shall be
applied as provided in the Collateral Trustee Agreement.

      3.11 Delay or Omission; No Waiver. No delay or omission of Mortgagee or
the Secured Debtholders to exercise any right, power or remedy upon any Event of
Default shall exhaust or impair any such right, power or remedy or shall be
construed to waive any such Event of Default or to constitute acquiescence
therein. Every right, power and remedy given to Mortgagee whether contained
herein or in the other Secured Debt Documents or otherwise available to
Mortgagee may be exercised from time to time and as often as may be deemed
expedient by Mortgagee.

      3.12 No Waiver of One Default to Affect Another. No waiver of any defaults
hereunder shall extend to or affect any subsequent or any other defaults then
existing, or impair any rights, powers or remedies consequent thereon. If
Mortgagee (a) grants forbearance or an extension of time for the payment of any
sums secured hereby; (b) takes other or additional security for the payment
thereof; (c) waives or does not exercise any right granted in this Mortgage or
any other Secured Debt Document; (d) releases any part of the Mortgaged Property
from the lien or security interest of this Mortgage or any other instrument
securing the Obligations; (e) consents to the filing of any map, plat or replat
of the Real Property or any part thereof; (f) consents to the granting of any
easement on the Real Property; or (g) makes or consents to any agreement
changing the terms of this Mortgage or any other Secured Debt Document
subordinating the lien or any charge hereof, no such act or omission shall
release, discharge, modify, change or affect the liability under this Mortgage
or any other Secured Debt Document or otherwise of Mortgagor, or any subsequent
purchaser of the Mortgaged Property or any part thereof or any maker, co-signer,
surety or guarantor with respect to any other matters not addressed by such act
or omission. No such act or omission shall preclude Mortgagee from exercising
any right, power or privilege herein granted or intended to be granted in case
of any Event of Default then existing or of any subsequent Event of Default,
nor, except as otherwise expressly provided in an instrument or instruments
executed by Mortgagee, shall the lien or security interest of this Mortgage be
altered thereby, except to the extent expressly provided in such acts or
omissions. In the event of the sale or transfer by operation of law or otherwise
of all or any part of the Mortgaged Property, Mortgagee, without notice to any
person, firm or corporation, is hereby authorized and empowered to deal with any
such vendee or transferee with reference to the Mortgaged Property or the
indebtedness secured hereby, or with reference to any of the terms or conditions
hereof, as fully and to the same extent as it might deal with the original
parties hereto and without in any way releasing or discharging any of the
liabilities or undertakings hereunder, or waiving its right to declare such sale
or transfer an Event of Default as provided herein. Notwithstanding anything to
the contrary contained in this Mortgage or any other


                                       17


Secured Debt Document, (i) in the case of any non-monetary default, Mortgagee
may continue to accept payments due hereunder without thereby waiving the
existence of such or any other default and (ii) in the case of any monetary
Event of Default, Mortgagee may accept partial payments of any sums due
hereunder without thereby waiving the existence of such Event of Default if the
partial payment is not sufficient to completely cure such Event of Default.

      3.13 Discontinuance of Proceedings; Position of Parties Restored. If
Mortgagee shall have proceeded to enforce any right or remedy under this
Mortgage by foreclosure, entry of judgment or otherwise and such proceedings
shall have been discontinued or abandoned for any reason, or such proceedings
shall have resulted in a final determination adverse to Mortgagee, then and in
every such case Mortgagor and Mortgagee shall be restored to their former
positions and rights hereunder, and all rights, powers and remedies of Mortgagee
shall continue as if no such proceedings had occurred or had been taken.

      3.14 Remedies Cumulative. Subject to the provisions of Section 4.15
hereof, no right, power or remedy, including without limitation remedies with
respect to any security for the Obligations, conferred upon or reserved to
Mortgagee by this Mortgage or any other Secured Debt Document is exclusive of
any other right, power or remedy, but each and every such right, power and
remedy shall be cumulative and concurrent and shall be in addition to any other
right, power and remedy given hereunder or under any other Secured Debt
Document, now or hereafter existing at law, in equity or by statute, and
Mortgagee shall be entitled to resort to such rights, powers, remedies or
security as Mortgagee may deem advisable.

      3.15 Interest After Event of Default. If an Event of Default shall have
occurred and is continuing, all sums outstanding and unpaid under the Secured
Debt Documents, including this Mortgage, may bear interest at the Default Rate
until such Event of Default has been cured. Mortgagor's obligation to pay such
interest shall be secured by this Mortgage.

      3.16 Foreclosure; Expenses of Litigation. If Mortgagee forecloses,
reasonable attorneys' fees for services in the supervision of said foreclosure
proceeding shall be allowed to the Mortgagee as part of the foreclosure costs.
In the event of foreclosure of the lien hereof, there shall be allowed and
included as additional indebtedness all reasonable expenditures and expenses
which may be paid or incurred by or on behalf of Mortgagee for attorneys' fees,
appraisers' fees, outlays for documentary and expert evidence, stenographers'
charges, publication costs, and costs (which may be estimated as to items to be
expended after foreclosure sale or entry of the decree) of procuring all such
abstracts of title, title searches and examinations, title insurance policies
and guarantees, and similar data and assurances with respect to title as are
necessary either to prosecute such suit or to evidence to a bidder at any sale
which may be had pursuant to such decree the true condition of the title to or
the value of the Mortgaged Property or any portion thereof. All expenditures and
expenses of the nature in this section mentioned, and such expenses and fees as
may be incurred in the protection of the Mortgaged Property and the maintenance
of the lien and security interest of this Mortgage, including the reasonable
fees of any attorney employed by Mortgagee in any litigation or proceeding
affecting this Mortgage or any other Secured Debt Document, the Mortgaged
Property or any portion thereof, including, without limitation, civil, probate,
appellate and bankruptcy proceedings, or in preparation for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Mortgagor, with interest thereon at the Default Rate, and
shall be secured by this Mortgage.


                                       18


Mortgagee waives its right to any statutory fee in connection with any judicial
or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable
fee for such services.

      3.17 Deficiency Judgments. If after foreclosure of this Mortgage, there
shall remain any deficiency with respect to any amounts payable under the
Secured Debt Documents, including hereunder, or any amounts secured hereby, and
Mortgagee may institute any proceedings to recover such deficiency or
deficiencies, all such amounts shall continue to bear interest at the Default
Rate. Mortgagor waives any defense to Mortgagee's recovery against Mortgagor of
any deficiency after any foreclosure sale of the Mortgaged Property. To the
extent permitted by law, Mortgagor expressly waives any defense or benefits that
may be derived from any statute granting Mortgagor any defense to any such
recovery by Mortgagee. In addition, Mortgagee shall be entitled to recovery of
all of its reasonable costs and expenditures (including without limitation any
court imposed costs) in connection with such proceedings, including their
reasonable attorneys' fees, appraisal fees and the other costs, fees and
expenditures referred to in Section 3.16 above. This provision shall survive any
foreclosure or sale of the Mortgaged Property, any portion thereof and/or the
extinguishment of the lien hereof.

      3.18 Waiver of Jury Trial. Mortgagee and Mortgagor each waive any right to
have a jury participate in resolving any dispute whether sounding in contract,
tort or otherwise arising out of, connected with, related to or incidental to
the relationship established between them in connection with this Mortgage or
any other Secured Debt Document. Any such disputes shall be resolved in a bench
trial without a jury.

      3.19 Exculpation of Mortgagee. The acceptance by Mortgagee of the
assignment contained herein with all of the rights, powers, privileges and
authority created hereby shall not, prior to entry upon and taking possession of
the Mortgaged Property by Mortgagee, be deemed or construed to make Mortgagee a
"mortgagee in possession"; nor thereafter or at any time or in any event
obligate Mortgagee to appear in or defend any action or proceeding relating to
the Mortgaged Property, nor shall Mortgagee, prior to such entry and taking, be
liable in any way for any injury or damage to person or property sustained by
any Person in or about the Mortgaged Property.

                               ARTICLE 4 - GENERAL

      4.1 Discharge. When all of the Obligations shall have been paid in full,
then this Mortgage and the lien and security interest created hereby shall be of
no further force and effect, Mortgagor shall be released from the covenants,
agreements and obligations of Mortgagor contained in this Mortgage and all
right, title and interest in and to the Mortgaged Property shall revert to
Mortgagor. Mortgagee, at the request and the expense of Mortgagor, shall
promptly execute a deed of reconveyance and such other documents as may be
reasonably requested by Mortgagor to evidence the discharge and satisfaction of
this Mortgage and the release of Mortgagor from its obligations hereunder.

