CALPINE CORP
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>ex10-6.txt
<TEXT>
                                                                    EXHIBIT 10.6

                                                                  EXECUTION COPY













                           LETTER OF CREDIT AGREEMENT

                         dated as of September 30, 2004,

                                     between

                              CALPINE CORPORATION,
                                as the Borrower,

                                       and

                             BAYERISCHE LANDESBANK,
                    ACTING THROUGH ITS CAYMAN ISLANDS BRANCH,
                                  as the Issuer



<PAGE>

                                TABLE OF CONTENTS

                                                                            Page


ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.....................................2

     SECTION 1.1.   Defined Terms..............................................2
     SECTION 1.2.   Use of Defined Terms......................................17
     SECTION 1.3.   Cross-References..........................................17
     SECTION 1.4.   Accounting and Financial Determinations...................17

ARTICLE II COMMITMENT AND LETTERS OF CREDIT PROCEDURES........................18

     SECTION 2.1.   Commitment to Issue Letters of Credit.....................18
     SECTION 2.2.   Reduction of Commitment Amount............................18

ARTICLE III REPAYMENTS, INTEREST AND FEES.....................................19

     SECTION 3.1.   Interest Provisions.......................................19
     SECTION 3.2.   Fees......................................................19

ARTICLE IV LETTERS OF CREDIT..................................................20

     SECTION 4.1.   Issuance Requests.........................................20
     SECTION 4.2.   Issuances and Extensions..................................21
     SECTION 4.3.   Disbursements.............................................21
     SECTION 4.4.   Reimbursement.............................................21
     SECTION 4.5.   Cash Collateral...........................................21
     SECTION 4.6.   Nature of Reimbursement Obligations.......................21
     SECTION 4.7.   Increased Costs; Indemnity................................22
     SECTION 4.8.   Existing Letters of Credit................................24
     SECTION 4.9.   Determination of Equivalent Amount........................24

ARTICLE V CERTAIN ADDITIONAL PROVISIONS.......................................24

     SECTION 5.1.   Increased Capital Costs...................................24
     SECTION 5.2.   Taxes.....................................................24
     SECTION 5.3.   Payments, Computations, etc...............................26
     SECTION 5.4.   Use of Proceeds...........................................26

ARTICLE VI CONDITIONS PRECEDENT...............................................26

     SECTION 6.1.   Effectiveness; Initial Credit Extension...................26
     SECTION 6.2.   All Credit Extensions.....................................27

ARTICLE VII REPRESENTATIONS AND WARRANTIES....................................28

     SECTION 7.1.   Organization, etc.........................................29



                                        i
<PAGE>

     SECTION 7.2.   Due Authorization, Non-Contravention, etc.................29
     SECTION 7.3.   Government Approval, Regulation, etc......................29
     SECTION 7.4.   Validity, etc.............................................29
     SECTION 7.5.   Financial Information.....................................30
     SECTION 7.6.   No Material Adverse Effect................................30
     SECTION 7.7.   Litigation, Labor Controversies, etc......................30
     SECTION 7.8.   Subsidiaries..............................................30
     SECTION 7.9.   Regulations U and X.......................................30
     SECTION 7.10.   Accuracy of Information..................................30

ARTICLE VIII COVENANTS........................................................31

     SECTION 8.1.   Covenants.................................................31

ARTICLE IX EVENTS OF DEFAULT..................................................33

     SECTION 9.1.   Listing of Events of Default..............................33
     SECTION 9.2.   Action if Event of Default................................35

ARTICLE X MISCELLANEOUS PROVISIONS............................................35

     SECTION 10.1.   Waivers, Amendments, etc.................................35
     SECTION 10.2.   Notices..................................................35
     SECTION 10.3.   Payment of Costs and Expenses............................36
     SECTION 10.4.   Indemnification..........................................36
     SECTION 10.5.   Survival.................................................37
     SECTION 10.6.   Severability.............................................37
     SECTION 10.7.   Headings.................................................37
     SECTION 10.8.   Execution in Counterparts, Effectiveness, etc............37
     SECTION 10.9.   Governing Law; Entire Agreement..........................38
     SECTION 10.10.   Successors..............................................38
     SECTION 10.11.   Participations in Commitment............................38
     SECTION 10.12.   Other Transactions......................................38
     SECTION 10.13.   Forum Selection and Consent to Jurisdiction.............39
     SECTION 10.14.   Waiver of Jury Trial....................................39
     SECTION 10.15.   Confidentiality.........................................40
     SECTION 10.16.   Collateral Matters......................................41
     SECTION 10.17.   Judgment Currency.......................................41



                                       ii
<PAGE>

SCHEDULE 1.1  -   Organizational Chart
SCHEDULE 4.8  -   Existing Letters of Credit
SCHEDULE 7.8  -   Significant Subsidiaries

EXHIBIT A     -   Form of Issuance Request
EXHIBIT B     -   Form of Cash Collateral Agreement
EXHIBIT C-1   -   Form of Opinion of Lisa Bodensteiner, Esq.
EXHIBIT C-2   -   Form of Opinion of Covington & Burling



                                       iii
<PAGE>

                           LETTER OF CREDIT AGREEMENT

     THIS LETTER OF CREDIT AGREEMENT (this  "Agreement"),  dated as of September
30, 2004, between CALPINE CORPORATION, a Delaware corporation (together with its
successors,  the  "Borrower"),  and  BAYERISCHE  LANDESBANK,  ACTING THROUGH ITS
CAYMAN ISLANDS BRANCH ("BayernLB"), as the Issuer.

                              W I T N E S S E T H:

     WHEREAS,  the  Borrower  has  requested  that the  Issuer  enter  into this
Agreement  pursuant to which  Letters of Credit will be issued at the request of
the  Borrower  or  deemed  issued,  in each case  pursuant  to the terms of this
Agreement;

     WHEREAS,  the Borrower has heretofore entered into the Amended and Restated
Credit  Agreement,  dated  as of July  16,  2003 (as  amended,  supplemented  or
otherwise modified from time to time, the "Scotia Credit Agreement"),  among the
Borrower,  The Bank of Nova Scotia ("Scotia Capital") and BayernLB, as letter of
credit  issuing banks (the "Scotia Credit  Agreement L/C Issuers"),  the various
financial  institutions as are or may become parties thereto  (including  Scotia
Capital and BayernLB,  the  "Participating  Lenders"),  and Scotia  Capital,  as
administrative agent;

     WHEREAS,  on or about  September 2, 2004, all  outstanding  loans under the
Scotia Credit Agreement were repaid by the Borrower,  all commitments thereunder
were  terminated  and all  outstanding  letters  of credit  issued  by  BayernLB
thereunder (the "BayernLB  Letters of Credit") and by Scotia Capital  thereunder
and  participated  in by each  Participating  Lender  thereunder were fully cash
collateralized pursuant to the Cash Collateral Agreement,  dated as of September
2, 2004 (the "Scotia Cash Collateral Agreement"),  made by the Borrower in favor
of Scotia Capital (as agent for the Scotia Credit  Agreement L/C Issuers and the
Participating  Lenders),  in each case,  as  required  under the  Scotia  Credit
Agreement,  with the  proceeds  (the  "Gas  Sale  Proceeds")  of the sale by the
Borrower  of  certain  Designated  Assets  (as  defined  in the Cash  Collateral
Agreement),  which Designated Assets constituted  collateral for the obligations
of the Borrower under the Scotia Credit Agreement;

     WHEREAS,  on the date hereof,  the Borrower  issued  $785,000,000  of First
Priority Senior Secured Notes due 2014 pursuant to that certain Indenture, dated
as of September 30, 2004, between the Borrower and Wilmington Trust Company,  as
Trustee (such Indenture,  the "2004 Senior Note Indenture",  and such Notes, the
"2004 Senior  Notes"),  and has agreed to use a portion of the proceeds  thereof
(such portion,  the "BayernLB Bond Proceeds  Collateral") to cash  collateralize
the BayernLB  Letters of Credit as replacement  cash collateral for the Gas Sale
Proceeds, as set forth in this Agreement;

     WHEREAS,  the  Borrower  and the  Agent  now  desire  to  enter  into  this
Agreement,  inter  alia,  (i) to deem the  BayernLB  Letters  of  Credit  issued
pursuant to this Agreement  rather than pursuant to the Scotia Credit  Agreement
and (ii) to provide  additional  letter of credit capacity for the Borrower,  in
each case as hereinafter provided;

     WHEREAS,  in  consideration  of  BayernLB's  agreements  to enter into this
Agreement,  to permit the termination of the Credit Agreement and to release the
Participating Lenders and the




<PAGE>

Gas Sale  Proceeds,  the  Borrower  has  agreed  (i) to cash  collateralize  the
BayernLB  Letters of Credit deemed issued hereunder by substituting the Gas Sale
Proceeds  under the Scotia Cash  Collateral  Agreement  with the  BayernLB  Bond
Proceeds  Collateral  hereunder  and  (ii) to  provide  new cash  collateral  to
BayernLB as security  for any other  Letters of Credit  issued  hereunder  on or
after the date hereof; and

     NOW, THEREFORE,  in consideration of the premises and the mutual agreements
herein contained and for other good and valuable  consideration,  the receipt of
which is hereby  acknowledged,  the  Borrower  and the  Issuer  hereby  agree as
follows:

                                   ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

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

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

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

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

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

     "Alternate   Base   Rate"   means,   on  any  date,   in  respect  of  U.S.
Dollar-denominated  obligations,  a fluctuating rate of interest per annum equal
to the higher of

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

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

     The Alternate Base Rate is not  necessarily  intended to be the lowest rate
of interest  determined  by BayernLB in  connection  with  extensions of credit.
Changes  in the  rate of  interest  on any  Reimbursement  Obligation  or  other
Obligation  hereunder  will take effect  simultaneously  with each change in the
Alternate  Base Rate.  BayernLB  will give notice  promptly  to the  Borrower of
changes in the Alternate Base Rate.



                                       2
<PAGE>

     "Applicable  Margin"  means  for  any  Reimbursement  Obligation  or  other
Obligation hereunder, 2.00% per annum.

     "Authorized  Officer" means,  relative to any Obligor,  the president,  any
executive  vice  president,  any senior  vice  president,  the vice  president -
finance, the chief financial officer and the treasurer,  in each case for whom a
signature and incumbency certificate has been delivered to the Issuer.

     "BayernLB" is defined in the preamble.

     "BayernLB Bond Proceeds Collateral" is defined in the recitals hereto.

     "BayernLB Letters of Credit" is defined in the recitals hereto.

     "Borrower" is defined in the preamble.

     "Business  Day" means any day which is neither a Saturday  nor Sunday nor a
legal  holiday on which  banks are  authorized  or  required to be closed in San
Francisco or New York.

     "Calgen"  means  Calpine  Generating  Company,   LLC,  a  Delaware  limited
liability company and an indirect, Wholly Owned Subsidiary of the Borrower.

     "Calgen Credit  Agreement"  means,  collectively,  the  following:  (i) the
$600,000,000 Credit and Guarantee  Agreement,  dated as of March 23, 2004, among
Calgen,  the  guarantors  party  thereto,  the lenders  party thereto and Morgan
Stanley Senior Funding,  Inc., as  Administrative  Agent, Sole Lead Arranger and
Sole Bookrunner;  (ii) the $100,000,000 Credit and Guarantee Agreement, dated as
of March 23, 2004, among Calgen, the guarantors party thereto, the lenders party
thereto and Morgan Stanley Senior Funding,  Inc., as Administrative  Agent, Sole
Lead Arranger and Sole Bookrunner;  (iii) the $200,000,000  Amended and Restated
Credit Agreement, dated as of March 23, 2004, among Calgen, the guarantors party
thereto,  the lenders party thereto,  The Bank of Nova Scotia, as Administrative
Agent, LC Bank, Lead Arranger and Sole Bookrunner, Bayerische Landesbank, Cayman
Islands  Branch,  as Arranger  and  Co-Syndication  Agent,  ING Capital  LLC, as
Arranger and  Co-Syndication  Agent,  Toronto Dominion (Texas) Inc., as Arranger
and  Co-Syndication  Agent, and Union Bank of California,  N.A., as Arranger and
Co-Syndication  Agent; (iv) the First Priority Indenture,  dated as of March 23,
2004,  among Calgen,  Calgen  Finance Corp.,  the  guarantors  named therein and
Wilmington Trust FSB, as trustee; (v) the Second Priority Indenture, dated as of
March 23, 2004, among Calgen, Calgen Finance Corp., the guarantors named therein
and Wilmington  Trust FSB, as trustee;  and (vi) the Third  Priority  Indenture,
dated as of March 23, 2004,  among Calgen,  Calgen Finance Corp., the guarantors
named  therein and  Wilmington  Trust FSB, as trustee,  in each case as amended,
supplemented, restated or otherwise modified from time to time.

     "Canadian Dollars" and the sign "Cdn$" shall each mean freely  transferable
lawful money of Canada.

     "Canadian  Prime Rate" means,  on any date, the greater of (a) the rate per
annum  announced  from time to time by  BayernLB as its  reference  rate then in
effect for determining



                                       3
<PAGE>

interest rates on Canadian Dollar-denominated commercial loans in Canada and (b)
the rate per  annum  equal to the sum of (i) the CDOR  Rate and (ii)  0.50%  per
annum.

     "Capitalized  Lease  Liabilities"  means  all  rental  obligations  of  the
Borrower or any of its  Subsidiaries  under any  leasing or similar  arrangement
which, in accordance with GAAP, would be classified as capitalized  leases, and,
for purposes of this Agreement and each other Loan Document,  the amount of such
obligations  shall be the capitalized  amount thereof,  determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other  amount due under  such lease  prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.

     "Cash Collateral" is defined in the Cash Collateral Agreement.

     "Cash Collateral  Account" means the cash collateral  account maintained by
the Issuer pursuant to the Cash Collateral Agreement.