      4.2 No Waiver. The exercise of the privileges granted in this Mortgage to
perform Mortgagor's obligations under the agreements which constitute the
Mortgaged Property shall in no event be considered or constitute a waiver of any
right which Mortgagee may have at any time, after an Event of Default shall have
occurred and be continuing, to declare the Obligations to be immediately due and
payable. No delay or omission to exercise any right, remedy or power accruing
upon any default shall impair any such right, remedy or power or shall be
construed to be a


                                       19


waiver of any such default or acquiescence therein; and every such right, remedy
and power may be exercised from time to time and as often as may be deemed
expedient.

      4.3 Extension, Rearrangement or Renewal of Obligations. It is expressly
agreed that any of the Obligations at any time secured hereby may be from time
to time extended for any period, or with the consent of Mortgagor rearranged or
renewed, and that any part of the security herein described, or any other
security for the Obligations, may be waived or released, without altering,
varying or diminishing the force, effect or lien or security interest of this
Mortgage; and the lien and security interest granted by this Mortgage shall
continue as a prior lien and security interest on all of the Mortgaged Property
not expressly so released, until the Obligations are fully paid and this
Mortgage is terminated in accordance with the provisions hereof; and no other
security now existing or hereafter taken to secure the payment of the
Obligations or any part thereof or the performance of any obligation or
liability of Mortgagor whatever shall in any manner impair or affect the
security given by this Mortgage; and all security for the payment of the
Obligations or any part thereof and the performance of any obligation or
liability shall be taken, considered and held as cumulative.

      4.4 Forcible Detainer. Mortgagor agrees for itself and all Persons
claiming by, through or under it, that subsequent to foreclosure hereunder in
accordance with this Mortgage and applicable law if Mortgagor shall hold
possession of the Mortgaged Property or any part thereof, Mortgagor or the
Persons so holding possession shall be guilty of trespass; and any such Person
(including Mortgagor) failing or refusing to surrender possession upon demand
shall be guilty of forcible detainer and shall be liable to Mortgagee or any
purchaser in foreclosure, as applicable, for reasonable rental on said premises,
and shall be subject to eviction and removal in accordance with law.

      4.5 Waiver of Stay or Extension. To the extent permitted to be waived by
law, Mortgagor shall not at any time insist upon or plead or in any manner
whatever claim the benefit or advantage of any stay, extension or moratorium law
now or at any time hereafter in force in any locality where the Mortgaged
Property or any part thereof may or shall be situated, nor shall Mortgagor claim
any benefit or advantage from any law now or hereafter in force providing for
the valuation or appraisement of the Mortgaged Property or any part thereof
prior to any sale thereof to be made pursuant to any provision of this Mortgage
or to a decree of any court of competent jurisdiction, nor after any such sale
shall Mortgagor claim or exercise any right conferred by any law now or at any
time hereafter in force to redeem the Mortgaged Property so sold or any part
thereof; and Mortgagor hereby expressly waives all benefit or advantage of any
such law or laws and the appraisement of the Mortgaged Property or any part
thereof, and covenants that Mortgagor shall not hinder or delay the execution of
any power herein granted and delegated to Mortgagee but that Mortgagor shall
permit the execution of every such power as though no such law had been made.

      4.6 Notices. Except where certified or registered mail notice is required
by applicable law, any notice to Mortgagor or Mortgagee required or permitted
hereunder shall be deemed to be given when given in the manner prescribed in the
Collateral Trust Agreement.

      4.7 Severability. All rights, powers and remedies provided herein may be
exercised only to the extent that the exercise thereof does not violate any
applicable law, and are intended to be limited to the extent necessary so that
they will not render this Mortgage invalid, unenforceable


                                       20


or not entitled to be recorded, registered or filed under any applicable law. In
the event any term or provision contained in this Mortgage is in conflict, or
may hereafter be held to be in conflict, with the laws of the State or of the
United States of America, this Mortgage shall be affected only as to such
particular term or provision, and shall in all other respects remain in full
force and effect.

      4.8 Application of Payments. In the event that any part of the Obligations
cannot lawfully be secured hereby, or in the event that the lien and security
interest hereof cannot be lawfully enforced to pay any part of the Obligations,
or in the event that the lien or security interest created by this Mortgage
shall be invalid or unenforceable as to any part of the Obligations, then all
payments on the Obligations shall be deemed to have been first applied to the
complete payment and liquidation of that part of the Obligations which is not
secured by this Mortgage and the unsecured portion of the Obligations shall be
completely paid and liquidated prior to the payment and liquidation of the
remaining secured portion of the Obligations.

      4.9 GOVERNING LAW. THIS MORTGAGE IS GOVERNED BY AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA.

      4.10 Amendments. This Mortgage may be amended, supplemented or otherwise
modified only by an instrument in writing signed by Mortgagor and Mortgagee.

      4.11 Successors and Assigns. All terms of this Mortgage shall run with the
land and bind each of Mortgagor and Mortgagee and their respective successors
and assigns, and all Persons claiming under or through Mortgagor or Mortgagee,
as the case may be, or any such successor or assign, and shall inure to the
benefit of Mortgagee and Mortgagor, and their respective successors and assigns.

      4.12 Renewal. To the extent permitted under the other Secured Debt
Documents, Mortgagee may, but shall not be obligated to, at any time and from
time to time renew or extend this Mortgage, or alter or modify the same in any
way, or waive any of the terms, covenants or conditions hereof in whole or in
part and may release any portion of the Mortgaged Property or any other
security, and grant such extensions and indulgences in relation to the
Obligations as Mortgagee may determine, without the consent of any junior lienor
or encumbrancer and without any obligation to give notice of any kind thereto
and without in any manner affecting the priority of the lien and security
interest hereof on any part of the Mortgaged Property; provided that nothing in
this Section 4.12 shall grant Mortgagee the right to alter or modify the
Mortgage without the consent of the Mortgagor unless otherwise specifically
permitted in this Mortgage.

      4.13 Future Advances. It is understood and agreed that this Mortgage
secures, among other things, (i) the Priority Lien Debt (including future
advances to be made with respect thereto), and all other Obligations of
Mortgagor under the Priority Lien Documents; (ii) the Parity Lien Debt
(including future advances to be made with respect thereto), and all other
Obligations of Mortgagor under the Parity Lien Documents; (iii) all Obligations
under any other Priority Lien Debt or Parity Lien Debt; (iv) any sums advanced
or expenses or costs incurred by Mortgagee or any Secured Debtholder, or by any
receiver appointed hereunder, which are made or incurred pursuant to, or
permitted by, the terms hereof, plus interest thereon at the rate therein
specified or otherwise agreed upon, from the date of the advances or the
incurring of such expenses or costs until reimbursed; (v) any and all other
indebtedness of Mortgagor to Mortgagee now or hereafter owing, whether direct


                                       21


or indirect, primary or secondary, fixed or contingent, joint or several,
regardless of how evidenced or arising, where the indebtedness provides that it
is secured hereby; and (vi) any extensions, refinancings, modifications or
renewals of all such indebtedness described in subparagraphs (i) through (iv)
above, whether or not Mortgagor executes any extension agreement or renewal
instrument, and that the lien of any such future advances shall relate to the
date of this Mortgage.

      4.14 Liability. Notwithstanding any provision in this Mortgage to the
contrary, none of Mortgagee or any Secured Debt Representative or any of their
agents shall be liable for any error of judgment or act done in good faith, or
be otherwise responsible or accountable under any circumstances whatsoever. None
of Mortgagee or any Secured Debt Representative or any of their agents shall be
personally liable in case of entry by them, or anyone entering by virtue of the
powers herein granted them, upon the Mortgaged Property for debts contracted or
liability or damages incurred in the management or operation of the Mortgaged
Property. Such persons shall have the right to rely on any instrument, document
or signature authorizing or supporting any action taken or proposed to be taken
by them hereunder, believed by them in good faith to be genuine. Mortgagee or
any Secured Debt Representative or any of their agents shall be entitled to
reimbursement for expenses incurred by them in the performance of their duties
hereunder and to reasonable compensation for such of their services hereunder as
shall be rendered. Mortgagor will, from time to time, pay the compensation due
hereunder and reimburse such parties for, and save them harmless against, any
and all liability and expenses which may be incurred by them in the performance
of their duties.