     "Cash Collateral Agreement" means that certain Cash Collateral Agreement to
be entered into between the  Borrower and the Issuer in  substantially  the form
attached  hereto as Exhibit B, as amended,  supplemented,  restated or otherwise
modified  from time to time,  pursuant  to which the  Letters of Credit are cash
collateralized.

     "CCEF" means  Calpine  Canada Energy  Finance ULC, a Nova Scotia  unlimited
liability company and a direct, Wholly Owned Subsidiary of QCH.

     "CCEF Indenture"  means that certain  Indenture dated as of April 25, 2001,
between CCEF and Wilmington Trust Company, as Trustee, as amended by the Amended
and  Restated  Indenture,  dated as of October 16,  2001,  between CCEF and such
Trustee.

     "CCEF Notes" means the  $2,030,000,000  of 8 1/2% Senior Notes due 2008 and
the Cdn$200,000,000 of 8 3/4% Senior Notes due 2007, in each case issued by CCEF
pursuant to the CCEF Indenture.

     "CCEFII"  means  Calpine  Canada  Energy  Finance  II  ULC,  a Nova  Scotia
unlimited liability company and a direct, Wholly Owned Subsidiary of CCRC.

     "CCEFII  Indenture"  means that certain  Indenture  dated as of October 18,
2001, as supplemented by the First Supplemental  Indenture,  dated as of October
18, 2002, between CCEFII and Wilmington Trust Company, as Trustee.

     "CCEFII Notes" means the (pound)200,000,000 of 8 7/8% Senior Notes due 2011
and the  (euro)175,000,000  of 8 3/8% Senior Notes due 2008, in each case issued
by CCEFII pursuant to the CCEFII Indenture.

     "CCFC" means Calpine Construction Finance Company, L.P., a Delaware limited
partnership and an indirect, Wholly Owned Subsidiary of the Borrower.

     "CCFC Credit Agreement" means, collectively,  the following: (i) the Credit
and  Guarantee  Agreement,  dated as of August 14,  2003,  among  CCFC,  Calpine
Hermiston LLC,



                                       4
<PAGE>

CPN Hermiston,  LLC, Hermiston Power Partnership,  the lenders party thereto and
Goldman Sachs Credit Partners L.P., as Administrative Agent, Sole Lead Arranger,
Sole  Bookrunner and  Syndication  Agent;  and (ii) the  Indenture,  dated as of
August 14, 2003,  among CCFC, CCFC Finance Corp.,  each of the guarantors  named
therein  and  Wilmington  Trust  FSB,  in each  case as  amended,  supplemented,
restated or otherwise modified from time to time.

     "CCRC" means Calpine Canada Resources Company,  an Alberta  corporation and
an indirect, Wholly Owned Subsidiary of the Borrower.

     "CDOR  Rate"  means,  on any date,  the rate per  annum  based on the rates
applicable to Canadian  Dollar  bankers'  acceptances  for a term of thirty days
(rounded up to two decimal  places in the case of the  definition  of  "Canadian
Prime  Rate")  appearing  on the  "Reuters  Screen CDOR Page" (as defined in the
International Swap Dealer Association, Inc. definitions, as modified and amended
from  time to time)  for  acceptances  of  Schedule  I banks  under the Bank Act
(Canada) as of 10:00 A.M.,  New York City time, on such date, or if such date is
not a Business Day, then on the immediately  preceding  Business Day;  provided,
however,  that if no such  rate  appears  on the  Reuters  Screen  CDOR  Page as
contemplated,  then the CDOR Rate on any day shall be calculated as the rate for
the term referred to above  applicable to Canadian Dollar  bankers'  acceptances
quoted by  BayernLB as of 10:00  A.M.,  New York City time,  on such date or, if
such date is not a Business Day, then on the immediately preceding Business Day.

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

     "CES" means Calpine Energy Services,  L.P., a Delaware limited  partnership
and an indirect, Wholly Owned Subsidiary of the Borrower.

     "Closing Date" means the date specified in a written notice from the Issuer
on which this Agreement becomes effective  pursuant to Section 10.8 and which is
intended to be September 30, 2004.

     "CNGH"  means  Calpine  Natural  Gas  Holdings,  LLC,  a  Delaware  limited
liability company, and a direct, Wholly Owned Subsidiary of the Borrower.

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

     "Collateral" means any property of or other items belonging to the Borrower
or certain of its  Subsidiaries  subject or purported to be subject from time to
time to a Lien under any Loan Document to secure any or all of the Obligations.

     "Collateral Trust Agreement" means the Collateral Trust Agreement, dated as
of July 16, 2003,  among the Borrower,  QCH,  Quintana  Minerals (USA) Inc., JOQ
Canada, Inc., the Collateral Trustee, The Bank of Nova Scotia,  Wilmington Trust
Company and Goldman Sachs Credit  Partners,  L.P., as amended,  supplemented  or
otherwise modified from time to time.



                                       5
<PAGE>

     "Collateral  Trustee"  means The Bank of New York,  as  Collateral  Trustee
under the  Collateral  Trust  Agreement,  and any successor  collateral  trustee
serving from time to time thereunder.

     "Commitment" is defined in Section 2.1.

     "Commitment Amount" means, on any date, $255,000,000, as such amount may be
reduced from time to time pursuant to Section 2.2.

     "Commitment  Availability"  means,  on any date, the excess of (a) the then
Commitment Amount over (b) the Letter of Credit Outstandings on such date.

     "Commitment Fee Rate" means the rate per annum set forth as the "Commitment
Fee Rate" in the Fee Letter.

     "Commitment Termination Date" means the earliest of

          (a) September 30, 2007;

          (b) the date on which the  Commitment is terminated in full or reduced
     to zero pursuant to Section 2.2; and

          (c) the date on which any Commitment Termination Event occurs.

Upon the occurrence of any event  described in clause (b) or (c), the Commitment
shall terminate automatically and without any further action.

     "Commitment Termination Event" means

          (a) the occurrence of any Default described in clauses (a) through (d)
     of  Section  9.1.7  with  respect  to  the  Borrower  or  any   Significant
     Subsidiary; or

          (b) the occurrence  and  continuance of any other Event of Default and
     the giving of notice by the Issuer to the Borrower that the  Commitment has
     been terminated.

     "Contingent  Liability" means any agreement,  undertaking or arrangement by
which any Person  guarantees,  endorses or otherwise  becomes or is contingently
liable  upon (by direct or  indirect  agreement,  contingent  or  otherwise,  to
provide  funds for  payment,  to supply  funds to, or  otherwise to invest in, a
debtor,  or  otherwise  to assure a  creditor  against  loss) the  indebtedness,
obligation  or  any  other   liability  of  any  other  Person  (other  than  by
endorsements  of  instruments  in the course of  collection),  or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's  obligation  under any Contingent  Liability shall be
calculated  on  a  net  basis  (i.e.,   after  taking  into  effect  agreements,
undertakings  and other  arrangements  between the Person whose  obligations are
being  guaranteed and the  counterparty to such Person's  obligations) and shall
(subject to any limitation  set forth  therein) be deemed to be the  outstanding
net principal amount (or maximum net principal  amount,  if larger) of the debt,
obligation or other liability guaranteed thereby, or, if the principal amount is
not stated or determinable,  the maximum reasonably anticipated net liability in
respect thereof as



                                       6
<PAGE>

determined  by the  Person in good  faith,  provided  that (y) the amount of any
Contingent  Liability arising out of any  indebtedness,  obligation or liability
other than the items  described in clauses (a), (b) and (c) of the definition of
"Indebtedness"  and (z) the amount of any Contingent  Liability  consisting of a
"keep-well", "make well" or other similar arrangement shall be deemed to be zero
unless and until the  Borrower  is required  to make any  payment  with  respect
thereto (and shall thereafter be deemed to be the amount required to be paid).

     "Controlled  Group" means all members of a controlled group of corporations
and all members of a controlled  group of trades or  businesses  (whether or not
incorporated)  under common  control  which,  together  with the  Borrower,  are
treated  as a single  employer  under  Section  414(b)  or 414(c) of the Code or
Section 4001 of ERISA.

     "Convertible  Senior  Notes"  means the  $1,200,000,000  of 4%  Convertible
Senior Notes Due 2006 issued by the Borrower pursuant to the Shelf Indenture.

     "Convertible  Subordinated  Debentures"  means  the up to  $284,536,100  of
Convertible  Subordinated Debentures due 2029 issued by the Borrower pursuant to
the Indenture  dated  November 2, 1999,  the up to  $371,134,100  of Convertible
Subordinated  Debentures  due  2030  issued  by  the  Borrower  pursuant  to the
Indenture  dated  January 31,  2000 and the up to  $535,000,000  of  Convertible
Subordinated  Debentures  due  2030  issued  by  the  Borrower  pursuant  to the
Indenture dated August 9, 2000.

     "Credit  Extension"  means any  issuance  or  extension  by the Issuer of a
Letter of Credit.

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

     "Disbursement" is defined in Section 4.3.

     "Disbursement Date" is defined in Section 4.3.

     "Dollar Equivalent Foreign Currency Letter of Credit  Outstandings"  means,
at any time,  an  amount  equal to the sum of (a) the  Equivalent  Amount of the
aggregate  Stated  Amount  of  all  Foreign  Currency  Letters  of  Credit  then
outstanding and undrawn (as such aggregate Stated Amount shall be adjusted, from
time to time,  as a result of drawings,  the issuance or  expiration  of Foreign
Currency Letters of Credit,  or otherwise) plus (b) the Equivalent Amount of the
then  aggregate  amount of all  Disbursements  in respect  of  Foreign  Currency
Letters of Credit that have not yet been reimbursed at such time.

     "Domestic  Office" means the office of the Issuer  designated as such below
its  signature  hereto,  or such other  office of the  Issuer  within the United
States as may be designated from time to time by notice from the Issuer,  as the
case may be, to each other Person party hereto.

     "8 1/4% Senior  Notes"  means the  $250,000,000  of 8 1/4% Senior Notes due
2005 issued by the Borrower pursuant to the Shelf Indenture.

     "8 1/2% Senior Notes" means the  $2,000,000,000  of 8 1/2% Senior Notes due
2011 issued by the Borrower pursuant to the Shelf Indenture.



                                       7
<PAGE>

     "8 3/4% Senior Note  Indenture"  means that certain  Indenture  dated as of
July 8, 1997, as  supplemented by the First  Supplemental  Indenture dated as of
September 10, 1997, the Second Supplemental Indenture dated as of July 31, 2000,
and the Third  Supplemental  Indenture  dated as of April 26, 2004,  between the
Borrower and The Bank of New York, as Trustee.

     "8 3/4% Senior  Notes"  means the  $275,000,000  of 8 3/4% Senior Notes due
2007 issued by the Borrower pursuant to the 8 3/4% Senior Note Indenture.

     "8 5/8% Senior  Notes"  means the  $750,000,000  of 8 5/8% Senior Notes due
2010 issued by the Borrower pursuant to the Shelf Indenture.

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

     "Equivalent  Amount"  means,  on any date,  and in  respect  of any  amount
denominated in a Foreign Currency, the equivalent amount in U.S. Dollars of such
amount,  determined  by the Issuer  using the Exchange  Rate for the  applicable
Foreign Currency on such date, or in the case of calculations of amounts of fees
payable  pursuant to Section 3.2.1 or Section 3.2.2,  the Exchange Rate for such
Foreign Currency determined from time to time pursuant to Section 4.9.

     "Equivalent Amount Determination Date" is defined in Section 4.9.

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

     "Event of Default" is defined in Section 9.1.

     "Exchange  Rate" means,  on any date,  the best quoted spot rate offered by
the Issuer to its financial or institutional  customers to exchange U.S. Dollars
for Canadian Dollars or Sterling, as the case may be, at the opening of business
on such date.

     "Existing  Letters  of  Credit"  means  the  letters  of  credit  and  bank
guarantees described in Schedule 4.8.

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

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

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



                                       8
<PAGE>

     "Fee Letter" means the Calpine  Corporation  Letter of Credit Agreement Fee
Letter dated the date hereof between BayernLB and the Borrower.

     "Fiscal  Quarter"  means any period of three  consecutive  months ending on
March 31, June 30, September 30 or December 31 of any year.

     "Fiscal Year" means any period of twelve consecutive calendar months ending
on December 31;  references to a Fiscal Year with a number  corresponding to any
calendar  year (e.g.  the "2003 Fiscal Year") refer to the Fiscal Year ending on
the December 31 occurring during such calendar year.

     "Foreign Currency" means Canadian Dollars or Sterling.

     "Foreign Currency Letter of Credit" means any Letter of Credit  denominated
in a Foreign Currency.

     "Foreign Currency Letter of Credit Commitment Amount" means $76,500,000.

     "Foreign Currency Letter of Credit  Outstandings"  means, at any time, with
respect  to  Foreign  Currency  Letters of Credit  denominated  in a  particular
Foreign Currency,  an amount equal to the sum of (a) the aggregate Stated Amount
of all Foreign Currency  Letters of Credit  denominated in such Foreign Currency
then outstanding and undrawn (as such aggregate Stated Amount shall be adjusted,
from time to time,  as a result of  drawings,  the  issuance  or  expiration  of
Foreign  Currency  Letters of Credit,  or otherwise) plus (b) the then aggregate
amount of all  Disbursements  in respect of Foreign  Currency  Letters of Credit
denominated in such Foreign  Currency that have not yet been  reimbursed at such
time.

     "Foreign  Currency  Rate"  means,  on any  date,  in  respect  of  Canadian
Dollar-denominated  obligations,  the  Canadian  Prime  Rate,  and in respect of
Sterling-denominated obligations, the Sterling Prime Rate.

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

     "GAAP" is defined in Section 1.4.

     "Gas Sale Proceeds" is defined in the recitals hereto.