      4.15 Severability and Compliance With Usury Law. The Secured Debt
Documents are intended to be performed in accordance with, and only to the
extent permitted by, all applicable Applicable Laws and Legal Requirements. If
any provision of any of the Secured Debt Documents or the application thereof to
any person or circumstance shall, for any reason and to any extent, be invalid
or unenforceable, neither the remainder of the instrument in which such
provision is contained, nor the application of such provision to other persons
or circumstances, nor the other instruments referred to hereinabove, shall be
affected thereby, but rather shall be enforceable to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of
Mortgagor at all times to comply with the applicable State law governing the
maximum rate or amount of interest payable on or in connection with the
Obligations. If the Applicable Law is ever judicially interpreted so as to
render usurious any amount called for under the Secured Debt Documents, or
contracted for, charged, taken, reserved or received with respect to the
extension of credit evidenced by the Secured Debt Documents or if acceleration
of the maturity of the Obligations or if any prepayment by Mortgagor results in
Mortgagor having paid any interest in excess of that permitted by law, then it
is Mortgagor's express intent that all excess amounts theretofore collected by
Mortgagee be credited on the principal balance due under the Secured Debt
Documents (or, if the Secured Debt Documents have been or would thereby be paid
in full, refunded to Mortgagor), and the provisions of the Secured Debt
Documents immediately be deemed reformed and the amounts thereafter collectible
thereunder reduced, without the necessity of the execution of any new document,
so as to comply with the applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder and thereunder. The right to
accelerate maturity of Obligations does not include the right to accelerate any
interest which has not otherwise accrued on the date of such acceleration, and
Mortgagee may not collect any unearned interest in the event of acceleration.
All sums paid or agreed to be paid to Mortgagee for the use, forbearance or
detention of the Obligations may, to the extent permitted by applicable law, be
amortized, prorated, allocated


                                       22


and spread throughout the full term of the Obligations until payment in full so
that the rate or amount of interest on account of the Obligations does not
exceed the applicable usury ceiling.

      4.16 Release of Collateral. Notwithstanding any provision herein to the
contrary, the Mortgaged Property or any part thereof shall be released from the
security interest created by this Mortgage in accordance with the provisions of
the Collateral Trust Agreement.

      4.17 Time of the Essence. Mortgagor acknowledges that time is of the
essence in performing all of Mortgagor's obligations set forth herein.

      4.18 Counterpart Execution. This Mortgage may be executed by the parties
hereto in any number of counterparts (and be each of the parties hereof on
separate counterparts), each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.

      4.19 WAIVER OF MORTGAGOR'S RIGHTS. BY EXECUTION OF THIS MORTGAGE AND BY
INITIALING THIS SECTION 4.19, MORTGAGOR EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT TO
ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTES AND THE POWER OF ATTORNEY
GIVEN HEREIN TO MORTGAGEE TO SELL THE MORTGAGED PROPERTY BY NONJUDICIAL
FORECLOSURE UPON DEFAULT BY MORTGAGOR WITHOUT ANY JUDICIAL HEARING AND WITHOUT
ANY NOTICE (EXCEPT AS OTHERWISE PROVIDED HEREIN); (B) EXCEPT TO THE EXTENT
PROVIDED OTHERWISE HEREIN, WAIVES ANY AND ALL RIGHTS WHICH MORTGAGOR MAY HAVE
UNDER THE CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH
AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL
STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, TO NOTICE AND TO JUDICIAL
HEARING PRIOR TO THE EXERCISE BY MORTGAGEE OF ANY RIGHT OR REMEDY HEREIN
PROVIDED TO MORTGAGEE; (C) ACKNOWLEDGES THAT MORTGAGOR HAS READ THIS MORTGAGE
AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO MORTGAGOR AND MORTGAGOR HAS
CONSULTED WITH COUNSEL OF MORTGAGOR'S CHOICE PRIOR TO EXECUTING THIS MORTGAGE;
AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF MORTGAGOR HAVE
BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY MORTGAGOR AS PART OF A
BARGAINED FOR LOAN TRANSACTION:

                             INITIALED BY MORTGAGOR:

                     ______________________________________


                        By:______________________________

      4.20 Attorneys' Fees. Notwithstanding anything contained herein to the
contrary, (i) "reasonable attorneys' fees" are not, and shall not be, statutory
attorneys' fees under State law, (ii) if, under any circumstances Mortgagor is
required hereunder to pay any or all of Mortgagee's attorneys' fees and
expenses, Mortgagor shall be responsible only for actual legal fees and out of
pocket expenses actually incurred by Mortgagee at customary hourly rates for the
work done, and


                                       23


(iii) Mortgagor shall not be liable under any circumstances for additional
attorneys' fees or expenses under State law.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       24


                                                           WASHINGTON PARISH, LA

      THUS DONE AND PASSED on the day and in the month and year hereinabove
first written, in the presence of the undersigned witness who hereunto sign
their names with Mortgagor and me, Notary, after due reading of the whole.

WITNESSES AS TO SIGNATURES:

___________________________________

___________________________________


                                        MORTGAGOR:

                                        CALPINE CORPORATION,
                                        a Delaware corporation

                                        By:    _________________________________

                                        Name:  _________________________________

                                        Title: _________________________________


___________________________________
NOTARY PUBLIC

My Commission Expires:  ___________



                                                           WASHINGTON PARISH, LA

                                    EXHIBIT A

                          LEGAL DESCRIPTION OF PREMISES



                                                           WASHINGTON PARISH, LA

                                    EXHIBIT B

                            DESCRIPTION OF SERVITUDES

               [legal descriptions to be inserted at a later date]

EX-10.38

                                                                   EXHIBIT 10.38

                    AMENDED AND RESTATED HAZARDOUS MATERIALS
                            UNDERTAKING AND INDEMNITY

      This Amended and Restated Hazardous Materials Undertaking and Indemnity
(this "Indemnity") is executed by CALPINE CORPORATION, a Delaware corporation
(the "Indemnitor") in favor of THE BANK OF NEW YORK, a New York banking
corporation ("BONY"), not in its individual capacity but solely as Collateral
Trustee under the Collateral Trust Agreement dated July 16, 2003 (the
"Collateral Trust Agreement") among Indemnitor, BONY, the 2007 Trustee, the 2010
Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative
Agent (collectively, with the Secured Debtholders and their successors and
assigns, the "Indemnified Parties"), whose address is 101 Barclay Street, New
York, New York 10286.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                    Recitals

      Indemnitor is party to that certain (i) Credit Agreement, dated as of
March 8, 2002 (herein, as the same may be amended, modified or supplemented from
time to time, called the "Existing 2002 Credit Agreement"), and (ii) Second
Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the
same may be amended, modified, or supplemented from time to time, called the
"Existing 2000 Credit Agreement" and together with the Existing 2002 Credit
Agreement, collectively, the "Existing Credit Agreements").

      Indemnitor, as a condition to the making of the loans pursuant to the
Existing Credit Agreement has heretofore executed and delivered to The Bank of
Nova Scotia, for itself and as agent for the Lender Parties, that certain
Hazardous Materials Undertaking and Indemnity, dated as of May 1, 2002 (the
"Existing Hazardous Materials Indemnity").

      Indemnitor, the Existing Lenders and the Credit Agreement Agent have now
agreed to, among other things, (i) terminate the commitments under the Existing
2000 Credit Agreement, and (ii) amend and restate the Existing 2002 Credit
Agreement (as so amended and restated, and as the same may, from time to time
hereafter, be amended, supplemented, modified or amended and restated, the
"Amended and Restated Credit Agreement").

      Indemnitor also intends to issue the 2007 Notes, the 2010 Notes, and the
2013 Notes (collectively, the "Notes") and to borrow the Term Loans pursuant to
the Term Loan Agreement. The proceeds from the issuance of the Notes, and the
borrowing of the Term Loans will be used to refinance a portion of the loans and
other indebtedness outstanding under the Existing Credit Agreements.

      The Secured Debt is secured by, among other things, all of the right,
title and interest of Indemnitor in the real property and interests comprising
the oil and gas



reserves, gas, assets, power plants and any other real property at any time
owned by Indemnitor and now or hereafter mortgaged to BONY and all fixtures,
personal property and other improvements now existing or to be constructed on
any of such properties (such properties, descriptions of which are attached
hereto as Exhibit A, herein collectively called, the "Properties"), with respect
to which Indemnitor has executed counterparts of those certain mortgages or
deeds of trust dated July 16, 2003 (the "Mortgages").

      The Secured Debtholders have agreed to enter into the Secured Debt
Documents only if the Indemnified Parties are indemnified and held harmless with
respect to any risk that the Properties may now or in the future be in any way
contaminated, or its use or value impacted by any Hazardous Materials, as
defined below.

      It is a condition precedent to issuing the Secured Debt that Indemnitor
execute and deliver this Indemnity, which Indemnity amends and restates the
Existing Hazardous Materials Indemnity.

      In order to induce the Lenders to issue the Secured Debt, and with the
full intention and understanding that the Indemnified Parties will rely hereon,
Indemnitor represents, warrants, covenants and agrees as follows:

      1. CERTAIN DEFINITIONS. As used in this Indemnity, the following terms
shall have the following respective meanings:

      "Hazardous Materials" means crude or refined oil or fraction thereof,
petroleum substances, petrochemical products, PCBs, asbestos, asbestos
containing materials, urea formaldehyde, salts, flammable explosives,
radioactive materials, hazardous wastes, toxic, mutagenic or pathogenic
substances or related materials, including, without limitation, any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," or "toxic substances" under any applicable
federal or state laws or regulations.

      "Hazardous Materials Laws" means all federal, state or local laws,
ordinances, regulations, orders and directives pertaining to Hazardous
Materials.

      2. REPRESENTATIONS AND WARRANTIES. Without limiting the generality of any
of the representations or warranties contained in the other Secured Debt
Documents, Indemnitor hereby represents and warrants to BONY and the other
Indemnified Parties that, except as disclosed on Exhibit B hereto, as of the
date of this Indemnity and continuing thereafter,

            (a) the Properties and each portion thereof (including the
      underlying groundwater) are not and have not been a site for the use,
      generation, manufacture, discharge, assembly, processing, storage,
      release, disposal or transportation to or from of any Hazardous Materials,
      except in connection with the production, storage and transportation of
      crude oil, natural gas, other


                                      -2-


      hydrocarbons and petroleum, and other petroleum products in the ordinary
      course of Indemnitor's business;

            (b) the Properties and each portion thereof (including the
      underlying groundwater) are presently in compliance in all material
      respects with all Hazardous Materials Laws, including, without limitation,
      those relating to exposure to Hazardous Materials, the labeling, storage
      and containment of Hazardous Materials, and air, soil and surface and
      ground water conditions;

            (c) there have been no past, and there are no pending or, to
      Indemnitor's knowledge, threatened

                  (i) claims, complaints, notices or requests for information
            received by Indemnitor with respect to any alleged violation of any
            Environmental Law, including Hazardous Materials Laws, that, singly
            or in the aggregate, may reasonably be expected to result in a
            Material Adverse Effect, or

                  (ii) complaints, notices or inquiries to Indemnitor regarding
            potential liability under any Environmental Law, including Hazardous
            Materials Laws, that, singly or in the aggregate, may reasonably be
            expected to result in a Material Adverse Effect;

            (d) there have been no unremediated Releases of Hazardous Materials
      at, on or under any property (including the Properties) now or previously
      owned or leased by Indemnitor that, singly or in the aggregate, result in,
      or may reasonably be expected to result in, a Material Adverse Effect;

            (e) Indemnitor has been issued and is in material compliance with
      all permits, certificates, approvals, licenses and other governmental
      authorizations relating to environmental matters and necessary for its
      businesses;

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

            (g) Indemnitor has not directly transported or directly arranged for
      the transportation of any Hazardous Material to any location which is
      listed or proposed for listing on the National Priorities List pursuant to
      CERCLA, on the CERCLIS or on any similar state list or which is the
      subject of federal, state or local enforcement actions or other
      investigations which may lead to material claims against Indemnitor for
      any remedial work, damage to natural resources or personal injury,
      including claims under CERCLA;

            (h) there are no polychlorinated biphenyls or friable asbestos
      present at any property (including the Properties) now or previously owned
      or leased by


                                      -3-


      Indemnitor that, singly or in the aggregate, result in, or may reasonably
      be expected to result in, a Material Adverse Effect; and

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

      3. COVENANTS. Indemnitor hereby covenants and agrees that, so long as any
obligation under any of the Secured Debt Documents or otherwise in connection
with the Secured Debt is outstanding:

            (a) Indemnitor shall not permit the Properties or any portion of any
      parcel thereof to be a site for the use, generation, manufacture,
      discharge, assembly, processing, storage, Release, disposal or
      transportation to or from of Hazardous Materials except (i) as disclosed
      on Exhibit B hereto, (ii) in such quantities and as may be necessary for
      the production, storage and transportation of crude oil, natural gas and
      other Hydrocarbons (as defined in the Mortgages) in the ordinary course of
      Indemnitor's business as conducted on the Effective Date, (iii) as
      necessary or required to develop the Properties in the ordinary course of
      Indemnitor's business and (iv) as may be necessary to respond to any
      emergency, each of which excepted activities will be conducted in a manner
      designed to minimize environmental risk;

            (b) Indemnitor shall keep and maintain the Properties and each
      portion of any parcel thereof in compliance in all material respects with
      all Environmental Laws, including Hazardous Materials Laws (and to the
      extent there are violations of such laws existing as of the date hereof
      which are disclosed on Exhibit B, with the remediation plans and work
      plans listed on Exhibit B), and otherwise shall not cause or permit the
      Properties or any portion of any parcel thereof to be in violation, in any
      material respect, of such laws;

            (c) As to any claim or matter not disclosed on Exhibit B, Indemnitor
      shall immediately advise BONY and each of the Secured Debt Representatives
      in writing of:

                  (i) any and all enforcement, cleanup, removal or other
            governmental or regulatory actions instituted, completed or
            threatened against Indemnitor or the Properties pursuant to any
            applicable Environmental Laws, including Hazardous Materials Laws
            that, singly or in the aggregate, have, or may reasonably be
            expected to have, a Material Adverse Effect;

                  (ii) any and all material claims made or threatened by any
            third party against Indemnitor or the Properties relating to any
            claim, liability, cause of action, nuisance, fine, penalty, charge,
            administrative or judicial


                                      -4-


            order or proceeding, judgment, remedial action or cleanup
            requirement, enforcement, damage, contribution, cost recovery,
            compensation, loss or injury resulting from any Hazardous Materials
            that, singly or in the aggregate, have, or may reasonably be
            expected to have, a Material Adverse Effect (the matters set forth
            in Sections 3(c)(i) and (ii) hereof are hereinafter referred to as
            "Hazardous Materials Claims");

                  (iii) any change in any claim or matter disclosed in Exhibit B
            that, singly or in the aggregate, have, or may reasonably be
            expected to have, a Material Adverse Effect; and

                  (iv) For the purpose of protecting the collateral given to
            secure the Obligations, BONY and any Secured Debt Representative
            shall have the right to join and participate in, as a party if it so
            elects, any legal proceedings or actions initiated in connection
            with any Hazardous Materials Claims and to have its reasonable
            attorneys' fees and expenses in connection therewith paid by
            Indemnitor;

            (d) Indemnitor shall not, without the prior written consent (which
      consent shall not be unreasonably withheld or delayed) of a Secured Debt
      Representative, take any remedial action in response to the presence of
      any Hazardous Materials on, under, or about the Properties (except (i)
      with respect to oil, gas and other Hydrocarbons, in the ordinary course of
      Indemnitor's business, or (ii) as may be necessary to respond to any
      emergency), nor enter into any settlement agreement, consent decree, or
      other compromise in respect of any Hazardous Material Claim in excess of
      $250,000;

            (e) Annually, at the time Indemnitor's audited financial statements
      are required to be delivered pursuant to any Secured Debt Document,
      Indemnitor shall deliver to BONY and each Secured Debt Representative a
      report discussing significant issues or concerns arising, or measures
      taken, during the preceding year and those contemplated for the following
      year relating to compliance with Hazardous Materials Laws and
      Environmental Laws, including, without limitation, compliance with any
      then effective order of the Regional Water Quality Control Board (or other
      lead agency) pertaining to the characterization, abatement and remediation
      of soil and groundwater contamination of the Properties;

            (f) To the extent that Indemnitor has the right to do so, Indemnitor
      shall permit BONY and any Secured Debt Representative or its agents, at
      the cost and expense of Indemnitor, to enter upon the Properties and all
      parts thereof, for the purpose of investigating and inspecting the
      condition and operation thereof, and shall permit reasonable access to the
      field offices and other offices, including the principal place of
      business, of Indemnitor to inspect and examine the Properties and to
      inspect, review and reproduce as necessary any books, records, accounts,
      contracts or other documents of Indemnitor;


                                      -5-


            (g) Without limiting the generality of the foregoing clause (f),
      BONY and any Secured Debt Representative shall have the right, subject to
      any existing contractual restrictions binding on Indemnitor and on
      twenty-four (24) hours prior notice to Indemnitor, to cause such persons
      and entities as such parties may designate to enter the Properties to
      conduct (at the cost and expense of Indemnitor), or to cause Indemnitor to
      conduct (at the cost and expense of Indemnitor), such tests and
      investigations as such parties deem necessary to determine whether any
      hazardous substance or solid waste is being generated, transported,
      stored, or disposed of in accordance with applicable Environmental Laws.
      Such tests and investigations may include, without limitation, underground
      borings, ground water analyses and borings from the floors, ceilings and
      walls of any improvements located on the Properties. This Section 3(g)
      shall not be construed to affect or limit the obligations of Indemnitor
      pursuant to Section 4 hereof;