     "Guaranteed  Preferred Securities" means the preferred securities issued by
one of the  Trusts,  from  time  to  time,  including,  without  limitation  the
$276,000,000 of principal  amount of such securities  issued in November,  1999,
the $300,000,000 of principal amount of such securities issued in January, 2000,
the $60,000,000 of principal amount of such securities issued in February, 2000,
and the  $517,500,000 of principal  amount of such securities  issued in August,
2000.

     "Hazardous Material" means

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



                                       9
<PAGE>

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

          (c) any petroleum product; or

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

     "Hedging   Obligations"   means,  with  respect  to  any  Person,  the  net
liabilities  of such Person under (a) interest  rate swap  agreements,  interest
rate cap  agreements  and  interest  rate collar  agreements,  foreign  exchange
contracts,  currency swap  agreements and all other  agreements or  arrangements
designed  to protect  such Person  against  fluctuations  in  interest  rates or
currency exchange rates and (b) commodity or power swap or exchange agreements.

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

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

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

          (b) which  relates  to the  limited  scope of  examination  of matters
     relevant to such financial statement.

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

     "Indebtedness" of any Person means, without duplication:

          (a)  all  obligations  of  such  Person  for  borrowed  money  and all
     obligations of such Person evidenced by bonds,  debentures,  notes or other
     similar instruments (excluding the Convertible  Subordinated Debentures and
     any other  subordinated  debt securities  issued by the Borrower to a Trust
     and the Guaranteed Preferred Securities or any similar securities);

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



                                       10
<PAGE>

     such  Person;  provided,  however,  that if a letter of credit or  banker's
     acceptance  has  been  issued  to  support  or  secure  any  other  form of
     Indebtedness,  only the  greater  of the  stated  amount of such  letter of
     credit  or  banker's  acceptance  or the  outstanding  principal  amount of
     Indebtedness  supported  or  secured,  but not  both,  will  be  considered
     Indebtedness hereunder;

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

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

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

          (f) whether or not so included as liabilities in accordance with GAAP,
     all net  obligations  of such Person to pay the deferred  purchase price of
     property or services  (excluding  accounts payable incurred in the ordinary
     course of business),  and indebtedness (excluding prepaid interest thereon)
     secured  by a Lien on  property  owned or being  purchased  by such  Person
     (including  indebtedness  arising  under  conditional  sales or other title
     retention  agreements),  whether or not such  indebtedness  shall have been
     assumed  by such  Person or is  limited  in  recourse,  but  excluding  any
     royalties or similar  payments to be made by such Person which are based on
     production or performance; and

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

For all purposes of this  Agreement,  the  Indebtedness  of any Person (i) shall
include  the  Indebtedness  of any  partnership  or joint  venture in which such
Person is a general partner or a joint venturer, unless the indebtedness of such
partnership  or joint venture is expressly  nonrecourse  to such Person and (ii)
shall exclude any preferred  stock if, at the time of the incurrence or issuance
thereof,  it would not be recorded as debt of such Person,  in  accordance  with
GAAP.

     "Indemnified Liabilities" is defined in Section 10.4.

     "Indemnified Parties" is defined in Section 10.4.

     "Interest   Period"  means,   with  respect  to  any   Sterling-denominated
obligation,  the period  commencing on a Quotation Date and ending the number of
days,  weeks or months  thereafter  as  reasonably  selected by the Issuer after
consultation with the Borrower.

     "Issuance  Request"  means a request and  certificate  duly executed by the
chief executive,  accounting or financial Authorized Officer of the Borrower, in
substantially  the form of Exhibit A (with such changes thereto as may be agreed
upon from time to time by the Issuer and the Borrower), together with a properly
completed  application  for a Letter of Credit on the  Issuer's  standard  form,
executed by an Authorized  Officer of the  Borrower.  In the event of a conflict



                                       11
<PAGE>

between the terms of an application for a Letter of Credit and the terms of this
Agreement, the terms of this Agreement shall prevail.

     "Issuer"  means  BayernLB,  or any Affiliate or unit of agency of BayernLB,
and any successor to any of the foregoing Persons.

     "knowledge" or "to the Borrower's  knowledge"  means the knowledge of or to
the knowledge of the president,  any vice president,  the general  counsel,  the
secretary,   the  chief   financial   officer,   the   controller  or  the  vice
president-finance of the Borrower.

     "Letter of Credit" is defined in Section 4.1.

     "Letter  of  Credit  Fee  Rate"  means  the rate per annum set forth as the
"Letter of Credit Fee Rate" in the Fee Letter.

     "Letter of Credit  Outstandings" means, at any time, an amount equal to the
sum of (a) the  aggregate  Stated  Amount at such time of all  Letters of Credit
(other than Foreign Currency Letters of Credit) then outstanding and undrawn (as
such aggregate  Stated Amount shall be adjusted,  from time to time, as a result
of drawings,  the issuance or  expiration of Letters of Credit,  or  otherwise),
plus (b) the then aggregate  amount of all unpaid and outstanding  Reimbursement
Obligations  (other than with  respect to Foreign  Currency  Letters of Credit),
plus (c) an amount equal to the Dollar  Equivalent  Foreign  Currency  Letter of
Credit Outstandings at such time.

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

     "Loan  Document" means this  Agreement,  the Cash Collateral  Agreement and
each other relevant  agreement,  document or instrument  delivered in connection
therewith.

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

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

     "Nonmaterial  Subsidiary Default" means any Default (excluding any Event of
Default)  arising  or  resulting  from the  default  or  potential  default by a
Subsidiary (other than a Significant  Subsidiary) under any agreement,  contract
or  undertaking  binding on such  Subsidiary  other than (i) the failure by such
Subsidiary to make a required  payment under any Indebtedness of such Subsidiary
having a  principal  amount in excess of  $10,000,000  and (ii) a default in the
performance  or  observance of any  obligation or condition  with respect to any
Indebtedness  of  such  Subsidiary  having  a  principal  amount  in  excess  of
$10,000,000   and,  as  a  result  thereof,   the  holder  or  holders  of  such
Indebtedness, or any trustee or agent for such holders, causes such



                                       12
<PAGE>

Indebtedness  to be repaid more  quickly  than  theretofore  scheduled,  whether
through the  introduction  of a "cash sweep," the increase of an existing  "cash
sweep" or otherwise.

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

     "Obligor"  means the Borrower or any other  Person  (other than the Issuer)
obligated under, or otherwise a party to, any Loan Document.

     "Organic  Document"  means,  relative to any Obligor,  its  certificate  of
incorporation,  partnership agreement,  or similar organizational  document, its
by-laws and all shareholder  agreements,  voting trusts and similar arrangements
applicable to any of its authorized  shares of capital stock or other  ownership
interests.

     "Parity Lien Debt" means any  Indebtedness  incurred in compliance with the
2003 Senior Note  Indenture that is secured by the Collateral (as defined in the
Collateral Trust Agreement) on a parity basis with the 2003 Senior Notes and the
Second Priority B Loans.

     "Participant" is defined in Section 10.11.

     "Participating Lenders" is defined in the recitals hereto.

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

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

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

     "Plan" means any Pension Plan or Welfare Plan.

     "Pre-2000  Indentures"  means the Senior  Note  Indentures  (other than the
Shelf Indenture,  the 2003 Senior Note Indenture,  the Second Priority Term Loan
Agreement, any other documentation under which the Parity Lien Debt is incurred,
the CCEF Indenture and the CCEFII Indenture).

     "Priority Lien Debt" means any Indebtedness  (including  without limitation
the 2004  Senior  Notes)  incurred  in  compliance  with the  2003  Senior  Note
Indenture that is secured by the



                                       13
<PAGE>

Collateral (as defined in the Collateral Trust Agreement) on a priority basis to
the 2003 Senior Notes and the Second Priority B Loans.

     "QCH" means Quintana Canada  Holdings,  LLC, a Delaware  limited  liability
company and indirect, Wholly Owned Subsidiary of CNGH.

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

     "Quotation Date" is defined in the definition of "Sterling Prime Rate".

     "Reimbursement Obligation" is defined in Section 4.4.

     "Reference  Banks"  means  Barclays  Bank PLC and the  London  branches  of
JPMorgan Chase Bank and Citibank, N.A.

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

     "Resource  Conservation  and Recovery Act" means the Resource  Conservation
and Recovery  Act, 42 U.S.C.  Section  6901,  et seq., as in effect from time to
time.

     "Scotia Capital" is defined in the recitals hereto.

     "Scotia Cash Collateral Agreement" is defined in the recitals hereto.

     "Scotia Credit Agreement" is defined in the recitals hereto.

     "Scotia Credit Agreement L/C Issuers" is defined in the recitals hereto.

     "Screen Rate" means the British  Bankers  Association  Interest  Settlement
Rate for Sterling for the relevant period  displayed on the appropriate  page of
the Telerate screen.  If the agreed page is replaced or the service ceases to be
available,  the Issuer and the Borrower  shall  jointly agree on another page or
service displaying the appropriate rate.

     "Second Priority B Loans" means the $750,000,000 of Second Priority Secured
Term B Loans incurred by the Borrower  pursuant to the Second Priority Term Loan
Agreement.

     "Second Priority Term Loan Agreement" means the Credit Agreement,  dated as
of July 16, 2003,  among the Borrower,  Goldman Sachs Credit  Partners  L.P., as
sole lead arranger,  sole bookrunner and administrative  agent, The Bank of Nova
Scotia, as arranger and syndication  agent, TD Securities (USA) Inc., ING (U.S.)
Capital  LLC  and  Landesbank  Hessen-Thuringen,  as  co-arrangers,  and  Credit
Lyonnais New York Branch and Union Bank of California, N.A., as managing agents.

     "Senior  Note  Indentures"  means,  collectively,  the 7 3/4%  Senior  Note
Indenture,  the 7 5/8% Senior Note Indenture,  the 7 7/8% Senior Note Indenture,
the 8 3/4% Senior Note  Indenture,  the Shelf  Indenture (to the extent relating
solely to the Senior Notes), the 10 1/2% Senior Note Indenture,  the 2003 Senior
Note Indenture, the Second Priority Term Loan Agreement, any other



                                       14
<PAGE>

documentation under which the Parity Lien Debt is incurred,  the CCEF Indenture,
the CCEFII Indenture, the 2004 Senior Note Indenture and any other documentation
under which Priority Lien Debt is incurred.

     "Senior  Notes" means,  collectively,  the 7 3/4% Senior Notes,  the 7 5/8%
Senior  Notes,  the 7 7/8% Senior  Notes,  the 8 1/4% Senior  Notes,  the 8 1/2%
Senior  Notes,  the 8 3/4% Senior Notes,  the 8 5/8% Senior  Notes,  the 10 1/2%
Senior Notes,  the Convertible  Senior Notes,  the 2003 Senior Notes, the Second
Priority B Loans,  the Parity Lien Debt, the CCEF Notes,  the CCEFII Notes,  the
2004 Senior Notes and any other Priority Lien Debt.

     "7 5/8% Senior Note  Indenture"  means that certain  Indenture  dated as of
March 29, 1999, as supplemented by the First Supplemental  Indenture dated as of
July 31, 2000, and the Second Supplemental Indenture dated as of April 26, 2004,
between the Borrower and The Bank of New York, as Trustee.

     "7 5/8% Senior  Notes"  means the  $250,000,000  of 7 5/8% Senior Notes due
2006 issued by the Borrower pursuant to the 7 5/8% Senior Note Indenture.

     "7 7/8% Senior Note  Indenture"  means that certain  Indenture  dated as of
March 31, 1998, as supplemented by the First Supplemental  Indenture dated as of
July 24, 1998, the Second Supplemental  Indenture dated as of July 31, 2000, and
the  Third  Supplemental  Indenture  dated as of April  26,  2004,  between  the
Borrower and The Bank of New York, as Trustee.

     "7 7/8% Senior  Notes"  means the  $400,000,000  of 7 7/8% Senior Notes due
2008 issued by the Borrower pursuant to the 7 7/8% Senior Note Indenture.

     "7 3/4% Senior Note  Indenture"  means that certain  Indenture  dated as of
March 29, 1999, as supplemented by the First Supplemental  Indenture dated as of
July 31, 2000, and the Second Supplemental Indenture dated as of April 26, 2004,
between the Borrower and The Bank of New York, as Trustee.

     "7 3/4% Senior  Notes"  means the  $350,000,000  of 7 3/4% Senior Notes due
2009 issued by the Borrower pursuant to the 7 3/4% Senior Note Indenture.

     "Shelf Indenture" means that certain Indenture dated as of August 10, 2000,
as  supplemented  from time to time,  between the Borrower and Wilmington  Trust
Company, as Trustee.

     "Significant Subsidiary" means each Subsidiary of the Borrower that

          (a)  accounted  for at  least  10%  of  consolidated  revenues  of the
     Borrower  and  its  Subsidiaries  or 10% of  consolidated  earnings  of the
     Borrower and its  Subsidiaries  before interest and taxes, in each case for
     the last four full Fiscal  Quarters  immediately  preceding  the date as of
     which any such determination is made; or

          (b) has assets which represent at least 10% of the consolidated assets
     of the Borrower and its  Subsidiaries as of the last day of the last Fiscal
     Quarter of the Borrower immediately preceding the date as of which any such
     determination is made,



                                       15
<PAGE>

all of which shall be as reflected on the financial statements of the Borrower
for the period, or as of the date, in question. Notwithstanding the foregoing,
(i) CCFC shall be deemed to be a Significant Subsidiary for all purposes of this
Agreement until such date as all Indebtedness under the CCFC Credit Agreement
shall have been repaid in full and all commitments to lend thereunder have been
terminated and, thereafter, at any time when CCFC meets the criteria set forth
in the first sentence of this definition and (ii) Calgen shall be deemed to be a
Significant Subsidiary for all purposes of this Agreement until such date as all
Indebtedness under the Calgen Credit Agreement shall have been repaid in full
and all commitments to lend thereunder have been terminated and, thereafter, at
any time when Calgen meets the criteria set forth in the first sentence of this
definition.