            (h) Neither BONY nor any Secured Debt Representative shall have any
      duty to visit or observe the Properties or to conduct tests, and no site
      visit, observation or testing by such parties shall impose any liability
      on such parties, nor shall Indemnitor or any other Obligor be entitled to
      rely on any visit, observation or testing by BONY and/or any Secured Debt
      Representative in any respect. BONY and any Secured Debt Representative
      may, in its discretion, disclose to Indemnitor or any other Person,
      including any governmental agency, any report or finding made as a result
      of, or in connection with, any site visit, observation or testing by such
      parties. Indemnitor agrees that no warranty or representation is made by
      these parties to Indemnitor or any other Obligor regarding the truth,
      accuracy or completeness of any such report or findings that may be so
      disclosed. Indemnitor also acknowledges that, depending upon the results
      of any site visit, observation or testing by such parties and disclosed to
      Indemnitor, Indemnitor may have a legal obligation to notify one or more
      governmental agencies of such results, that such reporting requirements
      are site-specific, and are to be evaluated by Indemnitor without advice or
      assistance from such parties; and

            (i) Cooperate fully with any environmental consultant retained by
      BONY and/or any Secured Debt Representative to prepare reports on the
      Properties.

      4. CONTINUING INDEMNITY. Indemnitor hereby agrees to indemnify, hold
harmless and defend (by one law firm of counsel reasonably satisfactory to BONY
and/or any Secured Debt Representative unless an Event of Default shall have
occurred and be continuing) the Secured Debt Representatives and the Indemnified
Parties and their directors, officers, employees, agents, successors and assigns
(collectively, "Indemnitees") from and against any and all claims (including
without limitation third party claims for personal injury or real or personal
property damage), losses, damages, liabilities, fines, penalties, charges,
administrative and judicial proceedings (including informal proceedings) and
orders, judgments, remedial action requirements, enforcement actions of any
kind, and all costs and expenses incurred in


                                      -6-


connection therewith (including but not limited to reasonable attorneys' and/or
paralegals' fees and expenses), including, but not limited to, all costs
incurred in connection with any investigation or monitoring of site conditions
or any clean-up, remedial, removal or restoration work by any federal, state or
local government agency, arising directly or indirectly, in whole or in part,
out of (i) the presence on or under the Properties of any Hazardous Materials,
or any escape, seepage, leakage, spillage, discharge, emission or Release of any
Hazardous Materials on, under or from the Properties, or (ii) any activity
carried on or undertaken on or off the Properties, whether prior to or during
the term of the Secured Debt, and whether by Indemnitor or any predecessor in
title or any employees, agents, contractors or subcontractors of Indemnitor or
any predecessor in title, or any third persons at any time occupying or present
on the Properties, in connection with the handling, treatment, removal, storage,
decontamination, clean-up, transport or disposal of any Hazardous Materials that
at any time are located or present on or under or that at any time migrate,
flow, percolate, diffuse or in any way move onto or under the Properties;
provided however, that nothing herein shall require Indemnitor to indemnify
Indemnitees for any matter arising solely from the gross negligence or wilful
misconduct of BONY. The foregoing indemnity shall further apply to any residual
contamination on or under the Properties, or affecting any natural resources,
and to any contamination of any property or natural resources arising in
connection with the generation, use, handling, storage, transport or disposal of
any such Hazardous Materials, and irrespective of whether any of such activities
were or will be undertaken in accordance with applicable laws, regulations,
codes and ordinances. It is expressly understood and agreed that the indemnity
provided for herein shall survive: (i) the repayment of the Secured Debt and the
release of or reconveyance (whether full or partial) of the Mortgages; or (ii)
the acquisition of title to all or any portion of the Properties by BONY, or any
successor in interest to BONY, or any nominee or designee of any of them, by
foreclosure under or transfer in lieu of foreclosure of the Mortgages, whether
or not the same is otherwise in satisfaction of Indemnitor's obligations in
connection with the Secured Debt.

      5. TIME OF THE ESSENCE. Time is of the essence of this Indemnity.

      6. GOVERNING LAW. This Indemnity shall be governed by and construed in
accordance with the laws of the State of New York, except to the extent
preempted by Federal Law. Indemnitor irrevocably agrees that any legal action or
proceeding with respect to this Indemnity may be brought in a court of competent
jurisdiction of the State of New York or of the United States of America, as
BONY may elect, and by execution and delivery of this Indemnity the Indemnitor
hereby irrevocably submits to each such jurisdiction; and agrees that final
judgment against the Indemnitor in any such action or proceeding shall be
conclusive and may be enforced in any jurisdiction within the United States
including, without limitation, the State of New York, by suit on the judgment, a
certified copy of which shall be conclusive evidence of the fact and of the
amount of the indebtedness owed.

      7. INDEMNITOR WAIVERS. Indemnitor waives: (a) any defense based upon any
legal disability to enter into the Secured Debt Documents or other defense of
Indemnitor under the Secured Debt Documents; (b) any defense based on any lack
of


                                      -7-


authority of the officers, directors, partners or agents acting or purporting to
act on behalf of Indemnitor or any principal of Indemnitor, or any defect in the
formation of Indemnitor or any principal of Indemnitor; (c) any defense based
upon the application of the Secured Debt by Indemnitor for purposes other than
the purposes represented by Indemnitor to BONY or intended or understood by BONY
or Indemnitor; (d) any defense based upon BONY's election, in any proceeding
instituted under the Federal Bankruptcy Code, of the application of Section
111(b)(2) of the Federal Bankruptcy Code or any successor statute; (e) any
defense based upon any borrowing or any grant of security interest under Section
364 of the Federal Bankruptcy Code; (f) presentment, demand, protest and notice
of any kind; and (g) the benefit of any statute of limitations affecting the
liability of Indemnitor hereunder or the enforcement hereof.

      8. OTHER PROVISIONS.

            (a) This Indemnity is executed pursuant to the Secured Debt
      Documents and shall be construed, administered and applied in accordance
      with the terms and provisions thereof.

            (b) All notices pursuant to this Indemnity shall be delivered at the
      times, in the manner and to the addressees as set forth in any Secured
      Debt Documents.

            (c) No amendment to or waiver of any provision of this Indemnity nor
      consent to any departure by Indemnitor herefrom shall be effective unless
      the same shall be in writing and signed by BONY or a Secured Debt
      Representative and Indemnitor.

            (d) This Indemnity shall be binding on and for the benefit of, the
      parties hereto, together with their respective successors and assigns.

            (e) The obligations of Indemnitor hereunder shall survive any
      termination of this Indemnity and the termination of all the Secured Debt
      Obligations. The representations and warranties made by Indemnitor in this
      Agreement shall survive the execution and delivery of this Indemnity.

            (f) Any provision of this Indemnity which is prohibited or
      unenforceable in any jurisdiction shall, as to such provision and such
      jurisdiction, be ineffective to the extent of such prohibition or
      unenforceability without invalidating the remaining provisions of this
      Indemnity or affecting the validity or enforceability of such provision in
      any other jurisdiction.

            (g) The various headings of this Indemnity are inserted for
      convenience only and shall not affect the meaning or interpretation of
      this Indemnity or any provisions hereof.


                                      -8-


Dated: as of July 16, 2003

                                        "Indemnitor"

                                        CALPINE CORPORATION, a Delaware
                                        corporation


                                        By: /a/ B.A. Berligen
                                            ------------------------------------
                                            Name:  B.A. Berilgen
                                            Title: Executive Vice President



                                    EXHIBIT A
                                       to
                  HAZARDOUS MATERIAL UNDERTAKING AND INDEMNITY

                         Legal Description of Properties



                                    EXHIBIT B
                                       to
                  HAZARDOUS MATERIAL UNDERTAKING AND INDEMNITY

                            Description of Hazardous
                          Materials On Properties, etc.

                                      None.

EX-10.39

                                                                   EXHIBIT 10.39

            AMENDED AND RESTATED HAZARDOUS MATERIALS UNDERTAKING AND
                              UNSECURED INDEMNITY

      This Amended and Restated Hazardous Materials Undertaking and Unsecured
Indemnity (this "Indemnity") is executed by CALPINE CORPORATION, a Delaware
corporation (the "Indemnitor") in favor of THE BANK OF NEW YORK, a New York
banking corporation ("BONY"), not in its individual capacity but solely as
Collateral Trustee under the Collateral Trust Agreement dated July 16, 2003 (the
"Collateral Trust Agreement") among Indemnitor, BONY, the 2007 Trustee, the 2010
Trustee, the 2013 Trustee, Credit Agreement Agent and Term Loan Administrative
Agent (collectively, with the Secured Debtholders and their successors and
assigns, the "Indemnified Parties"), whose address is 101 Barclay Street, New
York, New York 10286.

      Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Collateral Trust Agreement.

                                    Recitals

      Indemnitor is party to that certain (i) Credit Agreement, dated as of
March 8, 2002 (herein, as the same may be amended, modified or supplemented from
time to time, called the "Existing 2002 Credit Agreement"), and (ii) Second
Amended and Restated Credit Agreement dated as of May 23, 2000 (herein, as the
same may be amended, modified, or supplemented from time to time, called the
"Existing 2000 Credit Agreement" and together with the Existing 2002 Credit
Agreement, collectively, the "Existing Credit Agreements").

      Indemnitor, as a condition to the making of the loans pursuant to the
Existing Credit Agreement has heretofore executed and delivered to The Bank of
Nova Scotia, for itself and as agent for the Lender Parties, that certain
Hazardous Materials Undertaking and Unsecured Indemnity, dated as of May 1, 2002
(the "Existing Hazardous Materials Indemnity").

      Indemnitor, the Existing Lenders and the Credit Agreement Agent have now
agreed to, among other things, (i) terminate the commitments under the Existing
2000 Credit Agreement, and (ii) amend and restate the Existing 2002 Credit
Agreement (as so amended and restated, and as the same may, from time to time
hereafter, be amended, supplemented, modified or amended and restated, the
"Amended and Restated Credit Agreement").

      Indemnitor also intends to issue the 2007 Notes, the 2010 Notes, and the
2013 Notes (collectively, the "Notes") and to borrow the Term Loans pursuant to
the Term Loan Agreement. The proceeds from the issuance of the Notes, and the
borrowing of the Term Loans will be used to refinance a portion of the loans and
other indebtedness outstanding under the Existing Credit Agreements.


                                      -1-


      The Secured Debt is secured by, among other things, all of the right,
title and interest of Indemnitor in the real property and interests comprising
the oil and gas reserves, gas, assets, power plants and any other real property
at any time owned by Indemnitor and now or hereafter mortgaged to BONY and all
fixtures, personal property and other improvements now existing or to be
constructed on any of such properties (such properties, descriptions of which
are attached hereto as Exhibit A, herein collectively called, the "Properties"),
with respect to which Indemnitor has executed counterparts of those certain
mortgages or deeds of trust dated July 16, 2003 (the "Mortgages").

      The Secured Debtholders have agreed to enter into the Secured Debt
Documents only if the Indemnified Parties are indemnified and held harmless with
respect to any risk that the Properties may now or in the future be in any way
contaminated, or its use or value impacted by any Hazardous Materials, as
defined below.

      It is a condition precedent to issuing the Secured Debt that Indemnitor
execute and deliver this Indemnity, which Indemnity amends and restates the
Existing Hazardous Materials Indemnity.

      In order to induce the Lenders to issue the Secured Debt, and with the
full intention and understanding that the Indemnified Parties will rely hereon,
Indemnitor represents, warrants, covenants and agrees as follows:

      1. CERTAIN DEFINITIONS. As used in this Indemnity, the following terms
shall have the following respective meanings:

      "Hazardous Materials" means crude or refined oil or fraction thereof,
petroleum substances, petrochemical products, PCBs, asbestos, asbestos
containing materials, urea formaldehyde, salts, flammable explosives,
radioactive materials, hazardous wastes, toxic, mutagenic or pathogenic
substances or related materials, including, without limitation, any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," or "toxic substances" under any applicable
federal or state laws or regulations.

      "Hazardous Materials Laws" means all federal, state or local laws,
ordinances, regulations, orders and directives pertaining to Hazardous
Materials.

      2. REPRESENTATIONS AND WARRANTIES. Without limiting the generality of any
of the representations or warranties contained in the other Secured Debt
Documents, Indemnitor hereby represents and warrants to BONY and the other
Indemnified Parties that, except as disclosed on Exhibit B hereto, as of the
date of this Indemnity and continuing thereafter,

            (a) the Properties and each portion thereof (including the
      underlying groundwater) are not and have not been a site for the use,
      generation, manufacture, discharge, assembly, processing, storage,
      release, disposal or transportation to or from of any Hazardous Materials,
      except in connection with


                                      -2-


      the production, storage and transportation of crude oil, natural gas,
      other hydrocarbons and petroleum, and other petroleum products in the
      ordinary course of Indemnitor's business;

            (b) the Properties and each portion thereof (including the
      underlying groundwater) are presently in compliance in all material
      respects with all Hazardous Materials Laws, including, without limitation,
      those relating to exposure to Hazardous Materials, the labeling, storage
      and containment of Hazardous Materials, and air, soil and surface and
      ground water conditions;

            (c) there have been no past, and there are no pending or, to
      Indemnitor's knowledge, threatened

                  (i) claims, complaints, notices or requests for information
            received by Indemnitor with respect to any alleged violation of any
            Environmental Law, including Hazardous Materials Laws, that, singly
            or in the aggregate, may reasonably be expected to result in a
            Material Adverse Effect, or

                  (ii) complaints, notices or inquiries to Indemnitor regarding
            potential liability under any Environmental Law, including Hazardous
            Materials Laws, that, singly or in the aggregate, may reasonably be
            expected to result in a Material Adverse Effect;

            (d) there have been no unremediated Releases of Hazardous Materials
      at, on or under any property (including the Properties) now or previously
      owned or leased by Indemnitor that, singly or in the aggregate, result in,
      or may reasonably be expected to result in, a Material Adverse Effect;

            (e) Indemnitor has been issued and is in material compliance with
      all permits, certificates, approvals, licenses and other governmental
      authorizations relating to environmental matters and necessary for its
      businesses;

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

            (g) Indemnitor has not directly transported or directly arranged for
      the transportation of any Hazardous Material to any location which is
      listed or proposed for listing on the National Priorities List pursuant to
      CERCLA, on the CERCLIS or on any similar state list or which is the
      subject of federal, state or local enforcement actions or other
      investigations which may lead to material claims against Indemnitor for
      any remedial work, damage to natural resources or personal injury,
      including claims under CERCLA;

            (h) there are no polychlorinated biphenyls or friable asbestos
      present at any property (including the Properties) now or previously owned
      or leased by


                                      -3-


      Indemnitor that, singly or in the aggregate, result in, or may reasonably
      be expected to result in, a Material Adverse Effect;

            (i) no conditions exist at, on or under any property (including the
      Properties) now or previously owned or leased by Indemnitor which, with
      the passage of time, or the giving of notice or both, would give rise to
      liability under any Environmental Law, which liability would reasonably be
      expected to result in a Material Adverse Effect; and

            (j) to the best of the knowledge of Indemnitor, no property owned,
      operated or leased by Indemnitor is located within two thousand (2,000)
      feet of a significant disposal of "hazardous waste" within the meaning of
      Section 25221 of the California Health and Safety Code.

      3. COVENANTS. Indemnitor hereby covenants and agrees that, so long as any
obligation under any of the Secured Debt Documents or otherwise in connection
with the Secured Debt is outstanding:

            (a) Indemnitor shall not permit the Properties or any portion of any
      parcel thereof to be a site for the use, generation, manufacture,
      discharge, assembly, processing, storage, Release, disposal or
      transportation to or from of Hazardous Materials except (i) as disclosed
      on Exhibit B hereto, (ii) in such quantities and as may be necessary for
      the production, storage and transportation of crude oil, natural gas and
      other Hydrocarbons (as defined in the Mortgages) in the ordinary course of
      Indemnitor's business as conducted on the Effective Date, (iii) as
      necessary or required to develop the Properties in the ordinary course of
      Indemnitor's business and (iv) as may be necessary to respond to any
      emergency, each of which excepted activities will be conducted in a manner
      designed to minimize environmental risk;

            (b) Indemnitor shall keep and maintain the Properties and each
      portion of any parcel thereof in compliance in all material respects with
      all Environmental Laws, including Hazardous Materials Laws (and to the
      extent there are violations of such laws existing as of the date hereof
      which are disclosed on Exhibit B, with the remediation plans and work
      plans listed on Exhibit B), and otherwise shall not cause or permit the
      Properties or any portion of any parcel thereof to be in violation, in any
      material respect, of such laws;

            (c) As to any claim or matter not disclosed on Exhibit B, Indemnitor
      shall immediately advise BONY and each of the Secured Debt Representatives
      in writing of:

                  (i) any and all enforcement, cleanup, removal or other
            governmental or regulatory actions instituted, completed or
            threatened against Indemnitor or the Properties pursuant to any
            applicable Environmental Laws, including Hazardous Materials Laws
            that, singly or in