     "Stated  Amount"  of each  Letter of Credit  means the  "Stated  Amount" as
defined therein.

     "Stated Expiry Date" is defined in Section 4.1(b).

     "Sterling" and the sign  "(pound)"  shall mean freely  transferable  lawful
money of the United Kingdom.

     "Sterling Prime Rate" means, on any date (such date, the "Quotation Date"),
the rate per annum equal to

          (a) the applicable Screen Rate or

          (b) (if no Screen  Rate is  available  for such  Interest  Period) the
     arithmetic  mean of the rates (rounded  upwards to four decimal  places) as
     supplied  to the Issuer at its request by the  Reference  Banks for leading
     banks in the London interbank market,

as of 11:00  A.M.,  London  time,  on the  Quotation  Date for the  offering  of
deposits  in  Sterling  for an Interest  Period (as  reasonably  selected by the
Issuer after consultation with the Borrower) commencing on the Quotation Date.

     "Subordinated  Debt" means all unsecured  Indebtedness  of the Borrower for
money borrowed which is subordinated,  upon terms satisfactory to the Issuer, in
right of payment to the payment in full in cash of all Obligations.

     "Subsidiary"   means,   with  respect  to  any  Person,   any  corporation,
partnership  or other  Person of which at least 50% of the  outstanding  capital
stock or other  comparable  ownership  interest  having ordinary voting power to
elect a majority of the board of directors of such  corporation,  partnership or
other Person  (irrespective  of whether at the time  capital  stock of any other
class or classes of such corporation, partnership or other Person shall or might
have  voting  power  upon  the  occurrence  of any  contingency)  is at the time
directly  or  indirectly  owned by such  Person,  by such Person and one or more
other  Subsidiaries of such Person, or by one or more other Subsidiaries of such
Person.

     "Taxes" is defined in Section 5.2.

     "10 1/2% Senior Note  Indenture"  means that certain  Indenture dated as of
May 16, 1996, as  supplemented by the First  Supplemental  Indenture dated as of
August 1, 2000,  and the  Second



                                       16
<PAGE>

Supplemental  Indenture dated as of April 26, 2004,  between  Borrower and State
Street Bank and Trust Company (as successor  trustee to Fleet National Bank), as
Trustee.

     "10 1/2% Senior Notes" means the  $180,000,000  of 10 1/2% Senior Notes due
2006 issued by the Borrower pursuant to the 10 1/2% Senior Note Indenture.

     "Trust" means Calpine  Capital Trust,  Calpine Capital Trust II and Calpine
Capital Trust III, each a Delaware business trust.

     "2004 Senior Note Indenture" is defined in the recitals hereto.

     "2004 Senior Notes" is defined in the recitals hereto.

     "2003 Senior Note Indenture"  means those certain  Indentures,  dated as of
July 16, 2003 and November 18, 2003,  between the Borrower and Wilmington  Trust
Company, as Trustee.

     "2003 Senior  Notes" means the  $2,550,000,000  of Second  Priority  Senior
Secured  Floating  Rate Notes due 2007, 8 1/2% Second  Priority  Senior  Secured
Notes due 2010 and 8 3/4% Second Priority Senior Secured Notes due 2013, and the
9.875% Second Priority Senior Secured Notes due 2011, in each case issued by the
Borrower pursuant to the 2003 Senior Note Indenture.

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

     "U.S.  Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.

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

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

     SECTION 1.2. Use of Defined Terms.  Unless otherwise defined or the context
otherwise  requires,  terms for which  meanings are  provided in this  Agreement
shall have such  meanings  when used in each Issuance  Request,  Loan  Document,
notice and other  communication  delivered from time to time in connection  with
this Agreement or any other Loan Document.

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

     SECTION 1.4.  Accounting  and Financial  Determinations.  Unless  otherwise
specified,  all accounting terms used herein or in any other Loan Document shall
be interpreted,  all accounting  determinations  and  computations  hereunder or
thereunder shall be made, and all financial  statements required to be delivered
hereunder or thereunder shall be prepared in



                                       17
<PAGE>

accordance with, generally accepted accounting  principles ("GAAP") in effect in
the United States from time to time.

                                   ARTICLE II

                   COMMITMENT AND LETTERS OF CREDIT PROCEDURES

     SECTION 2.1.  Commitment to Issue  Letters of Credit.  From time to time on
any Business Day occurring prior to the Commitment  Termination Date, the Issuer
will issue the Letters of Credit,  in accordance with Article IV. The commitment
of the Issuer described in this Section 2.1 to issue Letters of Credit is herein
referred to as its "Commitment".

     SECTION 2.1.1.  Issuer Not Permitted or Required To Issue Letters of Credit
Under  Certain  Circumstances.  The Issuer shall not be permitted or required to
issue any Letter of Credit prior to the Commitment  Termination  Date, if, after
giving effect thereto,  (a) all Letter of Credit  Outstandings  would exceed the
Commitment  Amount,  (b) all Letter of Credit  Outstandings  (other  than Dollar
Equivalent Foreign Currency Letter of Credit Outstandings) would exceed the then
amount of Cash Collateral in U.S. Dollars in the Cash Collateral  Account or (c)
in the case of the issuance of any Foreign  Currency  Letter of Credit,  (i) all
Dollar Equivalent  Foreign Currency Letter of Credit  Outstandings  would exceed
the  Foreign  Currency  Letter of Credit  Commitment  Amount or (ii) all Foreign
Currency  Letter of Credit  Outstandings  denominated  in a  particular  Foreign
Currency  would  exceed  the then  amount  of Cash  Collateral  in such  Foreign
Currency in the Cash Collateral Account.

     SECTION 2.2.  Reduction of  Commitment  Amount.  The  Commitment  Amount is
subject to reduction from time to time pursuant to this Section 2.2.

     SECTION 2.2.1.  Optional Reduction.  The Borrower may, from time to time on
any Business Day voluntarily  reduce the Commitment Amount;  provided,  however,
that all such  reductions  shall  require at least  three  Business  Days' prior
notice to the Issuer and be permanent  reductions of the Commitment  Amount, and
any partial  reduction of the Commitment  Amount shall be in a minimum amount of
$2,000,000 and in an integral multiple of $500,000.

     SECTION 2.2.2.  Additional Cash Collateral.  To the extent that at any time
the aggregate amount of the Letter of Credit Outstandings exceeds the Commitment
Amount in effect at such time or the  aggregate  amount of all  Letter of Credit
Outstandings  (other than Dollar  Equivalent  Foreign  Currency Letter of Credit
Outstandings)  exceeds the then amount of Cash Collateral in U.S. Dollars in the
Cash Collateral  Account,  the Borrower must immediately deposit with the Issuer
in the Cash Collateral Account additional cash collateral in U.S. Dollars and in
immediately  available  funds in an amount equal to such  excess.  To the extent
that at any time the  aggregate  amount  of  Foreign  Currency  Letter of Credit
Outstandings  denominated  in a  particular  Foreign  Currency  exceeds the then
amount  of Cash  Collateral  in such  Foreign  Currency  in the Cash  Collateral
Account,  the  Borrower  must  immediately  deposit  with the Issuer in the Cash
Collateral  Account  additional cash collateral in such Foreign  Currency and in
immediately available funds in an amount equal to such excess.



                                       18
<PAGE>

                                  ARTICLE III

                          REPAYMENTS, INTEREST AND FEES

     SECTION 3.1. Interest  Provisions.  Interest shall be payable in accordance
with this Section 3.1 and Section 4.3.

     SECTION 3.1.1.  Post-Maturity  Rate. After the date any monetary Obligation
of the Borrower  shall have become due and payable,  the Borrower shall pay, but
only to the extent permitted by law, interest (after as well as before judgment)
on such  amounts at a rate per annum  equal to the  Alternate  Base Rate (or the
applicable Foreign Currency Rate, as the case may be) plus the Applicable Margin
plus a margin of 2%.

     SECTION 3.1.2.  Payment  Dates.  Interest  accrued on monetary  Obligations
arising  under this  Agreement  or any other Loan  Document  after the date such
amount is due and payable shall be payable upon demand.

     SECTION 3.2.  Fees.  The Borrower  agrees to pay the fees set forth in this
Section  3.2.  All such fees  shall be  non-refundable  and paid in  immediately
available funds.

     SECTION 3.2.1.  Commitment  Fee. The Borrower  agrees to pay to the Issuer,
for the period  (including any portion  thereof when its Commitment is suspended
by reason of the  Borrower's  inability to satisfy any  condition of Article VI)
commencing on the Closing Date and continuing through the Commitment Termination
Date, a commitment fee, in U.S. Dollars, at the Commitment Fee Rate,  calculated
on the average daily Commitment Availability, with the Equivalent Amount used in
computing Dollar Equivalent Foreign Currency Letter of Credit Outstandings being
determined  from time to time in  accordance  with Section  4.9.  Such fee shall
accrue on each  Monthly  Accrual  Date and shall be payable by the  Borrower  in
arrears on each Quarterly  Payment Date,  commencing in each case with the first
such date following the Closing Date, and on the Commitment Termination Date.

     SECTION  3.2.2.  Letter of Credit Fee.  The  Borrower  agrees to pay to the
Issuer,  for each Letter of Credit  issued for the period from and including the
date of the issuance (or deemed issuance,  in the case of any Existing Letter of
Credit) of such Letter of Credit to (and  including)  the date upon which (or on
the next succeeding Business Day upon which) such Letter of Credit expires or is
returned to the Issuer,  a fee, in U.S.  Dollars,  on the average  daily  Stated
Amount of such Letter of Credit (or the  Equivalent  Amount thereof with respect
to any  Foreign  Currency  Letter  of  Credit,  determined  from time to time in
accordance  with Section 4.9)  calculated at the Letter of Credit Fee Rate. Such
fee shall  accrue on each  Monthly  Accrual  Date and  shall be  payable  by the
Borrower in arrears on each Quarterly  Payment Date,  commencing in each case on
the first such date after the issuance of such Letter of Credit, and on the date
of termination or expiry of the last Letter of Credit outstanding hereunder (for
any period then ending for which such fee shall not theretofore have been paid).

     SECTION  3.2.3.  Administration  Costs and  Expenses.  In  addition  to the
foregoing  fees,  the Borrower  shall pay or  reimburse  the Issuer (a) for such
normal and customary  costs,  charges and expenses as are incurred or charged by
the  Issuer in  issuing,  negotiating,  maintaining,



                                       19
<PAGE>

effecting  payment  under,  amending or  otherwise  administering  any Letter of
Credit upon demand from time to time and (b) any other fees set forth in the Fee
Letter.

                                   ARTICLE IV

                                LETTERS OF CREDIT

     SECTION 4.1.  Issuance  Requests.  By  delivering to the Issuer an Issuance
Request on or before 12:00 noon, New York time,  the Borrower may request,  from
time to time prior to the Commitment Termination Date and on not less than three
nor more than ten Business  Days' notice,  that the Issuer issue an  irrevocable
standby letter of credit, in U.S.  Dollars,  Canadian Dollars or Sterling and in
such form as may be requested by the Borrower and approved by the Issuer  (each,
together with the Existing Letters of Credit, a "Letter of Credit"),  in support
of  the  general  corporate  purposes  of  the  Borrower  and  its  Subsidiaries
(including  credit support by the Borrower for gas and power  contracts for CES,
Calpine  Energy  Services  Canada  Partnership  and Calpine  Energy  Services UK
Limited) and which are  described in such  Issuance  Request,  provided  that no
Letter of Credit may be used to defease,  repurchase or prepay any  Subordinated
Debt or any Senior Notes. The initial  Equivalent Amount of the Stated Amount of
any Foreign  Currency  Letter of Credit  shall be  determined  by the Issuer and
notified  by the  Issuer in  writing  to the  Borrower  on the date of  issuance
thereof. Each Letter of Credit shall by its terms:

          (a) be issued in a Stated Amount which

               (i) is at least equal to $100,000 (or, in the case of any Foreign
          Currency  Letter  of  Credit,  is at least  equal to an  amount in the
          applicable   Foreign  Currency  the  Equivalent  Amount  of  which  is
          $100,000) or such lesser amount as may be agreed by the Issuer; and

               (ii) does not exceed (or would not  exceed)  the then  Commitment
          Availability;

          (b) be stated to expire on a date (its "Stated  Expiry Date") no later
     than one year from its date of issuance;  provided,  however, that a Letter
     of Credit may provide that if it is not renewed  prior to its Stated Expiry
     Date, it may be drawn by the beneficiary thereof; and

          (c) on or prior to its Stated Expiry Date

               (i)  terminate  immediately  upon  notice to the Issuer  from the
          beneficiary  thereunder that all obligations covered thereby have been
          terminated,  paid, or otherwise satisfied in full and surrender by the
          beneficiary of the Letter of Credit to the Issuer, and

               (ii) reduce in part immediately and to the extent the beneficiary
          thereunder  has  notified  the  Issuer  that the  obligations  covered
          thereby  have been paid or  otherwise  satisfied  in part and that the
          Letter of Credit may be reduced.



                                       20
<PAGE>

     SECTION  4.2.  Issuances  and  Extensions.  On the terms and subject to the
conditions  of this  Agreement  (including  Article  VI), the Issuer shall issue
Letters of Credit, in accordance with the Issuance  Requests made therefor.  The
Issuer will make available the original of each Letter of Credit which it issues
in accordance with the Issuance Request therefor to the beneficiary  thereof and
will notify the  beneficiary  under any Letter of Credit of any extension of the
Stated Expiry Date thereof.