                                      -4-


            the aggregate, have, or may reasonably be expected to have, a
            Material Adverse Effect;

                  (ii) any and all material claims made or threatened by any
            third party against Indemnitor or the Properties relating to any
            claim, liability, cause of action, nuisance, fine, penalty, charge,
            administrative or judicial order or proceeding, judgment, remedial
            action or cleanup requirement, enforcement, damage, contribution,
            cost recovery, compensation, loss or injury resulting from any
            Hazardous Materials that, singly or in the aggregate, have, or may
            reasonably be expected to have, a Material Adverse Effect (the
            matters set forth in Sections 3(c)(i) and (ii) hereof are
            hereinafter referred to as "Hazardous Materials Claims");

                  (iii) any change in any claim or matter disclosed in Exhibit B
            that, singly or in the aggregate, have, or may reasonably be
            expected to have, a Material Adverse Effect; and

                  (iv) Indemnitor's discovery of any occurrence or condition on
            any real property adjoining or in the vicinity of the Properties
            that could cause the Properties or any part thereof to be classified
            as "border-zone property" under the provisions of California Health
            and Safety Code, Sections 25220, et seq., or any regulation adopted
            in accordance therewith, or to be otherwise subject to any
            restrictions on the ownership, occupancy, transferability or use of
            the Properties under any Environmental Law, including Hazardous
            Materials Laws. For the purpose of protecting the collateral given
            to secure the Obligations, BONY and any Secured Debt Representative
            shall have the right to join and participate in, as a party if it so
            elects, any legal proceedings or actions initiated in connection
            with any Hazardous Materials Claims and to have its reasonable
            attorneys' fees and expenses in connection therewith paid by
            Indemnitor;

            (d) Indemnitor shall not, without the prior written consent (which
      consent shall not be unreasonably withheld or delayed) of a Secured Debt
      Representative, take any remedial action in response to the presence of
      any Hazardous Materials on, under, or about the Properties (except (i)
      with respect to oil, gas and other Hydrocarbons, in the ordinary course of
      Indemnitor's business, or (ii) as may be necessary to respond to any
      emergency), nor enter into any settlement agreement, consent decree, or
      other compromise in respect of any Hazardous Material Claim in excess of
      $250,000;

            (e) Annually, at the time Indemnitor's audited financial statements
      are required to be delivered pursuant to any Secured Debt Document,
      Indemnitor shall deliver to BONY and each Secured Debt Representative a
      report discussing significant issues or concerns arising, or measures
      taken, during the preceding year and those contemplated for the following
      year relating to compliance with Hazardous Materials Laws and
      Environmental Laws, including, without limitation,


                                      -5-


      compliance with any then effective order of the Regional Water Quality
      Control Board (or other lead agency) pertaining to the characterization,
      abatement and remediation of soil and groundwater contamination of the
      Properties;

            (f) To the extent that Indemnitor has the right to do so, Indemnitor
      shall permit BONY and any Secured Debt Representative or its agents, at
      the cost and expense of Indemnitor, to enter upon the Properties and all
      parts thereof, for the purpose of investigating and inspecting the
      condition and operation thereof, and shall permit reasonable access to the
      field offices and other offices, including the principal place of
      business, of Indemnitor to inspect and examine the Properties and to
      inspect, review and reproduce as necessary any books, records, accounts,
      contracts or other documents of Indemnitor;

            (g) Without limiting the generality of the foregoing clause (f),
      BONY and any Secured Debt Representative shall have the right, subject to
      any existing contractual restrictions binding on Indemnitor and on
      twenty-four (24) hours prior notice to Indemnitor, to cause such persons
      and entities as such parties may designate to enter the Properties to
      conduct (at the cost and expense of Indemnitor), or to cause Indemnitor to
      conduct (at the cost and expense of Indemnitor), such tests and
      investigations as such parties deem necessary to determine whether any
      hazardous substance or solid waste is being generated, transported,
      stored, or disposed of in accordance with applicable Environmental Laws.
      Such tests and investigations may include, without limitation, underground
      borings, ground water analyses and borings from the floors, ceilings and
      walls of any improvements located on the Properties. This Section 3(g)
      shall not be construed to affect or limit the obligations of Indemnitor
      pursuant to Section 4 hereof;

            (h) Neither BONY nor any Secured Debt Representative shall have any
      duty to visit or observe the Properties or to conduct tests, and no site
      visit, observation or testing by such parties shall impose any liability
      on such parties, nor shall Indemnitor or any other Obligor be entitled to
      rely on any visit, observation or testing by BONY and/or any Secured Debt
      Representative in any respect. BONY and any Secured Debt Representative
      may, in its discretion, disclose to Indemnitor or any other Person,
      including any governmental agency, any report or finding made as a result
      of, or in connection with, any site visit, observation or testing by such
      parties. Indemnitor agrees that no warranty or representation is made by
      these parties to Indemnitor or any other Obligor regarding the truth,
      accuracy or completeness of any such report or findings that may be so
      disclosed. Indemnitor also acknowledges that, depending upon the results
      of any site visit, observation or testing by such parties and disclosed to
      Indemnitor, Indemnitor may have a legal obligation to notify one or more
      governmental agencies of such results, that such reporting requirements
      are site-specific, and are to be evaluated by Indemnitor without advice or
      assistance from such parties; and


                                      -6-


            (i) Cooperate fully with any environmental consultant retained by
      BONY and/or any Secured Debt Representative to prepare reports on the
      Properties.

      4. CONTINUING, UNSECURED INDEMNITY. Indemnitor hereby agrees to indemnify,
hold harmless and defend (by one law firm of counsel reasonably satisfactory to
BONY and/or any Secured Debt Representative unless an Event of Default shall
have occurred and be continuing) the Secured Debt Representatives and the
Indemnified Parties and their directors, officers, employees, agents, successors
and assigns (collectively, "Indemnitees") from and against any and all claims
(including without limitation third party claims for personal injury or real or
personal property damage), losses, damages, liabilities, fines, penalties,
charges, administrative and judicial proceedings (including informal
proceedings) and orders, judgments, remedial action requirements, enforcement
actions of any kind, and all costs and expenses incurred in connection therewith
(including but not limited to reasonable attorneys' and/or paralegals' fees and
expenses), including, but not limited to, all costs incurred in connection with
any investigation or monitoring of site conditions or any clean-up, remedial,
removal or restoration work by any federal, state or local government agency,
arising directly or indirectly, in whole or in part, out of (i) the presence on
or under the Properties of any Hazardous Materials, or any escape, seepage,
leakage, spillage, discharge, emission or Release of any Hazardous Materials on,
under or from the Properties, or (ii) any activity carried on or undertaken on
or off the Properties, whether prior to or during the term of the Secured Debt,
and whether by Indemnitor or any predecessor in title or any employees, agents,
contractors or subcontractors of Indemnitor or any predecessor in title, or any
third persons at any time occupying or present on the Properties, in connection
with the handling, treatment, removal, storage, decontamination, clean-up,
transport or disposal of any Hazardous Materials that at any time are located or
present on or under or that at any time migrate, flow, percolate, diffuse or in
any way move onto or under the Properties; provided however, that nothing herein
shall require Indemnitor to indemnify Indemnitees for any matter arising solely
from the gross negligence or wilful misconduct of BONY. The foregoing indemnity
shall further apply to any residual contamination on or under the Properties, or
affecting any natural resources, and to any contamination of any property or
natural resources arising in connection with the generation, use, handling,
storage, transport or disposal of any such Hazardous Materials, and irrespective
of whether any of such activities were or will be undertaken in accordance with
applicable laws, regulations, codes and ordinances. Indemnitor hereby
acknowledges and agrees that the obligations of Indemnitor under this Indemnity
shall be unlimited personal obligations and also shall NOT be secured by the
Mortgages. In this regard, BONY's appraisal of the value of the Properties is
such that BONY is not willing to accept the consequences, under California's
"one form of action" rule (i.e., Section 726 of the Code of Civil Procedure) and
"Anti-Deficiency Rules" (i.e., Sections 580(a), 580(b) and 580(d) of the Code of
Civil Procedure) of inclusion of the obligations under this Indemnity among the
obligations secured by the Mortgage, and that the BONY and the other Indemnified
Parties would not issue the Secured Debt in the absence of the personal
liability undertaken by Indemnitor for these obligations. It is expressly
understood and agreed that the indemnity provided for herein shall survive: (i)
the repayment of the Secured Debt and the release of or


                                      -7-


reconveyance (whether full or partial) of the Mortgages; or (ii) the acquisition
of title to all or any portion of the Properties by BONY, or any successor in
interest to BONY, or any nominee or designee of any of them, by foreclosure
under or transfer in lieu of foreclosure of the Mortgages, whether or not the
same is otherwise in satisfaction of Indemnitor's obligations in connection with
the Secured Debt.

      5. TIME OF THE ESSENCE. Time is of the essence of this Indemnity.

      6. GOVERNING LAW. This Indemnity shall be governed by and construed in
accordance with the laws of the State of New York, except to the extent
preempted by Federal Law. Indemnitor irrevocably agrees that any legal action or
proceeding with respect to this Indemnity may be brought in a court of competent
jurisdiction of the State of New York or of the United States of America, as
BONY may elect, and by execution and delivery of this Indemnity the Indemnitor
hereby irrevocably submits to each such jurisdiction; and agrees that final
judgment against the Indemnitor in any such action or proceeding shall be
conclusive and may be enforced in any jurisdiction within the United States
including, without limitation, the State of New York, by suit on the judgment, a
certified copy of which shall be conclusive evidence of the fact and of the
amount of the indebtedness owed. This Indemnity shall be governed by, construed
and enforced in accordance with the laws of the State of California. In any
action brought under or arising out of this Indemnity, Indemnitor hereby
consents to the jurisdiction of any competent court within the State of
California and consents to service of process by any means authorized by
California law.

      7. INDEMNITOR WAIVERS. Indemnitor waives: (a) any defense based upon any
legal disability to enter into the Secured Debt Documents or other defense of
Indemnitor under the Secured Debt Documents; (b) any defense based on any lack
of authority of the officers, directors, partners or agents acting or purporting
to act on behalf of Indemnitor or any principal of Indemnitor, or any defect in
the formation of Indemnitor or any principal of Indemnitor; (c) any defense
based upon the application of the Secured Debt by Indemnitor for purposes other
than the purposes represented by Indemnitor to BONY or intended or understood by
BONY or Indemnitor; (d) any and all rights and defenses arising out of an
election of remedies by BONY, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed Indemnitor's rights of subrogation and reimbursement against the
principal by the operation of Section 580(d) of the California Code of Civil
Procedure or otherwise; (e) any defense based upon BONY's election, in any
proceeding instituted under the Federal Bankruptcy Code, of the application of
Section 111(b)(2) of the Federal Bankruptcy Code or any successor statute; (f)
any defense based upon any borrowing or any grant of security interest under
Section 364 of the Federal Bankruptcy Code; (g) presentment, demand, protest and
notice of any kind; (h) and the benefit of any statute of limitations affecting
the liability of Indemnitor hereunder or the enforcement hereof. Indemnitor
further waives any and all rights and defenses that Indemnitor may have because
Indemnitor's debt is secured by real property; this means, among other things,
that: (1) BONY may collect from Indemnitor without first foreclosing on any real
or personal property pledged by Indemnitor; (2) if BONY forecloses on any real
property collateral pledged by Indemnitor, then the


                                      -8-


amount of the debt may be reduced only by the price for which that collateral is
sold at the foreclosure sale, even if the collateral is worth more than the sale
price. The foregoing sentence is an unconditional and irrevocable waiver of any
rights and defenses Indemnitor may have because its debt is secured by real
property. These rights and defenses being waived by Indemnitor include, but are
not limited to, any rights or defenses based upon Section 580(a), 580(b), 580(d)
or 726 of the California Code of Civil Procedure.

      8. OTHER PROVISIONS.

            (a) This Indemnity is executed pursuant to the Secured Debt
      Documents and shall be construed, administered and applied in accordance
      with the terms and provisions thereof.

            (b) All notices pursuant to this Indemnity shall be delivered at the
      times, in the manner and to the addressees as set forth in any Secured
      Debt Documents.

            (c) No amendment to or waiver of any provision of this Indemnity nor
      consent to any departure by Indemnitor herefrom shall be effective unless
      the same shall be in writing and signed by BONY or a Secured Debt
      Representative and Indemnitor.

            (d) This Indemnity shall be binding on and for the benefit of, the
      parties hereto, together with their respective successors and assigns.

            (e) The obligations of Indemnitor hereunder shall survive any
      termination of this Indemnity and the termination of all the Secured Debt
      Obligations. The representations and warranties made by Indemnitor in this
      Agreement shall survive the execution and delivery of this Indemnity.

            (f) Any provision of this Indemnity which is prohibited or
      unenforceable in any jurisdiction shall, as to such provision and such
      jurisdiction, be ineffective to the extent of such prohibition or
      unenforceability without invalidating the remaining provisions of this
      Indemnity or affecting the validity or enforceability of such provision in
      any other jurisdiction.

            (g) The various headings of this Indemnity are inserted for
      convenience only and shall not affect the meaning or interpretation of
      this Indemnity or any provisions hereof.


                                      -9-


Dated: as of July 16, 2003

                                        "Indemnitor"

                                        CALPINE CORPORATION, a Delaware
                                        corporation


                                        By: /s/ B.A. Berligen
                                            ------------------------------------
                                            Name:  B.A. Berilgen
                                            Title: Executive Vice President


                                      -10-


                                    EXHIBIT A
                                       to
             HAZARDOUS MATERIAL UNDERTAKING AND UNSECURED INDEMNITY

                         Legal Description of Properties



                                    EXHIBIT B
                                       to
             HAZARDOUS MATERIAL UNDERTAKING AND UNSECURED INDEMNITY

                            Description of Hazardous
                          Materials On Properties, etc.

                                      None.

EX-31.1

                                                                    Exhibit 31.1

      CERTIFICATION OF THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
             PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) UNDER THE
             SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter Cartwright, the Chairman, President and Chief Executive Officer of
Calpine Corporation, certify that:

    1.  I have reviewed this quarterly report on Form 10-Q of Calpine
        Corporation (the "registrant");

    2.  Based on my knowledge, this report does not contain any untrue statement
        of a material fact or omit to state a material fact necessary to make
        the statements made, in light of the circumstances under which such
        statements were made, not misleading with respect to the period covered
        by this report;

    3.  Based on my knowledge, the financial statements, and other financial
        information included in this report, fairly present in all material
        respects the financial condition, results of operations and cash flows
        of the registrant as of, and for, the periods presented in this report;

    4.  The registrant's other certifying officer and I are responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
        registrant and have:

        a)  Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

        b)  Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

        c)  Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

    5.  The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation of internal control over financial reporting,
        to the registrant's auditors and the audit committee of the registrant's
        board of directors (or persons performing the equivalent functions):

        a)  All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

        b)  Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: August 14, 2003

                              /s/ Peter Cartwright
                            -----------------------------
                                  Peter Cartwright
                                Chairman, President and
                                Chief Executive Officer
                                 Calpine Corporation

EX-31.2

                                                                    Exhibit 31.2

    CERTIFICATION OF THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
             PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) UNDER THE
              SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT
                TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert D. Kelly, the Executive Vice President and Chief Financial Officer of
Calpine Corporation, certify that:

    1.  I have reviewed this quarterly report on Form 10-Q of Calpine
        Corporation (the "registrant");

    2.  Based on my knowledge, this report does not contain any untrue statement
        of a material fact or omit to state a material fact necessary to make
        the statements made, in light of the circumstances under which such
        statements were made, not misleading with respect to the period covered
        by this report;

    3.  Based on my knowledge, the financial statements, and other financial
        information included in this report, fairly present in all material
        respects the financial condition, results of operations and cash flows
        of the registrant as of, and for, the periods presented in this report;

    4.  The registrant's other certifying officer and I are responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
        registrant and have:

        a)  Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

        b)  Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

        c)  Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

    5.  The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation of internal control over financial reporting,
        to the registrant's auditors and the audit committee of the registrant's
        board of directors (or persons performing the equivalent functions):

        a)  All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

        b)  Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: August 14, 2003

                               /s/ Robert D. Kelly
                          ----------------------------
                                 Robert D. Kelly
                          Executive Vice President and
                             Chief Financial Officer
                               Calpine Corporation

EX-32.1

                                                                    Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Calpine Corporation (the
"Company") on Form 10-Q for the period ending June 30, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned does hereby certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of his knowledge, based upon a review of the Report:

         (1)      The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

         (2)      The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operation of the
Company.

/s/ Peter Cartwright                               /s/ Robert D. Kelly
- --------------------                               -------------------
Peter Cartwright                                   Robert D. Kelly
Chairman, President and                            Executive Vice President and
Chief Executive Officer                            Chief Financial Officer
Calpine Corporation                                Calpine Corporation

Dated: August 14, 2003

A signed original of this written statement required by Section 906 has been
provided to Calpine Corporation and will be retained by Calpine Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.