     SECTION 4.3. Disbursements. The Issuer will notify the Borrower promptly of
the presentment for payment of any Letter of Credit, together with notice of the
date (a  "Disbursement  Date") such payment shall be made (each such payment,  a
"Disbursement").  Unless  otherwise  agreed  by the  Issuer  and  the  Borrower,
drawings  under any Letter of Credit  issued under  Section 4.1 shall be made on
sight.  Subject to the terms and provisions of such Letter of Credit, the Issuer
shall make such payment to the  beneficiary  (or its designee) of such Letter of
Credit.  Prior to 2:00  p.m.,  New York  time,  on the  Disbursement  Date,  the
Borrower will reimburse the Issuer for all amounts which it has disbursed  under
such Letter of Credit in the currency in which such  Disbursement  was made.  To
the  extent  the Issuer is not  reimbursed  in full on the date  payment is made
under a Letter of Credit, the Borrower's  Reimbursement  Obligation shall accrue
interest at the Alternate Base Rate (or, in the case of any such payment made in
a Foreign  Currency,  the applicable  Foreign Currency Rate) plus the Applicable
Margin for two Business Days and thereafter at the Post-Maturity  Rate described
in Section 3.1.1, payable on demand, until reimbursed in full.

     SECTION 4.4.  Reimbursement.  The Borrower's  obligation (a  "Reimbursement
Obligation")  under  Section 4.3 to  reimburse  the Issuer with  respect to each
Disbursement  (including  interest  thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim, or
defense to payment which the Borrower may have or have had against the Issuer or
any  beneficiary  of a Letter of Credit,  including  any defense  based upon the
occurrence of any Default,  any draft,  demand or  certificate or other document
presented under a Letter of Credit proving to be forged, fraudulent,  invalid or
insufficient,  the  failure of any  Disbursement  to conform to the terms of the
applicable  Letter of Credit  (if,  in the  Issuer's  good faith  opinion,  such
Disbursement  is  determined  to  be  appropriate)  or  any  non-application  or
misapplication by the beneficiary of the proceeds of such  Disbursement,  or the
legality,  validity,  form,  regularity,  or  enforceability  of such  Letter of
Credit; provided,  however, that nothing herein shall adversely affect the right
of the Borrower to commence any  proceeding  against the Issuer for any wrongful
Disbursement made by such Issuer under a Letter of Credit as a result of acts or
omissions constituting gross negligence or willful misconduct on the part of the
Issuer.

     SECTION 4.5. Cash Collateral.  At any time when a Reimbursement  Obligation
or any other Obligation becomes due and payable,  the Issuer will be entitled to
draw  Cash  Collateral  from  the  Cash  Collateral   Account  to  satisfy  such
Reimbursement Obligation or other Obligation in an amount equal to the amount of
the applicable Disbursement or other Obligation, as the case may be.

     SECTION 4.6. Nature of Reimbursement Obligations. The Borrower shall assume
all risks of the  acts,  omissions,  or  misuse  of any  Letter of Credit by the
beneficiary thereof. The



                                       21
<PAGE>

Issuer  shall not (except to the extent of its own gross  negligence  or willful
misconduct) be responsible for:

          (a) the form, validity,  sufficiency,  accuracy, genuineness, or legal
     effect  of any  document  submitted  by any  party in  connection  with the
     application  for and  issuance of a Letter of Credit,  even if it should in
     fact prove to be in any or all respects invalid, insufficient,  inaccurate,
     fraudulent, or forged;

          (b) the form, validity,  sufficiency,  accuracy, genuineness, or legal
     effect  of any  instrument  transferring  or  assigning  or  purporting  to
     transfer or assign a Letter of Credit or the rights or benefits  thereunder
     or proceeds  thereof in whole or in part,  which may prove to be invalid or
     ineffective for any reason;

          (c)  failure  of the  beneficiary  to  comply  fully  with  conditions
     required in order to demand payment under a Letter of Credit;

          (d) errors,  omissions,  interruptions,  or delays in  transmission or
     delivery of any messages, by mail, cable, telegraph, telex, or otherwise;

          (e)  any  error,  omission,   interruption,   loss  or  delay  in  the
     transmission or delivery of any draft,  notice or other communication under
     or relating to any Letter of Credit  (including  any  document  required in
     order to make a Disbursement thereunder) or of the proceeds thereof;

          (f) any error in interpretation of technical terms;

          (g) the performance of any  transaction  which underlies any Letter of
     Credit;

          (h) any act or omission of any Person other than the Issuer;

          (i) loss or destruction of any draft,  demand,  or document in transit
     or in the possession of others;

          (j) lack of  knowledge  of any  particular  trade  usage  (other  than
     standard  United States and Western  European  banking usage as used in the
     normal course of business); or

          (k) any  consequence  arising  from  causes  beyond the control of the
     Issuer.

None of the foregoing shall affect, impair, or prevent the vesting of any of the
rights or powers granted the Issuer hereunder. In furtherance and extension, and
not in limitation or derogation,  of any of the  foregoing,  any action taken or
omitted  to be  taken by the  Issuer  in good  faith  and  which is not  grossly
negligent  shall be binding upon the Borrower and shall not put the Issuer under
any resulting liability to the Borrower;  provided, however, that nothing herein
shall relieve the Issuer for any  liability for its gross  negligence or willful
misconduct.

     SECTION 4.7. Increased Costs; Indemnity. If by reason of



                                       22
<PAGE>

          (a) any change after the Closing Date in applicable  law,  regulation,
     rule, decree or regulatory requirement or any change after the Closing Date
     in  the  interpretation  or  application  by  any  judicial  or  regulatory
     authority of any law, regulation,  rule, decree or regulatory  requirement,
     or

          (b)  compliance  by the  Issuer  with any new or  modified  (after the
     Closing Date) direction,  request or requirement (whether or not having the
     force  of  law)  of  any  governmental  or  monetary  authority,  including
     Regulation D of the F.R.S. Board:

               (i) the Issuer shall be subject to any tax (other than  franchise
          taxes or taxes  measured by net income or receipts),  levy,  charge or
          withholding  of any  nature  or to  any  variation  thereof  or to any
          penalty  with  respect  to  the  maintenance  or  fulfillment  of  its
          obligations  under this Article IV, whether  directly or by such being
          imposed on or suffered by the Issuer;

               (ii) any reserve,  deposit or similar  requirement is or shall be
          applicable,  imposed or  modified in respect of any Letters of Credit;
          or

               (iii)  there  shall be imposed on the Issuer any other  condition
          regarding this Article IV or any Letter of Credit;

and the result of the  foregoing is directly or  indirectly to increase the cost
to the Issuer of  issuing,  making or  maintaining  any Letter of Credit,  or to
reduce any amount  receivable in respect thereof by the Issuer,  then and in any
such case the Issuer may, at any time after the  additional  cost is incurred or
the amount received is reduced, notify the Borrower thereof and provide Borrower
with data and  calculations  supporting  such costs,  and the Borrower shall pay
such amounts as the Issuer may specify to be necessary to compensate  the Issuer
for such  additional cost or reduced receipt within ten (10) Business Days after
receiving  such notice,  together  with interest on such amount from the date of
receipt of such  notice  until  payment  in full  thereof at a rate equal at all
times to the Alternate Base Rate plus the Applicable Margin; provided,  however,
that  Section  5.2,  rather  than  this  Section  4.7  shall  govern  Borrower's
obligations with respect to Taxes relating to payments by the Borrower described
in the first sentence of Section  5.2(a).  The good faith  determination  by the
Issuer  of any  amount  due  pursuant  to this  Section  4.7,  as set forth in a
statement setting forth the calculation thereof in reasonable detail,  shall, in
the absence of manifest error, be final and conclusive and binding on all of the
parties  hereto.  In addition to amounts  payable as elsewhere  provided in this
Article IV, the Borrower hereby agrees to protect,  indemnify,  pay and save the
Issuer  harmless  from and  against any and all  claims,  demands,  liabilities,
damages,  losses,  costs, charges and expenses (including  reasonable attorneys'
fees)  which the Issuer may incur or be subject to as a  consequence,  direct or
indirect, of

          (x) the  issuance of the Letters of Credit,  other than as a result of
     the gross negligence or willful misconduct of the Issuer as determined by a
     court of competent jurisdiction, or

          (y) the  failure of the Issuer to honor a drawing  under any Letter of
     Credit as a result of any act or omission, whether rightful or wrongful, of
     any  present  or  future  de jure or de facto  government  or  governmental
     authority.



                                       23
<PAGE>

     SECTION 4.8.  Existing Letters of Credit. On the Closing Date, the Existing
Letters  of Credit  shall be deemed  for all  purposes  to be  Letters of Credit
outstanding  under this Agreement and entitled to the benefits of this Agreement
and the other Loan  Documents,  and shall be  governed by the  applications  and
agreements  pertaining  thereto and by this  Agreement.  For purposes of Section
2.1, the Existing Letters of Credit shall be deemed to utilize the Commitment of
the Issuer.

     SECTION  4.9.   Determination  of  Equivalent   Amount.   For  purposes  of
determining  the  Equivalent  Amount  from  time  to  time  in  connection  with
calculations of the amounts of fees accrued or payable pursuant to Section 3.2.1
and Section  3.2.2,  not later than 12:00 p.m.,  New York time,  on each Monthly
Accrual Date and  Quarterly  Payment Date and on each other date upon which such
fees are to be paid (each,  an  "Equivalent  Amount  Determination  Date"),  the
Issuer  shall  determine  the  Exchange  Rate  as  of  such  Equivalent   Amount
Determination  Date with  respect to each  Foreign  Currency in respect of which
there are  outstanding  Foreign  Currency  Letters of Credit at such time (after
giving effect to any Letters of Credit to be issued or Reimbursement Obligations
to be repaid  on such  date).  The  Exchange  Rate so  determined  shall  become
effective  on  such  Equivalent  Amount  Determination  Date  and  shall  remain
effective until the next succeeding Equivalent Amount Determination Date.

                                   ARTICLE V

                          CERTAIN ADDITIONAL PROVISIONS

     SECTION  5.1.   Increased   Capital  Costs.   If  any  change  in,  or  the
introduction,  adoption,  effectiveness,  interpretation,   reinterpretation  or
phase-in of, any law or regulation,  directive,  guideline,  decision or request
(whether or not having the force of law) of any court,  central bank,  regulator
or other  governmental  authority  causes  the  amount of  capital  required  or
expected to be  maintained  by the Issuer or any Person  controlling  the Issuer
attributable  to or based upon the Letters of Credit or Commitment  hereunder to
be increased,  and the Issuer determines (in its reasonable discretion) that the
rate of return on its or such  controlling  Person's capital as a consequence of
its Commitment or issuance of Letters of Credit is reduced to a level below that
which the Issuer or such  controlling  Person  could have  achieved  but for the
occurrence  of any such  circumstance,  then,  in any such case upon notice from
time to time by the Issuer to the Borrower,  the Borrower shall  immediately pay
directly to the Issuer additional amounts sufficient to compensate the Issuer or
such controlling Person for such reduction in rate of return. A statement of the
Issuer as to any such  additional  amount  or  amounts  (including  calculations
thereof in reasonable  detail)  shall,  in the absence of manifest  error and if
made in good faith,  be conclusive  and binding on the Borrower.  In determining
such amount,  the Issuer may use any method of averaging and attribution that it
(in its good faith discretion) shall deem applicable.

     SECTION  5.2.  Taxes.  (a)  Subject to the  Issuer's  compliance  with this
Section  5.2,  all  payments by the  Borrower of all amounts  payable  hereunder
(including  interest) shall be made free and clear of and without  deduction for
any present or future income,  excise, stamp or franchise taxes and other taxes,
fees, duties,  withholdings or other charges of any nature whatsoever imposed by
any taxing  authority,  but  excluding  franchise  taxes and taxes imposed on or
measured by the Issuer's net income or receipts (such  non-excluded  items being
called "Taxes"). In the event that any withholding or deduction from any payment
to be made by the



                                       24
<PAGE>

Borrower  hereunder  is  required  in  respect  of  any  Taxes  pursuant  to any
applicable law, rule or regulation, then the Borrower will

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

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

               (iii) pay to the Issuer such  additional  amount or amounts as is
          necessary  to ensure  that the net  amount  actually  received  by the
          Issuer will equal the full amount the Issuer  would have  received had
          no such withholding or deduction been required.

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

          If the  Borrower  fails to pay any Taxes  when due to the  appropriate
     taxing  authority or fails to remit to the Issuer the required  receipts or
     other  required  documentary  evidence,  the Borrower  shall  indemnify the
     Issuer for any  incremental  Taxes,  interest or penalties  that may become
     payable by the Issuer as a result of any such failure.

          (b)  Upon  the  request  of the  Borrower,  any of the  Issuer  or any
     participant  that is (a) organized under the laws of the United States or a
     state thereof shall execute and deliver to the Borrower one or more (as the
     Borrower may  reasonably  request)  appropriately  completed  United States
     Internal  Revenue  Service Forms W-9 (or any successor  forms or documents)
     and (b) organized  under the laws of a  jurisdiction  other than the United
     States  shall,  prior to the due date of and as a condition to any payments
     hereunder, execute and deliver to the Borrower one or more (as the Borrower
     may reasonably request) United States Internal Revenue Service Forms W-8ECI
     or Forms W-8BEN or such other forms or  documents  (or  successor  forms or
     documents), appropriately completed, as may be applicable to establish that
     any such  Person is  entitled  to receive  payments  under  this  Agreement
     without deduction or withholding of any United States federal income taxes.

          The Borrower  shall not be required to pay any  additional  amounts to
     any of the Issuer or any  participant  in respect of Taxes pursuant to this
     Section 5.2 if the obligation to pay such additional amounts would not have
     arisen but for a failure by such  Person to comply with the  provisions  of
     this  Section  5.2  unless  such  failure  results  from  (a) a  change  in
     applicable  treaty,  law or regulation or interpretation  thereof or (b) an
     amendment,  modification  or revocation of any  applicable  tax treaty or a
     change in official



                                       25
<PAGE>

     position regarding the application or interpretation  thereof, in each case
     after the date such Person becomes a party to this Agreement.

     SECTION  5.3.  Payments,  Computations,  etc.  Unless  otherwise  expressly
provided,  all payments by the Borrower  pursuant to this Agreement or any other
Loan Document shall be made,  without  setoff,  deduction or  counterclaim,  not
later than 11:00  a.m.,  San  Francisco  time,  on the date due,  in same day or
immediately  available  funds,  to such account as the Issuer shall specify from
time to time by notice to the Borrower.  Funds received after that time shall be
deemed to have been received by the Issuer on the next succeeding  Business Day.
All  interest  and fees shall be computed  on the basis of the actual  number of
days  (including the first day but excluding the last day) occurring  during the
period for which such  interest or fee is payable  over a year  comprised of 365
days or, if  appropriate,  366  days.  Whenever  any  payment  to be made  shall
otherwise be due on a day which is not a Business  Day,  such  payment  shall be
made on the next  succeeding  Business  Day and such  extension of time shall be
included  in  computing  interest  and fees,  if any,  in  connection  with such
payment.

     SECTION 5.4.  Use of Proceeds.  Letters of Credit shall be used for general
corporate  purposes  of the  Borrower  and its  Subsidiaries  (including  credit
support by the  Borrower for gas and power  contracts  for CES,  Calpine  Energy
Services Canada  Partnership and Calpine Energy Services UK Limited).  No Letter
of Credit will be used to (i)  acquire  any equity  security of a class which is
registered  pursuant to Section 12 of the Securities Exchange Act of 1934 or any
"margin  stock",  as  defined  in F.R.S.  Board  Regulation  U or (ii)  defease,
repurchase or prepay any Subordinated Debt or any Senior Notes.

                                   ARTICLE VI

                              CONDITIONS PRECEDENT

     SECTION 6.1. Effectiveness;  Initial Credit Extension. The effectiveness of
this  Agreement  and the  obligation  of the Issuer to make its  initial  Credit
Extension  shall be subject to the prior or concurrent  satisfaction  of each of
the conditions precedent set forth in this Section 6.1.

     SECTION 6.1.1. Letter of Credit Agreement;  Cash Collateral Agreement.  The
Issuer shall have received, on or before the Closing Date

          (a) this  Agreement,  executed  and  delivered  by the  Issuer and the
     Borrower;

          (b) the Cash  Collateral  Agreement,  executed  and  delivered  by the
     Issuer and the Borrower, in substantially the form of Exhibit B hereto; and

          (c) evidence  satisfactory  to it that the 2004 Senior Note  Indenture
     has been executed and delivered by the parties thereto,  and that any other
     conditions precedent to the effectiveness thereof have been satisfied.

     SECTION 6.1.2.  Resolutions,  etc. The Issuer shall have received from each
Obligor a  certificate,  dated the Closing  Date,  of its Secretary or Assistant
Secretary, as to



                                       26
<PAGE>

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

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

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

     SECTION  6.1.3.  Cash  Collateral.  On the Closing Date, the Borrower shall
have  deposited  in the Cash  Collateral  Account  (a) an amount in  immediately
available  funds  equal to  $123,422,139.55  and (b) an  amount  in  immediately
available funds equal to (pound)1,758,131.

     SECTION  6.1.4.  Opinions  of  Counsel.  The  Issuer  shall  have  received
opinions, dated the Closing Date and addressed to the Issuer, from

          (a) Lisa  Bodensteiner,  Esq.,  general  counsel of the Borrower,  and
     Covington & Burling, special counsel to the Borrower,  substantially in the
     forms of Exhibit C-1 and Exhibit C-2, respectively; and

          (b) such other  special  and local  counsel as may be  required by the
     Issuer, in each case in form and substance satisfactory to the Issuer.

     SECTION  6.1.5.  Fees,  Expenses,  etc. The Issuer shall have  received all
fees, costs and expenses due and payable pursuant to the Fee Letter and pursuant
to Sections 3.2 and 11.3, if then invoiced.

     SECTION 6.1.6. No Material Adverse Effect. No Material Adverse Effect shall
have occurred since June 30, 2004.

     SECTION 6.2. All Credit  Extensions.  The  obligation of the Issuer to make
any Credit Extension  (including the initial Credit  Extension) shall be subject
to the  satisfaction  of each of the  conditions  precedent  set  forth  in this
Section 6.2.

     SECTION 6.2.1. Compliance with Warranties, No Default, etc. Both before and
after giving effect to any Credit  Extension the following  statements  shall be
true and correct

          (a) the  representations  and  warranties  set  forth in  Article  VII
     (excluding, however, those contained in Section 7.7) and in each other Loan
     Document  shall be true and correct in all material  respects with the same
     effect as if then made (unless  stated to relate solely to an earlier date,
     in which case such representations and warranties shall be true and correct
     as of such earlier date);

          (b) except as  disclosed  by the  Borrower  to the Issuer  pursuant to
     Section 7.7

               (i) no labor controversy, litigation, arbitration or governmental
          investigation  or proceeding  shall be pending or, to the knowledge of



                                       27
<PAGE>

          the  Borrower,   threatened   against  the  Borrower  or  any  of  its
          Significant Subsidiaries which would reasonably be expected to cause a
          Material  Adverse Effect or which purports to materially and adversely
          affect the legality,  validity or  enforceability of this Agreement or
          any other Loan Document; and

               (ii) no development shall have occurred in any labor controversy,
          litigation,  arbitration or governmental  investigation  or proceeding
          disclosed  pursuant to Section 7.7 which might have a Material Adverse
          Effect; and

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

     SECTION 6.2.2.  Credit Request.  The Issuer shall have received an Issuance
Request for such Credit  Extension.  The delivery of an Issuance Request and the
issuance of the Letter of Credit in  connection  therewith  shall  constitute  a
representation  and warranty by the Borrower that on the date of the issuance of
such Letter of Credit the statements made in Section 6.2.1 are true and correct.

     SECTION 6.2.3. Satisfactory Legal Form. All documents executed or submitted
pursuant  hereto by or on behalf of the Borrower or any of its  Subsidiaries  or
any other Obligors shall be satisfactory in form and substance to the Issuer and
its counsel;  the Issuer and its counsel  shall have  received all  information,
approvals,  opinions,  documents or instruments as the Issuer or its counsel may
reasonably request.

     SECTION 6.2.4. Indentures.

          (a)  The  Borrower  shall  have  certified  to  the  Issuer  that  its
     incurrence  of the  Indebtedness  under the Letters of Credit  hereunder is
     permitted under the terms of Section 3.4 of the Pre-2000 Indentures. To the
     extent  that the  Borrower  is relying on clause (a) of Section  3.4 of the
     Pre-2000  Indentures,  the  Borrower  shall have  delivered to the Issuer a
     certificate  of an  Authorized  Officer of the Borrower  demonstrating  its
     compliance with the incurrence test set forth therein.

          (b)  The  Borrower  shall  have  certified  to  the  Issuer  that  the
     incurrence of Liens in respect of such Credit  Extension is permitted under
     the terms of Section 3.7 of the Pre-2000  Indentures and Section 3.4 of the
     Shelf Indenture.

                                  ARTICLE VII

                         REPRESENTATIONS AND WARRANTIES

     In order to induce  the  Issuer to enter  into this  Agreement  and to make
Disbursements and issue Letters of Credit hereunder, the Borrower represents and
warrants unto the Issuer as set forth in this Article VII.



                                       28
<PAGE>

     SECTION 7.1.  Organization,  etc. The Borrower and each of its  Significant
Subsidiaries is a corporation, partnership, limited liability company or similar
entity validly organized and existing and in good standing under the laws of the
State of its  organization,  is duly  qualified  to do  business  and is in good
standing as a foreign  organization in each jurisdiction where the nature of its
business  requires such  qualification and where the failure to so qualify would
have a material  adverse  effect on the  Borrower's or any Obligor's  ability to
perform its obligations under the Loan Documents to which it is a party, and has
full power and authority and holds all requisite governmental licenses,  permits
and other  approvals  to enter  into and  perform  its  Obligations  under  this
Agreement and each other Loan Document to which it is a party and to own or hold
under lease its property and to conduct its business  substantially as currently
conducted by it.

     SECTION  7.2. Due  Authorization,  Non-Contravention,  etc. The  execution,
delivery and  performance  by the Borrower of this Agreement and each other Loan
Document  executed  or to  be  executed  by  it,  the  execution,  delivery  and
performance  by each  other  Obligor  of each Loan  Document  executed  or to be
executed by it, the causing of each Letter of Credit to be issued hereunder, and
the cash collateralization of each such Letter of Credit hereunder and under the
Loan  Documents  are within the  Borrower's  and each such  Obligor's  corporate
powers, have been duly authorized by all necessary corporate action, and do not

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

          (b)  contravene  any  contractual  restriction   (including,   without
     limitation, the Senior Note Indentures (including,  without limitation, the
     debt and lien covenants thereof)),  law or governmental regulation or court
     decree or order  binding on or affecting  the Borrower or any such Obligor;
     or

          (c) result in, or require the creation or  imposition  of, any Lien on
     any of the Borrower's or any other Obligor's properties.

     SECTION 7.3.  Government  Approval,  Regulation,  etc. No  authorization or
approval or other action by, and no notice to or filing with,  any  governmental
authority or regulatory  body or other Person is required for the due execution,
delivery or  performance  by the Borrower or any other Obligor of this Agreement
or any other Loan Document to which it is a party.  Neither the Borrower nor any
of its Significant Subsidiaries is an "investment company" within the meaning of
the Investment  Company Act of 1940, as amended,  or a "holding  company",  or a
"subsidiary  company" of a "holding  company",  or an  "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.

     SECTION 7.4. Validity, etc. This Agreement constitutes, and each other Loan
Document  executed by the  Borrower  will,  on the due  execution  and  delivery
thereof,  constitute,  the legal, valid and binding  obligations of the Borrower
enforceable in accordance with their respective  terms except as  enforceability
may be  subject to or limited  by (i)  bankruptcy,  insolvency,  reorganization,
arrangement,  moratorium or other similar laws affecting the rights of creditors
or (ii) general principles of equity,  including the possible  unavailability of
specific  performance  or injunctive  relief;  and each Loan  Document  executed
pursuant  hereto by each



                                       29
<PAGE>

other Obligor  will, on the due execution and delivery  thereof by such Obligor,
be the legal,  valid and  binding  obligation  of such  Obligor  enforceable  in
accordance with its terms except as enforceability  may be subject to or limited
by (i) bankruptcy, insolvency, reorganization,  arrangement, moratorium or other
similar laws  affecting  the rights of creditors or (ii) general  principles  of
equity,  including  the  possible  unavailability  of  specific  performance  or
injunctive relief.

     SECTION 7.5. Financial Information.  The audited consolidated balance sheet
of the Borrower and its  consolidated  Subsidiaries  as at December 31, 2003 and
the related consolidated statements of earnings and cash flow, and the unaudited
consolidated balance sheet of the Borrower and its consolidated  Subsidiaries as
at June 30, 2004 and the related  consolidated  statements  of earnings and cash
flow,  copies of each of which  have been  furnished  to the  Issuer,  have been
prepared in accordance with GAAP  consistently  applied,  and present fairly the
consolidated  financial  condition of the Persons covered thereby as at the date
thereof and the results of their operations for the period then ended.

     SECTION 7.6. No Material  Adverse  Effect.  Since June 30, 2004,  there has
been no Material Adverse Effect.

     SECTION 7.7. Litigation, Labor Controversies,  etc. There is no pending or,
to the knowledge of the Borrower,  threatened  litigation,  action,  proceeding,
investigation,  or  labor  controversy  affecting  the  Borrower  or  any of its
Significant  Subsidiaries,  or any of their respective  properties,  businesses,
assets or  revenues,  which  would  reasonably  be  expected  to have a Material
Adverse  Effect  or which  purports  to  materially  and  adversely  affect  the
legality,  validity  or  enforceability  of this  Agreement  or any  other  Loan
Document,  except as set forth in the Borrower's  Annual Report on Form 10-K for
the fiscal year ended December 31, 2003,  and all subsequent  reports which have
been filed by the Borrower with the Securities  and Exchange  Commission or sent
to stockholders  pursuant to the Securities and Exchange Act of 1934, as amended
(provided in each case that any such reports have been provided to the Issuer).

     SECTION 7.8.  Subsidiaries.  The Borrower has no Significant  Subsidiaries,
except those Significant  Subsidiaries which are identified in Schedule 7.8. The
organizational  chart attached  hereto as Schedule 1.1  accurately  reflects the
ownership   structures  of  the  Borrower's  equity  interests  in  its  Foreign
Subsidiaries as of the Closing Date.

     SECTION  7.9.  Regulations  U and X. The  Borrower  is not  engaged  in the
business of extending  credit for the purpose of purchasing  or carrying  margin
stock,  and no Letter of Credit will be used for a purpose which violates F.R.S.
Board  Regulation U or X. Terms for which meanings are provided in F.R.S.  Board
Regulation U or X or any regulations  substituted therefor, as from time to time
in effect, are used in this Section with such meanings.

     SECTION 7.10. Accuracy of Information. All factual information (which shall
not include  projections)  heretofore  or  contemporaneously  furnished by or on
behalf of the Borrower in writing to the Issuer for purposes of or in connection
with this  Agreement or any  transaction  contemplated  hereby is, and all other
such factual information  hereafter furnished by or on behalf of the Borrower to
the Issuer will be, true and accurate in every  material  respect on the date as
of which such  information  is dated or  certified  (except  with respect to the
financial statements of



                                       30
<PAGE>

Borrower and its Subsidiaries, which will fairly present the financial condition
of the entities  covered  thereby as of the date  thereof)  and, with respect to
information provided prior to the execution of this Agreement, as of the date of
execution and delivery of this Agreement by the Issuer,  and such information is
not,  or shall not be, as the case may be,  incomplete  by omitting to state any
material fact necessary to make such information not misleading.

                                  ARTICLE VIII

                                    COVENANTS

     SECTION 8.1. Covenants.  The Borrower agrees with the Issuer that, from and
after the Closing Date,  until the Commitment has  terminated,  all  Obligations
have been paid and  performed  in full  (other than those  Obligations  which by
their terms are intended to survive the termination of this Agreement),  and all
Letters of Credit  have been  terminated  or have  expired,  the  Borrower  will
perform the obligations set forth in this Section 8.1.

     SECTION 8.1.1. Financial Information,  Reports,  Notices, etc. The Borrower
will  furnish,  or will  cause to be  furnished,  to the  Issuer  copies  of the
following financial statements, reports, notices and information:

          (a) as soon as available and in any event within 60 days after the end
     of each of the first  three  Fiscal  Quarters  of each  Fiscal  Year of the
     Borrower,  the consolidated  balance sheet,  statement of earnings and cash
     flow statement of the Borrower and its Subsidiaries for such Fiscal Quarter
     and for the period  commencing  at the end of the previous  Fiscal Year and
     ending  with the end of such Fiscal  Quarter,  certified  by an  Authorized
     Officer of the Borrower;

          (b) as soon as  available  and in any event  within 120 days after the
     end of each Fiscal Year of the Borrower,  a copy of the annual audit report
     for such  Fiscal  Year for the  Borrower  and its  Subsidiaries,  including
     therein the consolidated balance sheet, statement of earnings and cash flow
     statement of the Borrower and its Subsidiaries as of the end of such Fiscal
     Year, in each case certified (without any Impermissible Qualification) in a
     manner  acceptable  to the  Issuer by  PricewaterhouseCoopers  LLC or other
     independent public accountants acceptable to the Issuer;

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

          (d) as soon as  possible  and in any event  within five days after the
     Borrower obtains  knowledge of (x) any adverse  development with respect to
     any  litigation,  action,  proceeding,  or labor  controversy  described in
     Section 7.7, (y) the  commencement  of any labor  controversy,  litigation,
     action,  proceeding of the type  described in Section 7.7, or (z) any other
     Material  Adverse  Effect,  notice thereof and copies of all  documentation
     relating thereto;



                                       31
<PAGE>

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

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

          (g) such other  information  respecting  the condition or  operations,
     financial  or  otherwise,  of  the  Borrower  or  any  of  its  Significant
     Subsidiaries  as the Issuer may from time to time  reasonably  request  and
     which the Borrower is legally permitted to provide to the Issuer.

The Borrower may provide some or all of the information  required in clauses (a)
and (b) above by  providing  copies of its Forms 10-Q and/or 10-K filed with the
Securities and Exchange Commission.

     SECTION 8.1.2. Compliance with Laws, etc. The Borrower will, and will cause
each of its Subsidiaries to, comply in all material respects with all applicable
laws,  rules,  regulations  and  orders,  such  compliance  to include  (without
limitation):

          (a)  the  maintenance  and  preservation  of  its  existence  and,  if
     applicable,  qualification as a foreign  corporation or comparable  entity;
     and

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

     SECTION 8.1.3. Books and Records. The Borrower will, and will cause each of
its Subsidiaries to, keep books and records which accurately  reflect all of its
business  affairs  and  transactions  and  permit  the  Issuer  or  any  of  its
representatives, at reasonable times and intervals, to visit all of its offices,
to discuss its  financial  matters  with its  officers  and  independent  public
accountant  (and  the  Borrower  hereby   authorizes  such  independent   public
accountant to discuss the  Borrower's  financial  matters with the Issuer or its
representatives  whether or not any  representative  of the Borrower is present)
and to examine (and, at the expense of the Borrower,  photocopy  extracts  from)
any of its books or other corporate records.  The Borrower shall pay any fees of
such independent  public accountant  incurred in connection with the exercise by
the Issuer of its rights pursuant to this Section; provided,  however, after the
occurrence and during



                                       32
<PAGE>

the  continuance  of any Default,  the  Borrower  shall pay for all fees of such
independent  accountants incurred with each exercise by the Issuer of its rights
pursuant to this Section.

                                   ARTICLE IX

                                EVENTS OF DEFAULT

     SECTION 9.1. Listing of Events of Default.  Each of the following events or
occurrences  described  in this  Section  9.1  shall  constitute  an  "Event  of
Default".


     SECTION 9.1.1.  Non-Payment of  Obligations.  The Borrower shall default in
the payment when due of any  Reimbursement  Obligation,  or the  Borrower  shall
default (and such default shall  continue  unremedied for a period of five days)
in the payment when due of interest on any such  Reimbursement  Obligation,  any
fee or of any other Obligation.

     SECTION 9.1.2.  Breach of Warranty.  Any  representation or warranty of the
Borrower  or any other  Obligor  made or deemed to be made  hereunder  or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the  Borrower  or any other  Obligor  to the  Issuer  for the
purposes of or in connection with this Agreement or any such other Loan Document
(including  any  certificates  delivered  pursuant to Article VI) is or shall be
incorrect when made in any material respect.

     SECTION 9.1.3.  Non-Performance  of Covenants and Obligations.  Any Obligor
shall default in the due performance  and observance of any agreement  contained
herein or in any other Loan  Document  executed by it (other than as provided in
Section  9.1.1),  and such default shall continue  unremedied for a period of 30
days after  notice  thereof  shall have been given to the Borrower by the Issuer
(or such longer period as the Issuer in its discretion may agree,  provided that
such Obligor has  commenced  such cure within such 30 day period and  thereafter
diligently pursues such cure to completion).

     SECTION 9.1.4. Default on Other Indebtedness.  (a) A default shall occur in
the  payment  when due  (subject to any  applicable  grace  period),  whether by
acceleration  or  otherwise,   of  any  Indebtedness  (other  than  Indebtedness
described  in  Section  9.1.1)  of  the  Borrower  or  any  of  its  Significant
Subsidiaries or any other Obligor having a principal amount,  individually or in
the  aggregate,  in excess of  $10,000,000,  or (b) a default shall occur in the
performance  or observance of any  obligation or condition  with respect to such
Indebtedness or with respect to the Borrower's debt securities issued to a Trust
if the  effect  of such  default  is to  accelerate  the  maturity  of any  such
Indebtedness  or such debt securities or, in the case of the Borrower only, such
default shall continue  unremedied for any applicable  period of time sufficient
to permit the holder or holders of such Indebtedness or such debt securities, or
any  trustee  or agent for such  holders,  to cause  such  Indebtedness  or debt
securities to become due and payable prior to its expressed maturity (and notice
of such default has been given to the relevant borrower).

     SECTION  9.1.5.  Judgments.  Any final  judgment  or order (not  covered by
insurance)  for the payment of money shall be rendered  against the  Borrower or
any  Significant  Subsidiary  or any  other  Obligor  in an  amount in excess of
$25,000,000  (or its foreign  currency  equivalent)



                                       33
<PAGE>

(treating any deductibles,  self-insurance or retention as not so covered) which
is not stayed or discharged within 30 days after entry of such final judgment or
order,  and there shall be any period of more than 30 consecutive days following
entry of the final  judgment or order in excess of  $25,000,000  (or its foreign
currency  equivalent)  during which a stay of enforcement of such final judgment
or order, by reason of a pending appeal or otherwise, shall not be in effect.

     SECTION 9.1.6.  Pension Plans. Any of the following events shall occur with
respect to any Pension Plan

          (a) the  institution  of any steps by the Borrower,  any member of its
     Controlled  Group or any other  Person to terminate a Pension Plan if, as a
     result  of such  termination,  the  Borrower  or any such  member  could be
     required to make a contribution  to such Pension Plan, or could  reasonably
     expect to incur a liability or  obligation  to such Pension Plan, in excess
     of $10,000,000; or

          (b) a  contribution  failure  occurs with  respect to any Pension Plan
     sufficient to give rise to a Lien under Section 302(f) of ERISA.

     SECTION  9.1.7.  Bankruptcy,  Insolvency,  etc.  The Borrower or any of its
Significant Subsidiaries or any other Obligor shall

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

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

          (c) in the  absence  of such  application,  consent  or  acquiescence,
     permit  or  suffer  to  exist  the  appointment  of  a  trustee,  receiver,
     sequestrator  or other custodian for the Borrower or any of its Significant
     Subsidiaries or any other Obligor or for a substantial part of the property
     of any thereof, and such trustee, receiver, sequestrator or other custodian
     shall not be discharged  within 60 days,  provided that the Borrower,  each
     Significant  Subsidiary and each other Obligor hereby expressly  authorizes
     the Issuer to appear in any court conducting any relevant proceeding during
     such 60-day  period to  preserve,  protect and defend its rights  under the
     Loan Documents;

          (d)  permit or suffer to exist  the  commencement  of any  bankruptcy,
     reorganization,  debt  arrangement  or other case or  proceeding  under any
     bankruptcy or insolvency law, or any dissolution, winding up or liquidation
     proceeding,   in  respect  of  the  Borrower  or  any  of  its  Significant
     Subsidiaries  or any other Obligor,  and, if any such case or proceeding is
     not commenced by the Borrower or such Significant  Subsidiary or such other
     Obligor,  such case or proceeding shall be consented to or acquiesced in by
     the Borrower or such Significant  Subsidiary or such other Obligor or shall
     result  in the entry of an order for  relief  or shall  remain  for 60 days
     undismissed,  provided that the Borrower,  each Significant  Subsidiary and
     each other Obligor hereby expressly  authorizes the Issuer



                                       34
<PAGE>

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

          (e) take any action authorizing any of the foregoing.

     SECTION 9.1.8.  Impairment of Security, etc. Any Loan Document, or any Lien
granted thereunder,  shall (except in accordance with its terms), in whole or in
part, terminate, cease to be effective or cease to be the legally valid, binding
and enforceable  obligation of any Obligor party thereto;  or the Borrower,  any
other Obligor or any Subsidiary  shall,  directly or indirectly,  contest in any
manner such effectiveness,  validity,  binding nature or enforceability;  or any
Lien securing any Obligation shall, in whole or in part, cease to be a perfected
first priority Lien,  subject only to those  exceptions  expressly  permitted by
such Loan Document.

     SECTION  9.2.  Action if Event of  Default.  If any Event of Default  shall
occur for any reason, whether voluntary or involuntary,  and be continuing,  (a)
the Issuer may by notice to the  Borrower  declare that the  Commitment  (if not
theretofore  terminated) be terminated,  whereupon  without further notice,  the
Commitment  shall  terminate  and the Issuer may  exercise  any and all remedies
available  under the Loan Documents and applicable  law,  including  withdrawing
amounts from the Cash  Collateral  Account  pursuant to Section 4.5, and (b) the
fee  described in Section  3.2.2 shall accrue at the rate per annum set forth in
such Section plus 2% and shall be payable on demand.

                                   ARTICLE X

                            MISCELLANEOUS PROVISIONS

     SECTION 10.1.  Waivers,  Amendments,  etc. The provisions of this Agreement
and of each other Loan  Document  may from time to time be amended,  modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Issuer. No failure or delay on the part of the Issuer in
exercising  any power or right under this  Agreement or any other Loan  Document
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such power or right  preclude any other or further  exercise  thereof or the
exercise of any other power or right.  No notice to or demand on the Borrower in
any  case  shall  entitle  it to any  notice  or  demand  in  similar  or  other
circumstances.  No waiver or approval by the Issuer under this  Agreement or any
other Loan Document shall,  except as may be otherwise  stated in such waiver or
approval,  be  applicable  to  subsequent  transactions.  No waiver or  approval
hereunder shall require any similar or dissimilar waiver or approval  thereafter
to be granted hereunder.

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



                                       35
<PAGE>

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

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

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

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

     SECTION  10.4.  Indemnification.  In  consideration  of the  execution  and
delivery of this  Agreement by the Issuer and the  extension of the  Commitment,
the Borrower hereby indemnifies, exonerates and holds the Issuer and each of its
Affiliates,  officers,  directors,  employees and agents,  and each other person
controlling any of the foregoing  within the meaning of either Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act
of 1934, as amended (collectively, the "Indemnified Parties"), free and harmless
from and against any and all actions,  causes of action,  suits, losses,  costs,
claims,  liabilities and damages, and expenses incurred by any Indemnified Party
in connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which  indemnification  hereunder is sought),  including
reasonable  attorneys' fees and  disbursements  (collectively,  the "Indemnified
Liabilities"),  incurred by the  Indemnified  Parties or any of them as a result
of, or arising out of, or relating to

          (a) any  transaction  financed  or to be financed in whole or in part,
     directly or indirectly, with the use of any Letter of Credit;

          (b) the entering into and  performance of this Agreement and any other
     Loan  Document  by any of the  Indemnified  Parties  (including  any action
     brought  by or on  behalf of the  Borrower  as the  result of the  Issuer's
     refusal to make any Credit Extension as a result of the Borrower's  failure
     to satisfy the conditions in Article VI hereof but not including any breach
     of this Agreement or any other Loan Document by the Issuer);



                                       36
<PAGE>

          (c)  any  investigation,  litigation  or  proceeding  related  to  any
     acquisition  or  proposed  acquisition  by  the  Borrower  or  any  of  its
     Subsidiaries  of all or any  portion of the stock or assets of any  Person,
     whether or not the Issuer is party thereto;

          (d)  any  investigation,  litigation  or  proceeding  related  to  any
     environmental  cleanup,  audit,  compliance or other matter relating to the
     protection of the  environment or the Release by the Borrower or any of its
     Subsidiaries of any Hazardous Material; or

          (e)  the  presence  on or  under,  or the  escape,  seepage,  leakage,
     spillage,  discharge,  emission,  discharging  or releases  from,  any real
     property owned or operated by the Borrower or any Subsidiary thereof of any
     Hazardous Material (including any losses,  liabilities,  damages, injuries,
     costs, expenses or claims asserted or arising under any Environmental Law),
     regardless of whether  caused by, or within the control of, the Borrower or
     such Subsidiary,

except for any such Indemnified  Liabilities  resulting from,  arising out of or
relating  to the  relevant  Indemnified  Party's  gross  negligence  or  willful
misconduct.  If  and  to  the  extent  that  the  foregoing  undertaking  may be
unenforceable  for any reason,  the Borrower  hereby  agrees to make the maximum
contribution  to the  payment  and  satisfaction  of  each  of  the  Indemnified
Liabilities  which is  permissible  under  applicable  law.  In  addition to the
foregoing,  the  Borrower  hereby  waives  any and all  rights to seek or obtain
consequential damages from any Indemnified Party.

     SECTION 10.5. Survival. The obligations of the Borrower under Sections 5.1,
5.2,  11.3  and  11.4,  shall  in each  case  survive  any  termination  of this
Agreement,  the  payment  in full of all  Obligations,  the  termination  of the
Commitment  and the  termination  or  expiration  of all Letters of Credit.  The
representations  and  warranties  made by each Obligor in this  Agreement and in
each other Loan  Document  shall  survive  the  execution  and  delivery of this
Agreement and each such other Loan Document.

     SECTION 10.6.  Severability.  Any provision of this  Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such  provision and such  jurisdiction,  be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.

     SECTION 10.7. Headings.  The various headings of this Agreement and of each
other Loan Document are inserted for  convenience  only and shall not affect the
meaning or  interpretation  of this Agreement or such other Loan Document or any
provisions hereof or thereof.

     SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This Agreement
may be  executed by the parties  hereto in several  counterparts,  each of which
shall be executed by the Borrower and the Issuer and be deemed to be an original
and all of which shall constitute together but one and the same agreement.  This
Agreement shall become effective when counterparts  hereof executed on behalf of
the Borrower and the Issuer (or notice thereof satisfactory to the Issuer) shall
have been  received by the Issuer,  and the  conditions  precedent  set forth in
Section 6.1 shall have been satisfied.



                                       37
<PAGE>

     SECTION 10.9.  Governing  Law;  Entire  Agreement.  THIS AGREEMENT AND EACH
OTHER  LOAN  DOCUMENT  SHALL  EACH BE DEEMED  TO BE A  CONTRACT  MADE  UNDER AND
GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK.  This  Agreement and the other Loan  Documents  constitute  the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersede any prior agreements, written or oral, with respect thereto.

     SECTION 10.10.  Successors.  This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their  respective  successors and
assigns; provided, however, that:

          (a) the Borrower may not assign or transfer its rights or  obligations
     hereunder without the prior written consent of the Issuer; and

          (b) the rights of sale of the Issuer are subject to Section 10.11.

     SECTION 10.11.  Participations  in  Commitment.  The Issuer may at any time
sell to one or more  commercial  banks or other Persons (each of such commercial
banks and other  Persons being herein called a  "Participant")  a  participating
interest  in  the  Issuer's  Commitment,  or  other  interests  of  such  Issuer
hereunder; provided, however, that

          (a) no participation  contemplated in this Section 10.11 shall relieve
     the Issuer from its Commitment or its other obligations  hereunder or under
     any other Loan Document,

          (b) the Issuer shall remain solely  responsible for the performance of
     its Commitment and such other obligations,

          (c) the Borrower and each other Obligor shall  continue to deal solely
     and directly  with the Issuer in  connection  with the Issuer's  rights and
     obligations under this Agreement and each of the other Loan Documents,

          (d) no  Participant,  unless such  Participant  is an Affiliate of the
     Issuer,  shall be entitled  to require  the Issuer to take or refrain  from
     taking any action hereunder or under any other Loan Document, and

          (e) the Borrower shall not be required to pay any amount under Section
     5.2 that is greater  than the amount  which it would have been  required to
     pay had no participating interest been sold.

The  Borrower  acknowledges  and agrees that each  Participant,  for purposes of
Sections 5.1, 5.2, 5.4, 11.3 and 11.4, shall be entitled to the same benefits as
the Issuer as if such Participant were itself the Issuer.

     SECTION 10.12. Other Transactions.  Nothing contained herein shall preclude
the Issuer from engaging in any transaction,  in addition to those  contemplated
by this  Agreement or any



                                       38
<PAGE>

other Loan  Document,  with the Borrower or any of its  Affiliates  in which the
Borrower or such Affiliate is not restricted hereby from engaging with any other
Person.

     SECTION 10.13. Forum Selection and Consent to Jurisdiction.  ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER  VERBAL OR WRITTEN) OR ACTIONS OF THE ISSUER OR THE  BORROWER  SHALL BE
BROUGHT AND MAINTAINED  EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN
THE  UNITED  STATES  DISTRICT  COURT  FOR THE  SOUTHERN  DISTRICT  OF NEW  YORK;
PROVIDED,  HOWEVER,  THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER  PROPERTY  MAY BE BROUGHT,  AT THE ISSUER'S  OPTION,  IN THE COURTS OF ANY
JURISDICTION  WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER
HEREBY  EXPRESSLY AND IRREVOCABLY  SUBMITS TO THE  JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND OF THE UNITED STATES  DISTRICT  COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH  LITIGATION  AS SET FORTH ABOVE
AND  IRREVOCABLY  AGREES  TO BE  BOUND  BY  ANY  JUDGMENT  RENDERED  THEREBY  IN
CONNECTION WITH SUCH LITIGATION.  THE BORROWER FURTHER  IRREVOCABLY  CONSENTS TO
THE  SERVICE OF PROCESS BY PERSONAL  SERVICE  WITHIN OR WITHOUT THE STATE OF NEW
YORK OR IN ANY  MANNER  PROVIDED  BY LAW.  THE  BORROWER  HEREBY  EXPRESSLY  AND
IRREVOCABLY  WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH  LITIGATION
BROUGHT  IN ANY  SUCH  COURT  REFERRED  TO  ABOVE  AND ANY  CLAIM  THAT ANY SUCH
LITIGATION  HAS BEEN BROUGHT IN AN  INCONVENIENT  FORUM.  TO THE EXTENT THAT THE
BORROWER HAS OR  HEREAFTER  MAY ACQUIRE ANY IMMUNITY  FROM  JURISDICTION  OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER  THROUGH SERVICE OR NOTICE,  ATTACHMENT
PRIOR TO JUDGMENT,  ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY,  THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

     SECTION  10.14.  Waiver of Jury Trial.  THE ISSUER AND THE BORROWER  HEREBY
KNOWINGLY,  VOLUNTARILY  AND  INTENTIONALLY  WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY  LITIGATION  BETWEEN THE ISSUER AND THE BORROWER
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER  VERBAL OR  WRITTEN)  OR  ACTIONS OF THE  ISSUER OR THE  BORROWER.  THE
BORROWER  ACKNOWLEDGES  AND  AGREES  THAT IT HAS  RECEIVED  FULL AND  SUFFICIENT
CONSIDERATION  FOR THIS PROVISION  (AND EACH OTHER  PROVISION OF EACH OTHER LOAN
DOCUMENT  TO  WHICH  IT IS A  PARTY)  AND  THAT  THIS  PROVISION  IS A



                                       39
<PAGE>

MATERIAL  INDUCEMENT FOR THE ISSUER'S ENTERING INTO THIS AGREEMENT AND EACH SUCH
OTHER LOAN DOCUMENT.

     SECTION  10.15.  Confidentiality.  The  Issuer  shall  hold all  non-public
information  (which  has  been  identified  as  such by the  Borrower)  obtained
pursuant to the  requirements of this Agreement in accordance with its customary
procedures  for  handling  confidential   information  of  this  nature  and  in
accordance  with  safe and  sound  banking  practices  and in any event may make
disclosure to any of its examiners,  Affiliates,  outside auditors,  counsel and
other  professional  advisors in connection with this Agreement or as reasonably
required  by any bona  fide  participant  or as  required  or  requested  by any
governmental  agency or  representative  thereof or pursuant  to legal  process;
provided, however, that

          (a) unless  specifically  prohibited by applicable law or court order,
     the Issuer  shall  notify the  Borrower of any request by any  governmental
     agency or representative thereof (other than any such request in connection
     with an  examination  of the  financial  condition  of the  Issuer  by such
     governmental  agency) for  disclosure  of any such  non-public  information
     prior to disclosure of such information;

          (b) prior to any such disclosure  pursuant to this Section 10.15,  the
     Issuer shall require any such bona fide participant  receiving a disclosure
     of non-public information to agree in writing

               (i) to be bound by this Section 10.15;

                    (ii) to require  such Person to require any other  Person to
               whom such Person  discloses  such  non-public  information  to be
               similarly bound by this Section 10.15;

          (c)  except  as may be  required  by an order of a court of  competent
     jurisdiction  and to the extent set forth therein,  the Issuer shall not be
     obligated or required to return any materials  furnished by the Borrower or
     any Subsidiary; and

          (d)  the  Issuer  may  make  disclosure  to  any  direct  or  indirect
     contractual   counterparty  in  swap  agreements  or  to  such  contractual
     counterparty's advisor (so long as such contractual counterparty or advisor
     agrees to be bound by the provisions of this Section 10.15).

Notwithstanding  anything herein to the contrary,  the parties to this Agreement
(and their employees,  representatives  or other agents) may disclose to any and
all persons,  without  limitation of any kind,  the federal income tax treatment
and tax structure of the  transactions  contemplated  by this  Agreement and all
materials of any kind  (including  opinions or other tax  analyses)  relating to
such tax treatment and tax structure.  However, no such party shall disclose any
information  relating  to such tax  treatment  or tax  structure  to the  extent
nondisclosure  is  reasonably  necessary  in order  to  comply  with  applicable
securities laws. For this purpose,  "tax structure" is limited to facts relevant
to the U.S.  federal income tax treatment of the  transactions  contemplated  by
this Agreement and does not include information  relating to the identity of the
Borrower, its affiliates, agents or advisors.



                                       40
<PAGE>

     SECTION  10.16.  Collateral  Matters.  The Issuer hereby  acknowledges  and
agrees that Liens upon the Collateral granted to or held by the Issuer under any
Loan Document will be released:

          (a) in whole,  upon  termination of the Commitment and payment in full
     of all Obligations (other than contingent  indemnification  obligations and
     any other  Obligations  which by their  terms are  intended  to survive the
     termination  of this  Agreement)  and the  expiration or termination of all
     Letters of Credit; and

          (b) if requested by the Borrower, to the extent (i) the then amount of
     Cash Collateral in U.S.  Dollars in the Cash Collateral  Account exceeds an
     amount  equal to the sum of (x) the  Letter of Credit  Outstandings  (other
     than the Dollar Equivalent Foreign Currency Letter of Credit  Outstandings)
     and all other  Obligations  then  outstanding  plus (y) the  amount of fees
     accrued  pursuant to Section  3.2.1 and  Section  3.2.2 but not paid by the
     Borrower  as of the most  recent  Monthly  Accrual  Date,  or (ii) the then
     amount of Cash  Collateral  in a Foreign  Currency  in the Cash  Collateral
     Account  exceeds an amount equal to the sum of the Foreign  Currency Letter
     of Credit Outstandings denominated in such Foreign Currency;  provided that
     prior to any release of Collateral  pursuant to this Section 10.16(b),  the
     Borrower  shall have paid all fees then due and payable under Section 3.2.1
     and Section 3.2.2 as of the most recent Quarterly Payment Date.

     SECTION 10.17.  Judgment Currency.  The Obligations of the Borrower and any
other Obligor in respect of any sum due to the Issuer hereunder,  or under or in
respect of any other Loan  Document  shall,  notwithstanding  any  judgment in a
currency (the "Judgment Currency") other than the currency in which such sum was
originally  denominated  (the "Original  Currency"),  be discharged  only to the
extent  that on the  Business  Day  following  receipt  by the Issuer of any sum
adjudged to be so due in the Judgment  Currency,  the Issuer, in accordance with
normal  banking  procedures,  purchases the Original  Currency with the Judgment
Currency.  If the amount of Original  Currency so purchased is less than the sum
originally due to the Issuer,  the Borrower agrees as a separate  obligation and
notwithstanding  any such  judgment,  to indemnify the Issuer against such loss,
and if the amount of Original  Currency so purchased  exceeds the sum originally
due to the  Issuer,  the  Issuer  agrees to remit any  excess to the  applicable
Obligor. If, for the purpose of obtaining judgment in any court, it is necessary
to  convert a sum due under any Loan  Document  in  another  currency  into U.S.
Dollars,  Canadian  Dollars or Sterling,  as the case may be, the parties hereto
agree,  to the fullest extent that they may  effectively do so, that the rate of
exchange  used  shall  be that at  which,  in  accordance  with  normal  banking
procedures,  the Issuer could  purchase such other  currency with U.S.  Dollars,
Canadian  Dollars or Sterling,  as the case may be, in New York, at the close of
business  on the  Business  Day  immediately  preceding  the day on which  final
judgment is given,  together with any premiums and costs of exchange  payable in
connection with such purchase.



                                       41
<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed by their respective  officers  thereunto duly authorized as of the
day and year first above written.

                               CALPINE CORPORATION


                               By:      /s/ Michael Thomas
                                  ----------------------------------------------
                                  Name:       Michael Thomas
                                  Title:      Senior Vice President - Treasurer

                               Address:       50 West San Fernando Avenue
                                              San Jose, CA  95113

                               Facsimile No.: (408) 995-0505

                               Attention:     Senior Vice President - Treasurer



                                       42
<PAGE>

                               BAYERISCHE LANDESBANK


                               By:      /s/ Norman McClave
                                  ----------------------------------------------
                                  Name:  Norman McClave
                                  Title: First Vice President

                               By:      /s/ James King
                                  ----------------------------------------------
                                  Name:  James King
                                  Title: First Vice President

                               Address:       Bayerische Landesbank
                                              Cayman Islands Branch
                                              c/o Bayerische Landesbank -
                                              New York Branch
                                              560 Lexington Avenue
                                              New York, NY  10022

                               Facsimile No.: 212-230-9151

                               Attention:     Norman McClave
                                              First Vice President
                                              Credit and Collateral Services



                                       43

</TEXT>
</DOCUMENT>
